Air Canada (ACDVF) CEO Calin Rovinescu on Q4 2018 Results - Earnings Call Transcript

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About: Air Canada (ACDVF)
by: SA Transcripts
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Earning Call Audio

Air Canada (OTCQX:ACDVF) Q4 2018 Earnings Conference Call February 15, 2019 8:30 AM ET

Company Participants

Kathleen Murphy - IR and Corporate Reporting

Calin Rovinescu - President and CEO

Mike Rousseau - Deputy CEO and CFO

Lucie Guillemette - EVP and CCO

Craig Landry - EVP, Operations

Conference Call Participants

Harish Man - WeMo

Doug Taylor - Canaccord Genuity

Konark Gupta - Macquarie

Andrew Didora - Bank of America

Walter Spracklin - RBC Capital Markets

Helane Becker - Cowen

Chris Murray - AltaCorp Capital

Cameron Doerksen - National Bank Financial

Turan Quettawala - Scotiabank

Nish Mani - J.P. Morgan

Kevin Chiang - CIBC

Tim James - TD Securities

Operator

Good morning, ladies and gentlemen. Welcome to the Air Canada Fourth Quarter and Full Year 2018 Conference Call.

I would now like to turn the meeting over to Kathleen Murphy. Please go ahead, Ms. Murphy.

Kathleen Murphy

Thank you, Valery, and good morning, everyone, and thank you for joining us on our fourth quarter call. With me this morning are Calin Rovinescu, our President and Chief Executive Officer; Mike Rousseau, our Deputy Chief Executive Officer and Chief Financial Officer; and Lucie Guillemette, Executive Vice President and Chief Commercial Officer. I’d also like to welcome Craig Landry, our Executive Vice President, Operations who will be here to respond to questions.

On today’s call, Calin will begin by highlighting our financial performance for the full year and quarter. Lucie and Mike will then address our fourth quarter financial performance in more detail, and turn it back to Calin before taking questions from the analyst community.

As usual, I would like to point out that certain statements made on this call, such as those relating to our forecasted costs, financial targets, and strategic plans are forward-looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures. Please refer to our fourth quarter press release and MD&A for important assumptions and cautionary statements relating to forward-looking information and for reconciliations of non-GAAP measures to GAAP results.

I’m now going to turn it over to Calin Rovinescu, Air Canada’s President and CEO.

Calin Rovinescu

Thank you, Kathy, good morning, everyone, and thanks for joining us on our call today. I’m extremely pleased to report another very strong quarter capping off a great year for Air Canada where we delivered record revenues, record liquidity, carried a record number of passengers and produced the year-over-year PRASM increase of 3.8%.

On the year we generated full year EBITDAR of about $2.9 billion and EBITDAR margin of 15.8% and a return on invested capital of 12.6%. On a GAAP basis we reported operating income of close to $1.2 billion.

In addition our free cash flow for the year of $791 million significantly exceeded our guidance. These results underscore the resilience and effectiveness of our business strategy which has greatly enhanced our competitive position.

We ended the year with record unrestricted liquidity of more than $5.7 billion and a leverage ratio of 2.1 times. Such unprecedented liquidity levels speak to the financial strength of our company and give us a level of stability it had never had before.

With a record of nearly 51 million passengers carried, we generated record revenues in excess of $18 billion in 2018, an increase of about a 11% from 2017. We managed to achieve these results while effectively managing our costs.

Our adjusted CASM increased 0.3% firmly in line with our projections. All in CASM increased 6% versus the previous year largely a consequence of higher fuel cost. With respect to our cost transformation program which began a year ago, we made progress in the fourth quarter and by year end realized or identified $220 million or 88% of our $250 million target. We expect to fully achieve the remaining targeted savings by year end 2019.

Cost transformation is a fundamental component of our strategy and will continue to be a key priority for us moving forward. For the fourth quarter we delivered record EBITDAR of $543 million, this is an increase of $22 million over the last year and above analyst consensus estimates.

Our fourth quarter 2018 operating income amounted to $122 million. We received record fourth quarter revenue of $4.2 billion reflecting a strong demand environment and favorable pricing trends which we see continuing into 2019. Our record revenue enabled us to full offset the increase in the price of fuel in the quarter with the PRASM increase of 5.2%.

From a cost perspective, on an adjusted basis CASM increased 0.5% better than what we had projected on our third quarter call. During the year we successfully undertook two major transformational initiatives that we completed just last month. The first of these was our purchase of Aimia Canada and its Aeroplan program. With Aeroplan we’ve reacquired what many Canadians consider the best travel rewards program in Canada and with privileged access to Air Canada, the second most valuable currency in the country after the Canadian dollar.

This acquisition also brings tremendous capabilities and resources in analytics, loyalty marketing, technology and customer journey management. Our digital and loyalty teams are now comprised of over 200 people focused only in these areas and we fully expect to deliver in 2020 not only the best loyalty program in the country, but one of the best airline loyalty programs in the world.

Concurrent with the Aeroplan acquisition, we finalized commercial and credit card loyalty agreements with TD, CIBC and Visa Canada as well as an agreement in principle with [AirMax] Canada. These ensure our new program receives wide exposure and will further drive consumer use and uptick.

The second transformational initiative was the amended and extended capacity purchase agreement with Jazz and Chorus Aviation. This new CPA retroactive to the start of this year 2019 extends the previous agreement by 10 years. Under the new arrangement Air Canada projects annual savings of approximately $50 million in each of 2019 and 2020 and cumulative savings of an additional $53 million between 2021 and 2025, both as compared to the 2015 CPA framework.

This new win-win agreement also provides us with significant operational advantages and network benefits including greater fleet flexibility. As part of this agreement Air Canada took a $97 million 9.99 equity position in Chorus. From our perspective this is a sound investment that signals our commitment to our partnership with Chorus, but there is no intention to take a larger position.

Before turning it over to Lucie for a more detailed review of our fourth quarter revenue performance, I’d like to sincerely thank our 30,000 employees for their central part in these accomplishments and for their continued focus on taking care of our customers in our highly competitive industry and especially soldiering the extremely difficult winter conditions we face in Canada.

I’d also like to welcome the Aeroplan team members into the Air Canada family and look forward to the exciting times ahead as we build a best-in-class loyalty program. Further I also wish to thank the 51 million customers who flew with us in 2018. Everyone at Air Canada appreciates your loyalty in choosing our airline.

And with that I’ll turn the call over to Lucie.

Lucie Guillemette

Thank you Calin, and good morning. I’d also like to thank our employees for consistently delivering exceptional service to our customers and for representing the best of Air Canada throughout the year. I also thank our customers willing to fly with us.

Turning to our fourth quarter revenue results, we closed out the year strongly with record passenger revenues of $3.8 billion up $386 million or an efficient 11.3% on capacity growth of 5.8% from the fourth quarter of 2017.

Traffic grew 7.2%, while yield improved 3.8% year-over-year. On a stage length projected basis yields increased 4.5% versus last year. This yield increase was the highest received in any 2018 quarter building on the momentum seen throughout the year.

Consistent with prior quarters, the yield growth was largely driven by increases in fares and carrier surcharges, growth in high yielding local traffic, and an improvement in the overall fare mix.

We also saw greater proportional growth of high yielding business in premium economy class passengers. The introduction of our new fare categories on domestic, U.S. transborder and Atlantic services is a key component of our comprehensive revenue optimization strategy and contributed to our improved performance versus last year.

Our yield growth combined with the 1.1 percentage point improvement in passenger load factor produced our highest PRASM of the year coming in at 5.2% year-over-year or 5.9% on a stage length adjusted basis.

Revenue growth from the business cabin was very strong increasing $92 million or 12.5% year-over-year on traffic and yield increase of 9.3% and 2.9% respectively. This strong performance in the quarter further demonstrates the continued strength of the franchise we’ve built with the high yielding premium market as well as a clear return on investments in our premium products over the last few years including the introduction of our Air Canada signature service, which provides an elevated premium experience throughout the entirety of our customer’s journey.

We also saw continued growth in international to international connecting traffic in 2018 with an increase of 50% when compared to 2017 driven by the strength of our joint venture with the Atlantic, United and Lufthansa as well as increasing sales contributions from our international counter sale.

In addition, in 2018, we grew ancillary revenue by 13% year-over-year, a rate that continues to outpace our passenger revenue. Ancillary revenue growth was led by increases in revenue from baggage fees, paid upgrades, seat selection and preferred seats. Our new fare categories as well as our enhanced merchandising efforts through our sales channels were important contributors to our ancillary sales performance.

With that, let’s turn to our key markets. In the domestic market, our modest capacity growth of 1.5%, revenue increased $65 million or 5.6%, on yield growth of 3.9% and a traffic growth of 1.7%. Yield and traffic increases were recorded on all major domestic services. We achieved a 4.1% increase in PRASM attributed largely to our disciplined approach to cost management and we were particularly pleased with the PRASM performance of our transcontinental routes.

Our domestic yield and PRASM improvement also reflected gains in the business cabin partially attributed to our new signature service product along transcontinental point which was introduced in the second quarter of 2018.

In the economy cabin new improvements reflected increases to base fare as well as the favorable impact of new fare category with a comfort and basic fares are new versus Q4 of last year and continued efforts to optimize the buyout levels between our fleet of fare category.

We’re pleased with our domestic performance of our hubs in Montreal and Toronto and we continue to see gains in Eastern Canada. We continue to drive increased competition pressure and capacity from domestic [indiscernible] west market and more specifically with regional routes where we have a relatively small presence.

Looking at the first quarter in the domestic market, we anticipate continued improvement in revenue in PRASM as compared to the first quarter of 2018. Our new Jazz agreement will benefit our customers as it gives us greater flexibility to operate the aircraft best suited to the communities we serve on convenient schedule, better connecting travels to our global network. We look forward to begin realizing the benefits of our newly amended agreement this year.

Moving onto the U.S. transborder market, we had a strong quarter in this market on capacity growth of 9.7%, revenues increased a $100 million or 13.4% on traffic and yield growth of 9.6% and 3.5% respectively. Traffic and yield increases were reported on all major U.S. transborder services for the fourth quarter.

The U.S. leisure markets performed well while the eastern seaboard U.S. business markets remained very competitive. The launch of our new fare categories, specifically our comfort fare contributed to the positive yield performance as is the favorable foreign exchange impact of our U.S. dollar sales.

Our transborder results also reflect continued strong traffic and revenue performance related to our customers transiting our hubs to and from the United States which can be attributed to the success of our international strategy and the investments we’ve made to improve the connection in our favor hub.

We were particularly pleased with the performance of our service between Eastern Canada and California as well as between Eastern Canada and Florida and these markets have been key drivers of our success in the U.S.

We were also happy with the considerable value driven by value strategy from Western Canada with our services now operated by Boeing 737 MAX offering our customers an enhanced schedule and more options when travelling to Hawaiian Island.

In the quarter we plan to open a new Maple Leaf Lounge and newly constructed New York LaGuardia airport terminal making us the first airline to open a lounge in the terminal and enhancing the experience for our customers travelling between New York and Canada.

As we look to the first quarter in the transborder market, we continue to see the benefits of our new signature service and trans compliant flights to Los Angeles and San Francisco from our Eastern hubs as well as to newer from Vancouver which connects seamlessly with our Australian service out of the pacific hub.

While the Eastern seaboard business markets remain very competitive into the first quarter, we anticipate another strong quarter for our U.S. leisure market. Our services into Texas continue to perform well for us and we see further opportunities to increase our position in this state with the enhancement of our Toronto to Austin service to two times daily later this year.

Now moving to the trans-Atlantic, which was the best performing market in the quarter. On capacity growth of 9.5%, Atlantic revenues grew by very efficient 18% or $136 million driven by traffic growth of 14.5% and a yield improvement of 3%. These results demonstrate the very tangible results of our long-term strategy to expand our international network leveraging both mainline and rouge with the focus on hub to hubs line.

Traffic and yield improvements were recorded on all major Atlantic services. In the fourth quarter we extended many of our seasonal routes into November and December including our service to Rome, Barcelona, Lisbon and Athens and we were pleased with the performance of these extensions.

Our Atlantic franchise grew with the introduction of new nonstop service to Dublin, Lisbon and Bucharest from Montreal, Shannon, Puerto, Bucharest and Zagreb from Toronto and Zurich and Paris from Vancouver. For the year, virtually all our new routes over the Atlantic performed well having met or exceeded our expectations. Our fourth quarter performance into India was strong which is encouraging given the role this market plays in our efforts to reduce seasonality throughout our network.

Looking into the first quarter, we anticipate continued strong traffic, PRASM and revenue results over the Atlantic. In 2019, we will add new nonstop service from Toronto to Vienna as well as to Bordeaux from Montreal. Investing in the market like Vienna further illustrates our hub to hub line remains the backbone of our trans-Atlantic strategy.

Our Pacific markets saw significant improvement in most major services in the fourth quarter. On a capacity reduction of 0.8%, revenue increased $49 million or 9.7% driven by a very strong yield improvement of 9.3%. The yield growth reflected increases in base fares and carrier surcharges as well as a general improvement in the overall fare mix.

We saw a significant improvement in PRASM in the quarter, up 10.6% year-over-year. Our strategy in Tokyo continues to exceed our expectations where we consolidated our service from Toronto to Haneda and started our Narita service from Montreal. Previously we had operated in both Haneda and Narita from Toronto. Reducing capacity over the Pacific has had a positive impact on our performance and contributed to notable improvements in China and Hong Kong.

Services to Australia continue to be slightly under pressure from the present perspective due to the increased capacity from North America. [Indiscernible] remains an important part of our efforts to reduce seasonality throughout our network.

Looking at the first quarter, we expect to see positive revenue, yield and PRASM performance over the Pacific although Canada to China is under some pressure partially due to geopolitical issue as well as ongoing competitive pressures. We're implementing tactical aircraft down gauges on our China exposure and redeployment capacity to the Atlantic. As illustrated here our fleet flexibility gives us the ability to adapt quickly to market changes.

Revenues from the remaining services increased $36 million or 14.5%, on traffic growth of 14% and to a lesser extent a yield improvement of 0.5%. The yield growth reflected strong improvements on services to the Caribbean and Mexico however the improvement on these services was largely offset by the continued impact of the significant increase in average stage length on services to South America.

As you may recall, we removed the short halt tag between Santiago and Buenos Aires as it now serves both markets on a non-stop basis. On a stage length adjusted basis overall deals for the other markets increased 3.9% from the fourth quarter of 2017.

Mexico continues to perform very well for us and we were able to successfully increase our capacity into this market with the Boeing 737 MAX. The MAX aircraft also enables us to successfully defend our market position and back to Lincoln Guadalupe from Montreal despite new low-cost competitions.

For the first quarter we expect improved traffic, revenue and yield performance into our remaining market. At the end of March, we will be reverting back to one stop service to Buenos Aires connecting to Santiago as opposed to the nonstop service which is today. This will reduce our capacity into South America and will expect this initiative to yield positive results. We also continue to explore seasonal growth opportunities in South America.

Moving on to cargo, which delivered another very strong quarter, cargo revenue increased $19 million or 10% year-over-year reflecting yield and traffic growth of 6.9% and 2.9% respectively consistent with prior quarters, the Atlantic and Pacific cargo markets performed particularly well. Looking at the head of the first quarter, we project continued strong year-over-year cargo revenue, traffic and yield results.

I will now turn the call over to Mike for a discussion on our cost performance and balance sheet metrics.

Mike Rousseau

Thank you Lucie, and good morning to everyone. I would also like to thank our employees for their significant part in these achievements and for their continued focus on taking care of our customers.

In addition to the very robust revenue performance in the quarter, we also achieved a strong unit cost performance. On an adjusted basis CASM increased 0.5% from the fourth quarter of last year, better than anticipated on lower aircraft maintenance expense. The lower then projected maintenance expense was driven by favorable annual adjustments related to the end of lease maintenance provisions and to the timing of certain engine maintenance events.

Cost control remains a central element of our strategy and as Calin mentioned earlier we had realized or identified $220 million of our $250 million CTP target by the end of 2018 with the remaining $30 million expected by the end of this year.

Moving on to fuel. Fuel expense increased $244 million or 29% in the quarter with higher jet fuel prices accounting for $151 million of the increase. An unfavorable currency impact accounting for $37 million and a higher volume liter consumed adding another $27 million. We also recorded hedging expenses or costs of $26 million in the fourth quarter of 2018, combination of hedging losses and option premiums.

At this point in time we have not entered into any hitch and contracts for 2019. The average price of fuel was C$0.84 per liter in the quarter, up almost 25% versus the same quarter in 2017. Looking ahead, our assumption is that price of jet fuel will average C$0.77 per liter in the first quarter of 2019 and C$0.82 per liter for the full year 2019.

I'd like to touch on a loyalty program before moving on to our cost guidance. Following the closing or acquisition of Aimia Canada Inc. Aimia Canada changed its name to Aeroplan Inc. Air Canada began consolidating Aeroplan's results on the acquisition date of January 10, 2019.

From an accounting perspective there are a number of complex fair value and accounting policy impacts that need to be determined before we can provide much in way of additional information on the impact of the Aeroplan acquisition. One item we can provide a little color on now is that there is a timing difference in revenue recognition under Air Canada's ownership and when Aimia operated it separately.

Aeroplan is a standalone loyalty management company recognized revenues at the time of redemption. Air Canada being an airline will recognize revenue at the time of passenger transportation. Given the estimated time lag of three months between redemption and air travel, the full impact of the incremental margin on passenger revenues will not be reflected until after Q1. This means Air Canada's consolidated Q1 results will include a small portion of the estimated annual revenues over a pro-rata amount of the annual operating cost.

Despite this transitional issue in Q1 as I've said in the past, historical Aimia annual EBITDAR results for the segment can be used as a proxy for the steady-state 2019 impact to Air Canada's consolidated results, subject to adjustments for redemption levels and accounting changes. And this remains the case despite the average three to four months lag between redemption and revenue recognition even in 2019.

Given that the Aeroplan loyalty business was not consolidated in Air Canada's financial results in 2018, for comparative purposes our adjusted CASM guidance for 2019 excludes any impact of Aeroplan. Once 2019 is behind us, we will revert back to providing adjusted CASM guidance on a consolidated basis.

With respect to IFRS 16 leases, Air Canada has adopted its accounting standard effective January 1, 2019 with a full restatement of 2018 financial results. Please refer to section 14 of Air Canada's 2018 MD&A for additional information. Our disclosure in section 14 is very fulsome and as it restates the 2018 consolidated statement of operations and EBITDAR and provides Air Canada's consolidated statement of financial position for the initial application on January 1t, 2018.

Our Vice-President and Controller Chris Isford will expand on this on our February 21, conference call. Our cost guidance takes into account the impact of the new accounting standard, which has minimal impact on the adjusted CASM guidance. Under the new standard aircraft rent is eliminated and replaced with amortization of related leased assets. Therefore going forward, we will be reporting EBITDA rather than EBITDAR and EBITDA margin will become a key financial target for Air Canada on Investor Day.

Moving on to our cost guidance, for this first quarter we expect adjusted CASM to increase 2% to 3% when compared to the first quarter of 2018. For the full year 2019, we also projected adjusted CASM will increase 2% to 3% when compared to 2018. The increase in adjusted CASM versus 2018 is driven by projected higher customer service expense including to comply with the regulations being made under Big Bill C49 principally in the second half of this year. And to a lesser extent the impact for a weaker Canadian dollar versus the U.S. dollar on U.S. denominated expenses.

In addition to our fuel and economic assumptions, our projections are based on the assumption that Canadian dollar will trade on average, a Canadian 1.32 per U.S. dollar during the first quarter and for the full year 2019.

Now turning to our balance sheet liquidity, unrestricted liquidity amounted to a record $5.7 billion at the end of the year. Fourth quarter free cash flow of $141 million increased a $184 million from last year's quarter on a lower level of capital expenditures.

Adjusted net debt of $5.858 billion decreased $258 million from December 31, 2017 as higher cash and short-term investment balances more than offset increases of long-term debt and capitalizes operating lease balances. Our leverage ratio was 2.1 at the end of December. At quarter end our return on invested capital was 12.5% in line with our guidance while the weighted average cost of capital was 7.2%. Additional information can be found on our financial statements and MD&A which were posted on our website and filed on CEDAR this morning.

Before passing back to Calin, I'd like to mention that Chris Isford, our VP Controller and Kathy will be hosting a second special conference call to go over the accounting policies related to the loyalty program. The call will take place in late March. A news release with timing and webcast details will be issued in the coming weeks. And with respect to the upcoming February 21 call on IFRS 16, please note that presentation slides will be available on aircanada.com shortly before the call is scheduled to begin.

And with that I'll turn it back to Calin.

Calin Rovinescu

Thanks Mike. Ten years ago, Air Canada undertook to repair a badly broken business model with the aim of transforming itself into a global champion that could be sustainably profitable over the long term.

Our 2018 performance following on other record results of recent years can leave no doubt that we are achieving these ambitious goals. Our 2018 results demonstrate Air Canada's resiliency. Despite fuel price volatility including a year-over-year incremental fuel expense of more than a billion dollars, economic uncertainties, fears of a recession, major trade wars and geopolitical events that should impair airline performance, Air Canada delivered on its financial targets and produced more record results.

2019 will be no different in terms of testing our resiliency as we prepare for the implementation of Bill C49, the proposed Canadian passenger rights legislation which will add regulatory and administrative complexity as well as associated cost to a business model that already faces some of the highest airport ground rents, security surcharges, fuel excise taxes and airport improvement fees in the industry without yielding the targeted benefits for passengers.

Our cross departmental task force is working to understand all the business requirements and to ensure clear communication and seamless implementation of any new processes for customers.

For shareholders in a year that the TSX Index fell 11.6%, the Dow fell 5.6% and North American Airlines fell 22.35% on average. Our shares retained their value and we are already up 23.2% into start of 2019.

On the commercial front, we continue to elevate the customer experience. In 2018 we introduced more new aircrafts, opened new Maple Leaf Lounges as well as North America's best Airport premium dining facility, the Air Canada signature suite at Pearson featuring the equivalent of a 5-star full-service restaurant, expanded premium services, rolled out onboard satellite Wi-Fi, introduced a new fare structure offering more travel options and began service to 29 new destinations in our global network.

We were named best airline in North America by Skytrax for the second consecutive year here, the seventh time in nine years and remain one of Canada's top 100 employers for the sixth year in a row. In addition, our sustainability program to recognize when we were named "Eco-Airline of the World" for 2018.

Proud as we are with these achievements, what we most importantly show is Air Canada's transformation is continuing even accelerating. Later this year we will launch our new reservation system platform, the Altea Suite by Amadeus. This massive IT project will transform our most fundamental business processes to make us far more agile.

Also this year, with the arrival of the last two of our 37 Dreamliners, we will complete our highly successful wide-body fleet renewal just as our narrow-body program moves into its next phase with first deliveries of the game-changing A220 and continue deliveries of the efficient Boeing 737 MAX's. A modern and diverse fleets we've assembled gives us the capability to profitably serve markets from the regional to the global level with tremendous flexibility to allocate capacity to those places where returns are highest.

Finally, one further area of transformation and the one that I am most proud of is our culture. Essential to our success is the dedication and hard work of our employees. Their professionalism is and has been continually on display in recent weeks and months keeping our customers safely moving in the face of often unbearably harsh winter weather.

The awards we won both for customer service and employee engagement, a test to the strong culture Air Canada has developed. I'm very proud of the work our employees do and the often extraordinary effort they make taking care of our customers each day.

And with that, I'll be pleased to take some questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question is from Harish Man with WeMo. Please go ahead.

Harish Man

Thank you. Good morning.

Mike Rousseau

Good morning, Harish.

Harish Man

And congratulations on the Aeroplan transaction and a good year overall.

Mike Rousseau

Thank you, very much.

Harish Man

So, maybe just one quick clarification first, the 2% to 3% CAV in increase, that we should consider to be off of the restated results that you put in the MD&A?

Mike Rousseau

That's correct, Hari.

Harish Man

Okay, thank you. The fuel expense that you've guided for 2019 seemed a little bit higher than what you are seeing in the spot market today, can you again explain why is that the case?

Mike Rousseau

That’s a good perception, Hari. Certainly for the first quarter, we would use the curve, for the year we're going to lean more towards consensus average. There's a number of analyst out there over 30 that provide fairly robust consensus average and we're moving back to that as a baseline for the year.

Harish Man

Okay. And I wanted to ask you on the capacity side. So, you're adding some planes to Rouge. Can you talk a little bit about the opportunity you see there and if you can give us a little bit of color on what should we think about capacity growth in 2019?

Mike Rousseau

Okay. So, you may have seen yesterday we made an announcement, Hari, it's given here. Yesterday we've made an announcement which talked about some of the regional markets where we are deploying Rouge aircraft in your regional aircraft, replacing some cases; the 319, for Rouge that previously operated the Q400, an example.

This is one of the great advantages that we negotiated in the last we open it with our pilots with the ability for us to deploy Rouge narrow-body aircraft on some regional routes. This makes us more competitive, it serves the communities extremely well. We already received from some very avid travelers from New Brunswick in particular. Great, congratulations on that announcement.

So, we're very enthusiastic about it. But basically, the major opportunity here is to use larger aircraft with obviously more capacity than our regional aircraft and we expect it to be a more compelling product and in some cases delivered at a materially lower seat cost.

Harish Man

Great, thank you.

Operator

Thank you. Our next question is from Doug Taylor with Canaccord Genuity. Please go ahead.

Doug Taylor

Yes, thank you. Good morning.

Mike Rousseau

Hi, Doug.

Doug Taylor

Mike, I wanted just to clarify some of the comments you made around the projected contributions from Aeroplan this year and I know you will be going into more detail later. But you said that the revenue impact should be delayed by three months and the EBITDA should be delayed three months as well or?

Mike Rousseau

No. we believe we'll -- like in using historical results as a proxy, we believe will achieve that in principally the nine remaining months of the year.

Doug Taylor

So, would that imply then the on a full-year basis you expect to achieve more than the EBITDA of Aeroplan standalone?

Mike Rousseau

Again, depending on redemption levels and some accounting changes but that's a natural conclusion, yes.

Doug Taylor

Okay. And I know we'll talk more about Aeroplan at the Investor Day but I mean from your perspective the redemption profile is in the bookings through Aeroplan or Aimia into Air Canada change significantly since the transaction was announced and an approach has now been concluded?

Mike Rousseau

The short answer Doug, is "No." The behavior is of customers have not changed yet. We suspect it will change over time but it's going to take some time because we do believe this program will grow and certainly when we launch our new program in next summer, we expect service and growth up of that marketing as well.

Calin Rovinescu

Doug, its Calin here. And I say that certainly expectation as well from the generation of the credit card business which in an environment where there was a period of uncertainty that Aimian airplane went through over the last several years.

You would not have seen the growth that you would normally see in it and I think that the natural evolution of our transaction through stabilization is about the -- greater credit more credit card transactions, more new membership on those credit cards that obviously are very linked to Air Canada and that therefore that should translate as well into increased opportunities.

Doug Taylor

That's great. And one last clarification from me. I noticed the increased depreciation and amortization expense forecast. Is that part or what to what extend is that part of the CASM increase expected for this year, is that completely excluded given that it's related to Aeroplan or at least a chunk of it is?

Mike Rousseau

Only a small part of that is related to Aeroplan, so that I believe that's more part of the incremental depreciation expense which is related to Aeroplan is excluded from the CASM guidance.

Doug Taylor

So, there 225 million in incremental of the majority of that is part of the CASM increase not for non-cash?

Mike Rousseau

Absolutely. Again, that's a -- yes, exactly. Yes, absolutely.

Doug Taylor

That's very helpful. Thanks, I'll pass the line.

Calin Rovinescu

Thanks, Doug.

Operator

Thank you. Our next question is from Konark Gupta with Macquarie. Please go ahead.

Konark Gupta

Hi, good morning and thanks and congrats again on a good quarter. So, thanks for providing the disclosures on the IFRS 16 impact; that’s really helpful. I just wanted to clarify because there seems to be a lot of confusion I think amongst investors on the initial reflection of guidance on CASM side.

So, I just wanted to make sure I understand correctly. The 2018 adjusted CASM would be down 2.7% due to IFRS 16, is that understanding correct?

Mike Rousseau

I don’t have the number in front of me but certainly we'll, that's the purpose of the conference call next week to go over some of those granule details. At the most but let's assume that's correct.

Konark Gupta

Okay, and then, perfect. So, that effectively offsets the 250% [ph] CASM inflation as I guess. And any sense on like I saw on the 2017 net debt and leverage ratio improvement from IFRS 16, so we can expect something from about 2018, right, Mike?

Mike Rousseau

I'm sorry?

Konark Gupta

About 2018.

Mike Rousseau

The leverage rate, yes the leverage ratio does improve with IFRS 16. And again, I know the market will love more information but we're holding some back for Investor Day and we will talk more about the leverage ratios and EBITDA margins and other key financial matrix at two weeks from today.

But certainly IFRS 16 in our situation does improve the leverage ratio.

Konark Gupta

Okay, that’s great, that's helpful, thanks. On Aeroplan, want to clarify, so I think you made a comment that D&A includes small Aeroplan impact, the 225 increase. So, like my guess is this, something like a third of the D&A increase is coming from Aeroplan or more than a third maybe?

Mike Rousseau

Yes, we'll have to get back to you on that one. Again the accounting for Aeroplan is very complex. There will be a -- there's a normal depreciation charge for their assets but there is going to be a larger depreciating charge or amortization charge for the differed assets that we put on our books. Which is what we're trying to determine right now. We have to go through an evaluation process to put on good will and intangibles on to our balance sheet.

Now, we'll just the intangible side will generate a fairly significant depreciation charge as well.

Konark Gupta

Okay, that's fair. And I think you kind of suggested on Aeroplan that be the revenue and EBITDA run rate they have disclosed like should be good enough as a proxy for 2019, right. So, like I'm taking that as like $1.2 billion revenue and almost $250 million EBITDA, is that fair almost?

Mike Rousseau

Yes, Konark you've asked us to the numbers just as well as we do, so I think those are reasonable proxies, again subject to redemption levels and changes in accounting rules.

Konark Gupta

Okay, that's fine. And you haven’t disclosed the VISA payment yet, unlike fairly reason why and like that's probably closed in?

Mike Rousseau

Yes, we just -- these are a bit more that disclosed in our honesty and that's your choice. It will provide a little more color on the net cash proceeds at Investor Day which would include obviously VISA and hopefully AmEx with that point in time.

Konark Gupta

Perfect, thanks. And lastly on CapEx, I noticed there's some increase in CapEx so during '19 and 2020. And like you say, is there any CapEx pushout from 2018 or is that mostly FX in IFRS 16.

Mike Rousseau

No, it's mostly FX and the impact of the -- well, IFRS 16 will increase capital expenditures because we'll be capitalizing more maintenance than we had in the past.

Konark Gupta

Right, okay.

Mike Rousseau

And then, on top of that, Konark, we just as you know we had the great opportunity to pick up four value planes and we bought that with cash and those would be great assets for us to device over the next long-period of time.

Konark Gupta

That's a good point, thanks for now. Thanks for the clarification.

Mike Rousseau

Thanks, Konark.

Operator

Thank you. Our next question is from Andrew Didora with Bank of America. Please go ahead.

Andrew Didora

Hi, good morning everyone. I just -- Mike, your first question that's the core CASM -- of up to the three. Can you walk through some of the key areas of inflation you're seeing on in 2019? And then, just as a follow-up to that, what's the movement of the leases now it's below the CASM line, how much pressure does this removable put on CASM growth given this how this lease line had been a CASM good guy for a couple of years?

Mike Rousseau

And to the first part on the 2% 3% for the year. Roughly half of that at the midpoint are the two issues identified: The weaker Canadian dollar and as you know we talked about in the past, we do have a natural hedge offset with RASM on that but we know with the CASM it is a negative issues for CASM, just the CASM 2019.

And the other item is our stated impact of Bill C-49, the new passenger bill of rights that's being implemented and we believe will be effective at mid-year this year. And so, those two items are driving roughly on a total basis about half the overall adjusted CASM.

Yes, the rest of the cost buckets are up, inflation maybe slightly higher than inflation. We provide some guidance on maintenance already which is slightly higher than inflation. But again, those two first items, foreign currency and C-49 are probably representing almost half of the year overall CASM increase.

Andrew Didora

Great.

Mike Rousseau

Okay? Thank you.

Andrew Didora

Great, and then -- thank you, for that Mike. And then, just on the share buybacks, it looks like you didn’t purchase any more stock outside the October buy back that you discussed on the last call. Are you restricted just given what was going on with Aeroplan or the upcoming Investor Day or anything like that?

Mike Rousseau

No, we were restricted, we were in an all in a blackout period. We had some primers with our broker to buy back stock and luckily those primers weren’t achieved. So, we didn’t buy back any stock in the last couple of months.

Calin Rovinescu

And overall, we now we -- overall with the last, since we started with the buyback programs, Andrew, we bought back about 8% of our stock.

Andrew Didora

Okay. Thank you, everyone.

Operator

Thank you. Our next question is from Walter Spracklin with RBC Capital Markets. Please go ahead.

Walter Spracklin

Thanks, very much. Good morning, everyone.

Calin Rovinescu

Hi, good morning.

Walter Spracklin

So, you've been getting some good trend, obviously you're indicating in PRASM and you pointed to a strong pricing environment. Just looking out now with what you're seeing in terms of pricing behavior, everything considered. You gave us some guidance previously that to give us a parameter range bound from PRASM. Can you give us some indication as to where you see PRASM directionally?

I know they did -- you mentioned 3.8% for 2018. Should we see that moderate or is that a good number to look at going into 2019?

Calin Rovinescu

Yes Walter, its Calin here. So, as you know we're not providing any guidance per se on expected PRASM, RASM growth. But we can say that based on what we are saying and again this is something that we look at forward bookings and trends for the next several months and for the rest of the year.

We continue to see a strong mark and I think is a fundamental message that we need to send which is despite all of the backdrop of the noise that we hear about fears of recession and trade wars and the rest of it. We do see a fairly strong and bullish market. So, the reduction in the price of fuel is a catalyst in some respects for us as well.

This is something that we're quite positive one but we're not at this stage providing a guidance as to what we see in terms of progression on yield or RASM.

Walter Spracklin

Understood. Any prep rates for the year just in terms of managing your cost, companies who get pricing power like yours can generally pass on the cost of things like Bill C-49 and so on. Is it a fair view that you expect to pass on your cost in 2019 through pricing?

Calin Rovinescu

Yes. Well, that's an excellent question, Walter. And I think the jury is still out far out on Bill C-49 and I think there's a lot of airlines that are still lobbying in terms of being very dissatisfied with the level of the Bill C-49 process. We've heard from many other airlines; we've heard from IATA; we've heard from NAC which is the association that represents larger carriers and we understand from the smaller carriers that ATAC their carrier is also really displeased with the level of process here.

I think that one of the consequences could indeed be the passing on of some of these expenses because an unintended consequence of this Bill C-49 is that it will drive fares up. We made that clear to the government, I think all of the airlines have. And we've seen that the consequence occur in jurisdictions that have already implemented it like Europe and the United States.

So, I think your point is extremely well taken.

Walter Spracklin

Okay. For capacity, you would kind of ball parked us in that I think it was below last year 7% but above what you would normally kind of move 3% run rated. Taking the midpoint, I think a lot of people are taking 5%, is there any reason why we should move a little bit offset or is that a good an estimate as any to yours?

Mike Rousseau

Good morning, Walter, it's Mike. I think that's a reasonable proxy for 2019.

Walter Spracklin

Okay, perfect. And then, my last question. Excuse me, the domestic cost where you made a lot of announcements with regards to you realignment of your Q400 in the West and Rouge and the East. Net of all of that, is there any capacity impact from that realignment that we should look at?

Mike Rousseau

No, not a material capacity, not something that moves the needle. I think that for sure there's some capacity additions, we can see in the 319 coming on top of replacing it, Q400, but in some cases there'll be a consolidation of the number of frequencies that we look at. So, in net-net there's not a significant increase in capacity domestically.

Walter Spracklin

Okay, perfect, okay. Thank you, very much for the answers, I appreciate it.

Operator

Thank you. Our next question is from Helane Becker with Cowen. Please go ahead.

Helane Becker

Hi, thanks very much, operator. Hi, everybody, thank you for the time. Just a couple of questions here on I was surprised to hear you talk about the strength and in the trans-Atlantic. Because we're starting to hear from some of the other airlines that there's been weakness in Europe, then maybe they just mean within Europe.

a) So, I'm just wondering if you could maybe cut that out a little better for us with respect to what you're seeing in the market. And b) is it a combination, I don’t know if you can do this actually but this is the combination of growth in capacity from Rouge that's driving that strength or and or is it more on the business side? So, I'm wondering if you can help us up there, thanks.

Lucie Guillemette

Sure. Hi Helane, it's Lucie. On present -- hello -- on the trans-Atlantic front, the demand that we are observing is still quite solid on the trans-Atlantic. There are a few considerations though. 1) Would be from a fuel surcharge point-of-view. So, I think we spoke briefly before. As we see the changes in the cost of fuel, we may also see some changes to the fuel surcharges.

So, there could be some variations from the yield point maybe that would be driven as a result of that. What we are observing is our premium cabins have performed very well on the trans-Atlantic front. And we've also said that part of our strategy was to ensure that we had solid hub-to-hub fine and we are seeing very good results from a local demand point-of-view.

So, what we are observing I still very healthy in terms of demand.

Helane Becker

Do you think, Lucie, there's a shift in traffic or leisure traffic from the U.S. to Canada and you're benefitting from that?

Calin Rovinescu

No, we're --. We're definitely seeing some of this connecting traffic, Helane. We're seeing some of those connecting traffic, we mentioned some of the numbers that we often put to since redeployment which is traffic that connects over the Canadian hub. So frankly, our product has been seen as the best international product in North America.

And as a result of that, yes, we're definitely seeing some traffic coming from United States over our Canadian hubs; Toronto; Vancouver; and in Montreal to our international network including the Europe. So, we're seeing some of that but that in and of itself is not something that would move the needles for the U.S. carriers but it certainly is important from our perspective.

Helane Becker

Right, thank you.

Calin Rovinescu

It's the cornerstone of our strategy.

Helane Becker

No, I know. I know that part. I was actually thinking, tourists who can go with their money instead of going to the U.S. are just going to Canada.

Calin Rovinescu

Yes, that's how.

Helane Becker

You know what I mean, it's kind of like that, that shift away from this market which may have rolled up to talk on that. That’s kind of where I was talking about?

Calin Rovinescu

Yes. Actually there'd be a margin on that, that would not be a major driver of what we've seen here, Helane.

Helane Becker

Okay. And then, just on those Ville aircraft, are those going into service in the Rouge network or are they going to be reconfigured in the main line Air Canada?

Calin Rovinescu

No, they're going to be Rouge.

Helane Becker

Okay. And then, my last question is I think Calin you said that last year you started service to 29 new cities. And then, that's I feel like that's a lot and I know some of it is on a seat for basis then. And obviously you had, you did a really great job but what's the steady seat in terms of how many cities you go that you can add every year?

Calin Rovinescu

If we speak to the cities and to manage the cities, they would say that we should aspire to be more in that. But no, it is a large number and it's been a large number for the last number of years. I think that as we go forward, you'll probably will see the total number of cities per se, slowing down because we were not having the same incremental number of aircrafts coming in.

Yes, we tried with large growth of the 77s and the Rouge rollout and so on and so forth. But we will continue to, we have you know an effort finding team a hit-list of key cities that we want to go to which still includes a very exciting international destinations and I think you'll continue to see that rollout.

2018 also included many U.S. destinations which feed some of these international routes. And then remember, there is that seasonal, it's very in our capacity a lot of our additions are in the summer and for us what some of the opportunities that we are seeking our -- Lucie mentioned this in her remarks, our counter seasonal opportunities in various destinations which would be attractive in the Canadian winters.

Helane Becker

Right.

Calin Rovinescu

So, we continue to look for those and we'll roll those out in promised time.

Lucie Guillemette

And we also extended some of our trans-Atlantic flying into November and December that traditionally would have terminated at the end of the summer.

Helane Becker

Right.

Lucie Guillemette

So, we're also looking at those opportunities to expand the network.

Helane Becker

Got you. And then, just one another question that I just thought of. Are there any provisions to reopen the CPA agreement with Jazz and Chorus, over that, that or is it now 15-year timeframe?

Calin Rovinescu

No, that's the one that we announced. So, we answered yes, we just renounced it two weeks ago that we have indeed done that. So, we've extended, this is in the remarks I made earlier. We have extended that by an additional 10 years. And so, we this gives us the capacity to reallocate aeroplanes as needed and to have larger regional aeroplanes inside the Jazz network that are more efficient.

So, we have definitely optimized the Jazz network. I think we'd always said in the past and we'll talk a little bit about this at Investor Day that two of the drivers between the multiple differentiator between U.S. carriers and ourselves is the fact that we had divested of our relative program, the Aeroplan business and that we had a higher cost for the regional lift with some constraints.

I think that both of those issues have largely been settled and I think we'll see some good news coming on both fronts on Investor Day.

Helane Becker

Right. I was kind of -- right, I guess I'll wait for Investor Day. I was kind of thinking like between 2020, like 2020 and 2035 are there any chances to reopen the contract or that like all their provisions for rate increases and things like that but weakened?

Calin Rovinescu

Okay. Yes, we'll deal with it at Investor Day, Helane.

Helane Becker

You're right. That's perfect, thank you guys have a nice time.

Calin Rovinescu

Great, thank you very much. Thanks for coming, thank you so much.

Operator

Thank you. Our next question is from Chris Murray with AltaCorp Capital. Please go ahead.

Chris Murray

Thanks, folks. Just a couple of quick questions. First of all on the narrow-body fleets. So, a couple of thoughts or questions I guess around how the transition to the Boeing MAX is going. And how we should be thinking about utilization and as we sort of ramp into the transition, any concerns around the fleet transition or anything we should be thinking about as that fleet does transition?

Mike Rousseau

Chris, good morning, it's Mike. On the 737 transition, no, there is no concerns from or expected. Its meeting is financial matrix, the expectation that we had on the CASM improvement, our customers love it. As Lucie said, it's opening up some market for us especially Hawaii, that is doing much better than in what we had before.

So, it's achieving the objectives we had intended.

Chris Murray

Okay. And still, I think we talked about it before but you figured there were something like around 12% to 14% CASM gain like for like inside that?

Mike Rousseau

Yes, I think it was around 12%.

Chris Murray

Okay. And then just one other question and if you want to take it, any thoughts around free cash flow for '19 but the just looking at the CapEx schedule and I guess just trying to make sure that we're not getting too ahead of results.

When we look at capital spending as we get into some of the outer years, certainly you start coming off the fleet renewal program in some of the outer years now in the schedule you're starting to show number for CapEx which are dramatically over sort of the 500 million to 600 million to 700 million range.

I mean, historically or previously you sort of talked about 1.2 billion roughly is kind of a normalized CapEx number run rate, is that still about the way we'd have to think about it or should we be thinking that's a bit lower?

Mike Rousseau

No. I think that's still the way to think about it. 1.2 to 1.4 type of range which would reflect roughly half of that would be non-aircraft, the other half would be aircraft for growth, the normal growth and or replacement.

Calin Rovinescu

Reconfiguration.

Mike Rousseau

Reconfigurations and so. And so, Chris, again we'll provide some more clarity around CapEx at Investor Day and certainly on free cash flow as well which is the key matric for us.

Chris Murray

Alright, fair enough. Thank you.

Mike Rousseau

Thanks, Chris.

Operator

Thank you. Our next question is from Cameron Doerksen with National Bank Financial. Please go ahead.

Cameron Doerksen

Thanks, good morning. I guess maybe it's a follow-up on this Bill C-49 impact. I'm just wondering when those additional cost do come in. what line items are we potentially see that show up in.

Mike Rousseau

It'll be in another, Cameron. It's buried in another. And but if you go to the back of the MD&A, you'll see a schedule that breaks down other and we'll, those are a caption for customer service cost in there.

Cameron Doerksen

Okay, perfect. And just maybe second question just one markets, I mean you mentioned that China has one understandably that's been seeing a little bit of pressure recently. I'm wondering if you can maybe also talk about the U.K. market. Are you seeing any negative impact about related to concerns around BREXIT or anything like that?

Lucie Guillemette

Hi. No, at this time we're not, no.

Cameron Doerksen

Okay.

Lucie Guillemette

And U.K. is holding.

Cameron Doerksen

Okay, great. That's actually all I had. Thanks very much.

Calin Rovinescu

Thank you.

Operator

Thank you. Our next question is from Turan Quettawala with Scotiabank. Please go ahead.

Turan Quettawala

Yes. Hi good morning. Thank you for taking my question. I guess, I just wanted to touch upon maintenance expenses here a little bit, Mike. The solvency continue to be a source of a beat here for the last few quarters. That's great expense control. I'm just wondering is there a potential catch up that somewhat included in 2019 or is that really some good expense control there?

Mike Rousseau

No I think its good expense control and we provided some pretty specific guidance on maintenance expense for 2019. So there's no catch up from 2018.

Turan Quettawala

Perfect, thank you. And just one more quick one from me here in terms of the dollar, we talked quite a bit about the dollar here. Is it possible to give us an updated number for your sort of international or U.S. dollar, U.S. revenue?

Calin Rovinescu

Non Canadian or non-U.S. dollar revenue, Lucie -

Lucie Guillemette

As a percentage of –

Calin Rovinescu

No, just total.

Lucie Guillemette

Little over 2 billion.

Calin Rovinescu

For U.S. and then non- U.S. would be another billion or so probably. Yes, 3 to 3.5.

Turan Quettawala

$3.5 billion sorry?

Calin Rovinescu

Yes.

Turan Quettawala

That's total right non-Canadian.

Calin Rovinescu

Non-Canadian that's right.

Turan Quettawala

Thank you very much. That's all I had.

Operator

Thank you. Our next question is from Nish Mani with J.P. Morgan. Please go ahead.

Nish Mani

Good morning and thank you for taking my question. So that we could dig a little bit deeper on the Pacific market and kind of thinking about whether it's right-sized in its current iteration and thinking about kind of competitive landscape going into 2019 because this is a market where you guys have developed some accelerating revenues on the back of slower than system-wide capacity growth.

So I guess if you can help me understand how the 2019 Pacific market will look like relative to 2018 and how the competitive environment kind of – of the west coast and Canada has changed over the past several months that would be very helpful?

Lucie Guillemette

It's Lucie. I noted in my earlier comments that particularly on the Pacific market we have made some adjustments on the capacity front particularly on China and Hong Kong. And some of it for geopolitical reasons, which is the flexibility that we have with our fleet and that provides us with that capacity to be able to shift capacity into markets that are a little bit more difficult.

On the Pacific there were a few things, there was this particular item but there was also a lot of pressure on the yield front as well. Going into the first quarter there's a lot of market capacity as well. So with those adjustments we feel much, much better in terms of how the Pacific will look going forward.

Nish Mani

That's very helpful and in terms of the competitive environment, is there any comment you could give on kind of what you're seeing in terms of either capacity growth or pricing trends that has either [indiscernible] upside or the downside?

Lucie Guillemette

Well, particularly on the Pacific, the environment has been very competitive for quite some time. So it's much of the same. I'm not observing anything different. It's very highly competitive.

Nish Mani

Alright that's very helpful. Thank you so much.

Operator

Thank you. Our next question is from Kevin Chiang with CIBC. Please go ahead.

Kevin Chiang

Hi. Thanks for taking my questions here. Just two from me. If I look at the IFRS you have in your MD&A it looks like under the new accounting standards if my math is correct that your leverage ratio falls from 2.1 times to below 1.5 times I guess based on some of the movements there. I know you'll probably give more details in terms of some of the longer term leverage targets on your Investor Day.

But I'm wondering have the credit rating agencies change how they look at, what defines an investment grade rating or target for an airline and I think the past you talked about 1.2 being kind of a good bogey as to when you thought you got to investment greater. Are those good numbers to still use even under IFRS 16?

Calin Rovinescu

It's great question. And we're meeting the credit agencies in a couple weeks and so we'll have a better answer at that point in time. But right now our understanding is the major credit agencies will not adjust for IFRS 16. They won't make any adjustments. They will take the numbers as they are.

Now I don't know if their targets will fall regarding investment-grade because as we spoke about historically, we always use the 1.2 as the proxy for investment-grade. But it'll be a lot more intelligent in a couple weeks after we meet with the credit agencies.

But what's interesting from our perspective of course is, it does show that when we capitalize operating leases of seven times in the past we were capitalizing too much. We were putting too much debt in our balance sheet and we were conservative. Although there are a lot of accounting standards that I don't like, this one certainly does show a better representation of our true debt on the balance sheet and therefore our true leverage ratio. And I think the argument we're going to make with credit agencies that this has more substance than what we had before.

Kevin Chiang

That's a fair point and just lastly for me just to understand some of the cost inflation related to Bill C49. It sounds like there's still some moving parts at least some level of uncertainty as to what those costs will look like in I guess, the back half of the year. Are you making an assumption like the worst case scenario and obviously things are better than you expect, you walked it back because of that uncertainty or are you pretty comfortable that the costs coming -- you have good visibility of the cost coming through is that half of that 2% to 3% is pretty much locked in here?

Calin Rovinescu

So first of all there, you're absolutely right there are many moving parts still. There still representations that are being made to people making the rules and including not just from us but from virtually all of the carriers that operate into Canada and inside Canada and as well as I said earlier by the associations who had experience with us and other jurisdictions. So there are moving parts for sure.

Two, we have looked at other jurisdictions take some level of a proxy as to what happened to cost in those jurisdictions. So we do have a sense of that. And three, we frankly think we deliver a very high level of customer service, I mean, we intend to continue improving that in fact it's one of the mandates that Craig Landry, who we mentioned in the beginning was our new EVP operations will be focusing on so the better job we do in terms of dealing with customer issues, the lower that cost file will be.

So with those three caveats it is an estimate but obviously we'll have a better sense after we go through the six months post implementation if indeed it is to be implemented this year.

Kevin Chiang

That's a lot of great color. Thank you very much.

Operator

Thank you. [Operator Instructions] Our next question is from Tim James with TD Securities. Please go ahead.

Tim James

Thank you, good morning. Question for you Mike and I apologize by going back to the Aeroplan discussion, but just to clarify a comment that you made earlier about revenue recognition. Now I understand the timing difference in recognizing revenue at Aeroplan versus that same revenue being recognized by Air Canada when Aeroplan is under Air Canada's ownership.

However, forgetting about Air Canada's revenue reporting for a minute, am I correct that the timing of revenue recognition for Air Canada doesn't change for a redemption when Aeroplan was independent versus when Aeroplan is owned by Air Canada? I mean, when independent an Aeroplane acquired a seat from Air Canada, due to a redemption Air Canada still recorded revenue at the time of flight which is unchanged from the way --

Mike Rousseau

That's exactly right, Tim. Exactly right.

Tim James

Then just wondering thinking about costs in 2019, are there any fleet transition costs related to the MAX and the A220s and whether it's training or maintenance or spares? I'm just wondering if there's any kind of non recurring expenses in 2019 that should dissipate going forward or is it immaterial really?

Mike Rousseau

Year-over-year is immaterial because we had some one-time costs like uniform expense last year and we've got some one-time cost this year primarily around training with our new PSS system that Calin spoke about. So that's on a year-over-year basis is relatively minor.

Tim James

Great, thank you very much.

Calin Rovinescu

Thanks Tim.

Operator

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to you Ms. Murphy.

Kathleen Murphy

Thank you Valery and thanks everyone for joining us on our call today.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.