In an industry that was dramatically impacted by the events of 9/11/01 and laden with crippling government regulations spawned from efforts to make air travel safer, Delta Airlines has been consistently out-performing other players in a market ridden with past bankruptcies.

Delta's success seems to stem from an innovative approach, both to the core competencies required to compete in the airline market-space, and through supply-chain optimization. In the spirit of strategic sourcing I will focus on the latter.

In April of 2012, Delta's wholly owned subsidiary, Monroe Energy LLC made an un-orthodox move to aquire an oil refinery in Trainer, PA for use in the airline's Northeast operations. With a spend of over $11 billion on fuel alone each year, the goal of achieving operating cost savings in this area has significant effects on the airlines ability to compete. This decision was criticized by many as naive, with many analysts predicting dire consequences for playing in someone else's sandbox. After all, what does Delta know about oil refinement?

Not surprisingly to some, Delta has come out on top in this endeavor, shipping Monroe's first batch of jet fuel on September 25, 2012,  and realizing investment gains before the end of Q3, 2012. The ability to supply their own fuel has helped with negotiating activities as well, according to Monroe CEO Jeffery Warmann. Speaking at the Global Refining Strategies Summit, Mr. Warmann was confident in the impact.

"We've seen a number of different areas where we've been able to influence the jet fuel price to the advantage of Delta," Mr. Warmann said. ""We don't have to go beg, borrow or steal from various suppliers...If I can supply my own and don't have to take your jet fuel, that's negotiating." 

The most recent development in Delta/Monroe's oil business activities include a recent decision to source crude oil from the Bakken oil fields in North Dakota. The decision is based on the significant boom the region has experienced through advances in rock fragmenting technology, and developing infrastructure to support the sudden interest and business presence in the area. Crude is significantly less expensive, though the pipeline constraints are resurrecting an older oil shipment practice - railroads - which was last used with any frequency in around the time of WWII.
This decision further exemplifies Delta's focus on their supply chain, and improving business practices and processes to optimize their supply and material operations. It almost seems like a no-brainer, and adheres to the old adage: "Strait to the Source." 

Is your business' primary commodity refined jet-grade fuel?
Buy a refinery.
Is the cost of shipping oil across the Atlantic consistently increasing?
Go to North Dakota.

Is your airline focused on the future, and positioning themselves to stand on superior footing in fuel-related negotiations?

You must work for Delta...
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Daniel Kane

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2 comments so far,Add yours

  1. When will Monroe Energy LLC use that facility to refine biofuel Jet-A?

  2. Certainly possible, Anonymous! With a large Boeing presence in nearby Philadelpiha which is investing heavily in algae based SPK research, we may see further innovation, and expansion to Biofuel. The question is, after re-outfitting the entire Trainer facility to maximize jet fuel production, will Monroe/Delta invest again in upgrades to their infrastructure to facilitate bio-fuel refinement?