LATAM Airlines Group Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 23, 2024

Key Takeaways

  • Record financial performance: 2023 revenues reached $11.8 billion with an 11.3% adjusted operating margin and net income of $582 million, the highest in LATAM’s history excluding one-off effects.
  • Balance sheet strength: ended 2023 with $2.8 billion in liquidity (24% of LTM revenues) and a net leverage ratio of 2.1x, providing flexibility for growth and debt management.
  • Cargo revenue pressures: Q4 ’23 cargo revenues fell 13% year-over-year due to softer yields, though still remain approximately 17% above 2019 levels.
  • 2024 outlook: guidance targets 12–14% ASK growth, revenues of $12.4–$12.8 billion, a double-digit EBIT margin of 10.5–12.5%, and stable passenger CASK ex-fuel of $0.043–$0.045.
  • Market positioning: management expects a stable competitive environment in Brazil and Colombia, with plans to further increase market share and route network diversity throughout 2024.
AI Generated. May Contain Errors.
Earnings Conference Call
LATAM Airlines Group Q4 2023
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the 4th Quarter 2023 LATAM Airlines Group Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Before I turn the call over to management, I'd like to remind you that certain statements on this presentation and during the Q and 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 or objectives, our expected performance or guidance are forward looking statements.

Operator

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 our 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 details 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 would like to pass the call over to Ramiro Alfonsin, CFO of LATAM Airlines.

Speaker 1

Thank you, Carmen. Hello, everyone, and good morning. Welcome to our Q4 and full year 2023 conference call, And thank you for joining us today. My name is Ramiro Fontaine, and I am the CFO of LATAM Airlines Group. Here with me today is Mr.

Speaker 1

Roberto Alvo, CEO of LATAM Airlines Group Andres del Valle, VP of Corporate Finance and Torrey Creighton, Head of Investor Relations. And we will present our highlights and results for the Q4 and full year 2023. I'd like to pass the presentation to Roberto to set the stage of our Q4 and annual results.

Speaker 2

Thank you, Ramiro, and good morning to everyone. We at LATAM feel very proud of the 2023 year's achievements. After a devastating pandemic and a long restructuring, LATAM Group has emerged stronger than ever. This difficult period allowed us to rethink our purpose and our priorities. We decided to build upon the progress and the work of the last 25 years and devote our energy and efforts to taking care of our people, our customers and our environment, supporting the societies where we operate.

Speaker 2

Its people is LATAM's group most important asset and caring for them is our main priority. In 2023, the group achieved the highest ever Organizational Health Index score in its history with 78 points. This is a result of the efforts of the group in making a more just, empathetic, transparent and simple environment for the teams and providing a sense of purpose in our everyday work. Every day, we strive to make traveling with AirDensu Dattan Group a more distinctive experience and it's the staff, each one of them, who makes this possible. Last year, the group also attained its best net promoter score, which is a measure of customer satisfaction in its history, reaching 48 points for all travelers, 55 points for high value customer and 58 points for our current customers.

Speaker 2

LATAM's value proposition is based around 3 main pillars, providing choice as no one else can do in the region, being the most dependable airline group and caring for the passengers and cargo customers through the entire experience. The results of this work meant that LATAM Group was recognized again and for the 4th year in a row as the best airline in South America by the Skytrax Awards and attained the 2nd highest on time performance for large engines in the world and the best in Latin America according to OAG. In 2021, the group committed to eliminating single use plastics from the operations and started a long process in reducing emissions to meet a commitment of carbon neutrality by the year 2,050. At the end of the year, the group achieved 96% of single use plastic elimination and compensated more than 1,700,000 tons of CO2 through CO2 BO, a project we developed together with 700 families and that protects more than 550,000 hectares in the wetlands of Northeast of Colombia. Last year's work was started around the next target last year's work was started around the next target, which is to substantially eliminate our waste to land fuel by 2027.

Speaker 2

After emerging from the pandemic, the LATAM Group network is stronger. It helps contain scale and the list of destination is larger and more diverse. The affiliates of the group has the highest market share in 3 of the 5 respective domestic countries where they operate and they are strong second in the other two. Approximately 40% of the passengers that fly within South America do so with 1 or more of our affiliates. It is also the carrier with the highest market share between South America and Oceania, Mexico and together with partnership with Delta, the largest operator between South America and the U.

Speaker 2

S. And Canada. In cargo, LATAM is also the largest airline regional group between South America and North America. Today, LATAM is without a doubt the only one stop group of airlines in the region. All this work has allowed us to post as you will see in a minute remarkable financial results.

Speaker 2

The group's 2023 financial numbers highlight the strength and resilience that it has built and laid the foundation for a future where the group can continue improving its operations and make it even a more meaningful place to work, even better, more caring and more dependable experience for our passengers and current customers and a group that continues to caring for the environment, contributing for the development of the people in South America and therefore delivering consistent and strong results. Let me take you to slide number 3. Financial and operations strength marked 2023 as a year in which LATAM Group continued to grow regionally and globally. Consequently, it achieved unprecedented results, outperforming our projected data for 2023 and exceeding the expectations set in its updated business plan published in August 2022. In terms of financial performance, LATAM has delivered remarkable results.

Speaker 2

In 2023, we have achieved total revenues of $11,800,000,000 posting a consolidated double digit adjusted operating margin of 11.3% and a full year net income of €582,000,000 the highest result achieved by LATAM Group excluding 2020 22 results, which had a positive as we know non operating impacts of the net income from the Chapter 11 restructuring exit. It is worth noting that as per Cheetah and law, LATAM must pay out at least 30% of net income in dividends subject to shareholder approval. Regarding LATAM's balance sheet strength, it is noteworthy that the company consistently improved its standard. In this sense, it is with great satisfaction that we announced an unprecedented end of year adjusted leverage ratio of 2.1 times. Furthermore, due to our resilient financial position and ability to generate cash, we have sustained a strong liquidity position reaching $2,800,000,000 as of December 31, 2023, representing 23.9 percent of our last broadband revenues.

Speaker 2

In addition, we reported a competitive full year adjusted passenger CASK ex fuel of $0.043 reflecting LATAM's Group's initiatives to maintain costs. Turning our attention to LatAmz Group operational results. Consolidated capacity measured in ASKs increased by 20.6% compared to full year 2022, in line with our 2023 guidance. And as a group, we transported 74,000,000 passengers, reaching similar levels to pre pandemic. The strong demand demonstrates the enduring trust and confidence that passengers have in LatAm service.

Speaker 2

On the other hand, during 2023, the operation was also boosted by the delivery of 30 aircraft, including 5 wide body and 25 narrow body aircraft. LATAM Group closed 2023 with a fleet of 333 aircraft and with one of the most efficient fleet cost globally. In the year, the total fleet cash cost was $796,000,000 In 2023, LATAM's group network continued to expand as the group proudly launched 21 routes, 17 international and 4 domestic, including 4 routes implemented within the context of the joint venture with Intel. As I mentioned before, the group's domestic affiliates are leaders in 3 of the 5 domestic markets where they operate: LATAM Airlines Chile, LATAM Airlines Brazil and LATAMARS Peru. On the other hand, LATAM Airlines Colombia increased its market share by quickly allocating resources to the Colombian market.

Speaker 2

And this is clear a clear demonstration of our operational agility and financial flexibility. On the other hand, our frequent flyer program at AMPAS, which is strategic asset and a core source of value that differentiates LatAm promoter carriers and also a key element for marketing and loyalty strategy. At December as of December 31 last year, LATAM Pass had approximately 45,000,000 members, representing an increase of 7.1% compared to 2022, which reinforces customer preference for LATAM Group, mainly driven by premium processes. The above are reflections of LATAM's Group consistent financial strength. As a result in November, LATAM was included in the MSCI Emerging Markets Latin American Index and this is a testament to market and investor trust in LATAM Group and highlight its ability to maintain a solid financial performance even in a challenging environment.

Speaker 2

LATAM Group was previously included in other important indexes during the year, in particular the IFSTA in March 2023 and the FTSE in September 2023. Finally, on December 14, 2023, we published our 20 24 guidance, which contains financial operational projections for this year targeting what would be record numbers. We trust that the strategies and plan that we have in place will keep us on this path and we look forward to sharing our progress with you as we navigate the opportunities and challenges of the year ahead. Thank you. And with that, I'll turn it back to Ramiro to continue with the presentation.

Speaker 1

Thank you, Roberto. This year marks a solid 2023 for LATAM with top to bottom line positive results. During 2023, we posted revenues of $11,800,000,000 almost 24% more than 2022 and achieved a historic annual adjusted operating margin of 11.3%. Notably, our adjusted EBITDAR stood at $2,500,000,000 as of December 31, almost doubling 2022's adjusted EBITDAR. We have outperformed both our 2023 guidance and our business plans by far.

Speaker 1

Additionally, our net income sets new records in LATAM's history, achieving a total of $582,000,000 which clearly differentiates LATAM from other companies. Please join me on Slide 5. In the Q4 of 2023, we noted $3,200,000,000 in revenues, 18% more than the same quarter of 2022. Our adjusted operating margin increased 2.8 percentage points compared to the same quarter of 2022, reaching 10.8%. LATAM's Group quarterly adjusted EBITDAR amounted to $675,000,000 reflecting a 30% improvement compared to the Q4 of 2022.

Speaker 1

This figure is a testament to the company's value proposition, sustained financial stability and growth, as evidenced by 9 successive quarters of positive adjusted EBITDAR, underscoring the group's robust performance and ongoing expansion. Let's take a look at LATAM's competitive position on Slide 6. In 2023, LATAM Group grew regionally and globally, thanks to lower cost, network expansion and customer preference. As of December 2023, LATAM Group successfully operated a total of 148 passenger destinations across 26 countries. LATAM Airlines Chile, LATAM Airlines Brazil and LATAM Airlines Peru not only have maintained the highest market share in their domestic market, but also have increased it by 2 percentage points each.

Speaker 1

On the other hand, LATAM Airlines Colombia has increased its market share from 24% as of the Q4 2022 to 33% as of the Q4 2023, quickly allocating additional aircraft to accommodate capacity demand in the market. This is a clear demonstration of the group's agility and financial flexibility. Turning to the next slide. As the largest airline passenger airline group in South America, we are proud to connect our region with the world through a unique and expansive network. The group has continued to be number 1 in international market share of 42% within the region and also maintained its market shares from South America to the rest of the world.

Speaker 1

Tata Group, hand in hand with Delta, has been able to steadily increase its capacity share, adding new routes and expanding its connectivity capabilities within the scope of the joint venture agreement within the with the addition of 6 new routes. Please join me on Slide 8. The results that I just mentioned are a true reflection of the trust and confidence our best passengers place in LATAM Group. This year, we were honored to have been awarded the best airline in South America, Best Staff, Best Main Cabin and Best Business Class in South America by Skytrax. Additionally, we have been recognized as a 5 star global airline with the best seat comfort and the best onboard service by Apex and that's the top performing airline in terms of sustainability in Latin America as well as the 7th globally according to the recent corporate sustainability assessment by Standard and Poor's.

Speaker 1

LATAM's group expansive network remains unparalleled in the industry. Additionally, the group has fostered ongoing passenger commercial agreements with 57 airlines and co share agreements with 27 airlines, further enhancing the group's network and customer options. Passenger loyalty is strengthened through the frequent flyer program, which now boasts over 45,000,000 members, making it approximately the 7th largest in the world. LATAM is also proud to announce that it was recognized as the best program of the year by the frequent traveler awards in 2023. LATAM continues to grow.

Speaker 1

We transported approximately 74,000,000 passengers during 2023, representing an 18% increase compared to 2022 and reaching pre pandemic levels with a particular contribution from the international segment that continues to recover with an impressive 50% more passengers than 2022. In terms of capacity measured in ASKs, LATAM registered a significant 20% growth throughout the year, in line with the updated guidance published last August. Additionally, the group ended the year with a fleet of 333 aircraft, representing an increase of 23 aircraft compared to the previous year. This growth demonstrates the customer preference as well as the effectiveness of our cost structure and the healthy capital structure. In terms of operational performance, the group reported a consolidated passenger load factor of over 83% for 2023, which is 1.8 percentage points higher than the previous year.

Speaker 1

Consolidated revenue per ASKs increased almost 11% in a context marked by passenger demand and an attractive value proposition anchored in a unique network. Turning to Slide 10. In the Q4, the adjusted EBIT margin was 10.8%, contributing to a full year EBIT margin of 11.3 percent, which represents a record figure of $1,300,000,000 This was made possible by our unique value proposition and continually striving for cost efficiencies. These cost efficiencies are in large part based on our strategic fleet negotiations carried out during Chapter 11 proceedings in favorable market conditions. Revenues increased 24% for the full year reaching an amount of $11,800,000,000 driven by the ongoing recovery of operations.

Speaker 1

Cargo revenues decreased 13% during Q4, primarily due to softened cargo yields. It is worth mentioning that the cargo yields still remain significantly higher than pre pandemic, with a 17% increase compared to 2019 levels. In terms of adjusted operating expenses, there was an almost 15% increase during the quarter compared to 2022. This growth can be mainly attributed to an almost 15% increase in operations when measured by ASKs. LATAM managed to maintain its cost per ASKs ex fuel in line with the previous year.

Speaker 1

LATAM reported a net income of $582,000,000 for the full year. If we move to Slide 11, you can see that LATAM Group has a well diversified revenue structure. During 2023, the group passenger business amounted to 87% of total revenues, of which 46% stems from the international operations, 35% from the domestic airlines Brazil and 19% from domestic Spanish speaking countries operated by other affiliates. All these market segments experienced significant growth in the year driven by strong demand, particularly in international operations. This diversified revenue stream serves as a key differentiating factor within the industry, providing operational flexibility to adapt to changes in market demand.

Speaker 1

In the next slide, Databr Group has had a solid cash generation. This is a differentiating factor within the Americas. LATAM is generating cash after investments, after growth, after interest payments and without issuing any financial debt. We are firmly once again a solid position not only regionally, but also globally. The group generated cash amounting to almost $500,000,000 this year, a figure that enhanced LATAM's liquidity position.

Speaker 1

Highlighting LATAM's growth investment throughout the year, LATAM allocated almost $500,000,000 for various purposes with the strategic investments primarily directly towards cabin retrofits, converting passenger aircrafts into freighters and acquiring new fleet. Once again, we are pleased to report improvements in our capital structure, noting quarter over quarter progress in liquidity and leverage, positioning the group in an excellent competitive position. LATAM Group presented a $2,800,000,000 of liquidity this quarter, representing 24% of liquidity as a percentage of last 12 months revenues, which is above our internal target of maintaining a minimum of 20%. In terms of adjusted net leverage, the group made significant improvements, reducing it from 4 times to 2.1 times. With that said, as shown in the published 2024 guidance, LATAM expects its adjusted net debt to be below 2x for the current year.

Speaker 1

The current capital structure is unparalleled in the Americas, particularly in post pandemic times. On a related note, with regard to the company's liability management, it's one of the central priorities for 2024. LATAM holds 2 senior secured notes and a 5 year term loan B for $1,100,000,000 which were all offered as part of the exit financing process from Chapter 11 proceedings. Aside from this, LATAM maintains an spare engine facility that was initially issued in 2014. Taking into account the time line for debt repayment, this year brings opportunities as prepayment options at par for both the Sparington facility and the Term Loan B will become available as of November 24.

Speaker 1

Please join me on Slide 14. In 2023, LATAM Airlines Group successfully closed the year with a fleet of 333 aircraft. During the year, LATAM Group received a total of 30 aircraft, further strengthening its operational capacity. These additions included 10 A320ceos, 8 A320neos, 7 A321neos and 5 Boeing 787 aircraft. In addition to this, LATAM Niagara Group was able to complete its retrofitting plan on its entire narrow body fleet ensuring all planes are updated and equipped with the latest figures and cabin segmentation.

Speaker 1

Let's move forward to Slide 15, where we can review our guidance for 2024. As indicated, LatAm expects to continue solidifying its capacity growth with a 12% to 14% increase in ASKs compared to 2023, primarily propelled by the recovery of the international sector, which is expected to grow up to 18%. In terms of LATAM's operating results, the projected revenues range between $12,400,000,000 $12,800,000,000 Furthermore, the group expects to achieve once again a double digit EBIT margin between 10.5% and 12.5%. Regarding our cost structure, the group has consistently implemented measures to enhance efficiency and drive cost optimization. LATAM Group expects to maintain a passenger cost per ASK in line with the second half of this past 2023 year between $0.043 and $0.045 performance supported by a liquidity position above 20% over the last 12 months revenues as well as a decrease, as I mentioned, in its adjusted net leverage below 2 times.

Speaker 1

Last but not certainly not least, it is important to mention that in 2023 LATAM leads the South American region's sustainability performance according to the latest corporate sustainability assessment from Standard and Poor's.

Speaker 2

We are very proud

Speaker 1

of this recognition, which is a reflection of the firm's commitment to sustainability and the 3 pillars of our long term strategy focused on climate change, circular economy and shared value. In each of these aspects, we have had improvements during the year and in particular, I can highlight that by the end of the year, we reached 90% reduction of single use plastics in the group's operations. As we conclude our presentation, let's recap on the achievements of LATAM Group in 2023. LATAM Group has important scale. The group has transported close to 74,000,000 passengers, a number that echoes the pre pandemic era and increased market share in every market it operates, showcasing the trust and confidence that our customers have in LatAm.

Speaker 1

It has been without without a year of growth. Our full year revenues reached EUR 11,800,000,000 EUR 11,000,000,000, sorry, year over year growth of 24% propelled by LATAM's unique network and value proposition. LATAM Group has improved its operational efficiency and elevated the overall travel experience for customers by investing in the latest generation of aircraft and integrating a net of 23 aircraft throughout 2023. Our financial health is robust with an adjusted operating margin of 11.3%, all while effectively managing our costs. The strength of our balance sheet and capital structure is evident.

Speaker 1

With an operating cash generation of $2,300,000,000 and the bottom line cash generation of $500,000,000 in 2023, culminating in a total liquidity of $2,800,000,000 and an adjusted leverage of just 2.1 times net debt to adjusted EBITDA. These figures show consistent delivery and not only exceed our 2023 guidance, but also outline the projections from our business plan. Our net income for the year stands at $582,000,000 the highest in the LATAM's Group's history, which serves as a statement to our commitment in generating shareholder value and return. 2023 was a remarkable year, delivering outstanding operational and financial results. LATAM will continue its successful path and meet the published guidance for the year ahead just like we did in 2023.

Speaker 1

Thank you for your attention and trust and let's turn it over to Q and A.

Operator

Thank you. And it comes from the line of Guillermo Mendez with JPMorgan. Please proceed.

Speaker 3

Good morning, Roberto, Ramiro, Andres Storie. Thanks for taking my question. I have 2 actually. The first one is regarding the competitive environment. If you can comment how you see competition going forward, especially in Brazil, given the GOES Chapter 11 process and also in Colombia where you clearly have been gaining market share and if this should still be the trend going forward?

Speaker 3

Second question is regarding capital allocation. Congrats on generating cash in 2023. And then looking forward, can we start to think about a regular dividend policy or something on that front? Thank you.

Speaker 2

Hi, Jason. So I'll take the markets coming on the new capital structure. Hi, Guilherme. Nice to hear from you and thanks for being here. I think that as we see 2020 4, we were expecting to grow double digits in total and in most of the markets where we operate, we see in general a stable and healthy level of demand.

Speaker 2

And with respect to the competitive environment, what we've seen in terms of announcements of other carriers in the region are of a stable competitive environment in general. In Brazil, we see that we are going to have the opportunity, I believe, to increase our market share and reinforce the network we have operating domestically. And we will certainly increase over double digit growth in international out of Brazil. In total, our Brazilian operation will grow double digits if you consider both domestic and international. We see a little bit of higher capacity pressure on the Pacific side, particularly in Chile and in Peru.

Speaker 2

But we don't expect that that will create significant changes with respect to our position and our markets. So we're very confident with respect to what we have built in terms of strength of our network. So we don't have a particular concern. Colombia, we grew to, as you saw, 33% market share. And we see that as a stable number throughout the remainder of the year for the timing.

Speaker 1

On the capital allocation and regular dividends, Guillermo, under Chilean law, we are obliged to distribute at least 30% of our net income to our shareholders, always subject to shareholder approval, but that's a regulation in Chile. It has been consistent pre pandemic in that sense, and I expect it to continue going forward.

Speaker 3

Super clear. Thank you.

Operator

Thank you. One moment for our next question please. It comes from the line of Savi Syth with Raymond James. Please proceed.

Speaker 4

Hey, good morning. I was just wondering on the passenger unit cost, if you could talk a little bit about it looks like you're thinking flat to up. I was wondering if you can think or talk about like what the drivers are kind of headwinds and tailwinds on the passenger unit cost there? And then also just on the fleet side, are you expecting kind of a balanced mix between the A320s and A321s or will you start see maybe more upgaging? Thanks.

Speaker 1

Thank you, Savi. This is Ramiro. On the 321, 320, majorly when you look at our order book with Airbus, it's more linked to 321neos. And we already started receiving those, and more biased toward that side. It's an aircraft.

Speaker 1

We like for our operations and Prospera SKY is a very attractive aircraft. And I would like to highlight that deliveries for 2024 and first half of twenty twenty five have been confirmed. So the lift that we're expecting for 2024 and the next 2 years, 2025 and 2016 is pretty much confirmed. On the cost pressures, we're basically seeing inflation and certainly currency fluctuations as an impact. We have been very effective on the implementation of all the initiatives that we laid out when we were during when we were on the Chapter 11.

Speaker 1

We have been very vocal on those savings and those initiatives were implemented with successful results. And we have developed that muscle that we believe is going to be there also in 2024. So we're offsetting a little bit the inflation and the currency fluctuations and are very, very much convinced that we're going to be able to maintain our cost per SK in line with the second half of twenty twenty three.

Speaker 4

No, it's definitely impressive performance there. And if I may take a step back on your margin, that's a really strong margin guide as well. I was curious if you could talk about maybe how much of that is driven by maybe a good industry supply demand dynamic versus perhaps structural changes versus where you were kind of prior to the pandemic and it may be as a LatAm or the industry based kind of structural changes that are driving margins higher?

Speaker 1

Let me start with that. We certainly are seeing a different industry in Latin America than pre pandemic. We have seen certain operators that are no longer operating in certain markets. There was a little bit of consolidation. So the competitive environment is different and therefore, a little bit more stable and a little bit more balanced on the upper demand.

Speaker 1

When we look forward down the next years, we certainly are seeing capacity being impacted by the supply chain issues and engine manufacturers issues. And we see a balanced demand supply. But I'll turn it over to Roberto to complement. Thanks. I mean,

Speaker 2

when you put the word structural there in the question, I think that's the right angle of this question, which is what has really changed. And I think that if you see our position today, we have absolute strength and relative strength. Absolute strength clearly stemming from the number that you've seen our cost position, our balance sheet, our position in the market is clearly parallel today. Nobody in the region can claim that they have a network like the one we have today. And this is by far, but also relative positions.

Speaker 2

Today, our cost structure, our financial structure allows us to think about this cycle in a very different way. LATAM can take opportunities going forward on a positive environment. LATAM can take opportunities going forward if the environment is less strong or if we see, for example, Middle Eastern issues on a higher fuel price. Today, the time doesn't need necessarily to pass. We can take advantage of that relative position as well.

Speaker 2

So and that is a very deep structural change. Today, we are the owners of our own destiny in the region, very pureness in the world, I believe, and claim that today and that I think puts that time in a very, very different way in a very, very different place than before the pandemic. Our margins are 4% higher than 2019 and this is despite a much higher fuel price and a significant devaluation that real was at 3% before pandemic and the peso was probably 20% or 30% below today. So even with those headwinds, macroeconomic headwinds, we've been able to improve our results very significantly. So we're very proud of what we've done.

Speaker 2

And as we see the next month and we see a good booking curve going forward, we believe that have navigated these 4 or 5 years and changed the place where LATAM stands in the region.

Speaker 4

That's all very helpful. Thank you.

Operator

Thank you. And one moment for our next question please. And it comes from the line of Neil Glynn with Air Control Tower. Please proceed.

Speaker 5

Good morning, everybody. If I could ask three questions, please. The first one is following on from your comments on being able to act strategically. There's obviously been plenty of reports and commentary from yourselves on appetite for gold Boeing 737s. What can you say about the mechanics of how you might procure additional aircraft beyond your current fleet plan over the next few months?

Speaker 5

Then tied to that, I think I understand that you're not guiding on cash fleet costs for 2024 possibly because of some uncertainty. But can you help us understand based on the current fleet plan, how much higher cash fleet costs are likely to be in 2024 than 2023 at this point? And then a final question, on the cargo side, Your cargo load factors were back to 53% in the Q4. And as you continue to grow cargo capacity with belly space, I'm interested in what you think is the right long term load factor on expanded cargo capacity. If you look back to the first half of the last cycle, you got nearer to 60%.

Speaker 5

So interested to see your views on whether you can better fill that belly space over time? Thank you.

Speaker 2

Hi, Neil. So I'll take the first and the third question, and then I'll answer Vermeer to tackle the second one. So on fleet, I mean, I think it was important to show on that slide in the presentation that we grew our fleet by 30 aircraft and we procured 10 CUs which were not orders of Airbus. And we've been constantly looking in the market for incremental capacity. We are aware of the Pratt and Whitney engine situation at the same time and how this has evolved.

Speaker 2

Unfortunately, I think it looks more challenging for carriers going forward. And we have been very active in the market looking for aircraft all along, okay. And what you're hearing today in the market is no different absolutely from what we have done and said throughout the last month. We issued a big RFP earlier last year with respect to our cut. We continue seeing that.

Speaker 2

And therefore, I don't think this should be a surprise at all. And as we see a positive demand environment, we're always looking at opportunities to expand further and this is one of the beauties of our balance sheet. With respect to the fleet, we are agnostic with respect to aircraft and operators as long as they serve the purpose for LATAM. We are A320 narrow body operator, but we have operated 737s in the past as well. And we have a mixed fleet as you see in the whiteboard.

Speaker 2

So we're scanning the market all the time. And if we see aircraft that meet our needs and that are helpful for increasing and improving our network performance, We will look at those and if they make sense to LATAM, we will see if we incorporate them. With respect to your third question on cargo, so yes, load factors are in the mid-50s. I think that one of the important unfold things about that is what is the right size of aircraft when you think about prior to the market. And LATAM's 767, which has been the backbone of our cargo fleet, I think it highlights the importance of having that right sized aircraft for this market.

Speaker 2

Bigger aircraft like the 777, like the 74 are challenged. They suffer because our flows are not very big, okay? And the combination we have between the belly and the freighter allows us to allocate our cargo capacity in a very different way than full cargo airlines can do. I think that is reasonable to think about low factors in the brighter side, hovering between 50s and low 50s and high 50s going forward. And as we increase our international capacity, as you saw in our guidance during 2024 and that is belly capacity mostly, shouldn't be surprised of seeing an increase on ATKs coming probably more from veggies than from Friday during 20 24.

Speaker 1

Ramin? Yes. Thank you, Niall, for your question. Your question was regarding the fleet cash cost going forward and if we could provide a little bit of color. In 2023, we had a free cash cost for our 300 plus aircraft of around $800,000,000 This is a unique cash cost today in the industry and it stems very much from the renegotiations that we did under Chapter 11.

Speaker 1

Those negotiations were negotiations that once we lock in those prices will also extend it. So we're going to benefit from those prices for approximately the next 7 years. As we are incorporating new aircraft, the new aircraft are, of course, a little bit more related to market prices. We also renegotiated those contracts and those deliveries under Chapter 11, but they're more linked to the current market prices. And as we go forward and incorporate those aircraft, this is going to be slightly increased.

Speaker 1

I would say that for 2024, it's going to be north of the €800,000,000 for sure. I would say approximately depending on the aircraft that we incorporate and if we go to market to which aircraft we incorporate into our fleet. But I would say approximately €900,000,000 is a

Speaker 2

good proxy.

Speaker 5

That's very helpful. Thank you.

Operator

Thank you. One moment for our next question please. It comes from the line of Andre Ferreira with Bradesco BBI. Please proceed.

Speaker 6

Hi, good morning. Thank you for taking my question. I have two questions here. First, if you see an upside, do you see an upside for yields and for the 2024 guidance given the capacity constraints in Brazil, especially considering the main competitors' situation? And my second question is, what should be the CapEx for 2024 2025 with the new updated food grade plan?

Speaker 6

Thank you.

Speaker 2

Hi, Andrea. How are you? This is Robert. I'll take the first question. I'll ask Ramiro to take the second.

Speaker 2

So the booking curve for the 1st few months of the year looks healthy and we see healthy demand at this point in time. We just launched or issued our guidance and as you saw, we're not making changes to the guidance. So I think I'm not going to comment beyond that with respect to that in particular. As I said before, LatAm has the ability and is prepared to take market opportunities as they arise. And we're constantly looking for those opportunities not in Brazil, but in other countries as well.

Speaker 2

And I think it's too early to anticipate any impact on the market other than the one we have already issued in the guidance. So we'll see what happens during the year. And we hope that demand stays healthy and strong as we have seen in these 1st couple of months of the year.

Speaker 1

In terms of fleet CapEx for the coming years, Andre, we are receiving next year certain aircraft from this year, 20 24, certain narrow body aircraft, which is going to account approximately for €500,000,000 pre financing of investments. The coming 2 years, 2025 and 2026, in 2026 is a similar amount, a little north of the €500,000,000 You can see it in our 20 F. And for the 2025, we have a little bit of a ramp up, a little north of €1,000,000,000 in terms of investments as we are receiving approximately 12 narrow bodies and 4 787s that we have incorporated. All these figures, of course, are pre financing. As you know, we go to market.

Speaker 1

Some of them are sale and leasebacks, others are operating leases and sometimes we do financial leases. So we're going to be it's not going to be this the impact on our cash flow, but these are the CapEx investments on the

Speaker 7

fleet. Okay. Thank you.

Operator

Thank you. And it's from Jay Singh with Citi. Please proceed.

Speaker 7

Hey, good morning, everybody. I wanted to ask, do you have any update on when you could see Level 2 ADR program launch?

Speaker 1

Thank you, Jay. We're still assessing adequate market conditions. We'll keep the market informed once we move forward.

Speaker 7

And as a follow-up, I want to ask, are there any routes that you used to serve before the pandemic that you don't serve now, but might return back to later?

Speaker 2

Hi, Jay. I think that the only long haul route that we used to serve before the pandemic and that we're now serving is Sao Paulo de la Vib. For the remainder, we have pretty much we brought the whole network. We launched as it was in the presentation, a few new routes under the scope of the routes. We have increased about 10 cities in Brazil on top of what we routes.

Speaker 2

We have increased about 10 cities in Brazil on top of what we have in 2019. And also, we are serving more cities in Colombia as we increase our size there. Last route we issued or announced domestic was the city of Ancash in Peru, which is the 17th destination we have. So today, even though our capacity in terms of ASK is more or less similar in size, The one we have pre pandemic, our network is more diverse. We have more destinations and our hubs are in general bigger and more at scale.

Speaker 7

All right. That's super helpful. Thanks so much guys.

Operator

Thank you. As I know, I don't see any further questions in the queue. I will turn it to Ramiro Alfonsin for final comments.

Speaker 1

Thank you, Carmen, and thank you all again for joining us today. As always, our Investor Relations team is around for further questions. Have a very nice weekend.

Operator

Thank you. And with that, we conclude our call today. Thank you for

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