Q3 2019 Earnings Call
Welcome to Copa Holdings' third quarter earnings call.
During the presentation, all participants will be Alison.
After we will conduct a question answer session.
At that time, if you have a question you have to press star one and your telephone.
As a reminder, this call is being webcast and recorded.
Number 14 2019.
Now, we'll turn the conference call over Toronto Pest quell director Investor Relations, Sir you may begin.
Thank you Michelle and welcome everyone for third quarter earnings.
Joining us today, our president <unk> CEO of Copa Holdings, So I wouldn't that our CFO .
First we started with a third quarter highlights followed by let's say, who will discuss our financial results.
Immediately after we will open up the call for questions from on.
Copa Holdings' financial reports have been prepared in accordance with international financial reporting standards.
Today's call will discuss non light up for a financial measures.
A reconciliation of the Niobrara its way up or financial measures can be found in our earnings release, which have been posted on the company's website <unk>.
Our discussion today, we also contain forward looking statement not limited to historical thing that reflects the company's current beliefs expectations.
Or intentions regarding future events on result.
These forward looking statements involve risks and uncertainties that could cause actual results could differ materially on are based on assumptions subject to change.
Many of these artists, causing our idled reports filed with the FCC now I'd like to Charles <unk> Colvard, Dorothy Olmutzer pay a little here.
Good morning tool.
Thank you for participating in our third quarter earnings call.
First I'd like to congratulate or co worker.
For their efforts during the quarter.
Especially the ongoing hard work to minimize the impact of the Max grounding whenever a customer I feel deliver excellent operational result.
Our team's commitment and dedication keeps us at the forefront of Latin American aviation.
Two they were pleased to report is grown quarter.
Which started its financial results.
Outstanding operational metrics.
Among the main highlights for the quarter.
Driven by the magnitude grown our capacity measured in a sense.
Decrease year over year by 3.7%.
RPM.
Decreased only 2.2%.
Resulting in an 85.6% load factor.
1.4 percentage points higher year over year.
Yields came in at 12.5 cents.
Almost 8%, how you're not in the third quarter of 28 team.
This higher loads and yield.
So put in unit revenue or wrap them up 11.1 cents, a 9.4% year over year increase.
On the cost strike.
Ex fuel unit costs came in at 6.2 cents.
5.5% higher year over year.
Mainly due to lower capacity related to the Max we've grown thing.
Well the timing of certain expenses.
Our operating margin came in at 18.8%.
Well were seven points higher year over year.
And on the operational front.
Corporate <unk> delivered an on time performance of 92.2%.
I need completion factor of 99.8% again, among the very best in the world.
That's a reminder, we have fixed grown didn't like nine aircraft.
And we were supposed to have taken delivery of another seven during 2019.
We continue making the necessary schedule changes and cancellations I.
Assuming none of our Max aircraft will be in scheduled service.
For me to February 2020.
The grounding of the Max fleet continues to generate a significant revenue and cost impact.
While limiting our ability to grow.
It's important to note that this headwind is included in your operating margin and capacity figures provided in our guidance for 2019.
Preliminary guidance for 2020, which will say well this cost in more detail.
Regarding the rest of plenty 19.
You know last earnings call.
We made significant realization tour to our full year guidance based on stronger demand patterns on a lower few outlook for the year.
Shortly thereafter, there was a significant currency devaluation in Argentina.
He saw than spiking fuel prices due to the attacks in Saudi Arabia.
Oh, the fuel prices fabry lightly to previous levels in the following week.
Revenues in Argentina are projected to remain weak at least until the first quarter of next year.
Despite all of that.
Based on the strong third quarter results, we are reaffirming our guidance for 2019.
And expect to deliver an operating margin of approximately 16% for the year.
Our full year guidance implies the softer fourth quarter.
On originally expected weakness explained mainly by you weaker revenue outlook in Argentina and to a lesser extent Chile.
Looking ahead to 2020.
Even door disability still very limited we're encouraged by the demand trends, we're seeing in most of our network.
I'd say mentioned earlier, we're now expecting the Max to be in service no sooner and mean mid February .
Whenever the young grounding frame that may happen.
We should also start taking delivery of your originally scheduled aircraft for 2019 and 2020.
With regard to Underfeeding matters, we have made the decision to exit a remaining amber one night and.
We see significant cost and revenue benefits from operating a single Boeing fleet.
So well we will most likely end up taking a significant number of Max aircraft next year.
Most of them will be used to replace yell going hungry seed Embraer aircraft.
Oh, sorry.
We now expect our capacity to grow only by approximately 5% year over year was the bulk of the growth coming in during the second half of the year.
We also remain focused on many initiatives to further strengthen our results.
We're on track to achieve our ancillary revenue target for the year.
I'm continue expanding and optimizing our products.
As part of this effort, we're advancing with implementation of the for logic platform to deliver merchandising and distribution capabilities across all channels.
We will start implementing the first half of 2020.
We continue with the company strategy to develop its own IP solutions.
In particular for customer touch points and interactions.
Back in the second quarter earnings call. We've commented on the release of or new web and mobile checking.
In September we released our new coal plant.
Customer reviews have been very positive.
Most importantly, I use such a significantly off.
We will continue to add new services and functionality for digital channels, which include the half an hour web and mobile site.
Developing our own digital products used to say accessibility to continuously improve and better respond to the needs of our customer.
Well, keeping our cost low when compared to a third party system.
And finally, when gold, although a very small 2% of a revenues.
Continues to do well, both operationally and financially.
In the first quarter of 2020, we'll update the window fleet. So that's 800, which will further lower unit cost and improve profitability.
Later in the year.
We will also start operating its 50 aircraft, which would be based in Panama.
To summarize.
We delivered.
Solid third quarter results.
Our seen a good demand in garmin in 2020.
We continue making progress on our ancillary revenue initiative on our and tried to achieve our 2019 target.
We continue working on many initiatives to help us become even more cost efficient.
Our team continues to deliver world class operational performance. Despite the challenges presented by the maximum.
Finally, we're confident a favor in our business model and our financial position, we had the strongest network for travel within the Americas.
Exceptional operational performance that results in high customer satisfaction.
An extremely flexible fleet plan.
The lowest unit cost a very strong liquidity position with low leverage on a highly committed team.
Now I'll turn it over to foresee who will go over or financial results in more detail.
Thank you Ben good morning, everyone and thanks for joining us.
It's always I want to start by joining peddling congratulating our entire team for all their outstanding achievements during the quarter.
Due to the drumming up the Max fleet, our capacity for the third quarter was 3.7% lower year over year why revenue passenger miles decreased only 2.2%.
Which resulted in a consolidated load factor of 85.6%.
1.4 percentage point increase versus Q3 2080.
I think your yield showed a recovery and came in 7.9% higher year over year, which combined with a strong load factor resulted in a unit revenue increase of 9.4%.
10.1 cents in Q3, 20 appeal to 11.1 cents in Q3 29 pm.
Consolidated revenues increased 5.3% to $708 million.
On the expense side, our third quarter operating expenses decreased 3.2% year over year under 3.7% capacity reduction, which resulted in our cost per available seat mile increasing 25% to nine cents.
For the quarter, our effective on fuel price averaged $2, a 16 cents per gallon a decrease of 10.2% versus the $2.40 per gallon that we average in Q3 2018.
The cost per available seat mile excluding fuel ex fuel CASM increased 5.5% from 5.9 cents in Q3 2018 to 6.2 cents in Q3 2019.
Mainly due to cost associated with the grounding with the Max me in June to lower capacity output.
Operating earnings for the quarter came in 70.9% higher at $132.9 million.
Resulting in an operating margin of 18.8% 7.2 percentage points higher than Q3 2018.
Looking at non operating income and expense the third quarter generated a net non operating expense of $16.6 million, mainly driven by net interest expense was $6.6 million and 9.6 million dollar translational foreign currency loss dream by the depreciation of the Argentinian peso and the Brazilian real.
Oh.
Our tax expense for the quarter came in at $12.3 million.
Turning to net results net earnings for the quarter came in at $104 million.
Earnings per share of $2.45, 80.5% higher than the earnings per share reported in Q3 2018.
I'll now turn to the balance sheet posted third quarter with a very strong financial position.
Assets totaled $4.4 billion owner's equity totaled $2 billion, our debt plus or at least liability total approximately $1.4 billion.
And our least liability adjusted net debt to EBITDA ratio came in at the 0.8 times, one of the strongest and industry.
Keep in mind, we are now adjusting the net debt by including the least liability line from our balance sheet.
Closed the quarter with approximately $1.1 billion that more than 60% of which is fixed with a blended rate, including fixed and floating rate debt of approximately 3%.
During the first three quarters of 29 team, we have brought down our debt balance by almost $200 million.
Regarding cash short and long term investments closed the quarter would close to $900 million during the quarter or free cash flow generation was close to $170 million and our cash balance at the end of the quarter represents approximately 33% of last 12 months revenues.
During the fleet, we ended the quarter with 103 aircraft 68 century, seven 814 737 700.
15 number 190 cents six makes money.
We had originally planned for seven additional Max aircraft will be delivered doing 2019.
Special mention we expect to receive a significant number of Max aircraft next year and are planning to sell our remaining 14 Embraer aircraft when the next 18 months.
We expected this fleet transition will put some short term pressure in our utilization and maintenance expenses.
But in the medium term, we believe operating a simplified seven three times fleet will be accretive to the business.
By mid 2021, we shouldn't have a simplified and higher gauge fleet.
Contribute to our goal of reducing or unit costs below six cents.
Finally, I'm pleased to announce at our board of directors. That's ratified the third quarterly dividend of 65 cents per share to be paid on December 13th to all shareholders of record as of November 29.
So going back to where we sold sent to recap you delivered strong financial results for the quarter. We're encouraged by the current demand trends in the region.
Despite the ground Neos and Maxs fleet were still delivering competitive unit costs, which we expect to continue improving once in Mexico Roundys lifted.
We have one of the strongest balance sheets industry, and we continue to return value to our shareholders.
Turning now to our full year guidance were 29 team based on our expectations for the remainder of the year. We are adjusting our full year capacity outlook to reflect a year over year answer reduction of approximately 3%.
We expect our full year operating margin to come in at approximately 16%.
Our 2019 for your guidance is based on the following assumptions both factor of approximately 85%.
Revenue of approximately 10.7 cents affected mostly by the recent devaluation in Argentina.
CASM ex fuel of approximately 6.3 cents driven by the reduced number of assets for the year related would round of them actually.
And then effective fuel price per gallon, including into plane of approximately $2 at 15 cents.
Today, we're also providing a preliminary guidance were 2020 .
Always we remind you that at this point our visibility into the next year is very limited.
Additionally, our capacity growth a unit costs and unit remedy assumptions are highly sensitive to the timing of young grounding of the Mac sleep do you still uncertain.
Having said that if we assume a re entry into service in mid February you expect to capacity growth of approximately 5% year over year.
We are assuming an effective few price per gallon, including into plane of approximately $2.10.
And we expect our full year operating margin to be in the range of 16% to 18%.
Thank you with that we'll open the call some questions.
As a reminder to ask a question we need to press star one on your telephone.
To withdraw your question press the pound key.
Please standby why the compiled the Q and a roster.
Our first question comes from Michael Linenberg of Deutsche Bank. Your line is open.
Oh, yeah on two questions. The first one just tied to the E 190.
That charge.
Will there be a single period, where you take that charge or will we see the charge.
Spread out as an aircraft sales are concentrated.
Hey, Mike Digital T.I. I have is right now.
Yeah.
Yeah, I expect right now that charge to be a onetime.
Uh Huh charge performed during Q4 this year.
Yes, so clearly I think it's going to be just onetime charge.
Okay. That's helpful and then.
Just the second question tied to the 190.
One of the things that I always thought was so interesting with that airplane is that it did allow you to experiment and developed markets and build out frequency until you know prior to the induction of 708, hundreds and when I look across your network I do think that there's still some markets today that I think are purely served by the one now.
I'd I don't I, just pulled up I feel like Manaus in Brazil and.
She clal in Peru, how how many markets do you actually serve today that are just exclusive 190 and is that type of experimental or development type flying you know are we going to lose that that flexibility.
When you remove your 100 Seaters from your fleet. So just kind of your thoughts around that and a loss on the developmental aircraft I get the point that it is the cost have gotten to the point that they're probably somewhat punitive and it and it's the right decision, but I'm just curious what it means for network development. Thank you.
Yeah, Hi, Mike Pedro here I think Joe.
So not we're replacing the last on the 14, one I used to we're at a point, where we're we're better off with a single fleet, there's many advantages cost time and.
Operational advantages for from that commonality it but of course, there will be let's say the tail end of our 14 Embraers. Our aircraft that are more suited to fill among the routes that are being thrown by by those planes. So so so.
Those routes will be thrilled with ngs with larger gauge your growth and they might be less profitable, but the net net benefit is very positive. So we'll sacrifice Tom on in terms of let's say what you call experimental route for market, we will still do that.
Even you know even if it with a larger gauge your wrestle. So we don't think we're going to sacrifice Mark there I mean, there might be at Kate you are there, but it won't be significant and we see that benefits that.
A being much much larger than than whatever where sacrificing.
Long term or medium term it doesn't mean that we will never operate a smaller gauged aircraft again, we can do the right decision for US right now, but in the future and other new technology technology aircraft that will look at.
Absolutely absolutely Okay. That's actually that's why I'm glad you made that last comment that's very interesting.
Great quarter. Thank you. Thanks Jose Joe. Thank you all right. Thanks a lot.
Our next question comes from Duane Pfennigwerth of Evercore ISI. Your line is open.
Hey, Thank you just a just a quick follow up to Mike's question.
You know how would you framed the margin improvement opportunity from from getting out of this fleet type.
And do you have a sense for how much lower.
If at all a trip costs are on that you won 90.
Okay. So it's it's paid you're getting your hedging I I'd first.
Not gonna be significant it obviously next year, we're going to incur the inefficiency of having to transition a cruise and having grounded aircraft because of the delivery a requirements for for the nine and birds.
We hope to.
Till next year, it plus all the NGL I'll get back does I will be coming in and those are also are grown differ a little while while we do pulls that every modifications are going to be a little bit messy next year. It was the aircraft coming in and going out and again, all the crude transitions hey, Dan it's going to be there's gonna be a spool up over the years.
It because of some of what I was mentioning to Mike in the into question right right before yours in that there will be some markets that it will take some time for those loans to.
To be more profitable and then in Gi versus the Embraer.
Sure. So I'd first the benefits will be it's going to be positive, but will be less and over time, it's going to its gone that strengthen and so so no I don't know will take you want to add something to that but it's going to its going to be getting stronger and better as the years past I think that's the key to.
Yeah, and I think that.
Dwayne you can frame it I think on a run rate basis, our expected.
Benefit Oh, having one so fleet versus the current.
We have 19.
Nice you could argue is above the range of $30 million of cash flow positive for years. So that's I think a good good measurement to see where we see the benefit.
Thanks, and then.
Just for my follow up I don't know if you'd be willing to comment on it as I think about the delays on the Max coming back in and the markets that you've had to take a harder look at the network adjustments that you you've had to take a harder look at obviously some weaker spots in the portfolio, Argentina, maybe some chile, but I have to say.
There are markets, where it really pains you.
To cut capacity, where where you see the demand at very healthy RASM and yet you. Just you just can't push the incremental Sam's right now I Wonder if you. If you just comment you know broad strokes on the markets, where it sort of <unk> most painful for you to not be providing incremental lift right now thanks for taking the questions.
Yeah, I would say like most markets that were for loan by the Max isn't as you can tell we still have very should we we have very strong load factor.
And even Argentina, I still have pretty healthy or even strong a load factor I need to yields are hurting a little bit from currency devaluation will then Mac, it's an even better aircraft for those markets because it has lower unit cost.
So it kind of pain.
Most everywhere I would say.
Thank you.
Thanks way.
Our next question comes from savvy sets of Raymond James Your line is open.
Hey, Good morning. This is Matt on first Savi.
My first question relates to your 2020 growth plan that mid single digit the 5% is that.
Basically a function of the 190 sale and timing of Max or is there some element of being more cautious on demand there.
And could you by quarter if possible.
Say, how you're thinking about the Max deliveries and you and 90 retirement.
Roastery, it's all of the above so so it is it we had kind of directionally.
A guided to a faster how your growth next year.
But with the delays in the delivery so of the Max It and now the large number of aircraft that were expecting to receive next year, which is up to 14.
We decided it was proven to a don't not grow at March and especially during the first half of the year and I hope they will maybe explain in more details in a second.
And we decided then there was the perfect timing to start selling on getting rid of the 190. So it was always both things is getting rid of the oneninety. He brings down I guess im growth for next year, but at the same time, we're doing it because we think it's the prudent decision it.
Given you know everything that's going on.
Good morning.
Indeed.
Basically driven by the by that fleet decision that we've made I think that for the first half a year. Your first quarter I think you're going to see a slight reduction and I guess I'm on a year over year basis, because of the fact that remembering that lack first quarter last year. We had we did have them access line. So wing and here we are assuming that the Max.
Can I be back on discount you have now.
Given the information that we have during the middle part of February . So we will see a reduction and sands and then second quarter, you're seeing a slight growth so the growth in asms that averages.
The 5% is essentially back loaded towards the second half a year second half its into high single digit range for on average.
Okay, great. Thank you very much and then if I can just.
So it's a little bit here in regard to the potential joint business agreement with United and obviously.
We didn't really discuss that much but the fans strategically we didn't make sense.
She used both Panama and Bogota as complimentary hubs running additional frequency and overlapping markets or would you see those two hubs in a JV serving different purposes.
Well no no no how much we want to comment.
On on strategic matters, and and also matters that that are going to be it part of the JV a filing with when when that happens, but I would say that that is the fact that that we're planning to go forward with the J B.A. and that it was announced to begin with.
It is it's a signal that we feel that three networks together add value to our customers and to the three airline. So so so we feel that the three <unk> network and work well together.
Okay. Thanks for the color there.
Our next question comes from Hunter Keay of Wolfe Research. Your line is open.
Hey, this is Andrew on for Hunter, you'd previously mentioned that basically economy. It was expected to be implemented in Fourq, you and I would help you more effectively selling salaries is that's on track and if so can you help us size a benefit relative to the expected $20 million an incremental ancillary revenue in 2020. Thanks.
Well the I think our we are on track Andrew for our ancillary target for the year had $20 million, we're pretty comfortable with that.
Having said that a the the fare families program and our merchandising engine program is I think going to start showing results I would say during the second quarter of next year. So that's kind of where we have the merchandising engine itself is going to be is in the final stages are being implemented.
And we expect that to be during the early part of 2020 operational so I think that we're going to start seeing us results during the middle part of the second quarter of next year.
Great. Thank you.
Mhm.
Our next question comes from Josh Milberg of Morgan Stanley . Your line is open.
Good afternoon, everyone. Thank you for the call. My first question guys is on its almost anyone does.
You guys talked about the maintenance and other transition costs related to fill the phasing out of those those aircraft.
No.
As being.
Sure I was just hoping you could quantify that impact in some way.
I assume that that that is something that's embedded in your preliminary 2020 margin, but it would be good to just get a little bit of offensive or the size about effect.
Yeah, Josh this is Jose and indeed it is.
A baked into our guidance.
For for the year I think there.
More than necessarily.
This specific maintenance costs, which are included the issue also is just simply the ground time that you have the airplanes out so you're going to have.
Before are you selling or can you have to preparing for sale that you have in our and our from there's still essentially owning that that is not productive. So there is some.
Yes. So there are some consistency inefficiency there as well and they did the same theme occurs with aircraft that are coming into the scale every time that an airplane comes out of the factory email you a do perform some post delivery modifications in the aircraft et cetera. So.
Even with all that.
I am cognizant that we did not include a specific ex fuel CASM assumption. This buried in the preliminary guidance that we should.
Yes.
We still expect.
A slight improvement in our unit cost so the guidance that we should assumes any and improving our ex fuel CASM for next year and and again.
Reason why slight only slight is because of these inefficiencies that are that are we're taking into account in our and our in our numbers.
Okay. That's that's great color very helpful. And then my second question is if you could just talk a little bit about what currency assumptions are built into your 2020 guidance I noticed that you highlighted weaker currencies in Argentina, and Chile as an issue for the fourth quarter, but just wanted to have a little bit of a sense of how much.
Have a headwind you see the the we all at the 415 plus level going into.
2020.
Assuming it is at that level.
Josh I I would say a couple points. There. The first thing is that are precisely because we'll be uncertainty that you're mentioning and the uncertainty related to also too.
To the maximization, we're not really guiding for next year in where the guidance does not assume an improvement year over year improvement in unit revenue. So we are basically assuming a flattish sort of unit revenues, which.
Doesn't assume then therefore any particular shocks in any other currencies, but it assumes that that kind of currencies.
Somewhat are stable too.
Hey in general short throughout the year, So I think that they're the best way to frame that is that we're not assuming a unit revenue improvement in our guy.
Okay Super helpful. Thank you so much.
Hi, Josh.
Our next question comes from Helane Becker of Cowen Your line is open.
Oh, Thanks, operator, hi, everybody. Thank you very much for the time I just.
Two questions Hey, Joe you mentioned that there were some timing of expenses.
In the quarter and it's just kind of wondering if you could see a little more specific and then I noticed that maintenance expenses were up so much and not in the third quarter and I was wondering if you can just talk to that 24% increase.
No care or led it lets say give you some specifics about the main maintenance line, but there are always timing of expenses.
For different reasons, and so the meaning of that is that it was not 100% due to the laureus in number because of the Max rounding there always.
Expenses that move from one quarter to the other compared to the year before a like maintenance for example, so sole source its kind of I general.
Okay statement that includes sold the other thing that cannot be perfectly predict that in every quarter, but there's nothing nothing out of walk there no new expensive, it's not that the structure at a cost structure has changed it. So that's kind of what its men and then two to me and I think one of the items.
Dimension has had the biggest driver. It is the fact that would imply let's say a center there to the Max right. So by far so that's the biggest driver of the HSN.
Where the where the CASM ending the quarter.
In terms of maintenance and last year. There a couple of items here. One is that last year, we change our policy for.
For accruals of maintenance related to some components, specifically lending years, maybe use after we adopted the policy for competency station of a of aircraft and so there is some variability depending on when these.
Inspections occur when these events occur in terms of given that we're expensing the full value of landing gear and a few changes and then b or component to the very variation.
Let's say in 2018, and we had some accruals related to.
Return conditions.
Of maintenance of aircraft and that also affect that somewhat the the cost line more anything because we created a good guy in to catch up good guy in the third quarter of last year.
Okay. Thank you and then just a follow up question.
You focus more on.
The larger aircraft rather than the one ninetys, how will that change your length of haul or your your stage.
Lang.
And as we go included in those numbers.
Yeah Windoor is included in all our fingers.
And I think that.
Only.
Bigger where you see I think in Spacelink I think this year, where there's a shortening of the station.
Average and then for for next year, it's kind of flattish I think in terms of station at this stage.
Okay, No major changes.
Okay, all right that's very helpful gentlemen.
Thank you haven't right.
Our next question comes from Alejandro Watanabe.
Of credit Suisse. Your line is open.
Hello, better okay. Thanks for the call just a follow up question on the capacity guidance for 2020.
I was wondering if you.
I know if you looked kind of your thoughts on Georgia general growth expectations by market. Thank you.
Well I don't think we have that to share right right now, but it is our growth next year, it's going to be driven mostly by gauge by by bringing.
Bringing back the larger Max it on and getting rid of the much longer one NYISO gauge is going to derive a big part of the ASM growth and that you know you could just.
Think of that market, where the Mac. This line on the Mexican those markets are going to be replacing 800. So it's not that big of a jump 710, 802 gonna be replacing a embraers in smaller markets. So those will see a bigger John but it's not I mean, it's going to be across the network and I I don't think just any anything.
And if it can change there it's really really it mentioned right now I think one of the items that we also focused science and flexibility in terms of our short term scaling. So we are able to.
Move shells throughout the network, where we see opportunities in terms of the management.
Okay. Thank you.
So most of that.
Our next question comes from Dan Mckenzie of Buckingham Research. Your line is open.
Okay. Thanks morning, guys got a couple of questions here.
On the last earnings call.
You guys talked about a sub six CASM ex fuel and given the ground into the E. One ninetys that seems like a lay up.
But you know I'm not hearing that in the messaging today and you know as best I can tell a mid February return to the Max you know wouldn't derail potentially sub six outcome in in 2020.
So I wonder if you can speak to that and then just kind of tied to that if that's correct. The implied revenue outlook is negative next year, which is just not consistent with the resin trends currently we're seen up 9%. So anyways I just wonder if you could also reconcile the has a flat RASM commentary with current trends and the the strong.
Demand commentary is entirely to the the the CASM ex.
Then there is going to be an improvement in cason for next year, but there are some headwinds that we in the and decided to accelerate the exit of the embraer send that will create some short term.
So I'm sure attempt short term inefficiencies, mostly related I guess I mentioned before two aircraft that are part and getting out and our aircraft coming in.
But we do expect to be at a sub six level.
Maybe not sort of full year 2020 given the movement that we absolutely will we will occur.
Essentially I think concurrent with with the conclusion of our fleet movements that we discussed so I think it it'll it'll take a little bit longer but it is purely based on the timing of when the aircraft are leaving and and in terms of RASM.
Again, we're we're seeing I think dead flat RASM in general terms for next year, but again I have to also say that there's a preliminary guidance in February once we have better visibility and we'll see better I think that overall, we are we are or fixing seeing.
Still see early on in improved provide full sort of visibility into 2020 <unk>.
<unk>.
Okay, and then yeah, if I could go back to some of the for currency references you made and the the comments.
Highlighted Argentina, Chile.
In Brazil here can you just talk and then I believe the there was some you alluded to core demand being okay. In these countries just given the load factors. Despite the FX moves I. Just was wondering if you can clarify that and if you can sort of break that down into corporate and leisure and specifically how are you seeing the health of the consumer in those countries and is the strength of.
Factors coming on to the business or the the leisure side.
You know then I think I think I, it's Pedro.
I made the comment that load factors are feel quite healthy, but they're obviously down it from before the devaluation, but there's still healthy and on and depending on the market. We can use additional seats. So they.
In terms of the impact of the devaluation on on yields you're going to affect all market, yeah pick the business and leisure market. It announcing we had that information to share right now in this call it but it's something that happens across the board on and what we're seeing is year over year.
Sure a weakness the markets are still you know.
Cost if I mean, they were just not as strong as we were expecting hey, when we last spoke I think that maybe the big difference.
But you know what end markets are still okay.
Yep, Okay, if I could squeeze one third one in here. The next crowning does imply potentially some lumpy capex I just wonder if you can talk about sort of your capex capex expectations over the next couple of years, and then tied to that compensation from Boeing is that likely to hit the income statement isn't likely to be a mix of income statement disk.
Calendar, just simply discounts on on future craft. Thanks for taking the questions I'll I'll discuss the Capex for 2020, and then I'll, let Ted will discuss the.
The Max.
Question for next year, Yes, there's you know again, a very early on so we are not.
100%, Oh sure about what that final delivery schedule is because the aircraft I see you have not getting.
A on ground that so we are still uncertainty in terms of what does the neighbors gateways, but.
If we assume a rally 14 aircraft coming in that Capex. The total capex for us in 2020 could be around $1 billion.
But remember that we had 100% financing on the aircraft cash capex, including.
We deliberately pockets and all the are items it could be not on a net basis around $250 million for 420 20.
Got it in terms of you know your Max.
Compensation question.
We don't really know.
We will know when the on grounding happened.
We should sit down with Boeing and and we haven't done that Ed and noting a formal way at least so so we don't really know nothing much to come in there yet.
I see okay. Thanks.
Thanks, a lot that.
Our next question comes from Matthew was new ski of Barclays. Your line is open.
Hi, good morning.
Just a real quick question for me for me I was wondering if what degree of potential flexibility you have what the one nine days is is the retirement.
Process set in stone or if there was the Max drowning work to get prolonged further sir potential keeping those I'm a little bit longer if there if it didn't make sense any color you could share on that would be great.
Yes, as always we have lots of flexibility and we we embed flexibility in in our conference for new work rough order for getting rid of aircraft and we're doing some filled seller leads back for a while we're not going up the liver nine.
In an birth from one day to the other I mean dos and Don'ts agreement, we will have flexibility to stay with the aircraft longer if needed.
So we're okay, there and we've shown in the past that you know, we always have a way of or.
Working our freedom meat and growing or shrinking our fleet, depending on the needs of the market another reality like the Max rounding.
Okay, Great and then I'm, sorry, if I missed it but did you wouldn't get there is kind of a cadence over the next 18 months or there's just kinda steadily come out of the out of the out of the fleet or should we expect.
To be a front loaded or backloaded during that period.
It will be very.
You know very flattish in terms of the cadence I don't think or you'll see any particular peaks and valleys in day in the delivery of the aircraft and the reception of of aircraft.
Okay, great. Thank you.
Thanks, a lot and then.
There are no further questions like just trying to call back over to pay Joe Hill ROM for any closing remarks.
Okay.
Thank you all.
This concludes our earnings call after many questions.
Thank you for me was on for your continued support and we hope to see you in the our upcoming Investor day in Panama in early December so how about great. They can see you next month hopefully.
Ladies and gentlemen, thank you for your participation that concludes the presentation. You may now disconnect and have a wonderful day.