Matt Yglesias brings to my attention this morning a deal announced by Delta Air Lines to buy its very own jet fuel refining plant. Here’s the explanation from Delta’s CEO:
While Delta will remain hostage to fluctuating crude oil costs, the facility would enable it to save on the cost of refining a barrel of jet fuel, which is currently more than $2 billion a year for Delta and has been rising in the wake of U.S. refinery shutdowns, said Delta Chief Executive Richard Anderson. “What we’re tackling here today is the jet crack spread, which you cannot hedge in the marketplace effectively,” Anderson told reporters during a phone briefing. “It’s the fastest single growing cost in our book of expense at Delta.”
OK, so Delta thinks refinery profit margins are too high, and they don’t feel like making refinery owners rich at their expense. But then there’s this later in the article:
The refinery is expected to resume operations in the third quarter, Delta said, about a year after ConocoPhillips idled the plant as rising imported crude oil costs, a collapse in demand and tough competition from foreign refiners crushed margins.
This makes sense. After all, why would ConocoPhillips shut down the plant if it were making windfall profits?
Matt paints this acquisition as a failure of the financial industry, which ought to be able to help Delta hedge the cost of jet fuel more efficiently. Maybe so. But I’m just flat confused. If a collapse in demand and tough competition from foreign refiners has crushed profit margins, then what is Delta complaining about? It sounds like it’s a buyer’s market for jet fuel these days. And what on earth makes Delta think that it can run a refinery more efficiently than someone who’s fighting tooth and nail for business in the free market? If they can really do that, it’s not a failure of Wall Street, it’s a failure of capitalism. This whole deal sounds crazy. Maybe ConocoPhillips should have bought Delta instead.