Learn how to buy businesses in 5-minutes or less, once a week. Lessons & specific tactics on how invest your money and generate cash flow for your life.
🔑 Airlines buying oil refineries, hotels, and other airlines
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Welcome to The Business Buying Academy with Sieva Kozinsky. 🔑 Airlines buying hotels, oil refineries, and even pest control businesses What's the world's largest airline? The answer is complicated. It depends on which metric you use. If you prefer financial measures like revenue, profit, and market cap, the largest airline is Delta. If you think number of passengers carried annually is the best measure, then the answer is American Airlines. And if you look at total fleet size or an airline industry metric called Available Seat Miles, then United is the winner there. Either way, one of the world's three largest airlines has a fascinating history. It's easy to forget that aviation is a young industry. Many of today's giant, multi-billion dollar airlines have humble beginnings in different businesses than the ones they're known for today. Today, Delta is worth $57 billion. But we're going to look at how the business started 100 years ago as a regional pest control service and eventually grew into the business we know today through a series of surprising acquisitions. The story of Delta Airlines begins not at an airport, but in a farm field in Georgia. In 1925, Huff Daland Dusters was founded in Macon, Georgia as the world’s first commercial aerial crop-dusting company. It operated a fleet of 18 planes, the largest privately owned fleet at the time (this was before passenger air travel). Farmers paid them to fight boll weevils and other pests. 1928, C.E. Woolman (often called Delta’s founder) led a group of local investors to acquire the assets of Huff Daland Dusters. They renamed it Delta Air Service, honoring the Mississippi Delta region in Louisiana, its new HQ. Air mail service was the primary way to make money with airplanes in the 20s. But Delta had a different - and bold idea. They took a risky bet on passenger air service in 1929. It went terribly at first. No one wanted to fly thousands of feet in the air. And the launch of the new business couldn't have been worse, as the Great Depression forced a temporary suspension of airline operations from 1929 to 1934. But the company survived. And in the late 1930s and 40s when passenger travel become more feasible, Delta was well-positioned to be one of the industry leaders. Growth Through Mergers Delta’s expansion relied heavily on acquisitions of regional airlines as the industry matured and a few national powers emerged.
These were the standard acquisitions that we'd expect from an airline; add other regional airlines to expand into a national footprint. But Delta had some less conventional deals. Vertical Integration In April 2012, Delta (via wholly owned subsidiary Monroe Energy) made a highly unconventional acquisition: the Trainer oil refinery complex in Trainer, Pennsylvania, along the Delaware River, purchased from Phillips 66. Key financial details:
At the time, fuel was ~36% of Delta’s operating expenses (~$11.8 billion in 2011 amid high oil prices). CEO Richard Anderson said the move could deliver savings equivalent to buying ~60 new smaller aircraft. Projected benefits included more than $100 million in initial savings and ~$300 million annually in run-rate fuel cost reductions by capturing refining margins, and optimizing logistics. The refinery restarted in September 2012. Results have been mixed but often positive:
Other Airlines’ Vertical Integration Attempts No other airline has bought its own oil refinery. But other airlines have experimented with vertical integration for control over costs and supply chains. A few examples:
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Sieva Kozinsky
Learn how to buy businesses in 5-minutes or less, once a week. Lessons & specific tactics on how invest your money and generate cash flow for your life.
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