diamondcutter
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Delta helps other airlines
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diamondcutter
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Can't wait for the spin on this from ...well you all know!!diamondcutter said:
Glenn Quagmire
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It has helped Delta as well as all other Jet fuel users. I am not sure if it will end up being a worthy investment long term.diamondcutter said:
I was wrong on the impact it has had. As the article states, it lowered costs for them. I didn't expect it.
WorldTraveler
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there isn't any spin and this has been discussed umpteen times but we can do it again.
DL knew when it bought the refinery that it would be putting jet fuel onto the market which would push down the price. Because DL might be a consumer and producer, it is far from the totality of either.
It was a given that prices would go down. If prices went down, others would benefit.
Even though prices went down, DL has still managed to have lower jet fuel costs than any of its competitors for several competitors.
DL has hedges and the refinery so it is hard to know what is contributing to each.
Yet it is clear that DL's overall fuel strategy is working to reduce costs and provide a DL specific benefit.
Q,
remember that DL consumes roughly $10 BILLION in jet fuel. The investment in the refinery amounts to less than $500 million. DL has seen far lower fuel prices than that.
also remember that lower fuel prices in a strong pricing environment which we have now means profits increase across the board.
Further, DL's effort was to push down the crack spread - which was pushed down dramatically. It also invites other producers to change their percentage of production of jet fuel vs. other distillates. When that happens, DL gains. So far, DL has succeeded at pushing the crack spread down but it is a given that at some point other producers will react to restore previous jet fuel crack spread relationships.
It is also noteworthy that DL said today that the crack spread is increasing and that its cost of jet fuel for the 3rd quarter is expected to be somewhat higher than forecast.
As the crack spread increases and DL produces more of its jet fuel internally, it will pocket a larger savings than carriers that have to buy on the open market.
the refinery purchase IS a long term investment and a long-term change in the relationship between airlines and the petroleum industry, with DL forcing the change.
it is precisely the type of industry that takes time for changes to effect and for reactions to occur with other producers.
It is far from clear how the refinery will play out long-term but the economics say that DL will gain a larger unique advantage than it has now.
DL knew when it bought the refinery that it would be putting jet fuel onto the market which would push down the price. Because DL might be a consumer and producer, it is far from the totality of either.
It was a given that prices would go down. If prices went down, others would benefit.
Even though prices went down, DL has still managed to have lower jet fuel costs than any of its competitors for several competitors.
DL has hedges and the refinery so it is hard to know what is contributing to each.
Yet it is clear that DL's overall fuel strategy is working to reduce costs and provide a DL specific benefit.
Q,
remember that DL consumes roughly $10 BILLION in jet fuel. The investment in the refinery amounts to less than $500 million. DL has seen far lower fuel prices than that.
also remember that lower fuel prices in a strong pricing environment which we have now means profits increase across the board.
Further, DL's effort was to push down the crack spread - which was pushed down dramatically. It also invites other producers to change their percentage of production of jet fuel vs. other distillates. When that happens, DL gains. So far, DL has succeeded at pushing the crack spread down but it is a given that at some point other producers will react to restore previous jet fuel crack spread relationships.
It is also noteworthy that DL said today that the crack spread is increasing and that its cost of jet fuel for the 3rd quarter is expected to be somewhat higher than forecast.
As the crack spread increases and DL produces more of its jet fuel internally, it will pocket a larger savings than carriers that have to buy on the open market.
the refinery purchase IS a long term investment and a long-term change in the relationship between airlines and the petroleum industry, with DL forcing the change.
it is precisely the type of industry that takes time for changes to effect and for reactions to occur with other producers.
It is far from clear how the refinery will play out long-term but the economics say that DL will gain a larger unique advantage than it has now.
diamondcutter
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Lol!! It was a new article and wanted to see how fast you would respond and the length of your post!
WorldTraveler
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I have yet to see an article that has properly summarized the dynamics that would take place in the market as a result of DL's purchase and operation of a refinery.
It should be obvious that DL put more jet fuel into the market than existed before DL bought the refinery and the increased jet fuel drove down the crack spread.
it isn't too big of a leap to believe that the oil companies which have seen their profits on jet fuel reduced are going to act to restabilize market pricing.
given that the article says about the same thing that was said years ago and which anyone who understands supply and demand would have predicted, the article isn't a surprise or new.
It also hasn't dealt with the long-term impact of the refinery which are yet to be seen but which should not be a surprise to anyone when they do occur.
It should be obvious that DL put more jet fuel into the market than existed before DL bought the refinery and the increased jet fuel drove down the crack spread.
it isn't too big of a leap to believe that the oil companies which have seen their profits on jet fuel reduced are going to act to restabilize market pricing.
given that the article says about the same thing that was said years ago and which anyone who understands supply and demand would have predicted, the article isn't a surprise or new.
It also hasn't dealt with the long-term impact of the refinery which are yet to be seen but which should not be a surprise to anyone when they do occur.
World, you have stressed repeatedly that AA's unprecedented aircraft order may be more airplanes than AA can afford to buy and remain profitable. I've argued that the fuel cost savings at today's prices pays the lease on the MD-80 replacements, and they're the bulk of the new plane orders. DL and UA are also beginning to retire their 757s, just like AA, so that's a wash. DL certainly has an advantage by grabbing most all the available MD-90s and 717s, but since the supply of those is about dried up, the only viable alternative is new fuel efficient planes.
One thing is for sure, however, and it's that AA's investment in new planes helps AA (and Boeing and Airbus) but doesn't lower the costs for DL or UA. AA is able to garner all of the fuel savings from that investment and keep those savings within AA.
Delta's altruistic gesture of buying, refurbishing and operating a refinery has helped Delta but Delta wasn't able to prevent every other buyer of jet fuel from seeing lower prices in the NYC area. That helps not only UA and AA, both of which buy a lot of fuel in the NYC area, but it also helps B6, VX and WN, all of which are pretty big (and.or getting bigger) in the NYC area. Last, Delta's refinery, if it indeed has caused lower jet fuel prices in the NYC area, also helps all the foreign airlines at JFK and EWR, by lowering the cost of their return trips.
It's the same as if one farmer spent money to improve the grass production in the common green - all farmers would get the benefit of more milk from their now-fatter cows grazing on that common green, but only one of the farmers is footing the bill for the irrigation/fertilizer/etc that is causing the increased grass production. That one farmer - is Delta. Nice of Ma Delta to lend such a helping hand to everyone.
One thing is for sure, however, and it's that AA's investment in new planes helps AA (and Boeing and Airbus) but doesn't lower the costs for DL or UA. AA is able to garner all of the fuel savings from that investment and keep those savings within AA.
Delta's altruistic gesture of buying, refurbishing and operating a refinery has helped Delta but Delta wasn't able to prevent every other buyer of jet fuel from seeing lower prices in the NYC area. That helps not only UA and AA, both of which buy a lot of fuel in the NYC area, but it also helps B6, VX and WN, all of which are pretty big (and.or getting bigger) in the NYC area. Last, Delta's refinery, if it indeed has caused lower jet fuel prices in the NYC area, also helps all the foreign airlines at JFK and EWR, by lowering the cost of their return trips.
It's the same as if one farmer spent money to improve the grass production in the common green - all farmers would get the benefit of more milk from their now-fatter cows grazing on that common green, but only one of the farmers is footing the bill for the irrigation/fertilizer/etc that is causing the increased grass production. That one farmer - is Delta. Nice of Ma Delta to lend such a helping hand to everyone.
WorldTraveler
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except that DL doesn't have a fuel cost disadvantage nor does AA have an advantage. Fuel cost/ASM is reported each quarter.
As you note, DL and UA are also making changes to their fleet strategies in order to increase fuel efficiency. You can say that there are no more 717s or M90s to be had, but DL acquired about 140 used 717s and M90s = about 1/3 of what AA will acquire - at prices that are far lower and with fuel economy that is comparable to current generation aircraft.
and DL and UA are both acquiring 100 or more 737-900ERs each. DL IS replacing a large chunk of its fleet - including 50 seat RJs - but just doing it at far lower costs.
And AA's fuel cost advantage, if and when it exists, will be offset by increased debt and the cost to service it. AA just issued another $1B or so of EETCs. DL's debt has been going down and their free cash generation is going up and has been the subject of many articles. Fuel savings mean little if it requires extra debt to get it.
Finally
DL DOES have a 10 cent/gallon cost advantage in the cost of jet fuel; AA may have quit hedging but UA and WN are still hedging and yet DL managed to have lower costs than they do.
10 cents/gallon based on a $10 billion /year fuel bill amounts to several hundred million dollars difference - more than enough to offset the fuel benefits that AA has.
As you note, DL and UA are also making changes to their fleet strategies in order to increase fuel efficiency. You can say that there are no more 717s or M90s to be had, but DL acquired about 140 used 717s and M90s = about 1/3 of what AA will acquire - at prices that are far lower and with fuel economy that is comparable to current generation aircraft.
and DL and UA are both acquiring 100 or more 737-900ERs each. DL IS replacing a large chunk of its fleet - including 50 seat RJs - but just doing it at far lower costs.
And AA's fuel cost advantage, if and when it exists, will be offset by increased debt and the cost to service it. AA just issued another $1B or so of EETCs. DL's debt has been going down and their free cash generation is going up and has been the subject of many articles. Fuel savings mean little if it requires extra debt to get it.
Finally
DL DOES have a 10 cent/gallon cost advantage in the cost of jet fuel; AA may have quit hedging but UA and WN are still hedging and yet DL managed to have lower costs than they do.
10 cents/gallon based on a $10 billion /year fuel bill amounts to several hundred million dollars difference - more than enough to offset the fuel benefits that AA has.
eolesen
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Have you ever stopped to consider that maybe the magazines really have done it correctly, and that your opinion just might be wrong?...WorldTraveler said:
It's not like the analysts they're quoting are professionals, and follow things a little more closely than an armchair enthusiast does.
WorldTraveler
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a 10 cent/gallon difference in fuel costs is pretty significant.... we know you think 3% is insignificant but it amounts to hundreds of millions of dollars per year in cost differences. lower debt service adds another couple hundred million dollars per year.
no, E, you and dozens of other analysts judged the refinery and DL's fuel and finance strategy incorrectly that it was a part of incorrectly and the evidence is beginning to be apparent.
what is more significant is that AA, despite having just exited BK, has now given up its overall mainline CASM advantage to the carrier that did its merger the longest of the big 4 and has been outo f BK for 7 years.
Fuel is only one part of the cost equation. AA has higher fuel costs, higher debt service, and a higher overall mainline CASM.
The analysts, and you, got it wrong in large part because you were looking for a "win" in a couple quarters when it was obvious to anyone that understands business that the refinery is part of a long-term strategy that involves fundamentally changing key dynamics in the industry.
DL has a cost advantage on multiple fronts.
Feel free to think that DL has helped its competitors but the current results show that thinking is incorrect but the distance between DL and other airlines will grow as they take on more new debt with their new aircraft and as DL's fuel strategy continues to reap larger and larger gains.
no, E, you and dozens of other analysts judged the refinery and DL's fuel and finance strategy incorrectly that it was a part of incorrectly and the evidence is beginning to be apparent.
what is more significant is that AA, despite having just exited BK, has now given up its overall mainline CASM advantage to the carrier that did its merger the longest of the big 4 and has been outo f BK for 7 years.
Fuel is only one part of the cost equation. AA has higher fuel costs, higher debt service, and a higher overall mainline CASM.
The analysts, and you, got it wrong in large part because you were looking for a "win" in a couple quarters when it was obvious to anyone that understands business that the refinery is part of a long-term strategy that involves fundamentally changing key dynamics in the industry.
DL has a cost advantage on multiple fronts.
Feel free to think that DL has helped its competitors but the current results show that thinking is incorrect but the distance between DL and other airlines will grow as they take on more new debt with their new aircraft and as DL's fuel strategy continues to reap larger and larger gains.
robbedagain
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E he will NEVER EVER admit when he is wrong on any darn thing... its pretty sad he thinks he is always right even more so than analysts who follow it more closely than he etc
WorldTraveler
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and you will NEVER admit that DL is smarter than your drunk CEO who just cancelled fuel hedges and sucked up to the AMR board to take over running AA - even if they have tens of billions of dollars of debt which he knows full well that he can't possibly service.
I know the conversation is WAY beyond your capabilities to understand but DL has a strategy to win with fuel and finance and the evidence will be more and more obvious.
E has spent years trying to prove me and DL wrong and he has been wrong so many times it makes any one question how he could call himself a paid consultant of anything.
When Parker decides he needs to whack your salary again and lay off tens of thousands of your peers, perhaps it will become apparent to you that AA's strategy really isn't going to work while DL's will.
again, it costs DL less to produce a seat mile than AA - and AA's labor costs continue to grow as a result of the labor deals that Parker agreed to as part of the merger.
cost has ALWAYS been the most accurate predictor of success in the airline industry. AA as a standalone airline was on track to become back in the game; in the name of keeping US from being relegated to the dust heap of the industry, Parker took over AA and undid or is undoing a huge part of the costs that AA reduced in BK.
whether you or E can see it or will admit it, AA's strategy will result in the same loss of profitability and share in the marketplace as happened to AA for most of the decade of the 2000s.
DL knows full well what AA was doing and has made sure they are one step ahead of AA.
The notion that DL has helped any competitors is the wishful thinking of supporters of DL's competitors who don't want to admit the reality of their own situation.
I know the conversation is WAY beyond your capabilities to understand but DL has a strategy to win with fuel and finance and the evidence will be more and more obvious.
E has spent years trying to prove me and DL wrong and he has been wrong so many times it makes any one question how he could call himself a paid consultant of anything.
When Parker decides he needs to whack your salary again and lay off tens of thousands of your peers, perhaps it will become apparent to you that AA's strategy really isn't going to work while DL's will.
again, it costs DL less to produce a seat mile than AA - and AA's labor costs continue to grow as a result of the labor deals that Parker agreed to as part of the merger.
cost has ALWAYS been the most accurate predictor of success in the airline industry. AA as a standalone airline was on track to become back in the game; in the name of keeping US from being relegated to the dust heap of the industry, Parker took over AA and undid or is undoing a huge part of the costs that AA reduced in BK.
whether you or E can see it or will admit it, AA's strategy will result in the same loss of profitability and share in the marketplace as happened to AA for most of the decade of the 2000s.
DL knows full well what AA was doing and has made sure they are one step ahead of AA.
The notion that DL has helped any competitors is the wishful thinking of supporters of DL's competitors who don't want to admit the reality of their own situation.
robbedagain
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the notion that I have never admitted dl is smarter than our ceo is something I have never said otherwise to... it is you that thinks you know it all which is why I question the fact whether your related to R.A and crew Why else would someone so staunchly defend DL then the way you do.
E has proven to be a hell of a lot more credible than you will ever be. Ill take his word of yours any day. and dl has spent millions if not billions to keep unions off the property but that time could be running out and I think your petrified of seeing your precious beloved airline go union and you not liken it one dam bit.. personally its just my wish only to see them go union so they can have a say in matter.. but that is enough of labor for this thread.
E has proven to be a hell of a lot more credible than you will ever be. Ill take his word of yours any day. and dl has spent millions if not billions to keep unions off the property but that time could be running out and I think your petrified of seeing your precious beloved airline go union and you not liken it one dam bit.. personally its just my wish only to see them go union so they can have a say in matter.. but that is enough of labor for this thread.
WorldTraveler
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I don't have to be related to RA - and am not - to be able to see the industry for what it is.
what you absolutely and repeatedly have refused to acknowledge is that DL has outsmarted Parker on multiple occasions, including the slot deal for which DL bought 125 pairs of LGA slots for the total cost of about $60 million dollars.
the fact that you and E and others turn this site into a campaign to trash someone who understands far more than you do only serves to prove you more wrong the more you write.
I don't really care who you think is credible.
DL's union strategy works - and its employees have consistently voted to keep it that way. Meantime, this board is full of discussions about why one union is worse than the other. It is THE BEST advertisement for why DL employees should have nothing to do with unions.
yes, this thread isn't about labor.
It is about cost competitiveness, and particularly fuel.
DL has lower fuel costs than its competitors. DL also spends less on debt service than its competitors. DL also has a lower overall mainline CASM.
Parker took on a merger knowing full well that he would have to undo a huge part of the cost advantage that US had and which AA had achieved in BK - and the merger would eliminate US' strategy of undercutting other carriers in their hubs.
Why would DL not be supportive of a competitor merger that improved industry pricing and raised their competitor's costs?
to even begin to argue that DL has given anything up to its competitors is nothing short of delusional, wishful thinking.
what you absolutely and repeatedly have refused to acknowledge is that DL has outsmarted Parker on multiple occasions, including the slot deal for which DL bought 125 pairs of LGA slots for the total cost of about $60 million dollars.
the fact that you and E and others turn this site into a campaign to trash someone who understands far more than you do only serves to prove you more wrong the more you write.
I don't really care who you think is credible.
DL's union strategy works - and its employees have consistently voted to keep it that way. Meantime, this board is full of discussions about why one union is worse than the other. It is THE BEST advertisement for why DL employees should have nothing to do with unions.
yes, this thread isn't about labor.
It is about cost competitiveness, and particularly fuel.
DL has lower fuel costs than its competitors. DL also spends less on debt service than its competitors. DL also has a lower overall mainline CASM.
Parker took on a merger knowing full well that he would have to undo a huge part of the cost advantage that US had and which AA had achieved in BK - and the merger would eliminate US' strategy of undercutting other carriers in their hubs.
Why would DL not be supportive of a competitor merger that improved industry pricing and raised their competitor's costs?
to even begin to argue that DL has given anything up to its competitors is nothing short of delusional, wishful thinking.
Glenn Quagmire
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Delta is losing money on the Trainer Refinery to lower the fuel costs of all airlines is helping the other airlines more than Delta itself. I think all the analysts got that part correct.eolesen said:
As the article linked above states, Delta lost $116M in 2013 on the refinery. It did not say how much it lost in 2012. They may get to a break even point this year. All the other fuel users should thank Delta for being so gracious as to take the loss on the refinery to lower the costs for all.
