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Delta Airlines CEO Richard Anderson on how the company’s purchase of a refinery will reduce its fuel costs.
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Oil -- in another dollar barrel today crude settling above a 106 bucks in the process jet fuel.
-- that thing has really been soaring costs 70% since December so delta is getting a little bit creative.
The airline is buying a refinery near Philadelphia for a hundred million dollars its -- that's gonna say -- millions of dollars in fuel cost but it's also.
Clearly saving thousands of jobs in the process the -- The spread and all of this mobile buzz today delta CEO Richard Anderson joining us now mister Anderson to that it.
Power area on the area and -- don't talk about hedging.
If you can't control the markets by end of my guest what do you hope to do here.
Well we really want to get after the crack spreads which is the cost of refining a barrel of crude oil into a barrel of jet fuel.
And to be a participant and the price making mechanism in the jet fuel market in the US.
And how long list do that others said well this is very unusual in and of itself there have been others for example who tried that.
To -- metals for example the controllable volatility and some of -- the materials they use for production of sort of like you're bringing it up a -- -- doing this.
But when -- inspectors to -- We expected to pay off within twelve months of completing the work that needs to be done on the refinery to bring it back up and running we expect that work to be done at the end of the third quarter.
And we expect to pay back in twelve months the run rate improvement in our fuel bill and our fuel bill is.
Twelve billion dollars a year.
Talking about a three 300.
Million dollar a year improvement and we expect that to drop to the bottom.
Line all right it's gonna be tempted for somebody competitors see where this is -- Richards is pulled off.
Maybe we should do the same so maybe all these big refineries will soon be under airline patrol -- what is -- Well I don't know that we're going to be under airline control word is trying in our little world of delta to to make it a good airline for our customers our employees and our share owners and we think this is a creative way at getting at our largest cost because jet fuels almost 40% of our total cost space.
Now -- what about just hedging fuel prices I know.
You guys who don't everyone does that to varying degrees even the computer disputed try to do that.
But it's it's a limited success I guess when when it's just going straight up but now.
All blades and today notwithstanding.
-- prices have stabilized gas prices for example stabilized not quite sure about jet fuel but.
Is there a sense that you might be getting -- is at exactly the wrong.
Time.
Well you cannot hedge jet fuel crack there's not days and efficient financial market to hedge jet fuel crack spreads English Spanish suspended that is essentially -- spread right.
The jet fuel crack is the cost of refining a barrel of oil it's the -- you paid a refiner to take a Beryl accrued in turn into a -- jet.
There's no real financial mechanism that allows -- to effectively hedge that.
So that's why we're going into the manufacturing process.
But we will continued to hedge raw crude because we still have -- -- risk in our fundamental business.
And we have a pretty big hedge book there generally -- somewhere around -- -- 500 million dollars a year in net gains.
In our crude fuel book.
But will continue to do that because that's just hedging the raw commodity.
That -- they're gonna put into the refinery.
And then we're gonna capture all the crack spread margin on refining a barrel of oil.
Well let's say you do that of course it had no trouble filling appeared near the airplane seats and in.
There is no shortage of customers out there.
So this could do the -- could start turning things around substantially.
As you say within a year.
Well we've been delta has been solidly profitable this will be our third year and last year we had we had good earnings last year and in -- and and twenty 2012 will be even better than either of those two years.
I'm so we're on a good trajectory.
-- and this is just be indicative of an improving economy -- could be the wind at your best.
It isn't you know that now the economy is doing reasonably well you know our our.
Bookings in our outlook on the industry is solid.
Both here around the world so we had margin improvement.
We had margin expansion in unit revenue double digit unit revenue expansion and every -- In every region of the world in the first quarter this year and we are seeing those same trajectories.
Into the second third and fourth.
Quarter of -- -- -- good feel rich when I first heard about the sorts of its let me read that again.
-- but acts is a very very interesting very Smart -- Richard Anderson very good seeing it.
Well very good seeing -- Phil always enjoy our conversation.
