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Edited Transcript of LAN.SN earnings conference call or presentation 13-Nov-19 1:00pm GMT

Q3 2019 LATAM Airlines Group SA Earnings Call

Santiago Dec 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Latam Airlines Group SA earnings conference call or presentation Wednesday, November 13, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrés Del Valle Eitel

LATAM Airlines Group S.A. - SVP of Corporate Finance & IR

* Jerome Paul Jacques Cadier

LATAM Airlines Group S.A. - CEO of LATAM Airlines Brazil

* Ramiro Diego Alfonsín Balza

LATAM Airlines Group S.A. - CFO & Senior VP of Financial Fleet

* Roberto Alvo Milosawlewitsch

LATAM Airlines Group S.A. - Chief Commercial Officer

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Conference Call Participants

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* Alberto Valerio

UBS Investment Bank, Research Division - Associate Director & LatAm Transportation Equity Research Associate

* Lucas T. Barbosa

Morgan Stanley, Research Division - Research Associate

* Matthew Aaron Wisniewski

Barclays Bank PLC, Research Division - Research Analyst

* Michael John Linenberg

Deutsche Bank AG, Research Division - MD and Senior Company Research Analyst

* Pablo Monsivais Mendoza

Barclays Bank PLC, Research Division - Assistant VP & Lead Research Analyst

* Savanthi Nipunika Syth

Raymond James & Associates, Inc., Research Division - Airlines Analyst

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Presentation

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Operator [1]

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Good day, everyone, and welcome to LATAM Airlines Group earnings release conference call. Just to remind you, this conference is being recorded.

LATAM Airlines Group earnings release for the period was distributed on Tuesday, November 12. If you have not received it, you can find it in our website, www.latamairlinesgroup.net in the Investor Relations section.

At this time, I would like to point out that the statements regarding the company's business outlook and anticipated financial and operating results constitute forward-looking comments. These expectations are highly dependent on the economy, the airline industry and international markets, therefore, they are subject to change.

Now it is my pleasure to call -- to turn the call over to Mr. Ramiro Alfonsin, Chief Financial Officer of LATAM Airlines Group. Mr. Alfonsin, please begin.

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Ramiro Diego Alfonsín Balza, LATAM Airlines Group S.A. - CFO & Senior VP of Financial Fleet [2]

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Thank you, Victor. Good morning, everyone, and welcome to LATAM Airlines third quarter earnings call. Joining me today are Mr. Roberto Alvo, Chief Commercial Officer; Mr. Jerome Cadier, CEO of LATAM Airlines Brazil; and Mr. Andrés Del Valle, VP of Corporate Finance.

Please join me on Slide 2 where you will find the highlights for the third quarter of 2019. We have an eventful third quarter this year. During this period, we announced a strategic agreement with Delta that involves not only a joint business agreement to be presented to the authorities but also has a broader scope that involves commercial and operational collaborations and a tender offer, in which Delta intends to acquire up to 20% of LATAM's share.

In addition, we announced that Mr. Enrique Cueto, our CEO for the past 25 years, will leave his position and will be replaced by Mr. Roberto Alvo, starting in March next year. Roberto has an extensive knowledge of the company and the airline industry. He has been part of LATAM for the past 18 years in different roles, including finance, fleet and planning and past years, as our Chief Commercial Officer.

Finally, we unified our loyalty program under the LATAM Pass brand, concluding the integration process that started 1 year ago with the announcement of the tender offer of Multiplus. The integration was executed according to plan, and we are very happy with this investment as we are already seeing the results of having a more flexible and competitive loyalty program. Today, LATAM has a single frequent-flyer program, which has over 38 million members and is the fourth largest frequent-flyer program in the world.

Now moving to our results of the third quarter, LATAM Airlines carried more than 19 million passengers in the quarter, 1.4 million more than the third quarter of 2019 -- '18, driven exclusively by domestic operations both in Brazil and the Spanish-speaking markets. Our consolidated passenger RASK rose by 9.1% year-over-year measured in U.S. dollars. This improvement reflects a proactive capacity management across our international markets and a healthy domestic demand. Capacity adjustments in our international markets are bearing results, especially to the U.S.

In our domestic Brazilian market, we continue to see a strong RASK expansion in local currency and in U.S. dollars, while capacity increased by 10%. Regarding the Spanish-speaking domestic markets, we had a capacity increase of 10% in ASKs without affecting our RASK in local currency.

On the other hand, our cost per ASK rose by 3.6% year-over-year. Our cost per ASK, excluding fuel, however, increased by 8.2% due to the accounting noncash effect of hyperinflation in Argentina.

If you'll remember, in our third quarter results of last year, we recognized $93 million lower costs in the third quarter of 2018, while in the third quarter 2019, hyperinflation generated $38 million lower costs. Excluding this accounting effect, our cost per ASK rose by 1.1% year-over-year. As a result, our operating income amounted to $269 million, representing an operating margin of 10.1%, which is 1.2 percentage points over the operating margin of the third quarter last year.

In respect of our balance sheet, our leverage ratio decreased to 4.2x by the end of the quarter, down from 4.5x at the end of the second quarter 2019. And yesterday, we announced that we will exercise the make-whole option for the outstanding amount of the LATAM 2020 unsecured bond.

The focus we have placed in our passenger remains unchanged. We were the most punctual airline in the world in every single month of the third quarter according to Flightstats. Furthermore, we continue working to provide the best experience to our passengers, and our planes with the new cabins are already providing a significant improvement in customer satisfaction. I want to thank all of our passengers for their preference and continued support.

We have been recognized for the sixth consecutive year in the world category of the Dow Jones Sustainability Index, thus placing us in the 10%, with the best performance in sustainability of all industries and representing 1 of the only 3 airline groups in this category globally and the only 1 in the Americas.

To conclude, I want to thank our employees for their efforts during this year. Together, we have adapted to a complex first part of the year and demonstrated the resilience of the company in a difficult year. I want to thank in particular our employees in Chile that due to the recent events in the country, recovered our operations in only 3 days.

With that, I would like to turn the call to Andres Del Valle, our Vice President of Corporate Finance, to see the quarter in more detail.

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Andrés Del Valle Eitel, LATAM Airlines Group S.A. - SVP of Corporate Finance & IR [3]

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Thank you, Ramiro, and good morning, everyone. Please turn to Slide 3, and here, you will see a summary of the income statement. Total revenues for the company reached $2.7 billion in the third quarter, representing an increase of almost 7% year-over-year. We carried more than 1.4 million additional passengers, while capacity grew 1.8% in the quarter. Revenues per ASK grew by 9.1% in dollar terms as a result of healthy domestic market and capacity adjustments in our international network. As a result, total passenger revenues rose 11.1%.

Cargo revenues decreased by 9.8% year-over-year in line with the previous quarter due to the sale of a former subsidiary in Mexico, MasAir, and lower imports into the region, especially coming into Argentina and Brazil. Other revenues decreased 31% to $73 million, explained by the merger of Multiplus with LATAM Airlines in Brazil. Multiplus' revenues are now recognized on the passenger revenues, same as revenues of our loyalty program, LATAM Pass.

Total costs increased by 5.5% in the quarter to $2.4 billion. Excluding the hyperinflation effect, our costs would have risen by 3%. As a result, our operating income for the quarter amounted to $269 million. This is 22% higher than last year's operating results while operating margin improved by 1.2 percentage points to 10.1%.

Nonoperating results amounted to $214 million loss in the third quarter compared to $209 million loss in the third quarter of 2018. This is mainly explained by a $75 million foreign exchange loss in the quarter; whilst the third quarter 2018, we had a $92 million foreign exchange loss. With that, net income amounted to $86 million in the third quarter, an improvement of $51 million versus last year.

If we look at the year-to-date figures on the right-hand side of the slide, despite a difficult first semester, revenues remained flat at $7.6 million, while costs grew by 2% due to an increase of 4.4% in capacity, resulting in the decline of 2.4% in cost per ASK and a decline of 2.3% in cost per ASK excluding fuel. With that, operating income for the 9 months ending September was $391 million, operating margin was 5.2%, while net income amounted to a $37 million loss.

Please turn to Slide 4. Looking at each of our business units, you can see that international operations showed improvement year-over-year and versus first half of this year due to the active capacity management of the company. International segment represented approximately 54% of the total ASKs this quarter, down from 57% in the previous quarter as a result of the 4% decrease in capacity during the third quarter. Traffic declined by 1.8%, and load factor rose 2 percentage points to a very healthy 85.2%. The increase in load factor was driven by operations to the U.S. as LATAM quickly adjusted its capacity to match with current demand environment due to currency devaluations across South America. As a result, revenues per ASKs were $0.06, which is 0.5% higher than the same quarter of last year and compares with the 15% decline and a 12% decline in the first and second quarter, respectively.

For Domestic Brazil operations, which represents 28% of the total ASKs, total capacity increased by 9.8% and traffic by 10.4%. Load factor reached 82%. This is 0.5 percentage points above the third quarter of last year. LATAM Airlines Brazil leased 14 aircraft previously operated by Avianca Brazil at the beginning of the year, thus accelerating its growth compared with the first half of the year, mainly by operating the slots obtained after the exit of Avianca Brazil. In addition, the continued recovery in Brazilian domestic demand, group revenues per ASK growth of 24.3% in local currency and 23% growth in U.S. dollar terms, reaching 7.4 cents in the quarter.

For the Spanish-speaking countries, domestic operations, which, altogether, represent 18% of the total passenger capacity, capacity rose 9.5%, especially in Chile, Peru and Colombia. Traffic grew 9.3% maintaining the load factor at 81%. Revenues per ASK declined by 9.5% during the quarter, mainly due to the devaluation of local currencies. Excluding foreign exchange effects, revenues per ASKs would have been relatively stable in the Spanish-speaking countries domestic operations. As a result, overall passenger capacity grew by 1.8% year-over-year this quarter. Revenues per ASK rose 9.1% year-over-year, and load factor rose by 1 percentage points reaching 83.6%.

Lastly, if we exclude the effect of a former Mexican subsidiary, MasAir, our cargo operations increased capacity by 0.1%, while traffic rose 0.8%. We saw an increase of 0.4 percentage points in load factor to 53.6%. Revenues per ATK declined by 6.2% in the third quarter, mainly due to lower imports into the region, especially looking into Brazil and Argentina.

Please turn to Slide #5. Once again, we wanted to show you this slide, where you can track the main changes by point-of-sale of a passenger and cargo revenues in the past 12 months. On the left side, you can see revenues by point-of-sale in the third quarter of 2018. Here, Brazil represented approximately 35% of the total revenues, while Argentina represented 9% of the revenues. If we move to the graph on the right, that reflects revenues by country in the same period of 2019. We can see a 7 points increase for Brazil, while Argentina declined almost to 1/2 of what it was 1 year ago, accounting for only 5%. This diversification allows us to adjust our operations and to offset the impacts that we may face in certain markets.

Please turn now to Slide #6. At the top of the slide, you can see that LATAM today continues to expand its operations and transport more passengers. We carried more than 19 million passengers in the second quarter and reduced the number of employees per aircraft compared to last year. Fuel costs decreased by 4% due to decline of 11% in the fuel price per gallon, offset by a 4% increase in fuel consumption, a 9 million hedge loss in the third quarter, while last year, we purchased a gain of $19 million.

Costs associated to wages and benefits increased by 11% in the third quarter compared to the third quarter 2018 as in the last year, we reversed the provision of the performance bonus. If we exclude this onetime effect, wages and benefits would have remained flat year-over-year. Average headcount for the quarter declined by 1.1% and offset cost increases from the INSS payroll taxes in Brazil.

Once we look at the fleet costs, which includes maintenance, depreciation and amortization expenses, those were up 12% year-over-year in the quarter, mainly due to the production in expected life of the engines and to 13 additional aircraft in our fleet compared to third quarter of 2018.

Lastly, the other costs on this slide increased 8% as we carried 7.6% more passengers and due to the hyperinflation effect in Argentina. Finally, cost per ASK increased by 3.6% to 6.3 U.S. cents, while cost per ASK ex-fuel increased by 8.2% year-over-year to 4.4 U.S. cents.

Please turn to Slide 7 for a few words regarding our strategic agreement with Delta. We are excited with the opportunity that this agreement brings to LATAM's stakeholders. Our customers will benefit from expanded travel choices and enhanced customer experience. LATAM will benefit from new growth opportunities, building upon Delta's and LATAM's global footprint and their complementary networks, while for our shareholders, the transaction will improve free cash flow generation, reduce forecasted debt by over $2 billion by the year 2025, improve LATAM's capital structure and provide funding for transition costs in connection to this agreement. Our employees will benefit from being part of a company that has strong growth opportunities and is aligning with one of the premier carriers in the world.

On the tender offer, Delta already submitted the HSR notification with the U.S. authorities and awaits the response before launching the tender offer. On the aircraft purchase agreement, there's nothing different since the last call. We will sell 4 of our 350s, Airbus 350s to Delta, 2 at the end of the year 2020 and 2 at the beginning of 2021 and will assign the fleet commitments of 10 Airbus 350s, which will reduce our deliveries for the period 2021 through 2025.

We are currently working to execute the transition as seamless as possible for passengers, getting ready with our commercial agreement with Delta that will replace the existing cultures agreement with American Airlines.

Lastly, regarding the transition costs, we already received $150 million of the $350 million committed. We will be recognizing these costs as we move forward with the implementation of this agreement.

Please turn to Slide #8. Regarding our financial metrics shown on Slide #8, gross debt declined by $231 million from the previous quarter, down to $7.5 billion. Thus, our leverage was down to 4.2x in September compared with the 4.5x in June. We continue having a very good liquidity position, with the $1.4 billion of cash on hand, plus a revolving credit facility of $600 million in the third quarter. With this, LATAM's liquidity position reached over 19% of the last 12 months revenues, same in the last quarter.

During the quarter, we further adjusted our debt profile by reopening the LATAM 2026 bonds, adding an additional $200 million at a rate below 6% and prepaying $238 million for our LATAM 2020 bond, with a coupon of 7.25%. As announced yesterday, the remaining $262 million of that same bond, the LATAM 2020, will be prepaid the next few days once we exercise the make-whole option, reducing our maturities for 2020 for around $1 billion.

Moving on to our hedges at the bottom left of the same slide, you can find our updated fuel hedge position as of today. For the third quarter of 2019, we hedged approximately 60% of fuel consumption. For the fourth quarter of this year, we have about 53% of the estimated consumption hedge, while for next year, we have a good portion hedged for the first half, and we are building a position for the second half of 2020.

Please turn to Slide #9. Finally, regarding the guidance, we -- and based on the visibility that we have for the fourth quarter 2019, we have narrowed down our guidance for 2019 to the lower end of the range originally provided. Operating margin guidance was in the range of 7% to 9%, and we expect to close the year with an operating margin of approximately 7%. Regarding capacity, this remains unchanged compared to the previous guide -- quarter. We expect total capacity to grow between 3% to 5% this year. This is composed by 0% to 2% target for our international segments, 5% to 7% growth for Domestic Brazil and 8% to 10% for Domestic Spanish-speaking countries operations. And for Cargo, we expect the cargo [percentages] to grow between 0% to 2% this year.

Even though the first half of the year was undoubtedly very challenging, our resilience and active capacity management have allowed us to adapt and report strong results this quarter.

With that, we conclude our presentation for today and would be happy to open the line for questions. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will come from the line of Mike Linenberg from Deutsche Bank.

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Michael John Linenberg, Deutsche Bank AG, Research Division - MD and Senior Company Research Analyst [2]

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A couple questions here. What was -- what drove the decision to sell mass cargo? And were there any airplanes that went with that divestiture of that company?

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Roberto Alvo Milosawlewitsch, LATAM Airlines Group S.A. - Chief Commercial Officer [3]

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Mike, this is Roberto. Yes, we sold MasAir late last year. We basically did it because it has very little synergy with our passenger operation. And remember that our cargo strategy is to support our belly. MasAir had 1 767 subleased to the company, and that aircraft is still subleased to MasAir, and they fly now whatever they decide. But it was relatively small for our current operations and relatively unrelated to our network.

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Michael John Linenberg, Deutsche Bank AG, Research Division - MD and Senior Company Research Analyst [4]

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Okay. Okay. Okay. So then it's just a year-over-year impact. Okay. And just a second question. The recent announcement by IAG to buy Air Europa, that company, I believe, does compete head-to-head with you, other companies as well. Has that potentially changed the relationship that you currently have with IAG? Or how are you thinking about it? Just your thoughts on that.

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Roberto Alvo Milosawlewitsch, LATAM Airlines Group S.A. - Chief Commercial Officer [5]

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Yes. No, it is not our expectation that it will change, and we're analyzing the situation as we speak. So we'll provide more information when we have it.

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Operator [6]

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And our next question will come from the line of Savi Syth from Raymond James.

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Savanthi Nipunika Syth, Raymond James & Associates, Inc., Research Division - Airlines Analyst [7]

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Just a question on Brazil. Now that you are seeing in fourth quarter, I think, all the players have kind of backfilled Avianca Brazil's capacity and then kind of the -- kind of new networks kind of set. What's your kind of view of trends there? Is it still kind of strong and it's kind of the underlying demand strong? And kind of directionally, how should we think about RASK in that region?

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Roberto Alvo Milosawlewitsch, LATAM Airlines Group S.A. - Chief Commercial Officer [8]

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Savi, this is Roberto again. Yes, we are confident and optimistic for what remains of the year. We see the demand in domestic Brazil still being strong, and we expect healthy figures for the fourth quarter in domestic Brazil.

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Savanthi Nipunika Syth, Raymond James & Associates, Inc., Research Division - Airlines Analyst [9]

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Okay. Perfect. And then if I might, on the cost side, I think last time you were thinking unit costs roughly flat. That would kind of require full Q costs to be up more than the adjusted costs, I think, CASM ex without the accounting change and the kind of the add back last year or the takeaway last year of the -- some of the bonuses kind of comes in roughly up 1%. What would cause fourth quarter costs to be up year-over-year? Or maybe I'm wrong. Maybe CASM ex should be better than flat for the year.

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Ramiro Diego Alfonsín Balza, LATAM Airlines Group S.A. - CFO & Senior VP of Financial Fleet [10]

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When we think at -- our commitment was to have CASK ex fuel flat within the year. That is offsetting inflation and escalation of our costs, and we're maintaining that. We see our costs overall, when we compare 2019 full year to 2018 full year, to be within that range and be flattish, including the hyperinflation effect that was mentioned, particularly in this quarter, but we will offset that during the whole year. So all 2019 CASK ex fuel will be flat compared to 2018.

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Savanthi Nipunika Syth, Raymond James & Associates, Inc., Research Division - Airlines Analyst [11]

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Okay. So that's still on. And if I might, just a follow-on to Michael's question on Air Europa, it seems like if IAG is going to -- proposed acquisition goes through, there'll be a very -- kind of a strong player in that kind of Europe-LATAM market, which, I would think, would make for a strong partnership for LATAM because they still need LATAM for what you provide, which is kind of the beyond connections and things like that. Is it -- are you still kind of agnostic? And kind of the partnership with Delta, does it really kind of change the way you view Europe? Is that still the right way to think about it? I know you were looking through it, but just kind of curious if you can share a little bit more of your thinking about how you think about your positioning North, South, versus kind of East, West.

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Roberto Alvo Milosawlewitsch, LATAM Airlines Group S.A. - Chief Commercial Officer [12]

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So I think that the 2 things are slightly separated, Savi. Our partnership with Delta relates to the U.S. and does not relate to any other region other than that. So we will look at our decisions, whether it's Europe or elsewhere and also within the region, with the independence of what the company needs and expects for the company. So we're working on that line. And that's our point in this particular case. Yes, indeed, the acquisition, the potential acquisition of IAG and to -- of Air Europa will create a much larger company into the region. And we will go -- and we will talk to them and see how this proceeds in the upcoming weeks and months. We'll keep you updated.

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Operator [13]

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(Operator Instructions) Our next question comes from the line of Alberto Valerio from UBS.

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Alberto Valerio, UBS Investment Bank, Research Division - Associate Director & LatAm Transportation Equity Research Associate [14]

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I would like to know if you could provide additional color about the guidance that you touched on the bottom now. We see strong 3 quarter results as well better international markets. And I would like to know why you keep that -- it on the bottom.

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Ramiro Diego Alfonsín Balza, LATAM Airlines Group S.A. - CFO & Senior VP of Financial Fleet [15]

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Yes. Thank you, Alberto. I think we have been mentioning since the first quarter, we had a very tough first quarter, improving slightly in the second quarter, and these are very solid results for the third quarter. But we have been mentioning in the past calls that we will be on the shorter side of the guidance, particularly due to effect -- the effect of the Argentinian reduction in terms of demand in the first quarter that affected our entire international operations. And therefore, you saw our capacity adjustments during the end of the first quarter and beginning of the second quarter. And -- but that has an effect that we won't be able to recover. And that's why when we're providing guidance between 7% and 9%, we started saying we're going to be on the shorter end of that guidance, and now we're being more concrete. We're almost at the end of the year, and we think we're going to be on this approx 7% due to the international impact.

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Alberto Valerio, UBS Investment Bank, Research Division - Associate Director & LatAm Transportation Equity Research Associate [16]

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Perfect. And there is a view about the returning of MAX in -- the ground of the MAX for next year, especially in Brazil.

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Roberto Alvo Milosawlewitsch, LATAM Airlines Group S.A. - Chief Commercial Officer [17]

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The grounding of the MAX, I think that you've mentioned, the question -- we're following the news on when the MAX will be flying. So we have no personal or company opinion other than what we see in the news. But what we understand at this point in time is that it will potentially fly during the first quarter, and we're just following the news. We have -- no MAX is committed to the company. We don't operate it. So no issue for us.

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Alberto Valerio, UBS Investment Bank, Research Division - Associate Director & LatAm Transportation Equity Research Associate [18]

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But how about the supply in Brazil? Do you think that it would be okay? Or if you can be at oversupply for next year when MAX returns?

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Roberto Alvo Milosawlewitsch, LATAM Airlines Group S.A. - Chief Commercial Officer [19]

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We don't comment on the capacity of competitors, Alberto. And we will provide guidance on our growth for 2020, as we always do, later in the year beginning of 2020.

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Operator [20]

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And our next question will come from the line of Pablo Monsivais from Barclays.

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Pablo Monsivais Mendoza, Barclays Bank PLC, Research Division - Assistant VP & Lead Research Analyst [21]

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I have a quick question. What has been the impact of the social unrest in Chile in your day-to-day operations? And what do you -- and to what extent do you think that this situation may influence your guidance for 2020?

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Ramiro Diego Alfonsín Balza, LATAM Airlines Group S.A. - CFO & Senior VP of Financial Fleet [22]

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Pablo, this is Ramiro. We have announced that the cost of the social unrest in Chile and the impact on future demand, we estimate -- we currently are estimating that in $30 million for the fourth quarter. That is included in the guidance that we're providing now, which is approx 7% of EBIT margin.

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Roberto Alvo Milosawlewitsch, LATAM Airlines Group S.A. - Chief Commercial Officer [23]

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Just to complement, Ramiro, that's a statement which we made at the date of the statement with the information we had. Of course, the situation in Chile is fluid, and it may change us as the situation evolves here.

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Operator [24]

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And our next question will come from the line of Matthew Wisniewski from Barclays.

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Matthew Aaron Wisniewski, Barclays Bank PLC, Research Division - Research Analyst [25]

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So you've spoken a lot about the capacity management on the international front. I was wondering if you could highlight maybe some potential changes that could be made within -- or talk about the process of evaluating making changes within Latin America, given there's some kind of quite a bit varying pricing outcomes within the Spanish-speaking countries in Brazil. Should we assume there's continued capacity adjustments within Latin America? Or any detail you could provide on that front would be great.

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Roberto Alvo Milosawlewitsch, LATAM Airlines Group S.A. - Chief Commercial Officer [26]

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So we are very active into looking at the different markets, and we move capacity along very quickly. The biggest decrease that we did this year was we reduced approximately 20% of our international capacity to Argentina. We did that in the second quarter of the year, given the situation in Argentina. And that actually balanced, I would say, the capacity demand situation at least in our flights. We look at -- there's very -- a set of segments where we look. So we look -- regional Spanish speaking, regional Brazil and, of course, long-haul divided by Europe and the U.S. And we make changes that are sometimes not related to the IATA seasons, which is -- which other airlines do. We're trying to be more active in terms of managing capacity. At this point in time, we feel comfortable with the capacity we have in international after the adjustments that you saw. Capacity is going down in the third quarter for approximately 4%, and we will see this trend continuing in the fourth quarter of the year.

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Matthew Aaron Wisniewski, Barclays Bank PLC, Research Division - Research Analyst [27]

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Okay. Yes. I guess, I was just hoping maybe you could comment on -- within Latin America if there's an ability to switch given some strong outcomes in Brazil and then some weaker within the Spanish-speaking and just within kind of more the regional and within the region.

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Roberto Alvo Milosawlewitsch, LATAM Airlines Group S.A. - Chief Commercial Officer [28]

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Okay. Sorry, I misunderstood the question. Yes, we do. On the Spanish-speaking side, all the aircraft are the same registration, and we have interchanged that gives us the capacity to move our capacity within Colombia, Ecuador, Peru and Chile relatively freely. And in the case of Brazil, we have -- we don't have interchange yet, but we do move capacity from 1 factory to another by changing which airline of the group operates the regional routes. So we have the ability of adjusting without necessarily having to be registered and register aircraft in the short haul. In the long haul, we have fifth freedom rights between different countries, which allows us to operate from different airlines, different routes. Just as an example, at some point in time, we flew the Lima-Buenos Aires route with 4 different operators.

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Matthew Aaron Wisniewski, Barclays Bank PLC, Research Division - Research Analyst [29]

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Okay. Great. That's super helpful. And then I was just wondering if you -- or I was hoping that you could provide a little bit of detail on -- or some just high-level thoughts on what we should think about for costs next year? I know the Neos coming on, but some of the fleet growth slows a little bit. What should we keep in mind as we look at -- look for next year in terms of cost?

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Ramiro Diego Alfonsín Balza, LATAM Airlines Group S.A. - CFO & Senior VP of Financial Fleet [30]

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Thank you, Matthew. We will be providing guidance towards the end of the year. At this point in time, we're working on the budget. So we will keep you informed on what we see on cost and what are the targets for next year.

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Operator [31]

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Our next question will come from the line of Lucas Barbosa from Morgan Stanley.

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Lucas T. Barbosa, Morgan Stanley, Research Division - Research Associate [32]

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I just wanted to hear your thoughts on how you're seeing the corporate demand pickup in Brazil. And also, if you could comment on LATAM's efforts to strengthen its position in the corporate market in Brazil, how much it currently represents of your demand in Brazil and how much it has represented in the past?

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Jerome Paul Jacques Cadier, LATAM Airlines Group S.A. - CEO of LATAM Airlines Brazil [33]

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Thank you, Lucas. This is Jerome, the CEO of LATAM Brazil. We have clearly did significant moves over the last year or so to attract to the corporate passenger more. This has come in the form of the scenario that we drew and the improvements of the product with the cabin retrofit in the domestic and international fleet. So we do expect this to make sure our position is strengthened and continues to strengthen in the corporate segment. And we see, as a whole, when we look at the industry, the corporate demand over the last year, with a small growth, corresponding a little bit to what we see in terms of GDP expectations for '19 and '20. So small single-digit growth and LATAM targeting that passenger, with the changes both in fleet and itinerary and also Multiplus over the last 3 months.

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Operator [34]

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And thank you again for joining us today. Please feel free to contact our Investor Relations department if you have any additional questions. We look forward to speaking with you again soon. You may all disconnect.