Oct 16, 2014
Executives
Jill Sullivan Greer - MD, IR Richard Anderson - CEO Ed Bastian - President Paul Jacobson - CFO Glen Hauenstein - EVP, Network Planning and Revenue Management Kevin Shinkle - CCO Gil West - EVP and COO Joanne Smith - CHRO
Analysts
Duane Pfennigwerth - Evercore Partners Dan McKenzie - Buckingham Research Michael Linenberg - Deutsche Bank Glenn Engel - BofA Merrill Lynch Julie Yates - Credit Suisse Jamie Baker - JPMorgan John Godyn - Morgan Stanley Savi Syth - Raymond James Thomas Kim - Goldman Sachs David Fintzen - Barclays Capital David Koenig - The Associated Press Jeffrey Gaston - Thomson Reuters Mike Sasso - Bloomberg News Linda Loyd - Philadelphia Inquirer
Operator
Good morning ladies and gentlemen, and welcome to the Delta Airlines September Quarter Financial Results Conference. My name is Kellian, I will be your coordinator.
At this time, all participants are in a listen-only mode until we conduct a question-and-answer-session following today’s presentation. (Operator Instructions) As a reminder, today's call is being recorded.
At this time, I’d like to turn the conference over to Ms. Jill Sullivan Greer, Managing Director of Investor Relations.
Please go ahead, Jill.
Jill Sullivan Greer
Thanks, Kellian. Good morning everyone and thanks for joining us for our September quarter call.
Speaking on the call today will be Richard Anderson, Delta's CEO; Ed Bastian, our President; and Paul Jacobson our Chief Financial Officer. Richard will open the call and then Ed will address our financial and revenue performance, and Paul will conclude with a review of cost performance and cash flow.
We have the entire leadership team here with us in the room for the Q&A session. To get in as many questions as possible during the Q&A, please limit yourself to one question and a brief follow-up.
Today's discussion contains forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from the forward-looking statements.
Some of the factors that may cause such differences are described in Delta's SEC filings. We'll also discuss non-GAAP financial measures.
All results exclude special items unless otherwise noted, you can find the reconciliation of our non-GAAP measures on the Investor Relations page at delta.com. And with that, I will turn the call over to Richard.
Richard Anderson
Thank, Jill, good morning. Before we start, I want to introduce Joanne Smith, our new Chief Human Resource Officer.
Joanne has served as a Delta leader for 12 years at various senior leadership capacities in marketing and in-flight service. She has great respect for Delta’s culture, values and our employees, and we’re quite pleased for her to take on this new role.
I want to thank Mike Campbell for his leadership and valuable contributions to Delta. We wish him the best in retirement although he will continue to advise us through a long-term consulting agreement.
This morning we reported a very good quarter with a $1.6 billion pre-tax profit for the September quarter, which is an increase of 35% or 431 million improvement year-on-year. We grew out top-line revenues by 7%, held non-fuel costs flat for the third consecutive quarter, and generated a 15.8% operating margin which is a 2.6 point improvement year-on-year.
Our ROIC for the last 12 months was 19.3%. Our strong cash generation continued with 1.3 billion of operating cash flow and over 9 million of free cash flow for the quarter.
Year-to-date, we have generated 4.3 billion of operating cash flow and 2.8 billion of free cash flow, which has allowed us to fund 900 million to our pension plans, reduce 2 billion of net debt, and return more than 775 million to shareholders in dividends and share buybacks. We continue to run by a very wide margin the industry’s best operations.
In the September quarter, we delivered a 99.7% completion factor including 15 days with zero mainline cancellations. Our on-time rate improved 2.5 points to 85.6 and our customer satisfaction scores are climbing as our customer complains decreased by 3% as we consistently ranked number two fewest DOT customer complains.
These operational results are a testament to how hard our employees are working across the system to raise the bar for our customers. We thank them for our service and we know that we have huge improvement opportunities ahead in our operation.
We showed our appreciation for our employees’ performance on October 3rd when we paid out an advance of 305 million on our 2014 profit sharing equal to 5% of our employees’ pay, which is an addition to the 24 million in shared rewards payments this quarter. We know that Delta’s positive employee culture differentiates us from our competitors and we reward our employees with pay for performance through our profit sharing program and shared rewards.
This alignment reduces risk and when employees have a vested interest in the future profitability of the company, they take great care of our customers, they take great care of each other. This drives revenue growth and better returns for our owners.
Six months ago, we raised the bar on our long-term financial goals and we attempt to continue to improve on our financial and operating results. This quarter shows our steady execution even in the midst of a choppy global economy.
We also know we have more work and more opportunity ahead of us to reduce the level of risk in our business and continue to deploy our cash flow for our owners. This will strengthen our foundation and drive greater sustainability in our results regardless of the global environment.
There are three key areas that we’ll de-risk going forward in our business. The first is the continuation of our capacity discipline.
As margins continue to improve, a conservative level of growth is appropriate and we’ll drive higher profits, expanded returns, and improved cash flows for our shareholders. We plan to keep our system capacity fairly disciplined at about the rate of growth of GDP.
Through steep density increases and up gauging, we can generate modest capacity increases on a smaller fleet count. Since 2009 we have reduced our fleet by 200 airplanes, while we’re still finalizing next year’s plan and will have the details that our Investor Day in December, we’re targeting overall 2015 system capacity growth at approximately 2%.
In the trans-Atlantic this summer the industry was pressured by excess capacity growth. Despite the capacity situation, our trans-Atlantic profitability increased year-over-year and again we produced really good double-digit margins with a very significant low factor premium to the industry.
The industry capacity picture has changed significantly in the trans-Atlantic from where it stood three months ago. Together with our JV partners we have adjusted our course and we’ll limit JV capacity growth to around 1% to 3% this winter, a level that is appropriate within the current demand environment.
This capacity reduction in the trans-Atlantic has freed up smaller gauge right by the aircraft that we can now redeploy to the Pacific allowing us to accelerate plans to retire our entire fleet of 16 747-400s. We’ve already retired three in September and another one this quarter.
Four more will be retired in 2015 and the remainder will exit the fleet by 2017. These retirements will be margin accretive and are expected to generate $100 million next year in operating contribution.
The second aspect of risk reduction is diversifying our revenue base by widening our global footprint, building immunized joint ventures internationally with our equity investments and expanding our ancillary and merchandizing offerings. These types of changes are building a more stable revenue base and reducing business risk.
In just the September quarter, we saw more than 20% revenue growth from some of our ancillary product initiatives. The final aspect is continuing to reduce financial risk.
We are going to keep paying down debt. High quality industrial companies have investment grade balance sheets and their low interest expense allows them to consistently produce profits even in cyclical industries.
With our recent S&P upgrade, we are two notches away from investment grade. We have reduced our debt levels by nearly $10 billion over the last five years, which is saving us more than $0.5 billion per year in interest expense compared to 2009.
We are on-track to reduce our debt level below 7 billion at year-end and all the way down to 5 billion by 2016. We will continue to see the benefit to our earnings as our interest expense declines.
Deploying our capital in a balanced manner is essential for our long-term success. To this end we will invest approximately 50% of our operating cash flow back into the business, keeping our capital expenditures in the 2 billion to 3 billion range.
Through a combination of new and used aircraft purchases and right now given the huge glut of airplanes in the global market, we’ll have great opportunities for used aircraft purchases in the future. We are very disciplined in all of our capital spending and we have a path to keep our capital expenditures easily within these ranges while keeping our fleet vibrant.
With roughly 3 billion in free cash flow each year, we will continue to pay down debt, address our pension obligations and return more cash to our shareholders. As our net debt goes down and our free cash flow improves, our Board is quite focused on meeting ROIC goals, while continuously improving our shareholder capital returns.
We have shown our commitment to return capital to our owners. In our initial capital deployment plan announced less than 18 months ago, we envisioned returning approximately $350 million per year.
We will return more than 1 billion this year and have already completed more than 15% of our $2 billion share repurchase authorization in the first four months. We will update our share repurchase progress at our December Investor Day.
To reiterate we’re on a long-term path to consistently deliver top-quality results and to be the best in the global airline industry. In closing while we are consistently producing record profitability we know there is more work ahead.
For the fourth quarter, we expect 10% to 12% operating margins and a full year pre-tax profit comfortably above 4 billion. We have the right foundation in place, a clear direction where we want to take this company over the long-term and 80,000 Delta employees who are the very best in the industry.
With that I’ll turn the call over to Ed.
Ed Bastian
Thanks Richard. Good morning everyone.
Thanks for joining us today. With the September quarter we reported a $1.64 billion pre-tax profit, which was a $431 million improvement year-over-year.
Our net income was a $1 billion or $1.20 per share. Our results this quarter would not have been possible without the contributions made by the entire Delta team.
I am pleased to say that we have set aside $384 million in profit sharing for the results this quarter, bringing us to a total of $823 million accrued so far this year. And we expect to payout a $1 billion total for 2014, our highest profit sharing ever representing about 15% of pay.
Turning to the specifics for the quarter, we grew our top-lines by 7% on a 3% increase in capacity. Our corporate revenues increased 6% compared to last year with continuing double-digit gains from the financial services and automotive sectors and high single-digit gains in the banking and media sectors.
Our merchandizing and ancillary initiatives continue to exceed expectations and generated $290 million of revenues for the quarter with more than 20% revenue growth in the paid first-class upsell and Economy Comfort products. Our first-class upsell initiative helped push paid first-class load factors up more than 6 points to 44%.
Looking at unit revenues, our passenger RASM increased 2.4% with yields up 1.9%. The domestic entity was our top performer with 5% unit revenue improvements on 2% higher capacity.
We continue to see solid results in New York. LaGuardia’s performance outpaced the domestic entity with 10% unit revenue growth and the Transcon saw RASM gains despite 20% capacity growth.
Our Atlantic domestic unit revenues were up 8% driven by near double-digit yield improvements in both the local business and leisure segments. Seattle’s domestic performance has significantly exceeded our expectations as unit revenues increased 6% on a 25% increase in capacity driving margin improvements year-over-year.
Our decision to shift capacity out of Cincinnati and Memphis to build out the Seattle Hub is producing solid results. In the trans-Atlantic our unit revenues were flat with a 4% increase in capacity despite 1.5 points of RASM pressure from the events affecting Moscow, Tel Aviv and West Africa.
Our joint venture with Virgin Atlantic is doing well with a 4% RASM gain and a 17% increase in profitability on a combined 7% increase in capacity. Turning to the Pacific, the yen weakness contributed to unit revenue underperformance as unit revenues were down 2% on flat capacity.
Yen revenues declined $20 million net of hedges. We are addressing this performance with our Pacific restructuring.
And finally in the Latin entity our unit revenues were down 5% on more than 15% higher capacity as we continue to invest in this part of our network. While we have relatively small exposure to Venezuela and Argentina those two markets accounted for half of the unit revenue decline in the Latin entity.
In addition, the entity faced headwinds from the World Cup this summer especially in Brazil. We are now seeing good recovery in this demand.
AeroMexico contributed more than 20% of the traffic into our key Mexican markets. And GOL contributed nearly 30% of the traffic from the U.S.
to Brazil. Combined, this traffic generated $40 million of incremental revenues for the quarter.
Our investments in these two carriers are proving to be beneficial. Now looking ahead to the December quarter, the overall revenue environment remains solid.
And we expect to produce a 0% to 2% unit revenue gain which combined with a significant decline in fuel prices will lead to continued margin expansion. There will be some noise between the individual months due to the timing of the ThanksGiving holiday with the Sunday ThanksGiving return traffic which is our largest revenue day of the year shifting back into November this year.
For the quarter, we expect approximately 3% capacity growth. This top-line revenue of about 5%, combined with lower fuel prices and other cost productivity, will help drive an estimated 10% to 12% operating margin for the quarter, which is a 200 to 300 basis point margin expansion and also represents a 300 to 400 basis point pre-tax margin expansion.
We’re obviously most levered to the domestic system with more than 60% of our revenue generated in that entity. And domestic continues to perform well.
Our ThanksGiving and advanced unit revenues are up about 8% and the Christmas New Year’s bookings look solid. The biggest driver of our domestic profitability improvement over the last two years has been our upgauging initiative which continues to drive higher unit revenues, lower unit cost and expanded domestic margins.
We still have considerable opportunity ahead in this area as we reguage the domestic airline. Probably the biggest sorts of questions we currently get from investors is how we’re managing the international entities in the current environment.
Optimizing the international network is one of the best opportunities we have to continuing to improve margins and returns. Capacity discipline is especially important to this effort.
And to this end, our plan is to keep our international capacity growth relatively flat next year. In the trans-Atlantic, capacity levels have been recalibrated to the current demand environment working with our JV partners we lowered our growth plans to 1% to 3% for the winter with a similar level of growth plan for 2015.
While our overall trans-Atlantic capacity will modestly grow, we have very different approaches to capacity within the entity. Our primary growth area is London.
The Delta Virgin Atlantic combined capacity into London is expected to increase 2.6% in the winter as growing demand is supported by our new joint venture. London-Heathrow continues to be a bright spot as we have seen our JV margins expand 270 basis points year-to-date.
For the remainder of Europe, we expect our capacity to increase just over 1 point with our major focus continuing on optimizing capacity between Delta’s U.S. hubs and the Paris and Amsterdam hubs of Air France-KLM.
Offsetting this growth however, our capacity reductions in the areas that continue to have demand volatility, Moscow, Tel Aviv, and West Africa. Through a combination of down-gauging, reducing frequencies and cancelling service to Liberia, we have reduced our capacity by 20% in these effected markets, which is in line with current demand trends.
And to put into context, these markets represent approximately 1% of our overall system-wide capacity. Looking at our Latin network, we’re now entering the later stages of our investment with double-digit capacity growth in the December and March quarters followed by low single-digit capacity changes from that point forward.
This density is absorbing our capacity investment quite well excluding Venezuela we’re on-track to produce unit revenue gains in the December quarter on 15% capacity growth. We expect Latin’s performance to further improve in 2015 as we annualize our capacity adds and our relationship with AeroMexico and GOL mature.
By far the greatest potential that we had is with our Pacific restructuring. While there is still a lot of work to be done in the region it continues to be pressured by a weakening yen, we have an aggressive strategy to improve our margins and returns and we have a three-pronged approach to restructuring the Pacific.
First, we’re adjusting our capacity levels. Our Pacific capacity will decline in the high single-digits next year with a 25% to 30% reduction in our low yielding intra-Asia flying.
Second, we’re getting the gauge rate regarding our aircraft in the market. We’ve retired the first 4747s this year with the remainder set to exit the fleet over the next two to three years.
This year we’re backfilling a portion of this capacity with smaller gauged aircraft moved from the trans-Atlantic and as we take delivery of new Airbus 330s next year, this will help facilitate the retirement of the remaining 747s. The 747 retirement should improve our Pacific profitability by $100 million next year.
And finally, we’re adjusting our hub structure. Although it remains a very important asset to our network, we’re reducing our reliance on connecting traffic in Tokyo and leveraging the size and scale of our domestic network through our Seattle Hub as we introduce additional direct service from the U.S.
to Asia. All of these initiatives are already in motion and we’ll drive returns in the region over the next several years consistent with our long-term financial goals.
I’ll conclude by simply saying that not only do we have a lot of opportunity to generate additional value from our international network, but we also have a clear plan on how we’re going to get there. We’ll continue to be disciplined with our capacity and focused on improving our margins and our returns.
With that, I’ll hand the call over to Paul to go through the details on our cost and cash flow performance.
Paul Jacobson
Thank you, Ed, and good morning everybody, and thank you joining us today. Our ongoing focus on cost performance was a significant contributor to our margin expansion this quarter.
Total operating expenses increased by $320 million for the quarter with almost half of that driven by higher profit sharing expense. We held our non-fuel unit costs flat for the quarter marking the 5th consecutive quarter with ex-fuel CASM growth below 2%.
This is further confirmation that our cost initiatives are delivering the benefits that we expected and with the organization rally behind this, we expect that trend to continue. One of our larger cost initiatives this year is the domestic re-fleeting.
During the quarter, we took delivery of 22 aircraft and retired a total of 34 including 24 50 seaters. This strategy is producing significant operating leverage as we’ve generated 2% higher domestic capacity year-to-date on 4.5% fewer departures.
As we continue to retire 50 seaters in older mainline aircraft next year, we expect to see benefits and lower maintenance costs from a combination of avoided maintenance events and the ability to recycle parts from the retired fleet for use on the active fleet. This initiative drove $35 million of maintenance savings in the September quarter alone.
While the growth rate of non-fuel unit costs in the December quarter should increase from recent levels due to the timing of the off peak maintenance events, we still expected to be less than 2% and in line with our long-term cost goal. Moving onto the fuel, our fuel expense for the quarter decreased by $23 million as lower fuel prices and the refineries improved profitability more than offset the increase in consumption from capacity growth.
Our fuel price for the quarter was $2.90 per gallon with the benefit of $63 million of hedge gains in the quarter, an equivalent level to last year despite lower market fuel prices. The refinery made a $19 million profit for the quarter which lowered our fuel price by $0.02 per gallon.
The refinery’s profit represents a $16 million improvement over the same period last year. A key driver of the profitability was our domestic crude initiative as we processed 100,000 barrels per day of domestic crude during the quarter.
We are on-pace to achieve our goal of averaging 70,000 barrels per day for the full year, which should increase to 100,000 barrels per day in 2015. For the December quarter, we’re expecting to pay $2.69 to $2.74 per gallon for fuel including the refinery and hedge impacts.
This includes the projected profit of the refinery of $20 million driven by widening crack spreads. The refinery team is running a great operation and continuous to generate meaningful year-over-year improvements there.
At current crude prices, we’ll have approximately $100 million of hedge losses in the December quarter while our 2015 hedge book is near breakeven with a solid amount of protection at current price levels. Even with these hedge losses, we’ve participated in 80% of the price declines since late June.
With the expected December quarter losses, our hedges reduced our overall fuel costs by roughly $160 million for 2014. Turning to cash, our strong cash generation continued to differentiate us from the industry.
This quarter we generated $1.3 billion of operating cash flow and reinvested $411 million into the business primarily related to fleet. In the fourth quarter, we expect to spend $800 million on capital expenditures which will bring our total CapEx to approximately $2.3 billion for the year.
With another quarter of solid cash generation ahead of us, we’re on-track to produce $3.5 billion of free cash flow this year. We used that to continue to strengthen the balance sheet and return cash to shareholders with our $910 million of free cash flow during the quarter.
Our adjusted net debt is down to $7.4 billion which held lower our interest expense by $60 million versus last year. We have a clear line of site to achieve our $5 billion adjusted net debt targeted 2016.
During the September quarter, we also returned $325 million to shareholders through dividends and buybacks. We paid out $75 million in dividends as we increased our dividend by 50% to $0.09 per share.
In addition, we repurchased $250 million in shares during the quarter. Once again I want to thank the entire Delta team for another record breaking quarter.
Our performance this quarter and throughout this year shows what we can do when we all work together to drive change and deliver results. Congratulations to each of you on a great quarter.
Jill?
Jill Sullivan Greer
Thanks, everyone. Before I move to the Q&A, I just want to take a minute and remind everybody about our December Investor Day.
We will have more details out shortly, but for now please mark your calendars for December 11th. So Kellian, if we could have the instructions as to how to ask the questions.
Question
and
Operator
(Operator Instructions) We’ll hear first from Duane Pfennigwerth with Evercore.
Duane Pfennigwerth
Hi, good morning. I wonder, on your 2015 hedge book, if you could just give us a sense for how hedged you are and where the floors are on that.
And then just remind us. When we see the mark-to-market changes on your book, should we interpret those as cash changes, or is some of that non-cash until it is realized?
Thanks.
Evercore Partners
Hi, good morning. I wonder, on your 2015 hedge book, if you could just give us a sense for how hedged you are and where the floors are on that.
And then just remind us. When we see the mark-to-market changes on your book, should we interpret those as cash changes, or is some of that non-cash until it is realized?
Thanks.
Richard Anderson
Sure, good morning Duane. For 2015, we are hovering around 30% to 40% hedged at current levels.
We’ve got significant downside participation even from these levels down. But we managed the book day-to-day basis, so that can change overtime, but we feel very good about where we’re positioned for 2015.
You have to remember for mark-to-market we do not use FAS 133. So for other carriers and comparisons those changes go straight to equity.
But those are largely non-cash for this quarter, the bulk of it was the reversal of prior gains in the hedge book and that’s what has positioned us. So it tends to be a little bit noisy during these times but it doesn’t represent necessarily cash losses.
Duane Pfennigwerth
Okay, thanks. Then just had one on your -- it seems like you are making some changes around your basic Economy product.
I wondered if you could talk a little bit about some of those changes. Should we think about this as revenue initiatives in 2015, or is this unbundling effort a competitive response?
And thanks for taking the questions.
Evercore Partners
Okay, thanks. Then just had one on your -- it seems like you are making some changes around your basic Economy product.
I wondered if you could talk a little bit about some of those changes. Should we think about this as revenue initiatives in 2015, or is this unbundling effort a competitive response?
And thanks for taking the questions.
Richard Anderson
I think you would look at basic economy, as we want to be best in class in every sector we reserve and if you think about airlines we don’t -- we are so large in terms of domestic capacity that we don’t get the choice to really be high-end brand, a medium brand and a lower brand. So, we have to create those brands within the master brand and when we compete against Spirit of course or other ultra low cost carriers we always want to have the best product competing against us.
And so the products that we’re introducing in basic economy you get the reliability of Delta, you get all the operation excellence of Delta, but you don’t get some of the amenities that you don’t need. And if you need those amenities you can add them on later.
So, I think what we want to have is an airline that’s best in class for each consumer sector and basic economy is one of the things that will enable us to do that.
Ed Bastian
And in response to your question of, it is a revenue strategy.
Duane Pfennigwerth
Thank you.
Evercore Partners
Thank you.
Operator
We’ll hear next from Dan McKenzie with Buckingham Research.
Dan McKenzie
Yes, hey, good morning, guys. Regarding the $2 billion share repurchase program through 2016, with the stock obviously sub $35, do you guys need an authorization from your Board to accelerate the buyback if you wanted?
Or in theory, could you put that whole $2 billion to work this year if you wanted?
Buckingham Research
Yes, hey, good morning, guys. Regarding the $2 billion share repurchase program through 2016, with the stock obviously sub $35, do you guys need an authorization from your Board to accelerate the buyback if you wanted?
Or in theory, could you put that whole $2 billion to work this year if you wanted?
Richard Anderson
Well, we do need to go back to our Board and our Board is quite focused on two things which is one return on invested capital and keeping that number high, and number two driving continued improvement in the returns to our shareholder. We expected our Investor Day to be in a position to update our investors because it is an incredibly accretive to the company to buyback our stock at these multiples.
So, as Paul reiterated we’re well ahead of where we said we would be last May and you can expect that we would continue that kind of trajectory particularly given the tremendous value that we can create for our owners by buying back our stock at these prices.
Dan McKenzie
Okay, terrific. And then I guess for the -- my second question here.
On growth to Europe, the headline news almost on a daily basis seems to be pretty negative: deflation, and Europe that risk of sliding into a recession. So it seems there is a fair amount of macro here.
As you look ahead to next year, what are the data points that you are looking at that give you confidence on the demand backdrop and the growth of 1% to 3%? It seems like your peers have reached a different conclusion.
But anyways, I am just wondering if you can provide a little bit more perspective there?
Buckingham Research
Okay, terrific. And then I guess for the -- my second question here.
On growth to Europe, the headline news almost on a daily basis seems to be pretty negative: deflation, and Europe that risk of sliding into a recession. So it seems there is a fair amount of macro here.
As you look ahead to next year, what are the data points that you are looking at that give you confidence on the demand backdrop and the growth of 1% to 3%? It seems like your peers have reached a different conclusion.
But anyways, I am just wondering if you can provide a little bit more perspective there?
Glen Hauenstein
Our growth in Europe this year was really in September as one of the issues that I think our investors need to understand that for the last few years we’ve been doing modification lines on our airplanes whether or not it’s satellite TVs or whether or not it’s flatbed seats those modification lines continue to need and by 2014 and 2015 it’s really about getting better asset utilization on the existing asset base. And so to the extent that we can see extending some of the U.S.
point of origin markets beyond August into September, and early October, we will continue to do that. And that’s where really most of our growth has come from new markets or upgauge it comes from really using the existing asset base slightly better.
As mostly for those markets U.S. point of origin destination travel.
Dan McKenzie
Okay, thanks Glen, appreciate it.
Buckingham Research
Okay, thanks Glen, appreciate it.
Operator
We’ll move onto Michael Linenberg with Deutsche Bank.
Michael Linenberg
A couple questions here. Paul, given the pullback in WTI and Brent, we have also seen jet fuel prices come down, but crack spreads have actually gotten wider.
I know you mentioned that as being a source of profitability for the refiner in the fourth quarter. What is going on with crack?
Why have they widened so much?
Deutsche Bank
A couple questions here. Paul, given the pullback in WTI and Brent, we have also seen jet fuel prices come down, but crack spreads have actually gotten wider.
I know you mentioned that as being a source of profitability for the refiner in the fourth quarter. What is going on with crack?
Why have they widened so much?
Paul Jacobson
Good morning Mike. Thanks for the question.
What this sell off has been a very brand driven sell off where cracks tend to lag that and I think when you compound that with some of the supply delivery issues in the Northeast some refineries have come offline putting temporary pressure on those crack spreads. We are running near full capacity and expect to do so for most of the quarter.
So I think when you combine it with temporary shutdowns with some of the supply disruptions that put a little bit of pressure on cracks.
Richard Anderson
Michael, now perhaps folks -- not now perhaps folks will better understand our refinery strategy.
Michael Linenberg
Very good. My second question; and Richard, this is either for you or Ed.
Look, Air France just went through -- I want to say the worst strike in I think two decades. They were running, I want to say 40% for two weeks.
It doesn't look like it's in your numbers in the trans-Atlantic, but I am sure it had an impact. Can you talk about what the impact was, or maybe how you were able, just working together, able to deal with it?
Deutsche Bank
Very good. My second question; and Richard, this is either for you or Ed.
Look, Air France just went through -- I want to say the worst strike in I think two decades. They were running, I want to say 40% for two weeks.
It doesn't look like it's in your numbers in the trans-Atlantic, but I am sure it had an impact. Can you talk about what the impact was, or maybe how you were able, just working together, able to deal with it?
Richard Anderson
Well, remember that a big network and that there were opportunities over Amsterdam and all of our flights ran really full. So we had Glen talked about a little extra capacity in September it happened to be at the perfect time because we absorbed an enormous amount of that and actually had a pretty nice uplift in revenue.
Operator
And from Bank of America, we’ll go next to Glenn Engel.
Glenn Engel
A couple of questions, I guess, by your guidance other than Africa, you were not seeing any Ebola effect?
Bank of America Merrill Lynch
A couple of questions, I guess, by your guidance other than Africa, you were not seeing any Ebola effect?
Richard Anderson
We monitor it on a daily basis, and we have not seen any changes in the booking trends.
Glenn Engel
What type of currency headwinds are implied in your numbers in the fourth quarter?
Bank of America Merrill Lynch
What type of currency headwinds are implied in your numbers in the fourth quarter?
Richard Anderson
Glen we’re looking at obviously pressure on the yen. I think for the fourth quarter that number is in the $25 million to $30 million range of FX exposure.
Glenn Engel
But in the euro it’s both revenue and an expense hit so it will show up in lower RASM but lower CASM?
Bank of America Merrill Lynch
But in the euro it’s both revenue and an expense hit so it will show up in lower RASM but lower CASM?
Richard Anderson
Yes, exactly.
Glenn Engel
And Glen if I mark-to-market where interest rates are today, what type of headwinds can we expect in pension next year? And is there any plan to change the balance of profit share versus wages for your workforce?
Bank of America Merrill Lynch
And Glen if I mark-to-market where interest rates are today, what type of headwinds can we expect in pension next year? And is there any plan to change the balance of profit share versus wages for your workforce?
Glen Hauenstein
On the pension side Glenn I think we’re looking at a potential balance sheet adjustment of around $1 billion which is comparable slightly less than what we took back last year. That’s not going to have a material effect on pension expense next year with our funding strategy and the other changes.
Richard Anderson
And Glenn on your second question, our formula here at Delta works pretty well. As evidenced by the performance, our performance over the last several years and particularly in this quarter.
So, we’re very careful about changing anything in that mix given our success.
Glenn Engel
I just assumed at last -- at the start of this year you changed a little bit and I was wondering whether there was more wage increases you would announce for early next year whether that was going to be the same?
Bank of America Merrill Lynch
I just assumed at last -- at the start of this year you changed a little bit and I was wondering whether there was more wage increases you would announce for early next year whether that was going to be the same?
Richard Anderson
We’ve already made our wage increase announcement. We did it as part of our early profit sharing payout.
Operator
We’ll move next to Julie Yates with Credit Suisse.
Julie Yates
Good morning. Thanks for taking my question.
This is a question for Paul. How should we think about 2015 non-fuel unit costs, taking into account the recent wage increase and if a pilot deal work to get done sooner than later?
How comfortable do you feel you can still achieve the less than 2% growth in non-fuel CASM again after such strong cost performance over the last five quarters?
Credit Suisse
Good morning. Thanks for taking my question.
This is a question for Paul. How should we think about 2015 non-fuel unit costs, taking into account the recent wage increase and if a pilot deal work to get done sooner than later?
How comfortable do you feel you can still achieve the less than 2% growth in non-fuel CASM again after such strong cost performance over the last five quarters?
Paul Jacobson
Good morning, Julie. Well, heading into 2015 as we’re developing our operating plan right now, we still have the benefit of further increases in operating leverages as we continue to re-fleet and upgauge the airline, so that’s providing a lot of tailwind.
We do have some cost pressures in 2015 but we have those every year. So we feel confident about our ability to keep it below 2% again next year.
Julie Yates
Okay, great. And then can you guys update us on the outstanding wide body RFP?
Do you still expect to make a decision by the end of the year?
Credit Suisse
Okay, great. And then can you guys update us on the outstanding wide body RFP?
Do you still expect to make a decision by the end of the year?
Richard Anderson
This is, Richard, yes. We’re still working diligently on evaluating both the Airbus and Boeing option.
They both have very strong viable options, as do the engine manufacturers Rolls-Royce and GE. And we are in the midst of a very heated competition to see which of those will bring to the table the best economics for our owners.
Remarkably right now, it’s an interesting development in the wide-body market because there is so many orders out there the used market is really heating up and the pricing for 10 year-old wide-bodies is about 30% of what you’d otherwise pay. So it’s going to be a very interesting process because the most important thing about this for us is not operating cost its ownership costs and I think that’s how candidly the whole industry are focused on ownership cost.
Operator
And Jamie Baker with JPMorgan has our next question.
Jamie Baker
Richard, just as a follow-up on the aircraft question, has fuel's recent decline had any impact on the RFP negotiations or pricing, or how you even think about the new orders that reside in your pipeline at the moment?
JPMorgan
Richard, just as a follow-up on the aircraft question, has fuel's recent decline had any impact on the RFP negotiations or pricing, or how you even think about the new orders that reside in your pipeline at the moment?
Richard Anderson
No, we’re relatively short tailed because -- and the problem with big airplane orders is escalation clauses and PDPs. You don’t want to get way out in front of an order or you end up giving up all the competitive economics of the fly off.
So we tend to build long-term models that put pretty high fuel prices in because I don’t think, if you take the last 10 years of fuel prices in the industry, there has been a lot of variability but the line has been an upward sloping line. And so we have used very conservative assumptions when we build our financial models to determine what to buy.
So from that standpoint, we aren’t going to change our price per gallon assumption over the next 30 years as a result of the short-term changes in crude prices.
Jamie Baker
Okay; I appreciate that. Thanks, Richard.
My second question -- and, wow, I don't know who wants to take this one. Maybe Glen, but I am curious about how you model for new routes and whether that has evolved at all over time, and in particular whether you consider earnings multiple-destruction.
I don't have the tools to say whether your next market from LA is going to earn a fully allocated profit. But I do have the ability to tell you that when you add capacity, particularly into OA hubs, it diminishes shareholder confidence; it suggests a lack of discipline; and in my opinion, it jeopardizes the likelihood of earning a multiple closer to that of high-quality industrial transport.
So I know it may be difficult to quantify, but do you ever stop before you announce a route and just ask, or maybe run it past others: What if this destroys tens of millions of dollars of shareholder value by robbing me of a better earnings multiple?
JPMorgan
Okay; I appreciate that. Thanks, Richard.
My second question -- and, wow, I don't know who wants to take this one. Maybe Glen, but I am curious about how you model for new routes and whether that has evolved at all over time, and in particular whether you consider earnings multiple-destruction.
I don't have the tools to say whether your next market from LA is going to earn a fully allocated profit. But I do have the ability to tell you that when you add capacity, particularly into OA hubs, it diminishes shareholder confidence; it suggests a lack of discipline; and in my opinion, it jeopardizes the likelihood of earning a multiple closer to that of high-quality industrial transport.
So I know it may be difficult to quantify, but do you ever stop before you announce a route and just ask, or maybe run it past others: What if this destroys tens of millions of dollars of shareholder value by robbing me of a better earnings multiple?
Glen Hauenstein
See Jamie, it sounds like you’ve asked and answered that question.
Jamie Baker
Well, Glen, in fairness, I'm going to ask it of others this season. So this is not uniquely directed?
JPMorgan
Well, Glen, in fairness, I'm going to ask it of others this season. So this is not uniquely directed?
Glen Hauenstein
Look, I mean think you’re in an area that is in some respect it’s not appropriate for an earnings call. But I will just say this, look at our results I don’t think there is a more disciplined approach to the deployment of capital in this industry anywhere in the world and we’ll continue to make the right unilateral decisions and we appreciate that you have a different opinion.
Jamie Baker
Well, and it is not necessarily mine, Glen -- or Richard. I am passing along the question that I have been asked here.
But I appreciate your concise answer and we will leave it at that? That's fine.
Thank you.
JPMorgan
Well, and it is not necessarily mine, Glen -- or Richard. I am passing along the question that I have been asked here.
But I appreciate your concise answer and we will leave it at that? That's fine.
Thank you.
Operator
And from Morgan Stanley, we’ll go to John Godyn.
John Godyn
Hey, thank you for taking my question here. I wanted to follow up a little bit on some of the capacity commentary.
First of all, we have certainly heard some criticisms; and Jamie reflected some of those on the competitive capacity adds. But maybe enough airtime isn't spent on where you are cutting capacity, because at the end of the day your aggregate capacity growth is still relatively disciplined.
I was hoping the team could elaborate a bit on what is funding these growth initiatives in certain regions, like the trans-Atlantic, like in Seattle, and perhaps like in LA?
Morgan Stanley
Hey, thank you for taking my question here. I wanted to follow up a little bit on some of the capacity commentary.
First of all, we have certainly heard some criticisms; and Jamie reflected some of those on the competitive capacity adds. But maybe enough airtime isn't spent on where you are cutting capacity, because at the end of the day your aggregate capacity growth is still relatively disciplined.
I was hoping the team could elaborate a bit on what is funding these growth initiatives in certain regions, like the trans-Atlantic, like in Seattle, and perhaps like in LA?
Richard Anderson
I think this is a great question and I think what we continue to do is discover the network and find underperforming assets and try and move them up the scale. And so really to go back to the previous question and would say, what really happened in Seattle and Los Angeles, we increased capacity significantly on a year-over-year basis and margins in both those hubs increased at the same time.
So what we were doing was trying to find the worst assets across the whole network wherever they were and redeploy them into better revenue potential opportunities. And that was really a key contributor to the improvement and the profitability of the airline.
So, I understand the criticism, I understand the uncertainty of it, but the business continues to evolve and it continues to evolve as a consolidation of the four major carriers continues. And I think in Los Angeles we’ve had four large carriers that’s just the way it's going to be, in Seattle you have two large carriers that’s the way it's going to be.
John Godyn
Got it, then the guidance for next year, 2% ASM growth and the context being sub-GDP, it does feel like -- not that I am an economist per se, but it does feel like GDP expectations globally are being revised almost daily in the marketplace. I am just curious.
Do you feel like there is downside risk to that number if things get worse? Is that a number that is struck as recently as last week, or was that a planning process that occurred a month ago?
If you could just help put some boundaries around where capacity could go from here in the context of some of these global growth concerns, that would also be helpful?
Morgan Stanley
Got it, then the guidance for next year, 2% ASM growth and the context being sub-GDP, it does feel like -- not that I am an economist per se, but it does feel like GDP expectations globally are being revised almost daily in the marketplace. I am just curious.
Do you feel like there is downside risk to that number if things get worse? Is that a number that is struck as recently as last week, or was that a planning process that occurred a month ago?
If you could just help put some boundaries around where capacity could go from here in the context of some of these global growth concerns, that would also be helpful?
Richard Anderson
Thanks, John. You heard the, in the guidance we also said we expect our international capacity next year to be flat.
So, I think that clearly addresses the question you’ve raised with respect to some of the international economic concerns. Pacific where we’re having clearly the most highest level of capacity concentration coming primarily from Foreign flags we’re in the midst of a pretty significant restructuring of that capacity offering.
And we said Pacific will be down in the high single-digits. Next year in Europe the majority of our capacity adds we’re thinking will primarily be in London, which is producing significant returns as part of the Virgin JV and I think the bulk of the overall system-wide capacity add next year is going to be in the domestic system and it is going to be reflective of the upgauging initiatives that we’re doing as both margin accretive and very incredibly cost efficient.
John Godyn
That’s very helpful. And just last one.
Morgan Stanley
That’s very helpful. And just last one.
Richard Anderson
And John, last one as I’d like to add to that as obviously we’re speculating we have got a long ways to go here and these deployment decisions. Our current thinking but as we get into the year, we also have the ability to make alterations on a relatively quick timeframe given the capital efficiency of our fleet.
John Godyn
Great and I just want to follow-up on one of the things you mentioned which is upgauging. As we think about the 2% capacity growth for next year, can you give us a sense of what the seat count growth and fleet growth underlying that is, we’ve certainly seen departures and seats underperform ASMs meaningfully, it does feel like maybe the trend is even more conservative than 2% would suggest?
Morgan Stanley
Great and I just want to follow-up on one of the things you mentioned which is upgauging. As we think about the 2% capacity growth for next year, can you give us a sense of what the seat count growth and fleet growth underlying that is, we’ve certainly seen departures and seats underperform ASMs meaningfully, it does feel like maybe the trend is even more conservative than 2% would suggest?
Richard Anderson
I agree with that we are going to update you at the December Investor Day, the fleet count will be down next year. But we’ll give you the ins and outs because you are right there, so moving pieces to that picture.
John Godyn
Great. Thanks a lot guys.
Morgan Stanley
Great. Thanks a lot guys.
Operator
We’ll move next to Savi Syth with Raymond James.
Savi Syth
Hey, good morning. On the U.S.
dollar strengthening, I was just wondering if you could provide -- I know you provided a little bit on the trans-Atlantic but just, how much is your international sales are kind of on U.S. point of sale versus international?
Raymond James
Hey, good morning. On the U.S.
dollar strengthening, I was just wondering if you could provide -- I know you provided a little bit on the trans-Atlantic but just, how much is your international sales are kind of on U.S. point of sale versus international?
Richard Anderson
On an aggregate level about 60% is U.S. based.
Savi Syth
60% of international sales are U.S. based.
Raymond James
60% of international sales are U.S. based.
Richard Anderson
Yes.
Savi Syth
Okay, got it. Then just from an ancillary revenue standpoint, it's been great performance here, a lot of it coming from Economy upsale and things like that.
As we look into 2015, what kind of items can we think of as driving ancillary revenue growth?
Raymond James
Okay, got it. Then just from an ancillary revenue standpoint, it's been great performance here, a lot of it coming from Economy upsale and things like that.
As we look into 2015, what kind of items can we think of as driving ancillary revenue growth?
Richard Anderson
I think that we have a lot of new initiatives which we’ll be talking about in the marketplace over the next two to three months, probably give you an update at Investor Day. But we’re extremely excited about being able to allow customers to really customize their travel experience on Delta.
Savi Syth
Got it. Alright.
Thank you.
Raymond James
Got it. Alright.
Thank you.
Operator
And from Goldman Sachs we’ll move to Thomas Kim.
Thomas Kim
Thanks. I have a couple questions on pricing.
First off, can you walk us through the PRASM guidance? I am wondering to what extent the low end of the guidance is being conservative; or does this in fact maybe reflect some risk with regard to erosion in pricing power?
Whether it is in the US, which seems unlikely, but I know I certainly would appreciate color there; or maybe further deterioration in Asia, which is obviously reflected in some of the capacity decisions; or maybe even Latam. So if you can just help us understand the lower end of the guidance, that would be very helpful?
Thank you.
Goldman Sachs
Thanks. I have a couple questions on pricing.
First off, can you walk us through the PRASM guidance? I am wondering to what extent the low end of the guidance is being conservative; or does this in fact maybe reflect some risk with regard to erosion in pricing power?
Whether it is in the US, which seems unlikely, but I know I certainly would appreciate color there; or maybe further deterioration in Asia, which is obviously reflected in some of the capacity decisions; or maybe even Latam. So if you can just help us understand the lower end of the guidance, that would be very helpful?
Thank you.
Richard Anderson
Tom I think you answered a lot of your question, we gave you our best view as we’re seeing today. I think the strength of the ford environment and the domestic system is where the bulk of our upside opportunity sits.
Ed Bastian
And let me just add for everybody on the call, we will not discuss pricing. And we will not discuss capacity among competitors on these calls today or in the future because it’s not appropriate.
And it’s not appropriate for the analyst community that be engaging in what forward capacity and pricing decisions are at Delta.
Thomas Kim
Okay. Can I ask a broader question, just with regard to how you see the industry, thinking about how their revenue environment might change or adjust with the change in the cost environment?
One would -- fuel in particular, this is one where we have seen historically, where prices or revenues have generally moved directionally in line with where oil price has gone. And I am wondering, just given the strength of the domestic market, could we in the market or the investment community be underestimating the potential impact of how much lower fuel price should really benefit profitability as we look out to the fourth quarter, but importantly out into ’15?
Goldman Sachs
Okay. Can I ask a broader question, just with regard to how you see the industry, thinking about how their revenue environment might change or adjust with the change in the cost environment?
One would -- fuel in particular, this is one where we have seen historically, where prices or revenues have generally moved directionally in line with where oil price has gone. And I am wondering, just given the strength of the domestic market, could we in the market or the investment community be underestimating the potential impact of how much lower fuel price should really benefit profitability as we look out to the fourth quarter, but importantly out into ’15?
Richard Anderson
Let me just answer it generally. We can’t speak on behalf of the industry, we can only speak on behalf of Delta and that’s all we will speak on behalf of.
But when you think about where fuel prices are today versus where they were just a few weeks ago, it’s in excess of a $1 billion of cost of goods sold improvement. So overall the fuel price reductions we’ve seen in the marketplace are a huge opportunity going forward.
Jill Sullivan Greer
Alright, we’re going to have time for one more call from the analysts.
Operator
And that will be from David Fintzen with Barclays.
David Fintzen
Hey, good morning, everyone. Hopefully this is on the right side of, Richard, your commentary on capacity.
I am just curious, though. Fuel is obviously -- I get the commentary on how you do fleet versus long-term fuel prices.
But I am curious. How should we be thinking about tactical moves or utilization flying in off-peaks, when fuel is whipping around like this?
I presume we have to obviously have a view. Is that similar to fleet, where you're not taking it into account?
Or should we start thinking differently about what you might do in the first quarter if fuel stays here?
Barclays Capital
Hey, good morning, everyone. Hopefully this is on the right side of, Richard, your commentary on capacity.
I am just curious, though. Fuel is obviously -- I get the commentary on how you do fleet versus long-term fuel prices.
But I am curious. How should we be thinking about tactical moves or utilization flying in off-peaks, when fuel is whipping around like this?
I presume we have to obviously have a view. Is that similar to fleet, where you're not taking it into account?
Or should we start thinking differently about what you might do in the first quarter if fuel stays here?
Richard Anderson
Well, I mean that -- as we said, we’ll update our 2015 capacity plan for Delta only at the December Investor Day. But just broadly, we’re driven by profitability and return on invested capital.
And what that means is that we make fleet planning decisions we include ownership costs and we include ownership costs even in our short-term planning. So, the bottom-line is we want that 19% return on invested capital on a consistent basis and in order for us to do that we’ve got to be very adroit at deploying our capital to make sure we get a return or the maximum return every quarter.
David Fintzen
That helps quite a bit. I think the rest of mine have been asked already.
So, I’ll step back. Thank you.
Barclays Capital
That helps quite a bit. I think the rest of mine have been asked already.
So, I’ll step back. Thank you.
Jill Sullivan Greer
That is going to conclude the analyst portion of the call. Before we turn it over to the media portion, I do want to say that there were a sizeable number of analysts that didn’t get on the call.
And we will follow-up with each of you directly offline. And with that, I will hand it over to Kevin Shinkle.
Kevin Shinkle
Hi. This is Kevin Shinkle, the Chief Communications Officer.
Thanks to the reporters who are on the call. I would like to say that, and we have about 10 minutes so if you can keep it to one question and a brief follow-up it would be great.
So with that, I’ll turn over to Kellian for repeat of instructions.
Operator
(Operator Instructions) We’ll go first to David Koenig, The Associated Press.
David Koenig
I think Richard if you could answer this just curious what you think about the CDC’s decision to let that second nurse fly on that Frontier flight less than 21 days after her possible exposure to Ebola and I heard your comments earlier about your booking. But what do you think of that decision?
The Associated Press
I think Richard if you could answer this just curious what you think about the CDC’s decision to let that second nurse fly on that Frontier flight less than 21 days after her possible exposure to Ebola and I heard your comments earlier about your booking. But what do you think of that decision?
Richard Anderson
Well, I think Dr. Frieden was very clear in stating that the CDC made a mistake.
I think what’s worth noting is you really can’t catch Ebola on an airplane. And the screening techniques that the governments put in place are going to detect folks coming from the risk areas in Africa in advance of entering United States.
So, I think that Dr. Frieden has done a good job answering that question.
David Koenig
So does that mean you have confidence that the government is going to get this right?
The Associated Press
So does that mean you have confidence that the government is going to get this right?
Richard Anderson
Yes.
David Koenig
Okay, thanks.
The Associated Press
Okay, thanks.
Operator
And from Thomson Reuters we’ll move to Jeffrey Gaston.
Jeffrey Gaston
Thank you and good morning. What additional steps might Delta to take convince investors that Ebola will not impact the airline’s future performance?
Thomson Reuters
Thank you and good morning. What additional steps might Delta to take convince investors that Ebola will not impact the airline’s future performance?
Gil West
Hi. This is Gil West.
Well, first, I’d just point out, this isn’t the first communicable disease that we faced as an airline or an industry. And we’re well versed at managing these type of events ensuring the safety of our customers and crews.
We have got a corporate safety and security staff that’s in continuous dialogue with the CDC and World Health Organization, and we adhered all their recommendations. I just point the virus is as -- I am sure you know is extremely difficult to transmit.
A person has to have symptoms to be contagious. As Richard pointed out, there are CDC screening protocols in place in and out of all the West African countries as well as into the U.S.
and the EU to prevent a person with symptoms from flying. We’ve also got well established hygienic cleaning procedures and use disinfectants prior to every flight.
And then the CDC -- and I continue to point out that there is virtually no risk to all air travelers no matter where you travel.
Jeffrey Gaston
Thank you and I may ask a brief follow-up on, has Delta taken any steps to protect itself against employees that potentially could sue the Company as Ebola spreads?
Thomson Reuters
Thank you and I may ask a brief follow-up on, has Delta taken any steps to protect itself against employees that potentially could sue the Company as Ebola spreads?
Gil West
On the employee side, yes, we’ve got -- I mean if I understood your question when we’re talking about employees, I mean we have ongoing dialogue with our flight crews and awareness and educational campaigns as well as provisioning the aircraft with preventative kits in case they do encounter anything unusual.
Operator
We’ll move onto Mike Sasso with Bloomberg News.
Mike Sasso
I actually had a question, are you seeing any reticence by pilots or flight attendants to fly certain routes and I am thinking West Africa. I did hear something about speculation that maybe high senior pilots are bidding off of those routes?
Are you seeing any of that from any of your ranks of employees?
Bloomberg News
I actually had a question, are you seeing any reticence by pilots or flight attendants to fly certain routes and I am thinking West Africa. I did hear something about speculation that maybe high senior pilots are bidding off of those routes?
Are you seeing any of that from any of your ranks of employees?
Joanne Smith
Hi, this is Joanne Smith, and the answer is no. We’re not seeing any pilots or flight attendants who are bidding off and it’s a very flexible bidding system and certainly the opportunity for swapping trips is there, but we’re not seeing any issues specific to this, also for Africa.
Operator
And we’ll move now to Linda Loyd with Philadelphia Inquirer.
Linda Loyd
You mentioned that the refinery made a $19 million profit in the third quarter and then you referred to a $20 million profit and I just didn’t hear whether you said that was for the fourth quarter or the year. I just wasn’t sure what you said?
Philadelphia Inquirer
You mentioned that the refinery made a $19 million profit in the third quarter and then you referred to a $20 million profit and I just didn’t hear whether you said that was for the fourth quarter or the year. I just wasn’t sure what you said?
Paul Jacobson
Hi, Linda, this is Paul Jacobson. We, that was guidance for the fourth quarter, so we produced a $19 million profit in the third quarter and we anticipate approximately a $20 million profit for the fourth quarter, the team up there is doing a fabulous job of running the plant and they’re keeping it up and operational.
Linda Loyd
So do you expect the refinery to be profitable for the entire year 2014?
Philadelphia Inquirer
So do you expect the refinery to be profitable for the entire year 2014?
Paul Jacobson
It will be close for the entire for the full year 2014, yes.
Linda Loyd
Close to profitable?
Philadelphia Inquirer
Close to profitable?
Paul Jacobson
Yes.
Richard Anderson
Okay, with that, that concludes our call for today. Thank you very much.
Operator
And again, that will conclude today’s conference. Thank you all for joining us.