July 14, 2016 - 3:00 PM EDT
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Delta says its $10M loss at Delco refinery is cyclical

July 14--Delta Air Lines' refinery in Trainer, Delaware County, posted a $10 million loss in the three months ended June 30, following a $28 million loss in the first three months of this year.

Delta, the first U.S. airline to report earnings for the latest second-quarter on Thursday, said the refining industry is cyclical.

"We'll have good times, and bad times, with that refinery but we are absolutely committed to it, irrespective of its profits," chief financial officer Paul Jacobson said on a conference call with investors.

Chief Executive Officer Edward Bastian chimed in: "Let me be really clear. We are very happy with the refinery. They are doing a great job, and yes, we expect they will continue to generate profits as they have historically for Delta over time."

Refining profit margins -- known as crack spreads -- have been hurt because crude oil prices have gone up.

"We expect the lower crack spread environment, which is a positive for Delta overall, will likely result in a modest loss for the refinery for the full year," Jacobson said.

Delta bought the idled ConocoPhillips refinery in 2012 for $150 million as a source of discounted jet fuel.

"We measure the success of that refinery based on how well it operates and the team that we have there has been performing extraordinarily well from a cost basis, from an operational reliability basis," Jacobson told analysts and reporters. "The refinery leads all comparable indices both in size and geography for its efficiency and its productivity."

Until this year, the refinery, operated by Delta subsidiary Monroe Energy L.L.C., had posted seven consecutive quarters of profitability.

Shares of Delta rose 3.59 percent, or $1.42, to $40.98on Thursday after the Atlanta-based carrier reported a quarterly profitthat beat Wall Street estimates, despite a drop in revenue.

Delta announced that it would reduce systemwide capacity -- seats and flights -- by 1 percent in the fourth quarter and reduce flying by 6 percent to the United Kingdom in the winter because of foreign currency pressures, the drop in the British pound, and economic uncertainty about the U.K.'s leaving the European Union.

Passenger revenue for each mile flown, a key industry measure, has fallen for all U.S. carriers because seat capacity has outstripped travel demand, leading to lower average ticket prices on some routes.

Meanwhile, oil prices have increased. "As we look to the remainder of the year, the large year-on-year savings driven by lower fuel are largely behind us," Bastian said.

Net income for Delta was $1.55 billion, up 4 percent from a year ago. Revenue fell 2 percent to $10.45 billion. Analysts had expected $10.48 billion.

Delta president Glen Hauenstein said business travel bookings remained "solid," but have not kept pace with the growth in capacity, leading to lower fares. Revenue from leisure travelers was "strengthening," he said.

"Despite continued pressure in the revenue environment, management is remaining focused on turning unit revenue positive by year-end," analyst Helane Beckerof Cowen & Co. said in a client note.

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Source: Equities.com News (July 14, 2016 - 3:00 PM EDT)

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