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DATE

Wednesday, November 6, 2024 at 9:00 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Roberto Alvo Milosawlewitsch
  • Chief Financial Officer — Ramiro Alfonsín Balza
  • Vice President of Corporate Finance — Andrés Del Valle
  • Head of Investor Relations — Tori Creighton

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TAKEAWAYS

  • Passenger Volume -- 21.1 million passengers transported in the quarter, a 7.1% increase, reinforcing LATAM's market position in South America and globally.
  • Capacity Growth -- 15.1% year-over-year increase in available seat kilometers (ASK), with high load factors maintained across all segments.
  • Adjusted EBITDAR -- $828 million with a 25.2% margin, representing a 14% increase from the third quarter of 2023.
  • Net Income -- $301 million for the quarter, bringing year-to-date net income to $705 million, a 41.3% year-over-year rise.
  • Adjusted Passenger CASK ex-Fuel -- $0.04, down 8.5% year over year, reflecting continued cost discipline and efficiency.
  • Revenue Trends -- Consolidated revenue per ASK decreased by 7.7%, affected by lower jet fuel prices, currency depreciation, and a shift in route mix toward faster-growing international operations.
  • Cargo Revenue -- $381 million, up more than 15% year over year and the second consecutive quarter of growth in this segment.
  • Liquidity Position -- more than $3.6 billion at quarter-end, prior to a $200 million debt prepayment in October.
  • Net Leverage Ratio -- Reduced to 1.7x, noted by management as the "lowest leverage profile for a wide-body carrier" in the Americas.
  • Debt Refinancing -- $1.4 billion of debt refinanced at 7.875% interest rate, projected to save approximately $118 million in interest payments for 2025.
  • Guidance Revision -- Adjusted EBITDAR guidance for 2024 raised to exceed $3 billion, reflecting improved operating outlook.
  • Credit Ratings Upgrade -- Standard & Poor's rating increased to BB- with positive outlook; Moody's to Ba2 with stable outlook.
  • Operational Cash Flow -- $658 million generated in the quarter, with positive free cash flow after $233 million in fleet-related payments.
  • Refinancing Impact -- Management disclosed a one-time negative accounting effect of approximately $134 million on the fourth quarter income statement due to recent liability management activities.
  • Revolving Credit Facilities -- $1.55 billion in revolving facilities, fully committed until 2029 and currently undrawn.
  • Capital Allocation Focus -- Management identified ongoing priorities as profitable growth, further deleveraging, and future shareholder returns, including the possibility of dividends or buybacks.

SUMMARY

LATAM Airlines Group (LTM +0.81%) reported record operational and financial results with double-digit growth in passenger traffic and capacity, underpinned by disciplined cost management and enhanced liquidity. Recent refinancings are expected to contribute to savings of approximately $118 million in interest payments for 2025, extended credit lines to 2029, and eliminated meaningful refinancing risk until 2028. Upgraded credit ratings and adjusted EBITDAR guidance above $3 billion for 2024 reflect durable improvements in capital structure and operating performance. Currency volatility, particularly the Brazilian real, and passenger revenue mix shifts were acknowledged as drivers of headline RASK decline, though management emphasized sustained cash flow and margin expansion. The company highlighted a leadership transition in the CFO position as Ramiro Alfonsín moves to Chief Commercial Officer, with the executive committee otherwise remaining stable.

  • CEO Alvo stated, "we have grown approximately 15%, while at the same time, we have been able to maintain healthy RASK and our cost discipline has allowed us to exploit economies of scale."
  • Management reported that 60% of revenues are dollar-denominated, limiting the impact of regional currency depreciation on financial results.
  • The new debt amortization schedule means no significant maturities before 2028, while select callable amounts in 2025 and 2026 may offer further financial optimization opportunities.
  • Credit rating agencies recognized the company's capital structure improvements with recent upgrades to BB- (S&P) and Ba2 (Moody's).
  • Executive leadership highlighted ongoing flexibility to invest in growth and return capital to shareholders as financial strength improves.
  • No material operational exposures were identified as a result of the U.S. political transition, according to management’s assessment.

INDUSTRY GLOSSARY

  • CASK ex-Fuel: Cost per available seat kilometer excluding fuel expense; a key metric for airline operational efficiency.
  • RASK: Revenue per available seat kilometer, reflecting unit revenue trends across the airline’s network.
  • ASK: Available seat kilometer, a standard airline metric for measuring capacity offered.
  • EBITDAR: Earnings before interest, taxes, depreciation, amortization, and rent, often used to compare airlines' cash earnings excluding lease costs.
  • Wide-body carrier: An airline operating large, twin-aisle aircraft typically used on long-haul routes.
  • Chapter 11 exit financing: Restructuring loans or credit facilities secured following bankruptcy and reorganization under U.S. Chapter 11 law.

Full Conference Call Transcript

Ramiro Alfonsín Balza: Thank you, Dee. Hello, everyone, and good morning. Welcome to our third quarter 2024 conference call, and thank you all for joining us today. My name is Ramiro Alfonsín, and I am the CFO of LATAM Airlines Group. Here with me today is Mr. Roberto Alvo, our CEO; Mr. Andrés Del Valle, VP of Corporate Finance; and Ms. Tori Creighton, Head of Investor Relations, and we will be presenting our highlights and results for the third quarter of 2024. I will hand it over to Roberto to share the opening remarks about the quarter's highlights, and I will then present in more detail the financial results.

Roberto Alvo Milosawlewitsch: Thank you, Ramiro, and good morning, everyone, and thank you for joining us to review LATAM Airlines performance for the third quarter of 2024. This quarter reflects the continuous progress in the group's operation and financial performance. Recently, on October 22, we celebrated our return to the New York Stock Exchange by ringing the opening bell and then hosted our first Investor Day. It was great to have many of you in person and via webcast. For us, it was the opportunity to discuss LATAM going forward and how we have built a culture of operational excellence, network strength, customer and people focus, sustainability and financial discipline. All aspects in our view, are relevant drivers for sustained and profitable growth.

In terms of the operations during the quarter, LATAM increased its capacity by 15.1% while maintaining a high load factor, demonstrating our ability to grow efficiently. We transported 21.1 million passengers, a 7.1% increase compared to the same period of last year. Over the past 12 months, passenger numbers reached 80.6 million. These operational results reinforce LATAM as the largest airline group in South America and among the top 10 globally by seats and by flights. Aligned with LATAM Group's sustained capacity growth, we remain focused on financial discipline and maintaining cost efficiency. For the quarter, adjusted passenger CASK ex-fuel was $0.04, while lower jet fuel prices also contributed to improved margins compared to prior periods.

This focus on cost discipline ensures that LATAM Group remains competitive and agile in the dynamic market and competitive environment. Building on these results, LATAM Group reported adjusted EBITDAR was $828 million with a 25.2% margin. Net income for the quarter totaled $301 million, bringing year-to-date net income to $705 million, a 41.3% increase year-over-year. These are historical results. We're at the same time generating cash consistently. Quarter after quarter, you have been monitoring our numbers and we have been delivering the company. Today, we are at 1.7x leverage, where we have guided to further deleveraging. Additionally, we have $6.3 billion (sic) [$3.6 billion] of liquidity at this point.

This financial structure allows us to continuously capture opportunities as they arise. With these results, I would like to offer an important reflection. Over the last year, we have grown approximately 15%, while at the same time, we have been able to maintain healthy RASK and our cost discipline has allowed us to exploit economies of scale. All of this, backed up by a strong balance sheet, has enabled us even in the context of high exchange rate volatility to deliver these results. In my view, this provides proof that our model every day is more resilient to business cyclicality, a fundamental strength and differentiating factor, I believe, for the airline business.

Looking ahead, in the short term, we expect demand to remain stable, leading to positive top line results and continuous cost delivery. The result from this is reflected in our updated guidance as we expect to deliver a strong end of 2024 and putting us in favorable position towards the start of next year. We're proud of the progress reflected in these figures. The [ journey travel ] over these past years has been full of challenges. But what truly defines LATAM Group is not just the results, but the purpose that guides it and the commitment of its people.

All 38,000 souls are a great asset, and thanks to their dedication, LATAM Group has progressed towards a stronger, more efficient operation and aligned with its goals. To each of them, my deepest gratitude. And before passing off to Ramiro, I'd like to personally thank him for these over 8 years being CFO of LATAM and looking forward to keep on working with him as Chief Commercial Officer. He's been a fundamental factor of the results that we have achieved, particularly over these difficult times. So thank you, Ramiro, personally. Congratulations, and looking forward to your next challenge as Chief Commercial Officer. With that, I hand it back to him. Thank you very much.

Ramiro Alfonsín Balza: Thank you, Roberto, that's really kind. Let's move to the following slide. LATAM Group continues to show strong operational results with more passengers choosing us across all markets. In the last 12 months, we transported over 80 million passengers. That is 13% more than the last 12 months of third quarter 2023. In this third quarter, capacity grew by 15%, maintaining healthy load factors in all segments. The group carried a total of 21 million passengers in the quarter, reinforcing LATAM as the largest airline group in South America and among the top 10 globally.

In terms of consolidated revenues per ASK, we see a decrease of 7.7%, influenced by the decrease in jet fuel prices, by currency depreciation in some of our markets and also a change in mix as the international operations grow faster. All in all, keeping in mind the important capacity increase, the fuel price decrease and the change in mix, we are improving our margins by 14% when compared to previous quarters. Demand, as Roberto mentioned, remained solid across all markets. Our capacity continued to be a challenge for LATAM Airlines Colombia, as we mentioned in our previous calls.

However, we are now starting to see some signs of moderation in capacity in Colombia compared to the second quarter, suggesting a gradual rebalancing in the market. Moving to Slide 5. In this third quarter, the group continued to consolidate the trend of strong performance through the income statement. The increase in passenger revenues of more than 6% was mainly propelled by our international business. On the cargo front, revenues increased over 15% year-over-year to $381 million, marking the second consecutive quarter of improvement. The group maintains its focus on cost containment. Adjusted passenger CASK ex fuel decreased by 8.5% year-over-year to $0.04.

This drove the record adjusted EBITDAR of $828 million, which represented an increase of 14% versus the third quarter of 2023. All these positive results are reflected in the net income generation for the period, which amounted to over $300 million. This represents an increase of 30% versus the same period of last year, highlighting the favorable trends experienced over the last 12 months. Net income year-to-date amounts to over $700 million for LATAM. On Slide 6, we'd like to discuss cost containments, highlighting how LATAM Group's dedication to this is once again a crucial factor influencing the quarterly results we're presenting today.

During this third quarter, LATAM Group reported an adjusted CASK ex fuel of $0.044 while our adjusted passenger CASK ex-fuel stood at $0.04. This quarter, LATAM experienced a slight positive exchange rate effect on costs, particularly due to the devaluation of the Brazilian real, which contributed to an approximate reduction of $0.02 in unit costs. However, even excluding this impact, our costs are in line with previous quarters and completely aligned with our projected guidance for the year. LATAM has established a track record of delivering consistent results, as shown by the steady growth of our adjusted EBITDAR generation that you can see on Slide 7.

In the third quarter, our adjusted EBITDAR for the last 12 months exceeded $2.9 billion. The last 12 months adjusted EBITDAR has increased 23% compared with the same period of last year. These results have led us to improve our full year guidance where we expect adjusted EBITDAR for 2024 to exceed $3 billion. As you know, we consider cash flow generation the true measure of performance. In the third quarter of 2024, LATAM Group maintained a positive cash flow generation trajectory, generating $157 million in cash flow, as shown on Slide 8.

Adjusted operating cash flow generation totaled $655 million (sic) [ $658 million ] and the total cash payments of fleet costs amounted to $233 million for a total fleet of 341 aircraft. Please join me on Slide 9 to discuss our capital structure strength as many events unfolded during this past quarter. On July 15, LATAM completed the successful renegotiation of its revolving credit facilities, resulting in an extension and increase in both of these facilities. LATAM's total revolving facility lines now amount to $1.55 billion and are fully committed until 2029, providing the company with enhanced flexibility and liquidity as these are currently fully undrawn.

This, together with LATAM's cash position of over $2 billion, enabled the company to reach a liquidity position of more than $3.6 billion as of the third quarter of 2024. For the year-end 2024, we anticipate a slight decrease in liquidity as we used $200 million in cash to prepay a portion of our debt during the refinancing exercise that took place in October. LATAM has continued to deleverage the company, achieving a net leverage ratio of 1.7x in the third quarter. This establishes us as the leader in the Americas with the lowest leverage profile for a wide-body carrier. Turning to the next slide.

During October, the company was able to refinance $1.4 billion of debt at an interest rate of 7/8%, which is almost half the rate that we had in our Chapter 11 exit financing. These efforts will contribute to savings of approximately $118 million in interest payments for 2025. The debt maturity profile remains well managed with only $275 million maturing in 2028 associated with our spare engine facility. This is recent news, and we are showing the pro forma financial debt amortization profile because just earlier this week we have refinanced this in our first sustainability-linked instrument and now can say that LATAM has no refinancing risk through 2028.

Some larger amounts are callable in 2025 and 2026, offering opportunities to further optimize the cost structure and improve cash flow generation. As part of the liability management, in accounting terms, this refinancing will have a onetime negative impact on LATAM's income statement and the bottom line of approximately $134 million in the fourth quarter. And in terms of liquidity for year-end, it's important to note that we used the $200 million of cash during this refinancing exercise. Let me conclude on Slide 12. LATAM is the leading airline group within the South American region, with strong growth, efficient cost and a unique capital structure. These factors allow LATAM Group to make independent decisions about the future.

Operationally, demand remained strong, allowing the airline of LATAM Group to grow capacity efficiently while maintaining healthy load factors and improving its margins. This consistency across markets reflects the strength of the group's network and value proposition. The capital structure has also been strengthened. The recent refinancing reduced the average cost of debt to 8%. The company's efforts to solidify its capital structure and improve financial stability have been recognized by third-parties as Standard & Poor's upgraded LATAM credit rating to BB- with a positive outlook, and Moody's raised it to Ba2 with a stable outlook.

With this momentum, the 2024 guidance has been revised for the second time this year and now targeting an adjusted EBITDAR of over $3 billion with a focus on growth, cost control and margin improvement. Before we turn it to our Q&A segment, I would like just to take a moment to reflect on my time as CFO of LATAM. And this is, as Roberto mentioned, my last quarterly earnings in this role. We have had 35 quarters together, countless investor meetings and conference, and I want to thank all of you for your time and interest during this more than 8 years and the questions that you have raised that have pushed us to strive for more.

We have navigated difficult moments, including the Chapter 11 process as a consequence of the pandemic. And I'm very proud where LATAM stands today with lower debt, practically without significant maturities until 2028, $3.6 billion in total liquidity and an adjusted passenger CASK ex fuel of $0.04. I am very grateful to our exceptional finance team for the dedication during these years, and I'm now looking forward to the new challenges that lie ahead in my new role as Chief Commercial Officer. With that, we'll turn it to the Q&A session.

Operator: [Operator Instructions] Our first question comes from the line of Michael Linenberg from Deutsche Bank.

Michael Linenberg: Congratulations, Ramiro on your new role moving up. Great to hear. I have just -- some of these are more sort of technical. I guess, I noticed when you report, you do not report on an earnings per ADS basis. I know in your financial -- the full financial documents you do look at what your earnings are on a per share basis and I wasn't sure if it was just a function of the fact that you have a lot of movement in your non-op area like, for example, we took a tax credit this quarter, sometimes it's a tax charge.

So it makes sense to focus on maybe EBITDAR and EBIT margins as opposed to an earnings per ADS. And so maybe that's something that's going to feature in the financial results for 2025. So can you talk about that and just the thinking around that? And also just what's the appropriate tax rate to use just because this quarter was a credit. How should we think about it maybe going forward?

Ramiro Alfonsín Balza: Thank you, Michael. Yes, those are very -- 2 very good questions. So on the tax rate, first, as you know, the LATAM Airlines has no operating losses that we can benefit from of approximately $12 billion on the third quarter. So we can take advantage of those tax rates, and we think that we're going to be able to continue to take advantage. However, in certain countries, as we -- as they are also profitable, you cannot benefit from 100% of the tax rate that we have in those countries. And depending on where we make the profit, we have to account for certain taxes or not. So I would say that it's difficult to forecast the tax rate.

But I think that if you take these 9 months looking forward for the future years, I think it's a good proxy of where we should be seeing the tax rate exposure for the next coming years. Regarding EPS, it's an excellent question. I think that if you look only at multiples of EBITDAR in terms of valuation, we don't get the credit or the benefit of our strong capital structure. So I think it's important to start at EPS. And you probably are going to see us showing numbers regarding EPS going down the line. We think it's a very important metric in this industry, again, as it takes the benefit of the capital structure.

You're right that the net income sometimes gets affected by volatility in FX, currency or tax credits or these sort of benefits, but we still think it's a very important measure to present to the market.

Michael Linenberg: Okay. Great. And then just squeeze in one sort of last big picture. I'm sure, like everybody, we've all been watching the results of the U.S. election. Yesterday, we saw the weakness in emerging markets. We saw the peso sell off. We saw the Mexican peso, the real. Thoughts on whether things that we should be mindful of now that we have a new administration, sort of anything that you potentially see on the horizon as a company? And this is a question probably -- Ramiro, this is probably to Roberto or you can chime in as well, your thinking on the new change in administration in the U.S. and what that may mean for LATAM.

I would just throw in the fact that you do -- you are a dollar-based reporter and you do have a lot of your operations in international markets and maybe less of an impact for you than, say, for somebody else in Latin America. But I'm just curious of how you're thinking about how things stack up going forward.

Roberto Alvo Milosawlewitsch: Thank you, Michael. This is Roberto. Thanks for the question. Yes, so we have thought, I think, along the lines of your thoughts here with respect to the new administration. So a couple of things. First, of course, we already had a Trump administration between 2016 and 2020. If history says anything, which may or may not, we didn't see any relevant effect to our operations during that time that I can point out to. Having said that, as we think going forward, as you said, well, we have flows that are exposed to the U.S.. We see no significant telling things that I can point out today that is going to change the trajectory of what we've seen.

Currency volatility that you have pointed out as well, I think that we have shown, particularly in the third quarter, that we know how to manage and contain the effects of those and even take advantage of those in certain cases. And yes, you're right, 60% of our revenues are dollar-denominated. So I think that we are, in general, pretty covered to what we see volatility and cyclicity of the business, in my mind, because of our position, starting to show that it affects us less than other carriers for sure.

So we remain confident going forward on what we've done and I don't see anything relevant at this point in time that the potential policies of the new administration, at least what we've heard, we don't know what will be enacted at the end of the day, can affect our operation. Do remember that we have also our cargo headquarters in Miami and a lot of traffic flow between the U.S. and South America. So if nearshoring becomes something important, eventually in the upcoming years, I think that tends to benefit the cargo business more than anything else.

Operator: Our next question comes from the line of Guilherme Mendes with JPMorgan.

Guilherme Mendes: Congrats on another strong set of results. And Ramiro, good luck on the new role. Two questions as well. The first one is on yields, if you could give more color what is the main explanation on the year-over-year drop? I guess, FX could be part of it, but if there's anything else in terms of competition or demand? And second question is on capital allocation. Another quarter of strong free cash flow, leverage and liquidity clearly under control. So is it fair to assume that dividends could go up into 2025 or potentially a buyback program?

Roberto Alvo Milosawlewitsch: Thank you, Guilherme. I'll take the first question and then I'll pass it to Ramiro for the capital allocation question. So I mean, as you see our results, for me, this is a glass half full picture. Not many times you see an airline grow 15%, keep solid RASK results. There's 2 effects that you have to take into consideration. One is currency depreciation, particularly of the real, which was significant in the third quarter. And as you saw in the presentation, actually, our yields -- our RASK in domestic Brazil was higher on local currency despite the growth. And I think that's a good thing to point out to.

And I don't think that you see many times airlines that happened to have the ability to grow double digits and keep the unit revenue at current good level. Second effect, as Ramiro pointed out, we're growing on international faster. You also can see our average stage length on the report is growing. So there's a little bit of a mix between our longer-route RASK vis-a-vis the shorter-route RASK because of that mix situation. So if you take all this into consideration, I have a very positive look, very positive view of the evolution of the unit revenue during this quarter.

Ramiro Alfonsín Balza: Yes. Thank you for your good wishes. In terms of capital allocation, you're right, the company is generating consistent cash flow. And now that we have addressed our liability management exercise that was important to us, we focus mainly on 3 aspects and without any priority between all of them. We're still seeing pockets for profitable growth, and we're bringing new aircraft next year. We want to continue to maintain a strong balance sheet, and we have still the possibility of doing the last 1/3 of the exit financing now in 2025. And then the third aspect is exactly what you mentioned, shareholder return. There are many mechanisms for that.

We think the company is performing well, it's generating the cash. We feel confident about 2025. So yes, that's something that certainly we're going to address. The mechanisms is still unclear.

Operator: Our next question comes from the line of Stephen Trent with Citi.

Stephen Trent: Ramiro, congrats to you. I know it's been great working with you over the years. Could you just give me a sense as to where you guys are now in terms of executive roles with you, Ramiro, transferring to the CCO role? And are there any kind of missing heads at the moment in case I missed the commentary?

Roberto Alvo Milosawlewitsch: Stephen, this is Roberto. So the Executive Committee has been very stable over the last years. This is, I guess, the change that you see today. I'm very happy, again, for Ramiro taking the role. I'm sure that he'll challenge the teams and come up with incremental value, for sure. We're in the process at this point in time of finding a replacement for him. There's both internal and external candidates. And as soon as we have a resolution and a definition on that, of course, we'll inform it to the market. Otherwise, the executive team has been very stable over the last years.

Stephen Trent: Okay, Roberto. Appreciate that. And just as my follow-up question, elements of the market compare you guys with the U.S. Big 3. Do you have any high-level thoughts as to whether you'll start reporting free cash flow on a basis that's more in line with them? Or just love to hear you're contemplating anything like that?

Ramiro Alfonsín Balza: Stephen, that's very useful. I think that we do report very much in line with them. There are 2 versions of the cash flow statement in our earnings release. We try to make it as friendly as possible and try to detail all the different aspects of the cash flow generation first and then on the investments, both on the growth aspects and on the maintenance aspects. If there are any other suggestions that you or other analysts might have, we're happy to incorporate them and the feedback is always useful. We have received very positive feedback on the way that we are presenting the cash flow statement, but if there are improvements to be made, happy to do it.

We want the market to understand very clearly our cash flow generation and cash flow spend and where we're investing in those resources. And we're very proud in seeing LATAM generating quarter-after-quarter positive cash flow and free cash flow at the end of the cash flow measure.

Operator: Our next question comes from the line of Jens Spiess from Morgan Stanley.

Jens Spiess: Congrats on the strong results. I also have a few questions. In the international segment, you've done extremely well. Load factors are at very high levels. So I was just wondering more or less what's your split there of wide-body versus narrow-body aircraft in terms of number of flights? Because I was wondering if you have similar load factors across like short to medium range international routes and long-haul routes. And secondly, if you could give any indication of your fuel hedges at -- I mean, you do provide the percentage amount of what's hedged going forward. But if you could give any indication of the average price level that you closed those hedges, it would be very useful.

Roberto Alvo Milosawlewitsch: Thank you, Jens. I'll take the first question, I'll pass it to Ramiro for the hedges. So international, how do we define it? First for everybody's understanding, it's what we call regional, which is international within South America. And then long haul and those are the flights to the U.S., Europe, South Pacific and Africa. More than half of the ASKs, more than half of the capacity of international is wide-body capacity. So around 60% of all of it is widebody capacity. And the narrow-body capacity is almost everything flying within South America or from the northern bit of South America, so let's say, Colombia to the U.S.

Because of the range constraints and the size of the region, I wouldn't say that we have narrow-body aircraft flying on something that we can call long-haul routes, right? I think in our case, very separate. We have an order, as you know, XLRs coming in at couple of years' time. So that picture may eventually change, but that's still ahead of us. So I hope that I was able to give you some light with those figures. And yes, we have performed very well, international is very solid. And we see no, today, no concerns with respect to the demand levels even with the currency volatility that we have seen.

And the wide-body market, as we all know, is extremely tight going forward. And I think that's a good standing point together with the strength of our hubs and our JV with Delta to continue being optimistic on our international segment.

Ramiro Alfonsín Balza: Regarding fuel hedges, as you know, we use asymmetrical collars on our hedges. And this is because we want to benefit when we see fuel price reductions. But of course, there is a limit to the gain on the upside also. We do not provide or disclose specific numbers on how the hedges are taken, but we can serve a very consistent policy throughout the months. We always look at the next 12 months and we look at the booking curve in order to assess the right amount of hedges for each quarter, and it's quite consistent. So you can think of average fuel prices, most of all, when thinking about our hedges.

Operator: Our next question comes Our next question comes from the line of Pablo Monsivais with Barclays.

Pablo Monsivais: A little bit in line to Mike's question on the FX depreciation. In the case of Brazil, if we expect sustained depreciation, what's your sense of the market's ability to hold a higher yield in case you look to protect your yield in U.S. dollar terms?

Roberto Alvo Milosawlewitsch: Roberto here. So we have seen strong demand in domestic Brazil throughout the year most of the time. As you saw also in our report, our RASK for the third quarter increased on local currency despite the substantial capacity increment that we have put during the year on that business. I feel good and positive with respect to our development there. Our network has clearly improved vis-a-vis of pre-pandemic levels. Today, we have over 2x relative frequency share in Guarulhos, which is the most important airport in South America, 70% of international traffic to Brazil goes through that airport. Compared to our Brasilia hub, they create a very solid set of alternatives for the passengers flying within Brazil.

We see a disciplined context of capacity in Brazil at this point in time. And do remember as well that when you think about LATAM as a whole, the majority of our revenues are dollar based. So even though, of course, we see with the currency volatility, it tends to be a lower effect than some of the other airlines that operate in this segment. But all in all, we're encouraged by the results that we have seen throughout the year and in this particular quarter.

Operator: Our next question comes from the line of João Frizo with Goldman Sachs.

João Francisco Frizo: Just a quick question from my side related to the guidance. You guys updated and added further color yesterday. So I'm just trying to understand what are the assumptions behind pricing for the fourth quarter because when I look at fourth quarter trends, normally EBIT margin is higher than the third quarter, right? So in order for you guys to meet the guidance for the full year of 12% to 12.5% in EBIT margin, this would imply a deceleration in margins quarter-over-quarter, which seems to be a bit conservative assumption to make, right? So I just wanted to get your sense on what's the view driving this expected deceleration in margins?

Ramiro Alfonsín Balza: This is Ramiro. You're right. Third quarter is always a very -- it's high season for us. It's a very strong quarter. It has been in 2023 an exceptional quarter. And even now in 2024, it's an exceptional quarter and we're surpassing what has been a very significant quarter back in 2023. There's always a small deceleration in terms of margin in Q4. Let me just say that we are extremely confident. Despite all the fluctuation on the currencies, despite everything that we're seeing, we're extremely confident on our guidance for 2024.

Operator: [Operator Instructions] There are no more questions. I will now turn the call back over to Ramiro Alfonsín for closing remarks.

Ramiro Alfonsín Balza: Thank you, again, all for joining. Always our IR team is available for any further questions. And thank you, Roberto, for all the trust during these past years, and thank you for the possibility on my new responsibilities. Bye-bye, everyone. Great seeing you all.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.