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Discussion in 'Delta Air Lines | SkyMiles' started by USAF_Pride, Apr 4, 2012.
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DL seems to be venturing into a new way to lose money. Bolding is mine.
It's going to be interesting to see if the SEC gets involved because this forms a bit of a linear monopoly.
Kinda like GM being in the same business.
The decline in fuel usage in the US comes from the fact the fuel efficiency of the cars on the road has gone up and the number of miles they are driven per year has gone down, particularly with gas prices as high as they are right now. This has major implications for states that depend on gasoline taxes to build/maintain roads.
As Jack Donaghy would say vertical integrationis key. "Imagine that your favourite corn chip manufacturer also owned the number one diarrhea medication."
Though I can't imagine DL doing this without it being some kind of JV with COP/XOM, etc.
I think you mean FTC and vertical monopoly. Historically, there have been no issues at all with vertical monopolies. It's just horizontal ones that are regulated heavily. There are some exceptions, but they are not the rule.
I don't see that DL's ownership of this would present any major FTC or anti-trust issues, especially if DL's plan is to use the product output for their own use (or trade it for Jet-A in other markets).
Where is would be an issue is if the excess of the refinery is sold on the open market & DL refuses to sell the open market product to competitors (resulting in their inability to buy fuel). Or if the refinery were currently operating & DL shut off the flow of 100LL for private planes to try and force folks to fly the airline. Or other anti-competitive behavior.
In this case, I think DL makes the case that it's currently shut down (meaning they won't decrease supply to anyone) & the intent is to either hedge by selling on the open market or use the output primarily for their operations.
It does surprise me that DL sees this as a strategic move. It's really no different than flight kitchens, buying a commuter airline to feed mainline, credit cards, or acquiring an outsourced maintenance shop. Most businesses divest non-core assets. Can't really see that DL can operate the refinery cheaper than the current owner.... all that's taken out is the profit that the refiner makes (which may or may not be enough to be attractive).
I think its a great idea, wonder if Delta will actually go through with it.
Looks like Delta has in fact decided to go into the refining business.
I'm surprised its Delta doing this and not United (with their major ties to Houston). CNN just had a story and said at current prices they would probably make their money back in about one year. Wouldn't be surprised if this is successful to see the other big boys follow suit in Houston, Chicago and California.
Unless it was movie studios or car manufacturers.
If the other airlines decide to go for it, I am guessing Delta's first move just raised the price for them all. Should be interesting.
Kind of the equivalent of people raising chickens in their backyard for the eggs. And entertainment of the kids (eh, executives)
Word is the other refinery near this one is also in the market. (I think it is a Sunoco one, if memory serves me). Will be interesting to see how this works moving forward, in theory should be helpful for the bottom line. Of course i am under no illusions that we, as consumers, will see any real benefit. (Other then maybe only a slower rising of prices.
Ticket prices should be going down now (and I have ocean front property for sale, trust me):
Delta's Trainer Refinery Begins Making Jet Fuel
Why would you expect that? Since this is all about controlling costs, I'd expect ticket prices to remain the same so there would actually be a cost-reduction benefit elsewhere.
Update. Seems the economics are not currently working out. I didn't realize that they couldn't used Brent Crude and must pay a premium per barrell