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American Airlines Group Inc  (NASDAQ:AAL)
Q3 2018 Earnings Conference Call
Oct. 25, 2018, 7:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the American Airlines Third Quarter 2018 Earnings Call. Today's conference call is being recorded. At this time all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (Operator Instructions)

And I would like to turn the conference over to your moderator, Managing Director of Investor Relations, Mr. Dan Cravens.

Daniel Cravens -- Managing Director of Investor Relations

Thanks, and good morning, everyone, and welcome to the American Airlines Group Third Quarter 2018 Earnings Conference Call. Joining us on the call this morning is Doug Parker, Chairman and CEO; Robert Isom, President and Derek Kerr, our Chief Financial Officer. Also in the room for our question-and-answer session are several of our senior executives including Maya Leibman, Chief Information Officer; Steve Johnson, our EVP of Corporate Affairs; Elise Eberwein, our EVP of People and Communications; and Don Casey, our Senior Vice President of Revenue Management.

Like we normally do, Doug will start the call with an overview of our financial results. Derek will then walk us through the details on the third quarter and provide some additional information on guidance for the fourth quarter. Robert will then follow with commentary on the operational performance and revenue environment, and then after we hear from those comments we'll open the call for analysts questions, and lastly questions from the media. To get in as many questions as possible please limit yourself to one question and a follow up.

Before we begin we must state that today's call does contain forward-looking statements, including statements concerning future revenues and cost, forecasts of capacity, traffic, load factor, fleet plans and fuel prices. These statements represent our predictions and expectations as to future

events, but there are numerous risks and uncertainties that could cause actual results to differ from those projected. Information about some of

these risks and uncertainties can be found in our earnings press release issued this morning and our Form 10-Q for the quarter ended September 30, 2018, that was also issued this morning.

In addition, we will be discussing certain non-GAAP financial measures this morning, such as pre-tax profit and CASM, excluding unusual items. A

reconciliation of those numbers to the GAAP financial measures is included in the earnings release, and that can be found on our website. A webcast of this will be archived on the website as well. And the information that we're giving you on the call is as of today's date and we undertake no obligation to update the information subsequently.

Thanks again for joining us, and at this point I'll turn the call over to our Chairman and CEO, Doug Parker.

Doug Parker -- Chairman & Chief Executive Officer

Thanks, Dan. Thanks who ever joined us. Today we reported third quarter 2018 pre-tax profit of $688 million excluding net special items. Those results include our highest ever revenue performance, thanks to our 130,000 hardworking team members, but unfortunately a rise in fuel prices outpaced that increase in revenues. Higher jet fuel prices alone increased our quarterly expenses by over $750 million versus the same quarter last year. And therefore, our pre-tax earnings excluding specials for the quarter were $485 million lower than the third quarter of 2017. The declining earnings has been met with the declining stock price, which neither we nor our investors are happy about. The good news is we're extremely bullish on the future of American and for good reason. This disconnect between the stock price and our view of the future seems to us like a buying opportunity and we're happy to be here to talk to you all about it.

So look, there are five reasons that we're so bullish. First, we had extensive revenue initiatives under way, that are expected to bring more than $1 billion in revenue improvements to American in 2019 versus 2018. Importantly, the drivers of this value are not share shift because of a better product like new airplanes or industry leading Wi-Fi or world class clubs and lounges, though we certainly believe some upside exist in that regard. This is value that will happen as we simply execute against known projects such as project segmentation, fleet reconfiguration and international network restructuring.

Second, we also expect about $300 million in cost improvements in 2019 versus this year. That's the result of our One Airline Project, which has been expanded and accelerated in light of higher fuel costs and Derek will discuss that further.

Third, we have the opportunity to grow where we have a real competitive advantage. We have what we believe will be the lowest growth plans in the industry for 2019, but we also have what we believe are the best growth prospects. We have 15 gates opening at our largest and most profitable hub in Dallas/Fort Worth in early 2019. We have routes in and out of Dallas/Fort Worth that will immediately generate higher than average profitability versus the marginal profitability that airline growth usually generates.

Fourth, we are dedicated to improving our operating reliability. And we've been steadily improving the operating reliability of American according to plan in each year since our merger in late 2013. But that trend changed in the summer of 2018, we backed a little bit. As Robert will discuss we've rededicated ourselves to producing the best operational reliability since the merger in -- since our merger in 2019 (ph) and that's our top corporate priority. The works already begun, showing some great results. So this is an even more upside for 2019.

And then fifth, we are nearing the end of our major post merger capital expenditure requirements. Our capital expenditures at American have averaged $5.3 billion per year in the five years since the merger. That over $25 billion is by far the most any carriers has invested in its fleet, product and team in the history of commercial aviation. And the result is a valuable set of assets that will serve our shareholders well for decades to come. And we're going to spend a little under $5 billion in 2019 as we have one more aircraft order to fund. But after that we're largely done with the backlog and our CapEx drops precipitously to approximately $3 billion in 2020, $2 billion in 2021 and we expect it will remain in the $2 billion to $3 billion range thereafter. So because of all those items, we're excited about our near and long term future. We're confident that American will return to revenue outperformance and earnings growth in 2019 and beyond.

Now it sounds like we're extremely optimistic is because we are, but please don't mistake confidence for indifference. We're extremely focused on results and execution and completing the hard work necessary to deliver this value. We just happen to be confident it will happen, because we know we have the right plan in place and the right people to deliver it.

We look forward to proving that over time and with that I'll turn it over Derek and Robert.

Derek Kerr -- Executive Vice President and Chief Financial Officer

Great. Thanks, Doug, and good morning, everyone. Before I begin I'd like to recognize and thank our team who have had to contend with some very challenging weather conditions during the quarter. Their hard work and willingness to go above and beyond on behalf of our passengers in some very difficult circumstances is appreciated by us all.

We filed our third quarter earnings press release in 10-Q this morning, while this was another profitable quarter for American Airlines. Earnings were lower due primarily to a 38% increase in average fuel cost per gallon. Excluding net special items, we reported a net profit of $523 million in 2018 versus our 2017 net profit of $729 million, which included a negative impact to pre-tax earnings from Hurricane Florence for approximately $50 million.

Our diluted earnings per share excluding net special items in the third quarter of 2018 was a $1.13 per share, and excluding special items, our third quarter pre-tax profit was $688 million with a pre-tax margin of 6%. Our total operating revenues were 5.4% to $11.6 billion, the highest third quarter revenue in American Airlines history. On a unit revenue basis total revenue per ASM was up 2.6% and this was the eighth consecutive quarter in which we achieved positive unit revenue growth. Passenger revenues were $10. 6 billion, a 4.6% improvement driven in part by a 2.2% improvement in yields.

The third quarter saw another excellent performance by our cargo organization. For the third quarter cargo revenue was $260 million, a 16.4% improvement year-over-year driven primarily by a 12.1% improvement in yields. Other revenues were up 14.5% driven primarily by continued strength in our loyalty program. Total operating expenses were $10.9 billion up 12.4%. The primary driver of this increase was the higher fuel price I mentioned earlier, which drove approximately $750 million of year-over-year incremental expense. As a result consolidated cost per ASM was up 9.4% year-over-year.

In this increasing fuel cost environment we continue to make the reduction of non-fuel costs a priority. When we initially provided guidance in our third quarter of 2018 back in January we projected that fuel would be up -- would be at approximately $2.10 a gallon and that CASM excluding fuel and special items would increase by approximately 1.5% on ASM growth of close to 4%. As fuel costs increased throughout the year, we worked to eliminate non-essential costs from the organization, while at the same time optimizing our network and focusing on reducing unprofitable capacity. As a result of these efforts, our third quarter consolidated CASM excluding fuel and special items was up only 0.8% year-over-year on an over 100 basis point reduction in system capacity growth to 2.7%.

Turning to the balance sheet, we ended the quarter with approximately $7.4 billion in total available liquidity. During the quarter, our treasury team completed several transactions including a $500 million upsize of our London Heathrow term loan, as well as securing financing for certain 2019 aircraft deliveries. We now have financing for all mainline aircraft deliveries through June of 2019. In addition, the Company made a $156 million contribution to its defined benefit plans. For the year we have made $467 million in pension contributions. One benefit of the rising interest rate environment is that it reduces our pension liability, which all else being equal, will lower future pension funding obligations and improve our free cash position in the medium to long term.

As of today we estimate our GAAP liability has reduced by $2 billion from the start of the year and our 2019 cash contribution has reduced by about $110 million to $780 million based on year-to-date asset performance. We have lowered our adjusted debt including pensions by $743 million since the beginning of the year, now that our fleet renewal program is winding down, we continue to believe that our 2018 year end adjusted debt will be lower than at the end of the third quarter and we expect that over the next few years this trend will continue as we naturally delever the Company. We did not repurchase any stock during the third quarter leaving our available authorization for stock buybacks unchanged at $1.65 billion. The fact that we did not repurchase any stock is not due to a change in our belief that the stock is undervalued.

As we have consistently said our priorities for our use of cash are; number one, to meet our outstanding obligations when due; two, to make an appropriate investments in the business. And finally to opportunistically return any excess liquidity to shareholders. Though, we define excess liquidity is anything above the very high level of $7 billion. As fuel prices rose earlier this year, we began to forecast the year end cash balance near that $7 billion target level. So we stopped repurchasing our shares. We are extremely bullish on AAL and would be aggressive buyers at these levels, but maintaining $7 billion of target liquidity is a key component of our capital allocation strategy and we won't violate it to repurchase shares irrespective of our bullishness.

We filed our Investor Update this morning, which includes our guidance for the remainder of the year. Consistent with our previous guidance given on the last earnings call, we continue to expect our full year system capacity growth will be just over 2%, down significantly from our expectations of approximately 3% at the beginning of 2018. Despite this reduction we continue to believe that our fourth quarter year-over-year CASM ex fuel and special items will be flat, and our full year 2018 CASM will be up approximately 1.5%, down 50 basis points from our expectations in January of 2018. Given the run up of fuel over the past few months, we continue to expect higher fuel expense in the fourth quarter of 2018 based on a few forward curve as of October 24, we are forecasting an increase in consolidated fuel expense of 33% or $2.5 billion for the full-year 2018. For the full year we now anticipate our fuel price to be between $2.22 to $2.27 per gallon.

We also guided to a fourth quarter 2018 TRASM increase of 1.5% to 3.5% to which Robert will provide more details on in his remarks. With our combined revenue and cost guidance, we expect our fourth quarter of 2018 pre-tax margin excluding net special items to be between 4.5% and 6.5% and our full year 2018 earnings per share excluding net special items guidance to be between 4.5% and 5%.

We are still in the process of developing our plan for 2019, with fuel prices remaining high, we are once again reviewing our capacity plans as we are in the middle of our budgeting process. We continue to expect our ASM growth in 2019 to be in line with or below estimated GDP growth and among the lowest in the industry. Our capacity growth in 2019 will come primarily from our unique opportunity to add incremental flying to Dallas/Fort Worth, our most profitable hub, as well as our fleet modernization project to add existing seats to our narrow-body aircraft, which allows us to grow capacity in extremely efficient way.

In addition to this margin accretive growth, we are confident of successful execution on our business plan, which we continue to believe will include an incremental $1.3 billion in revenue and cost opportunities for 2019. Given this level of capacity and the incremental cost opportunities we continue to expect that our CASM growth in 2019 will be in the 1% to 2% range that we previously guided, and we'll have a better read once we finish our 2019 planning process by year end.

In terms of capital expenditures for 2019, we continue to expect that we will spend $2.9 billion on aircraft CapEx, as we take delivery of new large RJs that replace 50 seaters along with narrow-body aircraft to replace our MD-80 fleet that we will retire after next summer. We now believe our non-aircraft CapEx will be $1.7 billion in 2019, $100 million lower than previous guidance. After 2019 most of our integration projects will be complete. At that time our obligations reduce considerably and we estimate that total CapEx will be $2.9 billion in 2020 and 2.2 billion in 2021, thus allowing us to generate significant free cash flow. During 2018, we have adjusted to higher costs by reducing capacity growth, slowing non-fuel CASM growth by pulling forward some of our One Airline cost initiatives and lowering our capital expenditures by deferring aircraft.

Going forward we will continue to focus on growing network profitability, executing on our revenue opportunities and further at lowering costs throughout the airline. We have an exciting long term vision for American Airlines and we're pleased with big success of our efforts in 2018. We will continue on this path as strengthening our business in the short term will allow us to take full advantage of the opportunities available to us in the medium and long term.

In conclusion I would like to once again thank our entire team for their hard work, for a challenging quarter and with that I'll turn it over to Robert.

Robert Isom -- President

Thanks, Derek, and good morning everybody. In October, we successfully completed our largest integration project to date, moving all 27,000 American flight attendants into one scheduling system. The benefits and efficiencies we'll gain are wide reaching. Our flight attendants are no longer limited to flying on their legacy carriers aircraft and we'll have the flexibility to move to different bases. For our customers, we will be able to recover more quickly falling irregular operations. And it removes a friction point from how we schedule our aircraft and crews, giving us more operational flexibility and the ability to optimize our network and drive efficiencies. This was a massive four-year effort by our team who invested more than $6.2 million hours to ensure our success. I want to thank all of our team members who work behind the scenes to prepare us and on the front line who have seen an enormous amount of change.

Progress on integration is one reason our operation is set to improve. Since the merger and up through this past winter, American had been making steady progress in improving core operating reliability, while also achieving important merger milestones. However, this past summer, we fell short of our targets that we had set for ourselves. While there are factors like inclement weather and unexpected increases in workload associated with some aircraft types that contributed to our under performance, we know that we must do better, and we will. To that end, our immediate focus is on making sure that our fleet is ready to go each morning and that we resource our team to turn aircraft on time throughout the day.

We have taken immediate short-term action and launched a comprehensive review of our planning processes to ensure that we are ready to deliver better service during peak scheduled periods like the summer and year end holidays. Our efforts are already paying dividends, as evidenced by two successive zero cancellation mainline operations this past week and we are also operating a greater than 99% mainline completion factor so far in October. Despite difficult operating conditions in DFW and also dealing with Hurricane Michael. On that note I have to point out what an incredible job our teams across the system did to recover from both Michael and Hurricane Florence in September. In both instances, our teams were well-prepared and the greatest testament to how quickly we got back the operation back and running, the testament to that is how quickly we got the operation back up and running especially out on the East Coast.

On the product side, we've talked a lot about the $25 billion we have invested since our merger in people, facilities, product, laying the foundation for a more efficient reliable airline and we're not done yet. We continue to make significant investments in our product and we'll continue to grow our Flagship First Dining, our Flagship First Lounges with the DFW opening in the first quarter of 2019. We are also investing more in our Admirals Club Network with refreshed projects in Boston, Charlotte B and also in Pittsburgh in the first half of 2019.

We have significantly enhanced connectivity on board by adding high speed Wi-Fi and EmPower, Seat Power. Half of our long term domestic mainline fleet now has high speed Wi-Fi and installations will be complete by next summer. We are adding live TV to our domestic mainline fleet, a product our international customers have been enjoying since 2016. These transformational investments in our products, which touch every point of the customer's journey will drive higher revenues and improve customer perception. We continue to play to our strengths when it comes to our network, adding high quality, high margin growth and redeployment opportunities at our most profitable hubs.

Our 2018 domestic network additions to Dallas/Fort Worth and Charlotte produced margins far above our system average. And in 2019 we will continue to capitalize on that strength by adding 15 gates and 100 departures per day at DFW. In 2020, we will add seven new gates at Charlotte, enabling another 75 daily departures. In 2021, the new regional terminal will open at Reagan National, allowing us to upgrade to 76 regional jet -- 76 seat regional jet at 14 gates, which today as a practical matter are limited to 50-seat regional jets.

Our sales team has been executing well on its strategies. In the third quarter, we saw corporate revenue growth outpacing topline revenue on improved average ticket values. We have a healthy pipeline of new corporate accounts and made a number of advancements for customers including our integration with SAP Concur TripLink, so that our corporate customers can now book travel through aa.com, while still receiving their company's negotiated rates.

We also launched a partnership with Alibaba to accept Alipay on aa.com, China. Alipay is China's most popular form of payment. American is uniquely positioned with the largest airline loyalty program in the world. AAdvantage is a key asset for us and our customers. Adding $4.2 billion in revenue for the first nine months of 2018. We have a valuable co-brand model with great partners in Citi, Barclays and MasterCard. In the third quarter, we saw a strong year-over-year acquisition growth with lower than expected attrition and continued growth in card spend. We are excited about the enhanced benefits we announced to our Citi AAdvantage Platinum Select card in May. And the introduction of a no fee co-brand card in July, the AAdvantage MileUp card. These recent additions to our portfolio build on our already strong value proposition to customers, helping to ensure that an AAdvantage Co-brand card is the primary card for even more travelers. Looking to 2019, we'll continue to find new ways to provide choice and value to our customers in our loyalty and co-brand programs.

Our segmentation strategy is performing well. Premium economy is now installed on 92 aircraft, and customer adoption of this highly differentiated product has been strong. We also continue to be encouraged with the average fare differential, which is double the coach fare, as customers continue to buy up for main cabin. Installations remain on track and will be complete by next summer. As we look into 2019, we will further monetize this product with new revenue management and merchandising capabilities.

In September, we made basic economy more competitive by removing the carry-on bag restriction, allowing us to offer basic economy to more markets more often. The early results are very positive and have exceeded our initial expectations with approximately three times more customers, now buying up to a higher fare for our main cabin product. Basic economy is offered across the entire domestic network, as well as most of the Atlantic, Caribbean, Mexico, and Central America.

Our third quarter revenue was up 5.4% year-over-year to $11.6 billion setting a record for any third quarter. As Derek mentioned, we saw double digit growth in our cargo and other revenues, driven in part by continued strength in co-brand credit card acquisitions and cardholder spend.

TRASM improved 2.6% year-over-year, above the midpoint of our initial guidance and marks the eighth consecutive quarter of positive unit revenue growth. We saw sequential improvements during the quarter and domestic yields and that momentum has continued into the fourth quarter. We also realized strong performance in our international business, particularly across the Atlantic. There, we saw double digit growth in passenger revenue, and a 7.7% year-over-year increase in unit revenue. The solid improvement was driven by strong yield performance in our premium cabin, and the continued benefits of our segmentation strategy led by the premium economy and basic economy products.

As we had anticipated, our Latin America performance was a little challenging during the quarter due to macro concerns in Argentina, political uncertainty in Brazil, and a soft pricing environment in Mexico. The remainder of our Latin America network is performing well with notable strength in the Caribbean and Central America. Overall, revenue for the region still grew by 2.3%, albeit on 4% higher capacity, 2.6 percentage point lower loads, and an encouraging 1.5% higher yield.

Unit revenue grew in the Pacific for the fourth consecutive quarter with PRASM up 2.4% year-over-year. Premium cabin performance remains strong with Japanese and Korean markets showing the best performance year-over-year.

Looking forward we see continued strength in bookings as the demand for our product remains strong. Despite a very tough fourth quarter comparison, we expect a year-over year system TRASM to be up 1.5% to 3.5% in the December ending quarter. This will be our ninth consecutive quarter of positive unit revenue growth. As we approach the end of our integration. We have the opportunity to pursue a number of initiatives that in many cases have already been implemented by our competitors and have been in our plan for a long time. In 2019, we'll increase revenues by $1 billion, thanks to optimizing our basic economy product, expanding the use of premium economy seats, further refining our suite of revenue management tools, continuing our fleet harmonization project and many more items.

We also expect to become more efficient, with more than $300 million of cost initiatives in line of sight, and the hub optimization at DFW I mentioned. That will be beneficial to margins and profitability relative to the competition. We're very excited about the future.

And with that I'd like to hand over to the operator and begin our Q&A session. Operator?

Questions and Answers:

Operator

(Operators instructions) And our first question from Jamie Baker from J.P. Morgan. Your line is now open.

Jamie Baker -- J.P. Morgan -- Analyst

And Doug, in a presentation you did last fall, and I guess it's this fall. I think it was it in a length, when you cited that your aggregate margin performance in, I think it was Charlotte, Dallas and Washington, and what that implied for your other hubs was comparatively poor, kind of round numbers and implied that Chicago, Phoenix, Miami were a little bit less than half as profitable as the best ones. I certainly have my views as to what the drivers are for that potential disparity against this all back of the envelope, but I am curious to hear what you think the drivers might be and whether there are any solutions for those weaker hubs?

Doug Parker -- Chairman & Chief Executive Officer

First let me clarify, because also on those numbers we include LAX and New York, right. So you shouldn't assume that that's Miami, Chicago and Phoenix.

Jamie Baker -- J.P. Morgan -- Analyst

Okay. That's fair. That's right.

Doug Parker -- Chairman & Chief Executive Officer

But nonetheless, fair point I think, as you look like this. What I can tell you is, a year later -- every year I've been -- that it's often the case, you have some parts of the system that do better than others, but they all contribute to the system. And indeed that's certainly the case with operations like JFK and like our like LA and New York operation, and indeed our Miami operation right now certainly is underperforming on a financial basis given the economics of the region. So, but Chicago, Phoenix are solid and those others will be solid over time, where they contribute to the rest of the system, because of what they provide us and our ability to serve the corporate traveler. So we're -- while let me say and we're really happy with the route network as it exist today, Expect no changes and particularly helped with the fact that we have the ability now to grow in those that are the most important -- well, not most important, I shouldn't say, but those that have the highest revenue -- the highest profit generation capabilities, DFW, Charlotte and DCA, and we've done a nice job, I think, of filling up of the rest of the other to a critical mass.

Jamie Baker -- J.P. Morgan -- Analyst

Okay. That helps.

Robert Isom -- President

Hey, Jamie, I just wanted to add though, in terms of the kind of adjustments we're making. We do think that in all of our hubs, whether it's growing or redeploying assets to Charlotte, DFW and DCA that that will make those even stronger, but then some of the actions that we've recently taken are specifically designed to ensure that places like Chicago and Miami perform better as well. And so we know that the reductions in Chicago, and up to Asia flying is definitely going to help there. You know about the gate additions that we've made, which further strengthen the connectivity capabilities of Chicago as a domestic connecting hub for us. And then in terms of Miami as well, we have some underperformers, Sao Paulo, Belo Horizonte that we made adjustments to and we're keeping an eye on all of South America to make sure that we're strong as possible.

Jamie Baker -- J.P. Morgan -- Analyst

I Appreciate -- Oh I am sorry, something else?

Doug Parker -- Chairman & Chief Executive Officer

No. I said thanks to Robert. Go ahead.

Jamie Baker -- J.P. Morgan -- Analyst

Oh, OK. And thank you Robert as well, and a follow up for you, Robert. You talked enthusiastically quite a bit about the operations, when it comes to fuel, it's a fairly simple analysis to calculate how much time is required by the airline or the industry to recoup higher prices. What I'm not able to figure out is when operations improve, how long does it take to win back some of the corporate share that you might have shared in recent years. So first, do you have an opinion on that lag? And second, what level of corporate share recapture, if any, does your internal 2019 forecast assume?

Robert Isom -- President

Well, first off, Jamie, let me tell you that there hasn't been any loss in corporate share at American. We've had a really solid quarter in corporate revenue, as I mentioned, growing faster than topline revenue growth. And as we take a look, it's broad strength across the corporates led by professional services. We've got a healthy pipeline of new accounts, 450 new managed corporate accounts signed just this past quarter and a lot of enhancements coming. We haven't seen any weakness or falloff and as a matter of fact we're really pleased what we've seen. And improving operation is only going to drive more benefit.

Doug Parker -- Chairman & Chief Executive Officer

And the 2019 numbers don't assume any sort of increase. So, I think, if there's and that will be upside, Jamie.

Operator

Thank you. Our next question is from Duane Pfennigwerth from Evercore ISI. Your line is now open.

Duane Pfennigwerth -- Evercore ISI -- Analyst

So you've been pretty conservative and pretty subdued with your domestic capacity growth, and I wonder if you could just expand a little bit on kind of the 3Q performance because 1% domestic RASM relative to peers, relative to what frankly the economy did, what happened there? How do you see that going forward and how did you post 2%, 3% domestic revenue in the third quarter?

Donald Casey -- SVP of Revenue Management

Okay, this is Don. I'll take this one. Again if we go look at our domestic performance, what we see is improving trends. If you look at our third quarter performance, our unit revenue performance in domestic was better than our second quarter unit revenue performance, which was also positive. We're seeing improved yields in the domestic business not only in the third quarter, but in particular as we look forward into the fourth quarter. A lot of this is driven by changes in the pricing environments, particularly in ULCC markets. Business demand remains pretty robust. We're seeing improvement in close in yields, strong corporate demand. Robert mentioned that that our domestic corporate revenue grew at 10% in the quarter and that remains -- continues to be positive as we look forward. So as we look at our domestic performance, we again saw improvement as we went from Q2 to Q3 and we expect as we're looking into the Q4 outlook that domestic will improve again.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Thanks. And then just a quick follow up for Derek. Can you speak to the pension gains that were in non-op in '18, and how you see those trending into 2019? Thanks for taking the questions.

Derek Kerr -- Executive Vice President and Chief Financial Officer

Oh, the pension gains will -- they stay for another three years, I think, and then run off. But it's -- so that -- there will be year-over-year will be the same as we -- as in your 2019 model of the pension gains.

Operator

Thank you. Our next question is from Joseph DeNardi from Stifel. Your line is now open.

Joseph DeNardi -- Stifel, Nicolaus & Company -- Analyst

Doug and Derek, you talked about the CapEx profile coming down in 2021, just want to be crystal clear that those numbers have moved around a little bit it feels like the past couple of years. So are you guys both committing to no more than $3 billion in CapEx in 2020 and no more than $2 billion in 2021?

Doug Parker -- Chairman & Chief Executive Officer

It's an estimate, and go ahead Derek.

Derek Kerr -- Executive Vice President and Chief Financial Officer

Yes, I mean, I wouldn't say we'll commit to anything, but I think, I mean they've moved and they've been pushed out really, and it's really driven by the deliveries. So yes, we're set with the deliveries in 2019, 2020, 2021 and the aircraft deliveries were in -- were from a aircraft CapEx, 2020 is about $1.2 billion and 2021 is $1 billion and 2022 is $1.3 billion, and we have no reason to change that. So I would say yes, that is where we're going to be from a total CapEx perspective and the run rate as we go forward should be in that 2.5% range steady state even going forward from there, because we don't have any plans for any new aircraft at this point in time going forward, since we've already really gone through the fleet replacement program and taken on over 600 new aircraft now since the merger.

Doug Parker -- Chairman & Chief Executive Officer

Yes. So generally trying to -- Joe, anyways, what we believe and I think it's a belief that make sense, let just share the assumption behind it, which is what Derek has said, which is, we don't have any need at this point for additional aircraft to replace older aircraft, which we did have over time and that's what the current plan calls for. I guess, the only way it would go up from that is for some reason, we decide we want to grow like in excess of what we currently believe then we go decide, we need to go find other aircraft. But anyway, that's --

Derek Kerr -- Executive Vice President and Chief Financial Officer

And Joe, there is only one, I mean, from a fleet perspective, we have -- still have some 50-seat aircraft that we would like to replace with larger gauge aircraft, two class aircraft and we haven't committed that yet and looked at that. So we have an opportunity in the regional space and that's really the only place from a main line and wide-body aircraft the -- everything is really in place for the next four, five years.

Joseph DeNardi -- Stifel, Nicolaus & Company -- Analyst

Okay. That's very helpful. Thank you. And then, Robert, you mentioned something in your prepared remarks about a credit card you guys have with Citi and Barclays; that sounds pretty exciting.

Robert Isom -- President

It is.

Joseph DeNardi -- Stifel, Nicolaus & Company -- Analyst

Robert, in respect for my colleagues, can you spend 90 seconds talking about that? Assume I know nothing about the partnership, how do you guys get value? How does the business work? Would love to hear more. Thank you.

Robert Isom -- President

All right. Well, first of, we have to start with our the AAdvantage programs. So our loyalty program which is the largest program and we believe the best out there in the business. As a benefit, there is the opportunity to align with partners, and in this case we're aligning with Citi and Barclays. So they can brand their credit card and offer benefits to their customers when they acquire credit cards and then also spend on those credit cards by earning miles that are redeemable ultimately in our program.

American is obviously paid for those miles. Those miles are a nice business for us and something that we are able to offer customer's value for, that keep people really interested. At the end of the day, the values in the American brand, the values in the service that American offers flying people to the places that they want to go, and that is something that a lot of different partners want to be part of and in this case Citi and Barclays.

Joseph DeNardi -- Stifel, Nicolaus & Company -- Analyst

I'll take it.

Operator

Our next question is from David Vernon from Bernstein. Your line is now open.

David Vernon -- Bernstein -- Analyst

I just had a question on the cadence and the timing of when the new gates are going to open up and how impactful the redeployment of some of the capacity into those better margin hubs is going to be, like how should that affect the trajectory of earnings as you move through 2019?

Doug Parker -- Chairman & Chief Executive Officer

Derek, can you help me out a little bit. And this with the gates are going to start layer in out in May, and we'll fill them up over time as the summer progresses. And in terms of benefits and either growth or redeployment opportunities, that will layer in and we haven't yet given any estimates on how much that will improve. But we do know that it is going to be profitable for us.

Derek Kerr -- Executive Vice President and Chief Financial Officer

Yeah. I agree. And David, that's not included in the $1 billion revenue synergies or revenue opportunities that we talked about as we -- we're working to get those gates open as soon as we can and we'll layer that in as we move forward from a revenue perspective into the 2019 forecast.

Operator

Thank you. Our next question is from Hunter Keay from Wolfe Research. Your line is now open.

Hunter Keay -- Wolfe Research -- Analyst

So you guys talk about the corporate revs being strong, you're not the only one, but you're also paying for that again with these TMC commissions are up hugely across the industry. But I can -- I know there's been a little bit of an effort in the industry early this year to sort of get back some of the front end commissions you're paying to the TMCs. I'm wondering, A) how that's going, how we should think about the trajectory of these TMC or these agency commissions going forward? And if you want to include how NDC ramping may help to offset some of this agency commission expense that'd be great?

Donald Casey -- SVP of Revenue Management

Okay. Hunter, this is Don. In terms of commission expenses this is really a competitive marketplace, right. So we really focus on competitiveness and that's really the focus, right. So, in terms of trajectory and TMC or any kind of commission costs, we've been actually relatively flat and we're going forward as really to stay competitive with our big competitors on a network basis.

As for NDC, our focus on NDC is to improve the products that we offer to our customers particularly our corporate customers. And it is less of a cost initiative for us than it is ability to be able to put more products and particularly bundled products in front of our corporate customers.

Hunter Keay -- Wolfe Research -- Analyst

Okay. And then Steve Johnson, one question for you. Can you talk, the UK is announcing that it's going to review the existing ATI you have with BA. I was surprised by this, a lot of people that know things are more surprised by this. There are no matter that I do understand that we're surprised by it. Can you tell us what they are going to be examining and if you want to fold that into a broader conversation about how regulators are viewing ATI and JVs in general these days that'd be great?

Stephen Johnson -- Executive Vice President, Corporate Affairs

Sure, Hunter. It's a really good question. And first I suppose, if you were surprised, shame on us a little bit. The arrangement with the Atlantic joint business has always been that hard. It would be reviewed by the European regulators in advance of its 10th anniversary which is in 2020. As Brexit is unfolded that responsibility move from the EU to the UK and they, for reasons -- I think are just -- that they just had the resources available to start doing the review now. We are very optimistic about how the review is going to come out of -- these joint businesses are really provide fabulous consumer benefits and all of the studies that we've done of our Atlantic joint business in particular, and JVs in general have demonstrated that and there's certainly is no joint business that has come close to what we've been able to produce for consumers than our Atlantic joint business.

Though I suspect the review will take a few months, they'll be, I'm sure a report written at some point in time. But our expectation is that they are going to firmly endorse the Atlantic joint business and -- I reached conclusions like the ones that I've just described. These -- I can maybe just take a minute to go on. I mean, this work that we've done to review joint businesses has now been 17 or 18 years of robust data from joint businesses and it's -- we've assembled and put in into our advocacy around that Qantas joint business application and our two applications that are forthcoming. It is really very compelling, and both -- we expect both the UK and the United States DOT to recognize that and firmly endorse the joint business concept going forward.

Operator

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

Michael Linenberg -- Deutsche Bank -- Analyst

Hey, Robert, you mentioned that with the change in your sort of carry-on bag policy that you're seeing three times the number of passengers now buying up and I guess, presumably that's just because you're able to offer the basic economy in a lot more market. As I recall, though I think that you weren't initially pleased about the percentage about the buy up, maybe it was under 50%. Can you give us a sense of maybe how that percentage is trending with the recent change in policy.

Donald Casey -- SVP of Revenue Management

Yes. We're actually ahead of what our expectations are for this one. So when we launched it, this change in the carry-on bag restriction, we knew that that would allow us to have the product in more markets more often. And we expect that as part of that that we would see this sell up rate go down, but the number of customers selling up would go up and that that trade is going to be positive for us.

What we observed is that the number of customers buying up hasn't -- in fact, the percentage of customers buying up hasn't materially changed. So we expected to see that drop from the kind of low 60s down to about 50%. But it's still sitting around 60%. So that's actually much better than we expected.

Michael Linenberg -- Deutsche Bank -- Analyst

Okay And then my second question, and I'm not even sure who can answer this, as it relates to Venezuela, I saw the news out that, I guess, airlines doing business in that country will have to transact in their cryptocurrency, the petro. Just curious about whether or not that actually is going to impact you and whether or not that's legit or not, any color on that?

Donald Casey -- SVP of Revenue Management

Shouldn't be, I mean, we do -- we sell only in dollars and that those markets although we've reduced our capacity pretty significant and Venezuela continue to be really very profitable.

Robert Isom -- President

Yes. And I just add, Venezuela, it just give me an idea, right, it's at 0.2% of our system revenues. And so, we have a lot of exposure there anyway.

Operator

Thanks. Your next question is from Savi Syth from Raymond James.Your line is now opened.

Savanthi Syth -- Raymond James -- Analyst

One quick follow up, this is my question. On the regional trend, is it fair to assume domestic continues to sequentially improve which just sounds like from your comments, but what about the other regions from a sequential standpoint should we expect?

Donald Casey -- SVP of Revenue Management

Okay. This is Don. Yes. So domestic we are seeing some improvements and I will just add that if you go look at our performance last year in the fourth quarter domestically, we were many, many points higher than everybody else in the fourth quarter, so to get some sequential improvements there, I think, is quite positive. We're expecting Atlantic and Pacific actually to perform in line with what we had in the third quarter and what we're seeing continued softness in Latin America.

Savanthi Syth -- Raymond James -- Analyst

That's helpful. And just if I may ask on the operating reliability, can I -- Rob, I appreciate the color that you provided and I'm trying to fix that, the kind of the near term improvement is encouraging, but it is off season. So now what gives you confidence as you kind of head into next summer that this continues in -- is there kind of some changes that need to be made to address some of the issues?

Donald Casey -- SVP of Revenue Management

Well, that the confidence stems from a lot of work that's been done over the years is coming to fruition. So getting FOI or flight attendant integration behind us, I think is a big step. As we take a look at aircraft reliability as well. I do think that there are some things that we can do and are doing to make sure that we start the day off right. And that's really encouraging. And then as we take a look at network and schedule, there are always opportunities to rationalize fleets to make routings more efficient to make better use of reserves and spares. And so all that's under consideration. But when I take a look back over the course of the year, and yes, we're dealing with more of a shoulder season right now. But I do take a look at what we've done in really difficult operating conditions such as hurricanes and some really inclement weather here in DFW. And I'm impressed by the recovery that we made and our ability to actually perform well in those conditions. So I'm encouraged, I see the results as I take a look at the steady progression we made from '14 to all the way through '17 and then through the first quarter, so, of '18. I see us back on that kind of trend line that will show improvement going forward.

Savanthi Syth -- Raymond James -- Analyst

So, is and guessing that to drive some cost improvement is that it kind of reflected in that 1% to 2% guidance.?

Donald Casey -- SVP of Revenue Management

Yes. It should drive cost improvement. We will give, it is within that guide of whether we do that, but we still haven't gone through the planning process and we'll -- as we go through the planning process, see the adjustment that Roberts talk in whether it's from a scheduled perspective or an operations perspective and build that into the 2019 budget.

Operator

Thank you. Our next question is from Helane Becker from Cowen. Your line is now open

Helane Becker -- Cowen and Company -- Analyst

Just like one question here. What do you estimate your fuel recapture has been maybe year to-date?

Doug Parker -- Chairman & Chief Executive Officer

Let me just go in -- anyway there's not a number that we actually calculate, but I can tell you having looked at what, I think what others do it's just how much as your -- how much of your earnings changed versus how much your fuel price has changed, which any of us can calculate. What you'll see is, it's going to be a lower number than our two largest competitors. And which is another way of saying how come your earnings have fallen more or fuel prices obviously -- our fuel prices have gone up about the same amount as a percentage of expense.

So the question if you're asking us, why have your earnings fallen more? I'm just trying to get to the core cause, it's because our revenues haven't gone up as much. Our revenues are up, but not as up as much as those two airlines. A trend that we've been narrowing over time as we talked on last year -- on quarter's call, we started to see that widen in 2018, a trend we don't like, a trend that we expect is going to reverse itself back in 2019. But, anyway, there's separate stories for separate airlines. One of those -- one of our large competitors had not their best year last year. So, they're comparing to that, of course. When you look at us versus that airline on a two-year basis, we're still up on unit revenues versus that carrier. But anyways, so that's just a year-over-year comp issue.

And then the -- but versus Delta, that's one that we've been narrowing nicely about for a couple of years in a row, has started to widen. But as we look at that, I think, it's much what they are doing a better job than we can today of making sure this sell-up activity is available to the customers. They have products that are there where people buy and they're available in channels that we don't have it available in yet. So, we view that as upside. It's a big piece of our $1 billion of revenue initiatives as getting to the point where others have gotten and we just hadn't yet, but we'll in 2019 in having those products available in more channels and easier to purchase. So, we view it as upside.

But anyway, so Helane, when you look at it, getting as whatever the number is, you'll see its lower. However, you calculate it, ours is going to be lower than those. And the reason is driven by our revenues not increasing at the same -- our unit cost ex-fuel you saw was like less than 1% on some pretty small growth. So that's not the issue. It's just the relative revenue performance and the relative revenue performance as I described.

Helane Becker -- Cowen and Company -- Analyst

Right. Got you. And then just to follow-up on that. As you guys, I think, Derek, you said, and I know it's in the annual report. You talked about the large number of regional jets that are coming in next year. And so, as we think about your gauge for next year, how should we think about that relative to, I guess, revenue because gauge comes down next year or goes up?

Derek Kerr -- Executive Vice President and Chief Financial Officer

I think the -- I mean, part of what's going on next year is our reconfiguration project. So, the gauge should actually go up next year a little bit as we bring on the aircraft, as we modify the 321s and the 73s. And from a regional perspective, the gauge should go up also. So, in both cases, I would expect gauge to be a positive next year, which as you know, is positive growth for us. So, I think it could be around 1% of gauge as we take the mainline and regional combined next year.

Helane Becker -- Cowen and Company -- Analyst

Okay. Great. Well, thanks very much, guys.

Doug Parker -- Chairman & Chief Executive Officer

Thanks, Helane.

Operator

Thank you. Our next question is from Kevin Crissey from Citigroup. Your line is now open.

Kevin Crissey -- Citigroup -- Analyst

I'm not sure who is best positioned to answer this, but when you benchmark American's cost structure and efficiency metrics against your peers, what areas present the biggest opportunities aside from maybe the Dallas/Fort Worth that you noted?

Doug Parker -- Chairman & Chief Executive Officer

I'll start, Kevin, and the team can chime in. Versus our peers, I mean, again, our -- if it stays like the adjusted cost structure American versus our two largest competitors looks all-in-all reasonably close indeed, if not, around top of each other. But nonetheless we do think we have primarily due to the merger still some costs that we can reduce which is a big piece of this -- again, the operational integration getting completed, that's $300 million we talk about. So, that's the biggest thing that we have that they don't. There are differences between carriers. We have higher ownership costs, because we have new aircraft. They have higher fuel and maintenance costs because they have old airplanes things like that. But when you add it all up, our costs PRASM on a stage-adjusted basis for the three airlines all look awfully similar at this point in time.

Kevin Crissey -- Citigroup -- Analyst

Okay. Thanks. And when we think about the specials, they're still a significant number. And I know you've had, obviously, the merger and you had the fleet restructuring, but it's a large number and it's been a large number for quite a while. How should we think about that? And I know you can't necessarily predict it, but it's a relatively consistently large number. Is that something that we should think about going away over time because you're running at kind of $0.5 billion to $1 billion a year?

Doug Parker -- Chairman & Chief Executive Officer

Yeah. Look, absolutely, you should think of it going away for some time, because it should. But I just note that they're real numbers, of course. And we did just do this large wide operations integration that Robert talked about that took all sorts of training for if I sensed it would not have happened had we not done a merger. So, it's right and appropriate to pull it out as a special expense and yeah, it's nearly five years later, but that's when it happened.

So, that number should now continue to come down certainly the merger-related. We like other airlines to the extent there are fleet restructurings and things like that to continue which we don't anticipate. But we think it's always right for the benefit of our investors to point out those feel like one-time events versus recurring events. So, hard to predict what those will be over time, but the merger-related expenses, absolutely, you'll see continue to go down and they should go away here over the next couple of years.

Kevin Crissey -- Citigroup -- Analyst

Thank you.

Doug Parker -- Chairman & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from Brandon Oglenski from Barclays. Your line is now open.

Brandon Oglenski -- Barclays -- Analyst

Hey, thanks for taking my question. So, Doug, I just want to come back to your response to Helane there on your relative underperformance this year. I guess, what are the concrete steps as you look into 2019 that you're taking to correct the relative underperformance in revenue and margins between your bigger peers here or your biggest peers?

Doug Parker -- Chairman & Chief Executive Officer

Yeah. Well -- OK. Again, and we're going to have others chime in. The biggest things in that -- in the $1 billion of revenue initiatives are product segmentation, which again for the most part is Basic Economy and Premium Economy, but also having the ability to sell those in more channels and more easily to our customers. And again, that's execution against initiatives that we have under way, and that we -- and again, not reinventing any wheel here. These are just -- those are areas that other carriers have that we just don't have yet, but we'll have into 2019.

The fleet reconfiguration, the harmonization of our fleet that continues and will be largely in place in 2019 is a good piece of that number, which we weren't able to do in 2018 as we didn't have the fleet reconfigure. And this international network restructuring that we keep talking about, that where we were flying some flights internationally at some pretty large losses like our Chicago to China routes that we've relocated. And then there's just all sorts of other smaller type initiatives, they add up to reasonably large numbers. That again, somewhat -- some of those are just getting a little catch-up because of what -- as we've been going through our merger and other airlines had more time than we have. We get to like -- items like, denied boarding, auction process being better automated than we have today.

So, a number of initiatives that we look at. Again, none of these things are taking share away from someone else, because we think our products going to be a whole lot better even though we do. It's all about being sure that the existing demand or the existing demand grown naturally is producing higher unit revenue because we're doing a better job of executing against those plans.

Brandon Oglenski -- Barclays -- Analyst

Hey, I guess, is there a lot of urgency in the organization to drive higher profitability, is that a top priority for the team?

Doug Parker -- Chairman & Chief Executive Officer

Yes, Brandon. And again, as I said in my comments, look, the fact that we're confident, please don't take as indifference. We have a huge performance-based culture around here. We have people very fired up. We certainly don't like seeing our earnings fall more than others, but we know why it is, we know what we need to do, we're highly confident, we have the right plans, right people in place and that's why we're confident in saying things like we're going to -- you're going to see the revenue outperformance that we like in 2019. You're going to see earnings improve in 2019 because we are focused on that.

Donald Casey -- SVP of Revenue Management

I'd just add, the confidence also comes just knowing that this is going to happen. So, when Doug talks about Premium Economy, we know that by the end of this year we will have our 777s completed. We know that by next summer, we will have our 787 fleet done. We know that by next summer that we're on track to have 50% of our 737 reconfigurations done.

Those are things that we absolutely know. We know that with the changes we've made in terms of network are now coming to fruition. While we talk about changes that we've made to Brazil, and we talk about changes that we've made to China, those are now just being put into the schedule. And then, as we take a look forward and again, numbers that we haven't included in that $1 billion, we know that those gates are going to come online. Those are on track. And so, the confidence here is rooted in really things that we're going to be executing on and we know they're on track.

Brandon Oglenski -- Barclays -- Analyst

I appreciate. That should be good for the stock if that works.

Doug Parker -- Chairman & Chief Executive Officer

Thanks, Brandon. We agree.

Operator

Thank you. Our next question is from Dan McKenzie from Buckingham Research. Your line is now open.

Daniel McKenzie -- The Buckingham Research Group -- Analyst

The multi-year CapEx outlook is very helpful. Doug, on the past call you offered a multi-year roadmap on debt and leverage. And I think the expectation was that leverage will begin to fall in 2019. Since then fuel -- we've had higher fuel, margins have contracted. So, I'm hoping you or Derek could once again update us on the thought process here for leveraging each of the coming three years. Does it need to go higher before it begins to fall in 2020 and 2021?

Doug Parker -- Chairman & Chief Executive Officer

Let me give you kind of a generic answer, and then Derek can provide any mathematical details he cares to provide. So, look, anyway, here's -- the issue on the debt is as follows. I mean, again, Derek to give you some estimates, I think, on what's happened already it is. We are indeed reducing somewhat, but yeah, earnings matter in any projections, of course. But to the extent of what we just described is accurate and we believe it is that is earnings improvement and CapEx declines what you should see is a natural de-levering, because again, we didn't go at debt because we were trying to get some optimum debt level. We went net of debt because we were adding a lot of assets. And the best way to fund those assets was through some really efficient debt. And we thought and continue to believe that was in our shareholders' best interest.

So, as those -- as you move forward, and there isn't a need to continue to do aircraft transactions, you should expect us to pay off debt as it comes due and there's substantial amount that comes due in the coming -- in the next few years. Pay it off as it comes due. There's nothing we're going to go pay off in advance. It's all incredibly efficient debt, but as it comes due we'll pay it off and we won't replace it. So, we should expect a natural de-levering as we move forward with higher profitability and lower CapEx needs.

Daniel McKenzie -- The Buckingham Research Group -- Analyst

Okay. Thanks. Don, Latin America has been very volatile absent a JV in the near- to medium-term. How do you saw for the shortfall versus peak revenue in the region? Are you seeing demand trends beginning to inflect and how long is it going to take to dig on the revenue hole there?

Donald Casey -- SVP of Revenue Management

Okay. First of all, I know we talk about Latin. We often think about different piece of Latin, but Latin is a complicated part of business. So, Caribbean, Central America kind of Northern Rim markets excluding Venezuela have actually performed pretty well. The weakness that we've seen has been in Argentina, Brazil and Mexico. And as we look forward into Brazil, we're taking capacity actions. We reduced capacity by 10% in September-October. And we're reducing capacity by 20% going forward in Brazil.

Mexico, we've seen a very tough environment there, particularly the pricing, driven by capacity increases and some concerns probably over travel warnings. But as we look forward into the fourth quarter, we're seeing demand come back a bit. We mentioned in the call last year, we have a number of initiatives in the RM and sales space around kind of real off-peak load factor performance, and we're seeing some real improvements in the load factors in Mexico, as we look forward although the yield environment remains weak.

So, overall, Latin America, we were down, in a revenue perspective, 1.6%. Parts of it are doing really well, parts of it that aren't doing well. And where we're not doing well we're focused on capacity and our load factor performance.

Daniel McKenzie -- The Buckingham Research Group -- Analyst

Okay. Thanks for the timing, guys.

Doug Parker -- Chairman & Chief Executive Officer

Thanks, Dan.

Operator

(Operator Instructions) Okay. Our question is from Andrew Tangel from The Wall Street Journal. Your line is now open.

Andrew Tangel -- The Wall Street Journal -- Analyst

You indicated that American's lagged the United and Delta on upselling and offering premium products to customers that tap into the high potential (ph) revenue. Could you give us a better idea of why that is? What the holdup has been and where else in your judgment you've not been fast enough to increase revenue?

Doug Parker -- Chairman & Chief Executive Officer

Yeah. I'll let Don do that and having (ph) again, if I miss, I think we have been fast enough. I mean, the reality is this. We've been in the middle of an integration. We have all sorts of needs. So, I don't -- it didn't mean -- I don't want to make it sound like anyone here hasn't been proactively working to get all sorts of things done. We do find ourselves today in a position where we are working on some initiatives that aren't yet complete that will allow us to do better than we are today.

Go ahead, Don, and where we are versus others?

Donald Casey -- SVP of Revenue Management

Yeah. I mean, we've actually done a pretty good job of growing our ancillary revenue stream. So in the third quarter, ancillary revenues are up 18%. We relaunched our Main Cabin Extra product in June. And since we've done that we've seen unit revenues for Main Cabin Extra grow at 24%, but we see that we actually have more opportunity beyond that. And the big opportunity for us is, we don't really -- we haven't yet built out our infrastructure to be able to push offers out to customers effectively between time of booking and time of check-in. I think that's a big window where we can put and show (ph) many offers in front of our customers to increase our ancillary revenue stream even more than we've been able to go do it and that's really an IT infrastructure question, for that we have a project under way. And we expect to be able to be more effective in doing that in 2019.

Doug Parker -- Chairman & Chief Executive Officer

Yeah. And correct me if I'm wrong, Don. But particularly, bookings that are made outside of aa.com --

Donald Casey -- SVP of Revenue Management

In third-party channels as well.

Doug Parker -- Chairman & Chief Executive Officer

-- in third-party channels, Andrew, others have more ability to push out offers to their customers that are main third-party channels than we do today, but we'll get that corrected.

Andrew Tangel -- The Wall Street Journal -- Analyst

If I can one follow-up. This year, United has embarked on a growth plan, the regional flying with mid-continent hubs. How much market share have you lost to United as part of that? And how much of a threat or has that growth plan proven to American so far this year?

Doug Parker -- Chairman & Chief Executive Officer

Well, again, first off, I don't know that we can like particularly say versus that. We certainly haven't seen any discernible market share shift. Probably the best way to answer that, which I'll let Don do is, if to the extent we're seeing it versus anybody else would see it be in Chicago and just talk about how, what we're seeing in Chicago on a year-over-year basis.

Donald Casey -- SVP of Revenue Management

Yeah. So, the biggest overlap we have in Chicago, but we flew our largest scheduled departure at Chicago that we've ever flown this summer. And as we look at our performance in Chicago, it was our highest year-over-year unit revenue producing hub. On the corporate side, our corporate revenue in Chicago is up 15%. Our share gap, the way we measure our corporate market share relative to our capacity is actually up by 0.5 point. So that's also positive. We haven't lost a single corporate account in Chicago. So, we feel pretty good about the way customers have stuck with us this year.

Andrew Tangel -- The Wall Street Journal -- Analyst

Yeah. All right. Thanks.

Doug Parker -- Chairman & Chief Executive Officer

Thanks, Andrew.

Operator

Thank you. Our next question is from Conor Shine from Dallas Morning News. Your line is now open.

Conor Shine -- The Dallas Morning News -- Analyst

I was just hoping to get a little bit of any color you guys can provide in terms of where you guys are in the employee restructuring? You guys announced earlier this summer, mostly targeted upper management. Has that been completed? Is there any sense of scale in terms of number of positions impacted or dollar figure that you guys could share on that?

Elise Eberwein -- Executive Vice President, People and Communications

Yeah, Conor. It's Elise. We're really pleased with how it went this past summer. Out of about 550 director and above employees, we had an uptake of about 100, which was higher than our expectation. And we're happy for those people who have elected to move on but even happier with the people who renewed their vows and elected to stay. We're in the process of working through the rest of the levels now and we're seeing good results there too. So, stay tuned for more.

Conor Shine -- The Dallas Morning News -- Analyst

When you say levels, have you gotten below the director level at this point then (ph)?

Elise Eberwein -- Executive Vice President, People and Communications

Yeah. We're still working through that.

Conor Shine -- The Dallas Morning News -- Analyst

Okay. Thank you.

Doug Parker -- Chairman & Chief Executive Officer

Thanks, Conor.

Operator

Thank you. Our next question is from David Koenig from The Associated Press. Your line is now open.

David Koenig -- The Associated Press -- Analyst

Most of my questions were asked and answered, but I did want to know, I think maybe Derek was looking for a figure when Doug was answering Helane Becker's question. Was there, first of all, ever a figure on how much fuel cost increase you are recapturing with fares and fees?

Doug Parker -- Chairman & Chief Executive Officer

We don't have that number, I guess. But anyway, you can get it from analysts. Go ahead, Derek.

Derek Kerr -- Executive Vice President and Chief Financial Officer

It's 40%.

Doug Parker -- Chairman & Chief Executive Officer

Yeah. 40%, thanks.

Derek Kerr -- Executive Vice President and Chief Financial Officer

Calculated the same way that Delta and United have calculated.

David Koenig -- The Associated Press -- Analyst

40%, OK. Thank you. And on the 1.5% to 3.5% TRASM guide for 4Q, how much would that be if you took out cargo and credit card and stuff like that? How much would the PRASM, sort of PRASM part of it be?

Derek Kerr -- Executive Vice President and Chief Financial Officer

We actually don't look at it that way. I mean, these things are really interrelated. And so, we focus on our TRASM numbers.

David Koenig -- The Associated Press -- Analyst

Okay. All right. Thanks.

Doug Parker -- Chairman & Chief Executive Officer

Thanks, David.

Operator

Thank you. Our next question is from Leslie Josephs from CNBC. Your line is now open.

Leslie Josephs -- CNBC -- Analyst

I had a question just about labor in general. If you could just give us an update on what's going on with the mechanics? You've pilot negotiations, I think, coming up soon. Also, there have been a bunch of protests with some of the regional employees too and you gave the pay raise, I think, it's like a 1.5 years ago that you've first announced it. Is it possible to give further pay increases to your employees going forward?

Doug Parker -- Chairman & Chief Executive Officer

Well, I'll do an overview and then Steve can fill in any blanks if there are any.

Leslie Josephs -- CNBC -- Analyst

Thanks.

Doug Parker -- Chairman & Chief Executive Officer

So, as it relates -- yeah, thank you, Leslie. So, on our fleet service mechanics, (inaudible) partnership association, I should say, negotiations we -- as soon as those contracts become amendable, the company asked that we go for the National Mediation Board for assistance. We just haven't been able, despite everyone's best efforts to get that contracts closed up. And we think it makes sense for the National Mediation Board to bring us there -- to get us there. So that's done that we think is a very positive development. So, it's now in the hands of the National Mediation Board to actually oversee those negotiations, and that will begin shortly. So, that -- so, hopefully, that will bring us to the conclusion that we weren't able to get done with the parties themselves.

Yeah. We do have, at the end of 2019, our flight attendant and pilot contracts become amendable. So, we'll open those negotiation sometime in 2019. And as those are five-year contracts that we've signed five years ago. So that's where it stands. All-in-all, though, what I'll tell you is, the team is doing a great job. The leadership team has done a really nice job of taking care of our team and is making a huge difference in our -- in the way that our team is now taking care of our customers. And we're really happy with the way all that is done and we hope to get these negotiations all completed as they come due.

Anything to add, Stephen?

Leslie Josephs -- CNBC -- Analyst

And is it possible to get some of the workers will get an increase in pay? There are some outside the mechanics and --

Doug Parker -- Chairman & Chief Executive Officer

I'm sorry you're asking about the regional carriers, Steve on the -- on our wholly owned subsidiaries?

Leslie Josephs -- CNBC -- Analyst

Yeah.

Stephen Johnson -- Executive Vice President, Corporate Affairs

So, we have several negotiations going on with our wholly owned subsidiaries. But the two leading ones are the negotiations with our ground employees at Envoy and Piedmont. One of those has been agreed with the union and is out for ratification now. The second of those, I would expect to be concluded as soon as the first ratifies. And there is pretty big pay increases built into those, the tentative agreement for the first and what we have on the table for the second.

Leslie Josephs -- CNBC -- Analyst

Thank you.

Doug Parker -- Chairman & Chief Executive Officer

Thanks.

Operator

Thank you. Our next question is from John Biers from AFP. Your line is now open.

John Biers -- Agence France-Presse -- Analyst

On the -- you guys -- this has come up in the other calls as well, but the strength of corporate traveling has been a positive for the airline industry of late. Do you think the growth in that area is sustainable, are we peaking? Has it peaked? What's your sense there? And are you seeing any kind of breakout, is it stronger -- corporate travel is stronger within the US domestically or does it -- is it also very strong overseas?

Donald Casey -- SVP of Revenue Management

This is Don Casey. Yeah. Corporate travel has been very strong this year. It's been broad-based. It's been across really kind of all of the industrial areas that we focus on. The early indicators for next year based on surveys that kind of other bodies do is that the expectation is that corporate traffic will remain strong into next year and that'll likely grow.

Stephen Johnson -- Executive Vice President, Corporate Affairs

Yeah. And, Don, I'd add just add too. As we take a look going forward, I know that we see opportunities in continuing to engage with small and medium-sized businesses. We have an AAirpass program that really appeals to really a very small accounts and we see great traction there. So, there is continued opportunity for us to expand how we connect with businesses, especially smaller businesses.

John Biers -- Agence France-Presse -- Analyst

Thanks.

Doug Parker -- Chairman & Chief Executive Officer

Thanks, John.

Operator

Thank you. Our next question is from Mary Schlangenstein from Bloomberg News. Your line is now open.

Mary Schlangenstein -- Bloomberg News -- Analyst

Yeah. Close again. Hey, I just needed to clarify two things, please. On the fuel cost recapture, was the timeframe on that third quarter or year-to-date, the 40%?

Derek Kerr -- Executive Vice President and Chief Financial Officer

That's year-to-date.

Mary Schlangenstein -- Bloomberg News -- Analyst

Okay. Great.

Derek Kerr -- Executive Vice President and Chief Financial Officer

40% year-to-date.

Mary Schlangenstein -- Bloomberg News -- Analyst

Thank you. And, Elise, on the buyout or whatever you all are calling them, do you expect those to go below management levels, or we see any like front line employees or at that level affected?

Elise Eberwein -- Executive Vice President, People and Communications

No, Mary. This was an exercise to go through sort of post integration and look at our management headcount and make a reduction of roughly 5%. Derek?

Derek Kerr -- Executive Vice President and Chief Financial Officer

Yes. And Mary, sorry about that. That's just third quarter. The 40% is just the third quarter recapture, not full year.

Mary Schlangenstein -- Bloomberg News -- Analyst

Okay.

Derek Kerr -- Executive Vice President and Chief Financial Officer

Not year-to-date, just third quarter.

Mary Schlangenstein -- Bloomberg News -- Analyst

Great. Thank you.

Doug Parker -- Chairman & Chief Executive Officer

Thanks, Mary.

Operator

Thank you. Our next question is from Tracy Rucinski from Reuters. Your line is now open. Tracy, your line is now open. And our next question is from Ted Reed from Forbes. Your line is now open.

Ted Reed -- Forbes -- Analyst

Hey, thank you. Hi. Thank you. My question is for Robert. I know you're working hard now to improve operations, but your operation seem to be in leadership a couple years ago and they since seem to have deteriorated. Why have your operations been deteriorating past couple of years, is it just weather or is it something more?

Robert Isom -- President

No, Ted. Well, first off, I just go back and we've been at merging the airline, integrating a lot of different areas over the past number of years. But as I said in my comments, in terms of our core operating reliability, but for the really major events, we've been pleased with modest continued improvement in those things that are really important to our customers and drive customer satisfaction and likelihood to recommend scores.

And again, as we took a look into this year, we've been making steady progress and then springtime summer we fell off. We think there are some reasons behind it, a lot of additional work, some other one-time issues. But at the end of the day, we need to do a better job of making sure that we're prepared for peak season that we have aircraft available first thing in the morning and that we do a good job of turning them throughout the day. Those are basics, we're good at that. I know that as we progress through the summer and really have everybody take a look at what went on, we'll get back to the track that we were on. And so, I look at this as more of a blip and something that as I look into 2019, will be certainly more of a strength and an opportunity for efficiency and improvement to the P&L. So, upside for us.

Ted Reed -- Forbes -- Analyst

All right. I just don't have a clear sense of why it fell off.

Robert Isom -- President

Well, so, I'd point to a few things. Certainly, inclement weather is something that is always an issue, but that's not the focus area. We had -- at the start of the summer, we had some -- a lot of extra work, inspecting 600-and-some-odd CFM 56-7 engines, fan blades that hadn't been expected. We had an inordinate number of engine changes with some of the newer aircraft deliveries that we're working with the aircraft manufacturers on making sure that we get a fix for that in the long run.

And then I'd say that on our -- some of the fleets that we're retiring our Super 80 fleet that was something that it took a little bit more work than we had anticipated. But you put all that together and no excuses, that's something that we can plan for and do better and we have. And we are and we have and we'll make sure that we cover as we get into peak season is coming up.

Ted Reed -- Forbes -- Analyst

All right. Thank you. Appreciate it.

Doug Parker -- Chairman & Chief Executive Officer

Thanks, Ted.

Operator

Thank you. Our next question is from Robert Silk from Travel Weekly. Your line is now open.

Robert Silk -- Travel Weekly -- Analyst

Thank you. So, you all mentioned that commission payout that sort of flattened this year, but there were big jumps last year like more than 30% and you're still up about 8%, I think, this year -- or through the first half of this year on commission payments. What in general -- and you're not alone in doing in that. What in general has driven just the higher commission payouts across the industry?

Doug Parker -- Chairman & Chief Executive Officer

This is Doug. And as Don said, it's competitive. So, anyway, it's a competitive business and there are really three of us that compete mostly in this. And if someone decides they want to really go after the business and do it through higher commissions, we need to be competitive. So that's what's been happening. As we've seen other carriers in an effort to win back some business they've lost lower commissions, and we need to compete for that. I expect as you see things normalize that'll change.

Robert Silk -- Travel Weekly -- Analyst

Has there been any sort of -- as you all concentrate more on segmentation and on driving process in the front of the plane, has there been any sort of recognition that's driven the desire to reward agencies more the deal with these high-end customers?

Donald Casey -- SVP of Revenue Management

No. I mean, clearly, all of the -- we're all focused on high value customers, right, and customers they're going to pay higher fares on average. And a lot of our activity in our sales organization is really B2B activity, focused on corporate customers and agencies that drive a lot of that business. And that revenue is growing, as I said, at a very, very strong pace right now.

Robert Silk -- Travel Weekly -- Analyst

Thanks, guys.

Doug Parker -- Chairman & Chief Executive Officer

All right. Thanks, Robert.

Operator

Thank you. At this time, I'm showing no further questions.

Doug Parker -- Chairman & Chief Executive Officer

Excellent. All right. Thanks everybody for your interest and we appreciate it. Bye.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.

Duration: 86 minutes

Call participants:

Daniel Cravens -- Managing Director of Investor Relations

Doug Parker -- Chairman & Chief Executive Officer

Derek Kerr -- Executive Vice President and Chief Financial Officer

Robert Isom -- President

Jamie Baker -- J.P. Morgan -- Analyst

Duane Pfennigwerth -- Evercore ISI -- Analyst

Donald Casey -- SVP of Revenue Management

Joseph DeNardi -- Stifel, Nicolaus & Company -- Analyst

David Vernon -- Bernstein -- Analyst

Hunter Keay -- Wolfe Research -- Analyst

Stephen Johnson -- Executive Vice President, Corporate Affairs

Michael Linenberg -- Deutsche Bank -- Analyst

Savanthi Syth -- Raymond James -- Analyst

Helane Becker -- Cowen and Company -- Analyst

Kevin Crissey -- Citigroup -- Analyst

Brandon Oglenski -- Barclays -- Analyst

Daniel McKenzie -- The Buckingham Research Group -- Analyst

Andrew Tangel -- The Wall Street Journal -- Analyst

Conor Shine -- The Dallas Morning News -- Analyst

Elise Eberwein -- Executive Vice President, People and Communications

David Koenig -- The Associated Press -- Analyst

Leslie Josephs -- CNBC -- Analyst

John Biers -- Agence France-Presse -- Analyst

Mary Schlangenstein -- Bloomberg News -- Analyst

Ted Reed -- Forbes -- Analyst

Robert Silk -- Travel Weekly -- Analyst

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