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Money Minute: Delta to buy jet fuel from itself [Video]

May 01, 2012|By David Lazarus

Delta Air Lines is buying its own oil refinery to maintain a steady flow of affordable jet fuel. It's either a brilliant move or an insane one.

The carrier says it will spend $150 million to acquire the refinery from ConocoPhillips, and then an additional $100 million fixing it up.

Richard Anderson, Delta's chief executive, called the acquisition "an innovative approach to managing our largest expense."

Jet fuel accounts for about a third of an airline's operating costs. Rising costs have resulted in higher ticket prices for travelers and more than a little turbulence for carriers.

It's possible Delta will be seen as a genius for finding a way to hedge its bets when it comes to a key commodity. But it's just as likely the company will be seen as reckless for investing millions of dollars in an industry that is itself prone to loopy boom-and-bust cycles.

If it's the former, maybe other companies -- not just airlines -- will follow Delta's example. For example, maybe McDonald's will want to buy cattle ranches and potato farms to ensure a steady supply of burgers and fries.

Maybe Kellogg's or Coca-Cola will buy sugar plantations.

Maybe Starbucks will buy Brazil.

Or maybe we'll have just one big company and it will own everything. And then it will never have to worry again about supply issues.

And consumers would obviously benefit.

Right?

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