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Copa Holdings SA (NYSE:CPA)
Q3 2019 Earnings Call
Nov 14, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings Third Quarter Earnings Call. During the presentation, all participants will be in a listen-only mode. After, we will conduct a question-and-answer session.

[Operator Instructions] As a reminder, this call is being webcast and recorded on November 14, 2019. Now I'll turn the conference call over to Raul Pascual, Director of Investor Relations. Sir, you may begin.

Raul Pascual -- Director of Investor Relations

Thank you, Michelle, and welcome everyone to our third quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings and Jose Montero, our CFO. First, Pedro will start with our third quarter highlights, followed by Jose, who will discuss our financial results. Immediately after, we will open up the call for questions from analysts.

Copa Holdings' financial reports have been prepared in accordance with International Financial Reporting Standards. In today's call, we will discuss non-IFRS financial measures. A reconciliation of the non-IFRS to IFRS financial measures can be found in our earnings release, which has been posted on the company's website, copa.com. Our discussion today will contain forward-looking statements, not limited to historical facts, that reflects the company's current beliefs, expectations and/or intentions regarding future events and results. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions subject to change. Many of these are discussed in Annual Report filed with the SEC.

Now I'd like to turn the call over to our CEO, Mr. Pedro Heilbron.

Pedro Heilbron -- Chief Executive Officer

Thank you Raul. Good morning to all and thank you for participating in our third quarter earnings call. First, I would like to congratulate our co-workers for their efforts during the quarter and especially the ongoing hard work to minimize the impact of the MAX grounding on our customers and still deliver excellent operational results. Our team's commitment and dedication keeps us at the forefront of Latin American aviation.

Today, we're pleased to report a strong quarter with solid financial results, and outstanding operational metrics. Among the main highlights for the quarter, driven by the MAX fleet grounding, our capacity measured in ASMs decreased year-over-year by 3.7%.

RPMs decreased only 2.2%, resulting in an 85.6% load factor, 1.4 percentage points higher year-over-year. Yields came in at $0.125, almost 8% higher than in the third quarter of 2018. This higher loads and yields resulted in unit revenues or RASM of $0.111, a 9.4% year-over-year increase. On the cost side, ex-fuel unit cost came in at $0.062, 5.5% higher year-over-year, mainly due to lower capacity related to the MAX fleet grounding, as well as the timing of certain expenses. Our operating margin came in at 18.8%, over 7 points higher year-over-year. And on the operational front, Copa earnings delivered an on-time performance of 92.2% and a completion factor of 99.8%, again, among the very best in the world. As a reminder, we have six grounded MAX9 aircrafts and we were supposed to have taken delivery of another seven during 2019. We continue making the necessary schedule changes and cancellations, assuming none of our MAX aircraft will be in scheduled service before mid-February of 2020. The grounding of the MAX fleet continues to generate a significant revenue and cost impact while limiting our ability to grow. It is important to note that this headwind is included in the operating margin and capacity figures provided in our guidance for 2019 and preliminary guidance for 2020, which Jose will describe in more detail.

Regarding the rest of 2019, in our last earnings call, we made a significant revision to our full year guidance, based on stronger demand patterns and a lower fuel outlook for the year. Shortly thereafter, there was a significant currency devaluation in Argentina and a sudden spike in fuel prices due to the attacks in Saudi Arabia. Although fuel prices stabilized to previous levels in the following weeks, revenues in Argentina are projected to remain weak at least until the first quarter of next year. Despite all of that, based on the strong third quarter results, we are reaffirming our guidance for 2019 and expect to deliver an operating margin of approximately 16% for the year. Our full year guide implies a softer fourth quarter than originally expected, which is explained mainly by a weaker revenue outlook in Argentina and to a lesser extent, Chile.

Looking ahead to 2020, even though our visibility is still very limited, we are encouraged by the demand trends we're seeing in most of our network. As I mentioned earlier, we're now expecting the MAX to be in service no sooner than mid-February. Whenever the own grounding finally happens, we should also start taking delivery of the originally scheduled aircraft for 2019 and 2020.

With regards to other fleet matters, we have made the decision to exit our remaining Embraer-190s, as we see significant cost and revenue benefits from operating a single Boeing fleet. So, while we will most likely end up taking a significant number of MAX aircraft next year, most of them will be used to replace the outgoing 100-seat Embraer aircraft. As such, we now expect our capacity to grow only by approximately 5% year-over-year, with the bulk of the growth coming in during the second half of the year. We also remain focused on many initiatives to further strengthen our results. We are on track to achieve our ancillary revenue target for the year and continue expanding and optimizing our products. As part of this effort, we are advancing with implementation of the Farelogix platform to deliver merchandising and distribution capabilities across all channels, which we will start implementing in the first half of 2020. We continue with the company's strategy to develop its own IT solutions, in particular for customers touch points and interactions.

Back in the second quarter earnings call, we commented on the release of our new web and mobile check-in. In September, we released our new Copa app. Customer reviews have been very positive and most importantly, app usage is significantly up. We will continue to add new services and functionalities to our digital channels, which include the app and our web and mobile sites. Developing our own digital product gives us flexibility to continuously improve and better respond to the needs of our customers, while keeping our costs low when compared to a third-party system.

And finally, Wingo, although a very small 2% of our revenues, continues to do well both operationally and financially. In the first quarter of 2020, we will update the Wingo fleet to that 800 [Phonetic], which will further lower unit cost and improve profitability. Later in the year, Wingo will also start operating its fifth aircraft, which will be based in Panama.

To summarize, we delivered solid third quarter results and are seeing a good demand environment in 2020. We continue making progress in our ancillary revenue initiatives and are on track to achieve our 2019 target. We continue working on many initiatives to help us become even more cost efficient and our team continues to deliver world-class operational performance, despite the challenges presented by the MAX grounding.

Finally, we're as confident as ever in our business model and our financial position. We have the strongest network for travel within the Americas, exceptional operational performance that results in high customer satisfaction, and extremely flexible fleet plan, the lowest unit cost, a very strong liquidity position with low leverage and a highly committed team.

Now, I'll turn it over to Jose, who will go over our financial results in more detail.

Jose Montero -- Chief Financial Officer

Thank you Pedro. Good morning everyone and thanks for joining us. As always, I want to start by joining Pedro in congratulating our entire team for all their outstanding achievements during the quarter. Due to the grounding of the MAX fleet, our capacity for the third quarter was 3.7% lower year-over-year, while revenue passenger miles decreased only 2.2%, which resulted in a consolidated load factor of 85.6%, a 1.4 percentage point increase versus Q3 2018. Passenger yield showed a recovery and came in 7.9% higher year-over-year, which combined with the strong load factor, resulted in a unit revenue increase of 9.4% from $0.101 in Q3 2018, to $0.111 in Q3 2019. Consolidated revenues increased 5.3% to $708 million.

On the expense side, our third quarter operating expenses decreased 3.2% year-over-year on the 3.7% capacity reduction, which resulted in our cost per available seat mile increasing 0.5% to $0.09.

For the quarter, our effective oil and fuel price averaged $2.16 per gallon, a decrease of 10.2% versus the $2.40 per gallon that we averaged in Q3 2018. The cost per available seat mile excluding fuel, ex-fuel CASM increased 5.5% from $0.059 in Q3 2018 to $0.062 in Q3 2019, mainly due to cost associated with the grounding of the MAX fleet, including the lower capacity output. Operating earnings for the quarter came in 70.9% higher at $132.9 million, resulting in an operating margin of 18.8%, 7.2 percentage points higher than Q3 2018. Looking at non-operating income and expense, the third quarter generated a net non-operating expense of $16.6 million, mainly driven by net interest expense of $6.6 million and a $9.6 million translational foreign currency loss driven by the depreciation of the Argentinean peso and the Brazilian real. Our tax expense for the quarter came in at $12.3 million.

Turning to net results. Net earnings for the quarter came in at $104 million, or earnings per share of $2.45, 80.5% higher than the earnings per share reported in Q3 2018.

I will now turn to the balance sheet. We closed the third quarter with a very strong financial position. Assets totaled $4.4 billion, owners' equity totaled $2 billion. Our debt plus our lease liability totaled approximately $1.4 billion and our lease liability adjusted net debt to EBITDA ratio came in at 0.8 times, one of the strongest in the industry. Keep in mind, we are now adjusting the net debt by including the lease liability line from our balance sheet. We closed the quarter with approximately $1.1 billion in debt, more than 60% of which is fixed with a blended rate including fixed and floating rate debt of approximately 3%. During the first three quarters of 2019, we have brought down our debt balance by almost $200 million.

Regarding cash, short and long-term investments, we closed the quarter with close to $900 million. During the quarter, our free cash flow generation was close to $170 million and our cash balance at the end of the quarter represents approximately 33% of last 12 months' revenues.

In terms of fleet, we ended the quarter with 103 aircraft: 68 737-800s, 14 737-700s, 15 Embraer-190s and six MAX 9s. We had originally planned for seven additional MAX aircraft to be delivered during 2019. As Pedro mentioned, we expect to receive a significant number of MAX aircraft next year and are planning to sell our remaining 14 Embraer aircraft over the next 18 months. We expect that this fleet transition will put some short-term pressure on our utilization and maintenance expenses. But in the medium term, we believe operating a simplified 737 fleet will be accretive to the business. By mid-2021, we should have a simplified and higher gauge fleet, which will contribute to our goal, reducing our unit costs below $0.06.

Finally, I'm pleased to announce that our Board of Directors has ratified the third quarterly dividend of $0.65 per share to be paid on December 13 to all shareholders of record as of November 29. So going back to our results and to recap, we delivered strong financial results for the third quarter. We're encouraged by the current demand trends in the region. Despite the grounding of the MAX fleet, we're still delivering competitive unit costs, which we expect to continue improving, once the MAX grounding is lifted. We have one of the strongest balance sheets in the industry and we continue to return value to our shareholders.

Turning now to our full year guidance for 2019. Based on our expectations for the remainder of the year, we are adjusting our full year capacity outlook to reflect the year-over-year ASM reduction of approximately 3%. We expect our full year operating margin to come in at approximately 16%. Our 2019, full-year guidance is based on the following assumptions: load factor of approximately 85%, RASM of approximately $0.107, affected mostly by the recent devaluation in Argentina, CASM, ex-fuel of approximately $0.063 driven by the reduced number of ASMs for the year related to the grounding of the MAX fleet, and an effective fuel price per gallon including into-plane of approximately $2.15.

Today, we're also providing a preliminary guidance for 2020. As always, we remind you that at this point, our visibility into the next year is very limited. Additionally, our capacity growth, unit cost and unit revenue assumptions are highly sensitive to the timing of the un-grounding of the MAX fleet, which is still uncertain. Having said that, if we assume a reentry into service in mid-February, we expect our capacity growth of approximately 5% year-over-year. We are assuming an effective fuel price per gallon including into-plane of approximately $2.10 and we expect our full year operating margin to be in the range of 16% to 18%.

Thank you. And with that, we'll open the call for some questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Michael Linenberg of Deutsche Bank. Your line is open.

Michael Linenberg -- Deutsche Bank -- Analyst

Yeah. Two questions, the first one just tied to the E-190. That charge, will there be a single period where you take that charge or will we see the charge spread out as aircraft sales are consummated?

Jose Montero -- Chief Financial Officer

Hey Mike, this is Jose.

Michael Linenberg -- Deutsche Bank -- Analyst

Hi Jose.

Jose Montero -- Chief Financial Officer

I expect right now the charge to be a one-time charge performed during Q4 of this year. And yeah, so I think it's going to be just one-time charge.

Michael Linenberg -- Deutsche Bank -- Analyst

Okay, that's helpful. And then just the second question tied to the E-190, one of the things that I always thought was so interesting with that airplane is that it did allow you to experiment and develop markets and build out frequency until prior to the induction of 700s and 800s. And when I look across your network,I do think that there are still some markets today that I think are purely served by the 190. I don't -- I just pulled up a few like Manaus in Brazil and Chiclayo in Peru. How many markets do you actually serve today that are just exclusive 190 and is that type of experimental or development type flying? Are we going to lose that flexibility when you remove your 100 seaters from your fleet? So just kind of your thoughts around that and the loss of a developmental aircraft. I get the point that it -- the costs have gotten to the point that they're probably somewhat punitive and it's the right decision, but I'm just curious what it means for network development. Thank you.

Pedro Heilbron -- Chief Executive Officer

Yeah, hi Michael, this is Pedro here.

Michael Linenberg -- Deutsche Bank -- Analyst

Hi Pedro.

Pedro Heilbron -- Chief Executive Officer

So not -- we are replacing the last of the 14 190s. So we're at a point where we're better off with a single fleet. There's many advantages, cost and operational advantages from that commonality. But of course there will be, let's say, the tail-end of our 14 Embraers, our aircraft that are more suited to some of the routes that are being flown back -- by those planes. So, those routes will be flown with NGs, with larger gauge aircraft and they might be less profitable, but the net-net benefit is very positive. So we'll sacrifice some and in terms of, let's say what you call experimental routes for market, we will still do that, even if with a larger gauge aircraft. So we don't think we're going to have to sacrifice much there. I mean, there might be a case here or there, but it won't be significant and we see the benefits that -- been much, much larger than whatever we're sacrificing.

Long-term or medium-term, it doesn't mean that we will never operate a smaller gauge aircraft again. We think this is the right decision for us right now. But in the future, in other new technologies -- technology aircraft, we'll look at.

Michael Linenberg -- Deutsche Bank -- Analyst

Absolutely, absolutely. Okay. That's actually, that's -- I'm glad you made that last comment. That's very interesting. Great quarter. Thank you. Thanks, Jose, Pedro, thank you.

Pedro Heilbron -- Chief Executive Officer

All right, thanks a lot Mike.

Operator

Our next question comes from Duane Pfennigwerth of Evercore ISI. Your line is open.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Hey, thank you. Just a quick follow-up to Mike's question. How would you frame the margin improvement opportunity from getting out of this fleet type? And do you have a sense for how much lower if at all, Trip costs are on the E-190?

Pedro Heilbron -- Chief Executive Officer

Okay. So, it is Pedro again here. Hi Duane. At first, it's not going to be significant. Obviously next year we're going to incur the inefficiency of having to transition a cruise and having grounded aircraft because of the delivery requirement for the nine Embraers we hope to sell next year, plus all the MAXs that will be coming in and those are also are grounded for a little while, while we do post delivery modification. So it's going to be a little bit messy next year, with the aircraft coming in and going out. And again all the crew transitions, then it's going to be -- there's going to be a spool up over the years, because of some of what I was mentioning to Mike in the question right before yours, in that there will be some markets that it will take some time for those loads to be more profitable in an NG versus the Embraer. So at first, the benefits will be -- it's going to be positive, but will be less. And over time, it's going to, it's going to strengthen. So I don't know Jose, if you want to add something to that. But it's going to be getting stronger and better as the years pass, I think that's the key to this.

Jose Montero -- Chief Financial Officer

Yeah I think that Duane, you can frame it I think on a run rate basis. Our expected benefit of having one sole [Phonetic] fleet versus the current, when we had 19 E-190s. You could argue it's about -- in the range of $30 million of cash flow positive for year. So that's -- I think a good measurement to see when we see the benefit.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Thanks. And then just for my follow-up, I don't know if you'd be willing to comment on it. As I think about the delays on the MAX coming back and the markets that you've had to take a harder look at, the network adjustments that you've had to take a harder look at, obviously some weaker spots in the portfolio, Argentina, maybe some Chile. But I have to think there are markets where it really pains you to cut capacity, where you see the demand and at very healthy RASM and yet you just can't push the incremental ASMs right now. I wonder if you just comment broad strokes on the markets, where it's sort of most painful for you to not be providing incremental lift right now. Thanks for taking the questions.

Pedro Heilbron -- Chief Executive Officer

Yeah, I would say like most markets that were flown by the MAX is -- as you can tell, we still have very -- we have very strong load factors. And even Argentina still has pretty healthy or even strong load factors. And if yields are hurting a little bit from currency devaluation, the MAX is an even better aircraft for those market because it has lower unit costs. So it kind of pains us most everywhere, I would say.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Thank you.

Pedro Heilbron -- Chief Executive Officer

Thanks Duane.

Operator

Our next question comes from Savi Syth of Raymond James, your line is open.

Unidentified Participant

Hey, good morning. This is Matt on for Savi. My first question relates to your 2020 growth plan. And that mid-single-digit of 5%, is that basically a function of the E-190 sale and timing of MAX or is there some element of being more cautious on demand there? And could you by quarter if possible say how you're thinking about the MAX deliveries and E-190 retirement?

Pedro Heilbron -- Chief Executive Officer

Well I would say, it's all of the above. So, it is -- we had kind of directionally guided to a faster -- higher growth next year. But with the delays in the deliveries of the MAXs and now the large number of aircraft that we're expecting to receive next year, which is up to 14, we decided it was prudent to not grow as much in especially in the first half of the year and Jose will maybe explain it in more details in a second. And we decided then there was a perfect timing to start selling and getting rid of the E-190s. So it's both things, the getting rid of the E-190s brings down ASM growth for next year, but at the same time, we're doing it because we think it's a prudent decision given everything that's going on. I don't know Jose, if you want to add to that?

Jose Montero -- Chief Financial Officer

Well yeah, it's basically driven by the fleet decision that we've made. And I think that for the first half of the year -- in first quarter I think you're going to see a slight reduction in ASMs on a year-over-year basis, because of the fact that remember in the first quarter of last year, we had -- we did have the MAXs flying. So and here we are assuming that the MAX is going to be back on the schedule as of now, given the information that we have during the middle part of February. So we will see a reduction in ASMs. And then second quarter, you're seeing a slight growth. So the growth in ASMs that averages to the 5% is essentially back loaded toward the second half of the year. Second half, it's in the high single-digit range for -- on average.

Matt McClintock -- Raymond James -- Analyst

Okay, great, thank you very much. And then if I can just, switch a little bit here. In regard to the potential joint business agreement with United and Avianca, we didn't really discuss that much, but strategically, would it make sense to use both Panama and Bogota as complementary hubs, providing additional frequency on overlapping markets or would you see those two hubs in the JBA serving different purposes?

Pedro Heilbron -- Chief Executive Officer

Well, I don't know how much we want to comment on strategic matters and also matters that are going to be a part of the JBA filing when that happens. But I would say that -- the fact that we're planning to go forward with the JBA and that it was announced to begin with -- it's a signal that we feel that -- the three networks together add value to our customers and to the three airlines. So we feel that the three networks can work well together.

Matt McClintock -- Raymond James -- Analyst

Okay, thanks for the color there.

Operator

Our next question comes from Hunter Keay of Wolfe Research. Your line is open.

Andrew Bauch -- Wolfe Research -- Analyst

Hey, this is Andrew on for Hunter. You had previously mentioned that basic economy was expected to be implemented in 4Q and would help you more effectively sell ancillaries. Is that still on track? And if so, can you help us size the benefit relative to the expected $20 million of incremental ancillary revenue in 2020? Thanks.

Jose Montero -- Chief Financial Officer

Well, I think we are on track Andrew for our ancillary target for the year at $20 million. We're pretty comfortable with that. Having said that, the fare families program and our merchandising engine program is, I think it will start showing results, I would say during the second quarter of next year. So that's kind of what we have and the merchandising engine itself is going to be -- in the final stages of being implemented and we expect that to be during the early part of 2020 operational. So I think that we're going to start seeing results during the middle part of the second quarter of next year.

Andrew Bauch -- Wolfe Research -- Analyst

Great, thank you.

Pedro Heilbron -- Chief Executive Officer

Thanks a lot.

Operator

Our next question comes from Josh Milberg of Morgan Stanley, your line is open.

Josh Milberg -- Morgan Stanley -- Analyst

Good afternoon everyone, thank you for the call. My first question, guys is on the E-190s. You guys talked about the maintenance and other transition costs related to phasing out of those aircraft as being an issue and I was just hoping you could quantify that impact in some way. I assume that that is something that's embedded in your preliminary 2020 margin. But I think it would be good to just get a little bit of a sense of the size of that effect.

Jose Montero -- Chief Financial Officer

Yeah, Josh, this is Jose and indeed it is baked into our guidance for the year. And I think that more than necessarily, specific maintenance costs which are included, the issue also is just simply the ground time that you have the airplanes out. So you're going to have before you sell an airplane, you have to prepare it for sale, as you have an airplane that is still essentially owning that that is not productive. So there is some -- so there is some efficiency there as well. And the same thing occurs with aircraft that are coming into the schedule every time, that an airplane comes out of the factory, you do perform some post delivery modifications on the aircraft, et cetera. So, even with all that and I -- I'm cognizant that we did not include a specific ex-fuel CASM assumption in this very -- in the preliminary guidance that we issued yesterday. We still expect a slight improvement in our unit costs. So, the guidance that we issued assumes an improvement in our ex-fuel CASM for next year. And again, the reason why slight --only slight is because of these inefficiencies that are -- we are taking into account in our numbers.

Josh Milberg -- Morgan Stanley -- Analyst

Okay. Jose. That's great color. Very helpful. And then my second question is if you could just talk a little bit about what currency assumptions are built into your 2020 guidance? I noticed that you highlighted weaker currencies in Argentina and Chile is an issue for the fourth quarter, but just wanted to have a little bit of a sense of how much of a headwind you see the real the -- BRL4.15 plus level going into 2020, assuming it -- it is at that level.

Jose Montero -- Chief Financial Officer

Yeah, Josh, I would say a couple of points there. The first thing is that our -- precisely because of the uncertainty that you're mentioning and the uncertainty related to -- also to the MAX situation, we are not really guiding for next year in -- or the guidance does not assume an improvement -- year-over-year improvement in unit revenue. So we are basically assuming a flattish sort of unit revenues which doesn't assume then therefore any particular shocks in any of the currencies, but it assumes that currencies somewhat are stable to -- in general [Indecipherable] throughout the year. So I think the best way to frame it is that we're not assuming a unit revenue improvement in our guide.

Josh Milberg -- Morgan Stanley -- Analyst

Okay, super helpful. Thank you so much.

Pedro Heilbron -- Chief Executive Officer

All right Josh.

Operator

Our next question comes from Helane Becker of Cowen. Your line is open.

Helane Becker -- Cowen -- Analyst

Thanks, operator. Hi, everybody, thank you very much for the time. I just had two questions. Pedro, you mentioned that there were some timing of expenses in the quarter. And I was just kind of wondering if you could be a little more specific? And then I noticed that maintenance expenses were up so much in the third quarter, and I was wondering if you can just talk to that 24% increase?

Pedro Heilbron -- Chief Executive Officer

Okay, I'll let Jose give you some specifics about the maintenance line, but they are always timing of expenses for different reasons. And so the meaning of that is that it was not a 100% due to the lower ASM number because of the MAX grounding, there are always expenses that move from one quarter to the other compared to the year before, like maintenance, for example. So, so it's kind of a general statement that includes all the other things that cannot be perfectly predicted in every quarter, but there's nothing out of whack. There are no new expenses, it's not about the structure, the cost structure has changed. So that's kind of what it's meant to mean.

Jose Montero -- Chief Financial Officer

And I think one of the items to mention is that the biggest driver is the fact that we've been flying less ASMs related to the MAX, right. So that's the biggest driver of the ASM, where the CASM ended in the quarter. In terms of maintenance, last year, there are a couple of items here, one is that last year we changed our policy for our pools of maintenance related to some components specifically landing gears and APUs after we adopted the policy for componentization of aircraft. And so there is some variability depending on when these inspections occur, or when these events occur in terms of given that we are expensing the full value of landing here in APU changes and then the other component to the variation, was that in 2018 we had some accruals related to return conditions of maintenance of aircraft and that also affected somewhat the cost line, more than anything because we created a good gain in say catch up good gain in the third quarter of last year.

Helane Becker -- Cowen -- Analyst

Okay, thank you. And then just a follow-up question. As you focus more on the larger aircraft rather than the E-190s, how will that change your length of haul or your stage length and is Wingo included in those numbers?

Pedro Heilbron -- Chief Executive Officer

Yeah Wingo is included in all of our figures and I think that the only figure where you see I think in stage length I think, this year, where there is a shortening of the stage length on average. And then for next year, it's kind of flattish, I think in terms of stage length at this stage.

Helane Becker -- Cowen -- Analyst

Okay.

Pedro Heilbron -- Chief Executive Officer

It should not mean any major changes.

Helane Becker -- Cowen -- Analyst

Okay, all right. That's very helpful gentlemen, see you next month.

Pedro Heilbron -- Chief Executive Officer

Thank you, Helane

Jose Montero -- Chief Financial Officer

All right.

Operator

Our next question comes from Alejandro Zamacona of Credit Suisse. Your line is open.

Alejandro Zamacona -- Credit Suisse -- Analyst

Hello, Pedro and Jose. Thanks for the call. Just a follow-up question on the capacity guidance for 2020. I was wondering, if you kind of -- give a kind of your thoughts on your general growth expectations by market. Thank you.

Pedro Heilbron -- Chief Executive Officer

Well, I don't think we have that to share right now. But it's -- our growth next year is going to be driven mostly by gauge, by bringing bringing back the larger MAXs and getting rid of the much smaller 190. So gauge is going to drive a big part of the ASM growth. And that -- you could just think of the market where the MAXs is flying and the MAXs in those markets are going to be replacing 800s, so it's not that big of a jump, 700s and 800s are going to be replacing Embraer's in smaller markets. So those will see a bigger jump. But it's not, I mean it's going to be across the network. And I don't think there's any significant change there to really, really mention, right now.

Jose Montero -- Chief Financial Officer

I think one of the items that we also focus on is in flexibility in terms of our short-term scheduling. So we are able to move sales [Phonetic] throughout the network where we see opportunities in terms of the management.

Alejandro Zamacona -- Credit Suisse -- Analyst

Okay, thank you.

Pedro Heilbron -- Chief Executive Officer

Thanks a lot Alejandro.

Operator

Our next question comes from Dan McKenzie of Buckingham Research. Your line is open.

Dan McKenzie -- Buckingham Research -- Analyst

Okay, thanks, good morning guys. Got a couple of questions here. On the last earnings call, you guys talked about a sub-6 CASM, ex-fuel and given the grounding of the E-190s that seems like a lay-up, but I'm not hearing that in the messaging today and as best I can tell in mid-February return of the MAX, wouldn't derail a potentially sub-6 outcome in 2020. And someone if you can speak to that. And then just kind of tied to that. If that's correct, the implied revenue outlook is negative next year, which is just not consistent with the RASM trends currently, we're seeing up 9%. So anyways, I'm just wondering if you can also reconcile the kind of the flat RASM commentary with current trends and the strong demand commentary and tie that to the CASM ex...

Jose Montero -- Chief Financial Officer

Yeah, there is going to be an improvement in CASM for next year, but there are some headwinds and we -- we in the end decided to accelerate the exit of the Embraers and that will create some short-term -- some short-term inefficiencies, mostly related to, I guess I mentioned before to aircraft that are parked and are getting out and aircraft coming in. But we do expect to be at a sub-6 level, maybe not for the full year 2020, given the movement that we have, but it will occur essentially I think concurrent with the conclusion of our fleet movements that we discussed. So I think it will take a little bit longer, but it is purely based on the timing of when the aircraft are leaving. And in terms of RASM again, we are seeing I think flat RASM in general terms for next year. But again I have to also say that this is a preliminary guidance, in February once we have better visibility and we will see better, I think that overall, we are -- I think seeing -- it's too early on to provide full sort of visibility into 2020.

Dan McKenzie -- Buckingham Research -- Analyst

Okay. And then, yeah, if I could go back to some of the foreign currency references you made in the comments, you highlighted Argentina, Chile, even Brazil here. Can you just talk, and then I believe that there were some -- you alluded to core demand being OK in these countries just given the load factors despite the FX moves. I just was wondering if you can clarify that and if you can sort of break that down into corporate and leisure? And specifically, how are you seeing the health of the consumer in those countries? And is the strength of the load factors coming on the business or the leisure side?

Pedro Heilbron -- Chief Executive Officer

Dan I think, this is Pedro. I made the comment that load factors are still quite healthy, but they're obviously down from before the devaluation, but they are still healthy. And depending on the market, we can use additional seats. So in terms of the impact of the devaluation on yields, it affects all markets, it affects the business and the leisure market. It's announcing we have that information to share right now in this call, but it's something that happens across the Board. And what we're seeing is year-over-year weakness. The markets are still positive. I mean they were just not as strong as we were expecting, when we last spoke, I think that maybe the big difference, but the markets are still OK.

Dan McKenzie -- Buckingham Research -- Analyst

Okay, if I could squeeze one, third one in here. The MAX grounding does imply potentially some lumpy capex. I'm just wondering if you can talk about sort of your capex expectations over the next couple of years and then tied to that compensation from Boeing, is that likely to hit the income statement, is it likely to be a mix of income statement discount or just simply discounts on future aircraft? Thanks for taking the question.

Jose Montero -- Chief Financial Officer

Yeah I'll discuss the capex for 2020 and then I'll let Pedro discuss the MAX question. For next year, yeah, there is -- again very early on, so we are not 100% sure about what the final delivery schedule is, because the aircraft has yet not been ungrounded. So we -- there's still uncertainty in terms of what the delivery schedule is. But if we assume around 14 aircraft coming in -- the capex, the total capex for us in 2020 could be around $1 billion, but remember that we have 100% financing on the aircraft. So cash capex, including pre-delivery deposits and all the other items, could be on a net basis around $250 million [Phonetic] for 2020.

Dan McKenzie -- Buckingham Research -- Analyst

Got it.

Pedro Heilbron -- Chief Executive Officer

In terms of your MAX compensation question, we don't really know. We will know when the un-grounding happens and we sit down with Boeing and we haven't done that yet, not in a formal way at least. So we don't really know, not much to comment there yet.

Dan McKenzie -- Buckingham Research -- Analyst

I see. Okay, thanks.

Pedro Heilbron -- Chief Executive Officer

Thanks a lot, Dan.

Operator

Our next question comes from Matthew Wisniewski of Barclays. Your line is open.

Matthew Wisniewski -- Barclays -- Analyst

Hi, good morning. Just a real quick question from me. I was wondering what degree of potential flexibility you have with the E-190s? Is the retirement kind of process set in stone or if there was the MAX grounding were to get prolonged further, is there a potential of keeping those on a little bit longer, if it didn't make sense? Any color you could share on that would be great.

Pedro Heilbron -- Chief Executive Officer

Yeah. As always we have lots of flexibility and we embed flexibility in our contracts for new aircraft or for getting rid of aircraft. And we're doing some sale-leasebacks for a while, we are not going to deliver nine Embraers from one day to the other. And in those agreements, we will have flexibility to stay with the aircraft longer if needed. So we're OK there. And we've shown in the past that we always have a way of working our fleet needs and growing or shrinking our fleet depending on the needs of the market and other realities like the MAX grounding.

Matthew Wisniewski -- Barclays -- Analyst

Okay, great. And then I'm sorry if I missed it, but did you indicate there is a kind of a cadence over the next 18 months, where they just kind of steadily come out of the fleet or should we expect to be front-loaded or back-loaded during that period?

Jose Montero -- Chief Financial Officer

It will be very flattish in terms of the cadence, I don't think that you'll see any particular peaks or valleys in the delivery of the aircraft down in the reception of aircraft.

Matthew Wisniewski -- Barclays -- Analyst

Okay, great. Thank you.

Pedro Heilbron -- Chief Executive Officer

Thanks a lot Matt.

Jose Montero -- Chief Financial Officer

Thanks.

Operator

There are no further questions. I'd like to turn the call back over to Pedro Heilbron for any closing remarks.

Pedro Heilbron -- Chief Executive Officer

Okay, thank you all. This concludes our earnings call after many questions. Thank you for being with us and for your continued support and we hope to see you in our upcoming Investor Day in Panama in early December. So have a great day and see you next month hopefully.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Raul Pascual -- Director of Investor Relations

Pedro Heilbron -- Chief Executive Officer

Jose Montero -- Chief Financial Officer

Michael Linenberg -- Deutsche Bank -- Analyst

Duane Pfennigwerth -- Evercore ISI -- Analyst

Unidentified Participant

Matt McClintock -- Raymond James -- Analyst

Andrew Bauch -- Wolfe Research -- Analyst

Josh Milberg -- Morgan Stanley -- Analyst

Helane Becker -- Cowen -- Analyst

Alejandro Zamacona -- Credit Suisse -- Analyst

Dan McKenzie -- Buckingham Research -- Analyst

Matthew Wisniewski -- Barclays -- Analyst

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