Originally Posted by
mkgrip
Hasn't this been explained about a billion times in this thread?
If X ammount of jet fuel costs $1000 on the open market, and DL has that amount of its own fuel, it can either:
A) Pump the fuel into a DL plane and fly
B) Sell that fuel for $1000 to somebody who needs it, say AA.
If they choose option A they will have $1000 less money on their account than if they choose option B, so they lose $1000 by not selling it on the open market and therefore the real cost of that fuel in option A is no more or less than 1000$.
If DL did not have a refinery, it would have to buy that fuel in order to get to option A, again costing no more or less than the very same $1000.
Of course if the refinery itself could turn a huge profit if able to produce fuel way below market prices, but if it is able to do that it would be profitable even if DL didn't use any jet fuel itself. Same is true of any other business DL could invest in, if the buy a profitable tennis shoe factory, it will (by definition) bring profit to them.
It may have been explained but, as is usual for FT, by people that don't seem to truly understand what they are talking about.
How about you account for Delta's own demand and then tell me how much money is lost? Until DL miraculously stops needing jet fuel, the only net cost (or profit) from this transaction will be the difference between the cost to produce internally and the cost to secure externally.
You erroneously end the transaction flow after the LLC sells the fuel to AA, ignoring the fact that DL then has to buy the foregone fuel at the same market rate they just sold at. Under either scenario, DL is in the same ultimate position.
Heck, by your logic, DL should sell all of their jet fuel even today. After all, they are forgoing cash by putting it into their own planes. They might as well sell the planes too.
Again, this ultimately saves or loses money depending upon whether DL's costs to operate are above or below the portion of the price of jet fuel attributable to the refining process. I have my doubts they will save a lot of money, but your argument about losing out by not selling on the open market is way off the mark.