Focus: Delta Air Lines' refinery bet looks more valuable in jet fuel squeeze

Core Viewpoint - Delta Air Lines' ownership of a refinery is becoming increasingly valuable as jet fuel prices rise faster than crude oil prices, allowing the company to retain refining profits that would otherwise go to external suppliers [2][3][10]. Group 1: Delta's Refinery Strategy - Delta Air Lines purchased a refinery in 2012 to reduce fuel costs and mitigate the impact of rising fuel prices [2][3]. - The refinery allows Delta to keep the profits from refining fuel within the company, which is particularly beneficial as jet fuel prices increase [3][10]. - Delta's Monroe refinery has significantly lowered its average fuel price, saving the company approximately $785 million in 2022, $393 million in 2023, $41 million in 2024, and $171 million in 2025 [9]. Group 2: Market Conditions and Impact - Jet fuel prices have surged, with North American jet fuel averaging about $179 per barrel compared to $110 for Brent crude as of March 20 [5]. - The widening crack spread, or the difference between crude oil and jet fuel prices, has led to increased fuel costs for airlines that do not own refineries [4][6]. - Delta's average fuel cost rose to $3.36 per gallon in 2022 from $2.02 in 2021, while its total fuel bill reached approximately $11.5 billion, accounting for 24% of total operating expenses [12]. Group 3: Competitive Landscape - Other airlines, such as Alaska Air Group and American Airlines, are facing rising fuel costs, with Alaska shifting fuel supply routes and American reporting an additional $400 million in fuel costs for the first quarter [14][15]. - United Airlines warned that sustained high jet fuel prices could add about $11 billion to its annual fuel bill, highlighting the financial strain on airlines without refinery ownership [15]. Group 4: Financial Performance and Future Outlook - Delta's Monroe refinery generated $777 million in operating income in 2022, benefiting from high refining margins due to global market disruptions [10]. - Delta's CEO indicated that the refinery provides a "meaningful hedge" against rising fuel prices, although it does not completely eliminate exposure to market fluctuations [18]. - The refinery's profitability may fluctuate based on market conditions, and compliance costs related to regulations have increased, impacting overall financial benefits [16][17].