Delta's Trainer refinery expects 'small loss' for 1Q

Delta reported an overall fourth-quarter profit on higher airfares and lower fuel costs.
Delta reported an overall fourth-quarter profit on higher airfares and lower fuel costs. (RON ANTONELLI / Bloomberg)
Posted: January 23, 2014

Delta Air Lines said Tuesday that its Trainer oil refinery in Delaware County would have a "small loss" in the current first quarter, after posting a loss of $46 million in the three months ended Dec. 31 and a $116 million loss for 2013.

Delta executives said on a conference call that the 180,000-barrel-a-day refinery, operated by subsidiary Monroe Energy L.L.C., would "see a modest profit" for 2014, said chief financial officer Paul Jacobson.

"We expect to see only a modest loss for the Trainer refinery in the March quarter, despite the pull-down of one of the main units for modifications," Jacobson told investors.

Overall, Delta reported a fourth-quarter profit that beat analysts' estimates, on higher fares and lower fuel costs. Passenger revenue was up 6.1 percent, or $451 million.

Delta bought the former ConocoPhillips refinery in Trainer for a source of discounted jet fuel. The refinery supplies Delta's Northeast operations. Jet fuel is transported by pipeline and barge to Boston Logan and New York LaGuardia and John F. Kennedy airports.

The infrastructure modifications are expected to increase refinery production of "higher value distillate fuels" - diesel and jet fuel - to up to 40 percent of the refinery's output, Jacobson said.

"This is one of the major initiatives in improving Trainer's profitability for this year," he said. "For the year, we expect to see a modest profit from the Trainer operations, driven by the higher value distillates and a significant increase in the supply of domestic crude."

The refinery, which had a $3 million quarterly profit in the three months ended Sept. 30, will receive 50,000 barrels a day of lower-cost domestic crude, mostly from the Bakken region in the upper Midwest, in the current quarter and ramp up to 70,000 barrels a day for this year.

The shift to cheaper crude will reduce the average crude cost by $2 to $3 per barrel, Jacobson said.

Delta's overall fuel expense declined $91 million in the latest quarter. The average fuel price was $3.05 a gallon, helped by lower market jet fuel prices.

Delta president Ed Bastian said that demand for air travel was "solid" and that Delta expects "significant margin expansion" in the current quarter.

In the latest quarter, Delta earned $558 million, or 65 cents per share, compared with $238 million, or 28 cents, a year earlier. Revenue was up 5.5 percent, to $9.07 billion.

Net income for 2013 was $2.7 billion, excluding one-time items, a $1.1 billion increase over 2012.

"We expect Delta's numbers to be among the best in what should be a nice quarter for the airline segment," wrote Vicki Bryan, corporate bond analyst with Gimme Credit, an independent research firm.

"Delta has been sprinting ahead of most competitors for the past three years after masterfully executing its merger with Northwest Airlines," Bryan said in a client note. "Revenue and profit growth are outpacing industry trends, and ample cash flow generated has been wisely invested in innovative, lucrative ventures, which attracts strong growth in coveted corporate travel."

United Continental and Southwest Airlines will report quarterly results Thursday. Recently merged US Airways and American - now called American Airlines Group Inc. - will report earnings Tuesday.


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