Copa Holdings, S.A. (CPA) Q3 2019 Earnings Report, Transcript and Summary

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 w 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.

Thank you, Michelle, and welcome, everyone, to our third quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings; and José Montero, our CFO. First, Pedro will start with our third quarter highlights, followed by José, who will discuss our financial results. Immediately after, we’ll 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 also contain forward-looking statements, not limited to historical facts, that reflect 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 our annual report filed with the SEC. Now I’d like to turn the call over to our CEO, Mr. Pedro Heilbron.

Thank you, Raul. Good morning to all, and thank you for participating in our third quarter earnings call. First, I’d like to congratulate our coworkers for their efforts during the quarter and especially the ongoing hard work to minimize the impact of 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, amongst the very best in the world. As a reminder, we have six grounded MAX9 aircraft, 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 José will discuss 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 week at least into 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 visibility is still very limited, we’re encouraged by the demand trends we’re seeing in most of our networks. As I mentioned earlier, we’re now expecting the MAX to be in service no sooner in mid-February. Whenever the ungrounding 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’ll also remain focused on many initiatives to further strengthen our results. We’re on track to achieve our ancillary revenue target for the year and continue expanding and optimizing our products. As part of this effort, we’re advancing with implementation of the Farelogix platform to deliver merchandising and distribution capabilities across all channels, which we’ll 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 includes the app and our web and mobile sites. Developing our own digital products 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’ll update the Wingo fleet to -800s, which will further lower unit costs 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 targets. 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 José, who will go over our financial results in more detail. José Montero: 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 yields showed a recovery and came in 7.9% higher year-over-year, which combined with a strong load factor resulted in a unit revenue increase of 9.4% 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 under 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 costs 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 a net interest expense of $6.6 million and $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. In terms of 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 MAX9s. 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 of 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 a MAX grounding is lifted. We have one of the strongest balance sheets in the industry and we continue to return value to our shoulders. 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%, and 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 evaluation in Argentina; CASM ex-fuel of approximately $0.063, driven by the reduced number of ASMs for the year related to the grounding of 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 in unit costs and unit revenue assumptions are highly sensitive to the timing of the undergrounding 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 to some questions.

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

Yes. 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? José Montero: Hey, Mike, this is José. I expect right now…

Hi, José. José Montero: ….yes. I expect right now the charge to be a one-time charge performed during Q4 of this year. And yes, so I think it’s going to be just a one-time charge.

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’s 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.

Yes. Hi, Mike, it’s Pedro here.

Hi, Pedro.

So not – we’re replacing the last of the 14 E-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. Hey, 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 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 sacrifice market 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.

Absolutely, absolutely. Okay. That’s actually – that’s a – I’m glad you made that last comment. That’s very interesting. Great quarter. Thank you. Thanks, José, Pedro. Thank you. José Montero: All right. Thanks a lot, Mike.

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

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?

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 crews and having grounded aircraft because of the delivery requirements for the nine Embraers we hope to sell next year, plus all the NG, all the MAXs that will be coming in and those are also are grounded for a little while, while we do post-delivery modifications. 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, and that there will be some markets that it will take sometime for those loads to be more profitable on 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 strengthen. So I don’t know, José, 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. José Montero: Yes, I think that, Duane, you can frame it, I think, on a run rate basis, our expected benefit of having one sole fleet versus the current – well, we had 19, we could argue is about in the range of $30 million of cash flow positive for the year. So that’s, I think, a good measurement to see where we see the benefit.

Thanks. And then just for my follow-up. I don’t know if you’d be willing to comment on it. As I think about the delays on the MAX coming back and the markets that you’ve had to take a harder look at, the network adjustments that you – you’ve had to take a harder look at. Obviously, some weaker spots in the portfolio, Argentina, maybe some Chile. But I have to think there are markets where it really pains you to cut capacity where you see the demand 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.

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

Thank you. José Montero: Thanks, Duane.

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

Hey, good morning. This is Matt on for Savi. My first question relates to your 2020 growth plan. In that mid single-digit, the 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 retirements?

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 aircrafts that we’re expecting to receive next year, which is up to 14, we decided it was prudent to – don’t – not grow as much in the – especially in the first-half of the year, and José 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-190. So it’s both things. It’s 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, José, if you want to add to that. José Montero: Well, yes. 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 last – first quarter of last year, we had – we did have the MAXs flying. So – and here, we’re assuming that the MAX is going to be back on the scale 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 in second quarter you’re seeing a slight growth. So the growth in ASMs that averages to the 5% is essentially back-loaded towards the second-half of the year. Second-half, it’s in the high single-digit range for – on average.

Okay, great. Thank you very much. And then if I could just switch a little bit here. In regard to the potential joint business agreement with United in 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 in overlapping markets, or would you see those two hubs in the JVA serving different purposes?

Well, no, I don’t know much we want to comment on strategic matters and also matters that are going to be a part of the JVA filing when that happens. But I would say that the fact that we’re planning to go forward with the JVA and that 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.

Okay. Thanks for your color there.

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

Hey, this is Andrew on for Hunter. You had previously mentioned that basically 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 a benefit relative to the expected $20 million of incremental ancillary revenue in 2020? Thanks.

Well, the – I think are – we are on track, Andrew, for our ancillary target for the year at $20 million and we’re pretty comfortable with that. Having said that, the fare families program and our merchandising engine program is, I think, going to start showing results, I would say, during the second quarter of next year. So that’s kind of what we have. The merchandising engine itself is going to be – is 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.

Great. Thank you.

Thanks a lot.

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

Good afternoon, everyone. Thank you for the call. My first question, guys, is on 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 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? José Montero: Yes, Josh, this is José. 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 where you have an airplane, maybe still essentially owning that is not productive. So there is some…

Efficiency. José Montero: …efficiency there as well. And then 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’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 cost. So the guidance that we should assume is an improvement in our ex-fuel CASM for next year. And, again, the reason why slight – only slightest because of these inefficiencies that are – we’re taking into account in our numbers.

Okay, José, 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 at or 15-plus level going into 2020, assuming it stays at that level? José Montero: Yes. 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’re not really guiding for next year in – or the guidance does not assume an improvement – a 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 kind of currencies somewhat are stable to – in general for sure, throughout the year. So, I think the best way to frame it is that, we’re not assuming a unit revenue improvement in our guidance.

Okay, super helpful. Thank you so much.

All right, Josh.

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

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?

Yes, okay. I’ll let José give you some specifics about the maintenance line. But there are always timing of expenses for different reasons. And so, the meaning of that is that, it was not 100% due to the 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 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 like the structure – the cost structure has changed. So that’s kind of what it’s meant to mean, so… José Montero: 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 MAX, right. So…

Right. José Montero: …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 accruals 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, when these events occur in terms of – given that we’re expensing the full value of landing gear and 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 guy in – I’d say catch a good guy in the third quarter of last year.

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? José Montero: Yes. 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’s 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.

Okay.

It should mean any major changes. José Montero: Yes.

Okay. All right. That’s very helpful, gentlemen. See you next month.

Thank you, Helane. José Montero: All right.

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

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

Well, I don’t think we have that to share right now. But it’s – our growth next year, it’s going to be driven mostly by gauge, by bringing back the larger MAXs and getting rid of the much smaller 190s. So gauge is going to drive a big part of the ASM growth. And that – you could just think of the market, where the MAX 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 Embraers in smaller markets. So those will see a 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. José Montero: And 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 shelves throughout the network, where we see opportunities in terms of demand trends.

Okay. Thank you.

Thanks a lot, Alejandro.

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

Hey, thanks. Good morning, guys. I got a couple of questions here. On the last earnings call, you guys talked about a sub-six 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, a mid-February return of the MAX wouldn’t derail a potentially sub-six outcome in 2020. And so I’m wondering 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 is – and tie that to the CASM ex…?

Yes. Dan, there’s going to be an improvement in CASM for next year. But there are some headwinds that we, in the end, decided to accelerate the exit of the Embraers and that will create 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-six 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’ll see better, I think, that overall, we are – I think seeing – still early on in – to provide the full sort of visibility into 2020.

Okay. And then, yes, 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 there were some – you alluded to core demand being okay in these countries, just given the load factors despite the FX moves. I just was wondering if you can clarify that? And if you can sort of break that down into corporate and leisure? And specifically, how are you seeing the health of the consumer in those countries? And is the strength of the load factors coming on the business or the leisure side?

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 okay.

Yep. 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. José Montero: Yes. I’ll discuss the CapEx for 2020 and then I’ll let Pedro discuss the MAX question. For next year, yes, 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 for 2020.

Got it. Okay.

In terms of your MAX compensation question, we don’t really know. We will know when the ungrounding 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.

I see. Okay, thanks. José Montero: Thanks a lot, Dan.

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

Hi, good morning. Just a real quick question from me. I was wondering if 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?

Yes. 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 leaseback for a while, because 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 okay 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.

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, or they just kind of steadily come out of the fleet or should we expect to be a front-loaded or back-loaded during that period? José Montero: 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 and in the reception of aircraft.

Okay, great. Thank you. José Montero: Thanks a lot, Matt.

Thanks.

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

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.

Ladies and gentlemen, thank you for your participation. That concludes the presentation. You may now disconnect, and have a wonderful day.