Oil Refinery Helps Boost Delta's Earnings

July 24--Delta Air Lines said Wednesday that its Trainer oil refinery in Delaware County produced a $13 million profit in the second-quarter.

Delta, the first U.S. airline to report earnings, posted a second-quarter profit of $889 million, or $1.04 a share, that beat analysts' estimates, driven by strong passenger demand and higher revenues from corporate contracts.

Revenue rose 9.4 percent to $10.6 billion.

"We expect our September quarter performance will be even stronger, as we expand our operating margins to 15 percent to 17 percent and further improve our profitability," said Delta chief executive officer Richard Anderson.

Delta bought the former ConocoPhillips refinery in 2012 to gain more control over its jet fuel costs, the airline's No. 1 expense.

Delta subsidiary Monroe Energy L.L.C, which operates the refinery, said Monday it signed a five-year agreement with a Texas firm, Bridger L.L.C., to supply 65,000 barrels of domestic crude a day, or about one-third of the crude oil refined at Trainer.

Domestic crude from the Bakken region in the upper Midwest costs less than crude shipped from overseas.

Bridger recently invested $200 million to buy 1,300 new rail cars to add to its fleet, which will be used to transport the oil to the Trainer refinery.

The Trainer refinery, which Delta bought as a source of discounted jet fuel, supplies Delta's Northeast operations. Jet fuel is transported from Trainer by pipeline and barge to Boston Logan and New York LaGuardia and John F. Kennedy airports.

To improve Trainer's profitability, one of the main refinery units was shut down last winter for infrastructure modifications designed to increase refinery production of higher value distillate fuels -- diesel and jet fuel -- to up to 40 percent of the refinery's output.

Delta has said previously it expects a modest profit from the Trainer operations in 2014. The refinery posted a $116 million loss for 2013.

Delta's fuel expense declined $161 million in the quarter that ended June 30, driven in part by operations at the refinery, which showed "a $64 million improvement year-over-year," the airline said. The average fuel price was $2.93 per gallon.

"Despite profit warnings from European airlines and oil price volatility, major airlines are likely in a better spot going into the second-half of the year than they were just a few months ago," airline analyst Fred Lowrance said in a client note this week. He cited "positive trends" in domestic passenger demand, industry capacity, ticket pricing, and jet fuel costs.

Lowrance said U.S. airlines face less competition from fast-growing Middle Eastern airlines than their European rivals. "We believe that U.S. airlines can continue improving results even while their European counterparts face headwinds," he said.

American Airlines, Southwest Airlines, United Continental Holdings, JetBlue Airways, and Alaska Air Group are scheduled to report financial results Thursday.

lloyd@phillynews.com

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