Quote:
Originally Posted by tsquare
True, but I really do think this is different. Fuel is the number 1 cost item. $.01 results in a $40 million change in costs one way or the other. (if I have that correct) So if the $.10 advantage in fuel prices is legitimate, that is huge.
I just finished listening to Jon Ruggles' podcast interview from August. If you listen to that, listen to what he says right at the 7 minute mark. It is very interesting. Most of his interview is quite esoteric in nature, but you can definitely tell he knows what he is talking about, especially as it relates to the airline. Towards the end he even talks about how the fleet works. I am glad he is our guy.
That was a great 411, and I'm glad he's our guy as well. The takeaway for me is that the refinery and hedging are tools to control fuel cost in the same way insurance reduces financial exposure for unforseen events.
Prior to this Delta's fuel strategy has been using so called collars, a type of hedge that limits upward and downward exposure while limiting expense.
The refinery takes this one step further. It doesn't matter what comes out of the refinery and I doubt much if any "jet fuel" will ever make it from that refinery into a Delta jet. It's more about having a tool to fine tune hedges minimizing risk and maximizing yield.
No other player in the oil trading space, absent hedges, benefits from a market downturn the way Delta does. Now can we please hire some Wall Street guy to tell Delta to become just as vertically integrated and bring more flying in-house...
Cheers
George