LATAM Airlines Group S.A. (LTM) Earnings Call Transcript & Summary

Hello, and welcome to the Fourth Quarter 2024 LATAM Airlines Group Earnings Conference Call. My name is Alex. I'll be coordinating the call today. [Operator Instructions] Before I turn the call over to management, I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations, and as such, constitute forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives 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 guidance earnings release, financial statements and related CMF and SEC filings. The company's actual results may differ significantly from those projected or suggested and any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. I'd now like to turn it over to the management team to begin. Please go ahead.

Hello, everyone, and good morning. Welcome to the Fourth Quarter and Full Year 2024 Conference Call, and thank you, all of you, for joining us today. My name is Andres Valle, Vice President of Corporate Finance at LATAM Airlines Group. Here with me today is Roberto Alvo, our CEO; Mr. Ricardo Bottas, our CFO, who recently joined the team; and Tori Creighton, Head of Investor Relations, and we will present our highlights and results for the fourth quarter and full year 2024. I will hand it over to Roberto to share opening remarks over the quarter's and year's highlights. Once he's finished, I'll present them in more detail, alongside the financial results. Over to you, Roberto.

Thank you, Andres. Good morning, everyone, and thank you for joining us to review LATAM's group performance for the fourth quarter and full year results. Before we begin, on behalf of LATAM Airlines, I'd like to express our deepest condolences about the recent accident in Washington. Our thoughts are with the loved ones of passengers and crew on board of the aircraft and the helicopter and the American Airlines team during this difficult time. Also, before I turn to the results, I'd like to invite Ricardo to introduce himself. He has a proven track record of over 2 decades and vast experience in corporate finance, financial planning, tax, accounting and investor relations, among other areas, working for multinational public companies in Brazil. He was also a CEO for a few years, and it's great to have him here. So Ricardo, over to you.

Thank you, Roberto. First of all, I'm thrilled to be joining LATAM Airlines. I've always admired it. It's an exciting time, and it's the best moment in the history of the group. But for sure, there's still a lot to be done, and I'm looking forward to the challenge. As Roberto mentioned, I've worked in finance in many different roles, in different industries related to health care, insurance and energy. And now I'm joining the aviation industry, and I couldn't be more excited to work together with LATAM's teams from now on. So thank you, Roberto, again, and back to you.

Thank you, Ricardo. Overall, 2024 was a year of significant achievements for LATAM, not only in the financial sense, in which we successfully met our 2024 updated guidance, but also with respect to our customer satisfaction, our operations and our capacity to profitably grow, not only on our passenger operations, but also in our Cargo business and loyalty program. The results, in my view, are a testimony of the resilient model we have built over the years that allow us to achieve these results in the context of a very dynamic macroeconomic and competitive environment. We're incredibly proud of this accomplishment, which wouldn't have been possible without the hard work and dedication of our more than 38,000 employees. Thank you very much to each one of you. You are the engine that is driving LATAM today. In terms of operations, during the quarter, LATAM Group grew approximately 12% compared to the previous year and grew 15% for the full year, while maintaining healthy load factors, highlighting our ability to grow efficiently. For the full year, we transported a record-breaking 82 million passengers, further solidifying our role as a key player in connecting people across 151 destinations in 27 countries and allowing South America to be connected within itself and the world. These achievements reinforce LATAM Group's position as the #1 carrier by market share in 5 domestic markets and the leading airline group in South America. The Group Cargo operations also delivered robust results during the second half of 2024, ending the year with improved load factors, better unit revenue and showcasing operational growth. Similarly, as of the end of the year, our frequent flyer program, LATAM Pass, reached 49 million members, reaffirming its position as the largest loyalty program in the region. LATAM's financial results also reflected continuous cost efficiency. Adjusted passenger tax ex fuel for the year was $0.042, which is 1.5% lower than our 2023 figure. This led us to another double-digit adjusted operating margin of 12.7%, outperforming our guidance. Adjusted EBITDAR reached $3.1 billion for the year, bringing full year net income to $977 million, which nearly doubles our 2023 figure. These achievements are not just historical milestones for the company, but they're also a testament of the dedication, resilience and collective effort of the entire team. We have consistently delivered strong improvements in our capital structure. As you have followed our progress, you've seen how we've actively reduced our leverage, which now stands at 1.7x, with liquidity currently at 27%, ensuring LATAM has the strongest balance sheet. It is worth mentioning our successful refinancing exercise conducted in the fourth quarter, which significantly reduced the cost of the majority of our non-fleet debt. The focus and efforts we have devoted to placing our customers at the center of our decision-making, devoting ourselves to continuously improving the travel experience also bore fruit. Customer satisfaction reached unprecedented levels, achieving the highest-ever total Net Promoter Score of 51 points, and 56 points for our Premium passengers and also the lowest rate of customer complaints in Chile, Brazil and Peru, where we have public figures to be compared. Additionally, for the sixth consecutive year, LATAM ranked among the top 5 global airline groups in punctuality, underscoring its operational performance and commitment to ensuring passengers arrive on time and comfortably. Furthermore, LATAM Airlines Group was reincorporated into the Dow Jones Sustainability Index and was recognized as the fifth most sustainable airline group worldwide and the most sustainable group in the Americas and the Western Hemisphere. Once again, these achievements underline our commitment to combining operational excellence with environmental and social responsibility. As we close 2024 and we embark in a new year, I believe it's important to summarize, again, our achievements. In 2024, we delivered our best financial results so far, including a very strong balance sheet, keeping, at the same time, our extremely efficient cost base. Our network presence is strong in every segment we operate. We transported more passengers than ever before, and we did so with our historically best customer satisfaction score, all of this in the context of being one of the most punctual and more environmentally conscious airlines in the world. Looking ahead. In the short term, we expect demand to remain healthy, with steady booking curve for the first quarter of 2025. In particular, the international segment continues to demonstrate strong levels of bookings for the current high season. Thanks again for your time. I'd like to turn the call over to Andres to further discuss our financial and operating results.

Thank you, Roberto. Let's move to the following slide, please. Diving deeper into fourth quarter operating figures, LATAM Group continues to show robust operational growth year-over-year with more passengers choosing us across all markets. In this sense, during the quarter, the group transported 21.5 million passengers. This is a 7% increase compared to fourth quarter of 2023 and achieved a record breaking 82 million passengers for the full year, reinforcing LATAM as the largest airline group in South America and was the top 10 globally in terms of seats. Also, during this period, capacity grew by approximately 12%, while maintaining healthy load factors across all segments, with a notable consolidated load factor of almost 86% for the quarter. In terms of consolidated revenues per ASK, we see a decrease of 10% year-over-year, though stable compared to the third quarter of 2024. This increase was influenced by the decline in jet fuel prices year-over-year and by currency depreciation in some of our main markets, especially in Brazil, since RASK are presented in USD. However, when analyzing RASK in local currency, we observed an average increase of [ 30% ] among Spanish-speaking countries, where the [ LATAM ] affiliates operate. In Brazil, however, the comparison base is exceptionally high from the fourth quarter of 2023. LATAM Group's diversified network and strong value proposition has enabled us to deliver solid results this quarter with improved margins that we can see now on Slide 5. In this fourth quarter, LATAM continued to consolidate the trend of strong financial performance, achieving an adjusted operating margin of 13.6%, supported by revenue growth and cost discipline. Total revenues increased by 4% year-over-year, driven by a remarkable 29% growth in Cargo revenues, marking the third consecutive quarter of improvement. Total adjusted operating expenses increased by only 1% in the quarter, primarily driven by a 12% increase in capacity, offset by a decline of 23% in jet fuel prices, including hedges, which helped mitigate cost pressures and further contributed to operational efficiency. Adjusted EBITDAR grew by 28% to $866 million, while net income for the quarter reached $272 million, marking a 228% increase compared to the same period of 2023. These results emphasize the effectiveness of our operational strategy and our focus on consistent financial performance. Turning to the next slide. The financial results achieved reflect our commitment to enhancing the customer experience as a vital element of our strategic vision. This year, we made progress on elevating the quality and satisfaction of our services. A key metric of our success is the improvement in our Net Promoter Score, which climbed to 51 points, marking a 3-point increase from the previous year, while our Net Promoter Score for Premium travelers reached 56 points during 2024. While there is always room for improvement, LATAM Group's affiliate has the lowest of customer complaints across Chile, Brazil and Peru. Punctuality is another cornerstone of our service excellence, and we are proud to be recognized as one of the most punctual group of airlines in the industry. This commitment to reliability ensures that our flights consistently depart and arrive on schedule, enhancing the travel experience for all of our passengers. To further enhance the passenger experience, we have successfully implemented Wi-Fi connectivity across 100% of the narrow-body fleet operated LATAM Airlines Brazil, and 75% of the narrow-body fleet operated by affiliates based in Spanish-speaking countries. We have also completed the comprehensive modernization of our narrow-body fleet, incorporated the latest technology and [ comfort-rated ] science to provide a superior travel experience. Additionally, as of December 2024, 54% of LATAM's Group wide-body fleet feature a retrofitted interior. These achievements reflect our relentless focus on customer satisfaction and loyalty. Let's move to Slide 7, please. As I just mentioned, we have made significant progress in the travel experience. But at the same time, we have demonstrated remarkable financial discipline by keeping our unit costs stable. Our annual adjusted passenger CASK ex fuel remains at a competitive $0.042, highlighting our effective cost management strategies amidst industry challenges and a focus on continual investing in improving our product and customer experience. The next slide, please. Turning to the next slide. In 2024, sustainability continued to be a cornerstone of LATAM Group's strategy guiding our investments and innovations across the region. In this sense, we have been reincorporated in the Dow Jones Sustainability Index and recognized as the most sustainable airline group in the Americas and ranked fifth worldwide. On the other hand, we've proudly secured South America's first sustainability-linked loan, underscoring our leadership and commitment to sustainable finance. Additionally, in December, the results from the joint study with the MIT and Airbus were published which focused on advancing the production of sustainable aviation fuel in our region. This initiative represents a step forward in reducing carbon emissions and promoting cleaner air travel. Beyond these advancements, LATAM Group has made tangible environmental progress. In 2024 alone, we recycled 280 tons of waste on domestic flights, contributing to circular economy initiatives. And since 2010, our airports and fuel efficiencies have helped about 4.5 million tons of CO2 emissions. Our Solidarity Plane program has transported over 16,000 passengers and 3,500 tons of cargo free of charge since 2021, reaffirming our commitment to social impact. By investing in sustainable technologies and partnerships, LATAM Group is not only reducing its environmental footprint but also setting new standards for the aviation industry. We are committed to leading the way in sustainability and to a greener future for durations to come. Let's move to Slide 9. Our performance results reflect our commitment to enhancing the customer experience, which contributed to both our quarterly and full year figures. For the full year 2024, LATAM delivered on its updated guidance, achieving notable financial results that continue to improve year-over-year. In this sense, annual revenues reached $13 billion, representing an approximately 11% growth year-over-year. Annual adjusted operating margin was 12.7%. This is an increase of 1.5 percentage points compared to 2023, while adjusted EBITDAR increased by 23% to $3.1 billion. LATAM has a solid foundation for sustained growth in 2025, as you can see in our 2025 guidance figures, which support continued financial improvement. All of these positive results are reflected in the net income generation for the year, which amounted to $977 million, nearly double the 2023 figure. Moving to Slide 10. As you know, we considered cash generation to be the true measure of performance. In this sense, adjusted operating cash flow generation for the year totaled $2.8 billion, while investments in maintenance and growth amounted to $1.5 billion. Throughout 2024, LATAM generated $243 million in positive cash. Notably, this includes the allocation of $175 million for the mandatory minimum dividend payment and $207 million for the refinancing exercise conducted in October of last year. In both cases, we've reinforced the commitment to sustainable capital allocation and therein value to shareholders. Please join me on Slide 11. LATAM continued to strengthen its capital structure in 2024 and also deliver on this front with regard to its updated guidance. Liquidity at the end of the year reached $3.5 billion, equivalent to 27% of last 12 months' revenues, while adjusted net leverage decreased to 1.7x. These results highlight the continued deleveraging efforts and commitment to financial discipline. This robust capital structure provides LATAM with the flexibility to fund growth initiatives, while ensuring long-term stability. Given the strong cash generation in 2024 and LATAM's consistent financial performance over the past 3 years, the company has updated its financial policy aligned with its best interests and strategic objectives. This policy establishes a capital allocation framework focused on balance sheet strength, profitable growth investments and shareholder returns beyond the mandatory 30% dividend distribution. The strategy focuses on maintaining financial discipline by optimizing the cost debt, having adjusted net leverage below 2x and aspiring to reach a BB+ rating. The policy also outlines a range of optimal liquidity between 21% and 25% of last 12 months' revenues. In line with this policy, LATAM's management and Board regularly analyze alternatives for a further capital return program to shareholders, including, but not limited to, incremental dividends, share buybacks and/or growth capital and strategic investments for most effective allocation of capital in 2025 and beyond. Considering that the current share ADR price may be undervalued compared to historic multiples, and while share buybacks are not common practice in Chile, the Board of Directors will evaluate whether an up to $150 million share buyback program can be implemented while mitigating the impact to the share's current trading liquidity. Let's move to Slide 12. Looking ahead to 2025, LATAM Group anticipates continued growth and financial strength. Capacity measured in ASKs is expected to grow by 7% to 9% as a whole, supported by the addition of 22 new aircraft throughout the year with revenues forecast to reach $14 billion to $14.5 billion. Adjusted EBITDAR is projected at $3.25 billion to $3.6 billion, supported by a healthy demand environment, a diversified value proposition, disciplined cost management and strong liquidity. LATAM remains focused on delivering operational excellence and create value for all stakeholders this year. Let me conclude on Slide 13. 2024 was a strong year for LATAM Group. We witnessed a record-breaking number of passengers transported, while achieving significant operational milestones that underscore our strategic progress. Throughout the year, we consistently delivered strong financial results with an annual net income of $977 million, nearly doubling 2023 figure. We also achieved an adjusted EBITDAR of $3.1 billion, representing a 23% increase year-over-year. Our commitment to cost containment is reflected in our unadjusted passenger CASK ex fuel of $0.042. For 2025, we expect to sustain this growth momentum. Passenger satisfaction increased, as evidenced by Net Promoter Score of 51 points, a 3-point improvement over 2023. LATAM was ranked as the fourth most punctual global airline during the year, further enhancing customer satisfaction and our reputation for real ability. Our leadership in sustainability distinguishes us within the industry, having secured South America's first sustainability-linked loan and recognition as the most sustainable airline group in the Americas and the fifth worldwide. These accomplishments illustrate LATAM's forward-looking focus, well prepared for future opportunities and to navigate the evolving aviation landscape. Thank you. We now welcome any questions that you may have.

[Operator Instructions] Our first question for today comes from Michael Linenberg of Deutsche Bank.

Roberto, Andres, Ricardo, Tori. And by the way, a warm welcome to Ricardo. Not only are you joining an airline that is a leader in Latin America, but I think many view it as the gold standard on a global basis. So welcome aboard. I have two questions here. And maybe the first one to Andres and/or the team. You reiterated your December 3 guidance. And yet, over the past 2 months, we've seen the currency depreciate pretty meaningfully against the dollar as well as fuel prices moved up. And so my question is, what are you seeing with respect to the pass-through of basically the higher cost of doing business that gives you confidence that you feel good about reiterating these numbers, the margins and revenue growth?

Thanks, Mike. This is Roberto. I'll take the question, and thanks for the compliments as well. Well, our guidance has $90 per barrel of jet fuel and BRL 5.8 at the current levels and both commodities are not very far from that, even though we've seen, of course, volatility. At this point in time, I think that we still feel very confident about our guidance. The booking curve in the first few months of the year is healthy and solid in almost every line of business where we have. Cargo has bounced back nicely as well since the second semester of last year through the beginning of this year as well. And I think that the ability we have to diversify our portfolio, move our assets around, make sure that this is -- an opportunity for LATAM remains. One of the things I told you in past calls is that one of the things that we build is something I call relative strength. And actually, in these moments of volatility is when I think that our position allows us to take advantage of that relative strength and eventually induce opportunities of us solidifying our network and our presence. So we remain confident. We have the tools, we believe, to overcome this volatility. I mean, be mindful that the real depreciated 20% in 2024. It was before -- below 5%; at the beginning of the year, ended in 6%. And despite of that, we were able to deliver the results we had in 2024. So we remain optimistic and confident that we have the ability to do that in 2025.

Great. And then just my second question on -- go ahead.

Go ahead. No, go ahead. Go ahead.

Just my second question. Hearing your sort of potential opportunity with respect to capital deployment, shareholder returns, considering a share repurchase, are there any restrictions or mitigating factors that -- you mentioned $150 million, on size? I realize that a good portion of your float is held by insiders. Is that one of the gating issues in sizing a potential share repurchase? If you could talk about that.

Thank you, Michael. So first, just to remind particularly people in the U.S. that are not necessarily very close to Chilean laws, either dividend distributions at the end of the policy over 30% or buybacks need to be approved by shareholders, okay? So this is not a Board decision. Board can recommend. Ultimately, shareholders make that decision. So we will do that in case we decide to move in this direction. Yes, we are mindful of the liquidity of the share. These operations are not very typical in Chile, either. I mean there's very few cases, and none of relatively important size. So we want to analyze. The law provides for this, so it can be done. But of course, we want to analyze very well the feasibility of doing that. But the size is limited today basically to our understanding that we don't want to impact the liquidity of the shares, particularly in the U.S. market. So that's a constraint we have very much in mind today.

Great. Great quarter, everyone.

Our next question comes from Jens Spiess of Morgan Stanley.

Congrats on the strong results to finish and wrap up the year. I just had a question on prices mainly. I mean, looking at the Brazilian market, in local currencies, your prices are down. So if you could just explain a bit more what's going on there? And if you see further pressure going forward? And also, on the international side, understand what's mainly driving the decrease in prices? Is it more interregional, international flights? Or is it long haul? In terms of mix, how should we think about it?

Yes. So traffic in domestic Brazil remains healthy. And last quarter of 2023 was, in particular, very strong. So there's a very high basis of comparison vis-a-vis 2023. In absolute terms, nonetheless, during 2024, we saw a healthy movement of yields in domestic Brazil. And at this point in time, we have no indication that demand will not continue to be healthy going forward. With respect to international, it's been relatively across the board. I would say that Brazil to Europe -- Latin America to Europe, in general, has been very healthy. A little bit less so to the U.S., but still in good healthy figures. And regional, which is international within South America, had a very nice rebound as well. Do remember that international was the last segment to recover from the pre-pandemic level. So what we saw in 2024 was still probably the last bit of the recovery, and that's why also we grew around 20% in international. But there are no segments in international that are particularly concerning us, whether it's the regional, again, international within South America or the long haul.

And I would complement that, of course, whenever currencies depreciate, we see, I think, a pickup in inbound traffic from coming to South America, I think which becomes more traffic. And we definitely see that across all markets, inbound traffic.

Okay. Understood. Yes. On that last point, that's what I was trying to dissect. So because international, obviously, you're probably seeing some weakness on the interregional flights, particularly the volatility in the local currencies, but also, it could end up being positive for long haul, right, in terms of pricing?

Yes, I don't think we have seen weakness. Probably I [ misexplained ] myself. I think that regional, also international and also [indiscernible] has been solid. And what Andres says is very important. So let me just give you an example. There's a currency depreciation in Brazil, we do know, but there's actually in real terms a currency appreciation in Argentina. And Argentines love to travel. So you see significant increase in outbound traffic from Argentina through our hubs to long haul within the region. So at the end of the day, the volatility we've seen in the currency this year has been, in a way, counterbalanced by other markets. We see, in general, strong flows in almost every one of our international segments, whether it's within South America or long haul.