LATAM Airlines Group S.A. American Depositary Shares (each representing two thousand (2,000) shares of Common Stock)

Good day and thank you for standing by. Welcome to first quarter LATAM Airlines group earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. Before I turn the call over to management, I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations. and as such constitute forward-looking statements any matters discussed today that are not historical facts particularly comments regarding the company's future plans objectives unexpected performance or guidance are forward-looking statements These statements are based on a range of assumptions that LATAM believes are reasonable but are subject to uncertainties and risks that are discussed in detail in the recently published 20F Earnings Release, Financial Statements, and Related CMF and SEC Filings. The company's actual results may differ significantly from those projected or suggested and any forward-looking statements due to a variety of factors which are discussed in detail in our SEC filings. And if there are any members of the press on the call, please note that for the media, this is a listen-only call. I would now like to hand the conference over to your speaker today, Ramiro Alfonsín, CFO of LATAM Airlines Group. Please go ahead. Thank you, Gigi. Hello, everyone, and good morning.

Welcome to our first quarter 2024 conference call, and thank you for joining us today. My name is Ramiro Alfonso, and I'm the CFO of Latam Airlines Group. Here with me today is Mr. Roberto Albo, CEO of Latam Airlines Group, Mr. Andres Del Valle, VP of Corporate Finance, and Tori Creighton, all of the industrial relations, and we will present our highlights and results for the first quarter of 2024. I'd like to pass the presentation to Roberto to set the stage for our first quarter results.

Thank you, Ramiro, and good morning, everyone. Yesterday, we made our first quarter results public, which were strong, reflecting not only our unique network footprint, the strength of our frequent flyer program, our solid financial foothold, and good operational execution, but also with growing clarity, a strong customer preference for LATAM. Before continuing, I want to take a moment to express my gratitude to the more than 35,000 people in our group. They are LATAM's most valuable asset, and it is they who make really things happen. Their passion, dedication, and commitment are what drives and will drive LATAM's success. Every day we strive to make traveling a more distinctive experience by not only offering our customers a unique value proposition, but also ensuring that they are properly served at every touchpoint of their journey in a caring and dependable way. Certainly, this is a demanding task as the group transports over 220,000 passengers per day, 100,000 bags, and 2,500 tons of cargo day in, day out. But we have set ourselves ambitious goals to make sure we succeed in making customers feel that we meet all their traveling needs and we enable their destination dreams to become true as they decide to travel every day. During this quarter, we have seen solid operational performance. The group transported a record-breaking number of 20.2 million passengers, achieving a robust load factor of 84.4%. These numbers were accompanied by a complete recovery of LATAM's group capacity as compared to 2019. The affiliates of Latam Group continue to rank first in three of the five domestic markets. Notably, Latam Airlines Brazil reached a record domestic market share of 41% in March, the highest on the last 11 years. However, it is important to acknowledge that the industry is still facing important challenges. Significant issues related to aircraft and engine durability, persistent aircraft delivery delays, parts and high and volatile fuel prices due to global geopolitical factors, among other issues, define a complex operating environment. Despite these obstacles, Latam revenues continue to show positive figures, and our passenger ex-fuel cost remains contained at a stable 4.3 cents per ESK, the same figure as for the full year of 2023. In the light of these achievements, revenues for the quarter reached $3.3 billion, with solo double-digit adjusted EBIT marking of 13.9%. Our adjusted EBITDA was just shy of $800 million, and our net income reached $258 million. Furthermore, we have continued to make improvements in our capital structure. For the fifth consecutive quarter, we had a positive increase in cash, achieving a cash generation of $137 million and bringing total liquidity to approximately US $3 billion with an adjusted net leverage of 1.9 times. I would like to highlight that our consistent positive results have been recognized by the rating agencies. Moody has upgraded the Tamarin Group to BA3 with a stable outlook, and S&P has given the company a B-plus rating with a positive outlook. Fenner, who is one of our local rating agencies, has upgraded us to triple B with a positive outcome. This is an important recognition in my view of the solid track records in Chapter 11 emergence that happened on this day 18 months ago. Looking into the second quarter, we see healthy booking figures. However, it is important to remember that second quarter is our seasonally slower period for the year. And unlike last year where the post-pandemic demand recovery overshadowed seasonality, we see good figures for the second quarter of 2024. Taking all these factors into consideration, we're providing new guidance for the full year 2024. This guidance includes higher ranges for adjusted EBITDA with improved growth prospects in different segments, stable costs, and better capital structures. Regarding some of our most important recent announcements, on April 25th, our shareholders approved a dividend distribution of approximately $175 million, which will be paid on May 16th. Finally, last month, Latam's board approved the initiation of the reopening and relisting process for the New York Stock Exchange, subject to market and other conditions. The company has started this process and is actively engaged, and it will be certain to keep the market informed of advances. These improvements and these advancements are the result of years of effort. We're proud of our results, and Natambu continues trading each of its defined areas, ensuring safety, quality, customer service, dependability, care, and seeking efficiency, environmental care, and social well-being. I look forward to discussing progress on these and other areas in the upcoming course. Thank you for your time. I'd like to turn the call over to Ramiro to further discuss our financial and operational results.

Thank you, Roberto. Please join me on slide four. The group's results have remained strong. Understanding that these successful outcomes stem from doing things right in the holistic business sense. This first quarter, the group continues to consolidate the trend of strong performance through the P&L, cash flow, and capital structure. In the top line, revenues amounted to $3.3 billion, representing an increase of 18%. This growth is primarily in the passenger business, which saw a 21% increase compared to the same period of 2023. Total adjusted operating costs during the quarter increased by 14% compared to the same period in 2023. This increase is mainly explained by a 17% increase in capacity year-over-year. Importantly, as Roberto mentioned, we have been able to contain our unit costs in line with what was reported for the full year of 2023 with the passenger cask ex-fuel of 4.3 cents. In terms of adjusted EBIT, this figure grew 57% year-over-year. It amounted to $463 million, contributing to a net income of $258 million for the company.

Moving forward, we remain committed to delivering exceptional value to our customers.

LATAM Group will continue to focus on providing a distinctive travel experience, ensuring reliability, safety and customer satisfaction in every step of the journey, thereby looking to attract more customers and foster loyalty through the continued strategic investments. In line with this commitment, LATAM Group has renovated the premium cabins of our now all-body aircraft and is advancing on the onboard connectivity of the fleet. We have achieved 100% implementation of onboard Wi-Fi in Brazil, 60% in Colombia, 40% in Peru, and 35% in Chile. Additionally, LATAM Group has started the construction of a new VIP lounge in the Lima airport. These strategic investments will further enhance the travel experience of our passengers, both on board and during their overall journeys. These initiatives have already started to yield positive results for LATAM Group. We have seen higher customer satisfaction for the passenger and our premium customers. Moving to slide six, we are pleased to share that anchored in a unique value proposition, LATAM Group continues to grow. LATAM has achieved record-breaking levels of passengers transported with a total of 20 million passengers during the quarter. This represents an increase of 19% compared to the period last year, and an additional 2 million passengers when compared to the same period of 2019, which was the year of the highest number of passengers transported. Furthermore, consolidated load factor reached 84%, marking a 3 percentage point increase compared to the same period in 2023. We are happy to see that more passengers are choosing to fly with ATAM Group, resulting in higher seat occupancy and improved operational efficiency. Please join me on slide seven. We'll take a closer look to the growth of the group, which has been reflected across all its segments, with consolidated capacity in terms of ASKs, registering an increase of 17%. The company consolidated RASC has increased by 3% compared to the same period of last year. In particular, in the last line, the international business segment continues to show a strong growth, reporting an increase of 25% in capacity. Despite the substantial increase in capacity, the group has notably achieved higher load factors across all segments, reaching a robust 87% in international business. We slide more with better load factor and with an increased RASC. I think this speaks volumes to our value proposition. Turning to slide 8, Zlatan Group has been vocal in previous quarters about the importance of a competitive cost structure. One of the key factors contributing to the solid financial figures is the constant focus on maintaining low unit costs. During this first quarter of 2024, the group was able to contain costs at levels achieved in 2023, thanks to our commitment to continuously funding cost savings within the group, initiatives that include the use of artificial intelligence in maintenance and customer service activities, among others. In terms of cost per ASK excluding fuel, LATAM Group reported a cast keg fuel that includes cargo operations of 4.8 cents and the passenger cast keg fuel of 4.3 cents. Both figures falling well within the lower end of our guidance. This low unit cost results in LATAM Group being significantly more competitive within the industry and in the Americas. Regarding the fleet, This quarter, LATAM Group reported a total fleet cash cost of a little over $200 million, with an average fleet size of 24 additional aircraft compared to the same period in 2023. The fleet cash cost is becoming increasingly relevant in this industry context, as we are seeing that the global aircraft shortage is leading to increased prices. We are confident in our projection for a competitive peak cost for the group going forward, which for 2024 should be around $900 million. As you can see in the next slide, the result of delivering a unique business model and value proposition in the region, coupled with the healthy demand and contained cost, has led to a strong growth in adjusted EBITDA. Currently, the last 12 months adjusted EBITDA is 66% higher compared to the same period in 2023, marking a record-breaking figure for the group, reaching $2.8 billion for the last 12 months adjusted EBITDA. If we move to the next slide, over the course of the last year, the company was able to generate more than $500 million in cash. Patam was able to achieve this without resorting to any non-seed debt issuance. relying on its own resources and generated substantial cash flow. With this, LATAM has established itself as a standout player in the region, reinforcing its reputation as a financially strong and sustainable airline group. In the first quarter of 2024, LATAM Group demonstrated its ability to sustain this positive cash flow trajectory. The company generated cash flow of $137 million, This performance allowed the group to end the period with a liquidity position of approximately $3 billion, further solidifying its financial stability and the growth potential. Furthermore, moving to slide 11, Latam is actively focused on deleveraging the company. Following the trend of previous quarters, during the first period of the year, Latam successfully reduced its adjusted leverage to 1.9 times. This has resulted in rating agencies improving LATAM classification. Standard & Poor's upgraded the company's rating from B to B+, with a positive outlook, whilst Moody's upgraded to BA3, with a stable outlook, and Feather, which is one of our local rating agencies, has upgraded us to BBB, with a positive outlook. Turning to slide 12. The enhanced credit ratings and the very healthy debt maturity profiles that we show here, in which LATAM has no relevant non-slip maturities before 2027, are a positive backdrop for the focus on liability management later this year. In the fourth quarter of this year, the group has the opportunity to refinance a significant portion of our non-slip debt, which corresponds to debt that supported LATAM's emergence from Chapter 11, TATAM Group can refinance approximately $1.4 billion at par value. And additionally, we can also refinance the $450 million five-year 2027 notes that are also callable at the price of $110. The TATAM refinancing process is a strategic opportunity to further strengthen our financial position and reduce associated costs. As we mentioned in our earnings release, if LATAM executes a liability management exercise, we will likely have a one-time non-operational expense, though of course this should reduce the interest expense and further improve our cash flow generation. We are committed to executing this operation efficiently and in line with our financial optimization goals, always subject to market conditions. On the back of our strong results driven by a better-than-expected growth, customer preference, and a stable demand environment, we are pleased to announce that we are updating and improving our guidance for 2024. This guidance takes into account an increase in capacity across the different markets, which is expected to impact the company's revenue. We have managed to maintain our top-sec fuel at 4.3% As a result of these adjustments, the range for adjusted EBITDA has increased from a midpoint of $2,750 million to a midpoint of $2.9 billion, with an upper range of over $3 billion. This positive development reflects our commitment to delivering strong operational performance. Furthermore, we expect to finish the year with an adjusted net leverage in the range of 1.6 to 1.8 times. Let me conclude on slide 14. It is important to conclude by remembering that the results of this first quarter for the LATAM Group reflect the dedication and effort of over 35,000 people within the organization. Their dedication and hard work have enabled us to consistently report strong numbers quarter after quarter, with continuous growth that can be traced back to the previous years. We are immensely proud of their work and their effort that they make every day. LATAM Group is growing. The record-breaking figures in terms of passengers transported with over 20 million passengers during this quarter and the revenue increase of over 18% demonstrate the preference of travelers for LATAM and their choice of a superior flight experience. These numbers are a testament to the strength of our network. Furthermore, we have been able to maintain low and competitive unit costs, providing us with a market advantage. The focus on cost containment and fleet optimization has contributed to our profitability, with an adjusted EBIT margin of almost 14% and a strong financial position with an adjusted net leverage of less than two times. The growth of the LATAM Group and the preference of our customers to fly with LATAM have improved the outlook of the Group, resulting in enhancements to our guidance figures. Thus, it anticipates that the adjusted EBITDA for this year will be in the range of $2.75 to a little over $3 billion. also provide a better perspective of the company capital structure with an expected range of adjusted net average between 1.6 to 1.8 times. In summary, the first quarter results consolidate a very positive trend and reflect the success of the business strategy that is working and the commitment of the entire Latam team. Data Group will continue to work towards delivering an exceptional travel experience, improving operational efficiency, and strengthening the group's network. Thank you for your attention, and we're going to turn it to the Q&A segment.

Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from a line of Fernanda Recio from BTG.

Hi, thank you for taking my question. Two from our side. The first, could you comment a little bit further on how you're seeing the world environment going forward? Maybe if you could explore domestic and international routes, it could be great. And second, I just wanted to understand if the guidance that you provided kind of incorporated any compensation from program we made in Boeing or if this is an upside. Thank you.

This is Roberto. How are you? So as explained before, when you look at the second quarter, although it's the seasonally weakest quarter of the year, demand looks healthy and yields look in line with what is expected given the seasonality. Further down the line, July is still early but looks as a healthy high season moment that we have because of And when we think about demand throughout the region in general, we see, I would say, stability. You asked particularly on international, international is very healthy in general. No whole routes, whether they're to the U.S., Australia, and Europe, are in relatively good shape across the board. With respect to compensation, I understand Boeing or Pratt. So we have no 787 deliveries this year from Boeing. So there's nothing there. And in the case of Pratt, we do have some aircraft on ground, and we are currently under discussions with them regarding what that means.

There is no compensation expected in the number that we have provided. Okay, thank you very much. Thank you.

One moment for our next question. Our next question comes from the line of Victor Mizuzaki from Bradesco BBI. Hi.

Congrats for the results. We have two questions here. The first one is a follow-up on the fleet plan. I mean, when you take a look on your update fleet plan, it looks like that LATAM is trying to extend some of the aircraft leasing contracts. So my question here is if there is any kind of a cost pressure from these extensions. And the other point, when you take a look on the deliveries, if not wrong, early last year the company had a plan with Airbus to receive like eight or 11 planes, and then it was reduced to three aircraft this year and 11 next year. So my second question is if there is any risk that maybe Airbus will not deliver these planes this year. Thank you.

This is Ramiro. Regarding the plan, I would say first on your second point, we feel confident on the list that we need to grow in 2024 and 2025. We feel confident on the deliveries that we are expecting from Airbus. We have no news of further delays other than the ones included in the figures of the table of the earnings call. So extremely confident on those deliveries. Always subject to the current market conditions, but we're confident that the lift that we need in order to grow what we are expecting is going to be there. Regarding the extensions, we have extended, and we have been vocal on the last quarter, if you remember, that we were extending certain 320s and certain 319s. We are not seeing particular pressures of pricing in our current negotiations. Although, overall, in the industry, we are seeing an increase in the cost of aircraft generally, but not on the extensions that we have signed.

Okay. Thank you. Thank you. One moment for our next question. Our next question goes from the line of Steven Trent from Citi.

Good morning, everybody, and thanks very much for taking my questions. Two for me. The first is regarding... The deal you reached with Fortress Aviation, I believe, on 60 engines. And could you sort of give me a sense as to why you went with Fortress as opposed to maybe doing something similar with Delta Airlines tech ops? Thank you.

This is Ramiro. Hi, Ramiro. Yeah, the fortress agreement is in line with what we're looking in terms of having additional flexibility on our aircraft. As we decided to extend certain of these aircraft, we carried out some sail and dish back on the aircraft themselves. needed or expanded a little more. So it gives us a lot of flexibility and in addition to that it allows us to benefit from a certain pool of engines. We decided to do it with Fortress because they were a good partner in terms of conditions and terms. Again, looking not only at pricing but also the flexibility that we need in this current market environment and they had the pool of engines that we were targeting. So that's why we selected those. We have other partners for other engine agreements that we have, but that's why we selected Fortress in this particular case.

Okay, that's very helpful. I appreciate the cover. And just quickly, just a second question. You mentioned, you know, adding more premium into your international, into Latin America. I heard you mention and the onboard Wi-Fi and what have you. How far along are we in that process? Do you expect another three or four quarters of making these adjustments or are you close to the finish line? Thank you. Hi Stephen, this is Roberto. So basically we are installing Wi-Fi on our narrowbodies. We're not installing at this point in time Wi-Fi on our widebodies.

As explained in the presentation, 70% of the feed already has Wi-Fi. Wi-Fi in our narrow-body fleet this year. And all of our LATAM Pass members will have free messaging on Wi-Fi, and our lead LATAM Pass members will have free browsing. And if you sign in into LATAM Pass while on your plane, then you'll get free messaging as well. So the bundle also intends to increase and improve the number of participants that we have in our LATAM Pass program. We have not made a decision yet with respect to Wi-Fi on local aircraft. And as you know, in the past, because of where we are in the world, southern hemisphere, there were significant blackouts in terms of satellite coverage, which is changing now with the new technologies. But for the time being, it's on the other ones. Okay.

I appreciate that, Roberto. Thank you.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

At this time, I'm showing no further questions. I would now like to turn the conference back over to Ramiro Alfonsín for closing remarks. Pardon me, we actually have another question.

One moment. Our next question comes from the line of Gilgerme Mendez from JP Morgan.

Hello, Roberto Ramiro. Good morning. Thanks for taking my question. I have two questions. The first one is a follow-up on the guidance assumption. We saw a revision on the capacity on the three regions, but I was wondering if you could provide more details on which route or region specifically you're seeing on the website, thinking about the international front and also the Spanish-speaking countries. And the second question is regarding the ADR listing. I understand there's a couple of requirements needed for the company to take the decision to go ahead with the process or not. Just wondering if you can provide more details on which kind of requirements are you talking about and if the base case is still to have the decision by September or October this year. Thank you. So I'll take the first one and then Ramiro. So an international – good morning, how are you? So basically what we are doing at this point in time is focusing on

We, what is the word in English? It's just bringing back our particular Santiago Lima and Guarulhos hubs to pre-pandemic levels. So we are increasing operations to dailies on those flights from Guarulhos where we didn't have dailies. And we are launching new routes, or more or less relaunching routes that we used to fly before the pandemic, such as Santiago Sydney Direct, and we started Santiago Maribor as well, increasing capacity to Santiago LAX Direct as well. So it's basically an enforcement and a complementation of our low-hull white-body use out of our main hubs, Santiago, Lima, and Guadalajara. Okay.

Yeah. Hi, Jeremy. How are you? This is Ramiro. Regarding the ADR listing, all the work streams have started. You know, there are many counterpoints on this process. It is progressing well. As you correctly say, the board will eventually approve at the time the listing. So there is no exact date at this moment on when this is going to happen. And we'll keep the market informed. that the board makes a decision so that everyone has sufficient information.

Super clear. Thank you, Roberto and Jamiro. Have a great day.

Thank you. At this time, I would now like to turn the conference back over to Ramiro Alfonsín for closing remarks.

Thank you, Gigi, and thank you all again for joining us today. As always, our investor relations team is out for any further questions. Have a great weekend.

This concludes today's conference call. Thank you for participating. You may now disconnect.