Delta Airlines: Why Own a Refinery? Why Now?

delta Delta Airlines: Why Own a Refinery? Why Now?

PR Verdict: “A” for Delta’s positioning

When was the last time an airline expanded into the oil business?  Any company that strays from its core business always runs a huge PR risk. But that is precisely what Delta did yesterday with the acquisition of an oil refinery that will ultimately provide 80 percent of its jet fuel for its US business. The market responded with interest and didn’t panic.

“Acquiring the Trainer refinery is an innovative approach to managing our largest expense,” Delta CEO Richard Anderson said.  “This modest investment, the equivalent of the list price of a new wide body aircraft, will allow Delta to reduce its fuel expense by $300 million annually and ensure jet fuel availability in the Northeast.”

Still not convinced?  Need more comparisons?  “To achieve similar fuel savings, Delta would have to buy 60 new-generation narrow-body planes like the Boeing 737, a capital investment that would total $2.5 billion”.   Despite some skepticism from oil specialists, investors pushed the company’s shares more than 10 percent since the beginning of April as word of Delta’s interest in the refinery spread.  This was a well-handled announcement.

The PR Verdict: “A” to Delta’s PR Team who positioned the transaction.  What might have been seized upon as a serious departure from corporate strategy was transformed into a relatively logical and natural move.

PR Takeaway:  Nothing like a couple of simple metrics to let the numbers do the talking.  By characterizing the purchase, as modest and then comparing costs to other more prohibitive outlays, this purchase became an easy sell.  With fuel making up over 40% of the airline’s expenses, innovative moves are what the market wants. We assume that those who worked on the announcement are now eligible for a free upgrade?

To read about the announcement click here.

What’s your PR verdict on this announcement?

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