..it says it can't do this cost-effectively, in part because so much refining capacity has closed down.
On this point, Delta has some justification. The Justice Department considers a market with a Herfindahl-Hirschman Index score above 2,500 to be "highly concentrated." In 2010, the East Coast refining market's score hit 3,255, against a nationwide one of 680, according to the Federal Trade Commission. If Pennsylvania's Trainer facility had stayed idle rather than be bought by Delta, the score would likely have surpassed 4,000, according to the American Antitrust Institute...Delta hopes to capture the wide profit margins refiners have taken at its expense in a classic example of vertical integration.
This is possible. But refining is deeply cyclical: Delta's own deal will alter the trend toward greater market concentration. The spread between Nymex crude oil and jet fuel was equivalent to 23% of the jet-fuel price in 2011, according to Roger King at CreditSights, meaning refiners were earning big margins. But that spread has been extremely volatile, ranging from a negative to more than 40% at various points over the past decade.
The East Coast jet-fuel market appears to have failed for now. But future changes in refinery ownership, logistical links or import volumes will likely address this. When they do, Delta will benefit from lower fuel costs. But its investment in Trainer and decision to take on the risks of running a refinery will look less advantageous.