LATAM Airlines Group S.A. Q3 FY2025 earnings call

• Strategy execution: LATAM's strategy of disciplined operational and commercial execution, unmatched network, and product improvement is working. • Operations: Transported over 22.9 million passengers, capacity grew 9.3%, load factor 85.4%. • Financial results: Adjusted operating margin 18.1%, adjusted EBITDAR $1.15 billion, net income $379 million. • Fleet acquisition: Signed agreement to acquire up to 74 Embraer E2 aircraft, 24 to be received with deliveries in 2026 and 2027. • Customer experience: New Lima Lounge inaugurated, new Premium Comfort Class to launch in 2027 on long-haul routes, recognized as a Five-Star Global Airline by APEX.

LATAM Group transported over 22.9 million passengers in the third quarter, with capacity growing 9.3% year-over-year and a consolidated load factor of 85.4%. Passenger unit revenues increased 8.4%, adjusted operating margin expanded to 18.1%, adjusted EBITDAR reached $1.15 billion, and net income was $379 million. In Brazil, LATAM Airlines Brazil grew capacity over 12% year-over-year, launched 6 new domestic routes, and passenger RASK increased 8.4%. In Spanish-speaking countries, LATAM Group's affiliates saw passenger RASK increase 18% year-over-year, with international segment maintaining high load factors. Revenue contribution: Passenger segment was the main driver, with Cargo revenues also growing 6.3%.

• Consolidated capacity projected to remain broadly in line with previous estimate, revenues higher within a tighter range. • Adjusted EBITDAR guidance refined to between $4 billion and $4.1 billion. • Adjusted passenger CASK ex-fuel updated to between $4.35 and $4.40. • Liquidity maintained above $4 billion by end of 2025. • Target high single-digit consolidated capacity growth in 2026 supported by efficiency, fleet delivery, and margin preservation.

• Potential Brazilian law allowing passengers to carry a bag without charge and select seat without charge for domestic and international flights, which may lead to higher fares and impact the airline industry. • International operations affected by bilateral arrangements between Brazil and other countries regarding the potential law. • Potential impact of pilot strike in Chile, with no clarity on current impact at the time of the call.

Q: 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 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?

A: So we have seen, in general, stable and healthy demand in most of the international segments. I would say that South America to U.S. 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 U.S. 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. So in that sense, we remain confident on the prospects for the remainder of the year.

Q: 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: 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 seat without charge on seat 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 is -- 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 would happen and when it will happen. So for the time being, that still has the second step. Ultimately, presidential veto is also something that the Brazilian constitution allows for laws like this. So we will see.

Q: 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. So if you could maybe provide some color on how relevant these premium revenue are at this point? You mentioned that it has grown by 15% year-on-year. So just trying to understand how much it represents out of the total passenger revenue at this point? And how much could it represent in the future as you bring more efforts into this?

A: Yes. Thanks for the question. So first, I think it's important to remark what is what we're experiencing. First, yes, premium revenue is growing faster than capacity. And 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. And 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, 2 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. And 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. And now we are, I think, very clearly seeing the impact that this has in our results.