A $45mn loss at Delta Air Line's refining subsidiary added 4¢/USG to the airline's jet fuel prices during the third quarter, the company said today.
But the airline expects to beat competitors on fuel price going forward as the industry moves out of a period of consistently lower fuel prices.
"This will become more important as we look ahead to the fourth quarter and beyond, with market fuel prices already higher year-over-year for the first time in over two years," chief financial officer Paul Jacobson said today during an earnings conference call.
It was the largest increase to fuel prices associated with losses from the 185,000 b/d refinery in Trainer, Pennsylvania, since the first quarter of 2014. Roughly $83mn in losses at the facility have added an average 3¢/USG to fuel prices in the first nine months of 2016. Delta still expects the refinery to lose $100mn this year, the company said.
Delta attributed the loss to a thinner margin between crude costs and fuel prices that slashed earnings during the quarter. Generic crack spreads based on waterborne crude imported to the New York market averaged $4.70/bl during the quarter, down by 35pc from the same quarter last year, based on Argus assessments.
"Cracks have remained relatively consistent through this move up in crude," Jacobson said.
Jet fuel prices averaged $1.48/USG, down from $1.80/USG in the same quarter last year. The company had no losses attributed to financial hedging during the quarter.
Lower fuel prices were a bright spot for the company during a summer beset by technical issues, terrorism fears and other demand-sapping problems, president Glen Hauenstein said. The airline was reducing capacity by 3-4pc beginning in November to manage a seasonally weaker demand period, he said.
Delta expects its jet fuel costs to average $1.60/USG to $1.65/USG during the fourth quarter. The average would be significantly lower than the $1.85/USG Delta paid during the same quarter last year. But steep hedging losses added 25¢/USG to the company's average fuel price during that quarter, leaving Delta paying well above market rates.
Refinery operations and Delta's fuel team should produce a 3¢/USG unhedged advantage versus competitors going forward, Jacobson said. "And we are focused on widening that lead," he said.
American Airlines, which does not hedge fuel purchases, forecast an average cost of $1.60/USG to $1.65/USG for the fourth quarter in an update earlier this week.
