Article by Investment U
Delta Airlines (NYSE: DAL) will soon become the first airline ever to provide itself with its own domestic fuel.
If all goes according to plan, by the end of June, Delta Airlines (NYSE: DAL)…
- … will start saving $300 million a year on fuel costs.
- … will add 5,000 new jobs to its payroll.
- … will see its share price steadily rising for the foreseeable future.
How does it expect to do all of this?
By being the first airline ever to provide itself with its own domestic fuel. Let me explain…
Delta’s Bold Move into Oil Refinement
Last year, domestic prices for airfare hit an all-time record high according to the U.S. Department of Transportation.
The No. 1 reason for this is fuel cost. For Delta, nearly 40% of its revenue went to keeping its planes fueled.
And so far this year, these costs only continue to rise.
That’s why, earlier this week, Delta agreed to pay ConocoPhillips (NYSE: COP) $150 million for an oil refinery that was otherwise going to close in May in Trainer, Pennsylvania.
The refinery is set to process 185,000 bpd of crude oil, and Delta expects it’ll cover 80% of its fuel costs in the United States beginning in 2013.
Even Pennsylvania contributed an additional $30 million because it will save the jobs of 5,000 workers currently employed at the refinery.
It’s undoubtedly a risky move. Some are even calling Delta crazy. After all, the oil refining business can be just as volatile at times as the airline industry.
But others, myself included, see it as a potential game-changer…
The Road Ahead
As MSNBC explains, “For one thing, the refinery is located in one the carrier’s most important markets and will be able to provide a steady fuel supply to the company’s operations at JFK, LaGuardia and other East Coast airports.
For another, ConocoPhillips, the refinery’s current owner, was in the process of idling the plant and reportedly “eager to sell.”
In other words, not only is the refinery in a key locale, Delta also purchased the facility at a very steep discount.
Delta expects an additional $100 million into the plant will turn it into a top-notch jet fuel producing facility by next year.
And in order to make sure everything stays on task, Delta hired 25-year refinery veteran Jeffrey Warmann to manage the refinery’s operations.
In fact, prior to joining forces with Delta, Jeffrey was a refinery manager for Murphy Oil Corp. (NYSE: MUR). So if anyone’s going to get the job done, it’s going to be this guy.
How do investors feel about the deal?
Delta’s Shares Are on the Rise
Over the past few weeks, Delta’s stock price climbed 20%. You can bet if Delta’s oil refinery ends up being a big money saver, as well, shares will likely soar even higher.
And if other companies follow suit, it could end up being a home run for Delta’s shareholders. The bottom line: This is certainly a development worth keeping your eye on. Keep watching.
Good Investing,
Mike Kapsch
Article by Investment U
