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LATAM Airlines Group S.A. (NYSE:LTM)
Q2 2018 Earnings Conference Call
August 21, 2018, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone and welcome to LATAM Airlines Group earnings release conference call. Just a reminder, this conference is being recorded. LATAM Airlines Group earnings release for the period was distributed on Monday, August 20th. If you have not received it, you can find it on our website, www.latamairlinesgroup.net in the Investor Relations section.

At this time, I would like to point out that statements regarding the company's business outlook and anticipated financial and operating results constitute forward-looking comments. These expectations are highly dependent on the economy, the airline industry, and international markets. Therefore, they are subject to change.

Now, it is my pleasure to turn the call over to Mr. Ramiro Alfonsín, Chief Financial Officer of LATAM Airlines Group. Mr. Alfonsín, please begin.

Ramiro Alfonsín -- Chief Financial Officer 

Thank you, Operator. Good morning, everyone, and welcome to LATAM Airlines' second quarter earnings call. Joining me today is Mr. Roberto Alvo, Chief Commercial Officer, Mr. Jerome Cadier, CEO of LATAM Airlines Brazil, and Mr. Andres del Valle, Vice President of Corporate Finance.

Please join me on slide two where you will find the highlights for the second quarter 2018. LATAM faced a challenging macro environment during the second quarter. Fuel prices increased significantly, representing $175 million additional cost for LATAM during this second quarter.

During this period, LATAM faced two singular events, a strike from Chile cabin crew members in April and the truck drivers' strike in Brazil during May. These events have undoubtedly put pressure into our operation and results for the quarter.

During the second quarter, we had the most critical situation regarding the difficulties associated to our Boeing 787 fleet due to industrywide Rolls-Royce extended engine maintenance. After having a maximum of 13 aircrafts on ground during June, that number has now decreased to six airplanes on ground and we have Rolls' commitment of having no aircrafts on ground by year-end. We want to thank our employees for the efforts carried out and commitment with the company during this quarter.

During the second quarter, our operating income amounted to $6.5 million, representing an operating margin of 0.3%. These results include the impact of the mentioned one-off events, the strike in Chile and in Brazil, both of them totaling an impact of $38 million in the quarter. The company continued relentlessly with its efficiency plan, offsetting inflationary costs, reducing headcount by 3.9% versus the second quarter 2017 and continued to see the benefits of the higher volume of operation with fewer aircraft.

In addition, we are no longer experiencing the high amounts of redelivery expenses as in the previous two years. During the quarter, we also completed the integration of our reservation systems and have now a single reservation platform across all of our operations. This will help us to better serve the needs of our passengers as well as additional cost savings for LATAM.

Total operating expenses x-fuel decreased 2.9% and cost per ASK x-fuel improved by 7.2%. Fuel cost increased 34% in the quarter, taking into account the reduction in cost x-fuel and the increasing fuel prices, total operating expenses increased by 5.6%.

LATAM is reducing fleet commitments for 2018 by almost 30% as compared to what was previously announced. Due to market conditions and industrial delays, we are postponing the arrivals of aircraft. We sold total fleet commitments of 2018 of $500 million instead of the $700 million originally announced. You should not be expecting any cash out for this investment, all will be sale and lease back.

Finally, as we are incorporating to our estimated higher fuel prices, weaker currencies in the region, and the negative impact of the strikes in Chile and in Brazil, we are updating our guidance for operating margin of 2018 to range between 6.5% and 8%.

Turning to slide three, you will find a summary of our income statement. Total revenues of the company increased by 3.7% in the second quarter to $2.4 billion. The improvement has been driven by a recovery in both the passenger and the cargo segment. On the passenger side, we were able to increase total yields by 1.7%, while increasing capacity by 4.6% during the quarter and despite the strikes and the minor disruption due to the migration of the passenger service system in our operations in Brazil, total passenger revenues increased 3.6% year over year in the second quarter.

We continued to see a good performance in the international segment. This is a result from the strong demand from the Spanish-speaking countries where we started to see more pressure in the long-haul operations from Brazil, especially in those to the US due to higher industrial capacity.

In Brazil domestic operations, we have been seeing good passenger demand before the truckers' strike. After that, it took until July before we started to see a mild recovery again. Regarding the Spanish-speaking countries, we are happy with the results of our branded fare strategy, which we believe is the correct approach to competitors. Our load factors in the domestic Spanish-speaking countries increased by almost one point in the quarter and passengers carried by 3% year over year despite the strike in Chile.

On the side of cargo, our revenues increased by almost 17%, in line with the previous quarter. Other revenues fell 21%, mainly as a result of lower revenues from the frequent flyer program in Brazil and the implementation of IFRS 15 since the beginning of 2018.

Our cost increased by 5.6% compared to the second quarter. This increase is mainly explained by $175 million of higher fuel cost. Excluding fuel, total costs have declined by 2.9% and cost per ASK declined 7.2% as we see the results of the efficiency initiatives implemented in the past quarters.

Consequently, our operating income for the quarter amounted to $6 million. Excluding the $38 million negative impact from the strikes, we would have reached an operating margin of 1.9% this second quarter, very similar to last year's second quarter, but with much higher fuel prices. The non-operating result amounted to $126 million loss in the second quarter compared to $144 million in the second quarter 2017.

Due to the Brazilian real depreciation, we have a foreign exchange loss of $79 million. Despite the interest rates increase, our net interest expense decreased by $5 million. The foreign exchange loss was offset by the sale of Andes Airport Services, a former subsidiary of LATAM related to the ground handling operations in Chile, which generated a $22 million gain.

In this line, yesterday, we announced the outsourcing of our airport services of ground handling of the airports of Guarulhos in Sao Paulo and Galeao in Rio De Janeiro, in line with the previous outsourcing of ground handling services in Ecuador and in Chile in the past quarters. This will help us achieve more operating efficiencies in the following quarters.

With that, the net loss was $140 million in the quarter. If we take a look at the first half figures on the right-hand side, combining a solid first quarter with a challenging second quarter, our operating margin is 0.4 percentage points higher than the 4.2 from the first half of 2017, despite the $300 million increase in fuel costs, the impact of the strikes during the second quarter, and the engine impact in 2018 that we're suffering due to the Rolls-Royce engine situation.

Net loss in the first half of 2018 was lower than in the first half 2017. LATAM recorded a net loss of $20 million in the first semester as compared with a net loss of $72 million in the same period of 2017, despite the negative impact of the $78 million foreign exchange loss in 2018.

Finally, for the first half of 2018, LATAM generated $400 million cashflow after investment and improvement of over $300 million of the $300 million generated in the same period of 2017.

With that, I turn the call to Andres del Valle for further details.

Andres del Valle -- Senior Vice President of Corporate Finance

Thank you, Ramiro and good morning, everyone. Please turn to slide number four and let's begin talking about the revenue environment during the quarter. As Ramiro mentioned, the second quarter results were mainly affected by two strikes and the ability of approximately 50% of our Boeing 747 fleet. Despite these one-off events, both passenger and cargo segments continued to show capacity increases on a year over year basis.

If we look at the international operations, representing 57% of total capacity, our capacity grew by 5.3% this quarter and traffic grew by 1.8%, resulting in a load factor decline of 2.9% to 84%. Revenues per ASK, which was $0.061 increased by 4.3% versus last year, driven mainly by international growth from the Spanish-speaking countries. If we look at their point of sales, we notice that revenues generated in the US and in Europe accounted for 18% of our total revenues in the second quarter 2018 compared with the 15% in the same period of 2017.

Now, looking at domestic Brazil operations, which are 27% of our total ASKs, total capacity increased by 6.1%, mainly at our Sao Paulo hub. When we look at the load factor, which reached 77%, part of the 2.7 percentage points decline was generated by minor disruptions caused by the migration of the parts and services in our Brazil operations and the strike in Brazil.

Furthermore, we had a 0.5% decline in revenue per ASK in local currency, while US dollar terms revenue per ASK declined 9.7% to $0.056 US. If we look at the Spanish-speaking countries' domestic operations, which all together represent 16% of our total passenger capacity, capacity remained flat, maybe due to the effect of the strike in Chile, offsetting the consolidated capacity growth in the rest of the countries.

Traffic grew 1.1%, resulting in a 0.9 percentage points increase of the load factor to 8%. Then revenues per ASK decreased 3.5% to $0.07 US, in part due to the depreciation of the Argentine peso and the strike in Chile. As a result, our overall passenger capacity grew by 4.6% year over year this quarter. Revenues per ASK declined 1% year over year with our yields improving 1.7% and load factor decreasing 2.2 percentage points.

If we look at the cargo side, we have increased our capacity by 7.5% during the quarter and increased load factor by 1 percentage point to 55%. This quarter, we continued to see an improvement in our unit revenue, with revenue for APK going up by 8.7%, as compared to last year to $0.188 US, driven by a recovery in both import, mainly to Brazil and Chile from North America and Europe, and also export markets, especially from North America and Asia.

Please turn to slide number five. During the past years, we have been working very hard at testing our cost structure. We are now an airline that flies more and carries more passengers and cargo with fewer employees. An archive is shown at the top of the slide.

We see that our overall cost increased by 5.6% year over year to $2.3 billion. The increase is mainly explained by a $175 million of high fuel expenses resulting from an almost $0.36 increase on the average price per gallon compared to last year's second quarter. Excluding fuel costs, our total costs would have declined by 2.9%.

Cost to wages and benefits decreased 3.7% year over year, mainly driven by a reduction of 3.9% in the average headcount of the quarter, as you can see in the chart at the top of the slide. We're getting free cost, which include aircraft rentals, depreciation and amortization, and maintenance expenses.

Those were down by 6.2% year over year in the quarter, explained by lower aircraft rental expenses as a result of a reduction of six aircraft and their leases during the quarter and lower delivery cost as the company only returned one aircraft in the second quarter, while in the same period of last year, seven aircrafts were returned.

Lastly, the added costs line on this slide was relatively stable, decreasing by 0.1%, as a higher volume of operations in both passenger and cargo operation, as well as cost pressure from compensation related to the strikes offset the result of our efficiency initiatives. We can see now that LATAM is flying more with fewer aircraft and keeping a cost for ASK x-fuel reductions. In fact, cost per ASK increased by 0.9% year over year, while cost per ASK x-fuel decreased by 7.2% year over year.

Please turn to slide number six. Regarding our financial metrics shown on this slide -- total gross debt was down by $389 million for the quarter to $7.5 billion compared to December 2017, reaching a [inaudible] about 4.4 times. We continue to benefit from a very good liquidity position with $1.2 billion of cash on hand, plus $600 million of a revolving credit facility, which has been increased by $150 million in the second quarter to $600 million and has been extended until the year 2022.

The RCF is totally undrawn as of today. With this, LATAM's liquidity position reach 70% of the last 12 months' revenues. On the same slide, if you look at the debt maturity profile, shown at the bottom of the slide, it shows a remainder of around $500 million to pay down in 2018 and less than $900 million for 2019, while for 2020, we have $1.5 billion due to the upcoming maturity of the LATAM bond, $500 million unsecured in 2020.

Please join me on slide number seven. Looking at the fleet plan, we can observe here the changes that Ramiro mentioned at the beginning of the presentation. We have further adjusted our fleet commitments for 2018 and we're now expecting to end the year with 312 aircraft, 6 aircraft less than in the previous quarter's plan, with fleet commitments totaling $507 million. As a result of these recent movements, our fleet commitment for 2019 will now amount to $1.4 billion, which will result in an opening fleet size of 320 aircraft for less than in the previous fleet plan.

We will evaluate the options we have because current commitment for 2019 are still high for growth plans for the next year. It is most likely that for 2018, all the planes that we will receive will be under lease contracts, hence no CapEx for leasing fleet in 2018. And for the next year for 2019, we will evaluate the different options that we have by currency.

It should be mentioned that of the $1.4 billion in fleet commitments in 2019, almost $500 million have been already financed. This cautious view allowed us to continue improving our cashflow as investment, as we can see on the next slide. We compare here LATAM through June '17 and through June '18. This is mostly driven by higher EBIT margin for the last 12 months of 7.1%.

With domain focus in the deleverage process of the company taking a disciplined approach toward our investments -- this does not mean that we will stop our investments. In fact, we are working on a very important project to upgrade the cabins of most of the aircraft in our fleet, as you will see on the next slide.

On slide number nine, we're showing that in the next months, we will start with this strategic project that touches almost two-thirds of our total fleet, both narrow and wide body aircraft, in which our passengers will experience an industry-leading onboard experience as we better serve each passenger with more options, flexibility, and personalization.

The total investment of this project is around $400 million, which includes new premium business seats, a revamped economy cabin, improved comfort, and a state-of-the-art in-flight entertainment system for the wide-body aircraft. Speaking of the narrow-body fleet, the new seats will also be more comfortable and will be segmented into sections with different levels of space with options for more passengers as well as a greater number of seats with increased legroom to choose from.

We will keep investing in our passengers. We believe this transformation of our onboard experience will not only help strengthen loyalty with our existing passengers, but also attract new customers.

Please turn to slide number ten. Our network is one of the things that make us the most important airline in the region and we are committed to maintaining our network leadership. During July, we launched two new destinations from our Sao Paulo Guarulhos hub -- Sao Paulo to Boston and Sao Paulo to Las Vegas. With these two additional destinations, now we fly directly into six cities into the US from our hubs.

In addition, we announced that from 2019, LATAM will start operation to Munich, Germany, becoming the ninth destination in Europe. These new destinations as well as new routes, such as Santiago -- Cusco and Santiago -- Porto Alegre will continue to strengthen our existing network. It is also important to mention that the main [inaudible] approved the open skies agreement between Brazil and the US, another important step toward the implementation of LATAM's joint business agreement with American Airlines and IAG. Now, we are waiting authorization from the Chilean Antitrust Agency and the Department of Transportation in the US.

Please turn to slide 11 regarding fuel and FX hedging portfolio. For the second quarter of 2018, we have hedged approximately 45% of the estimated fuel consumption, recording a $10 million fuel hedging gain compared to the $10 million lost in last year's quarter. In the third quarter 2018, we have 44% of the estimated fuel consumption hedged, while for the fourth quarter, that percentage is 51%. Looking into 2019, the first and second quarter have 30% and 22% of the estimated consumption already hedged, respectively.

Regarding the BRL hedge due to second quarter 2018, we recognized $6 million gain related to foreign currency contracts compared to a neutral result in the second quarter in 2017. We have hedged $100 million for each of the quarters of the second half of 2018.

Lastly, please move to slide number 12. As Ramiro mentioned before, we are revising our guidance for operating margin and capacity growth in 2018. We are now incorporating the current high fuel prices, weaker currencies, and the impact of the strikes in our protections. Now, we are estimated $85.00 a barrel for the full year, $73.00 in previous guidance, and a BRL of 3.71 for the full year, 3.31 in our previous guidance.

We're expecting total capacity to grow between 4% and 6% this year, down from a range between 5% and 7%. This breaks down in 5% and 7% for the international segment, which incorporated currently high fuel prices. For domestic Brazil, we are not changing our capacity growth range from 2% to 4% with growth mainly at our Guarulhos hub.

For Spanish-speaking countries, we reduced our expected growth per year to range between 4% and 6%. We're not changing our strategy in the Spanish-speaking countries and are incorporating the effects of the strike in Chile in our projections. We have also maintained the cargo capacity guidance to an increase between 1% and 3% in 2018. With all of this, we expect our operating margin to be between 6% and 5% to 8% this year, down from a range of 7.5% to 9.5%, as previously guided.

With this, this concludes our presentation. We will be happy to open the line for questions. Thank you.

Questions and Answers:

Operator

Ladies and gentlemen, at this time, if you have a question, please press the * and then the number 1 key on your touchstone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated.

Our first question is from Duane Pfennigwerth from Evercore ISI. Your line is now open.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Hey, thanks for the questions. As you look at the current macro backdrop, the current macro scenario right now, are there any segments of your business that are fully offsetting higher fuel? I wonder if you could comment which segment of your business was the largest contributor to your moderated guidance outlook?

Roberto Alvo -- Chief Commercial Officer

Hi, Duane. This is Roberto Alvo. So, yes, we have, as we see our different groupings, we see very different situations today. Most concerning today is Argentinian demand, basically because of the devaluation. We are seeing better demand in Spanish-speaking to the US and Europe, where we are being able to drive RASK up to the tune of fuel prices. The places that are most challenging today is basically to the Caribbean because of high sourcing or demand from Argentina.

We are also seeing challenges between Brazil and the US, particularly because of significant increase in capacity from different players in the last few months. So, we see demand relatively stable and solid in both Europe, the US, and the Pacific side of Spanish-speaking. We are more concerned today with respect to Argentina and to some extent in Brazil.

Ramiro Alfonsín -- Chief Financial Officer 

Maybe complementing that, Duane, just add that the cargo segment is the one that is offsetting fuel completely.

Duane Pfennigwerth -- Evercore ISI -- Analyst

That makes sense. I know you've been reluctant to do this in the past -- would you be able to size the magnitude of the impact either to RASM or operating income from Argentina, specifically?

Roberto Alvo -- Chief Commercial Officer

No, we don't do it. It's very difficult to forecast those given the political situation in the country today. I think what you need to have in mind is approximately 11% of our revenues today are created in Argentina, sourced from Argentina.

Duane Pfennigwerth -- Evercore ISI -- Analyst

That's helpful. My last question -- with respect to the flattish yields you saw in local currency in Brazil domestic in the second quarter, obviously, some non-recurring demand impacts there. How would you characterize the pricing and competitive environment right now through July and August in Brazil domestic? Thanks for taking the questions.

Ramiro Alfonsín -- Chief Financial Officer 

Sure. May and June were hard months. We saw a significant impact from the strike. It happened more or less at the same time that we changed our PSS system. We believe there was a non-minor impact basically in load factor due to the change in the reservation system in the second half of the second quarter. We are seeing a better demand environment in July and in August. Industrial revenues, we believe, are increasing in real terms, all in all, and despite the political uncertainty in Brazil today, domestic Brazil looks relatively healthy. We had a couple rough months in the second half of the second quarter.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Any impacts competitively as you see some of these fleet upgrading, etc. from some of your competitors?

Ramiro Alfonsín -- Chief Financial Officer 

Nothing that we can deem materially.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Okay. Thank you very much.

Operator

Thank you. Our next question is from Savanthi Syth from Raymond James. Your line is now open.

Savanthi Syth -- Raymond James -- Analyst

Good morning. On the cost execution, which was very good, I wonder if you could break out how much of the 7% decline in non-fuel unit costs, how much of that was driven by FX versus how much of it was core improvement that we can expect to continue regardless of what FX does?

Ramiro Alfonsín -- Chief Financial Officer 

Yeah. The major part was not driven by FX. It's more utilization and productivity. I would say that excluding FX, devaluation of the currencies, improvement, instead of being 7.2% is roughly 4.5%. So, I would say two-thirds is an improvement of efficiencies and one-third, more or less, is FX-driven.

Savanthi Syth -- Raymond James -- Analyst

And then from the financial target side, I wonder if you could give a revised view on how you're thinking about what level of cash you want to maintain and any coverage ratios, how you're thinking about the balance sheet as you can continue to do good work in adjusting cashflows here.

Andres del Valle -- Senior Vice President of Corporate Finance

Sure. Andres del Valle here. If you look at, say, liquidity, of course, second quarter is the lowest quarter of the year because of seasonality. But going forward, we expect to maintain up to 19%-20% of LATAM revenues, including the RCF. As we detailed the RCF has been upsized to $600 million. So, that's the level of cash that we feel is adequate for the company looking at the upcoming maturities.

In respect of deleveraging, we are now at that 4.4 times leverage. Looking at the revised margin for the year, which has been revised downward from 6.5% to 8%, at the beginning of the year, we thought the end of the year would be very low in terms of adjusted net debt to leverage. Now, it will be roughly at the same level you're seeing today. Going forward, of course, the company continues to deleverage as the margins continue to expand.

Savanthi Syth -- Raymond James -- Analyst

Is there a level that you're comfortable with or you definitely want to get below or how should we think about that coverage ratio?

Andres del Valle -- Senior Vice President of Corporate Finance

The coverage ratio, we definitely would like to be below 4 times, for sure. As I said, this is not happening this year, but going forward, we definitely would like to see it at that level below four times.

Savanthi Syth -- Raymond James -- Analyst

Okay. Great. Then just one last question to follow-up on Duane's line of questioning -- just on the Brazil/US side, I'm guessing that's where the greatest weakness is on international. I'm wondering what you're seeing -- it seems like you're seeing capacity being adjusted in the industry. As you look forward, are you feeling better about the outlook there or do you continue to see pressure on that front?

Ramiro Alfonsín -- Chief Financial Officer 

So, yes, we have seen a few capacity decreases from other players in the last few weeks. If you measure demand in real terms, we believe the industry is growing. However, when you measure demand in dollar terms, because devaluation the industry is decreasing, we think that there's still some pressure in revenue per ASK, particularly in Brazil/US and capacity, we believe, is not still at the level we can feel that fuel can be passed on, higher fuel prices can be passed on yet.

Savanthi Syth -- Raymond James -- Analyst

Great. Thank you very much.

Operator

Thank you. Our next question is from Josh Milberg from Morgan Stanley. Your line is now open.

Josh Milberg -- Morgan Stanley -- Analyst

Great. Good morning, everyone. Thanks for the questions. I was hoping you could provide a little more perspective on the evolution of your domestic Spanish-speaking portion of your business. It obviously didn't hold up as well as international and I just wanted to get a little more granularity on what you're seeing in the different countries. Also, if you could just comment on how you're seeing the evolution of competition from low-cost players. I know you just mentioned that Argentina has been a source of some weakness.

Andres del Valle -- Senior Vice President of Corporate Finance

So, we're very happy with the model that we launched almost two years ago with branded fares in Spanish-speaking countries. We believe that's the right strategy to compete against local competition in general in the region. Our results, we believe, are of course impacted because of the strike in Chile, which was very costly in the second quarter. Otherwise, the results are in line with our expectations.

We keep load factors at a healthy level and when you see public information on load factors of low-cost competitors in the region, they are several points below us and we believe that's a key metric of low cost carrier performance everywhere, particularly in the region. We believe our strategy is the right one and that we actively and very intensely compete, particularly in Chile today and in Columbia, where also we have an important low-cost carrier.

With respect to Argentina, I think it's important to point out that the devaluation has a more significant impact in international routes rather than domestic routes. There was a change in regulation in Argentina a couple months ago where the bottom of the [inaudible] was liberated for tickets that are purchased with more than 30 days advanced noticed. We are implementing our branded fares model in Argentina at the end of this quarter, beginning of next quarter.

We'll be in a much better position to use our strategy today with the deregulation of the Argentine market. So, weakness today is more related to international business because of course the valuation makes cost in pesos to travel abroad higher. The increase in demand we've seen with the exclusion of the ban is healthy and we've been able to capture, we believe, a significant portion of the new demand with lower pricing because of no existence of the ban in Argentina.

Ramiro Alfonsín -- Chief Financial Officer 

Josh, if I may, this is Ramiro, I would like to comment that on page four, you can see that on Spanish-speaking countries, our load factors, despite the strike, have increased by 1 percentage point. The reduction in graphic that you're seeing there is all attributed to the devaluation of the currencies. So, when you look at this in local currencies, you're seeing an improvement in RASK.

Josh Milberg -- Morgan Stanley -- Analyst

Okay. Thanks very much, Ramiro, for that. Then my second question was just on your fleet commitments. You did have this very important reduction for 2018. But your figure for 2019 came up significantly. So, it offset part of the reduction this year. I was just hoping you could talk a little bit more about your strategy going in to 2019. Do you see a scenario in which the 2019 figure gets scaled back as well?

Ramiro Alfonsín -- Chief Financial Officer 

I think that's very probably. We're increasing the utilization of our aircraft as we have been in quarter two. This is allowing us to grow with fewer aircraft. We believe we can further optimize utilization going forward in 2019. Maybe you will see a reduction of these fleet commitments for 2019 going onwards.

Josh Milberg -- Morgan Stanley -- Analyst

Okay. If you could just -- a semi-related question is if you could just give us a sense of what your non-fleet CapEx might be for your 2018-2019 as well, just give us a sense of what the magnitude of that could be for the two years.

Ramiro Alfonsín -- Chief Financial Officer 

Yeah. Non-fleet CapEx for this year is expected to be roughly $650 million. This includes the connectivity plan. We're connecting airplanes with Wi-Fi in Brazil and the initial investment in the cabins that were presented today, the $400 million. So, for 2019, you should be expecting roughly, I would say, $700 million and then from '20 onwards, it would be reducing since most of the cabin investments would have been made.

Josh Milberg -- Morgan Stanley -- Analyst

Okay. That's great. Thank you very much.

Operator

Thank you. Our next question is from Mike Linenberg from Deutsche Bank. Your line is now open.

Michael Linenberg -- Deutsche Bank -- Managing Director

Yeah, hey. Good morning, everybody. Just a couple here -- I thought it was interesting you gave us the changes in point of sale from Latin America or your international routes to Europe and US. You indicated that it's 18% versus 15% a year ago. Is that all currency-driven or are you actually seeing better demand strength coming out of the US and Europe down to South America and/or is there any sort of marketing initiatives that you've put in place to try to improve the point of sale balance?

Roberto Alvo -- Chief Commercial Officer

Mike, hi, this is Roberto. I think one of the advantages we have is the diversification of point of sale that a company has. We have been in particular increasing our sales. We've done this on purpose in markets we've seen more healthy as a way of counterbalancing the decrease in the demand in particularly Argentina and to some extent in Brazil. So, this is very much on purpose what we're doing and we're trying to gain market share on those points of sale by changing the little bit of strategy.

Michael Linenberg -- Deutsche Bank -- Managing Director

Okay. Great. A second question -- with respect to your joint business agreement that is pending with IAG, with British Airways and Iberia, just so I'm clear, you do not need an Open Skies Agreement between Brazil and the rest of South America and Europe for that proceed, is that correct?

Roberto Alvo -- Chief Commercial Officer

That's correct. The European Union doesn't require Open Skies. We gained approval already from every jurisdiction in South America and we're waiting only for the approval in Chile and the European Union has not investigated our presentation. So, we're basically at this point in time only waiting for the antitrust court ruling in Chile.

Michael Linenberg -- Deutsche Bank -- Managing Director

Okay. Great. Just my last question on Argentina -- can you just walk through on the change to the fare structure, I believe there are some restrictions, like in order to take advantage of the lower bans or go to lower fares, I think the tickets require some pretty significant advanced purchase restrictions. Can you just run through what those are?

Sort of as a corollary to this question, we have this new fare structure coming into place as we have a lot of new entrants moving into Argentina. Just from where I sit, I would suspect that over time, there's probably going to be some rationalization of the market. It may happen sooner than we actually think. Is that the right assessment of how the situation could play out? Thank you.

Roberto Alvo -- Chief Commercial Officer

So, there are basically two changes in the regulation for fares in domestic. One is that the floor of the ban has been removed, but only for tickets that are purchased with more than 30 days than the time of flight. The second [inaudible] is that those tickets need to be round trip. You cannot sell one-way tickets with more than 30 days advanced. That's a change. In the past, you had a floor for all the air time.

So, it's interesting because on day 30, you have one fare. On day 29, you have again the floor of the ban instituted. So, that is a change and it started on September 1st. We are implementing, as I said, branded fares in Argentina at the end of the quarter. We will also be implementing branded fares more than regional routes.

This is international within South America in the beginning of the fourth quarter. It's very fluid today in Argentina and of course, we do not give opinion on our competition, but the situation in Argentina with the devaluation and the fuel price I think is challenging for anybody who plays in the market, including the flag carrier.

Michael Linenberg -- Deutsche Bank -- Managing Director

Okay. Thank you, Roberto.

Operator

Thank you. As a reminder, ladies and gentlemen, if you have a question, please press the * and then the number 1 key on your touchstone telephone. Our next question is from Stephen Trent from Citi. Your line is now open.

Stephen Trent -- Citigroup -- Analyst

Thanks very much, everybody. Thanks for taking my question. Just kind of two follow-ups from me, if I may -- the first shift to, I guess to follow-up on Savi's question -- when we think about meeting the longer term, I'm kind of looking at your cash in equivalence versus your debt maturities. At this point, is it fair to say that you don't anticipate having to do any kind of meaningful capital raisings now in 2020?

Andres del Valle -- Senior Vice President of Corporate Finance

Good morning, Stephen, Andres here. That's a fair statement. I think 2019 is sort of a quiet year in terms of debt maturities below $900 million. So, the next refinancing exercise would be in the spec of the LATAM 2020. That's coming in June 2020. So, of course, we're always evaluating the different options, but nothing important should be, I think, done at this point in time.

Stephen Trent -- Citigroup -- Analyst

Okay. Great. I appreciate that Andres. Actually, just one other quick follow-up -- in your exchange with Duane earlier, you were mentioning that Argentina drives roughly 11% of your revenue. I just wanted to make sure I understood that correctly.

Andres del Valle -- Senior Vice President of Corporate Finance

That's correct. Point of sale Argentina is approximately 11% of our revenue.

Stephen Trent -- Citigroup -- Analyst

Got it. So, when I look at your capacity graph, that only 16% coming from Spanish-speaking countries domestic, that obviously only counts domestic and not international from most markets? I'm sorry for the dumb question, just wanted to make sure.

Andres del Valle -- Senior Vice President of Corporate Finance

So, 11% is both domestic and international, approximately 75% of that 11% is international. The rest is domestic. We currently have approximately 33 daily flights, 33 international daily flights to Argentina.

Stephen Trent -- Citigroup -- Analyst

Okay. Understood. That's perfect. I'll let someone else ask a question. Thank you.

Operator

Thank you. Thank you for joining us today. Please feel free to connect our Investor Relations department if you have any additional questions. We look forward to speaking to you again soon.

Duration: 44 minutes

Call participants:

Ramiro Alfonsín -- Chief Financial Officer 

Roberto Alvo -- Chief Commercial Officer

Andres del Valle -- Senior Vice President of Corporate Finance

Duane Pfennigwerth -- Evercore ISI -- Analyst

Savanthi Syth -- Raymond James -- Analyst

Josh Milberg -- Morgan Stanley -- Analyst

Michael Linenberg -- Deutsche Bank -- Managing Director

Stephen Trent -- Citigroup -- Analyst

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