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February 7, 2016

Airline CEO Sees Refinery — and Cheaper Domestic Crude — as Big Advantages

Delta Airlines CEO Richard Anderson said Wednesday that his airline’s control of fuel costs gives it a significant advantage over its competitors.

“This quarter, we’re at $2.93 a gallon…. The industry average, excluding Delta, is $3.08. And we’ve been doing that quarter in and quarter out,” Anderson told CNBC in an interview.

In 2012, Delta bought a refinery in Trainer, Pa., on the Delaware River near Philadelphia, from ConocoPhillips.
“We’re going to be supplying our refinery with a significant amount of domestic crude,” he said.

On Monday Delta’s fuel subsidiary announced a five-year deal with Bridger, a midstream energy company, to supply 65,000 barrels a day of North Dakota Bakken crude to the Delta refinery.

And Anderson told CNBC “we bought a Jones Act vessel to be able to supply our refinery – from the Texas Gulf coast to Trainer, Pa.”

The Jones Act requires that merchandise carried between two ports within the United States be carried by a U.S.-flag vessel, built in the United States, owned by a U.S. citizen and crewed by American merchant mariners.

Anderson said the Pennsylvania refinery “has been a significant upside to our earnings – and there’s even more upside as we begin to supply close to 100 percent of our refinery with crude at prices well below” the Brent benchmark price.

He added, “At one point, we thought about whether we could buy an oil company, but we thought the refinery was the better play because the biggest issue and the biggest expense is ‘crack spreads.’” Crack spreads are the differences between wholesale petroleum product prices and crude oil prices.

“We’ve been able to crack ‘crack spreads,’” Anderson said.

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