Delta steady on Trainer refinery despite loss: Update

Adds detail on refinery loss, obligations.

Delta Air Lines has no plans to change its refining subsidiary after the Pennsylvania facility reported its largest quarterly loss since the airline acquired it in 2012, the company said today.

The 185,000 b/d refinery in Trainer, Pennsylvania, continues to help the company manage its exposure to jet fuel expenses, co-chief financial officer Gary Chase said. Losses at the Trainer refinery added 23¢/USG to the airline's average price of fuel during the first quarter, which climbed to an adjusted $1.91/USG.

Delta is investing $1bn in carbon offsets and in increasing to 10pc the volume of sustainable aviation fuels (SAF) in its jet supply by 2030 toward a goal of carbon neutrality. But the company had no specific plans to convert the Trainer refinery to that production, and said the facility was performing well despite a difficult refining environment.

"What we are not going to do, though, is let some of the short-term dislocations guide our actions," Chase said. "It is serving the purpose that we have always had for it, which is an offset to the crack exposure that we have."

The refinery reported a $125mn operating loss for the first quarter, its worst since Delta acquired the idled refinery from ConocoPhillips and began operating it in late 2012. Trainer added 23¢/USG to the adjusted average fuel price in the last three months of 2020, when it reported a loss of $102mn. The refinery has reported losses in the past five consecutive quarters, in line with the broader US downstream industry, and operated at a loss in three of the eight full years of operation under Delta.

Trainer refinery losses would shrink but continue into the second quarter, the company said.

The refinery faces steep costs to comply with federal fuel blending mandates called the Renewable Fuel Standard. Delta valued the obligations at the end of the quarter at $346mn. The combination of credits that refiners, importers and other companies must use to prove compliance with the mandates reached record highs of more than 17¢/USG in March, compared to an average 4.3¢/USG in 2020. Prices remain around 16¢/USG now.

"That is a market dislocation that we just do not see as sustainable," Chase said.

Post-Covid demand rising

US refiners have hoped for a recovery in transportation fuel demand this summer as vaccination rates rise and consumers gain the confidence to unleash pent up travel demand. Estimated US gasoline demand has climbed to about 95pc of the consumption recorded in early April 2019, a pre-Covid-19 comparison. Estimated weekly jet fuel demand was at 81pc of 2019 levels in the same period, according to the Energy Information Administration.

Transportation Security Administration passenger screenings climbed through March and have averaged 1.4mn a day in the first half of April, compared to 2.3mn a day in 2019 and 105,000 a day last year.

The combination of delayed travel and rising wealth for some consumers during lockdowns could support a surge of demand over the next 12-18 months, Delta said. The airline expects capacity in the second quarter to be at about 68pc of its capacity in the same quarter of 2019. Daily sales in March were double those in January, and a return of business demand in the fall should help restore airline profitability in the quarter ending in September, the company said.

"Certainly there is an enormous pent-up demand," chief executive Ed Bastian said.

Delta reported a $1.2bn loss for the first quarter, with a daily cash burn averaging $11mn. The airline generated $4mn of cash a day in March.

By Elliott Blackburn