Delta Air Lines' refinery bet looks more valuable in jet fuel squeeze
- Delta's refinery ownership mitigates rising jet fuel costs
- Jet fuel prices rise faster than crude oil
- Other airlines face higher costs, explore different fuel options
When Delta Air Lines bought an aging refinery outside Philadelphia in 2012, the move looked unusual.
Most carriers buy jet fuel from suppliers. Delta instead bought a refinery that processes crude oil into jet fuel and other products.
The deal was meant to lower fuel costs, but also drew scrutiny as airlines faced growing pressure to curb emissions.
Now, as jet fuel prices rise faster than crude oil during the Iran war, widening the refining margin embedded in airline fuel bills, that bet is starting to look more consequential.
For most airlines, a wider gap between crude and jet fuel means higher fuel costs. Delta still pays market prices for fuel transferred from its Monroe refinery to its airline operations.
But owning the refinery means the profit from refining fuel stays within the company instead of going to outside suppliers, Delta said.
THE MATH BEHIND THE SQUEEZE. Jet fuel prices have climbed sharply in recent weeks, widening what refiners call the crack spread — the difference between the price of crude oil and the fuels produced from it.
In the week of March 20, North American jet fuel averaged about $179 a barrel, compared with roughly $110 for Brent crude, according to data compiled by the International Air Transport Association. U.S. spot jet fuel prices were higher still, about $4.56 a gallon on March 20, or roughly $192 a barrel, according to trade group Airlines for America.
For airlines buying fuel on the open market, that spread is embedded in the price they pay. When the gap widens, airline fuel bills can rise quickly even if crude prices move less sharply.
Alaska Air Group CEO Benito Minicucci said last week the airline burns about 100 MM gallons of fuel a month, meaning a $1 increase in jet fuel prices adds roughly $100 MM in monthly cost.
REFINERY OFFSET. Delta did not say how much of the current spike Monroe could offset, but its filings show it has contained its fuel costs materially in periods when refining margins widened.
Delta reported Monroe lowered its average fuel price by about 23 cents per gallon in 2022, 10 cents in 2023, one cent in 2024 and four cents in 2025. Based on its disclosed fuel consumption, those reductions equate to roughly $785 MM, $393 MM, $41 MM and $171 MM, respectively.
Monroe generated $777 MM in operating income in 2022, when refining margins surged after Russia's invasion of Ukraine disrupted global fuel markets.
Historically, the benefit to Delta's fuel costs increased when refining margins widened and shrank when they narrowed.
Morningstar analyst Nicolas Owens said the structure can soften the impact of spikes in refining margins.
"When crack spreads widen, Delta is essentially paying itself the crack spread for that portion of the fuel," said Owens. "It does mute the impact of the fuel price spike for Delta."
Conversely, the refinery can become a drag when refining margins narrow. Delta's filings show Monroe posted a $216 MM operating loss in 2020, when the pandemic crushed jet fuel demand and disrupted refined-products markets.
HOW IT COMPARED. The difference was visible during the last major fuel price spike.
Delta's average fuel cost rose to $3.36 a gallon in 2022 from $2.02 in 2021, lifting its annual fuel bill to about $11.5 B, or 24% of total operating expense, from 20% in 2021.
United Airlines, by comparison, paid an average of $3.63 a gallon in 2022, up from $2.11 in 2021, pushing its fuel bill to roughly $13.1 B, or 31% of total operating expense, from 22% in 2021.
Fleet mix, route networks and other factors also affect what airlines pay per gallon.
RIVALS FEEL THE SQUEEZE. Minicucci said Alaska has been shifting fuel supply away from the U.S. West Coast — including tankering fuel from Singapore to Seattle — because refinery margins there have pushed jet fuel prices about 20 cents per gallon higher.
American Airlines has said higher fuel prices added about $400 MM to its first-quarter fuel bill since its last update in late January.
United CEO Scott Kirby warned employees last week that jet fuel prices had more than doubled in three weeks and, if sustained, could add about $11 B to United's annual fuel bill — more than twice the airline's best-ever yearly profit.
"At the moment owning a refinery is almost like a hedge," said Denton Cinquegrana, chief oil analyst at Oil Price Information Service.
COSTS AND LIMITS. The refinery does not eliminate Delta's exposure to higher fuel prices. Refining profits can fluctuate with market conditions.
The refinery also carries regulatory costs. Delta said its expense for complying with the U.S. Renewable Fuel Standard rose to $312 MM in 2025 from $203 MM in 2024.
In years when refining margins are narrow, those compliance costs can eat into the financial benefit Monroe provides.
DELTA'S EDGE. Delta CEO Ed Bastian said last week rising jet fuel prices had added about $400 MM to the airline's fuel bill in March.
But he said the refinery provides a "meaningful hedge" on the refining margin between crude oil and jet fuel.
"It's not going to cover the crack entirely," he said. "But (it) gives us a fairly significant hedge."
Bastian said Monroe's profits should begin contributing starting in the second quarter.
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