Oh, and someone some day will probably buy AMR or parts of it out of bankruptcy for a song. Perhaps it is simply just another 100-point-plus drop in the DJIA or another double-digit drop in the S&P 500 Index.  The major airline carriers are trading today:

United Continental Holdings, Inc. (NYSE: UAL) is down 1% at $21.61 against a 52-week range of $15.51 to $26.50; UAL was above $24.00 just one week ago.

Delta Air Lines Inc. (NYSE: DAL) is down 0.8% at $10.45 with a 52-week range of $6.41 to $11.58; Delta is down almost 10% in less than two weeks.

US Airways Group, Inc. (NYSE: LCC) is down only 0.4% at $10.58 against a 52-week range of $3.96 to $11.73; US Air is down about 10% in less than two weeks.

Southwest Airlines Co. (NYSE: LUV) is performing the worst of the lot because most investors believe that are actively hedging and that means they won’t benefit as much from lower oil prices.  Southwest’s share price is down 1.2% at $8.18 against a 52-week range of $7.15 to $12.04.

JetBlue Airways Corporation (NASDAQ: JBLU) is an exception to the rule today.  Its shares are up 3% at $4.40 against a 52-week range of $3.40 to $6.32 in part on follow-on buying after a director of the company bought more than $200,000 worth of stock.

The question that has to be asked is how the end of summer demand is going to be and how the end of 2013 will hold up.  Right now investors are using anything as a source of funds but the movement here might be acting differently than it should be.

JON C. OGG

The most eye-popping numbers from the U.S. Department of Transportation’s Air Travel Consumer Report was the wait time for the flights which stayed on the ground the longest after their planned departure times. The American Air flight from Dallas-Fort Worth to St. Louis had a wait time of 219 minutes on March 17. The Shuttle America flight from New York LaGuardia to St. Louis had a wait time of 187 minutes on March 17. 

The survey found

The 15 carriers reporting on-time performance posted an on-time arrival rate of 84.0 percent during the first quarter of 2012. The previous first-quarter record was the 81.3 percent on-time arrival mark set during January-March 2002

In terms of airline performance

Highest On-Time Arrival Rates

1. Hawaiian Airlines – 92.5 percent

2. AirTran Airways – 90.9 percent

3. US Airways – 87.3 percent

Lowest On-Time Arrival Rates

1. ExpressJet Airlines – 74.1 percent

2. Virgin America – 74.9 percent

3. United Airlines – 77.4 percent

Airbus and its parent European Aeronautic Defense and Space Co. NV (OTC: EADSY.PK) reported today that the aircraft maker booked just 11 new orders in April — and those orders were taken for the A350, a plane comparable to the 777 from Boeing Co. (NYSE: BA). The A380 is Airbus’s late competitor to the Boeing 747.

The latest contract cancellation for seven A350s came from Abu Dhabi’s state-owned airlines Etihad. Full deliveries of the aircraft were to begin in 2014, but the schedule has been delayed and Etihad was not scheduled to receive the planes until 2017. No reason was given for the cancellation, but the recent problems with the A380 cannot have fostered confidence in the company.

Orders for new planes at both Airbus and Boeing are soft so far this year. Airbus claims net new orders for the first four months of 2012 of 112 planes. Boeing claims net new orders of 415 planes so far in 2012. All but two of Boeing’s new orders are for the venerable 737. Boeing’s new plane, the 787 Dreamliner, has a negative net total new orders so far this year.

Paul Ausick

Here is how some of the major airline carriers are trading today: United Continental Holdings, Inc. (NYSE: UAL) is up 3% at $22.22; Delta Air Lines Inc. (NYSE: DAL) is up 1.1% at $11.08; US Airways Group, Inc. (NYSE: LCC) is up 1.2% at $10.84.

The one exception is Southwest Airlines Co. (NYSE: LUV) with its shares trading down 1.3% at $8.11 because it is a hedge-play.  Southwest is an airline which often is more active in hedging out its oil price exposure, so a drop of more than 5% in oil prices from the peak in oil this week does not necessarily translate t quite as high of savings for Southwest.

What is important to remember here is that a $1.00 drop in crude is supposed to be worth about $400 million in profits to the airline industry.

JON C. OGG

Spirit management shrugged off suggestions. In essence, they said, Spirit is still one of the most inexpensive airlines. And, it does fly planes with seats, engines, and pilots. In light of those things, the complaints are overblown

Douglas A. McIntyre

Delta will pay $150 million for the refinery and expects to spend another $100 million to boost the plant’s capacity to make jet fuel, which is the reason Delta bought the refinery in the first place. The deal follows yesterday’s $5.3 billion acquisition by Energy Transfer Partners L.P. (NYSE: ETP) of downstream company Sunoco Inc. (NYSE: SUN).

A couple of interesting questions follow Delta’s entry into the refining business. First, will other airlines follow? United Continental Holdings Inc. (NYSE: UAL), US Airways Group Inc. (NYSE: LCC), and Southwest Airlines Co. (NYSE: LUV), like other large carriers, follow a hedging strategy that tries to even out the ups-and-downs of crude prices. When it works, as it did for Southwest in 2006 and 2007, management looks like geniuses and the airlines makes a ton of profit. When it doesn’t work, as it didn’t for Southwest a few years later, the less said the better.

The only reason to buy a refinery is to mitigate price risk on crude oil. Delta claims the cost of the refinery is equivalent to the price it would pay for one widebody jet. The company expects to save twice that much annually on fuel costs going forward. Before United and the other carriers jump into the refining business they will want to see if Delta can actually realize its projected savings.

Which brings us to the second question: how does Delta expect to mitigate crude oil price risk? When the possible refinery acquisition first became known, there were reports that JPMorgan Chase & Co. (NYSE: JPM) would take on the crude oil trading that would be needed to supply the refinery. As announced today:

[Delta subsidiary] Monroe is partnering with leading energy companies to supply crude oil and receive jet fuel in exchange for Trainer’s non-jet fuel outputs. Under a three-year agreement, BP will supply the crude oil to be refined at the facility. Monroe Energy will exchange gasoline and other refined products from Trainer for jet fuel from Phillips 66 and BP elsewhere in the country through multi-year agreements.

The “leading energy companies” are ConocoPhillips and BP plc (NYSE: BP). If BP is supplying the crude, the price will be set at or very near Brent crude prices. Jet fuel is generally more expensive than gasoline and other refined products. As Brent prices rise, jet fuel prices will also rise and probably rise faster than gasoline or diesel prices. Thus, Monroe/Delta will be trading lower-priced products for a higher-priced product. No savings there.

The only way for Delta to make sure it saves money is to source its crude more cheaply. In the US, that means getting crude from North Dakota’s Bakken field to the East Coast. There’s no pipeline (yet) to do that. Surely the lack of cheap crude is why JPMorgan is no longer in the picture. The proposed sale of Sunoco’s 335,000-barrel/day Philadelphia refinery to The Carlyle Group will not be concluded if the private equity firm cannot find a source of cheaper crude.

Delta apparently believes that by sourcing crude from BP the airlines has insulated itself from crude price risk. Not having seen details of the contract it’s hard to say. But oil companies are not charitable organizations and BP won’t have made any big concession on price.

Shares of Delta are up about 2.2% in the pre-market at $11.20 in a 52-week range of $6.21-$11.60. A new annual high is certainly within reach today.

Paul Ausick

At US Airways, profits rose to $48 million, which included a one-time gain of $73 million on a transaction with Delta related to takeoff and landing rights at LaGuardia and Reagan National. Stripping out the one-time items, US Airways posted an EPS loss of -$0.13, far better than the EPS loss of -$0.68 in the same period a year ago and nearly two times better than the consensus analyst estimate for an EPS loss of -$0.25. Revenue of $3.27 billion was also better than the consensus estimate of $3.24 billion.

The two airlines follow Southwest Airlines Co. (NYSE: LUV) and AMR Corp.’s (OTC: AAMRQ.PK) American Airlines, both of which reported earnings last week. Southwest also posted a profit on hedging gains, and American’s loss, stripping out one-time charges, was 40% smaller than it was in the same period a year ago.

United Continental Holdings Inc. (NYSE: UAL) is scheduled to report earnings tomorrow, as is JetBlue Airways Corp. (NASDAQ: JBLU). The consensus estimates call for United to post an EPS loss of -$1.03 on $8.58 billion in revenue and for JetBlue to post EPS of $0.08 on revenue of $1.19 billion.

The good news for airlines is that traffic is up, ticket prices have been raised, and some capacity has been wrung out. The wild card, of course, is fuel costs. Data from the International Air Transport Association (IATA) indicates jet fuel cost $3.245/gallon, down -2.4% from March, and down -1.9% from the same period last year. The IATA estimates the average cost for a barrel of jet fuel in 2012 will be $135, which will raise the industry’s total fuel bill by $41 billion over the year.

Delta’s shares are down about -0.3% in the early afternoon, at $10.45 in a 52-week range of $6.41-$11.60. US Airways’ shares are up 2.9% at $9.58, in a 52-week range of $3.96-$10.35.

The lightly traded Guggenheim Airline ETF (AMEX: FAA) is up 0.14% at $29.30 in a 52-week range of $23.82-$39.18.

Paul Ausick

Delta has reportedly offered $150 million for the plant and the airlines would purchase the refinery but the supplies would be financed by JPMorgan Chase & Co. (NYSE: JPM). Morgan would sell Delta jet fuel at a wholesale rate and sell other refined markets into the market.

That sort of arrangement is probably the only thing that would make sense for Delta, which has struggled to control its fuel costs for the past couple of years. In addition to its sales, Morgan gains some traction in the New York harbor market hub and can use the refined products as hedges on the production of jet fuel and diesel fuel.

Paul Ausick

Boeing reported that it delivered 5 of its newest planes, the 787 Dreamliner, in the first quarter of this year. The company also shipped 30 military aircraft in the quarter and a total of 3 satellites.

Boeing stock is down -0.12% at $73.58 in a 52-week range of $56.01-$80.65.

The reason these refineries are for sale is because they are — most of the time — money-losers. Except for Hovensa, all are capable of refining only Brent-quality crude, which is currently the most expensive crude in the world, and the international benchmark for pricing other grades.

Today, Brent costs about $123/barrel. From a 42-gallon barrel of crude at a more or less standard refining ratio (called the ‘crack spread’), a refinery actually produces nearly 45 gallons of refined products (that’s called ‘refinery gain’). Of that production, about 3.5 gallons are kerosene — aka, jet fuel.

The current cost of a barrel of jet fuel is $139 according to the International Air Traffic Association. If it becomes a refiner, the only thing Delta can wring out of that cost is profit, which is currently non-existent in east coast refineries. That’s why real oil companies are closing the refineries.

Of course Delta can sell all the other products — gasoline, diesel fuel, etc. — but then it needs either to contract that out or have a staff to manage the sale. No savings there.

There’s an old joke that the way to make a small fortune in the entertainment business is to start with a large fortune. The same thing is true of the refining business.

Paul Ausick