Publications: Notes at the Margin

Airline Fuel Acquisition: Crushing Refiners (August 17, 2020)


US airlines were once captive customers of the oil industry. In the last forty years, though, they have crushed refiners by becoming their own fuel suppliers through approaches ranging from buying tanks to importing large volumes to even purchasing a refinery.

Delta's acquisition of a Philadelphia refinery has been the most innovative step. Its operation of the facility has imposed large losses on other East Coast firms, notably Phillips 66 and PBF Energy. These firms seem to have begun a public relations campaign to convince Delta to exit the refining business. As one Turner Mason consultant told The New York Times, "I don't think Delta is interested in running it longer term. It didn't play out as they thought it would."


The consultant is incredibly naive, untrained in economics, or speaking for the other threatened firms because the synergies associated with owning the facility have cut Delta's fuel costs. In 2019, it saved around $340 million, putting the return on its investment at over two hundred percent.


Oil refiners mistreated airlines for decades. Now airlines threaten the survival of some independent refiners, especially those on the East Coast.


To receive the full report along with futures issues of Notes at the Margin, please Contact Us or send us aInformation Request for subscription information.