Good day, everyone, and thank you for standing by. Welcome to the Second Quarter 2024 LATAM Airlines Group Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. 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 recently published 20-F, earnings release, finance statements and related CMS 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. Now it's my pleasure to pass the call over to Ramiro Alfonsin. Ramiro Alfonsín Balza: Thank you, Carmen. Hello, everyone, and good morning. Welcome to our second quarter 2024 conference call, and thank you all for joining us today. My name is Ramiro Alfonsín, and I'm the CFO of LATAM Airlines Group. Here with me today is Roberto Alvo, our CEO; Andrés Del Valle, VP of Corporate Finance; and Tori Creighton, Head of Investor Relations. And we will present our highlights and results for the second quarter of 2024. I'd like to pass the presentation to Roberto for some opening remarks before we go into the numbers.

Thank you, Ramiro, and good morning, everyone. I hope you are all doing well. As we begin to look to our second quarter results, it is important to acknowledge that these achievements are the results of the efforts and dedication demonstrated by the more 30,000 -- 37,000 employees that comprise the LATAM family. I would like to express my sincere appreciation to all these individuals who have consistently given their best to help LATAM Group reach its current goals. The unwavering sense of belonging and commitment they have placed, I think, is a crucial part of our success. One of my primary focus as CEO is to cultivate a culture where LATAM Group employees feel as though LATAM makes sense to them both from a personal and from a professional level. It is their continued dedication that has enabled the group to sustain growth quarter after quarter, pushing us to set higher goals and ultimately bringing LATAM to where it stands today. It is that LATAM is better, it's stronger, it is more diverse, and it's a better group of airlines as we can see in the second quarter results. During this quarter, we witnessed robust revenue generation primarily driven by the capacity increase, which remains in line with our full year guidance. Additionally, LATAM generated cash and bottom line net income. It is worth noting that historically, our second quarter results have been relatively softer due to a lower season in the Southern Hemisphere. The macroeconomic environment has exerted pressure on foreign exchange rates, but there is a possibility to mitigate this effect due to a well-diversified revenue structure as well as our ability to reposition our assets between the markets. Overall, the second quarter results reflect the ability to adapt, overcome obstacles and maintain a steady growth trajectory.…

[Operator Instructions] Our first question comes from the line of Michael Linenberg with Deutsche Bank.

An impressive set of results here. And by the way, Ramiro, congratulations on your promotion. Ramiro Alfonsín Balza: Thank you, Michael. That's very kind of you.

So I guess I have two here. If we can just go back to the $25 million operating impact from Porto Alegre being shut down. That was a bit higher than what I expected. Do we have some of that impact lingering or having an impact on your third quarter results? And when we look at, sort of as a part two to that question, when we look at your performance in domestic Brazil, it was one of your leading geographies. Should we assume that, that type of performance continues into the third quarter or maybe even into the back half of the year?

Michael, this is Roberto. Good speaking to you. So there is going to be some impact on the Porto Alegre closing of the operations for the third quarter. At this point in time, what we know is that Porto Alegre will open probably around October. And as Ramiro mentioned, we're redeploying the capacity but not all of it during July and to August. There's going to be an impact but it's going to be relatively minor, so I would say it's going to be probably less than half of what you already saw in second quarter. So that's I think at this point in time what we're seeing. And of course, once Porto Alegre comes back to normality, we will most likely bring our historical operation or something that looks like that into the scene again. With respect to domestic Brazil, in general, we feel very good, honestly. We have been able, I think, to enhance our network position in the country in a relatively nice way. We are clearly the largest and, I think, most important operator in the most important -- in the two most important airports in Brazil, which are Guarulhos and Congonhas. We executed a slot swap with Voepass during the quarter as well that allows us to have a significantly improved product on the peak times of that airport at the same time. And I think that the position we have today with our customers, the way we are delivering our product on a day-to-day basis has us in a very confident position regarding our relative performance in the market. The impact of the currency volatility, of course, is mathematically understandable. But I think that the resilience today of our business compensates for that volatility. And when we look at booking curves for the next couple of months, we are not seeing something that significantly impacts our projections, whether it's the currency movements or the demand situation. So in general, we feel that we're in a very good spot in domestic Brazil today.

That's great, Roberto. Just one quick follow-up here. With the regime change in Argentina, it does look like that there are going to be more opportunities for airlines. We've seen Argentina sign an open skies agreement, I believe, with Canada, with Panama. From your perspective, you have airlines in multiple countries that can do agreements with Argentina. And I'm not saying that it makes sense for LATAM to go into Argentina and maybe set up a domestic operation, but from an interregional basis, can you talk about some of the potential opportunities of being able to just offer a broader service offering tune from Argentina?

Thank you, Michael. So Argentina is an important market for us. If you look at our hubs, Argentina is the largest market south of our hubs. So it's going to always be an important feeding market for the traffic that we have in Santiago, Lima, and São Paulo. We are actually currently the second largest international operator of Argentina. We have still close to 25% of the passengers that fly to and from Argentina flying with our flights. We have 35 or so daily flights from our hubs to not only Buenos Aires but several cities in Argentina. So I think that you -- it's fair to expect that we will keep on investing on growing our international network to connect Argentina better with our hubs and eventually with the rest of the continent. That's the strategy that LATAM has pursued over many, many, many years, and we believe it's a sound -- a good one and, by the way, reinforces a lot the strength of our hubs. In terms of some of the other opportunities in Argentina, I think that we will see that the scenario is changing. Yes, there's a number of agreements that have been signed. Actually, with Chile, the open skies agreement is very broad. It allows eight to nine freedoms at the same time. And normally, we are going to analyze all these opportunities and if we believe that it's good for the business to do something on top of what we have today, we'll announce it in due time. But one of our most important tasks here is asset allocation. So why we do this is because we believe it's a good opportunity. So stay tuned, but for the time being, our focus has been in reporting our international operation there.

Our next question comes from the line of Guilherme Mendes with JPMorgan.

First of all, I'd like to wish Ramiro good luck on the new role as well. I have two points. The first one is on the competitive environment. Roberto mentioned about Brazil a little bit on the previous question. But just wondering if there's -- you see any significant signs of oversupply in any of the markets that LATAM operates. And if you could expect any kind of yield pressure going forward? And the second question is on capital allocation. So strong free cash flow generation in the first half of the year. Likely the outlook should be even better. How should we think about capital allocation going forward to increase dividend payments, buybacks or reduce leverage?

So I'll as well take the first question, maybe Ramiro will take the second. I would say that the only market where we see today an imbalance that is visible between capacity and demand is domestic Colombia. Clearly, the entrance of JetSmart into that market added a number of incremental flights that were not there a few months ago. I've seen this many times, it's normal -- it's normally something that happens and then the market kind of reset itself. But for the time being, that's where we see today probably some imbalance. In the rest of the Pacific, even though there's ample capacity activity, it doesn't look that there is any oversupply that is significant. And internationally, even though we have grown in a very significant way, I would say that this is still probably the end of the recovery of demand after the pandemic. And the demand has responded very nicely to the point that we were able to feel very well placed with even a 25% capacity. So summarizing, I would say that domestic Colombia probably is the market where you're seeing that dynamic today. Ramiro Alfonsín Balza: Thank you. Thank you, Guilherme, for your wishes. It has been a privilege all these years as CFO of LATAM. Regarding your question, the company has generated very strong cash flow. We're confident on what we're seeing for the second half of the year. Our first priority today where we see a lot of savings opportunity is the liability management we discussed during the presentation. With the current yield towards that we're seeing on our bonds and what we think we can achieve on the term loan B, that is the first focus in terms of capital allocation. And then it's basically growth. When you consider our cost structure, when you consider our capital structure, where you're seeing the potential that we have to cover new destinations or increase frequencies in certain markets and then shareholder value. I would say the growth in shareholder value will be a balancing act for capital allocation. But first priority, most immediate one is now in the coming months to address liability management exercise.

Next question comes from the line of Gabriel Rezende with Itaú BBA.

I would like to make a quick follow-up regarding your forward-looking curve and yields in the report. We saw a slight contraction in this quarter, which was maybe right expected on yields. You posted a 4% lower yields year-on-year. I was just wondering, you mentioned that the forward bookings did not seem to question your guidance. However, we are seeing a relevant depreciation of the BRL here in Brazil. So I was just wondering whether the forward bookings are implying that yields are going up in the second semester versus the second semester of 2023. It would be nice if you could confirm that. And also, Ramiro, I would appreciate if you could comment a little bit on your move to the CCO position. Congrats for that. And what should be your main focus by November when you assume the new role?

So again, I think our sense when you look again at the booking for the next domestic, you probably have a good view for a couple of months, okay? And international, maybe tell you, a little bit further than that. Again, even though we see the volatility in the currency, from a demand perspective, we are not seeing that impacting our operation in a way that we can significantly measure. Again, we feel very confident in domestic Brazil today. I think that the combination of the improved network we have with an improved execution vis-à-vis our customers paired with the advantage of cost that we created over the restructuring, it's a very powerful combination at this point in time. And we see very clearly the trend in our customer preference that you also saw here on the NPS figure. So in general, that leaves us in a very good place. And then yields or RASK, of course, is in dollars expressed at a lower point. But do remember that you have to look at the exchange rate impact on RASK because we express it in dollars. But my sense is that growing 16% with the RASK that is not significantly lower and that has the impact of exchange rates speak very well about how we were able to deploy the capacity over these 12 months, understanding where we saw opportunities and, at the same time, improving the quality and the strength of our network. So the summary for me, it's a very positive one over the last 12 months when you combine all these factors together. Ramiro Alfonsín Balza: In terms of the new position, it is very preliminary. I'm very familiar with the team. It's a very seasoned management team that has a lot of experience. And I think we have a road map quite set up. Every year, we plan for the next 5 years so we know how the strategy evolves. To share with you maybe a little bit of color, I see opportunities on the loyalty program side in terms of digitalization of the loyalty program, the improvement interactions with our passengers. I see some growth opportunities on the loyalty program also. Maybe also a little bit of focus on continuing developing the ancillary products that we have and then evaluate the whole network in terms of profitability and growth and try to balance it well. But again, it's a very seasoned management team who have been working together for many years. So I expect a very smooth transition.

Our next question that comes from the line of Andre Ferreira with Bradesco BBI.

I have two points to cover. So the first one is a follow-up on the question on oversupply and yields. But we've been seeing weakness in Europe, in Latin America mainly in international traffic. So I was wondering if you can just give a little bit more detail on the current yield and yields outlook in each international markets and also give a bit more clarity on yields on the domestic markets that you did not cover so far in this call. And my second question is it has been discussed in the local media that, in the local Brazilian media, that LATAM is evaluating the purchase of smaller jets. If you can comment just on potential size and what routes would they potentially go to if those -- the news are correct?

Great. So thanks, Andre, for the question. I mean, on international, for me, the big picture here is LATAM grew 25%. RASK fell a little bit, 4%, somehow impacted as well for currency. The summary of the equation is extremely positive. You don't find growth of 25% with close to stable RASK performance year-over-year very often. The question is why. And our assessment here is, a, recovery of demand from the pandemic, which I think was still expressed in the last month. I don't think that demand -- I think that demand now has fully recovered or very close to fully recovered. B, again, the way we have deployed our capacity, the way we find opportunities in the market, clearly, the strength of the JV with Delta is showing up. You see it very clear on the numbers as well. So again, LATAM has a unique footprint here, and we have to take and we are, we believe, taking advantage of that footprint and this is the result of the execution of that. Second part of your question, we normally don't disclose and we don't disclose our Spanish-speaking countries country-by-country. I think that -- I'll just probably repeat what I answered in the other questions. We're very comfortable with the situation in domestic Brazil. We see a number of capacity situation in domestic Colombia. And although we see capacity activity in the other Spanish-speaking domestic markets, we see, at the same time, good demand performance. So this is why when I summarized our booking curve feeling for the next 2 or 3 months is one where we feel very comfortable. And with respect to smaller jets, we have 350 aircraft, which is one of the 10 or 12 largest airlines in the world. We always look at everything, not only aircraft, also engines. And if we believe that there's something interesting and accretive for the LATAM operation in terms of adding fleet or any fleet-related movements, of course, we're going to look at it. And if we come to the conclusion, we'll provide that to the market, I think. For the time being, just know that we, of course, are looking at everything that we believe is an opportunity for the future.

And our next question is from João Frizo with Goldman Sachs. João Francisco Frizo: Just first of all, congratulations on the releasing of the ADR. So I have two questions on my side. The first one is related to growth beyond 2024. Looking at '25, '26, should we expect to see the same trend you guys published on your guidance for '24, meaning international travel growing more, followed by domestic Spanish-speaking countries? And then finally, domestic Brazil on a capacity perspective. Anything you could share on that would be great. And then finally, just a second follow-up on the OEMs, if you could provide an update on the delays, what you're seeing now, how are the conversations?

So thanks, João. So I mean, we don't provide 2025 guidance yet. We will do that towards the end of the year. But probably just a couple of data points that are useful here is you will see a rollover of the 2024 growth into 2025 as we deploy capacity throughout the year and not at the beginning. And you can probably have a good estimation of the amount of that rollover if you look at the trend of our capacity during 2024. And this will -- what are the other additional important thoughts with respect to capacity? You mentioned then with respect to the OEM side. We don't think today that the deliveries that we have in Airbus will be delayed to a significant effect. We feel very confident on our capacity plan for the rest of the year. We have a number of AOGs regarding the Pratt engine issue on our A320neos is relatively limited because our size of our neo fleet is not significant at this point in time. And we decided to keep 319s flying for a little bit longer to compensate for that effect. And this is why our capacity for this year has not yet been affected vis-à-vis our guidance despite of this change. We continue to see very tight supply chain and supplier issues going forward. On an industry level, we believe that it's going to be shown very clearly in '25 and '26 for the time being. We have ample optionality to adjust up and down our capacity irrespective of these swings to an extent. And of course, we're very closely monitoring and talking to all these suppliers regarding our plans. We will probably get more information as the year progresses and towards the end of the year or beginning 2025, we'll comment on our 2025 guidance.

Our next question comes from the line of Christian Reddy with BNP Paribas.

Really strong results. We're all very happy about that. A few quick questions, just some minor items. One, the Brazilian government has been constantly talking about some sort of funding for the airlines. Has anything materialized on that? Ramiro Alfonsín Balza: This is Ramiro. Thank you for your question. You see our capital structure over $3 billion, you see the opportunity when you see our yield to worst. So we are evaluating all the possibilities of financing for the company. And we have been advancing with discussions with the Brazilian government. But at this point, I think that we have a lot of alternatives, either in Brazil or in the market. So we're not concerned or specifically working on the Brazilian angle. We are considering it as one additional lever if necessary, but discussions are currently ongoing.

And there is no news from the government with respect to this.

Right. And the form of that is still up in the air, how it would come in, if it would be a grant or anything of that sort, right? Ramiro Alfonsín Balza: Yes, I think grant is pretty much out of the question. It's more some sort of guarantee with banks intervening about the guarantee from the Brazilian government. But we're not foreseeing any grants as per se.

Okay. And then with regards to your liquidity, you're above that 20% magic threshold of your revenue. As you go forward, it looks as though supply and demand is in very good shape. You're adding a lot of capacity. The RASK isn't being impacted in a negative fashion. Is there a certain amount of liquidity at a point in time where you say, it's enough, now we have to do something else with our capital? And if so, what would be somewhere like the highlights or things that you would like to do if you had a wish list?

Yes, absolutely. I think that something above 23% over last 12 months' revenues for us would be a little bit too much liquidity if it were sustained during timing. Now you see us in the range, but bear in mind that we are facing the liability management exercise, subject to market conditions now in the coming months. So we're preparing for that. If we were to have incremental liquidity with low leverage after that, again, we probably are going to be attacking growth and shareholder value. But there are various mechanisms for sure how much value return that the company is able to implement and put in place.

Great. And then I guess the last thing, just from, I guess, an economic standpoint, in the U.S. markets, we're seeing weakening of fares and the demand. A lot of that's obviously tied to the U.S. consumer. In the markets down in Latin America, how is the economic picture for the consumer and the prospective yields and fares going forward?

So I think that the basis of giving you, I would say, a positive sense for the upcoming months, and our confidence we believe in the guidance is based on the fact that we are not seeing that trend specifically in the region. As I mentioned, yes, there's one or two markets, mostly Colombia where clearly the overcapacity situation is impacting the market on a broader level. But on the rest of the region, we are not seeing the same dynamics that you saw in the U.S. And clearly, when you look at the European carriers statements that talk more about the weakening of demand more than excess capacity, this is not our case at least on what we see on the booking curve for the next few months. But again, I think that here, it's not about only demand and supply. It's also our ability and one of the strengths of LATAM is that we can move our assets around very, very simply, very quickly. So the exercise we make on a day-to-day basis is we just don't think about markets. We just -- we think about our network and how do we redeploy those assets in a way that we both strengthen the network but also protect the volatility of our returns.

[Operator Instructions] Our next question comes from the line of [ Felipe Villanova ] with Santander.

Well, first of all, congrats, Ramiro, on the new position. I guess it's a bitter sweetness for the market, though. Anyway, so I have a couple of questions. The first one is, when looking at the Spanish-speaking countries' unit revenue in local currency, are they also decreasing? Any comment on how these behave in local currency would be very appreciated. My second question is regarding liability management. Do you expect any impact on results because of this for the fourth quarter and by how much? And my third question is what risk do you see for the second half of the year, if you see any? I'm asking because you already reached the midpoint of your EBITDAR guidance. And the first half of the year is usually the weaker half, but you're still reiterating your guidance. So I'm trying to see if there is -- there might be anything that's involved in the -- or down to risks in the guidance that I'm not aware of.

The second question was if there is going to be -- first one, I think that you talked about currency impact on Spanish-speaking, was that the question?

Yes. Sorry, I lost you for a moment. The first question was about how the unit revenue, the RASK of the Spanish-speaking countries, are they also decreasing in local currency or how are they behaving. It can be as a whole or any color you have would be appreciated though.

Yes. So again, we don't provide specific RASK figures for each one of the domestic speaking countries. But I mean, I'm sure that you can do very easily the exercise of -- you can see the size of our business. It's public. You can see the depreciation of the currencies, you can do a weighted average, if you want, of the depreciation of the currencies, and then you can compare that to our average RASK and you won't be far away. Bear in mind that probably 85% or 90% of our domestic revenues on Spanish-speaking are local point-of-sale revenues. We still have around 10% or so which are international point-of-sale revenue. So people that come from the region and have a domestic leg. So with that, I think that you can -- better you can understand more the dynamics in a way with public information. The other two questions, Ramiro? Ramiro Alfonsín Balza: Thank you, Felipe, for the congrats. Much appreciated. In terms of the impact on the P&L regarding the liability management exercise, we try to be clear on our earnings release that there -- if we were to do this, there will be an impact. The impact is basically one noncash effect of anticipating what you have amortized in terms of structuring costs during the exit financing process and then a cash impact on the 2027 bonds. If we decide to call them, only the 2027 bonds will have a penalty of 10%. The term loan B is callable at par. So I think that with those data points, you can estimate the potential impact if we were to decide to refinance both the term loan B and the 2027s. In terms of rating, the ratings are public. There are some agencies that have mentioned the positive outlook and have mentioned the conditions on ratings improvements. And when you look at the metrics, we're very confident that we're going to land where we need to land in terms of ratings improvements for 2023.

Yes. I mean, more than the rating, I was concerned about, also about your guidance because you reiterated your guidance and you already -- you have already reached the -- if I analyze the results of the first half, I'm reaching the midpoint of the EBITDAR, yet this is the weaker half, so it looks like there's some upside to it, but you're reiterating the guidance. So I just wanted to know if there is some risks involved that I'm not aware of. Ramiro Alfonsín Balza: Sorry for that. No, in terms of guidance, I think just reiterating what Roberto mentioned, we're extremely confident on our guidance but that currently is our guidance.

Our next question comes from the line of Neil Glynn with AIR Control Tower.

If I could, first of all, ask your thoughts on the GOL -- sorry, the Azul discussions. The announcement was obviously made that discussions are ongoing after your first quarter. So do you think any potential combination or deal there may have significant ramifications for competition as you see it? And then a second question on the balance sheet. At the second quarter in noncurrent liabilities, there's $900 million of a provision. This figure, for context, was below $300 million pre-pandemic. So I'm just interested in your thoughts as to how likely that is to result in a cash outflow over the course of the next few years.

Yes. Neil. So on the first question, of course, we have -- we read the news, and we hear rumors of, I guess, what you hear the most is Abra, Azul. We have absolutely no idea if that will happen or not or the origin of the rumors. But I think really it's the announcement of the codeshare between Azul and GOL that has been implemented in early stages. CADE also announced that they will look at that codeshare. And I think that the important here thing is that our strategy is very clear vis-a-vis our ourselves. We understand where our strengths are, we're executing our plans in the way we believe that LATAM would be successful. We'll see if there's any deployment or any news with respect to that, we'll tackle that if it happens, when it happens. Ramiro Alfonsín Balza: Okay. Neil, thank you. In terms of the details on the noncurrent liability, our IR team will be reaching out with further details.

And our last question will come from the line of Fernanda Recchia with BTG Pactual.

Ramiro, good luck on your new position. Two points here from our side. First, the government recently announced the launch of Voa Brasil with an initial focus on retirees and pensioners. Just wondering to hear your net reading of this program. Do you see room for improvement of load factor? What is your net reading of it? And then second, could you please provide us if there is any update regarding the Pratt & Whitney compensation? And also, could you clarify if your adjusted EBITDAR is taking into consideration the $25 million of one-off regarding Porto Alegre Airport? That's it from my side.

Just for the audience that doesn't know this, basically, the government started a program called Voa Brasil, this is for allowing certain groups of people to fly with lower fares, and we're very happy that LATAM participates in this program. Currently, what you have is low fares for pensioners that have not flown in the last many months. So it's a relatively small percentage of the population. I would say that, that is, at this point in time, nothing that looks very significant vis-a-vis the size of the operation. We understand that the government may want to increase the scope of Voa Brasil, and we are, of course, talking with the ministry there, and we'll be happy to do our part in helping more Brazilians, particularly the ones that have the least opportunities, to have the ability to fly. But clearly, we are not considering that Voa Brasil has a significant impact today in our -- in the -- given the size of our operation. Want to take the other two, Ramiro? Ramiro Alfonsín Balza: In terms of Pratt & Whitney, we're still with ongoing discussions. Currently, we have five AOGs on the neo family. It's very limited, and we're offsetting that capacity with the expansions of some 319s and 320s. We haven't reached an agreement yet. Discussions are still ongoing but they're progressing well. And in terms of Porto Alegre, a little to add really to what Roberto mentioned, $25 million impact now and with a significant reduction from August going onwards. And we expect the airport to be back operationally in -- from October.

But I think that Fernanda's clarification was included in our numbers? Ramiro Alfonsín Balza: Yes.

Yes, of course. The EBITDAR that we had was impacted by more than that amount because of the closure of the airport.

And just a follow-up. Actually, my question was, is the adjusted EBITDAR was adjusted for the $25 million or not? Ramiro Alfonsín Balza: No, no. Fernanda, absolutely not. We're just highlighting that, that -- no. The only things that we're adjusting is what we're highlighting, which are nonrecurring events, and this is not part of that, no.

And with that, I will close Q&A for today, and we'll pass it back to Ramiro Alfonsín for final remarks. Ramiro Alfonsín Balza: Thank you, Carmen, and thank you, everyone, for attending. Again, very strong results, very strong cost containment from the company, positive margins for a second quarter that historically was soft. And this resulted in a very strong quarter for us and good perspectives going down the line for the next few months. So thank you, everyone, for attending. If you have any further questions, please feel free to connect with our Investor Relations team.

And thank you all for participating in today's conference. You may now disconnect.