LATAM Airlines Group SA (LTM) 2025 Q3 法說會逐字稿

Ladies and gentlemen, thank you for joining us, and welcome to the third quarter 2025 LATAM Airlines Group earnings conference call. (Operator Instructions)

Before I turn the call over to management, I'd like to remind you that certain statements in this presentation and during 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 and expected 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 published 20-F 2025 updated guidance, earnings release, financial statements and related CMF and SEC filings. The company's actual results may differ significantly from those projected or suggested in 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 will now hand the conference over to Ricardo Bottas, Chief Financial Officer. Ricardo, please go ahead.

Hello, everyone, and good morning. Welcome to our third quarter 2025 conference call, and thank you all for joining us today. My name is Ricardo Bottas, and I am the CFO of LATAM Airlines Group. Here with me is Roberto Alvo, our CEO, Andres del Valle, Corporate Finance Director, and Tori Creighton, Head of Investor Relations. We will present our highlights and results for the third quarter.

I will hand it over to Roberto to share his opening remarks. Once finished, I will present the key operational and financial figures, as well as provide other updates.

Good morning. Thank you, Ricardo, and thanks to all for being here today. This month, three years ago, LATAM emerged from financial restructuring. This period was one of learning, designing and executing. LATAM defined a blueprint that has a collection of essential elements we needed to excel. This blueprint was implemented and is working. The group's network is the most expansive in the region, and our loyalty program is by far the largest and most valued. No one else can connect South America within the region and to the world. We work loyalty and provide choice to customers as LATAM Group can.

However, these results are the product of more than a co-branded credit card and a map of routes. At LATAM, we are obsessed with execution. Every day, in every interaction, we strive to be better, to depart on time, standard zero on every flight, to improve on what we do, seek and find cost-saving opportunities for each of our activities, to make sure we deliver what was promised to the customer at every interaction, and to provide the care and respect that each one of them deserves as they entrust their journey to LATAM.

We have made considerable progress but are not satisfied. I believe we can do better. Looking forward, we must ensure that we remain disciplined, disciplined in execution, and disciplined in controlling costs. At the center of all of this is our people, a group of more than 40,000 employees who care about and love what they do every day.

People who believe in what they do and what it represents. They are the engine and the spirit that drives LATAM Group forward, and the most important commitment is to them, making sure that they feel that every day it is worth being part of the LATAM family. As we look into the future, I'm confident that we can continue the journey of improvement and deliver on purpose that we have, which is elevating every single journey.

Thank you very much. Now, back to Ricardo for a description of how we are achieving profitable growth, improving the quality of our traffic, keeping high customer satisfaction, and maintaining our cost under control.

Thank you, Roberto. Please join me on slide 3. This quarter, LATAM Group continues to show the strength of its strategy, its unmatched network footprint, focus on displaying operational and commercial execution, as well as product improvement. In terms of operations, LATAM Group transported over 22.9 million passengers, reinforcing its role as the leading airline group in South America. Capacity grew by 9.3% year-over-year, with healthy load factors of 85.4% on a consolidated basis.

The group is seeing consistently high levels of customer satisfaction, increased customer preference, especially in the premium segment and sustained customer loyalty. LATAM translated these operational performances into financial results, driven by an 8.4% increase in passenger unit revenues while keeping unit costs broadly stable. Adjusted operating margin expanded to 18.1%, while adjusted EBITDAR reached $1.15 billion during the quarter, and net income totaling $379 million.

During this quarter, LATAM executed second share repurchase program for a total of $433 million, with the company's disciplined approach to capital allocation. During this quarter, LATAM Airlines Group signed a major agreement for an acquisition of up to 74 Embraer E2 aircrafts. Moving to the next slide about the fleet and this acquisition and the transaction, the E2 will indeed enhance LATAM Group affiliates' regional connectivity in South America and represent an opportunity for our network to open up to 35 new destinations. They also offer a 30% improvement in fuel efficiency per seat compared to previous generation aircraft, reinforcing the group's commitments to sustainability and cost discipline.

In total, LATAM Group will receive 24 E2s, with 12 deliveries scheduled for the fourth quarter of 2026 and the remaining 12 in 2027. With this addition, LATAM's order book now exceeds 140 aircraft through 2030, supporting the group's long-term growth and fleet modernization strategy. Initial deliveries are set to begin with LATAM Airlines Brazil, which will be the first to deploy these aircraft in its network. In Brazil, these aircraft will enhance capillarity across the country, enabling LATAM Group to expand into under-penetrated regions and destinations that are currently not served by the group.

Over time, and subject to market conditions and strategic evaluations, other LATAM affiliates may also incorporate the E2s into their operations. Still, on this slide, we expect to receive an additional eight aircraft on this fourth quarter of 2025, and also, we project to receive an additional 44 aircraft next year, including the E2s.

Let's move to the following slide, slide 5. As mentioned earlier, LATAM Group delivered another quarter of strong traffic performance, transporting almost 23 million passengers with a consolidated load factor of 85.4%. LATAM has been committed to profitable growth at the consolidated level, passenger RASK increased by 8.4% year-over-year in US dollars, a result that reflects the strength of LATAM Group's strategy and execution.

A clear example of this is Brazil, where LATAM Airlines Brazil grew capacity by over 12% year-over-year. With this expansion, customer preference remained strong, and the load factor even increased by 2.2 percentage points. During the quarter, the Brazilian affiliate launched six new domestic routes, further supporting the strategy to deepen its presence and enhance connectivity in this market. In the Spanish-speaking countries, LATAM Group's affiliates have also improved performance during this quarter, with passenger RASK increasing 18% year-over-year.

In particular, as compared to 2024, LATAM Airlines Colombia experiences stable domestic industry capacity, also seeing healthy demand. Demand is in the other Spanish-speaking affiliates. Domestic markets also remained healthy, except for Chile, where industry traffic figures are stable against last year. However, the focus on delivery execution and a higher premium product offering helped fully offset these effects.

Meanwhile, the international segment continued to operate with high load factors, reflecting the relevance of the network and LATAM Group's role as the main connector in the region with a diversified network. Altogether, the unit revenues, even in the context of increased capacity, reflect the effectiveness of the group's commercial and customer strategy. It is the result of offering the right product in the right markets while executing with discipline.

Looking ahead, LATAM Group continues to focus on maintaining a sustained trajectory of discipline and profitable growth. The group is also focused on reaching the goal of high single-digit consolidated capacity growth next year compared to 2025, supported by an ongoing focus on efficiency, a relevant fleet delivery schedule, and a margin preservation on top of a healthy demand environment.

Moving to the next slide, slide 6, regarding our value proposition and customer experience. LATAM Group remains committed to delivering a superior travel experience and increasing customer preference. During the quarter, the group continued advancing initiatives. The new Lima Lounge was inaugurated at the recently opened Jorge Chavez International Airport, one of the group's main hubs.

This new space offers a modern and comfortable environment and comes in addition to the signature check-in area that was previously inaugurated at the same terminal, both part of a strategy to elevate the end-to-end experience for premium travelers and LATAM Pass members.

Looking ahead, LATAM Group also announced that the launch of its new Premium Comfort Class, which will begin rolling out in 2027 on long-haul routes. This product reflects a commitment to offering more choices to our passengers for how they want to fly. This new class will be an additional option other than the existing economy and business class cabins for passengers seeking more space and personalized services.

Finally, LATAM Group was once again recognized by APEX as a Five Star Global Airline for 2026. This marks the fourth consecutive year the group has received this distinction, based on independent passenger feedback gathered from over 1 million flights worldwide. It's a testament to the team's dedication and to the impact of the investment being made across the network.

In addition, LATAM Cargo Group was named Air Cargo Airline of the Year by Air Cargo News, becoming the only South American carrier to win in any category, further underscoring the group's excellence across all segments of the business. Together, these efforts underscore LATAM Group's dedication to continuous improvement and reinforce its strategic commitment to quality, consistency, and the passenger experience, a focus that continues to support more passengers choosing to fly with LATAM and the group's ability to capture premium revenues.

Next, let's move to slide 7. I will now walk you through the financial results for the third quarter, a period in which LATAM once again reflects a solid execution. Total revenues reached $3.9 billion, an increase of 17.3% year-over-year, supported by growth across both Passenger and Cargo segments. Passenger revenues rose by 18.5%, with revenues from premium travelers also showing relevant growth, increasing by more than 15% compared to the same period last year, while Cargo revenues grew by 6.3%.

On the cost side, total adjusted expenses ex-fuel increased by 21% year-over-year, driven mainly by increased operations, especially international and also a lower base of comparison due to the one-off impact in the same period of last year. This increase was partially offset by a 4.7% year-over-year decrease in jet fuel costs. That said, on the unit cost front, LATAM upheld its firm commitment to cost efficiency, a key pillar of its strategy.

As a result, LATAM delivered an adjusted operating margin of 18.1%, a testament to LATAM's operational excellence through profitable growth, while also holding its cost control performance and advantage. Again, a non-negotiable and relevant part of LATAM's strategy.

Lastly, net income for the quarter totaled $379 million, up 26% year-over-year, even after a $105 million negative non-operational income statement impact related to the liability management exercise completed in last July, as disclosed to the market before. Net income for the nine months was $976 million, 38% higher than the same period of last year.

Now, moving to slide 8, as you can see on this slide, LATAM operational performance this quarter is a result of consistent and disciplined execution of the group's strategy over the past several years. Since 2019, LATAM has steadily expanded its adjusted operating margin, rising from 7.1% to 18.1% in the third quarter of 2025.

At the same time, LATAM has maintained tight control of its cost base. Adjusted passenger CASK ex-fuel has been stable between $0.042 and $0.043 on the last 12 months' basis, despite inflationary pressures and higher activity. This disciplined approach to cost has enabled LATAM to consistently grow margins while preserving efficiency in order to continue delivering sustainable and profitable growth going forward.

With regard to cash generation, as shown on slide 9, in the third quarter, LATAM delivered strong adjusted operating cash flow generation, reaching $859 million. Interest payments remained contained at $52 million, mainly as a result of the debt refinancing executed in 2024, which enabled LATAM's significant reduction of the cost of its non-fleet financial liabilities, which continued to translate into meaningful interest savings and overall cost of capital reduction.

After both 2024 and 2025 refinance execution, combined interest payment savings expected for next year amount to $151 million compared to last year. Finally, during the quarter, LATAM executed its second share repurchase program for a total of $433 million. This reflects the group's capital allocation strategy and discipline.

Let's move to slide 10 to discuss LATAM's capital structure. LATAM ended the third quarter with a liquidity level of 25.8%, while it is likely above the upper end of the financial policy range. The execution of the share repurchase program this quarter brought liquidity more in line with the target levels. LATAM ended the quarter with an adjusted net leverage ratio of 1.5 times, aligning with the full-year guidance and well below the cap from the financial policy.

A strong capital structure is not just a financial metric for LATAM, it is a strategic asset. It gives the group the flexibility to pursue growth where it is most profitable, return capital to shareholders when appropriate and manage the most accretive capital structure. This financial strength, combined with assets and cost advantage, sets LATAM apart from its peers and remains central to its ability to compete, adapt and lead into the region over the long term.

Please join me on slide 11. Given this solid year-to-date performance, supported by continued customer preference and the disciplined execution of a strategy centered on profitable growth, cost efficiency and financial strength, LATAM has updated its full-year 2025 guidance. Consolidated capacity is projected to remain broadly in line with previous estimates, while revenues are expected to be higher within a tighter range.

In terms of margins, adjusted EBITDAR guidance has also been refined to be between $4 billion and $4.1 billion, close to 9% higher than the previous guidance. The updated range reflects a more constructive outlook, now positioned higher than the previous estimate.

Adjusted passenger CASK ex-fuel was updated to be between $4.35 to $4.40, mainly due to FX valuation in this period. Liquidity was also updated after the execution of the share repurchase program, and we are maintaining the same estimate to be above $4 billion by the end of this year. Mainly considering the adjusted EBITDAR improvement in the cash generation, the forecasted leverage for year-end is now at 1.4 times. And for next year, as I mentioned before, the group is focused on reaching the goal of high single-digit capacity growth compared to 2025, supported by an ongoing dedication to efficiency and margin preservation.

Finally, before we move to the Q&A, I'd like to take a moment to remind you that LATAM will be hosting an Investor Day in New York on December 9, 2025. We invite you also to tune into the live webcast on this event.

With that, we now open the line for your questions.

(Operator Instructions) Guilherme Mendes, JPMorgan.

And congrats on another pretty strong results. My question is on the international front. When compared to Brazil, domestic and Spanish-speaking countries, it looks like the past performance was relatively weaker, although it's still growing on a year-over-year basis. Can you share more details on how international is tracking, maybe on a per-region basis, which other routes have been pressuring the overall results and which are doing relatively better?

We have seen in general stable and healthy demand in most of the international segments. I would say that South America to the US is a little bit softer than what we used to see in the last few months. And this is, in our view, linked to people probably avoiding going to the US and moving themselves a little bit into other regions. Also, the northern part of South America, the regional traffic, which is international flights on the northern part, is a little bit softer as well. But in general, nothing that we have seen that is worrisome or concerning with respect to the level and the quality of the demand. In that sense, we remain confident on the prospects for the remainder of the year.

Very clear, Robert. Thank you. When you say softer into the US, this is more leisure related or even corporate related?

No, this is more leisure related.

Mike Linenberg, Deutsche Bank.

I have a couple here. I guess, Roberto, can you just update us on this measure in Brazil to potentially force airlines to offer up a free bag? Is that just domestic? Is that domestic and international? And where is that in the legislative process right now?

A few weeks ago, a couple of weeks ago, the lower chamber in Brazil passed a law to allow basically passengers to carry a bag without being charged and also select a seat without charge on seats that have no distinction in terms of space. This, as the law was passed, was for both domestic and international flights. It affects eventually, therefore, domestic and international carriers into Brazil.

The law needs to go to the Senate. It has not been presented at the Senate floor at this point in time, and we have no clarity if that will happen and when it will happen. So for the time being, that still has that second step. Ultimately, the presidential veto is also something that the Brazilian constitution allows for laws like this. We will see.

The reason I ask is, and you mentioned international, is that, all right, domestic is one thing, but international, from the perspective, I know at least from the US, they may view it as a potential tax or additional cost that's unilateral and therefore in violation of the bilateral. So I just wonder how they implement it internationally when international carriers have different ways and how they price their product and obviously are protected by the bilateral arrangements between Brazil and those countries.

Yes, I completely agree with you, Michael. Of course, LATAM does not support the passing of the law, and we have together with IATA and ABEAR in Brazil been making very clear and explaining the impact of this potential measure. This is not good, clearly, for the industry, airline industry in Brazil. I think it has the potential of ending up with higher fares for passengers that fly, whether into Brazil or outside or coming to Brazil. So I think that at an industry level, we are making a lot of effort in making sure that everybody understands the impact that this has on traffic and on the industry. We're completely sure that this would not be a positive measure for us all.

Great. Just my second on capital allocation. And this is, Roberto, to you or Ricardo, how you think about it longer term. You've had a nice balance. Obviously, the dividend is, you know, statutory, but you pay the dividend, you've been paying down debt, you've also been buying back stock. As we think about the sort of the various levers going forward, should we expect to see, say, regular reductions in shares outstanding or was that more of just an opportunistic initiative on your part?

First of all, I mean, as we think about capitalization, do remember that the development of the business and how we see and foresee opportunities for growth is the priority. That will always take over other potential decisions. At this point in time, we believe we have done a balanced mix of initiatives, and we remain very close to the target that we have in terms of financial policy. So we are content with what we have done during 2025.

Going forward, looking forward, I think we will see. I mean, this is a board decision. Ultimately, the dividend payout in Chile per law is a shareholders meeting, the shareholder decision, which will happen in April. All options for capital allocation and growth investment remain open. And as we progress in the next few months, the company will for sure explain to the market how we continue depending on our results and, of course, the situation in the region and the opportunities we may see.

Gabriel Rezende, Itau BBA. Your line is open. Please go ahead.

And congrats on these very strong results. I would like to follow up on your comments regarding the investments and the efforts you have been putting into bringing a more premium experience to the customers and just trying to understand how relevant it has been so far in terms of your revenue growth as well as your profitability. If you could maybe provide some color on how relevant these premium revenues are at this point. You mentioned that it has grown by 15% year on year. Just trying to understand how much it represents out of total passenger revenue at this point and how much could it represent in the future as you bring more efforts into this. .

I think it's important to remark what is it what we're experiencing. First, yes, premium revenue is growing faster than capacity. A relevant portion of the improvement that we see in the RASK for Spanish-speaking domestic, Brazil, and to an extent international is due to a change of mix where we have a larger proportion and portion of premium revenue coming from there. That's both corporate and as well, let me call it high leisure. I don't know if that's a context or the concept in English, revenue that we're seeing.

Now, this is a function of, in my mind, two things. Most importantly, it's impeccable execution and care in every interaction that we made for the customer. Secondly, it's improvements in products, as you probably saw in the presentation, the Lima Lounge, premium economy in the international, and other things. But as we have, in a way, decommoditized,

if you want, our product, we have focused very much on experience. That, I think, has brought a willingness to pay that customers probably had that we were simply not exploiting because our product probably was not as good as they were expecting. Now we are, I think, very clearly seeing the impact that this has in our results.

(Operator Instructions) Felipe Ballevona, Santander.

First of all, congrats on the strong results. I have a couple of questions here. First is following actually on the first question of the Q&A. What was the reason behind the growth slowdown in international traffic recorded in October? Is international traffic being dragged down by Colombia? The last couple of data points have shown a slowdown in your international, not only in the domestic as has been the case for the previous months, but also in the international front.

Also, my second question, if you have any news regarding a potential buyback.

Yes. Hi, Felipe. First of all, our international Colombia operation is very small as compared to the total international traffic. We have not seen in particular an impact on international traveling in and out of Colombia, and that is very unsubstantial to the size of our traffic, particularly out of Brazil and secondly Chile and then Peru.

No, I guess this is a function, as I explained in the beginning, softer demand into the US, particularly on leisure traffic. We believe that this is linked to people probably deciding to go elsewhere and probably spending more time within their countries and to the region. We do not see this as a fundamental slowdown in demand. It is probably a sign to more external factors than that. That is the main reason. Okay.

Having said that, do remember that we do expect that our ASK growth for the whole of 2025 is going to be around 10% to 10.5% increase in capacity, which is a significant increase in capacity. That is a reflection of a good level of demand that we see to operate this level.

That's very good color. Do you have any news regarding a potential buyback or is it -- oh, sorry. You're fine.

As I said before, at this point in time, we are close to the financial policy targets that we have. Going forward, we will see what the board decides. Do remember that the company has a range of alternatives to allocate capital and also be mindful that the first priority will always be growing the business. After that, any excess that we believe should go back to shareholders, the company has a few tools to define how to do it. Rest stay tuned eventually.

Understood. Congrats on the results.

Jens Spiess, Morgan Stanley.

And congrats on the very strong results. Just wanted to know if you could provide any context on next year, how is the order book, the booking curve looking like? Also, how much do you expect to grow in terms of ASKs next year based on your fleet plan? That would be very helpful. If you could remind us how many leases you have expiring next year, I would very much appreciate that.

As we explained in the press release and Ricardo mentioned here, we expect high single-digit ASK growth, or that is our goal for 2026. We will provide more detailed guidance on 2026 in a few more weeks. You asked about the first part of the question, fleet. By the way, yes, fleet. So we have, on slide 4 of the presentation, you can see 41 arrivals of A320 family and seven E2 aircraft plus three widebodies. We have relatively few leases. I do not have the correct figure here, the right figure, but we have the option to, of course, extend them if we want to. Our expectation at this point in time is to end up the year with a total fleet of just over 400 aircraft, around 410. You can see that as well in the press release.

Okay. Sorry, I am just looking at a note here they are sending me. Yes. Last thing, they just reminded me to make you feel comfortable that we have the fleet we need to grow for what we are expecting next year. I do not expect, we do not expect, that we would need to make changes in our fleet plan for the capacity we have planned.

The first part of the question you asked me now, remember, is booking curve into the beginning of the year. Very early still, particularly on domestic markets, the percentage of booked seats is very low. But what we're seeing initially for the first couple of months of the year looks in the current trend that we have seen on third quarter and that we expect for the rest of the year.

Ewald Stark, BICE.

I want to know if you can provide any color behind what is driving the lower percentage of hedge fuel during this quarter. Especially as I would like to focus on if there is anything on booking going forward that is driving this lower percentage of hedge fuel or maybe you're looking at something different about forecast of oils.

If you look at the press release, it's nothing that different from what we usually do. You have a 47% for Q4 of this year and then 33% for Q1. Of course, as soon as we approach the next quarters, we will have, of course, consistent with the policy, an increase in the fuel hedge. I wouldn't say that this is any different from what you have seen in the past. It's a very standard, I think, coverage that we have today for fuel price. Nothing that really deviates from the policy.

Financial statements say that it says you have a 26% hedge fuel for the next 12 months. Starting from quarter one, first quarter of 2026, every quarter is below 30%.

If you look at the detail on the earnings release, it's more detailed here. I think at the financial, that's a sort of a weighted average of what's going forward. But here you have the actual percentages covered for every quarter. Again, 47% for Q4, 33% for Q1. So that's a difference. You would look at the financials here. Then this is as of November 14, 2025. It's more updated. I think, of course, the financials, they called for, I think, September 30, but this is you have the most updated vision of the current portfolio as of November 14.

(Operator Instructions) Guilherme Mendes, JPMorgan.

Regarding the pallet strike in Chile, can you share some potential expected impact for the fourth quarter? I understand it should be material, but I just wanted to hear your thoughts on what you expect on this negotiation.

At this point in time, we have no clarity of the potential impact. We will update that if necessary at an appropriate time.

There are no further questions at this time. I will now turn the call back to Ricardo Botas for closing remarks.

I would like to thank you all for participating in today's call and remind you that we will have our investor day again on December 9. We would love to have all of you participating on that opportunity to get more information from the company and on additional updates. Thank you all and have a good day.

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