Delta Airlines 2013 Annual Report Download - page 18

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 2013 , our average fuel price per gallon was
$3.00 , an 8% decrease from our average fuel price in 2012. 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, which in
turn was significantly higher than fuel prices just a few years earlier. Fuel costs represented 33% , 36% and 36% of our operating expense in
2013 , 2012 and 2011 , 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 higher fuel costs to our customers may be affected by the competitive nature of the airline industry. Until
recently, we often have not been able to increase our fares to offset fully the effect of increases in 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 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 remains subject to volatility in the cost of crude oil and jet
fuel. In addition, we 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 industry
standard market price indices.
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 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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