Q4 2019 Earnings Call
Good day, everyone and welcome to Latam Airlines Group earnings release Conference call just as a reminder, discomforts he's been record at that time Airlines group earnings release for the period, what distributed on Tuesday March 3rd if you have not receive it you can find it in our website at www.
Latam Airlines group Dot net in the Investor Relations section.
This time I would like to point out that statements regarding the company's business outlook and anticipated financial and operating results.
Forward looking comments.
The six six stations are highly dependent on the economy, the airline industry and the international markets. Therefore, they are subject to change now 80, it's my pleasure to turn Nicole over to Mr. Samidorphan seen Chief Financial Officer off Latam Airlines group Mr. outflow seen please begin.
Thank you Carmen and good morning, everyone and welcome Airlines fourth quarter earnings call.
Joining me today or what are the logical chief commercial officer presume, how do you feel like a moment Brazil.
Understood Lucky VP corporate screen.
Please join me on site to where you will find it hard that's for the full year 2019.
We agree reacted to growth opportunities in the region. After the C celebrations somewhere like individually.
As a consequence, we grew in the U.S. case by 4.1 person and during 2019 not them carried 74 million passengers. The highest number you know where he brings more than 5 million additional docs endures Apple for them in Brazil compared to 2018.
These represented more growth than any other airline industry.
In addition to growth we continue the <unk>, who might be there, where we booked a special attention.
Our operations and our customers.
Regarding our operations, we improved the company not repeat I wouldn't work, especially from our hub.
Double the amount.
But the same time would be the spectrum cokers under a liability or calibration.
We are proud to be made the most punctual airline in the world. The Mega Cardica theory by April G insights urea.
Approximately 86% for power like being going time.
In 2019.
We have also been recognized [laughter], most punctual airline in Brazil.
Cask ex fuel remained stable at 4.5 cents.
Despite challenges and the effects of the social unrest in the region, particularly in China.
Well when in shorter routes and coffee could possibly longer boots, mainly those from Argentina early in the or get a devaluation. Okay. That's will reduce our average stage length by 3% 40 year you'd been fixed cost per flight impurities days.
In addition, the ground being up the born 77.
Longer than anticipated and we had an average of three aircraft on ground you're in 2019 engine from there.
Which we expect to recover the second quarter 20 Twond.
On the other had currencies.
Wage and helped us to upset Barco PC effects and we remained stable in phase II.
And cask ex fuel during the whole 2020, <unk> compared to 2002, how can I can compared to delphine.
Regarding customers, we executed a strategic investments to better serve our passengers and improve their travel experience.
During 2019, we invested in our passenger such as never before.
We acquired multiples.
No I wouldn't know unified frequent flyer program under good luck on Pos Brian.
Come under fourth largest frequent flyer program in the world.
We'll now the purchase plays with our new cabin designed to offer an industry, leading onboard experience and to better serve different parts of passengers.
We currently have 67, <unk> retrofitted or.
100 uncertainty we are targeting indeed see that would be concluded by the end up this year countries like.
In addition, we announced our new business service and the premium economy to service that they said on but it wouldn't be tail.
That's ever sold.
Passengers to recognize those with federal awards, such as the first on down in South America, Brightkite trucks, well the airline award and the best Global airline South America.
According to the optics passenger choice awards among others.
You tend to be during 2019, we improved our network, we improved our operations.
And our customer service.
And further strengthen our position as the leading or lagging the region and one of the main airline group seemed to world.
As previously announced not done will lead the one world than I am on my first stumpage prices are gordmans pain, you extend bilateral agreements with Oh, Okay. One well members with the exception of American Airlines, and we'll continue to offer customer benefits such as earnings and resuming Oh My.
While the Super to launch access among other back.
We're happy to report the net income per hundred 90 million for the full year 2019.
For the third you're in a row, we increased our total revenues, reaching more than $10.4 billion.
Once again this revenue increase was driven by our passenger operations, which increased 3.4% year over year.
Once again, we generated over $1 billion in free cash flow. Despite the onetime investments in <unk> and the investments. We are carried out by the upgrade you know what cobbins, Oh, they're hungry on tendency pain.
But I think 20, well, we'll finish the retrofit oldies cabin.
They got her duration on the bus to reduce our financial debt during the year and reach and leverage or 4.0 times.
Self December 2019, well in my opinion at healthy liquidity position up approximately 20%.
We further reduced rig commitments for the following years, which will give us even more pronounced for flexibility for the upcoming years.
Yeah Limited with Delta announced last December you said recognition of the footprint does not on half into region and we are excited about the benefits that this is strategic agreements will bring to our shareholders customers and employees.
That's nice currency a shareholder of let them, they're successfully completing the tend to refer 70% off the shelf life.
In addition, however, he did you prolonged get better understand all implemented new coach Harris agreements with Delta.
We have already announced cold, Turkey, Brazil to be implemented the starting the first half of this year and we expect to announce go check in Chile also during the first half with some people.
We also signed loyalty program agreement that will enable reciprocal reconcile your benefits starting April 1st fronted frankly with though.
That's a bus members, we'd be able to earn and redeem miles on built on flights to more than 350 nations worldwide.
We already reallocated.
I would like to Jerry gate from Dunno, it's dark compelling old age sorry, the terminal four to better serve passengers connecting with built up like.
We could not be happier with all these achievements and we want to thank our employees hold yet hurt you in this year.
To better we solidified that sounds position in the region and we improved our competitiveness.
Before turning the call to address for more detail in the fourth quarter who'd like to thank our customers for their continued support and express our commitment to providing the best travel experience and chronic Peter did not in America.
The recent outbreak Oh, well don't have iris nothing how to think different.
Following it closely monitoring concentrates evolution and working closely with health authorities.
I would crudes and gone stuff are prepared to handle situation somebody's nature.
For us the most important it just takes your harwood passengers incruse and therefore, we suspended our flight from some portal to me not until April 16.
In addition, we got pros and all non essential hiring and discretionary expenses.
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With that I would like to get there called two under the Roger I wear VP of corporate announced one that I know, that's the fourth quarter any more detail.
Thank you for Vito and good morning, everyone.
Let's turn to slide three Oh, you find the summary fee income statement.
Well from Glenn if the company, which people not being about her sniffle quarter would be something any piece was 3% year over year.
Yeah, that's a good frequency personally the border well, but it's probably skewed but keep in 1% in dollar terms, whether it's not something else in domestic bringing to market and the recovery natural remedies.
As a result totally patent revenues rose 65%.
Couple of revenues decreased by 70% year over year landed the peak this quarter keeps the sale a former carcass appeared Mexico Dr., a more imports into region I'm disruptions caused by the Benson Pete.
I think revenues increased 24% 200 and her team even better.
Explained by the merger looked at those would last time I live in Brazil.
Multiple sister companies are now recognized on the buttons revenues say much revenue for the movies, we probably got nothing path.
From a cost increased by keeping 1% quoted to two when talking about Earth and as a result, our operating income for the quarter amongst the three in the picks it up buttered. This is 2% higher than lucky or somebody doesn't show one property mocking weeks, 12.2%.
Net income amounted to 220% I mean about her people corridor.
This is a decline of hundreds BPP University luckier, mainly explained by the 222 in the <unk> decline in foreign exchange gain year over year.
Looking at food you figure from his whiteside, despite running through Youtube and 60 cents to cheat 10.4 billion buttercups, what caused by 2% due to an increase of opened one for sending capacity.
Taking a decline of 1% 1.8% cost for Ace game.
With that opened the income for the year was 742 minute daughters, and operating margin 7.1%.
And with our previous guidance.
Lastly, our net income amounted to 219 about us for the full year 2019.
Please turn to slide pool.
Looking at different this would you need you can see that it's not something but he's shown in recovery year over year.
This is a result will be active management of the company.
International second the defendant approximately 51%, but probably the case the quarter down from 54% deplete. This quarter. That's is supposed to be 5% decreasing capacity through the fourth quarter.
[laughter] declined by 500% I'm load factor those new from 2% opposed to 80 people 2%.
Revenues for escape sports six cents, which is 4.6.
Opened six ison high Sevens grateful to have luckier.
Looking to be domestic casino operations, which represents 50% of the totally ski total capacity increased by 17.7 cents I'm talking about 20%.
No it's back to reach 8500%. This is 1.7% that bones higher coupled to fourth quarter, though 2018.
Nothing that's going to feel beep 14, I kept people to see up I think if the deal at the beginning of year.
Acts everything that's been or its growth compared with the first south of the year, maybe by operating philosophy, I think you actually does that they intend to do.
In addition to compute the company because you're not domestic demand for prepping for its case goes up about 13% local currency and 6% go can you sort of terms, reaching 7.1 cents in the quarter.
In spite of 50 countries domestic operations, which altogether and 19% up until the crushing capacity collectibles nonperforming what about the good people an 8% on both factor we 78.2%. This is almost four points lower than the same quoted 2018 affected by the social.
It's in Phoenix.
Excluding two done a breach most kaposi rose, 13% Entropic rose, 12% did you motorcycle 82%.
Revenues for it skewed decline by pulling some friends through the quarter, mainly due to the people who each month local currencies, excluding bring things affect revenues Prairiesky boom, 5%. These funds speaking countries domestic operations.
As it was so overall I think capacity by 2.2% year over year. This quarter revenue spreads keeps gross creep up 1% your with your I'm going to talk to me when he was stable at 82%.
Lastly, if we exclude the effect of a foreman Mexican succeeded calibrations increase capacity, but duplin, 6%.
When traffic decline Jupin, 6%.
We saw a decline of Zip and 7% importantly load factor to 56.4%.
Revenue is pretty keep its nine by 8.7 cents full quarter, mainly driven by lower imports into region, especially to Brazil and Argentina.
And disruptions did we did by the silicon, but the two lit during the fourth quarter of 2019.
Please turn to slide number five.
Once again I'm trying to slide you can talk to maintain just like one of the sale of the passenger and cargo revenues in the past 12 months.
But that's I can see the but just like when felt in 2018.
Sure that's who represented approximately 55 cents towards and revenues, what I've been Tina SIMPAS temperate sentiment revenues.
If you need to be roughly right, which reflects the problems by country up at the same period in 2019.
We can see eight four points increase for Brazil, what I can see no declined four point accounted for only 6% at the point of sale.
This diversification allows us to adjust our beliefs on to upset the impacts of we meet face in certain markets.
Please turn now to slide number six.
Let me just said we maintain our calls for a few despite the operational challenges we faced into Europe.
At this Stephens International network, social unpleasant region I'm afraid to people in 77 are kept them down through the year.
I would tell that slide you can see that's an attempt to be continues to expand its up are you, saying I'm transport more passengers.
We care, it's almost 20 minutes past your full quarter ended this number up at least for I kept compared to last year.
Few cost increased by 10.6% due to declined 14%, if you've probably heard gallon upset by 18% increase in food consumption language that capacity increases.
Because that's what you did wages and benefits declined by 510% is headquartered doesn't 19 made explained but due to loosen up the local currencies.
Looking at these costs, which includes maintenance depreciation and amortization expenses those were up about I don't even better yeah, but you're in the quarter, maybe due to the addition of trenching and aircat not be through into your.
Then in Brazil.
Lastly, well the cost some thislife increased 12% that's occurring 94% more passengers you, but your high or belief among return he's competes with <unk> in for Fourq 2018.
That's a result, calibrate skate declined by Jupiter, 1% constituents. It sounds like Kasperski ex fuel increased by 610%, usually you too far from 68 cents.
After the full year 2019 customer escape declined by 1.8% on cask ex fuel remained stable at 4.5 cents.
Please turn to slide number seven.
During the year, we have made important progress for the fleet commitments cattle, we have no food there could you just by 1.1 been dot hurts the peak of Midwest <unk> between 2022 dozen up 22.
This is equivalent to 838% predicts if he could be defense for this fee your parents.
We believe that there's been gives us the Mr fleet flexibility. So that don't go to different parts of conditions and allows us to continue improving cash flow up investments.
Investment income total debt profile and a healthy but they didn't have enough.
Please turn to slide number eight.
That's why do you just said nothing that's never that's embedded in its faster than the last year in 2019.
We began to be I think but I think sort of sleep.
Already signed six or seven aircraft, but then you cabins needed some significant improvements in customer satisfaction.
We have also disclose that sounds like drop there said about six airports and have integrated our if he loves to Miami, all contributing to improved customer satisfaction different stages the journey.
During 2019, we also about the new basic economy cost to keep our off since we are passengers I mean, much twentytwenty, we will be can be all the aren't ended we jumped pretty much went into service in all its international and domestic flights.
And you pretty much service, that's it and they did fair to say that San Francisco airports, that's actually to be at the lunches.
He ticketing and body as well as the food cheated on board service, such as the new food look for more comfort them bankruptcy.
<unk> catering service I'm exclusive overhead bins would like it's.
We have been benefits in about two years, we will compete so without increasing a bit as you can see into next month.
Turning to slide nine Oh gosh, that's the time by 292 minute buttons on the school due to 7.2 billion.
Yes, I remember what's down to four times in December from 4.2 times in September.
We continue having a very good liquidity position with $1.5 billion from cash on hand last evolving crystal city be obviously couldn't begin divesting fourth quarter, which is completely undrawn.
This is not times, because he position, which is 100% last 12 months revenue.
Moving elsewhere access.
Well I'm glad you can find are up in fuel hedge position as of today.
Fourth quarter 2019, we catch a bunch of maybe 56 cents a total consumption.
Well this year, we have a good portion hedge for the first half, what 65% and 84% respectively.
Q1, and Q2 that is one for the third quarter. We currently have 49% of consumption habits.
Finally, the on slide 10 impediment guidance, we are not changed the guidance provided in December of last year, We expect total capacity to go between 3% to 5% does your.
This is a composed by a due to 2% targets <unk> international and business, 7% to 9% go because it must be Brazil, and 68% for domestic Spanish speaking countries operations.
We also like in cargo capacity to increase between 4% to 6% this year.
With that we concluded participation today.
If you do open the line for questions. Thank you.
Thank you, ladies and gentlemen to ask a question just press Star then one on your telephone keypad.
To withdraw your question first Uptown key.
I can think anything huge just press star then one.
And our first question comes from Michael Linenberg with Deutsche Bank. Please go ahead.
Hi, This is actually keep on for Mike. We were wondering if you could just talk about any more changes that you might make too like your route network in response to Corona. Just in addition to Milan, if there's any other regions that you are particularly concerned about are watching closely.
Yeah, Hi, this is what vertical.
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So at this point in time, we only have made a change can be done we are very closely monitoring trenching traffic, we don't see I mean back on domestic market at this point in time.
He then you'll declines we operate.
However, we're starting to see certain softness in demand on international routes, partly due to changes in policy troubled foods phone companies in general.
But at least wouldn't be time, we are in deposits I was just speaking very good pretty healthy develops in the next a few weeks.
Okay. Thank you so much.
Thank you. Our next question comes from savvy seized with Raymond James.
Hey, good morning.
It's kind of curious and.
Yeah. The on these Colombia as a kind of plan to to kind of grow your corporate share you know what.
Just kind of the latest development there and just in this kind of current environment with the commodity uncertainty I was like Sungevity Tonight is this kind of more of an opportunity or are you kind of scaling back that you your plans for.
Hi, probably due to grow at.
So just to remind everyone. We launched a plan to grow in Colombia, we increased the operation. So like first wouldn't be 19 focus mostly on corporate markets in the in Colombia.
As explained in the last conference call, we're satisfied with the current the outcome of piece first stage, but then.
Given the macroeconomic situation in Colombia, particularly but at least from that skewed who decided to close a growth.
For a few months on at this point in time, we are at that stage.
But we're looking at the developments are very closely and bellwood satisfied with what we have achieved you did last setting them up.
Okay, and nice I might just on a domestic Brazil and you know one of your competitor have been kinda sounding concerned about capacity growth levels.
Yeah, you just kind of finished a strong for Q, but now you're starting to lap maybe some of the of young coverages are you know capacity pull out. So just any updated thoughts on kind of what you're seeing here in one Q and cannot thoughts on capacity into Q.
Yes so.
First premise took a buck 50 will grow double digit took compressed first semester last year and this is basically because we think corporation north of 14 aircraft.
I just made reference to.
We have at this point in time, no plans with increasing our capacity in terms of number affect us further than that so you will see a gradual decline in growth in the second half basically because of the and based on second half of last year.
And I used to seeing can a double digit Ross increases.
On a local currency basis, he and the first quarter are we starting to see that Madrid.
Well, we see healthy rough in that first quarter.
But it's starting to compare to the base was last year. So it's not a double digit increase just wanted.
Okay that makes sense.
Alright, thank you.
Thank you. Our next question comes from Matthew Wisniewski with Barclays.
Hi, good morning.
Thanks, Rob Thanks for taking my question I Wonder just talk about cash flows you know expectations of margins are roughly flat I'm capex steps down materially the share thinks 400 million I'm on aircraft from over a billion last year.
What but given that it should produce pretty healthy healthy cashless. This year, what else could impact I'm kind of cash flows which should keep in mind.
And then as a kind of a second question what.
Can you kind of revisit what Cashel priorities are if cash you know does in fact higher this year can we see dividends or you know de leveraging further any color on that would be great. Thank you.
Thank you Matthew <unk>, well, you're right, we are reducing compare to 2019, our free dimming Benson better for our Creek Opex from 1 billion to.
Maybe 400 million and and some of these aircraft will be we'd probably be arranged to sale leaseback. So they will not be can see their capex and would be finance.
However, the company you still carry no significant nonpeak investments.
We are concluding our retrofit definitely cabins about these requiring capital this year.
A lot of engine repair sits on ingrained in the non Threed graphics, we target then and non fleet Capex of approximately 1 billion this year.
Which is similar to the one that we had been in 2019 regarding priorities I will make two priorities. Besides the engine that bears that out a mandatory for I will recur and recurring corporations their name them into projects I would say or are the retro picking up the cabin that were investment seen I'd.
<unk>, who we know where did you go IP services to our customers and and those are the two main priorities.
Okay, Great. That's all for me thanks.
Thank you.
Our next question comes from Bruno Amorim with Goldman Sachs.
Hi, good morning, everyone. So I just have a follow up question on the units wrapping you Oh perspectives in Brazil.
You have mentioned that a you were seeing a deceleration into phase of growth in units revenue into fourth quarter and so if you are not taking capacity out of the market does mean that's true.
Hi, good market as a whole we will likely face I'm much tougher compares on base in terms off your and your variation of a U.S.K. use of costume to second quarter and things you are already into single digit level for units revenue growth from to first quarter is it possible for us to see you know nine megawatts easier and you ever Asian units rabid during the second quarter any indeed.
Okay, and you could provide I'd just point, thank you very much.
Hi, Bruno digital <unk>, just to clarify we're not taking notes capacity.
What I was trying to explain that incorporation of the 14 aircraft happened around meat nixed, the last fear and therefore, what you'll see east a high growth in the first half that's compared over the first half of last year because of the lower base.
That gap will start to shrink as the you continues because who have already the impact on those 14 aircraft.
We had it in the second semester of couldn't do nothing so capacity will still be boasts a deep and our guidance stuff.
There's not a and b, 7% to 9% for domestic growth through into your that's a whole. Okay. So are you.
Improve as I said as compared to those you on the first quarter ER and the comparison second quarter will you see I'm also how the market develops a the only point of consideration when is that yield based also increased significantly that you'd be close by the time over the second quarter of younger has mostly seats you see it's liberation.
Yeah. So that was my concern because you know there was a big a you know jumping you'd seasonally adjusted in effect from acquired to last year and then we see much different what part of them basis or you know do you have any indication. If you could be you know maggots you going into second quarter is too which words Jesse.
I think it's starting to see however, I think that if you put everything together our expectation for useful RASK. If you want for the whole year would be in the range of stability as compared to what was going to win Tonight.
Thank you very much.
Thank you.
Our next question comes from feel they sell their siani with Citibank.
Hi, Good morning, just asked the question if you haven't had to be some conversations with copper line regarding that curious Harris keytruda with listen thank you.
Thank you for about a Thunder no we have not had management conversations with her.
Other than the recurring business conversations.
Okay. Thank you.
Oh problem.
Thank you and our next question comes from Joe Cole again with Scotiabank.
Hello, and thank you for the call I wanted to ask another question about Corona virus I'm I know, it's still very early and there's not very much information, but I was wondering if you could help us get a sense of how large the impacts could be in different scenarios. I mean are there any historical precedence for something like this you would use.
And your analysis of figuring out what the traffic impact is are you considering some bad scenarios are good scenarios I'm just trying to understand the order of magnitude I mean, what the impact on traffic be 5% or 50% is really the thrust of the question.
Yes, Hi, Joel first I'm not sure that any of the precedence before would sort of authentic sample.
Both merits and Sars had very little defect United America, when things happened, however, swine flu that started in Mexico left.
It took a lot of 15 years ago, how to like the bigger effect I'm tropics, where double digit in fact, it at the time honestly kind of remember exactly the figures.
And I'm not sure. The DC is a good wouldn't have comparison would whatever kind of happens easier. However, what I can tell you is we have very good profit coming and going from into Asia. So the impact in southeast Asia anything general even up to do you need to be in terms with our exposure.
And in Europe, we fly to certain cities separately.
Cds, we've seen the impact mostly means we are not seeing anything from significant near the northern countries in Europe, and we do not like do you run either we choose another country with a significant number of cases, so it's very hard to Fort hill to be to be though to be honest what I can tell you that we're following does vary.
Closely and that's what I'm needle explain how we took the metrics in terms of freezing none it depends on hiring nonessential expenses I'm going to send fund investments just to be on the safe side I would just picked up.
Alright, Thank you very much.
Thank you and ladies and gentleman asked I remind her to ask a question just press Star then one on your telephone keypad.
And our next question is from savvy <unk> with Raymond James.
Hey, Thanks, Seth I thought I'd just add.
I want to ask a little bit about Brazil, I know it takes time to change perceptions, but use kinda implemented this new or onboard experience and annual Arpanet chain Oh retrofitting the see any early observations on on on what you're seeing as a result of those changes.
Hi, Saudi again, so we will launch we make when are we eat all domestic markets on March 16. So it hasn't started so maybe on next quarter. We can provide some color on on how these he's going.
However, we believe that we will have a premium product. We I cannot believe we would have would be the only are lined up we'll have a premium brought up in most Latin American markets. We believe that these will distinguish us from our companies going and we expect or does it will be very well taken with a constant.
Does that does that help you the in the very near term with your kind of corporate discussions is that something that kinda develops over time.
Sorry, the study does it help on what types of discrete [laughter] just wondering if if that helps you with your corporate account discussions and getting it done marketshare immediately or is it something that you know perception changes and overtime you expect the revenue benefits.
And I'll study at the Jerome Oh in Brazil, we have already been some positive results regarding market share with corporate agencies, given that we're offering a better product.
That will be even better after after March 15, So we have seen positive results and are excited about what's coming up.
Got it that's that thanks, Yeah, and then just one other clarification on the the hedging <unk>. You know you guys can good hedge positions, but curious at what level, you've hedged given the sharp pull back and an infield prices here.
Yeah, he hits us, but taking a high sevens, if you're taking Oh of course basketball cloud the current that close so I could age five says.
How about sort of a aspect that that studies by the negative compensation, which is in a way. It's Ah we will benefit from the downside up a few given that we've done some use a I think swaps Musa limited instruments [laughter]. Most so I think it's a it's a negative effects and now I think a.
Mark can change in two weeks here.
Got it I think that's like me under the water or the hedges.
Okay. That's helpful. Thank you.
Thank you and ladies and gentlemen, this concludes our Q in a session and program for today. Thank you again for joining us.
I just feel free to contact our Investor Relations Department. If you have any additional questions. We look forward to speaking with you again soon.
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