Delta helps other airlines

[WorldTraveler]

and if you had even looked at the financials, DL's overall fuel cost was down by far more than the cost of the refinery.

DL can't say that it was responsible for lowering the cost of jet fuel but the refinery put more jet fuel on the market, the crack spread fell, and DL's fuel costs went down.

so what if other carriers benefitted?

and DL's overall drop in fuel price was larger and continues to grow.

no one who actually looks at the specific financials regarding fuel for each carrier can argue that DL has helped other carriers more than DL has helped itself.

 

[eolesen]

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.

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.

DL is certainly doing this for their own purposes, and not to be altruistic. But the fact WT can never avoid is that only DL bears the risk, and only receives a portion of the reward.

If, Richard forbid, there's a spill or a fire at Trainer, keep in mind who bears the responsibility for the cleanup and repairs. I'll give you a hint -- it won't be the competition.

 

[Glenn Quagmire]

DL is certainly doing this for their own purposes, and not to be altruistic. But the fact WT can never avoid is that only DL bears the risk, and only receives a portion of the reward.If, Richard forbid, there's a spill or a fire at Trainer, keep in mind who bears the responsibility for the cleanup and repairs. I'll give you a hint -- it won't be the competition.

Well said. That was my point. I hope it continues to perform so all airlines fuel costs are pushed down.

 

[Kev3188]

Why would DL not be supportive of a competitor merger that improved industry pricing and raised their competitor's costs?

 
 

so what if other carriers benefitted?

These two statements conflict with one another.

 

[Glenn Quagmire]

"Two years after Delta Air Lines made an unprecedented move to control its largest input cost by purchasing an oil refinery, no definitive conclusions can be drawn about the success of the endeavour. Ironically however, according to one analyst, Delta's investment has had sizeable benefits for its competitors; by using its own facility, Delta has reduced consumption in the open market, causing prices to fall.

Production at the airline’s Trainer refinery has had fits and starts, and Delta has acknowledged that the learning curve in running a refinery was greater than its initial expectations.

But viewed through the lens of helping Delta improve its fuel cost management, Trainer is for the moment making a positive contribution to the airline’s fuel strategy. However, is it only one element in Delta’s fuel cost mitigation scheme, and much road lies ahead in effectively managing Trainer to deliver consistent returns."

http://centreforaviation.com/analysis/deltas-refinery-shows-some-positive-promise-but-the-learning-curve-to-success-remains-steep-184972

"...at some point Delta needs to start delivering on its promises for Trainer after missing initial financial targets it had supplied for the facility. Exuding confidence is relatively simple and straightforward, but executing on promises of profitability is an entirely different scenario. Delta has deftly executed on its efforts to sustain profits in the airline business. Now Delta is itself making 2014 a pivotal year for its foray into oil refining."

We shall see how it plays out. So far, the reduction in fuel costs for Delta has outpaced the losses taken at Trainer. However, those (Trainer) costs are not on the balance sheet for AA, UAL, LUV, etc.

 

[diamondcutter]

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.

Wow must have really hit a nerve that time!!!


Our Drunk CEO....Really you know for a fact he's a drunk ??? If he is he's done pretty damn well !! You only get to hide behind a computer an try and show the world how great you are on how airlines should run . The "Drunk" as you say, actually runs the biggest airline in the world, and does it well!!! Jealouse much?? Why don't you PREACH that!!

 

[FWAAA]

Our Drunk CEO....Really you know for a fact he's a drunk ??? If he is he's done pretty damn well !! You only get to hide behind a computer an try and show the world how great you are on how airlines should run . The "Drunk" as you say, actually runs the biggest airline in the world, and does it well!!! Jealouse much?? Why don't you PREACH that!!

IMO, yes, Parker is a drunkard.   Multiple DUI convictions spanning his adult life equals "drunkard" in my book.   He had at least two alcohol-related driving convictions in North Texas in the five years he worked for AA in the 1980s.   I've suspected that he left AA to go to NW in 1991 not entirely voluntarily.  On top of those,  he had some alcohol-related offenses while in college before he worked for AA and he had the 2007 bender the night that Delta rebuffed his takeover attempt.  He is certainly an alcoholic.   
 
On to the topic:   Didn't Delta have an in-house cheerleader for the refinery purchase who left Delta not long after the refinery was acquired or am I mis-remembering?   

 

[WorldTraveler]

Wow must have really hit a nerve that time!!!


Our Drunk CEO....Really you know for a fact he's a drunk ??? If he is he's done pretty damn well !! You only get to hide behind a computer an try and show the world how great you are on how airlines should run . The "Drunk" as you say, actually runs the biggest airline in the world, and does it well!!! Jealouse much?? Why don't you PREACH that!!

he has had two DUI convictions, has he not?

he may not be drunk today but let me know how many other CEOs of large corporations have two or more DUIs to their credit.

and it still doesn't change that AA chose to merge with US, whose long-term survival was far from clear in a world of megamergers, and in the process AA has so far given up a significant chunk of its cost savings gained in BK and Parker is having to hand out raises to its own people who he managed to keep paid below average compared to other legacy peers.

Furhter, AA has lost its CASM advantage just two quarters into the merger and pays more for jet fuel than DL.

Drunk or not, Parker gave up huge portions of cost advantages and has a several hundred million per year COST DISADVANTAGE on fuel to DL.

 

DL is certainly doing this for their own purposes, and not to be altruistic. But the fact WT can never avoid is that only DL bears the risk, and only receives a portion of the reward.

If, Richard forbid, there's a spill or a fire at Trainer, keep in mind who bears the responsibility for the cleanup and repairs. I'll give you a hint -- it won't be the competition.

and if there is a civil unrest in Philly, who do you think bears the risk of that?

what if... what if... what if.

And don't you think DL has insurance on the refinery just as they would with their aircraft?  

DL has received a LARGER portion of the reward... and you still can't see down the road to what will happen with jet fuel prices. Did you really think that the oil producers wouldn't adjust production of fuel at some point to force crack spreads back up and increase the prices for DL's competitors more than DL?

Of course they will. DL messed up the cozy relationship that existed with oil producers and jet fuel prices and they will attempt to restore that relationship and the old crack spread.

when that happens, DL as a jet fuel producer and consumer, will share in an even larger share of the profits.

I can guarantee you that DL's share of the benefits will grow disproportionately in DL's favor.
 

These two statements conflict with one another.

 
no they don't.

one statement is about seeing AA's cost go up as a result of the merger along with an increase in the overall level of fares that DL, UA, and WN are benefitting from because US is no longer undercutting legacy competitors.

Do you not realize that fare increases are not uniformly of equal benefit to all carriers - and yet they either all support them or they are forced to pull them?

In this case, as a result of the AA/US merger, the entire domestic fare environment is far stronger. Every carrier is showing strong domestic RASM growth.

The benefit to the industry because of fare increases that have amounted to 5-8% RASM increases just on the domestic system are FAR LARGER than the cost benefits that other carriers gained - even on a temporary basis - because of the startup of Trainer and the increased supply of jet fuel - for now.
 

"Two years after Delta Air Lines made an unprecedented move to control its largest input cost by purchasing an oil refinery, no definitive conclusions can be drawn about the success of the endeavour. Ironically however, according to one analyst, Delta's investment has had sizeable benefits for its competitors; by using its own facility, Delta has reduced consumption in the open market, causing prices to fall.

Production at the airline’s Trainer refinery has had fits and starts, and Delta has acknowledged that the learning curve in running a refinery was greater than its initial expectations.

But viewed through the lens of helping Delta improve its fuel cost management, Trainer is for the moment making a positive contribution to the airline’s fuel strategy. However, is it only one element in Delta’s fuel cost mitigation scheme, and much road lies ahead in effectively managing Trainer to deliver consistent returns."

http://centreforaviation.com/analysis/deltas-refinery-shows-some-positive-promise-but-the-learning-curve-to-success-remains-steep-184972

"...at some point Delta needs to start delivering on its promises for Trainer after missing initial financial targets it had supplied for the facility. Exuding confidence is relatively simple and straightforward, but executing on promises of profitability is an entirely different scenario. Delta has deftly executed on its efforts to sustain profits in the airline business. Now Delta is itself making 2014 a pivotal year for its foray into oil refining."

We shall see how it plays out. So far, the reduction in fuel costs for Delta has outpaced the losses taken at Trainer. However, those (Trainer) costs are not on the balance sheet for AA, UAL, LUV, etc.

 
and yet DL has a documented 10 cent/gallon advantage in jet fuel prices and the overall price of jet fuel has gone down. DL can't say that they forced the price of jet fuel down but the crack spread was at historically high levels before the refinery started production, those levels came down and were inverted to diesel fuel for several quarters, and those same crack spreads are now going up.

You and anyone else can believe that the success of DL's fuel strategy can't be substantiated but it is very clear that the cost of jet fuel fell dramatically and DL benefitted more so than did other carriers.

For the time being, other carriers have benefitted also in some of the increase. but it will be obvious to you in time that the size of DL's benefit will increase while that of other carriers will decrease.

You know that I love to go back and verify who was right or not on what is discussed here so we can add this topic to the list... right alongside those predictions of WN's growth in ATL. (BTW, just for an update on that one - they have cancelled 3 more routes from ATL as of next spring and are down to about half of what FL had at its peak.

yes, FWAAA, DL's first executive over fuel strategies left abruptly apparently due to potential insider trading issues regarding jet fuel.

 

[blue collar]

On to the topic:   Didn't Delta have an in-house cheerleader for the refinery purchase who left Delta not long after the refinery was acquired or am I mis-remembering?

Spectator? I thought he left right after WT...

 

[700UW]

And the Head of NW got busted for bringing weed through security, so since Anderson worked for Dasburg, is he a pot head too?
 
Doug made mistakes, but what he successfully is the CEO of the worlds largest airline and is earning more profits than the Airline that is trying to conquer the world.

 

[WorldTraveler]

And the fact remains that Parker agreed to a merger that gave away not only US' cost advantage but also has undone a large part of the cost cuts that AA gained in BK.

IN return, US' pricing policy of undercutting competitors was eliminated which has increased revenue across the industry far more than the benefit from the opening of the refinery.

The revenue increases are permanent and will be equally shared across all airlines.

The increased production of jet fuel provided a benefit to all participants but will likely be short term as the petroleum industry restructures production of jet fuel while DL ends up as a producer or its own fuels; the others will be subject to increased prices far more than DL will be.

DL and AA had almost identical jet fuel costs at the time DL bought Trainer. AA has long had some of the best hedging successes in in the legacy segment of the industry.

Not only has Parker decided to undo that hedging, but DL is gaining fuel cost advantages even relative to WN and UA who still hedge.

DL isn't going to reveal where its cost advantage for fuel comes from but it is clear that DL has one and I fully expect it will grow.

DL has benefitted from the better pricing environment that AA/US provided to the whole industry as well as the fuel cost advantage that DL continues to have.

Add in the lower cost of debt service and DL has a CASM advantage over both AA and UA.

And DL gets to use 125 pair of slots at LGA that Parker handed over without so much as a whimper.

 

[Kev3188]

And the Head of NW got busted for bringing weed through security, so since Anderson worked for Dasburg, is he a pot head too?

Point of order: It was Gary Wilson that was busted for weed, not Dasburg.

Nevertheless...

 

[FWAAA]

And the fact remains that Parker agreed to a merger that gave away not only US' cost advantage but also has undone a large part of the cost cuts that AA gained in BK.

Excellent post, and I agree.   That's one reason I'm hammering on their short-sighted decision to save a few million dollars by cutting AA's meals.   The most they can hope to gain is the few million dollars in cost savings, but the potential downside is unlimited.   It's like writing naked options.   Nobody is going to pay AA higher fares because they cheaped out the meals.  Dunno if any will flee or pay lower fares because of the miserly meal policy.   Why take the risk?   $1.9 billion in profits in just six months even with AA's too-generous meals argues for status-quo.   
 
We've seen what can happen when revenue takes a holiday and finds a different airline:  UA's experience from March 3, 2012 thru the present day.   DL, AA and US all saw better revenue performance for most (or all) of the periods since then.   What Parker needs most of all is higher revenue.   Much higher revenue.   2014 looks like a pretty good year for AA's revenue, but cuts didn't begin until late in the third quarter.   Parker needs higher revenues year after year after year to pay for all his promises (and all those improvements to US employees).   
Does Parker risk mass defections from cutting meals?  No.   The meal cuts, however, portend a future with more and more cuts, not improvements.   Improvements help attract revenue from other airlines (like from UA).   Cuts on top of cuts is what you do when you've failed at increasing revenues (like at UA).   

 

[jimntx]

   
Does Parker risk mass defections from cutting meals?  No.   The meal cuts, however, portend a future with more and more cuts, not improvements.   Improvements help attract revenue from other airlines (like from UA).   Cuts on top of cuts is what you do when you've failed at increasing revenues (like at UA).   

I'm not so sure about the mass defections.  The experience at STL with the decision to make our FF'ers change planes in DFW or ORD to get anywhere may be repeated with some of the midrange markets out of DFW that are losing meal service (or getting the snack basket instead).  At STL we had a large number of business travelers who decided to patronize WN figuring that if they were going to have to change planes anyway, MDW and DAL were certainly more manageable airports than DFW and ORD.  Of course, they were also getting a more comfortable seat and more consistently pleasant flight attendants as well.  (And, it didn't help that as AA cut non-stop service to longer range markets (STL-BOS, STL-SEA, etc), WN started up non-stop service to those markets.)
 
On my first trip of the month, I had several "snack basket" legs in 3 days (one was LGA-MIA for goodness sakes).  More than one PL/EP sort of curled their lip when I presented the basket and made some comment along the lines of  "compliments of America West?"  Note not "compliments of US Airways?"

 

[traderjake]

he has had two DUI convictions, has he not?

he may not be drunk today but let me know how many other CEOs of large corporations have two or more DUIs to their credit.

 
Maybe if you got drunk enough you could run the world's largest airline instead sitting at home posting about it continuously.