Delta Airlines 2014 Annual Report Download - page 9

Fuel
Our results of operations are significantly impacted by changes in the price and availability of aircraft fuel. The following table shows our aircraft
fuel consumption and costs.
General
While jet fuel prices fell during the latter part of 2014, fuel expense remains our single largest expense. We have historically purchased most of our
aircraft fuel under contracts that establish the price based on various market indices and therefore do not provide material protection against price
increases or assure the availability of our fuel supplies. We also purchase aircraft fuel on the spot market, from off-shore sources and under contracts
that permit the refiners to set the price.
Monroe Energy
Global jet fuel demand continues to increase. While the advent of domestic shale oil production in the U.S. has reduced the threat of U.S. refinery
closures beyond those that have already closed, further capacity reduction is expected in Europe, thus impacting supply in the Atlantic Basin and
ultimately increasing refinery margins in the U.S. Our wholly-owned subsidiaries, Monroe Energy, LLC and MIPC, LLC (collectively, “Monroe”),
are
distinct from us, operating under their own management teams and with their own boards of managers. They operate the Trainer refinery and related
assets located near Philadelphia, Pennsylvania, as part of our strategy to mitigate the increasing cost of the refining margin reflected in the price of jet
fuel. The facilities include pipelines and terminal assets that allow the refinery to supply jet fuel to our airline operations throughout the Northeastern
U.S., including our New York hubs at LaGuardia and JFK.
Refinery Operations. The facility is capable of refining 185,000 barrels of crude oil per day. In addition to jet fuel, the refinery's production
consists of gasoline, diesel and other refined products (“non-jet fuel products”). Monroe sources domestic and foreign crude oil supply from a variety
of providers.
Strategic Agreements. Under multi-year agreements, Monroe exchanges the non-jet fuel products the refinery produces with third parties for jet
fuel consumed in our airline operations. Substantially all of the refinery's expected production of non-jet fuel products is included in these agreements.
Segments . Because the products and services of Monroe's refinery operations are discrete from our airline services, segment results are prepared
for our airline segment and our refinery segment. Financial information on our segment reporting can be found in Note 2 of the Notes to the
Consolidated Financial Statements.
Fuel Hedging Program
We actively manage our fuel price risk through a hedging program intended to reduce the financial impact from changes in the price of jet fuel. We
utilize different contract and commodity types in this program and frequently test their economic effectiveness against our financial targets. We
rebalance the hedge portfolio from time to time according to market conditions, which may result in locking in gains or losses on hedge contracts prior
to their settlement dates .
4
Year Gallons Consumed
(1)
(Millions) Cost
(1)(2)
(Millions) Average Price Per Gallon
(1)(2)
Percentage of Total Operating Expense
(1)(2)
2014
3,893
$
13,512
$
3.47
35
%
2013
3,828
$
11,464
$
3.00
33
%
2012
3,769
$
12,251
$
3.25
36
%
(1)
Includes the fuel consumption costs of our regional carriers operating under capacity purchase agreements.
(2)
Includes fuel hedge (losses) gains under our fuel hedging program of $ (2.0) billion , $493 million and $(66) million for 2014 , 2013 and 2012
, respectively.