Delta Air Lines marks record passenger, refinery losses

Delta Air Lines' refining subsidiary this spring recorded its worst operating quarter since the company acquired it in 2012, adding to the airline's average cash burn through the quarter of $43mn a day.

Delta's 185,000 b/d refinery in Trainer, Pennsylvania, posted a $114mn loss for the three months ended 30 June — nearly matching the $116mn loss reported in 2013 under the first full year of ownership by the airline.

The losses increased costs for the small volume of jet fuel Delta consumed during the quarter by almost half, or by 69¢/USG, to $2.25/USG, before certain accounting and hedging adjustments. Trainer reduced average jet fuel costs in the same quarter of 2019 by 3¢/USG with $37mn of net revenue.

Delta purchased 165mn bl of jet fuel during the second quarter, or 15pc of the volume purchased in the same quarter of last year.

Implied US jet fuel demand fell to about 352,000 b/d in the first week of May, after a month of US air passenger screenings averaging roughly 5pc of year-ago volume, according to the US Transportation Security Administration. Screenings increased to an average 19pc of year-ago traffic in June and have averaged about 27pc of year-ago levels in July. Implied US jet fuel demand averaged about 924,000 b/d in the first week of July — roughly half of the jet fuel consumed in the same week of 2019.

The jet fuel demand collapse challenged refiners this spring. Refineries can reduce but not fully eliminate jet fuel, and must blend the remaining unwanted production into other liquid fuels. US distillate inventories swelled as refinery jet fuel yield fell in April to a record low 4.7pc — less than half the five-year average for the month — and distillate yields soared to 38pc, a record high since the beginning of Energy Information Administration records in 1993.

Direct supply or sales and trade of gasoline and diesel from the refinery accounted for roughly 75pc of Delta's jet fuel consumption prior to the pandemic. Typical output would have roughly doubled Delta's total consumption in the second quarter. But Trainer joined US refineries in cutting throughputs as much as possible for the quarter to avoid filling stockpiles. Total diesel inventories in the New York Harbor market states including Pennsylvania, New York and New Jersey ended the second quarter at about 39.2mn bl, their highest level since February 2017.

Delta reported a $5.7bn loss for the quarter on a 91pc drop in revenue, to $1.2bn. The airline ended the quarter with $15.7bn in liquidity, including $5.4bn in federal grants and loans. Daily cash burn fell from $90mn a day at the end of March to $27mn a day at the end of June. Delta will reduce its fleet size and aircraft types, encourage early retirements and offer severance packages in a plan for a "smaller, more efficient airline" going forward.

By Elliott Blackburn