Delta Air Lines said it has found a way to shave $300 million (£185m) off its annual fuel bill – by buying an oil refinery.
The airline’s Monroe Energy unit has reached a deal to buy an oil refinery in Pennsylvania for $180 million (£111m) – roughly the price of a new Boeing 767 jet.
The deal – which will be watched closely by an industry facing record high fuel costs – is seen as a high-risk move for a carrier that doesn’t have any expertise in the refining sector.
But Delta wont be running the refinery. Instead, its subsidiary, Monroe Energy will buy and run the plant, with crude oil coming from oil giant BP.
The refinery will be able to serve Delta’s major hubs at New York’s LaGuardia and John F Kennedy airports.
The deal won’t allow Delta to control crude oil costs. But the airline will be able to cut the cost of refining it into jet fuel: a process which is costing Delta more than $2 billion (£1.2 bn) a year, its chief executive, Richard Anderson was quoted by Reuters as saying.
Delta’s fuel bill totalled $12 billion (£7bn) in 2011.
It expects to reopen the refinery – which was due to close by the end of this month if a buyer wasn’t found – towards the end of 2012.
“If this works, you’re going to see everybody doing it,” Ray Neidl, an airline analyst with the Maxim Group was quoted by Associated Press.
The ultimate question now is: if the venture is a success, can we expect lower fuel surcharges and lower airfares overall from Delta in future?