Delta refinery profits help stem rising fuel costs

The highest refinery profits since 2015 helped to cut Delta Air Lines' second quarter fuel costs by 4¢/USG, the airline said today.

Fuel costs for the quarter averaged $2.19/USG including a hedging loss and the refinery benefit, a 36pc increase over the same quarter last year. But Delta was confident that refinery operations and passing through fuel costs to customers would help the company manage the rising price environment.

"Fuel prices where they are today, at roughly (Ice Brent) $75/bl, do not scare me," chief executive Ed Bastian said on a quarterly earnings call. "I think that is actually a good, stable place that we can platform from to continue to grow, or to get back to growing our margins."

Delta estimates jet fuel will average $2.32/USG to $2.37/USG during the third quarter, including the impact of its refinery operations. The company averaged $1.68/USG in the same quarter last year.

About two thirds of the higher fuel costs were passed on through fares, the company said.

"Strong demand, a recovering fare environment and momentum across our business will all be critical as we work to fully recapture higher fuel costs," Bastian said.

The 185,000 b/d refinery in Trainer, Pennsylvania, reported a $45mn profit on sharply-higher third-party fuel sales compared to the same quarter last year. Third-party refinery sales — the sale of non-jet fuel produced at Trainer — generated $216mn, compared to $67mn in the same quarter of 2017.

Delta plans to take the refinery down in the fourth quarter for extensive maintenance.

Total second quarter fuel costs averaged $2.21/USG before hedging, which added 2¢/USG, and refinery operations.

The airline consumed 1.1mn USG of fuel during the quarter, higher by 2pc relative to the same quarter last year. Total spending was $2.3bn, higher by 39pc relative to the same quarter last year.

Delta reported a $1bn profit for the quarter, down by 14pc from the $1.2bn reported in the same quarter of 2017.