Since 2012, Delta Air Lines has been the owner of a Pennsylvania refinery that processes crude into fuel. Over the years, the investment has looked like either a stroke of genius or a boondoggle, generally depending on the price of oil.
Since the U.S. and Israel began carrying out strikes on Iran, the refinery is set to pay off again for Delta.
Jet-fuel prices roughly doubled since late February, climbing to about $4.80 a gallon in the U.S. earlier this week, according to Argus. Deutsche Bank analysts estimate that if prices stay at those levels, airlines collectively would be on the hook for $40 billion more in fuel spending this year compared with what they were paying before the war began.
Oil prices fell Wednesday after the U.S. and Iran agreed to a two-week cease-fire and to allow oil to be shipped again through the Strait of Hormuz. But jet-fuel prices could remain high for some time because of tight supplies and uncertainty about whether the deal will hold. Delta Chief Executive Officer Ed Bastian said the airline still expects oil prices will remain elevated.
To cover sharply higher costs, airlines are raising fares and pulling down flights that will no longer be profitable.
But with its refinery, Delta has an asset that it said can help it offset some of the recent surge in fuel prices.
“We don’t know where fuel is going to go, but to the extent fuel stays elevated, that refinery will continue to help us,” Bastian told reporters this week. The airline said the refinery will boost its expected second-quarter earnings by $300 million.