LATAM Airlines Group - Earnings Call - Q1 2025

Transcript

Operator (participant)

Hello everyone, and a warm welcome to the LATAM Airlines Group First Quarter 2025 Earnings Conference Call. Before I turn the call over to management, I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations, and as such, constitute forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives, and expected performance or guidance, are forward-looking statements.

These statements are based on a range of assumptions that LATAM believes are reasonable but are subject to uncertainties and risks that are discussed in detail in the published 20F 2025 updated guidance, earnings release, financial statements, and related CMS and SEC filings. The company's actual results may differ significantly from those projected or suggested, and any forward-looking statements are due to a variety of factors, which are discussed in detail in our SEC filings. If there are any members of the press on the call, please note that for the media, this is a listen-only call. I will now hand over to CFO, Ricardo Bottas. Please go ahead.

Ricardo Bottas (CFO)

Thank you. Hello everyone and good morning. Welcome to our First Quarter 2025 Conference Call, and thank you all for joining us today. My name is Ricardo Bottas, and I am the CFO of LATAM Airlines Group. Here with me is Roberto Alvo, our CEO, Andrés del Valle, Corporate Finance Director, and Tori Creighton, Head of Investor Relations, and we will present our highlights and results for this first quarter. I will hand it over to Roberto to share opening remarks about the quarter's highlights. In Spanish, I will present them in more detail alongside the financial results.

Roberto Alvo (CEO)

Good morning everyone, and thank you for joining us today. This quarter marked a strong start to the year for LATAM Airlines Group. The group transported over 21 million passengers and expanded capacity by 7.3% year-over-year, all while maintaining healthy load factors across our network. On the financial front, we delivered record profitability with adjusted EBITDA reaching nearly $1 billion, a record for the company, and both operating and EBITDA margins are at their highest levels to date. Net income totaled $355 million, up 38% year over year, and the strongest first quarter result in LATAM's history. Behind these results is a commitment to our customers.

The group has continued to invest in elevating the travel experience, from modernizing cabins and expanding Wi-Fi connectivity across the fleet to enhancing digital services and operational reliability. These are not one-off improvements, but part of a consistent strategy to offer a better, more connected, and more personalized journey. This is the core of our value proposition: to be the airline of choice in South America, not only because of the breadth of our network, but because the LATAM Group delivers a superior experience across every step of the journey.

It is in large part possible due to the hard work of all 39,000 LATAM Group employees that are committed to this shared purpose. Operationally, the group continued to execute with discipline, growing capacity while maintaining healthy load factors across all markets. Customer satisfaction reached record levels, confirming the progress made in elevating our travel experience. On the financial side, LATAM delivered outstanding results, supported by revenue growth, cost control, and favorable fuel dynamics.

Profitability reached record levels for a first quarter, reflecting the strength of our business model. Furthermore, following continued cash generation, LATAM is in a position to carry out shareholder return-focused capital allocation initiatives. Shareholder-approved distribution of dividends, and LATAM has launched its first-ever share repurchase program, signaling management's belief that current stock price is undervalued. In parallel, we recently announced that the relevant authorities have approved the inclusion of Argentina within the scope of our joint venture agreement with Delta Air Lines, further strengthening our strategic partnership.

Looking ahead, we're raising our full-year guidance, reflecting our strong financial performance and the confidence in our outlook. This update is supported by the group's operational flexibility and cost containment abilities, as well as continued demand strength observed across the group's domestic and international markets. Particularly, booking trends for the second quarter, historically the seasonally weakest, remain very healthy and are better than the levels observed at the same point last year. We also see a favorable competitive environment across our core markets, where LATAM Group is strengthening its network and capturing demand opportunities.

Having settled that, we're aware that we face a dynamic macroeconomic environment. LATAM is not exempt from global challenges, including fuel price volatility, geopolitical uncertainty, foreign exchange fluctuations, potential disruptions in cross-border traffic of goods, and potentially slower global economic activity. We're actively tracking developments, and we're working on taking measures to minimize potential effects. Should they occur, we reserve the right to change or suspend our guidance in case developments have an effect that merits it.

Nonetheless, a strong capital structure, a diversified revenue base, a broad, flexible network, and the relative advantages that LATAM Group has are key pillars that allow us not only to deliver strong results today, but also to be well prepared for the uncertainties of tomorrow. Thank you for your time. I'd like to turn the call over to Ricardo to further discuss the operational and financial results.

Ricardo Bottas (CFO)

Thank you, Roberto. Let's move to the next slide, slide four. In terms of operational performance, LATAM Group continues to show solid year-over-year growth across all segments. During the first quarter, as Roberto just mentioned, the group transported over 21 million passengers, representing an increase of 3.6% versus the same period in 2024. Capacity in ASK grew by 7.3%, supported mainly by international operations, which expanded by 10.7% year-over-year, confirming our ability to allocate capacity strategically in high-demand markets. Load factors remained healthy across all segments, with the consolidated load factor reaching 83.3%.

In terms of consolidated revenues per ASK, we observed a 5.3% decrease year-over-year, basically related with the currency depreciation in some of our key domestic markets and capacity increase in our international operations. In Brazil, although RASK decreased by 12.4% in dollar terms, impacted by foreign exchange, when we look at the performance in local currencies, we see a positive trend with domestic Brazil RASK increased by 3.9%, reflecting resilient demand and stable pricing in these relevant markets. Spanish-speaking countries posted an 11% RASK increase in local currency.

This performance reinforced the strength of LATAM's group diversified network and its ability to balance out localized volatility, maintaining profitability through strategic geographic exposure. Turning to the next slide, slide five, the financial results achieved underscore the group's ongoing commitment to enhancing customer satisfaction. As of the end of the quarter, LATAM Pass, our loyalty program, reached the milestone, having now over 50 million members.

In 2025, LATAM Pass now offers an innovative experience with more options for earning and redeeming miles and greater ease of access to elite status, as well as the opportunity to customize rewards as members reach intermediate milestones. These enhancements are aimed at increasing engagement to reward and incentivize member activity throughout the year. With regard to our fleet, almost 90% of the narrow-body fleet has been equipped with Wi-Fi.

In parallel, the cabin retrofit program continues to advance, with 100% of the narrow-body fleet operating domestic and international intra-South America flights, already incorporating premium economy cabins and reaching 61% of the wide-body fleet with upgraded aircraft interiors to offer a more modern, comfortable, and connected travel experience to our customers. In addition, in April, LATAM Group launched the new business class suites for its wide-body fleet.

This new offering elevates the comfort even further by introducing suite doors, the first of its kind in South America, for a world-class product with full privacy. The group recently launched its new signature check-in experience in the Santiago de Chile International Airport, aimed at providing a faster, more personalized, and seamless service for premium passengers. We have also announced an investment for a new lounge at Guarulhos Airport in São Paulo to be opened in 2027. As a result of these ongoing investments, customer satisfaction continued to improve.

In the first quarter, our NPS reached 56 points, the highest in LATAM's history, and 61 points among premium travelers. This improvement in satisfaction is delivering concrete financial benefits. In the first quarter, the revenue contribution from premium travelers increased by 7% compared to the same period in 2024. Moving on to the financial results on slide six, total revenues reached $3.4 billion, up 2.7% increase year-over-year, supported by stable passenger demand. Passenger revenues increased by 1.6%, and Cargo revenues grew almost 10%. On the cost side, the group continues to improve efficiency and deliver cost discipline.

Adjusted costs exclude, the increase by only 1.6%, despite a 7.3% increase in capacity, reflecting strong cost containment efforts and productivity gains across the operation. Together, we see slight benefits from currency depreciation in some of our key markets, like Brazil, which helped reduce the dollar-denominated portion of our cost base. These combined effects allowed us to maintain our unit cost base excluded at competitive levels.

The execution of our cost containment strategy was a key driver of margin expansion, which, combined with a 4.9% year-over-year decline in gas fuel costs, even as capacity increased, played a central role in delivering this quarter's record margin performance. Adjusted EBITDA reached $962 million, representing a 20.9% increase compared to the same quarter last year, while adjusted EBITDA margin expanded by 4.3 percentage points to 28.2%, a clear sign of improved operating leverage and efficiency.

Net income was $355 million, a 37.6% increase year-over-year, marking the highest first quarter profits in LATAM's history. The net income margin reached 10.4%, up more than 2.6 percentage points compared to the first quarter of 2024. These results confirmed the execution of the strategy, which combines profitable growth, continued focus on efficiency and cost control, strong operating margins, and solid return on capital.

On the next slide, slide seven, following the strong margin performance we saw this quarter, it's important to highlight that LATAM cost discipline is not new. It's the result of a consistent long-term approach that's embedded in our daily operations and our yearly goals. Over the years, we have implemented a structural cost strategy grounded in three pillars: digital and data-driven tools, business simplification, and a more efficient, flexible fleet. These efforts and the commitment from our team have allowed us to sustain a stable unit cost base through changing environments.

While local currency depreciation has provided a modest tailwind, our ability to consistently contain unit costs over time is primarily the result of discipline, execution, and structural efficiencies. As a result, adjusted Passenger tax excluded has remained stable over time, reaching $4.0 in Q1 2025 and $4.1 on the last 12 months, reinforcing our ability to deliver sustainable growth, investing in customer experience, and improving our NPS. Now, moving to slide eight, looking now at our trailing 12-month performance, LATAM continues to build on its consistent financial momentum.

Adjusted EBITDA over the last 12 months reached $3.3 billion, showing steady growth quarter-after-quarter. This represents not only the strongest EBITDA in our recent history but also a clear sign of the long-term sustainability of our business model. We have seen this improvement driven by multiple factors: a healthy demand environment, disciplined cost execution, and ongoing optimization of our network and fleet. This level of recurring profitability enables us to continue investing in customer experience, fleet growth, and upgrades in sustainability, all while maintaining strong liquidity and deliverability to shareholders.

Turning to cash generation on slide nine, next slide, LATAM delivered another quarter of solid performance, reinforcing our ability to self-fund growth while preserving financial strength. In the first quarter, LATAM generated $189 million in net cash, bringing our ending cash balance to $2.1 billion. Our positive cash generation is driven by a strong adjusted operating cash flow of almost $600 million, 40% higher than in the first quarter of 2024, and disciplined capital management. During the quarter, we continue investing in fleet growth and maintenance while covering our interest expenses and financial obligations.

The uptick in growth CapEx this quarter reflects the acquisition of six A321 aircraft previously registered as operating leases. This purchase is in the process of being refinanced, which will offset the associated cash impact once completed in the upcoming quarters. Additionally, it's important to mention that we began to see the benefits of the bond refinancing executed in October of 2024, which contributes to lower interest expense. Financial debt interest payments during the quarter were $43 million lower when compared with the first quarter of 2024.

As we look ahead, we're confident that our operations will remain generating cash throughout the year, providing the flexibility to support strategic initiatives, reinvest in the business, and return value to shareholders. Let's move now to slide 10 to discuss our capital structure, which remains one of LATAM's greatest strengths on both an absolute and relative basis.

At the end of this first quarter, we reported liquidity of $3.7 billion, equivalent to 28.4% of last 12 months' revenues, a level that placed us well above our financial policy and our internal target range and provides significant flexibility to manage through cycles and capture future opportunities. In terms of leverage, we closed the quarter with an adjusted net leverage ratio of 1.5 times from 1.7 times late last year.

This strong capital structure allows us to pursue a balanced financial strategy, investing in growth, enhancing our product and the customer experience, and returning capital to shareholders, all while maintaining robust credit metrics that have been consistently improving the last two years. Most recently, S&P and Fitch ratings upgraded LATAM to double B, reinforcing the confidence the market has in the strategy of the company. We are also well-positioned in terms of debt maturities, with no material non-fleet maturities until 2029, and continued access to committed revolving credit lines.

As we move forward, we will remain focused on protecting the solid financial position while continuing to optimize the cost of capital and explore further financial opportunities. Moving to slide 11, and as a result of this strong liquidity position, LATAM has taken steps forward to return almost $450 million of capital to its shareholders. On March 24, the company shareholders approved the distribution of a dividend totaling $293 million, which was paid in April. This payment corresponds to the legal aid required at 30% minimum distribution under Chilean corporate law.

In addition, LATAM received an approval to initiate a share repurchase program for up to 9.7 billion shares, equivalent to 1.6% of the outstanding shares, to be executed on the next 18 months. This program is currently being executed through a block mechanism on the Santiago Stock Exchange. The repurchase was launched for the total of 1.6% of the shares at a price of CLP $15.02 per share, which implies a potential distribution to shareholders close to $153 million to be concluded, expected to be concluded tomorrow.

Together, these initiatives illustrate LATAM's balanced capital allocation strategy, combining disciplined investments in future growth with a consistent effort to deliver value to shareholders, supported by a strong balance sheet and liquidity levels. Let's now move in to slide 12. Please join me on slide 12 for an important update. As LATAM Group enters, and just like Roberto mentioned at the beginning, we entered the next part of this year. The fundamental of the business remains solid, with a diversified and extensive network and flexible fleet, a competitive cost structure, and a robust capital condition.

LATAM is pleased to report that it has been closely monitoring bookings, and as of this day and during past weeks, passenger bookings, trends, and Cargo sales have remained stable. With this, LATAM is adjusting its guidance for the full year 2025, including its capacity and sales guidance, as well as guidance on key financial indicators, due to the strong results of this first quarter and the current stable demand environment. The company now expects an adjusted operating margin between 13%-15%, up from a range of 12%-13.5% in the previous guidance issued on December 3rd last year.

Together with this, LATAM forecasts an adjusted EBITDA between $3.4 billion-$3.75 billion, up from $3.25 billion-$3.6 billion as compared to previous guidance for 2025. In terms of liquidity and capital structure, we are updating our expectations to close this year with an adjusted leverage free cash flow above $1.2 billion, up from above $1 billion, an improvement on our liquidity levels from $3.9 billion to now $4.1 billion, and also reducing our forecasted adjusted leverage to be below 1.5 times from a previous guidance of below 1.7 times.

However, the current scenario makes it very difficult to forecast the market's macroeconomic expectations and uncertainties, which could impact Passenger and Cargo demand due to potential tariff impact. Any relevant change could affect international passenger and air freight demand from and to the United States, as well as Passenger and Cargo demand in other regions, including to, from, and within Latin America. While we remain confident in our trajectory, we are mindful of revolving macroeconomic environment.

We continue to monitor key external factors such as fuel prices, affect volatility, and geopolitical trends, and remain prepared to adapt with discipline and flexibility if needed. Before we move to the Q&A session, let me just briefly recap the main takeaways from this strong quarter on slide 13. We kicked off the year with solid momentum, transporting over 21 million passengers and growing capacity by 7.3%, a clear reflection of both operational agility and sustained demand across our network.

On the financial front, we deliver record profitability with $355 million in net income and almost $1 billion in adjusted EBITDA, supported by a profitable growth strategy, a continued cost discipline, and lower forward costs. From a customer perspective, the group achieved the highest satisfaction scores today, which speaks to the impact of our investment in fleet, onboard experience, digital services, and a strong commitment from the more than 39,000 employees of the group to deliver the best services and experience to our customers.

At the same time, we reinforced our commitment to shareholders, distributing $293 million in dividends and launching a share repurchase program for over $150 million, all while maintaining a solid balance sheet, a strong liquidity above $3.7 billion, and a healthy level of adjusted net leverage of 1.5 times. Lastly, LATAM's upward revision of its full-year guidance incorporates strong margin expectations supported by disciplined cost management and a stable demand environment. Let's now open the line for your questions, and thank you.

Operator (participant)

Thank you. We will now begin the Q&A session. If you would like to ask a question today, please do so now by pressing the star followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star followed by two to withdraw yourself from the queue. Our first question comes from Michael Lindenberg with Deutsche Bank. Please go ahead, Michael.

Michael Lindenberg (Analyst)

Oh, yeah. Hey, good morning. Thanks. Two questions. Congrats on the really solid results. Roberto, I want to pose the first question to you. Just a few weeks ago, we had the IMF lower global GDP growth by half a percent. In my professional career, I've never seen a revision of that magnitude. It's usually one to two tenths. We've seen airlines all around the world withdraw guidance, many guide to a much more challenging outlook. Yet, you took your numbers up. You took margins up. You took guidance up.

I'm curious, how much of that is just a function of your primary market and your competition, and the fact that, you know, the pressure that we're going to see on the global economy will be much more impactful to some of the weaker carriers? I'm curious if that may be your thinking here that, you know, if things do slow down, it will impact everybody, but it will impact the weaker carriers disproportionately more so creating more opportunities for someone like yourselves, you know, the thinking that the rich get richer.

Is that underlying, as you think about your forecast, that even if things slow, that LATAM will be able to do even better than the competition? Because right now, you're the only carrier out there who at least seems to be pointing to a better outlook versus most other carriers. Thanks.

Roberto Alvo (CEO)

Thanks, Michael. You said you had two questions. You want to ask the second one after I answer?

Michael Lindenberg (Analyst)

Yeah. That's what I'll do. I'll do a quick second.

Roberto Alvo (CEO)

Great. All right. Great. Thanks. And thanks for the question. I think it's a really good question. A couple of comments. First, we have not seen to date in our bookings or in our Cargo revenues any relevant impact from all the announcements and the news that we have seen from the Southern, the Northern Hemisphere comment. I believe that on the one hand, our markets are not following necessarily the dynamics that you see in the U.S. We don't have DOGE, for example.

I think, in general, we haven't seen those trends, and we remain, so far, pretty isolated and relatively confident that even though this may impact us going forward and the world altogether, it doesn't look today, and as per the bookings we have, but it's something that we are overly concerned in the short term. Having said that, of course, this can change, and that's why we remain vigilant. To your point, yes, I would agree with you in general. Let me say something important here. You see growth in our forecast there. The important thing is we don't chase market share. We chase growth where we can win.

We are very specific and targeted in finding our strengths and investing where our strengths are. I do believe today that we have something I like to call relative advantage, which is the strength of our numbers vis-à-vis the rest of the industry, and particularly in the region. Even though the uncertainty may affect the industry in general, I think that LATAM has positioned itself both from a financial perspective and from a network perspective in the right place to take advantage of volatility.

Even though we remain cautious in terms of the overall impact that this may have, we have the ability today to be very targeted in where we grow and how we improve our network and our position further. I believe that's one of the key advantages that we have created over the last two years, which we expect to exploit if the conditions are right.

Michael Lindenberg (Analyst)

Great. Thanks. Thanks for that thorough response. And then just my second question. This is just a little bit more nuanced. Across the region, I know in the past, Colombia, domestic had been one of the weaker markets. You know, maybe things are stabilizing there. As you look across your region, where are the strong points? Where are the weak points? I know we've sort of heard that Argentina now is maybe becoming one of the better, if not the best-performing markets in the region. Just any color on that, how things have sort of evolved since the last quarter.

Roberto Alvo (CEO)

Sure. Yes. In the last two quarters, we pointed out that we thought that domestic Colombia was under excess of capacity. I think that that has stabilized in the last two months. Capacity for the whole industry has been negative in terms of growth in the last month, and therefore the market is in a slightly more healthy position than it was in the previous six months. Across the rest of the domestic markets, in general, we see good strong demand and in a stable environment. I would say that the weakest point is today Ecuador, which is very small for us, but it is basically related to the geopolitical issues or the political issues, and safety issues they have there.

It is a very minor part of our operation, even though it still remains healthy. International has been very strong, particularly of international travel within South America, where most of our international growth has been focused. Less so in the long haul, the growth, just because we do not have the fleet. When we see long haul, we see good performance both in Trans-Pacific, Europe, and the U.S., being Europe and Trans-Pacific slightly better than the U.S. In general, I would say that the markets have remained stable, and domestic Colombia, which was a little bit of a pain point, has relatively improved to the last six months.

Lastly, on Cargo, we have seen a very strong end of 2024, albeit a very weaker first half of 2024. First half of 2025 has been stable in general, a little bit less active than the end of 2024. It is also very seasonal. The second half of the year is much better than the first half of the year in Cargo. We have seen so far no impact of the tariffs that are imposed basically in the U.S., with respect to cargo traffic. However, we're very mindful of the de minimis waiver that ends on May 2nd, and we're monitoring if that will have an effect on cargo traffic and particularly on capacity going forward. So far, sales have remained in a good place.

Michael Lindenberg (Analyst)

Great. Thanks for that comprehensive rundown. Thank you.

Roberto Alvo (CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from Gabriel Rezende with Itaú BBA. Please go ahead.

Gabriel Rezende (Equity Research Associate)

Hi. Good morning, everyone. Thanks for the call. Regarding the guidance, it's actually a follow-up to the previous question. I was just wondering how much have you guys been positively surprised by the 4Q numbers, as we have been. Just trying to understand whether the better guidance for the year reflects a better first quarter, and the next nine months should be pretty much the same as you guys were expecting, or if you guys are seeing better than anticipated figures in the coming quarters as well.

Just trying to understand what you have put into the guidance in that sense. Also, regarding the guidance, you are posting a gas as fuel that is already below what you are guiding for the full year. The overall feeling is that your guidance might have some room to the upside. Am I correct? Those are my two questions. Thank you.

Roberto Alvo (CEO)

Thanks. With respect to your first question, we have good visibility, good bookings visibility for the remainder of the second quarter. In general, we see positive trends and stable demand throughout most of our business units. That gives us confidence that despite the uncertainty we've seen around the world, this has not made an impact to our demand trends in this part of the world. Having said that, I probably forgot to mention this when Michael asked the question. I think that an important driver also of our improved numbers is that we are seeing a better share of premium traffic coming our way.

We have devoted a significant amount of effort and time and investments to enhance our product, improve our product throughout the experience of the customer. As Ricardo mentioned this in his words, premium revenue is increasing far faster than total Passenger revenue has been increasing. Passenger revenue increased only 1.6% in the quarter. Premium revenue increased over 7%. I think that's a distinctive change that we have made in the last few years. We're focusing more in a segment of the market where we believe there was willingness to pay that not necessarily we had understood as we are understanding it today.

This is an important part of our focus going forward. For the remainder of the year, we're following long-term trends. As far as the information we have, again, we feel confident on what we're seeing. As I said on my script, on my remarks, we remain vigilant. If there's anything that merits any change in our guidance, we'll post it when appropriate if it happens. For the cost part, I'll turn it to Ricardo.

Ricardo Bottas (CFO)

Okay. Thank you, Gabriel, for your question. I think we also disclose for this updated guidance the assumptions that we have for jet fuel price, which is $90 per barrel. Yes, we'll depend on the scenarios. We could have some upsides, but also downsides risks to this guidance considering this level of fuel price as well as the FX exchange rate that we also disclose on this guidance at 5.9 reais per each dollar. Okay?

Gabriel Rezende (Equity Research Associate)

Okay. That's clear. Thank you very much.

Operator (participant)

Thank you. Our next question comes from Jens Spiess with Morgan Stanley. Please go ahead, Jens.

Jens Spiess (VP)

Yes. Hello. Thank you for taking my question. And congrats on the strong results. I just want to follow up on the previous question. Basically, on the cost print you had this quarter and the guidance you're providing for the full year, I was looking that you had some benefit from lower maintenance costs. You explained in your release that part of it is driven by a reversal of pre-delivery—sorry, redelivery provisions due to acquisition of aircraft. I think it was like $32 million.

That obviously is probably not sustainable, right? Are there any other items we need to adjust for? Also, you had in other expenses apparently some FX benefits. If you could maybe elaborate on how, what percentage of those expenses are denominated in local currency, it would be quite useful. Thank you.

Ricardo Bottas (CFO)

Okay, Jens, it's Ricardo here. Thanks for your question. I think the maintenance adjustment that we have disclosed, it's related with the sixth aircraft acquisition. It's just a move from operational leasing structure to a next financial leasing structure. We disclosed just to let you aware about, but we are still confident that we could also manage to control under efficiency, digitalization, and other a lot of group initiatives that we have inside the company to keep controlling the costs. I think it's important to share with you that reversion in provisions.

We are focused on continued cost savings initiatives. We have a lot of initiatives not only for the backups and admin expenses costs, but also for maintenance and other relative operating costs inside the company. We are adding to these forecasts and our confidence for this guidance that yes, we still have a long journey to keep controlling and find alternatives to even reduce even more the costs. In this period of first quarter, we had an impact of $0.2 from the FX. We also need to understand the real outcomes for the FX over the final CASK ex-fuel costs. I think it is also important to emphasize.

From another relevant part of the cost, which is fuel, we disclose our performance in terms of the way that we could reduce the cost of fuel. Remember, we improved the CapEx and the capacity 7%. Actually, the consumption in barrels was up 5%, and the average price was down close to 10%. The average was a reduction that we have disclosed in our financials. After all, we disclosed there are no specific figures for the exposure that we have for the US-denominated part of our costs.

Together with fuel, we are talking about around 7% of our total costs could be denominated in US dollars. Remember that we have, from our mix of revenues, including international in the U.S. and Europe point of sales, and also a relevant part of revenues also denominated in hard currency, which could represent more than 60% of our total revenues. Okay?

Jens Spiess (VP)

Okay. Perfect. The $0.2 you mentioned on your CASK ex-fuel benefit from the FX, that is year-over-year, right?

Ricardo Bottas (CFO)

Yes.

Jens Spiess (VP)

Okay. Perfect. Thank you. Appreciate it.

Operator (participant)

Thank you. The next question comes from João Frizo with Goldman Sachs. Please go ahead. Yes.

João Frizo (VP)

Hey, good morning, everyone. Thanks for taking my questions. Congrats on the results. I had two quick questions and one follow-up. On the guidance itself, you guys are unexpected and even better than expected leverage ratio by the end of this year. I just wanted to understand what would make you guys consider announcing an extraordinary dividend. I know this is a fluid situation, right, in the macro globally, but the leverage path seems to be on track, right? You guys guided for a below two times leverage in your investor day. This opens room for maybe an extraordinary dividend. I just wanted to get a sense on that. My second question is around the selling shareholders, right?

If you guys could provide an update on their willingness and timing of those guys potentially selling more shares into the market. Finally, just a quick follow-up on the guidance. Your jet fuel expectations remain unchanged. I just wanted to double-check if that accounts for the hedges you guys undertook in the period or that is excluding hedges. If you could provide what would be the adjusted jet fuel accounting for hedges, that would be nice as well. Thank you very much, guys.

Ricardo Bottas (CFO)

Okay, João, thank you for your question. I think regarding our liquidity levels and the dividend decisions, actually, remember that we are sharing with the market our discussions with the board of directors regarding the capital allocations, which could include additional dividends, but also other structures to have an additional repurchase of shares. We are having that kind of discussions with the board. Yes, we'll depend on the final decision from the board and also the way that we are seeing our figures and the forecast figures complying with the financial policy and the guidance that we have provided.

Yes, we are comfortable with the liquidity situation that we have to have that kind of discussions with our Board. Regarding the shareholder decisions to have a secondary or a follow-on, I think it's more on the shareholder decision. We have no information. If we got that information from shareholders, we will let the market aware. Okay? Your last question just to remind me was related with the share of the hedge that we have for fuel or for FX?

João Frizo (VP)

Yeah. Just to double-check whether the jet fuel price you guys provided in the guidance accounts for the hedges you guys took, or if there might be some upside to that price as you guys maybe did hedges in the following jet fuel environment.

Ricardo Bottas (CFO)

I cannot give you any specific price and the size that we have. Actually, we have disclosed in the earnings release the average part of our consumptions forecasted for the next four quarters that are covered partially with hedge. What I can tell you now is that these $90 per barrel, it's aligned with the strategy that we have for the forecast together with the impact from the hedge outcomes. That is why we are confident with inside some range under a low level of volatility, we are committed to reach and to work with this guidance supported by these $90 per barrel.

João Frizo (VP)

Thank you very much. Super clear, guys. Have a good one.

Operator (participant)

Thank you. The next question comes from Ewald Stark with BICE Investors. Please go ahead.

Ewald Stark (Research Associate)

Thanks for taking my question. Congratulations for the results. My first question is with regard to yields in the international segment, which were pretty strong. I would want to ask what do you expect going forward? The second question is about growth expectations for Brazil, which were listed against the previous guidance. Up to this point, industry figures provided by ANAC and LATAM figures show modest growth in the first quarter. When you could expect that ISACA growth will converge to the guidance of LATAM earnings?

Roberto Alvo (CEO)

Thanks. On the first question, please remember that our international business segment is comprised both of long-haul and international within South America. You have to see those two segments separately in terms of their dynamics. What we have put on the guidance is our expectation in general of, as I said, stable demand and a good growth environment, particularly in regional. We do not disclose going-forward yields and investor for business area or for the company, but they are embedded. Our expectations are embedded in the guidance altogether.

With respect to domestic Brazil, first, the slight improved capacity that we have posted here is purely based on utilization and fleet usage. We are not adding more assets to our fleet during 2025, vis-à-vis what we had expected. This is simply a better utilization of the current assets we have. Looking at the environment in Brazil, which is, from a demand perspective, stable, and on a capacity perspective as well stable, we see good opportunities to reinforce where we have strength. What the guidance is reflecting is the opportunities that we see where we can improve the product and the network for our passengers.

Ewald Stark (Research Associate)

Yeah. Okay. Perfect. Just following up on that last question and that last answer. I would want to know how do you see competition in Brazil as other competitors such as Gol or Azul are expecting higher growth rates in capacity for the Passenger segment? I know that Gol and Azul don't disclose, don't break down domestic and international air travel, but it seems like they are expecting to grow at higher rates than LATAM Airlines.

Roberto Alvo (CEO)

I do not like to comment on capacity growth of our competitors. That is their decision and their strategy. What I focus on is our own operation and particularly where we have strength. What I think is important in terms of our strategy here is that we do invest where we know we can win. The focus that we have in growing in domestic Brazil is in the places where we believe we can enhance our network and bring a better product for our passengers.

We will see how it develops during the year, but we are very confident in our position, what we have built and developed over the last two years in domestic Brazil, and we are looking forward to trying to have a better product and a better network for our passengers during the year.

Ewald Stark (Research Associate)

Okay. Thanks. Have a nice day.

Roberto Alvo (CEO)

Thank you.

Operator (participant)

Thank you. The next question comes from Stephen Trent with Citigroup. Please go ahead, Stephen.

Stephen Trent (Managing Director)

Good morning, gentlemen, and thanks very much for taking my question. Actually, the first question I have is maybe a follow-up to the gentleman that was just speaking. When we think about Brazil's domestic market and you look at your guidance, you know, asking another way, are you basically assuming that sort of the competitive environment stays steady state for the rest of the year vis-à-vis where it is today, and no blowback from this ticket fraud stuff from Despegar or anything like that? I would just love to hear what you're thinking about that high level.

Roberto Alvo (CEO)

Yeah. Hi, Stephen. I mean, we see, as I said, a good demand environment in domestic Brazil, and we see a relatively good capacity discipline in general in the market. We see our strengths. We understand where we can improve our network, and that's where we're focusing. You mentioned something on Despegar.

I do not think I am not going to refer to Despegar, but I do not think that those developments are relevant to the dynamic of the market, which is much bigger than the size of Despegar itself. Again, very confident on what we have built over the last two or three years in domestic Brazil and investing basically where we have our strengths and taking advantage of our demand environment that has been stable.

Stephen Trent (Managing Director)

Great. Appreciate that. Just a quick follow-up. I definitely appreciate the color you gave on FX, assuming it is going to be a bit weaker. Any view on, you know, why you did not adjust fuel guide? I know you have got hedges there about $2.14 a gallon for the air. You did $2.80 in 1Q, and the hedge versus unhedged difference was just a penny a gallon. Would sort of just love to hear high level sort of that $90 per barrel bogey that's included in the guide. Thank you.

Andrés del Valle (Corporate Finance Director)

Hi, Stephen. Andrés here. Yeah. The $90 a barrel is what we see here. If you look at the last year, I think fuel price was all over the map. We have been asked frequently whether this could be an upside, as Ricardo said, could be a downside too. The $90 a barrel is today's spot price is at $86, and the curve is around those levels. We feel confident with the $90 a barrel for jet fuel for the full year.

Stephen Trent (Managing Director)

Okay. Appreciated that. Thank you.

Andrés del Valle (Corporate Finance Director)

Sure.

Operator (participant)

Thank you. Our next question comes from Pablo Monsivais with Barclays. Pablo, please go ahead.

Pablo Monsivais (Equity Research Analyst)

Hi. Thanks for taking my question. Just wanted to pick your brain on it seems that U.S. carriers are pulling out capacity.

Ricardo Bottas (CFO)

I'm sorry, Pablo. We cannot hear you. Sorry, Pablo. Hello? Can you talk slower?

Pablo Monsivais (Equity Research Analyst)

Can you hear me now?

Ricardo Bottas (CFO)

Okay. Much better. Thank you.

Pablo Monsivais (Equity Research Analyst)

Perfect. Okay. My question is regarding your read-through from US airlines pulling out capacity in general. Have you seen any material impact on the international routes you operate? Is this an opportunity for you to increase capacity, or how do you plan to navigate on these conditions? That's my first question. My second question is if you can provide some color in terms of the demand from transatlantic routes and within each point of sale. Thank you.

Roberto Alvo (CEO)

Thank you, Pablo. I think one important thing to remember is that the southern cone has been historically less exposed to migratory traffic to the U.S. as compared to the northern part of South America, Central America, and Mexico. Therefore, I think that the impact that other countries further north have seen in terms of traffic to the U.S. are not as relevant to the southern cone as they are probably in the northern part of our subcontinent. We have seen very minor changes in demand generally to the U.S. from our home markets. Even though it's something we're monitoring well, it's not something that today looks meaningful.

Do remember that we have the joint venture with Delta as well, which provides a very good diversification in terms of point of sale with respect to what we sell in South America vis-à-vis what they sell in the U.S. All in all, in general, so far, even though the U.S. is a little bit slower than transatlantic and trans-Pacific, it has been still in a good position, and the impact has been relatively low from all the news that has come into the U.S.

In the case of transatlantic, as you've asked, in general, demand between South America and Europe has been strong in the last, I would say, two years, and it has good components of strength from both European point of sale and South American point of sale. Nothing especially important to report with respect to how those two trends go. They're relatively stable on both sides.

Pablo Monsivais (Equity Research Analyst)

Perfect. Thank you.

Operator (participant)

Thank you. Our next question comes from Guilherme Mendes with JPMorgan. Please go ahead.

Guilherme Mendes (Equity Research Executive Director)

Hey, good morning, Roberto, Ricardo, and Andrés. Thanks for taking my question. Two quick ones. The first one, you mentioned that demand remains good, so the outlook overall remains pretty solid. Assuming some kind of demand deterioration, what kind of capacity and fleet flexibility would you have in terms of the delivery schedule from Airbus and Boeing? The second one, a follow-up on Brazil's domestic. A lot of talks on the potential M&A between Azul and Gol, and if you have any preliminary views on how LATAM could be impacted. Thank you.

Roberto Alvo (CEO)

Thanks, Guilherme. On the first question, remember that when we saw, and we reported this last year when we saw delays on the Airbus side and also issues with the Pratt & Whitney engines, we took the decision of extending an important number of 319s and keep operating them. These are very low capital cost aircraft that run almost on 100% variable cost basis today. It is the flexibility we have decided to keep within the fleet to either compensate for slowdowns or increase speed in the case of seeing better demand.

We have the ability to adjust our capacity with that fleet in particular, and we do not expect that if there is a slowdown, we will see or want to have any changes with respect to our Airbus deliveries. What we would do eventually is increase the utilization of those very low cost of capital assets to adjust if that was the case and was necessary. We like very much this flexibility of having something between 5%-10% of our capacity, which is running on almost 100% variable cost basis.

That allows us to move in this way. With respect to GOL and Azul, I mean, we have seen the news on the non-binding LOI for quite a while already. I do not think it is our position to speculate if there is further news on that. We will react. At this point in time, I still believe it is premature to have a reaction on those potential non-binding conversations for now.

Guilherme Mendes (Equity Research Executive Director)

That is perfect. Roberto, thank you very much.

Roberto Alvo (CEO)

Thank you.

Operator (participant)

Thank you. Those are all the questions we have, and I will turn the call back over to Ricardo to conclude.

Ricardo Bottas (CFO)

Thank you all for joining today. If you have any further questions, please reach out to our investor relations team and have a great day. Thank you.

Operator (participant)

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your line.