Delta Airlines 2012 Annual Report Download - page 17

ITEM 1A. RISK FACTORS
Risk Factors Relating to Delta
Our business and results of operations are dependent on the price of aircraft fuel. High fuel costs or cost increases, including in the cost of
crude oil, could have a materially adverse effect on our operating results.
Our operating results are significantly impacted by changes in the price of aircraft fuel. Fuel prices have increased substantially since the middle
part of the last decade and have been extremely volatile during the last several years. In 2012 , our average fuel price per gallon was $3.25 , a 6%
increase from our average fuel price in 2011. In 2011, our average fuel price per gallon was $3.06 , a 31% increase from our average fuel price in
2010. In 2010, our average fuel price per gallon was $2.33 , an 8% increase from an average fuel price of $2.15 in 2009, which in turn was
significantly higher than fuel prices just a few years earlier. Fuel costs represented 36% , 36% and 30% of our operating expense in 2012 , 2011 and
2010 , respectively. Volatility in fuel costs has had a significant negative effect on our results of operations and financial condition.
Our ability to pass along the increased costs of fuel to our customers may be affected by the competitive nature of the airline industry. We often
have not been able to increase our fares to offset fully the effect of increased fuel costs in the past and we may not be able to do so in the future. This
is particularly the case when fuel prices increase rapidly. Because passengers often purchase tickets well in advance of their travel, a significant
increase in fuel price may result in the fare charged not covering that increase.
We expect to acquire a significant amount of jet fuel from our wholly-owned subsidiary, Monroe, and through strategic agreements that Monroe
has with BP and Phillips 66. The cost of the fuel we purchase under these arrangements will remain subject to volatility in the cost of crude oil and
jet fuel. In addition, we will continue to purchase a significant amount of aircraft fuel in addition to what we obtain from Monroe. Our aircraft fuel
purchase contracts do not provide material protection against price increases as these contracts typically establish the price based on various market
indices. We also purchase aircraft fuel on the spot market, from offshore sources and under contracts that permit the refiners to set the price.
Our business and results of operations are also dependent on the availability of aircraft fuel. Significant disruptions in the supply of aircraft
fuel, including from our wholly-owned subsidiary, would materially adversely affect our operations and operating results.
We are currently able to obtain adequate supplies of aircraft fuel, but it is impossible to predict the future availability of aircraft fuel. Weather-
related events, natural disasters, political disruptions or wars involving oil-producing countries, changes in governmental policy concerning aircraft
fuel production, transportation, taxes or marketing, environmental concerns and other unpredictable events may result in crude oil and fuel supply
shortages in the future. Shortages in fuel supplies could have negative effects on our results of operations and financial condition.
Because we plan to acquire a large amount of our jet fuel from Monroe, the disruption or interruption of production at the refinery could have an
impact on our ability to acquire jet fuel needed for our operations. Disruptions or interruptions of production at the refinery could result from various
sources including a major accident or mechanical failure, interruption of supply or delivery of crude oil, work stoppages relating to organized labor
issues, or damage from severe weather or other natural or man-made disasters, including acts of terrorism. If the refinery were to experience an
interruption in operations, disruptions in fuel supplies could have negative effects on our results of operations and financial condition. In addition, the
financial benefits we expect to achieve from buying fuel from Monroe could be materially adversely affected (to the extent not recoverable through
insurance) because of lost production and repair costs.
Under a strategic agreement that Monroe has with Phillips 66, Monroe is exchanging non-jet fuel products for jet fuel for use in our airline
operations. Monroe is required to deliver specified quantities of non-jet fuel products to Phillips 66 and Phillips 66 is required to deliver specified
quantities of jet fuel to us. If either party does not have the specified quantity or type of product available, that party is required to procure any such
shortage to fulfill its obligation under the exchange agreements. If the refinery experiences a significant interruption in operations, Monroe may be
required to expend substantial amounts to purchase the products it is required to deliver, which could have a material adverse effect on our
consolidated financial results of operations.
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