LATAM Airlines Group - Q4 2025

Transcript

Operator (participant)

Hello and welcome everyone to the 4Q 2025 LATAM Airlines Group Earnings Conference Call. My name is Becky, and I will be your operator today. 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 20-F 2026 Guidance Earnings Release Financial Statements and related CMF and SEC filings.

The company's actual results may differ significantly from those projected or suggested, and any forward-looking statements due to a variety of factors which are discussed in detail in our SEC filings. If there are any members of the press on the call, please note that this call for the media is listen-only. I will now hand over to your host, Ricardo Bottas, to begin. Please go ahead.

Ricardo Bottas (CFO)

Hello everyone and good morning. Welcome to our 4th 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. We will present the highlights and results for the 4th quarter and full year 2025. I will hand it over to Roberto to share his opening remarks about the quarter and year's highlights.

Roberto Alvo (CEO)

Good morning, and thank you, Ricardo. 2025 marked a year of continuous consolidation and delivery. The strong results we're presenting today are the product of a model that LATAM Group has been building over the last six years, anchored first in the people and the customers, focused on impeccable execution and in the design of a superior experience. All of this in the context of a never-stronger passenger cargo networks, frequent flyer program, a very strong balance sheet, and cash generation, a disciplined cost delivery, and a highly diversified business model, all of which make our results resilient and much less subject to external factors and industry cycles. At the heart of this performance and more than 41,000 employees working at the different affiliates of the group, their daily commitment, whether at customer touchpoints or behind the scenes, continues to be LATAM Group's most powerful asset.

The culture of passionate, engaged people translated directly into the customer experience. In 2025, the group achieved a record Net Promoter Score of 54 points, which is a three-point increase versus 2024, the highest full-year results in our history. When our people thrive, customers feel the difference. Internally, the Organizational Health Index reached 83 points, placing LATAM Group in the top decile of the global benchmark for the first time. In terms of the operations, the group transported more than 87 million passengers during the year, including 23 million passengers in the 4th quarter alone. This was boosted by a capacity increase of 8.2% for the full year and 7.7% in the quarter, demonstrating the group's ability to grow efficiently while maintaining a healthy load factor of 84.4%.

This ability to connect passengers to, from, and within South America was enabled by the modern and efficient fleet that the group operates. During 2025, LATAM received a total of 26 aircraft, seven of which were incorporated in the 4th quarter. This includes the first Boeing Dreamliner with GE engines and brought the total fleet to 371 aircraft as of the end of the year, a 7% increase versus 2024, enabling the group to launch 22 new routes, of which 15 were international. On the financial side, adjusted operating margin reached 16.2% for a year, while Adjusted EBITDA came in almost $4.1 billion. Net income totaled approximately $1.5 billion, resulting in earnings per ADS of $4.95, highlighting the group's ability to translate operational performance into bottom-line results. This bottom line grew by 50% versus the income generated in 2024.

With this, in December, LATAM was able to distribute $400 million in interim dividends aligned with its capital allocation strategy determined by this financial policy. 2025 was just not a strong year. It was a reaffirmation of LATAM's structural strengths, translated into consecutive years of margin expansion in a context of high-capacity growth and driven by a strategy that combines a focus on people, a differentiated customer experience, an unmatchable footprint, disciplined cost control, and a resilient balance sheet. This is what defines this new LATAM. This performance and design set the base for an expected 2026 strong performance, highlighted in our yearly guidance, of which we feel very confident at the moment despite fuel and currency volatility. I'm very proud to be here leading a group of 41,000 souls and to highlight and discuss our performance.

With that, I'll hand it over to Ricardo, who will walk us through the achievements of this 4th quarter and full year 2025.

Ricardo Bottas (CFO)

Thank you, Roberto. Let's move to slide four. LATAM delivered a solid financial performance during the 4th quarter with improvements across all key metrics. Total revenues reached almost $4 billion, increasing 16.3% year-over-year. This growth was driven by the passenger segment, which rose 20.3%, supported by the strong demand and capacity growth. Cargo revenues declined 9.6% in the period, explained by a particularly high comparison base as the 4th quarter of 2024 had delivered an exceptionally strong performance. Despite this, full-year cargo revenues increased year-over-year. As a result, the group delivered an adjusted EBITDA of $1.1 billion, representing a 30.4% increase versus 4Q 2024. Adjusted operating income came in $661 million, up 42.7% year-over-year, and net income totaled $484 million, increasing 78.1% compared to the 4th quarter of last year. Margins also improved, with adjusted operating margins standing out at 16.7%.

This quarter, we saw an increase in unit cost ex-fuel with passenger CASC ex-fuel reaching $0.0004. About $0.0002 of this can be explained by the appreciation of the local currencies during this period, along with another $0.0002 related to the other non-recurring costs in wages and benefits, which include a special one-time bonus approved on this last quarter. While quarterly unit costs were elevated, it's worth highlighting that full-year passenger CASC ex-fuel came in at $0.0004, fully within the updated guidance range for 2025 provided on last November. Importantly, this 7.9% increase in unit costs was more than offset by an even stronger improvement in unit revenue. Passenger RASC increased by 11.7%, reflecting LATAM's ability to sustain its value proposition and capture customer preference in an environment of healthy demands.

Please join me on this next slide five to take a deeper dive on the drivers for revenue performance across the different affiliates and business units. Overall, the 4th quarter showcased a well-balanced dynamic between capacity deployment and demand across our network, supported by healthy load factors and target commercial actions. On a consolidated level, capacity grew by nearly 8% while maintaining a solid load factor of 85%, showcasing our ability to grow efficiently. Looking at the LATAM Airlines Brazil's domestic capacity expanded by 12%, and demand kept pace with load factors increasing by 0.7 percentage points. This balance, supported by a solid passenger RASC performance with growth of 14% in U.S. dollars and 10% in local currency, highlighted the strength of LATAM's value proposition in this market together with the resilience of demand.

In domestic Spanish-speaking affiliate markets, passenger RASC grew by 23% in dollars and nearly 20% in local currency, driven by a disciplined capacity allocation that resulted in an increase in the load factor to 1.7 percentage points higher than before. Turning to the international segment, capacity and passenger volumes both grew at a high single-digit pace. While load factor decline is likely year over year, it remained at a very healthy 85% level. In parallel, unit revenues increased by 6%, supported by a well-diversified network, both in the regional and long-haul international operations and a strong execution. Altogether, these results reflect the robustness of LATAM Group's commercial model and its ability to grow profitable. The 4th quarter confirms that the network strategy and the disciplined capacity deployment continue to deliver strong outcomes across the board.

Turning now to our value proposition and customer experience on slide six, during 2025, LATAM Group continued advancing initiatives focused on enhancing services across key touchpoints, with a particular emphasis on consistency, reliability, and design. At the center of this improvement is our continued focus on the premium segment, where LATAM has made significant upgrades to its value proposition. During the year, we introduced a renewed business-class experience, launched the Signature Check-in in our new Signature Lounge in Lima, and announced the future enhancements like the investments in Wi-Fi on the widebody fleet beginning in 2026 and the new Premium Comfort cabin coming in 2027, as well as the investments on the new and the brand-new lounge in Guarulhos. As part of this ongoing focus, LATAM was once again recognized internationally.

In the 4th quarter, the group received the most improved brand award globally by TheDesignAir, a recognition that adds to earlier achievements such as Skytrax Best Airline in South America, the APEX Five Star Global Airline Award, and the Air Cargo Airline of the Year Award by Air Cargo News, all serving as third-party endorsements that we are on the right path. The customer experience enhancements initiatives demonstrate the group's commitment to delivering a consistent and differentiated travel experience across the region and further strengthen the customer preference for LATAM. And the results are validating these investment decisions. For the full year, premium revenues accounted for 23% of passenger revenues and continue to grow faster than the passenger revenues overall.

While passenger revenues grew 12% year-over-year, premium revenues increased by 14%, highlighting the continued momentum of this segment, which provides LATAM with access to a customer base that is structurally more stable throughout the year, less exposed to seasonality, and more resilient to potential macroeconomic headwinds. Coupled with this, the LATAM Pass program plays a critical role in accessing this segment, fostering loyalty among customers who travel more frequently and generate higher expense through the wide range of benefits the program offers. LATAM Pass is by far the largest airline loyalty program in the region, with almost 54 million members accounting for nearly 60% of LATAM's passengers' revenues. This combination of a resilient customer segment and a highly effective loyalty program reinforces the sustainability of LATAM's revenue base and equips the group with the tools to continue driving profitable growth. Jump to slide seven.

You'll see on this slide the way that we are translating this into tangible results. Customer satisfaction reached record levels. Net Promoter Score rose to 54 points, as Roberto mentioned, for passenger operations, while among premium travelers, each reached 58 points, the highest ever recorded by the group. This is a clear indication that our customers are recognizing and valuing the improvements. At the same time, premium revenues continue to show an upward trend, supported by growth, customers' preference, and a more differentiated onboard experience. And importantly, we have managed to achieve these results while maintaining costs stable since 2019, confirming that LATAM can deliver a differentiated experience all while keeping its cost base stable. Let's move to slide eight.

We have spoken a lot about structural improvements and the sustainability of the profitability streaming from the unique ecosystem of LATAM Group: passionate people, a financial foundation, an exceptional product, premium revenues, and a focus on cost containment. All of that supports a virtual cycle that results in these numbers year after year. This year, LATAM expanded its revenues in 11.2% and its adjusted operating margin to 16.2%, reflecting the profitable growth strategy and the continued disciplined capacity execution. Over the course of the year, the group received 26 aircraft, launched 22 new routes, and grew capacity by 8.2%, making the 3.5% point margin expansion a clear reflection of LATAM's ability to grow strategically, not just in volume but in the profitability targets. It's also a testament to the group's deep knowledge of its markets and disciplined execution over time.

Adjusted EBITDA grew by over 30% year-over-year to $4.1 billion, supported by revenue growth and efficiency across the operation, all within the guidance range. At the bottom line, net income increased significantly by 50% versus last year, further reinforcing the group's ability to deliver sustainable financial results. These results are part of a broader trend, one of continuous improvements and reliable execution. LATAM enters 2026 on solid footing with a strong foundation to continue creating long-term value. Please join me on slide nine. As you can see on this slide, LATAM's strong performance is not only reflected in earnings generation but also in its ability to consistently translate those results into cash generation. During 2025, adjusted operating cash flow reached $3.3 billion, supported by strong operation and financial performance.

This cash generation enabled the group to fully fund its core business needs, including maintenance and growth investments, with $1.5 billion invested in CapEx net of financing while also covering interest payments. As we highlighted earlier, our CapEx investments have been directed towards enhancing the customer experience, but they have also been focused on accelerating LATAM's digital transformation across the business. With that, LATAM generated closer to $1.4 billion in cash after covering all business-related commitments. Over the course of the year, the group executed two share repurchase programs totaling $585 million. Also, LATAM Group distributed $400 million in interim dividends in the 4th quarter, bringing total dividends for the year close to $605 million.

Even after all of these, LATAM still delivered almost $200 million in positive cash generation in 2025, demonstrating its ability to invest in the business, meet its key obligations, and also allocate capital towards additional initiatives, all while considering defined financial policy ranges. Let's move to slide 10 and see how this is reflected in our balance sheet metrics. Balance sheet strength has been one of LATAM's key priorities over the past few years, and liquidity is one of the clearest expressions of that focus. The group has consistently grown its nominal liquidity, reaching $3.7 billion by the end of 2025.

As we just revealed on the previous slide, it was through the additional capital allocation initiatives carried out in 2025 that LATAM was able to bring liquidity as a percentage of last 12 months' revenues closer to the top of the policy range at 25.7%, demonstrating the flexibility the group has to allocate capital across multiple fronts while aiming at the defined financial framework. At the same time, on the debt side, adjusted net leverage reached 1.5 times, below the last year and the maximum policy level of two times, placing LATAM in a strong position heading to 2026 with the flexibility to continue investing while also preserving financial strength. Moving to the next slide, let's take a look on the continuous optimization of the cost of capital and debt tenure. LATAM has taken important steps over the past two years to improve its cost of debt.

Through refinancing exercises carried out in 2024 and 2025, the group successfully reduced the weighted average cost of debt from 10.7% in 2023 to 6.6% as of the end of 2025. In parallel, LATAM's debts amortization profile is well-balanced, with no short and mid-term relevant maturities. And furthermore, LATAM holds call options in 2026 and 2027 that offer potential opportunities to reprofile these maturities and also reevaluate a potential tenure split to improve even more this debt profile. Let's move now to slide 12. As reflected in 2026 guidance published back in December, we expect it to be another year of continued profitable growth. Capacity is projected to grow between 8%-10% and to deliver an adjusted operating margin between 15%-17%, reflecting LATAM's focus on efficiency and disciplined execution.

In terms of cash, adjusted leveraged free cash flows is expected to exceed $1.7 billion from $1.5 billion this last year, reinforcing the group's ability to consistently translate earnings into liquidity. We also expected liquidity to above $5 billion for the end of 2026. And as we have mentioned in Investor Day held in December, given our financial policy range, we would have between $1 billion and $1.6 billion after CapEx investments and minimum dividend payments available for additional capital allocation initiatives in 2026. This year, LATAM will continue investing in key strategic areas, including the customer experience, the renewal of the fleet, efficiency-focused innovations, and the continued reinforcements of balance sheet discipline. Again, to remind you of the main figures that were disclosed in Investor Day, the CapEx plan for this year, net of finance, the fleet of financing is about $1.7 billion.

For the year, the group is expecting to receive 41 aircraft, of which three are widebodies and 12 correspond to the first Embraer E2s. The last slide is slide 13. Before we move to the Q&A, let me briefly highlight the key messages from 2025 performance. 2025 was another year of strong and consistent performance for LATAM, both operationally and financially. Operational excellence was matched by record levels of customer and employee satisfaction, with NPS and organizational health index reaching all-time highs. The group transported a record number of passengers, expanded the network with discipline, and delivered a significant improvement in profitability, with adjusted operating margin increasing 3.5 percentage points year over year to 16.2%. This profitability was translated all the way to the bottom line, with annual net income closing at $1.5 billion.

These results reflect the group's ability to grow efficiently while maintaining a focus on margins and operational excellence. During 2025, we fully funded investments in the business and met all financial commitments while generating cash. LATAM generated $1.4 billion in cash before executing two-share repurchases and separately distributing dividends while still holding a strong liquidity level and low leverage. At the same time, we strengthened our balance sheet, aiming at financial policy targets and focus on reducing the cost of debt, which now stands below 7%. Looking ahead, we are entering 2026 with solid momentum. Our guidance reflects continued profitable growth, supported by healthy demand, commercial discipline, and a clear focus on the strategic priorities. With that, we now open the line for your questions. Thank you very much.

Operator (participant)

Thank you. If you wish to ask a question, please press star followed by one on your telephone keypad now. If you feel your question has been answered or for any reason you would like to remove yourself from the queue, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Julia Orsi from JPMorgan. Your line is now open. Please go ahead.

Julia Orsi (Equity Research Associate)

Yeah. Hi, Roberto, Ricardo. Thanks for taking the time. We have two questions on our side. The first one is on yields. We saw a strong operating performance this quarter. Congratulations on that. Can you provide additional details on how yields are tracking across the regions? And the second one, based on recent trends, how is the booking curve and the macro environment evolving? Is there any particular region that has been outperforming or underperforming? Thank you.

Roberto Alvo (CEO)

Hi, Julia. This is Roberto. Thanks for the questions. We saw, in general, strong and stable demand over all of the business areas where we operate. In the last couple of months of the year, domestic Chilean was a little bit slower as compared to particularly 2024. But at an industrial level, and you can see that on the public figures, but we have seen already a recovery in the first months of the year. So I would say that all the business performed on a relatively good basis in 2025 last quarter in the passenger segment. Cargo, it was also good. Again, as Ricardo said, a very strong basis of comparison the last quarter in 2024. It still was robust. And the current appreciation of the currencies would probably increase import demand into the region in the upcoming months. Booking curve for early 2026 looks healthy.

We see no issues that concern us today. In general, all the segments are performing. As it has happened in the past two or three years, the segment that has been growing the most is international. This also reflected in our capacity during 2025 and also the guidance that we provided for 2026. In general, we see no concerns from the demand side going forward, at least for the first quarter. Thank you.

Operator (participant)

Thank you. Our next question, it comes from Michael Linenberg from Deutsche Bank. Your line is now open. Please go ahead.

Michael Linenberg (Managing Director)

Yeah. Hey. Good morning. Couple of questions here. Great way to end 2025. These are fantastic results. When you talked about the CASC impact of 0.2% from the impact of the weak US dollar, as we think about LATAM and how you have evolved your structure and the seasonality and the geography of your network, where do you come out with respect to the US dollar? Is a weaker US dollar overall better? Even though I realize there's a cost headwind, is it just better overall for the performance of the company? And I'm just sort of in the context of the last 12 months. We've seen about a 10% depreciation of the US dollar. How should we think about that on your business?

Roberto Alvo (CEO)

Hi, Michael. Thanks for the question. A great question. So let me give you, at the end of the day, for us, a stronger local currency is more positive than a weaker local currency. And this derives from, a, on the domestic markets, basically, most of our revenue is expressed in local currency or happens in local currency. And a significant portion of the cost is in dollar. So domestic markets work like import industries, if you want. And in the case of international, for us, it's also beneficial because even though the countries become more expensive for traveling into the region, if you want, purchasing power for traveling abroad is higher. And our point of sale balance is higher on our South American side than our non-home side.

The balance that we see is that a stronger currency vis-à-vis the dollar, net of higher cost because of the same effect, are net positive.

Michael Linenberg (Managing Director)

Yep. Great. That's super helpful. And then I want to talk about CapEx for 2026. Last year, you took 26 airplanes. I believe this year is going to be a heavy delivery year. I know that the Embraer's coming in are a big component of that. I think you're taking delivery of over 40 airplanes, 40, 41 airplanes. Can you just refresh us on how we should think about CapEx in 2026? Thanks for taking my questions.

Ricardo Bottas (CFO)

Hi, Michael. It's Ricardo again. You are right. We are expecting to receive 41 aircraft. And the CapEx, it's $1.7 billion net of financing. Remember that a relevant part of the CapEx delivers, it's going to be financed through ops lease and also finance lease. And we are holding the increase in the investments that we have. And remember, we have a lot of investments in the retrofit of the cabins, still the renovation and the starting of the process to implement the new Premium Comfort and so on and so forth. So that's the overall picture that we have. And remember, from these 41 deliveries that we are expecting, we expect to receive three additional 787s and also the first 12 Embraers in the last quarter, the fourth quarter.

Roberto Alvo (CEO)

The balance is 320.

Michael Linenberg (Managing Director)

Great. That's.

Ricardo Bottas (CFO)

26.

Michael Linenberg (Managing Director)

Okay. Great. And the balance are the okay.

Ricardo Bottas (CFO)

26.

20s.

26. Sorry. 26 from the A320 Family.

Michael Linenberg (Managing Director)

Great. All right. Thanks for taking my question.

Operator (participant)

Thank you. Our next question, it comes from Jens Spiess from Morgan Stanley. Your line is now open. Please go ahead.

Jens Spiess (Executive Director)

Yes. Thank you. Congrats on the results. I have a question on the net debt coming in at $5.9 billion, which was around 8% above your guidance. So if you could just elaborate on what turned out to be different versus your initial expectations, I would appreciate that. Thank you.

Andrés del Valle Eitel (Corporate Finance Director)

Sure. Actually, when we provide that guidance was before the announcement and the decision to distribute the $400 million dividends. That was the main difference from the guidance that we disclosed it before, Jens.

Jens Spiess (Executive Director)

Oh, makes sense. Makes sense. So going forward, you will be updating your net debt guidance, right, for the potential dividends you will be paying. Is that correct? And just a follow-up question, if I may. On the E2s, when do you expect to deploy them? And what is your thought process on allocating that capacity? Will it be mostly targeting new routes and destinations, or what's the plan there? Thank you.

Andrés del Valle Eitel (Corporate Finance Director)

Okay. Only for that reason, in terms of the data update, we don't need to update the guidance for that because we disclose all information related with that. If and when we need to update the other specific situation from the guidance, we will update everything.

Roberto Alvo (CEO)

Jen, this is Roberto just complementing and clarifying one thing on what Ricardo said. So our guidance doesn't provide any distributions on top of the minimum statutory dividends that we have to pay by law here in Chile, which is 30%. Okay? So that's why you see $5 billion of liquidity going forward. But as Ricardo explained as well, over and above our finance policy, we have around $1-$1.6 billion. And the board will further decide on opportunities for capital allocation if we end up doing something. And we will inform the market at the right time. And we will update the figures related to that with those potential things happening. Okay? With respect to the E2s, so these will be deployed in Brazil domestic, the first 12 that we'll receive this year. The strategy is that they will be based out of our hubs.

So we expect to see them flying out of Guarulhos, out of Brasília, out of Fortaleza. And you can think about this in two ways. They allow us to fly new cities where the 319s, even though at the same time, their economics don't allow us to operate those cities. So you will see new destinations. You will also see probably increased frequency on certain routes where we currently operate A320-related fleet and some combinations of all these that we have never flown when you combine these two things. So you will see domestic Brazil routes both in opening new routes and increasing frequency in certain routes.

Jens Spiess (Executive Director)

Okay. Very clear. Just one quick follow-up, sorry, on the dividend distribution and the net debt guidance. So looking at 2026, everything that will be forward-looking is only the regulatory or mandated dividends that you're factoring in there. Anything in excess, basically, would only be updated on looking backwards, basically, on what you already paid or what you already announced, right, just to make sure we'll be modeling this correctly.

Andrés del Valle Eitel (Corporate Finance Director)

Yes. You are correct. So as Roberto mentioned, the range that we disclose as a calculation under the financial policy to have between $1 billion-$1.6 billion available, it's the consideration regarding the 21%-25% range of the guidance in terms of liquidity. And that amount, it's not considering the guidance that we provide. So we only consider the CapEx that it's expected and also the minimum dividends.

Jens Spiess (Executive Director)

Nice. All right. Perfect. Very clear. Thank you.

Operator (participant)

Thank you. Just as a reminder, if you did want to ask a question, please press star followed by one on your telephone keypads. Our next question comes from Felipe Nielsen from Citigroup. Your line is now open. Please go ahead.

Filipe Nielsen (VP of Equity Research)

Hey. Hi, everyone. Good morning. Thanks for taking my question. So I have two on my side. One is related to the costs that we saw this quarter. Just trying to break it between potential one-offs and costs that you think it could be something more structural during 2026. We know that there are, in effect, from a weaker US dollar, stronger local currency. So if you could clarify which impacts were more one-offs in the quarter and which ones could remain for longer during 2026. And my second question is regarding the cargo operations. Just wanted to check your sense on how cargo yields should evolve in 2026. We have the guidance for volumes, but just wanted to make sure how the top line on cargo should evolve. Thank you.

Andrés del Valle Eitel (Corporate Finance Director)

Okay, Felipe. Just to give you, I think, more color in terms of the impact that we have in the fourth quarter, we disclosed that from these $0.047, we have two different impacts. $0.002 are coming from the weaknesses of the U.S. dollar in the fourth quarter, $0.002. And the other $0.002 as what we call one-offs from this quarter. But remember, I would like just to emphasize the guidance that we provided for 2026. There is nothing structural. So we are confident that the level of investments that we have in all initiatives, remember, from the investor day, we disclosed that we have more than 700 initiatives internally in the company to provide more efficiency. We have this cost containment structural behavior in the company. And the guidance that we provide for this year is well aligned with the same trend between $0.043 and $0.045.

There is nothing material, nothing structural to be considered that could represent any risks from our perspective. But yes, we also have, remember, in our guidance, the assumption to have, for instance, the BRL at 5.5. The BRL is now at 5.2. And then we have to reflect. But on the other hand, as Roberto explained in another question, we also have another positive impact in terms of RASC. So I also emphasize on the slide in terms of the results from the fourth quarter. The CASC have increased 7.9%, but the RASC have increased it even more to 11.7%.

Roberto Alvo (CEO)

The cargo question, Felipe. We don't disclose our unit revenues on cargo. But let me give you a couple of, I guess, data points that are important. Northbound traffic is export traffic. Southbound traffic is import traffic. Import traffic normally has higher yields than export traffic just because of the nature of what is exported. It's basically raw materials going north. And it's, if you want, technological perishables coming south. So there may be a potential change in the mix just because of the currency appreciation that we will see if it happens during the year. But we don't see today significant issues in the demand side to believe that the unit revenues in cargo are going to be materially different. The start of the year is always low because people send inventories to close the prior year.

Now we have the Chinese New Year, which is very relevant on the cargo side because, basically, China shuts off for a week. But the basis of growth and the stability of the market is we know it. We have nothing to concern us at this point in time.

Filipe Nielsen (VP of Equity Research)

Great. Those were super clear.

Operator (participant)

Thank you. Our next question comes from Gabriel Rezende from Itaú BBA. Your line is now open. Please go ahead.

Gabriel Rezende (Equity Research Associate)

Thank you. Congratulations on their setup of very strong results. Two questions here on our side. Correct me if I'm wrong, but imagine that around 23% out of your passenger revenue came from those more premium-related revenue. Just trying to understand where the company is targeting to land this number along 2026. So how much can these 23% increase along the year? What is the company's target at this point? And also, we talked a lot during the call about these positive effects environment, especially here in Brazil. And also, we are seeing a favorable oil price environment as well. Just trying to understand whether you see the sector at some point in time, perhaps this year, accommodating yields into a slightly lower base versus where we are at this point. Thank you.

Roberto Alvo (CEO)

Thank you. So second question first. I mean, Brazil was, out of the 10 largest domestic markets in the world, the one that grew the most in 2025, which is quite impressive, I think. And we see momentum from that perspective. And at this point in time, I think that the capacity outlook for the industry in Brazil, together with the demand perception, leads us to believe that it's going to be a stable year as compared to what it was in 2025. So we see potential for development of our strategy and our network over there as we have done it in the last two or three years. So I don't think at this point in time that we will see a significant change in the dynamic of the market, at least for 2026. We don't see the elements of that.

More generally, I think that the capacity situation in the industry as a whole, with the engine situation and the manufacturers still trying to catch up to replace older aircraft and to meet their commitments in deliveries, is going to mean that 2026 is going to be similar to 2025 in terms of global capacity. I forgot the first question. Can you remind me, Tori, please?

Tori Creighton (Managing Director of Investor Relations)

What percentage with regard to our premium revenues, how we see that target going forward given the fact that we have reached 23% of premium revenue?

Roberto Alvo (CEO)

We don't disclose a target for premium revenue. But we believe that the premium revenue will still grow faster than our total revenue and our capacity during 2026 as it has happened in the last few years.

Gabriel Rezende (Equity Research Associate)

Okay. That's very clear.

Roberto Alvo (CEO)

Thank you.

Thanks, Tori, for reminding me of my question.

Operator (participant)

Thank you. Our next question comes from Savi Syth from Raymond James. Your line is now open. Please go ahead.

Savi Syth (Managing Director)

Hey. Good morning. Just a couple of questions for me. First one, just on the corporate side. I know you mentioned demand strong widely across the regions. But I was curious what you're seeing on the corporate side, if there's any acceleration there or any trends to call out. And then just secondly, I'm wondering, there's one of your competitors that have kind of refocused on premium offering. And just wondering what you're seeing in the region and if there's still kind of maybe premium growth in offering is still outstripping or actually, maybe demand is outstripping the supply.

Roberto Alvo (CEO)

Thanks, Abby. How are you? So corporate recovered probably a year and a half ago from before 2020 already. Growth in corporate demand looks stable. I think what's most relevant is that we have been gaining consistently market share in corporate sectors. And that you can see very clearly on public information provided by the travel agency in Brazil, for example, where you can see that public information figure. And the setup what we have created, the network, the execution, the frequent flyer, leads us to believe that this position we have is going to be maintained or even be increased in the upcoming future. So no concerns with respect to corporate demand at this point in time. And I think that LATAM has put itself in a very strong position to serve corporate customers, whether it's because of our network, because of our FFP, because of our delivery.

The second question, it's interesting you mentioned premium offer. I think I said it in my speech. It all starts with people. You are not going to be able to attract customers that want to fly again with you and particularly demanding customers as premium customers only with hardware. You need software. In that sense, I think that LATAM stands out completely with respect to not only its direct competition in the region but also in many regions across. This is one, I think, of the learnings of the last few years and what has started the cycle where now you see profitable growth that we have. At the same time, we believe that we can improve on execution. I believe that we can still improve significantly on hardware, on the physical delivery of our product.

As Ricardo mentioned, we just inaugurated a lounge in Lima. We're going to reinaugurate a bigger lounge in Guarulhos next year. We'll have premium economy on wide bodies. We'll install Wi-Fi on wide bodies, which I think is an important lack. And at the end of the day, even though maybe our competitors are trying to catch up to us, we continue improving. But the DNA of this organization and the people, I think, is unmatchable at this point in time. Thank you.

Savi Syth (Managing Director)

Awesome. Thank you.

Operator (participant)

Thank you. As a reminder, if you did want to ask a question, please press star followed by one on your telephone keypad. Our next question comes from Felipe Villanova from Santander. Your line is now open. Please go ahead.

Felipe Vilanova (Analyst)

Hi, everyone. Thank you for taking my question. I have a follow-up on Jen's question about net debt. You stated that you ended up missing the guidance due to the $400 million dividend announcement. However, then you said that the minimum dividend is considered in the guidance. And if I'm not mistaken, those $400 million wouldn't be extraordinary dividends but minimum ones. So how can I put these two together? And also, on a separate note, what's the currency breakdown of your debt? Thank you.

Roberto Alvo (CEO)

Yeah. I'll ask Ricardo the second one. But I mean, maybe it's good to clarify. Minimum dividends, 30%, but they are paid the following year, normally after the shareholders' meeting. And that happens in Chile normally in April, okay? What we did is that we advanced a significant portion of minimum dividends in December. And we paid $400 million in December. So as what you are seeing is net debt as of December 31, and that was not in the previous guidance, you have to adjust for those $400 million, okay? Which means that in April, the company would have already counted those $400 million for the calculation of the final dividend that it would pay. So that's probably the clarification on this, okay? With respect to currency on that, I don't want to take that.

Ricardo Bottas (CFO)

Is that actually a no? The question regarding okay. In terms of currency, I think almost 100% of our debt are in U.S. dollar. We only have one local bond close to $160 million in local currency. So it's almost everything in U.S. dollars.

Roberto Alvo (CEO)

That local currency is Chile debt.

Felipe Vilanova (Analyst)

Thank you both.

Roberto Alvo (CEO)

Perfect. Thank you again. Congrats on the results.

Operator (participant)

Thank you. We currently have no further questions. So I'll hand back to Ricardo for closing remarks.

Ricardo Bottas (CFO)

Again, thank you all for connecting this morning. Please note that our investor relations team is available for any further questions. Have a great day. Thank you again.

Operator (participant)

This concludes today's call. Thank you for joining. You may now disconnect your line.