LATAM Airlines Group SA (LTM) 2008 Q3 法說會逐字稿

Good morning. My name is Cynthia, and I'll be your conference operator today. At this time, I would like to welcome everyone to LAN Air's Third Quarter 2008 Conference Call. (Operator Instructions).

Thank you. It is now my pleasure to turn the floor over to Pete Majeski. Sir, you may begin.

Thank you. Good morning, everyone. Today, LAN Airlines' management will be discussing the third quarter 2008 earnings report today, on October 29, 2008. Today's conference call will be based on the earnings release distributed yesterday. In addition, we would like to invite all participants to view an accompanying Webcast presentation at www.lan.com. If you're having viewing the presentation, please contact the Company after the call, so the presentation can be mailed to you. Or contact us in New York at (212) 406-3694.

Please note that certain statements regarding the Company's business outlook and anticipated financial results constitute forward-looking statements. These expectations are highly dependent on the economy, the airline industry, and international markets and, therefore, are subject to change.

At this time, it is my pleasure to turn the call over to Mr. Alejandro de la Fuente, Chief Financial Officer of LAN. Mr. De La Fuente, please begin.

Thank you, Pete. This is Alejandro De La Fuente, Chief Financial Officer of LAN. With me we have Luis Eduardo Riquelme from our International Passenger division, Tomas Silva from our Cargo business, Andres del Valle from our Corporate Finance department, Gisela Escobar from our Investor Relations department. We hope that you have all been able to access the Webcast presentation that is available on our Website for a better understanding of our results for the quarter.

Today, I will discuss our financial results for the quarter, review a few key developments, and comment on our expectations for 2009. Then we'll be pleased to answer your questions.

On slide 3, you can see the main highlights of LAN's results for the quarter. We are pleased to announce that LAN reported net income of [$122 million], net of the one-time provision which I will comment on later - strong operating performance for us, despite continued high fuel prices. The average fuel price for LAN during the quarter was 65% higher than in 2007. Despite this fact, LAN was able to grow operating income by 38% and maintain operating margin at 11.2%. The main drivers behind this quarter's results was significant passenger and cargo yield increases, as well as sustained traffic growth both in passenger and cargo businesses.

Turning to slide 4, you can see in more detail the variations in EBITDAR margin during the quarter. The biggest impact was the 65% increase in fuel prices, which led to $168 million in higher fuel costs, reducing EBITDAR margin by almost 14 points. Margins were further affected by the impact of high inflation of wages, as well as by higher ACMI leases. These effects were offset in part by substantial yield increases both in passenger and cargo businesses, together with a small improvement in system load factor.

LAN's fuel strategy involved applying a fuel surcharge mechanism in both the passenger and cargo businesses, complemented by financial hedges. During the current quarter, LAN was able to increase the fuel surcharges, both in our cargo and passenger division, which has been a key factor to offset the significant rise in fuel costs. Under Chilean GAAP, hedging gains are recorded as a non-operating item. If we add the fuel hedging gains recorded in the current quarter to the EBITDAR calculation, EBITDAR margins would have reached 20.4%, demonstrating LAN's ability to successfully operate in higher fuel price environments.

On slide 5, you can see a breakdown of passenger capacity growth during the quarter. As shown on the chart, LAN's passenger capacity deployment and growth remains highly diversified. For the quarter, international capacity represented 72% of total capacity, where 48% came from long-haul flights and 24% from regional routes. Consolidated domestic operations now represent 28% of the total, as the domestic operations in Peru and Argentina have been growing at double-digit rates in the past year.

Traffic remained strong throughout the quarter, as LAN was able to increase load factors, despite the 13% capacity growth. This quarter, growth was focused on the different domestic markets where we operate, especially Peru and Argentina, and on the long-haul routes.

Long-haul growth this quarter was driven mainly by additional frequencies of LAN's Lima-Mexico, (Inaudible)-New York, and Lima-Miami routes. In addition, LAN launched one new long-haul route this quarter from Santiago to Toronto. This route is operated as an extension of the Santiago-New York nonstop flight.

Capacity growth of regional routes during the quarter was driven by additional frequencies of Santiago-Brazil and Santiago-[Buenos Aires] routes, as well as Lima-Caracas, and a new route between Quito and Medellin launched in May. Regarding Argentina, Argentina has doubled its capacity in the domestic market during this year, increasing significantly its market share. It is currently operating eight Airbus A320 aircraft. During 2009, LAN Argentina expects to add one new aircraft and two new domestic destinations, reaching a total of 14 destinations within Argentina. We expect to continue taking advantage of the growth opportunities in Argentina and grow our market share, reach approximately 45% in the market that we serve.

On slide 6, you can see in detail the breakdown of revenue growth in the passenger business. Following the trend of the past quarters, passenger revenues grew 36% during the period, driven mainly by strong yield increases and by traffic growth. Strong demand and solid load factors have allowed LAN to successfully implement yield increases in order to pass through the high fuel costs during the quarter. This led to a 20% increase in yield as compared to the third quarter of 2007. Yields also rose due to nominal fare increases and better revenue management.

Moving to slide 7, you can see that cargo revenues had another strong quarter, growing by 51%. The exceptional growth in revenue mainly came from the increase in southbound flows due to strong import markets, especially Brazil. The increase in revenue was driven by a 29% increase in unit revenues and a 17% increase in capacity. The former resulted from strong yields, which offset the lower load factors during the quarter.

In the cargo business, as in the passenger business, we were also able to offset higher fuel costs through the fuel surcharge mechanism. Yields increased 34%, driven by higher fuel surcharges, as well as some revenue management initiatives on southbound routes, where traffic continues to be very strong.

As we have seen over the past years, during the quarter the cargo business continues to experience an imbalance generated by strong imports and weak exports from Latin America. While exports out of Latin America have declined due to stronger local currencies and changes in product mix, imports have continued to boom thanks to the appreciation of local currencies and strong economic growth in Latin American countries.

LAN's cargo business is highly, highly adaptable to these changes in demand patterns among the different markets where it operates. Thanks to our vast cargo network, we have the flexibility to design aircraft rotations in order to best serve all our markets.

On slide 8, you can see in detail the evolution of LAN's costs. Total expenses increased by (inaudible). Excluding fuel, operating expenses increased 18%, well below the 38% growth in revenues. On a unit basis, costs per ATK increased 26%, while costs per ATK, ex-fuel, increased 9% as compared to the third quarter of 2007. The biggest impact this quarter was, again, an 84% increase in fuel prices, which resulted in $169 million of higher fuel costs for LAN. Another major impact was the inflation adjustment in wages, which took effect in July for all wages denominated in Chilean pesos. Wages were also affected by some appreciation in local currencies versus the US dollar during the quarter, as well as by higher headcount, in line with the growth in operation expected during this year. Our rental and landing fees show a 37% increase, mainly due to higher ACMI leases in the cargo business.

As for fleet costs, depreciation increased as a result of a larger fleet, as LAN received a total of 20 new aircraft in the last year, but was partly offset by the phase-out of the Boeing 737-200 fleet. On the other hand, maintenance costs decreased, as higher costs due to aircraft utilization and to the escalation of maintenance contracts were more than compensated by the phase-out of the Boeing 737-200 fleet and by a higher proportion of aircraft in their maintenance honeymoon period. Commission costs continue to show a positive trend, as they've dropped 0.9 points as a percentage of revenue. This was mainly driven by lower passenger commissions as a result of higher day-rate sales, mainly through LAN's Website.

At this point, I would like to mention that third quarter results include a non-operating provision of $50 million in relation to the ongoing US and European global investigation of a large number of international cargo airlines - among them, LAN's cargo subsidiary.

In February 2006, the European Commission, in conjunction with the Department of Justice of the United States, initiated a global investigation of a large number of international cargo airlines - among them LAN Cargo. The investigation includes 38 airlines in the US and [35] in Europe and is related to the possible price fixing of cargo fuel surcharge and other fees in the European and United States air cargo market.

On December 26, 2007, the European competition authorities notified LAN Cargo and LAN of the initiation of proceedings against 25 cargo airlines, among them LAN Cargo, for allegations of anti-competitive behavior in the air freight business. Given the current stage of the proceedings, it is not possible at this time to anticipate with any precision their outcome, although it is expected to be a lengthy judicial process.

The US Department of Justice has announced during the last 12 months that British Airways, Korean Air, Qantas, Japan Airlines, Air France-KLM, Cathay Pacific, Martinair/Tampa, and SAS have agreed to plead guilty and pay criminal fines totaling $1.3 billion for incurring in activities in violation of antitrust regulations.

LAN Cargo has decided to record a $50 million reserve in Other Non-Operating Expenses against the third quarter 2008 operating results to reflect any potential contingencies which may arise from the US and the European investigations into LAN Cargo's operations. This provision supersedes any past provision made by LAN in connection with such proceedings and is in addition to the $25 million provision base for the fourth quarter 2007. With this, the total amount reserved by LAN is now $75.0 million. This reserve is a precautionary estimate as per accounting policies for future losses in connection with these investigations.

LAN has cooperated fully with the European Commission, the DOJ, and regulators in other jurisdictions in relation to these investigations and proceedings and will continue to do so. LAN is committed to fully comply with competition laws and regulations in all jurisdictions where LAN operates.

Moving to slide 10, under the current market environment of high (inaudible) and the lack of liquidity, it is especially important for LAN to maintain a solid balance sheet. In this respect, LAN has always been extremely conservative, and our strong financial position is reflected in our BBB international investment-grade rate. Our cash position is solid, as cash represents approximately 11% of sales, which, we believe, is adequate for LAN. We have no short-term debt, and only 8% of debt, $137 million, is maturing in the short term. (Inaudible) financial risk. All our long-term debt is related only to aircraft financing. All of our (inaudible) financing has (inaudible), which allow us to access very attractive financing rates. For the coming years, LAN has debt amortization of between $200 million and $230 million per year. We also actively hedge our exposure to interest rate risk. We have hedged approximately 90% of our exposure into fixed-rate. Finally, we have limited exposure to foreign exchange rate fluctuation, since all our debt is in US dollars and approximately 84% of our revenues are US dollar-denominated. Maintaining the solid financial position and our investment-grade rating are priorities for the Company because they are the basis for financing our fleet expansion plan.

Moving to slide 11, you can see our fuel hedge position for 2008 and 2009. We have hedged approximately 55% of our fuel requirement for the rest of this year. These hedges are a combination of (inaudible) collars and options at levels between $82 and $100 per barrel. For 2009, we have hedged approximately 30% of our fuel consumption for the first quarter, 40% for the second quarter, and 20% for the rest of the year. These hedges are (inaudible) collars at the levels shown on the slide, with floors between $92 and $107 and a ceiling of $140 per barrel. For 2010, we have hedged 10% through the same mechanism.

For third quarter 2008, LAN recorded a $29 million fuel hedging gain. Under Chilean GAAP, fuel hedging gains or losses are recorded as non-operating income. However, starting in 2009, all Chilean companies will be moving to International Finance Reporting Standards, under which we will have to recognize the mark-to-market value of our fuel hedging positions on the balance sheet on a quarterly basis.

On slide 12, you can see our fleet plan for the coming year. Our fleet plan has been modified to reflect possible but unconfirmed delays in the arrival of our Boeing 767 aircraft in 2008 and 2009. At this point, we are assuming that one of our Boeing 767 originally scheduled for delivery in 2008 will delay to 2009 and that two of our 2009 aircraft are delayed to 2010. We are also assuming delays in the arrival of our Boeing 777 freighters. And another change in our fleet plan is that we have renewed the lease of two Airbus A320 aircraft that were expiring this year. Now we are expecting a total of 53 Airbus A320 aircraft for 2009.

With these assumptions, during 2008, LAN will receive a total of 18 passenger aircraft, of which 16 have already been delivered. For 2009, we're expecting delivery of a total of five passenger aircraft and two freight. And for 2010, we will receive eight passenger aircraft. It is important to mention that all of our fleet purchases for 2008 and part of 2009 have already been financed with (inaudible) at very attractive interest rates and with 12-year maturity.

We continue to see opportunities for growth in our markets over the coming years and continue our effort to expand and renew our fleet in order to take advantage of these opportunities. To that effect, we have almost concluded an order for four additional Boeing 767 aircraft for delivery in 2011. These will serve as transition aircraft for LAN that will allow us to continue growing our long-haul routes, despite the expected delay the delivery of the Boeing 787 Dreamliner. We will also be interested in purchasing a fifth Boeing 767 (inaudible).

LAN also continues investing in improving its product in order to be able to provide world-class service on all our flights. With regard to the Boeing 767-300, we will conclude the retrofit program by the end of this year. As of the third quarter, 22 of the 24 Boeing 767s have been retrofitted with the new premium business and upgraded economy classes, providing the best available service on routes between Latin America and the US. We have also already started to retrofit our Airbus A340 fleet with the new cabin, which we expect to complete by the first quarter of 2009.

Please turn to slide 13. Despite the fact that most of our new aircraft are purchased, LAN continues to maintain the flexibility to adjust the size of our fleet in case of a strong downturn in demand. On this slide you can see that we can reduce the size of our fleet by up to eight aircraft in 2011 as a result of expiration of our lease contracts.

Please turn to slide 14 to see our estimates for ASK and ATK growth in the coming year. The Company has reviewed its prediction and now expects passenger ASK growth to be close to 12% in 2008, down from 14% to 16% previously expected. The reduction in passenger capacity growth arises from the delay in the delivery of our 767, as well as the retrofit program for the A340 aircraft which began in October.

For 2009, we're expecting growth in the passenger business of at least 10%, driven by expansion in regional and domestic markets. Capacity growth in 2009 is affected by the delay in the arrival of the 767s as well as by the retrofit program of the A340s and the installation of the winglet kit of the 767. However, we believe that demand will continue to be (technical difficulty). And, for this purpose, we are currently evaluating the leases of additional (inaudible) to better serve these routes. Regarding yield, we are currently expecting that this could decline up to 10%, in line with the decline of the fuel surcharge.

On the cargo side, we are increasing our capacity growth-- Sorry. Regarding Argentina, we continue to be committed to the Argentine market, and we are convinced that it represents an important opportunity for LAN. Today it is a market that has [26 million] domestic passengers per year. Considering the size of the population, it should be much, much larger. And this is a significant growth opportunity. So far we have been cautious in our expansion, but we remain committed. We believe we now have the (inaudible) to position LAN on both domestic and international routes. In addition, LAN Argentina today is providing the best product in Argentina with the new fleet of A320s. LAN will have a competitor that is providing an inconsistent service. We'll continue to take advantage of this opportunity and to increase our market share. And we expect to reach 45% market share during 2009 in the domestic routes that we operate. We have an experienced management team in Argentina who are familiar with the competitiveness of doing business and the market, and we are confident that they will continue to do a good job there.

On the cargo side, we're increasing our capacity growth from between 8% and 10% to approximately 15% in 2008. It has been a very strong year for the cargo operation, a trend which we expect to continue into the fourth quarter. For 2009, we are expecting ATK growth of approximately 8%, driven by the entrance into new markets, especially Colombia and Europe, and by the delivery of two Boeing 777 aircraft expected for the first half of the year. Yield in the cargo business could also fall in line with the decline of fuel prices-- as a result of the reduction in fuel surcharges.

Overall, we are looking closely at both the passenger and cargo business to anticipate any changes in demand pattern and to adjust our operations accordingly. However, we continue to see opportunities for expansion in the region and believe that the changing environment will present opportunities for companies with solid financials to consolidate their leadership position. LAN has a solid track record of consistent profitability over the last 14 years, despite additional crises that have affected the industry over that time. We believe that our financial strength and our diversified business model will give us the necessary flexibility to adapt to the changing market conditions.

Once again, during the third quarter, LAN has proven its ability to operate in a high fuel price environment and demonstrated (inaudible) of its diversified business model, showing solid profitability in all its divisions - the local passenger, the regional passenger, the domestic passenger operation in Chile and in Peru, and the cargo division. The strong operating results in the quarter have allowed us to (inaudible) for continued improvement in the future.

For the remainder of 2008 and 2009, the Company expects to continue applying our successful strategy, as it will enable us to maintain (inaudible) in line with expectation. We believe we are in a good position to continue growing revenues, implementing cost efficiencies and creating value for shareholders. 2008 has been a great year for LAN so far, and it should remain that way.

Now we'll be pleased to answer your questions.

(Operator Instructions). Your first question comes from Ray Neidl with Calyon Securities.

Just one quick thing on the declining yields with the fuel surcharge. If demand warrants it, why don't you just leave the fuel surcharge on and call it a price increase? Are you required by law to repeal that?

The fuel surcharge, as such, is adjusted both in cargo and passenger based on the price of fuel. But that doesn't-- To your point, that doesn't mean that we don't have the flexibility with the nominal fares to adjust nominal fares separately from the fuel surcharge.

Okay. But, going forward, we should look at yields weakening as the fuel surcharge is repealed? Is that what you're saying?

I'm sorry?

For modeling purposes, we should look at yields weakening going forward as these fuel surcharges are taken off?

Yes.

The other thing is just to update-- You're starting the freight operation in Colombia. Are those still restricted markets for passenger startup operations - Colombia and Brazil?

I don't think we're hearing very well. Could you repeat the question, Ray?

Okay. You've got a freight operation in Brazil, and you're starting one in Colombia. These have been traditionally restricted markets for foreign investors. Is that still the case regarding passenger services in those two countries?

It's restricted, as you mentioned, for the passenger business. We are not considering starting an operation or applying for a request to those countries to start a new company but in cargo in Colombia--

In the cargo business, we have applied for the authorization, and it has been granted. And we should start operating during the first quarter of 2009.

Okay. Good. Thank you.

Your next question comes from Mike Linenberg with Merrill Lynch.

This is Lily on behalf of Michael. A couple of questions. Firstly, given the recent currency changes in the region, I was wondering if you're seeing any effect of that on your cargo operation. And, related to that, you've demonstrated that you have lots of flexibility on your fleet. Is that just passenger, or is there flexibility to your cargo operation as well, should you see some changes in demand?

In our main and core import markets in Latin America-- As we have said, there have been changes in the exchange rates. However, we have not seen in the last month or so any change in demand. I think the prices have been already rolled in the sense that all imports have been sold, and we shouldn't see any changes, we believe, in the next couple of months. As I said, we haven't seen them.

And the question on the flexibility. We also have large flexibility for moving the aircraft, whereas the competition-- Typically, they can just fly point to point, and we can fly (inaudible) and Asia Pacific, picking up cargo in the export market. So, given the nature of the market, which is very unbalanced, we can best deal with the unbalanced (inaudible) market.

And during the first quarter is where we face the high season for the northbound market. So that flexibility that is mentioned by Andres is more so.

I see. Thank you. And then a second question is - Given the reduction in capacity on the passenger side, how would that affect your cost structure? Can you talk a little bit about that?

For the fourth quarter, basically, the reason why we're lowering our capacity is because of the retrofit of the A340s, which we started in October. And that's basically part of our CapEx.

Right. But then, from a [CASK] perspective, you don't see that affecting your (inaudible) so much. Is that what you're saying, Gisela?

There might be a slight positive effect on lower CASK for the fourth quarter, just because of the less valuable costs if we're operating less. But it's not going to be as big as that.

Got it. Thank you very much then.

Your next question comes from Luiz Campos from Credit Suisse.

Just one question on the passenger business. Given the currency move recently and given the extra slowdown in the economy, have you already started seeing any effect in terms of bookings for towards the end of the year or not? Thank you.

Okay. Let me see if I caught correctly the question, because it doesn't sound very well. We haven't seen any impact in the bookings for the fourth quarter. We are entering into a high season in terms of the passenger business in the one sense. Also, there has been a little reduction in fuel surcharges one month ago, and we expect another reduction now related to the reduction in fuel prices. And we think that also that will help boost a little bit the demand. So, at the moment, we don't see that. Also, our growth has turned during the last year into a more regional and more domestic percentage of the ASKs, and those markets remain very strong at this moment. So we're not seeing something in the near future that we can foresee in this moment.

Okay. Thank you.

Your next question comes from Daniela Bretthauer with Goldman Sachs.

Two questions. The first one is - Could you just repeat your yields guidance for 2009 and maybe for the fourth quarter - what you're seeing in terms of yield so far? That's the first question.

And then, second, you mentioned that some planes may be delayed in taking delivery next year owing to the Boeing strike. But how much more flexibility do you have for 2009, meaning how many lease expirings and things like that? Thanks.

Regarding the yields, we're expecting a reduction not bigger than 10%. Of course, that will depend-- That's based on certain expectations regarding where the fuel prices will be. And probably they will be very important information that we don't know. But what we're expecting right now is a decline of not more than 10% for the fourth quarter. What we have seen for the year is slight increases around 20% for the yields for the first and second quarters. For the fourth quarter, we expect increasing yields that will be more around 10% or 12%, and that's in line with the fact that the increasing yields started during the last quarter of 2007. So, mainly, it's not because there will be declining yields but more because of (inaudible).

On the cargo business, as already mentioned, the yields should decline in line with the decline in fuel prices and, therefore, the fuel surcharge. However, what we've seen for what we can expect in the fourth quarter [2004] is-- high yields in 2008.

(Inaudible). Airbus to be delivered in October this year. Most likely, that 767 passenger will be delivered in January next year. And, also, we have three [767s] delivering in Q4 '09. Most likely, we are assuming that just one of those will be delivered in 2009, and the other ones will deliver in 2010.

Regarding the flexibility, as you can see on chart 13, we have a flexibility between two and eight aircraft, depending on the year, to adjust the fleet downwards.

Okay. Thank you.

(Operator Instructions). Your next question comes from Gustavo Moreira with UBS.

This is actually Rodrigo Goes. Just a couple of questions. With regards-- I'm trying to figure out or, at least, trying to get a sense as to how your unit revenues will behave next year. You were talking about a yield decline of roughly 10%. You're also talking about capacity growth of roughly 10% going into what will likely be a very difficult year in terms of traffic. Where do you think your unit revenues trend next year? Lower, obviously, but how much lower?

And just thinking of the last recession, going back to 2002, your capacity growth approximated zero that year. Is 10% capacity growth for 2009--? Could that be too much? Do you think you could bring that down to, say, half of that or even lower?

What we are seeing for year 2009 is a load factor more or less in line with what we have seen during year 2008. So the unit revenues should be impacted more or less in the same amount of the yield. So taking a decline of 10% more or less will be the figure. That's what our expectations are. Of course, that will depend on how fuel moves because the mechanism of fuel surcharging has been very effective. If there is a rebound in the prices, we expect that number will be lower. And, if the price goes deep in the downturn, probably the declines will be lower. But, anyway, the economics will be positive.

With regards to capacity? At what point do you think--? What do you need to see in terms of load factor deterioration in order to take a second look at what you're currently thinking in terms of capacity growth for the following year?

We see a couple things here. One important thing to mention is that the growth in the year 2009 is more weighted towards the regional and the domestic markets. And that's an important thing to consider. Also, those markets have bigger yields because of the shorter operation. The other that's important is that we made a lot of different adjustments during this year when fuel was a $140 scenario. So those changes mean that we have been modifying our itineraries to access the market. [We've not had access] before means that we are seeing a better demand in certain markets (inaudible). Those things together make us think that we will stay the rather strong or flat demand instead of what we could be expecting and what is happening now.

Okay. You might have brought this up in the beginning of the call. I joined in a bit late. With regards to the provisions that you've made associated with the ongoing legal issue related to your cargo business, so far you've provisioned roughly $75 million. How comfortable are you that that's what you're going to need to provision? Or could we see more provisions related to this matter in the coming quarters?

We made this provision according to our lawyers' recommendations. That's all the information that we have now. As soon as we receive any different or additional commission ruling, we will revise the information. But, for now, we don't have any more figures.

Okay. Thank you very much. I appreciate it.

(Operator Instructions). Your next question comes from [Brendan Ferbe] with Reed.

Reed is the publisher. I'm with "Flight International" magazine. I hope you can take my question. I just wanted some additional information on the 767s and the four additional aircraft you said you are going to be purchasing. Is that a lease deal or a purchase deal? Is that at all part of a compensation package, or is that separate from the compensation package with the 787s? Also, do you have any dates on the 787s? Originally, it was 2011. Obviously, there's delay there. Do you have any color on when you're going to (inaudible)?

We are in current touch with the manufacturer, with the Boeing company, to possibly acquire four additional 767s to be delivered in the year 2012. This is not in any way related to the compensation of the 787s, if that was the question.

Your next question comes from [Augusto Insinke] with Morgan Stanley.

I just wanted to ask if you could give us any guidance in terms of your (inaudible) fuel or the system cost per ASK and ATKs for next year.

Generally, what we try to do is we would aim to keep flat costs for ATK. Remember that we look at the system ATKs, not separately by passenger and cargo operations. This quarter, our cost per ATK, ex-fuel, were up about 8%. A lot of the increase in the cost per ATK during 2008 was due to the impact of the appreciation of the peso on wages. That's something which should be reverted if the peso continues depreciating. So that's going to be a positive for 2009 on the cost side. So we would target to keep reducing the increase in cost per ATK, I would say.

(Inaudible) expecting flat to flattish. Okay. Thank you very much.

At this time, there are no further questions. I would like to turn the call back over to Mr. de la Fuente for closing remarks.

Thank you again for joining us today. Please feel free to call our Investor Relations department if you have any additional questions. We look forward to speaking with you again soon. Thank you very much, and goodbye.

Ladies and gentlemen, this concludes today's LAN Air's third quarter 2008 conference call. You may now disconnect.