LATAM Airlines Group S.A. ADR Earnings Call Nuggets: PRASK Growth and Brazilian Cargo Operations

LATAM Airlines Group S.A. ADR (NYSE:LFL) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

PRASK Growth

Savanthi Syth – Raymond James: I just wanted to – in Brazil, you said the PRASK was up low double-digit on a reais basis. Wondering how that’s continuing in April and beyond, and what your outlook is for the domestic Brazil market, and if you think given the low GDP environment, if you need to take capacity down further.

Claudia Sender – VP, Domestic Brazil Passenger Operations: This is Claudia Sender from Brazil. It was a little hard to understand the question, would you remind repeating it, I’m sorry?Regular Posts

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Savanthi Syth – Raymond James: Sure. Is the double-digit growth in PRASK continuing in Brazil? And then I’ll follow-up with another question.

Claudia Sender – VP, Domestic Brazil Passenger Operations: Yeah, absolutely. We expect both our load factors and our passenger revenue PRASK to continue the same double-digits trend during the second quarter of this year. The second semester of last year was a lot stronger in load factor terms since we decided to change our strategy in the second semester of last year. Then we expect to still have some growth, again, very close to the low double digits, but we expect to have a significant improvement versus last year throughout the year as well.

Savanthi Syth – Raymond James: And the change in the TAM’s revenue strategy, you’ve changed it to do more revenue management and increase the load factors. How have competitors responded and has there been a change in the response?

Claudia Sender – VP, Domestic Brazil Passenger Operations: I think each competitor in Brazil has adopted a different strategy and they think we’re segmenting our markets in a much smarter way than we used to do in the past. Therefore, we’ve been able to increase the demand in the market without significant capacity increase, which was the strategy in the past. So, I think each competitor has been targeting very different strategies and I think we’ve been efficient in the past, I would say, nine months to stimulate traffic without deteriorating the RASK numbers.

Brazilian Cargo Operations

Duane Pfennigwerth – Evercore Partners: I wanted to ask another Brazil question, specifically on your cargo operations. What do revenue trends for cargo look like if you exclude Brazil from the mix?

Alejandro de la Fuente Goic – CFO: First of all, it’s important to comment regarding Brazilian markets that they have been very stable. If we exclude Brazilian markets from the cargo mix we see a positive trend starting since the beginning of this year. Basically, we saw or we believe that the market touched bottom at the end of 2012, beginning in 2013 and then we have seen a steady growth on the cargo market, especially the southbound ones and mainly Brazil, and this is a trend that we expect that will continue until the end of the year.
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Duane Pfennigwerth – Evercore Partners: And then with respect to the weakness or the relative weakness in Brazil, what do you attribute that to? I mean, is there any way to segment, is it more economic growth related or is it competitive pressures, which would you attribute the weakness more to?

Alejandro de la Fuente Goic – CFO: I think it’s a mix of both. Obviously, economic growth is affecting the traffics – or the import traffics to Brazil but also the competitive intensity that we have seen since 2012 also is affecting our ability to capture traffic into these countries.

Duane Pfennigwerth – Evercore Partners: So on the import weakness specifically, have you seen any change year-to-date in Brazil?

Alejandro de la Fuente Goic – CFO: Yes, as I commented earlier, we have seen a positive trend in the last two or three months with traffic that are starting to grow but haven’t reached – haven’t still reached the levels of 2012.

Duane Pfennigwerth – Evercore Partners: I thought the comment was that overall that’s true or ex-Brazil that’s true, but you are seeing that same trend in import improvement within the Brazilian cargo market and I just want to say thanks for taking the questions.

Alejandro de la Fuente Goic – CFO: Yes, it’s the import market.

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