Faced with soaring jet fuel costs, Delta Air Lines took a pioneering step in 2012 to improve its bottom line by acquiring an oil refinery through its Monroe Energy LLC subsidiary. Fuel costs have traditionally accounted for over 30 percent of major airlines’ operating expenses1, their biggest cost of doing business, so executives have tried many hedging strategies. But Delta is the first to take this bold approach.2 Even as fuel costs have come down, Delta’s strategy has proved highly effective, helping the company smooth out costs and enjoy record profits. Monroe Energy has played a key role in this unprecedented success by leveraging best-in-class engineering solutions to drive operational efficiency and business growth.
When Delta Air Lines established Monroe Energy in 2012, the airline set an ambitious goal: Its new subsidiary would be asked to reduce the parent company’s jet fuel costs by $300 million per year. A key figure in meeting that goal was Jeff Warmann, a chemical engineer and seasoned industry executive, who became Monroe Energy’s CEO and President. Tasked with buying a refinery and fine-tuning the company’s business model, Delta chose a facility in Trainer, Pennsylvania (near Philadelphia), based on its location in the northeastern United States, where more than 25 percent of Delta's assets are located.
After purchasing the Trainer refinery for $180 million, Monroe Energy’s workforce of over 400 employees and some 1,000 contractors restored the refinery’s full-scale production to 185,000 barrels of crude per day. This capacity, combined with multi-year agreements with BP and Conoco Phillips to exchange gas, diesel and other refined products for jet fuel, enabled Monroe Energy to meet 60 to 70 percent of Delta’s domestic jet fuel needs of 220,000 barrels/day at a greatly reduced cost.3
Underpinning Delta’s business model, however, was the imperative that Monroe Energy must maximize operational efficiency at the Trainer facility – especially given a falling jet fuel “crack spread" (the margin between the cost of crude oil and the price of refined jet fuel) – in order to ensure the plant’s profitability. The challenge lay in continually improving the refinery’s productivity while maintaining the highest level of safety and environmental compliance.
Maximizing Efficiency, Boosting Productivity
To accomplish this dual goal, Warmann recognized that the refinery had to change the way it was accessing and leveraging critical information. Its engineers needed the opportunity to spend more time addressing issues and driving innovation rather than constantly scouring a host of different systems, manuals and other resources for reliable technical information.
Monroe Energy engineers were already relying on IHS for single-point access to industry specifications from such standards bodies as ASTM International (formerly American Society for Testing and Materials) and API (American Petroleum Institute). Now Warmann and his team decided to build on that trusted partnership.
The time savings [with IHS] is significant, increasing productivity anywhere from 30 minutes to several hours a day for each of the engineers. You achieve your goals more quickly and cost effectively.
In 2014, Monroe Energy gave its engineers access to an expansive collection of trusted, authoritative technical reference content through IHS Knowledge Collections. This IHS engineering solution provides single-source, online access to more than 110 million documents from vetted sources – including widely used reference handbooks and manuals, technical articles, patents, and other essential reference content. Powerful knowledge-discovery search technology allows engineers to quickly drill down to precise answers to their technical questions and challenges.
“With IHS Knowledge Collections, we can provide equal access for all of our engineers to the latest specifications and technical manuals,” says Warmann. “We’re giving them the online resources they need to be more productive, instead of spending thousands of dollars on each engineer to load them up with engineering manuals and other documentation. IHS has helped us combine all of those things – search engine, specifications, technical resources, and access to the Internet – that our engineers use to design, modify, and troubleshoot our facilities.”
The gains in cost savings, efficiency and confidence were proven immediately. Monroe Energy utilized the IHS platform to transfer time the engineers previously spent doing research to applying that information in the field. “The time savings is significant, increasing productivity anywhere from 30 minutes to several hours a day for each of the engineers. You achieve your goals more quickly and cost effectively,” Warmann says. With over 40 engineers and technicians using the tool, these time savings have translated into close to $600,000 a year – a manifold return on investment.
Improving Compliance and Governance
While increased operational efficiency was important for Monroe Energy, safety and sustainability remained paramount. “Our business goal is to operate this facility in a safe, environmentally-compliant and reliable manner,” Warmann notes. “Having access to the latest information helps ensure the decisions we’re making are based on the most current specifications.” Monroe Energy’s leadership team also extended use of the IHS platform to supervisors and process safety personnel, who use it to ensure compliance with fire and electrical codes.
In the process, the IHS solution has helped Monroe Energy strengthen corporate governance, too. “The tracking tools allow us to see who has been using the tool, for what purpose and for how long, providing accountability,” Warmann explains. “We not only have a benefit that’s very tangible in cost savings and more than justifies the IHS subscription, we have also realized the more intangible benefit of being able to ensure regulation compliance and standards that promote sustainability and operational excellence.”
The company has also enjoyed benefits stemming from the IHS platform’s user-friendly interface. Non-engineering staff use the technical knowledge they have found in the platform to improve instrumentation reliability and certify best practices. Warmann explains: “The search interface is easy for anybody to use, from somebody just learning how to use a computer to a highly technical professional performing complicated searches... The tool has enabled our non-technical or non-engineering personnel to perform highly technical searches.”
Refinery Profitability Key to Business Model
Monroe Energy’s role in Delta’s fuel cost containment strategy has proven formidable, even when most refineries are being hit hard in the current era of low oil prices. Delta Chief Financial Officer, Paul Jacobsen, reported in April 2015 that the refinery produced an $86 million profit for the March quarter,4 and under Warmann’s leadership, Monroe has helped to lower Delta’s fuel costs every year since the program’s inception. In 2012, Delta paid a penny per gallon higher on average than other airlines, a figure that has dropped to nine cents less per gallon on average in 2014. While this ten-cent advantage might seem paltry, each penny translates into roughly $40 million dollars a year for Delta Airlines.5
“IHS has been very cooperative in helping us fully utilize the tools to drive operational efficiencies,” Warmann concluded. “In our refinery, IHS is seen as the go-to place for any type of technical reference or specification, knowing that IHS is very diligent about keeping everything updated".