Delta 1. (a) Fuel cost drives the airline industry. Fuel cost average anywhere from 30% to 50% of total operating costs in the airline industry and crude oil and jet fuel costs had been on the rise.
(b) The refining industry in the US is defined regionally by petroleum administration for Defense Districts (PADD), a system put in place during the Second World War. 2. Rising fuel cost is truly a problem for Delta. In 2011 Delta was hit hard by rising fuel cost. Deltas total fuel cost had risen by nearly $3 billion in 2011. Delta was already a company on the rebound. It closed in 2011 with $35 billion in revenue, up 10 percent from 2010, with profits up 40% to $854 million. Delta was driving profitability by flying fewer planes fewer miles with fuller seats. It had 80,000 employees worldwide and $3.6 billion in cash. Delta was the world’s largest airline in terms of both fleet size and scheduled passenger traffic and jet fuel costs were killing it. 3. Rising fuel costs were the result of growing supplies of domestic oil in the US and its inability to gain access to major refining centers like the US, East Coast and Gulf Coast districts. The rapid development and production of shale oil from domestic sources was landlocked. Pipelines were at capacity and oil was stockpiling. Transportation alternatives like railroads were costly 4. Refineries on the East coast were closing because they were suffering the highest crude acquisition cost. Although East Coast refineries had purchased crude oil at the same prices as the US average and Midwest refineries as recently as the spring of 2010, by late 2011 they were paying a premium of more than $10/bbl over the US average, and more than $16/bbl over the Midwest, as noted previously. By the spring of 2012, the East Coast refinery complex was suffering the highest crude oil acquisition costs in the nation by far.