Was Delta Fuel Hedge A Move Right In the Right Direction?

At last week’s SCLA conference in Phoenix a lot of the talk was about Delta Airlnes’s recent purchase of refinery capacity as a hedge against rising fuel costs. The consensus at the conference, in the general press, and among the commodity specialists I have polled informally, is that Delta’s move was a bad one — exposing them to more downside risk (something no airline needs right now). Today’s FT Commodities Daily Note suggests a different take:

“The process of creative destruction sweeping the oil refinery industry has gone from top gear into reverse.

Over the past year, refiners in the Atlantic basin from ConocoPhillips in the US to Petroplus in Europe shut down plants, removing 1.6m barrels of capacity at the peak in January. The closures triggered a recovery in the refining margin between crude oil and oil products, known as crack spreads, a favourite market for hedge funds.”

As much as I encourage innovation in SC risk management, I am still on the side of those who view Delta’s move skeptically, given the traditional fragile cash positions of most US airlines. But FT’s not makes one wonder if Delta knows something everyone else does not.  

Carlos Alvarenga

Founder and CEO at KatalystNet and Adjunct Professor in the Logistics, Business and Public Policy Department at the University of Maryland’s Robert E. Smith School of Business.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s