Originally Posted by
sailingfun
Other products does not mean hedges. Please review how much jet fuel you can get from a barrel of oil. The rest of that barral has to be sold. The refinery has so far done nothing but suck cash and the reduction in jet fuel prices in the NE has carried over to all airlines.
Maybe you have old information? I can't find anything indicating Trainer "has so far done nothing but suck cash". It seems to be making a little money, which wasn't even the point of the purchase.
Delta's Traier refinery profit rising; airline stocks soar on falling oil prices
Delta said at an investor conference in New York that its Trainer refinery in Delaware County would produce a $75 million profit in the current quarter, helping to offset losses on the airline's fuel-hedge contracts.
Delta buys some of its fuel in advance, to hedge against higher costs. But when fuel prices dramatically decline, the airline is locked in and takes a hedge loss.
"Roughly half the hedge loss that we experienced this quarter is going to be offset by a profit at the Trainer refinery, as product cracks have held very strong, also attributable to the rapid decline in the crude input cost," chief executive officer Richard Anderson said.
"So we are looking at a hedge loss in the fourth quarter of $150 million, but we will generate a profit of about $75 million at the refinery," Anderson said.
The refinery, operated by Delta subsidiary Monroe Energy L.L.C., posted a $19 million third-quarter profit, a $13 million profit in the second quarter, and a $41 million loss in the first quarter this year.
As far as saving other companies money, who cares if Delta is reaping greater benefit.
How Delta Bought a Refinery and Wound Up Saving American and United a Ton of Cash
The profitability of refineries is measured by something called the “crack spread” — the difference between the cost of crude oil and the price of the refined product (in this case, jet fuel). For example, if a barrel of crude oil costs $US100 and the price of a barrel of jet fuel is $US150, the crack spread would be positive 50.
Since Delta bought the refinery in 2012, the crack spread for jet fuel in the U.S. has dropped roughly six points, yielding a savings of $US40 million dollars in fuel costs per point for the airline, Bhaskara told Business Insider. Based on his calculations, this change translates into annual savings upwards of $US240 to $US320 million for Delta alone.
With a fleet of more than 700 aircraft, consisting mainly of older and less fuel-efficient planes, Delta benefits from the acquisition for obvious reasons. Delta’s big competitors, United Airlines and American Airlines, won’t reap the same savings.
But they will still save a lot. Bhaskara estimates that it could run into the hundreds of millions of dollars annually.
It's interesting that Delta's goal with Trainer was to lower the crack spread which reduces the refinery's profitability yet saves the airline more. Better yet it gives Delta some control where it had none.
Bottom line, Delta seems to be happy with Trainer. I don't see a scenario where Delta's fuel plan reduces profits to zero in 2016. That's not to say profits can't be zero in 2016 (though I wouldn't bet on it), only that it won't be the fuel strategy that does it.