Airlines live and die on fuel prices – when the price of oil (and the jet fuel derived from that oil) is high, you’ll see lot of headlines about massive losses in the airline sector. When oil prices are low, the story lines switch to “best revenues in X number of years for (pick your airline…well, anyone except United)”.
This profitability boom & bust cycle drove a bit of gold rush in the ETRM/CTRM market about 5-10 years ago when airlines began to focus more on managing their fuel costs via hedging and looked to the CTRM vendors to supply the systems they needed to measure their exposures and develop hedging strategies to address them. During that period, a number of vendors including Openlink and Allegro, and particularly Solarc (at the time), all signed major and global airlines on as customers.
One airline took bit of different route however, not so much relying on hedging but more on owning the means of production…Delta, the largest US airline, decided they would enter the refining business so that they could better control the cost of fuel and ensure they had adequate supplies in their critical Northeast markets, an area in which the shuttering of refineries was becoming the norm, leading to fears that jet fuel prices could takeoff like a lightly-loaded Boeing 757. After having paid some $150 million for a 185,000bbl/day refinery in Pennsylvania in 2012, Delta is pulling the plug and selling-off their refining business, Monroe Energy.
Delta Air Lines wants to sell its oil refinery in Trainer, Pennsylvania, after attempts to offer a partial stake in the plant late last year failed, according to two people familiar with the matter. The Atlanta-based airline hired investment banks last year to organize the sale of a stake in its Monroe Energy refining subsidiary, signaling it wanted to share the risk of running an energy business. The offer failed to attract sufficient interest because a refinery on the East Coast is viewed as an undesirable asset given the rising costs of acquiring crude oil.
Clearly the energy business is pretty tough when even an airline says its too risky for them.