LATAM Airlines Group SA (LTM) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the LAN Airlines Fourth Quarter 2010 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. (Operator Instructions). I would now like to turn the conference over to Mr. Pete Majeski of iAdvise Corporate Communications. Sir, you may begin your conference.

Thank you, Paula, and good morning, everyone. Welcome to LAN Airlines' Fourth Quarter 2010 Conference Call. Today, LAN Airlines' management will be discussing the earnings release per the press release distributed yesterday afternoon. This is an analyst and investor call only. If you are a member of the media, we request that you refrain from asking questions and contact LAN Airlines directly.

In addition, we would like participants to view an accompanying presentation on the internet at www.lan.com within the investor relations section. If you are having trouble viewing this presentation, please contact the Company after the call so that the presentation can be mailed to you, or call us here in New York at 212-406-3693.

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, international markets, and therefore are subject to change. At this time, it is my pleasure to turn then call over to Mr. Alejandro de la Fuente, LAN's Chief Financial Officer. Mr. de la Fuente, please begin.

Thank you, Pete. This is Alejandra Fuentes, chief financial officer of LAN. With me here in Santiago are [Luis Abargo Bekilnis] from our passenger division, [Alver Gadeli] from our cargo business, and (inaudible) from our corporate finance department, and (inaudible), our investor relations officer. 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 fourth quarter 2010.

On slide 4, you can see the main highlights of LAN's results for the quarter and for the full year. 2010 was an important year for the Company, not only because of our strong financial results, but also because we were able to advance on strategic projects in order to become the leading airline in Latin America. As you can see, LAN's results continued to reflect strong growth in both the passenger and cargo businesses.

Despite many challenges, and especially the earthquakes in [early] 2010, we closed the year with solid financial results. Total revenues increased 23.7%, driven by a strong recovery in the cargo business, as well as continued growth in passenger operations. All operating and EBITDAR margins increased, reaching 13.8% and 23.5% respectively. Net income for the full year reached $420 million, an 82% increase over 2009.

For the fourth quarter, revenues grew 21.6%, again driven by the 31% increase in cargo revenues. LAN's operating margin was strong at 16.2%. However, it declined as compared to fourth quarter 2009, impacted by higher fuel costs, higher wage related expenses, and an increase in (inaudible) releases the cargo business.

Net income for the fourth quarter was $165 million, increasing from $110 million during the fourth quarter 2009. Net income for the quarter includes a $14 million reversal of the provision related to the cargo investigation by the European Commission.

As you know, LAN was fined approximately $11 million in November, for which we had established a $25 million provision. As a result, the difference in the provision was reversed in the fourth quarter. Excluding this onetime impact, net income would be $153 million, a 39% increase over fourth quarter 2009.

Turning to slide 5, you can see in more detail the variation in our EBITDAR margin during the fourth quarter, which reached a solid 25.3%. Margins were possibly impacted by the 17% increase in cargo yields and higher load factors. In the case of the passenger business, load factors are the highest ever obtained in the quarter.

However, these positive effects were more than upset by higher fuel prices, higher wage related expenses and an increasing wet leases in the cargo business. In line with the growth opportunities in cargo markets, LAN cargo increased wet lease capacity from 1.1% of total ATKs in the fourth quarter of 2009 to 4.9% of total ATKs in the fourth quarter 2010.

Turning to slide 6, you can see that for the full year, LAN achieved 1 point of margin expansion, closing the year at 23.5% EBITDAR margin. Margin expansion was driven by increased yields and higher load factors, with the main contribution coming from the 16% increase in cargo yields. Overall, for the full year and continuing with the quarterly trends for 2010, LAN was able to show solid operating efficiency.

Taking a closer look at passenger operations this quarter, on slide 7 you can see in detail the evolution of this business, in which we continue to see strong traffic growth. Traffic grew 13.6%, while capacity increased 9.6%. Consequently, load factors increased almost 3 points, reaching 81.7%, and a quarterly record for LAN.

Yields showed an increase of 3.3% over fourth quarter 2009. This increase is related to higher nominal fares due to stronger demand. Demand in LAN's home markets was also helped by an average 7.4% appreciation of the Chilean peso during the quarter. LAN continues to expand passenger capacity throughout its network.

As you can see on slide 8, passenger capacity grew, reaching 9.6%, with strong growth in all markets, with the exception of Argentina. The 13.8% decrease in domestic ASKs in Argentina is mainly due to the temporary closing of Aeroparque Airport, nightly closing of the Bariloche Airport, and flight cancellations as a result of two days of crew strikes which occurred during the quarter. Overall, LAN's passenger capacity expansions remained highly diversified. This provides us with significant flexibility to adjust capacity deployment to the demand conditions in different markets.

Turning to slide 9, on the cargo side we continued to see growth opportunities in the global cargo scenario. Cargo traffic increased 12.4%, which coupled with a 14% increase in capacity, kept load factors at 71.8%. LAN cargo was able better to capitalize on the growth in cargo markets, which include revenue management practices and achieve an increase of 16.7% in cargo yields. As a result, cargo unit revenues increased 15.1% in the quarter.

LAN cargo's strong traffic growth has been driven by continued expansion in import markets in Latin America, especially Brazil, as well as an increase in the Company's European operations. LAN cargo currently operates four weekly frequencies to Europe on the Boeing 777, a fleet which improved our competitive position due to significant cost efficiencies.

On slide 10, you can see in detail LAN's costs for the fourth quarter. Total expenses increased 24% in the quarter, driven by an expansion in operations, higher fuel costs, increased wage related expenses and higher rentals and landing fees. Fuel costs increased 20.8%, mainly due to a 14.8% increase in prices and a 9% increase in consumption. This was offset by a $16.9 million fuel hedge gain compared to the $3.8 million fuel hedge loss in the fourth quarter 2009.

Wages and benefits increased 29.7%, driven by higher average head count and the impact of the appreciation of Latin America currencies during the quarter. In addition, this increase reflects the onetime impact of higher annual variable bonds payments for flight crews and pilots as a result of the strong result obtained in 2010. Increased headcount and training costs, especially related to flight crews, are in preparation for the expected expansion of operations in the coming months.

Other rental and landing fees increased 31.5%, mainly due to increased costs of aeronautical rates and handling costs, in line with the expansion of the Company's operation during the quarter. In addition, this item reflects increased costs from higher ACMI leases in the cargo business, which increased from 1% to 5% of total cargo capacity.

On slide 11, you can see LAN's financial highlights for the quarter. We continue to maintain solid financial position, improving our financial ratios given LAN's strong cash -- due to LAN's strong cash flow generation, as reflected by 12.9% increase in EBITDAR during the quarter. LAN ended the quarter with $737 million in cash, representing 16.3% of revenues.

Additionally, we enhanced our liquidity position during January 2011. We obtained short term committed credit lines with Chilean banks for $11 million. As a result of our consistent financial strategy, we maintain our triple B international credit rating, confirming LAN's position as one of the few investment grade airlines in the world.

On slide 12, you can see our fuel hedging position for this year. We have hedged 56% of our consumption for the first quarter 2011, which is the high season in the passenger business. For the full year 2011, we have used a combination of hedges, including swaps and collars, swaps as in the average costs below $11 per barrel, while collars are between $60 and $100 per barrel. We'll also continue with our fuel surcharge policy, which allow us to pass on a significant percentage of the increase in fuel prices in both the passenger and cargo businesses.

Before moving on, I would like to mention that this month LAN entered into an agreement to sell its courier service subsidiary, Blue Express, to the Bethia Group, one of the current shareholders of LAN. The agreed sales price will be $54 million, subject to a due diligence process. The transaction is expected to be finalized during March or April.

The book value of Blue Express is $7 million. Therefore, LAN will recognize approximately a $47 million non-operating onetime gain from the sale during the first half of 2011. The sale of this subsidiary is in line with LAN's strategy of divesting noncore assets. Furthermore, LAN represents less than 1.4% of Blue Express net revenues, since most of the company operations are via LAN transportation or competing airlines.

Now, I would like to discuss recent relevant information about LAN's strategic initiatives. Please turn to slide 14. As you know, LAN and TAM have signed binding agreements with the definitive terms and condition of our proposed business combination. This is another important step towards building one of the leading airline groups in the world, and it reflects our strong commitment to continue development of air travel in Latin America.

This transactions remains subject to approval of ANAC in Brazil. In addition, we must present this transaction to antitrust authorities in various countries, including Chile, Brazil, Spain, Germany, Italy and Argentina. Approval of the transaction is also required from the securities regulators in Chile, Brazil and the United States, as well as from the shareholders of both companies.

Each of the airlines in the group will continue to operate under existing operation certificates and brands, and will continue their airline operation as presently conducted. Within the group, TAM will continue to operate as a Brazilian company with its own structure. The control of TAM shall continue to be held by the Amaro family. The Chairman of the Board shall continue to be Maria Claudia Amaro, and the Chief Executive Officer shall continue to be Marco Bologna. The Chairman of the Board of LATAM shall be Mauricio Rolim Amaro, and Enrique Cueto shall remain as Chief Executive Officer of LATAM.

The organizational structure of the group aligns the economic interests of the controlling shareholders of TAM and -- of LAN and TAM at the LATAM group level. This means the shareholders will share the strategic view in order to maximize the interests of the group. The (inaudible) contracts provide for the execution of certain shareholders agreements, which will become effective only upon the consummation of the mergers, and will regulate governor voting restrictions on transfer of shares and certain other concessions.

As I mentioned, the transaction remains subject to approval of ANAC and other government authorities. Until we receive ANAC's approval, we are unable to comment further on the expected outcome. Our best estimates are that the transaction will be concluded within the next six to nine months.

Okay, on slide 15 you can see an all important milestone for LAN during the fourth quarter, the language of passenger operations in Colombia through the acquisition of AIRES. AIRES is the second largest player in the Colombia domestic market with a 22% market share. The Colombian market is very relevant in South America, with over 12 million domestic passengers and with a traffic growth opportunity.

LAN's immediate focus is on restructuring the AIRES operations with the objective of implementing LAN's safety and service standards. This requires a long term transformation of the Colombian operations, which will also address definitions regarding the AIRES fleet and product for both short and long haul routes. Once this process is completed, the Colombian operations will become known as LAN Colombia, and will focus on implementing our low cost model in the domestic passenger operation. We also see significant potential in the development of long haul routes from Colombia and an integrated passenger and cargo operation.

We expect to have AIRES reach breakeven in 2012. In LAN's 2010 financial statements we are consolidating the AIRES balance sheet until November 2010, which will show net liabilities of $87 million and goodwill for $94 million. AIRES will be consolidated in LAN's income statement on the first quarter 2011.

On slide 16 you can see our fleet plan for the coming years. This fleet plan now includes new orders for three Boeing 737 passenger aircraft and one additional Boeing 777 freighter to be delivered in 2012. This plan also reflects a delay in the first two Boeing 787 Dreamliners from 2011 to 2012. As you know, there have been additional delays in these planes, but we have not yet confirmed a new delivery schedule. Nevertheless, we are evaluating alternatives to bridge the gap cost by the delay in this aircraft and compensate the impact it will have on our long haul growth plans.

Overall, we are confident of the significant growth opportunities we have in domestic and international markets in Latin America. However, we are also cautious in our expansion plans, and for this reason always maintain a certain amount of flexibility in our fleet planning.

On slide 17 you can see the flexibility of our narrow body and wide body fleets. Given the geographical diversification in LAN's operation, we always have a certain amount of flexibility regarding where to deploy additional capacity. In addition, we have staggered expirations of operating leases and Japanese operating lease, with certain amount of expirations coming due each year.

Finally, as of last year, we have certain 767s which are now fully financed and unencumbered, and we can therefore freely dispose of. In the case of our narrowbody fleet, we have between 1 and 16 leases expiring each year in addition to the 15 A318s, which we will dispose of over the next three years. In the case of our long haul fleet, we have flexibility of up to six planes per year, including the Boeing 737, 787 and Airbus 340s.

Please turn to slide number 18 to see our estimates for ASK and ATK growth for the year. Our passenger capacity expansion plan for 2011 are between 20% and 22%. This is mainly driven by the net increase of 18 aircraft passenger -- 18 passenger aircraft, and includes a one-year delay of two Boeing 767 initially expected in September. The Colombian operation adds approximately 5% points of ASK growth for 2011.

Regarding the rest of the network, grow will be focused mainly on the expansion of regional routes within Latin America, as well as in domestic markets. Along these lines, we are announcing a new route between (inaudible) Argentina, which will begin operations in May 2011.

LAN Cargo expects Cargo ATK grow for 2011 between 16% and 18%, mainly driven by the delivery of three Boeing 767 freighters between November 2010 and January 2011. For full year 2011 we expect revenues to grow in line with our capacity increases, and we expect operational and EBITDAR margins to be maintain at current levels. Under a scenario of higher fuel prices, we expect to be able to mitigate through prices increases through our fuel surcharge policy, as well as our financial hedges.

Overall, we continue seeing strong positive trends in both the cargo and passenger businesses, and we are confident that the coming years will present important growth opportunities. LAN is well positioned to benefit from expansion opportunities in the markets it operates, while maintaining our flexibility and diversified and strong financial position. Now we'll be pleased to answer your questions.

(Operator Instructions). Your first question comes from Susanne Linhardt of Banchile.

I have a question regarding the Dreamliner. Do you expect to receive any compensation from Boeing because of the delays? And if yes, there's an estimate about how much that could be?

And secondly, will LAN still be the first airline to receive the Dreamliner or has there been a change in the delivery schedule from the side of Boeing? Thank you.

Okay, (inaudible) talking about plans, yes, we do have some plans which are of course are of a substantial nature, but those plans, I figure if you terminate the first agreement which is not our intent. So we are now experiencing some delays on the 787s, as Alejandra commented on the announcement, and we are trying to bridge the gap for the delay on those 787s, maybe with the 76s or other aircraft have been [evaluated] at this point. That's on the first part of the question.

And the second part, whether we going to be the first one to be taking delivery of the aircraft, most likely not. In the (inaudible), yes, but as (inaudible) basis, we will not be the first one. That's my response.

Okay, thank you.

Yes.

Your next question comes from Eduardo Couto of Goldman Sachs.

Hi. Good morning, everyone. I have two questions. The first one in relation to your guidance, you raised your guidance for ASK growth in 2011 to 20% to 22% from more or less 16% previously. I think mainly because of the acquisition in Colombia.

So my question is do you have an idea of the level of operating margin that you can do in Colombia this year so that we can assess the impact of the higher ASK guidance on operating results? That's the first question.

And the second question is relation to -- also in relation to the acquisition in Colombia. They operate different aircraft than the rest of LAN's fleet. So do you think you're going to replace those aircraft for Airbus or you're going to use them in 2011? So what is the idea in relation to the aircraft fleet in Colombia? Thank you.

In terms of the Colombian operation, as I explained, we expect to reach the break even so the numbers in 2011 and 2012 from the end of this year. So we don't expect any strong margins in the coming (inaudible) half year. As I suggest, we expect to have the same EBITDAR margins that we already have in the group, especially on the domestic operation, like -- the same in, like, Chile or Peru or above. In term of fleet?

Yes, in terms of fleet, actually the Company has and is operating 737s. And of course in the rest of the Company -- of the group, here you see the Airbus family in 320s aircrafts for our narrowbody operations. And we have plans to move towards that same definition in the case of Colombia. But the timing was the time on the commitments the Company already has.

But anyway, we expect that we'll start having an increase of the fleet. We will see by the end of this year or in 2012 probably we'll be -- not probably, but will be using the Airbus fleets. So the idea is to finally move to one family all over the Company, of the group adding flexibility to our fleet around -- of the Company.

Okay. Just to make sure that I understood, so basically beside the additional 5% growth on ASK because of the Colombia operations, so this year they're not going to generate any additional operating results to the Company. Is that right?

That's right.

Okay, thank you.

Next question comes from Nicolai Sebrell of Morgan Stanley.

Hi, gentlemen. If I could start out talking a little bit more about Colombia. The operations there, what are the primary levers at your disposal to raise profitability there? In other words, do you think it makes sense to be aggressive and lower prices and capture greater scale that way? Or is it more operational efficiency and improving work practices?

And then if you could also talk -- sorry, next question. I didn't hear the answer to the 787 delay question. Is it likely that you'll get compensation from Boeing? My apologies, I couldn't understand what the answer was.

And then last, just quickly on the TAM GOL merger, what are your first steps after approval with respect to the merger? In other words, what is the easiest or earliest thing you'll do with the integration? Where do you think your immediate gains are, because you said, if I remember correctly, that the $400 million that you expect in synergies, half of that will come in the first year. And so I was just wondering if you could talk about what your actions will be in order to realize that first $200 million or so? Thank you.

Okay. In the case of Colombia, the first steps will be to stabilize the Company both in operational and in commercial terms. One of the first steps that we have taken has been some changes in terms of the itineraries and temporarily stop flying some of the non-profitable routes.

And also putting Colombia into what we call the LAN standards in terms of how we manage the operational side and how the operations are consistent, or the commercial possibilities are consistent with the operational possibilities. And then several -- we have been able to move in a very positive way during the first two months. And basically the idea is to once we have achieved that operational level, minimum level that we have defined, the idea is to restart some of the international operations and to increase operations domestically and start with a business plan once we have those standards in place. That's the plan for this year.

Okay.

Okay, and you asked about the synergies, how to obtain the faster synergies in this process of consolidation of TAM and LAN. Well, we have three sources of synergies that we explain last August, some of them coming from revenues, from cost and from cargo. I think that this is (inaudible), I think the synergies from cargo will be more easily to develop during the first year.

But as I explained, the transaction remains subject to approval of ANAC and other government authority. So in the meantime we will continue to work as separate companies. And we have been talking together of those plans. We expect -- our best estimate is that the transaction could be concluded within the next six and 10 months of the -- for the year. We'll give more information in the coming months about that.

Okay, so, if I understand correctly that the earliest and easiest synergies are on the cargo side. There are no quick fixes or easy scale synergies, something like that, on the passenger side. Is that correct?

I would say probably on the passenger side we could do everything that -- which is better connectivity of the network. However, quickly we may be able to implement that. Remember that we have networks with them that for the most part are very complementary. So to the extent that you can better connect to those network, however quickly we can put that in place, that would also be something that can be realized fairly easily.

Okay, great. And then just to follow up on the question on Boeing and the 787 delays, I didn't catch the answer. Do you guys expect any compensation?

No. Even though the purchase agreements between Boeing and LAN, they do contemplate fines upon termination of that PA. In the case of non-excusable delays, we are not counting on any fine being paid to LAN because we're -- number one, we're not cancelling. We just had delay in the aircraft.

Great. Thank you very much.

Next question comes from Jim Parker of Raymond James.

Good morning. I would like clarification on some issues. One, did you say what the annual run rate in revenue is for AIRES?

No. What we basically have said is that we're targeting a break even in the Colombian operation in 2012.

Okay. Second question, regarding your costs per ATK in 2011, I believe you indicated that EBITDAR margins perhaps are going to be the same year to year. Your margins were down a bit in the fourth quarter. What -- your ex-fuel costs per ATK, what is the outlook? Is it for flat with 2010? And what -- these particular cost pressures that you saw in the fourth quarter, what is the outlook going in 2011?

Yes, we are targeting to see a fairly flat cost per ATK during the -- for 2011 compared to 2010. You look at the fourth quarter, there were a lot of end of the year costs that were recognized in the fourth quarter that are not necessarily going to be continued during 2011. So we would target to see margins pretty much at 2010 levels next year.

Okay. And just one thing. The name of your company is going to be LATAM Airlines, I believe, but mostly you are South American. So I would like to know what your thinking is regarding and how you may implement this plan to become an intra-LATAM carrier as well. Like where would the base of operations be and when do -- how will that unfold?

LATAM Airlines Group refers to the name of the combined company. But as we've said, the two companies, LAN and TAM, continue to operate independently and continue to keep their own brands and their own operations.

That's not my question. What I'm asking about is your intra-LATAM, which would include Mexico, Central America, of having an intra-LATAM operation. How do you plan to build that and where will the base of operations be?

It was just -- a regional operation just considers expansion of our current operations. There's no new base or new -- or plans for -- it's just more growth, more frequency than routes of the -- over the existing regional operations that we currently have [at LAN].

Okay, thank you.

Next question comes from Michael Linenberg of Deutsche Bank.

Oh, hey, good morning. And just at the risk of beating a dead horse here with respect to AIRES, when you look at some of the changes that you've immediately implemented, it looks like you've basically pulled all of their international flying, except, I think, for one route, maybe Bogota, Fort Lauderdale.

What -- when we think about AIRES' capacity right now, is it predominantly the focus that in 2011 you're going to focus on the domestic market? With the pull down of some of those services, how is the company sized currently versus how it was sized when you bought the company? It's 70% to 80% of the size? Has there been some shrinkage? How should we think about that?

Okay. Well, I guess it explains the idea with AIRES is to first stabilize and then grow.

Okay.

But we see right now is a temporary reduction in some of the operations. That's something that is temporary and is something that's needed to stabilize the Company.

Okay.

There's some issues that need to be resolved, for example, in the size of sales and distribution are things that we are working on to be able to restart an international operation that is successful, as we expect. So we are expecting to restart international operations as soon as some of those important milestones are completed. And we expect that we will be able to be restarting international operations, some of them or all of them, during this year. And then grow -- we're expecting growth by the end of the year or 2012.

When you mentioned distribution, presumably that also includes the -- AIRES having the LAN code, some form of a code share as well as the ability to earn miles and LAN pass. When -- how quickly do you think you'll be able to integrate AIRES into the LAN network with either the LAN code and/or the ability to use miles? Unless you've already done that, which I don't think you have.

No, we haven't. Part of the idea is to stabilize and to move AIRES into LAN standard in many dimensions. And that's very important in order to include -- or change the name and put AIRES in the level of any of the companies of the LAN Group. So we expect that that will happen by the end of the year or 2012.

Okay, by end of year in 2012. And then where does -- where does [Air Oasis] fit in all this? I know in the past Air Oasis was supposed to be up and running with three A320s or three A319s, I believe in February. What's the latest on that and how does that kind of fit into all this?

Air Oasis have three planes, three A320s that were expected to be used to start the operations. With a change of strategy, those A320s were moved -- or are in the process to be moved to the rest of the Company for the group. One is already here and the other two are in the process. And those or other airplanes that we have in the group are going to go back to Colombia once the growth conditions are there to start growing.

So, basically those are planes that are going to be used in other parts of the network until they are either in good condition to receive new aircraft and have the crews and everything that's necessary to add those aircrafts to the country.

Okay. And then just your passenger capacity growth for 2011, the 20% to 22%, comparing that to the previous 15% to 17%, is 100% of that due to AIRES or did -- is some of that some additional growth at the LAN Airlines level?

It's in line with what we said in the -- our last conference call, the 20% to 22% growth for 2011 is between 5% and 6% is coming from the addition of AIRES --

Okay.

So the base of 15% to 16% growth increase in the rest of the network is more or less the same that we were talking for the last conference call.

Okay. Then just lastly on the cargo growth, the -- that number has been raised up, and I realize that that reflects there are some additional airplanes coming in. When you look at cargo trends, we definitely have seen some of the comps get more difficult and it looks like some of the cargo data out there is not as robust as what it was a year ago, and yet it looks like you're accelerating your cargo growth.

Is some of that penetration into new markets and new opportunities, maybe some of that because of the expanded presence in Colombia and Brazil later this year, or is some of that a function of LAN just taking more share in its core markets? And even with things slowing, the fact that you're getting a bigger piece of the pie would result in you needing additional capacity to meet the needs of that level of demand? What's driving that? What's driving that tick up in cargo capacity growth?

Yes, well, what you mentioned is correct. First of all, let me say that, as was said before, cargo growth is not as robust this year as it was last year. But in the region, Latin America, we see in better shape than the rest of the world. So we still see Latin America growing. Not at the same pace as last year, but still growing more than the rest of the world. That's one thing.

Secondly, what you said is true. Yes, we're expecting to increase our market share. So part of the growth that we are expecting is to take a larger piece of the market ourselves. Last year the market grew a lot, and also a competitor went out of business, which was [Ow] and we were not able to take that market share because we we're focusing on new projects, that's Brazil and Europe. But mid-year they will receive new capacity. We'll see new -- we are currently receiving new aircraft (inaudible) three 737s. We expect to take back part of this market share that we were not able to take last year. That's secondly.

And third, and just finish with this, third, we are also expecting to continue growing this new market, especially domestic revenue. We are currently flying -- we started with one (inaudible) in Manaus and (inaudible) we are at the second frequency in the middle of last year, and now (inaudible) three daily frequencies between Manaus and (inaudible), and we're adding also a daily flight to the northeast region of Brazil. So, we expect to continue growing in those markets, as well as also new projects regarding -- related to the west coast and Mexico.

Great. Thanks for the thoroughness of the answer. Nice quarter, guys.

Your next question comes from Stephen Trent of Citi.

Good morning, everybody. Most of my questions have been answered, but two more for you, if I may. The first is you mentioned, I guess, some employee strikes during the quarter, which, if I recall, came out of Argentina. I recall seeing these in the press previously, but I've never recalled you mentioning them on one of your results calls. Forgive me if I missed it, was there anything that you would characterize as onetime charge related to these labor strikes?

And then my second question pertains to LATAM Airlines. I'm trying to get my hands around -- better get my hands around your long term balance sheet strategy with respect to LATAM Airlines potentially being bestowed with underlying LAN Airlines investment grade credit rating. Is there any possibility that TAM level debt might be construed as nonrecourse to LATAM, which would be consistent with your not controlling the TAM passenger piece? Thank you.

Well regarding Argentina, the strike, there were two different days when we had a strike in the Argentina operation and we were referring to that in the context of having basically a decline in ASKs in Argentina compared to the fourth quarter of 2009. Part of the impact was some slight cancellations related to that. But that was the extent of (inaudible).

Yes. Stephen, hi. Andreas here. On the second part of the question about the LATAM being -- the debt of being -- not being nonrecourse to the TAM debt, we have no comments. We cannot comment at this stage.

We are independent companies and we are not allowed to share our strategy. So we expect possibly continue (inaudible) the next six to nine months will be concluded --

(multiple speakers)

Yes, I had my suspicions you wouldn't answer that question, but I thought I'd try. That's it for me. Thanks, guys.

Your next question comes from Natalia Lacava of Credit Suisse.

Hi. Good morning, two questions. The first one on yields, how should we think about yields in 2011 after the incorporation of AIRES? We had a very good quarter last -- fourth quarter was very good in terms of yields. How should we think going forward? Is it going to be flat, slightly down or up? And how that would impact margins for 2011? That's the first question.

And the second question, if you could give us more detail about LAN pass in terms of revenues and et cetera, and what is your strategy for LAN pass, if you're going to merge with multiples or not, if you have something already defined?

Okay, regarding the yields, we're expecting yields similar to 2010. We don't see much room for increase in this moment. But also that will depend on how the fuel price evolves into the future. In the past we have been able to cope with increases in the fuel prices per our surcharge mechanisms. So as long as the fuel remains at the levels that we are seeing right now, we don't expect any more increase -- any increases in yields at all. We see them flat.

And that incorporates -- that incorporates AIRES?

AIRES is very marginal in terms of the total -- in the case of the Company -- to a larger case of the Company so.

It doesn't change much.

It's not very important at all.

So if costs are going to be flat, as you mentioned, and yields are also going to be flat, so basically that means that your margins are going to be very close to 2010, or depending on load factor, but pretty much close to 2010 levels?

Yes. We're seeing margins very in line with 2010. But we expect an increase as a consequence of small change in the strategy (inaudible) increasing load factors --

Okay.

-- more or less in line with what we saw in the fourth quarter of 2010. Not at those levels for the year, but we see a real increase in yields (inaudible). Sorry in [LATAM].

And regarding the LAN pass?

Well, sort of along the lines of what we've already said, until -- at this point there's really not much more that we can say. Those companies that -- LAN pass continues with its own operation. That's mostly (inaudible) and there won't be any definitions regarding what's going to happen until after the transaction.

But can you provide us some color on LAN pass numbers, like revenues?

Not at this point because basically LAN pass is different than what we recently know is not a company that is open, it really targets the passenger operation and works as the loyalty program. And it's basically focused on increasing the revenues (inaudible) passenger operation and increasing the loyalty and the travelers throughout the network.

Okay. Thank you.

(Operator Instructions). Your next question comes from Sachin Shah of Capstone Global Markets.

Hi. Good morning. Just to follow up on slide 14 on the merger update, I wasn't clear if some of those regulatory approvals and registrations that you made in that slide, were those filings made already or they're still pending?

Well, (inaudible) the pending agreement we signed, we sign just with the ANAC. And we are subject to the first approval, and then we will continue with the process. But we don't have certain date that it would be released. For after that, probably we will continue with the following process but the first step is to obtain the ANAC approval.

Okay. And as far as the shareholder meetings, any kind of timeframe when you expect that? Do you expect to hold a shareholder vote after you receive all of the regulatory approvals, or are you doing it within the process?

All the shareholders meeting will be decided to go on after the ANAC approval. This is the first step. That could be delay, one months, two months, three months. But after that it will be clear when we will call for the shareholders meeting.

Okay. And so there's no narrowing of timeframe within the six to nine months? That's what you expect right now.

Yes.

Okay. Fair enough. Thank you.

Your final question comes from Eduardo Couto of Goldman Sachs.

Hi. Just a follow-up question in relation to the merger with TAM. In Brazil, the approval from the antitrust authorities is generally the approval that takes longer. So my question is if you get all the other approvals with the exception of the antitrust authorities in Brazil, can you go ahead with the share swap or not? Or in other words, do you really need all approvals before you swap the shares, or you can get it later after you swap the shares? That's the question.

Well, as I explained, we need to obtain many regulatory approvals, like the ANAC approval, the antitrust authorities' approval and then the SEC and Chilean and Brazilian stock exchange approval. And after that, we will go with the final process.

So you need all the approvals before you swap the shares?

(inaudible) the approvals.

At this time there are no further questions. I will now turn the floor back over to Mr. de la Fuente for any closing remarks.

Okay, thank you again for joining us today. Please feel free to contact 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.

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