Delta Air Lines has only had its recently acquired oil refinery up and running--more or less--for a few months, but some folks already are weighing in on whether the carrier's calculated risk was a success. Delta acquired the refinery last summer for $150 million, with the expectation that it would spend another $100 million to upgrade the refinery to more than double its jet-fuel production to 32% of the output. The carrier also estimated the refinery will save it $300 million a year in jet fuel costs, once it is running at full capacity.
How is it going so far?
Did I say failure? I meant to say it is on track for success! That's the conclusion of Adam Levine-Weinberg at Motley Fool.
Perhaps we should all just wait a while (although I know the news industry is not exactly patient these days). The naysayers are basing their conclusions in part on the refinery's $63 million net loss in the fourth quarter. That actually raised the airline's fuel costs by 7 cents a gallon for the quarter instead of lowering it. But that was primarily because of the impact of Hurricane Sandy on its November and December production. Delta says it expects the refinery to produce a “modest profit” in the first three months of 2013, and CEO Richard Anderson insists the airline has "become more certain of how prudent that investment is for our company."
That could be false bravado; some of those articles do raise legitimate concerns, which include some risks that Delta always knew it was taking. But my suggestion is this: Let's give the airline at least until the end of this year before trying to come to any conclusions.