An Analysis of Delta's Oil Refinery Acquisition

Delta acquired an oil refinery in the first half of 2012 as a strategic move to hedge against higher fuel prices. Our paper analyzes the oil refinery acquisition, a backward integration strategy, on its financial and operational performance, for the period 2010–2014. The methodology involves descriptive statistics and short-term stock performance as well as an econometric model that estimates the impact of the oil refinery acquisition on Delta’s net income. The data set consists of quarterly financial and airline operations metrics data. The results indicate that it is too early to ascertain whether or not Delta’s oil refinery acquisition has any positive impact on its financial performance since the variable of interest is insignificant in predicting Delta’s net income. Despite the apparent lack of positive impact of its oil refinery acquisition, the stock market has rewarded Delta’s strategy resulting in Delta’s share prices outperforming the S&P 500 and XAL in the 60-trading day period following the announcement of its acquisition.