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LATAM Airlines Group S.A. (NYSE:LFL)

Q3 2013 Earnings Call

November 12, 2013 9:00 am ET

Executives

Andrés Osorio - Chief Financial Officer

Gisela Escobar

Cláudia Sender - Vice President of Sales and Marketing, Director and Chief Executive Officer of TAM Airlines

Damian Scokin - Executive Vice-President of International Unit Business and Chief Executive Officer for International Passenger Business

Enrique Cueto Plaza - Chief Executive Officer

Analysts

Felipe Vinagre

Duane Pfennigwerth - Evercore Partners Inc., Research Division

Michael Linenberg - Deutsche Bank AG, Research Division

James D. Parker - Raymond James & Associates, Inc., Research Division

Ricardo Alves - Morgan Stanley, Research Division

Bob McAdoo - Imperial Capital, LLC, Research Division

Operator

Good day, everyone, and welcome to LATAM Airlines Group earnings release conference call. Just a reminder, this conference is being recorded. LATAM Airlines group earnings release for the period was distributed on Monday, November 11. If you have not received it, you can find it in our website at www.latamairlinesgroup.net in the Investor Relations section.

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

Now it is my pleasure to turn the call over to Ms. Andrés Osorio, Chief Financial Officer of LATAM Airlines Group. Mr. Osorio, please begin.

Andrés Osorio

Thank you very much. Hello, everyone, and welcome to LATAM's Third Quarter 2013 Conference Call. Joining me in today's call are Cláudia Sender, President of TAM; Damian Scokin, CEO of LATAM International Passenger Operations; Alvaro Carril, VP of Cargo Operation; Andrés del Valle, from our Finance Department; and Gisela Escobar, Investor Relations Officer.

We are very pleased this quarter to show a strong improvement in our operating results, with an EBIT margin of 7.6% and net income of $52 million. Our strong results are driven by the continued improvement in TAM's domestic operations in Brazil, by the rationalization of our international passenger operations and continued synergy and efficiency initiatives.

In the domestic Brazil passengers operations, financial results have improved significantly over the last year as a result of our strategy of continued capacity reductions and improved market segmentations and revenue management practices. TAM continues to reduce domestic capacity with a 9% ASK reduction for the first 9 months of 2013. Our strategy enabled TAM to improve low factors and to increase revenue per ASK by 19% in Brazilian real during the third quarter, as compared to the third quarter last year.

Regarding the company's international passenger operations, our strategy is focused on rationalizing passenger capacity, both in Brazil and in Spanish-speaking countries. We will have to -- we need to complete, reduce the size of our international passenger operation at the year-end 2013, as compared to year-end 2012 with a focus on consolidating São Paulo, Guarulhosas Airport as our main hub.

We have also made important changes in the fleet with a focus on A320neo, which allow us to not only operate more efficiently, but also to improve our product, including full flat seat in business class. An important milestone for TAM's international operation is the code share agreement with American Airlines launched on August 16, allowing TAM to provide improved connectivity from Miami, New York, throughout the United States.

We continue to focus on optimizing utilization of the belly capacity of our wide-body aircraft for the transportation of cargo in order to benefit from the competitive advantage provided by our integrate passenger and cargo business model. LATAM also continues to implement cost reductions and efficiencies initiatives focused on reducing fuel consumption and capturing cost synergies related to the integration of LAN and TAM.

In line with this, we ended the quarter with a net reduction of 395 employees of LATAM, as compared to last year. In September, in line with the continued ASK reduction in the Brazilian market, we implemented a reduction of 780 employees, which include voluntary retirement and unpaid leave programs. As a result, we recognized a onetime severance cost of $15.5 million during the third quarter.

We continue to implement measures to mitigate our exposure to the Brazilian real, which depreciated 13% in the third quarter of 2013, as compared to the third quarter of 2012. These measures include reducing TAM balance sheet exposure and implementing operational measures to review the mismatched return revenues generated in real and cost dominated in dollars. In addition, we have implemented a financial hedging policy to cover approximately 50% of our operating exposure to the Brazilian real for 2014 on a monthly basis at an average rate of BRL 2.03 per dollar. We believe that as a result of this initiative, we're very positioned to face the continued volatility of the Brazilian currency.

All of these allowed us to reconfirm the guidance we provided last quarter, both in terms of capacity growth, as well as for the operating margin. We expect that our EBIT margin for the full year 2013 to reach approximately 5%, plus or minus 0.2 percentage point

Finally, I would like to mention that we continue to make progress in our balance sheet restructuring, having completed this month a successful issue of a securitized bond in the amount of $450 million with equivalent of 6%. In addition, yesterday, we received approval from the Chilean SVS for our right offerings of 62 million shares, approximately $1 billion, which was expected to complete as planned by year end. The proceeds from this transaction will be used primarily towards the payment of certain debt and improved LATAM's liquidity position.

Now I will turn it over to Gisela, who will go through in more details demand variation in our result for the quarter. Thank you very much.

Gisela Escobar

Great. Thanks, Andrés. We have on our website the slide for the presentation, so I'm just going to briefly comment on the main trends as shown in those slides.

On the first slide, you can see the main highlights of the numbers for the third quarter compared to the third quarter 2012. In this case, the actual 2012 numbers, we're no longer doing the pro forma comparison since we're already comparing to a full quarter post merger in the third quarter of 2012.

The main highlight this quarter clearly is the strong margin improvement both at the EBIT margin level, as well as the EBITDAR margin. Our operating margin reached 7.6%, which is an improvement of more than 4 points versus the third quarter of last year, and EBITDAR margins reached 18.5% an improvement of also 4 points.

It's just important to highlight a few impacts in the third quarter 2013 numbers, which are non-recurring. We have a $15.5 million severance cost, that's a onetime cost resulting from a headcount reductions that occurred during the month of September. Those are recognized in wages and benefits. We also have a $9.6 million impact in other operating expenses that are related to increase in personnel costs, also in Brazil, but this is a onetime impact. And we also have at the non-offering level, a provision of $22 million, which is a onetime impact as well, related to the CADE ruling for the Cargo business, specifically related to the operation of ABSA.

When we compared the bottom line number, it's also important to note that in the third quarter 2012, we recognized $70 million of additional tax provision because that was the quarter were, in Chile, the corporate tax rate increased from 17% to 20%.

Looking at the next slide, we can see the main variations in terms of operating margin, the 3.2% last year compared to 7.6% this year. There's a slight negative impact from a 1.1% decline in yields coming from the both the passenger and the cargo operations. Cargo yields, overall, were down around 2%, passenger yield around 1%. This is offset in part by improvements in load factors. Passenger load factors were up reaching 82.4%, an offset slightly by a small decline in cargo load factors.

We have a very positive impact from a decrease in fuel costs. This includes a decline of the market price of fuel, which declined 4% to $3.44 per gallon. And we also see an impact from a positive hedge gain of $23 million, in addition the fuel efficiency initiative and the renewal of the fleet that we've been carrying out on an ongoing basis.

On the wages side, the wages and benefits cost have also contributed positively to our margin improvement. Overall, when you look at the average headcount, we have a reduction of over 350 people in September compared to the close of September of last year. And we also see on this line the positive impact of the depreciation of the real on the wages that are denominated in the Brazilian currency.

And then we have an additional positive impact from a reduction in cost per ASK overall, related to mainly the synergy and efficiency initiatives that we have been carrying out on an ongoing basis.

When -- turning to Slide #4. We can see some more details behind the variation in passenger revenues. Passenger revenues, on a consolidated basis, were up 0.8% this quarter. In terms of passenger capacity, we see overall that passenger capacity is relatively flat. But this is composed of a 2% increase in international passenger ASKs, 6% decline in the domestic Brazilian ASKs and a 13% increase in ASKs for the domestic Spanish-speaking countries.

Looking of the RPK numbers for traffic. We have a 2% increase in overall traffic numbers, driven mainly by a 2% increase in international passenger traffic and 10% increase in the domestic Spanish-speaking countries. And therefore, you can see the resulting impact in terms of load factors in those 3 business areas.

Overall, yields were down by about 1.1%, and this also reflects the impact of a 13% depreciation of the Brazilian real on the Brazilian domestic operations, and revenues per ASK were relatively flat with a small increase of 0.4%.

On the next slide, we can see a breakdown of our total passenger capacity. We continue to have a very diversified capacity distribution throughout the region. Approximately 50% of our total ASKs are international routes, both long-haul passenger routes, as well as intra-regional within South America. Overall, our international ASKs grew 1.6%. We saw in the previous slide the domestic Brazil ASKs represent 34% of our total passenger capacity, and the remaining, about 15%, are the domestic Spanish-speaking countries where the largest portion is the domestic Chile and the domestic Peru, both of which are growing at very strong rates, in Chile domestic, over 13% and in Peru over 18%.

When we look at the domestic Brazil operations, we've been very happy to see a strong and successful turnaround in our operations in the domestic Brazil market. You've already been seeing, since mid-2012, a strong improvement in load factors. Load factors for the third quarter reached 82%. They're up 14 points over the number in 2011 and they're up 4 points over the number in the third quarter of 2012.

We also continue to be very disciplined in terms of our ASK variations. We saw a 6% reduction in ASKs during the third quarter. As a result of this and as a result of our continued focus on passenger segmentation, we've been able to improve revenue per ASK in reals in Brazil by 19% in the third quarter, as compared to the third quarter of 2012. Maintaining our leadership in that market with a 40% market share.

Looking at the international passenger operations. There, we've seen a continuation of the strategy that we already discussed during the second quarter results presentation and that we have been continuing since then. Basically, we have been focusing on rationalizing the capacity in these operations. We have made certain adjustments in terms of the itineraries and we have reduced capacity on long-haul routes, especially from Brazil and the Rio operations to Europe. At the same time, we have been focusing on strengthening our connectivity from São Paulo and is strengthening the hub at the São Paulo airport.

In terms of fleet, we've also made significant changes. We have grounded 9 of the older Airbus A330 aircraft in Brazil. And we have replaced part of that capacity with Boeing 767s, that are operating with a lower cost per ASK and therefore, improved the efficiency but also improved the product. We have a full flat premium business products on those aircraft. And we have also seen -- so basically, the benefit there is, on the one hand, reduced cost per ASK and on the other hand, an improvement in terms of the product that our passengers can perceive. We have also, in August, launched the code share agreement between TAM and American Airlines that has allowed TAM to offer much improved connectivity to the U.S. beyond Miami and New York.

Looking at the cargo figures. We have seen, during the third quarter, no significant change in the demand trends in cargo. We have seen revenues overall for LATAM on the cargo side down 2.6%, with our revenue per ATK down by 2.7% in the quarter. Here, our main focus continues to be on the synergy generation. We also are very focused on controlling capacity. Our capacity growth is basically coming only from the additional belly capacity and we continue with our strategy, more so even than before on -- we'll be making the optimum utilization of the belly capacity of the passenger aircraft on long-haul routes.

In terms of merger synergies. We have continued to generate the expected synergies. We are on track to achieve our target of between $600 million and $700 million at the EBITDA levels by year 4, which would be June of 2016. During the first 9 months of this year, we have estimated a synergy generation of $215 million at the EBITDA level. These come from the cargo operations, from the international passenger operations and from the cost side. So part of this is what we see reflected in the 1.4% reduction in the ex-fuel costs during the quarter.

Also, just important to mention is that the synergy numbers do not include the domestic Brazil passenger operations. So we have never included in our synergy estimate the possible improvements that were to come from the domestic Brazil operations.

As a result of all of this, and as Andrés already mentioned, we just want to reiterate our guidance for full year 2013. We are on track with our guidance in terms of ASKs and ATKs. We expect to grow in terms of total passenger capacity between 0% and 2% this year with, obviously, a different behavior in the different markets, so low-single-digit growth on international routes, a decline in the domestic Brazil market, and 12% to 14% growth in the domestic Spanish-speaking countries.

On the cargo side, growth will be pretty much in line with the growth in belly capacity, so we're looking at a total capacity growth between 0% and 2%. In terms of operating margin, we are reiterating the guidance that we already provided of having operating margins between 4% and 6% for the full year. But we want to be a little bit more specific in terms of focusing in the middle of that range at around 5% EBIT margin for the full year, plus or minus 0.2 percentage points. And this also includes a certain assumptions with respect to the average exchange rate for the BRL, as well as the jet fuel price per barrel, which we estimate at $122 per barrel for the fourth quarter.

Briefly in terms of our fleet plan, we have not seen any significant changes here. We expect our overall number of aircraft at the end of the year for this year to reach 334. Of these, if you look at the fleet numbers that we provided for September, we have currently approximately 20 aircraft that are grounded, which are either in redelivery process or for sale. So this is part of what will result in this reduction in the total number of jets by the end of 2014 to 327. And for 2015, we're currently expecting relatively flat 330 aircraft at the end of the year. The fleet commitments that you see on the bottom of the slide is almost $2 billion this year for 2013, $1.3 billion for 2014 and $1.8 billion for 2015. This is the total fleet commitment irrespective of how they will be financed, so we're currently planning to finance approximately 30% of this with sale and leasebacks and for the most part, the rest with financial debt.

We also, just briefly to reiterate, as you know in November, we issued a securitized bond that's priced at 6% to 7-year bond. And that was based on future flow receivables of credit card sales in the U.S. in the amount of $450 million. And that -- as a result of that, we also have continued to improve our liquidity position. If you look at the September numbers, we've already seen an improvement in terms of liquidity. Liquidity was up from 8% to approximately 13% in September, and we've also seen a continued reduction in terms of our leverage ratios, which have come down from over 6x to 5.8x in September. And we continue to see that deleveraging trend mainly driven by an improvement in our operating cash flows.

And finally, just an update in terms of where our fuel hedging numbers are. We continue with our same fuel hedging strategy. We do, as you know, we hedged the fuel consumption for the whole group for LATAM Airlines group as a whole on a consolidated basis. We currently have hedged 61% of our total estimated fuel consumption for the fourth quarter of this year, 39% for Q1 next year and 15% for Q2. With the -- in the prices in Brent that you can see on the slides that are between $74 and $112 a barrel, for the most part with collars and pushing as well with jet fuel swap.

This concludes the prepared remarks that we had for this quarter, and we'll be happy to take any questions that you may have.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Felipe Vinagre of Credit Suisse.

Felipe Vinagre

I have 2 questions. First, despite the overall rationalization speech along the release, if you compare the fleet plan of this quarter compared to the second quarter release, it has increased by 7 aircrafts in 2013 and 10 aircrafts in 2014. I just wanted to understand what's behind that if you are postponing redeliveries due to better demand prospects, just some color on this. And the second question would be on the Cargo business. Can we still expect a decline in trend in terms of unit revenues for the coming quarters? When the company expects the stabilization or a turning point? If you could also give an update on competition in the open [ph] market, it would be great.

Gisela Escobar

Well, regarding the fleet, we have -- well, we show the quarterly numbers in terms of the fleet deliveries and we have continued to take delivery of the aircraft that we had planned to. The rationalization has been, for the most part, from returning operating leases as they expire, as well as from having grounding certain aircraft and preparing them for sale, which is the case for the most part with the A330 fleet from TAM. So the rationalization has to do, not so much with an actual reduction in the number of aircraft, but with adjusting the fleet delivery schedules that LAN and TAM had at the moment of the merger. We had, originally, when we first put the fleet plans together, we had a much more significant fleet plan with many more aircraft deliveries for the period between 2013 and 2015 than what we have today and what you can see on Slide 11 in the presentation.

Andrés Osorio

Yes. To complement what Gisela was saying, out of the -- if you look at 2013 total number of aircraft 334, we have 23 aircraft which are grounded including 319s, 320s, which are in the process of being redelivered, and 9 A330s, 4 A340s, 767s and 3 Q400. If you look at the top part of the bar, 83 wide body aircraft that has reduced significantly going into 2014, with just having 75 aircraft. So this is where we see the baked [ph] rationalization of capacity after the merge of the 2 companies.

Unknown Executive

Regarding cargo, I think we have seen a reduction of this and also on the amount of traffic that we've been seeing in the past 1.5 years. But we think that we have hit the bottom and in the last months, we have seen a little increase in the demand and throughout the region and especially now that we are coming into the high season for the export, which are South America. So I think that the demand will had, as I said, hit the bottom and we are now improving a little bit. In terms of competition, yes, we have seen a lot of aggressive competition not only for the current operators here in the region. I'm talking about South America to the U.S. but also newcomers coming from Europe, mainly, and also Middle Eastern carriers, as Emirates, being also going into the market flying from their -- having Dubai into shipping in Brazil. So competition is very aggressive at the moment and this has mostly affected yields. But in terms of the demand, we think that the worst is over and we have been seeing a little improvement in the demand throughout the region.

Operator

Your next question comes from the line of Duane Pfennigwerth of Evercore.

Duane Pfennigwerth - Evercore Partners Inc., Research Division

Sorry to ask you to repeat, but just following up from that first question. What is the reason that you expect 10 more aircraft next year? And why wouldn't that change the CapEx guidance?

Gisela Escobar

Well, for next year, we -- going back to Page 11, we, for 2014, we're expecting the delivery of 23 aircraft in total, but we are taking out of the fleet 30 aircraft. So that's the net reduction that you can see on the slide and part of that is related to the sale of the A330s that TAM had for long-haul operations. So earlier this year, we did a sale and leaseback for 10 of those A330s that are now on lease until 2016 and '17. But there is another 10 that we expect to sell at the beginning of next year.

Duane Pfennigwerth - Evercore Partners Inc., Research Division

I appreciate that. But I guess the difference versus your last update, I think, you had a number that was 10 aircraft lower 317 and now it's 327 by the end of '14. So what's driving that incremental 10 versus the last update in August?

Gisela Escobar

Well, I think that in August, we may have had, not all those A330s sold at the beginning of 2014. I think we may have had some of them being reduced in 2013, and also just a change in the redelivery schedules of the narrow bodies, of the A320s. And I can and view in more -- I mean, I can send you the quarterly delivery schedule in more detail after the call.

Duane Pfennigwerth - Evercore Partners Inc., Research Division

Okay. That's great. And then just regarding your grounded aircraft. Can you quantify that sort of the carrying cost of that today? And have you already reserved for that ownership cost and when does that go away?

Gisela Escobar

We have -- so some of the higher -- or the impact in terms of our redelivery costs is reflected in the increase in the maintenance cost that you can see on a quarterly basis. We obviously have an increase in terms of our cost per ASK as a result of the fleet that's grounded, but we expect that to decline in probably towards the first or second quarter of 2014. The 10 A330s that are grounded, we estimate have an impact of between around $35 million.

Duane Pfennigwerth - Evercore Partners Inc., Research Division

Annually?

Gisela Escobar

On a yearly -- yes, annually.

Duane Pfennigwerth - Evercore Partners Inc., Research Division

Okay. And then just my last one. If you don't finish -- if for whatever reason you do not complete the rights offering this year, is $62 million the right share count number or is there any chance that could change? And thanks for taking the questions.

Gisela Escobar

If we don't complete the rights offering this year, we would have to do another shareholders meeting. So whatever we do would be subject to new shareholder approval.

Operator

Your next question comes from the line of Mike Linenberg of Deutsche Bank.

Michael Linenberg - Deutsche Bank AG, Research Division

Regarding your capacity down 7% and 9% this year in domestic Brazil. When I look at the forward schedules into 2014, you can see some of the capacity starting to creep back into the domestic market. I guess just a couple of points there, one, obviously it's being comped against a period where the capacity cuts are pretty sizable, number one. And then number two, as you do go out into 2014, I guess the schedules are less and less reliable. So as you think about your forward schedule domestically in Brazil in 2014, what are you looking at right now, just based on your fleet plan? And I realized it's maybe some early planning, but as we look into that March quarter of 2014, are you going to be flattish or maybe up a few percent? And any color on that front would be great.

Cláudia Sender

This is Cláudia Sender speaking. Our expectation for 2014 in terms of capacity is a flat demand -- flat offer for 2014 compared to 2013.

Michael Linenberg - Deutsche Bank AG, Research Division

Okay. Very good. And then just my second question. The new code share where TAM came into oneworld, I mean, I know it's not that long ago, it's in August. But a lot of times, what we'll see is when the hookup occurs, you tend to start seeing some quick wins, some quick benefits. Is there anything that you can tell us about maybe traffic flows or connections, even if there's anything anecdotal about what you're seeing with the link up?

Damian Scokin

This is Damien Scokin speaking. From what we are tracking, and we're tracking this on a weekly business, you can see the normal pattern of increased market share in the off-line markets of the U.S, as expected. So everything is going as planned, I would say with the movements of market share we expected when we reached the agreement.

Michael Linenberg - Deutsche Bank AG, Research Division

Okay. Great. And just one last question. I know some time ago there was a lot of conversation about a package of, I don't know if we can call it relief or benefits in Brazil where there were going to be different initiatives that were going to be put forth by the government. I remember there was -- it was supposed to be announced in May, then we heard a June 30 timeline. I haven't seen anything. There's lots that's been written about this. I feel like we've been talking about this for a couple of years. Are we anywhere close to hearing maybe an announcement from the government about the package of initiatives and the enhancements for the Brazilian airline industry or is it just still up in the air?

Cláudia Sender

Hi Mike, this is Cláudia again. We've been following, together with ABEAR, our association -- the airlines association here in Brazil, what are the structural proposals for our segments, our industry here, and so far the proposals -- we're still waiting for the announcement to come from the government. But so far, we haven't received any structural proposal yet.

Michael Linenberg - Deutsche Bank AG, Research Division

Okay. Great. if I can just sneak in one last one, because I think this is important. You had a tremendous improvement in your operating profit for the quarter, as well as a pretax profit. And yet it looked like you came in a little bit light on your bottom line number. You did have a very high tax rate, and maybe -- Gisela can you address this, can you just talk about why that tax rate? It look like it was a bit higher than what we've seen in the past.

Gisela Escobar

Yes.

Andrés Osorio

The reason is mainly referred to the higher tax in TAM. As you know, the tax rate in Brazil is 34%, in addition certain costs and items which are not deductible. And we have a disproportionate effect on the effective tax rate. So that's the reason that we have a higher proportion on the tax effective rate, okay.

Operator

Your next call comes from the line of Jim Parker of Raymond James.

James D. Parker - Raymond James & Associates, Inc., Research Division

Just want to follow-up on Mike's question. What is the tax rate going forward?

Gisela Escobar

Well, I think you can project a tax rate, at least for next year, I would say between 35% and 40%. But it will -- it may vary obviously quarter-to-quarter. Because at the end of the day, remember that our tax rate is a sum of all the taxes that we pay in the different countries. So it obviously varies depending on the seasonality in each of the different countries.

James D. Parker - Raymond James & Associates, Inc., Research Division

Okay. And also, in the quarter, were there any merger-related expenses that are nonrecurring? I don't think you mentioned that in the press release.

Gisela Escobar

No. There was nothing significant.

James D. Parker - Raymond James & Associates, Inc., Research Division

Okay. And just quickly on your Rio flights that you canceled, they were all to Europe, there were none to the U.S. that you discontinued, is that correct?

Andrés Osorio

That is correct.

Operator

Your next question comes from the line of Ricardo Alves of Morgan Stanley.

Ricardo Alves - Morgan Stanley, Research Division

I wanted to focus on cost a little bit, regarding the cost-cutting initiatives and the efficiency gains you mentioned. If you could go through the specifics in here and -- what would be the major drivers for cost control going forward? Is there still space to reduce the personnel cost like we saw this quarter or would it come through, I don't know, further synergy gains with TAM or maybe lower fuel consumption as you mentioned as well in the release. Any color on cost going forward or cost gains going forward that Andres [ph] mentioned, that would be helpful, that's my first question.

Gisela Escobar

Yes. What we are, as you know, involved in a series of initiatives especially considering the fact that we are focused on controlling our ASK growth, we're very focused on not having that result in a strong increase in unit cost. We are -- what you can see this quarter, probably most significantly is the reduction in fuel expenses, part of that is related to the synergies. And in general, we have concluded a process of renegotiating a post-merger, all of our contracts with our major third-party suppliers. We have also, in terms of fuel, and this is something that we'll continue to see in the long term, see the positive effects of the fleet renewal as the new aircraft that we incorporate into the fleet are more efficient in terms of fuel consumption, and this is the case both in passenger and in cargo and in cargo with the 777s that are much more efficient on a cost per ASK business than the 76s, and on the passenger side as we incorporate the 787 and also as we replace the A330s with 767, we will continue to see an improvement in that sense. I think in terms of -- on the wager side, we are in line with smaller operation with a reduction in our ASKs. We will also -- should see a behavior in terms of our total personnel and total headcount that's in line with that. And that's already what we're seeing this quarter. We don't have -- planned any further large decreases in terms of personnel, but we do have a continued focus in terms of the efficiency in all of our operations. And I would say that those are probably the main elements. For the rest, we have, I think we should continue to see trends that are similar to the ones that we have seen this quarter.

Ricardo Alves - Morgan Stanley, Research Division

Okay. That's very helpful. The other ones, a quick one, regarding the $22 million on the recurring provision. Can you remind us of this cargo investigation and if -- maybe more specific, if there's a timing to resolve the issue?

Gisela Escobar

Yes. Well, this is related, as you know, to the -- there was an investigation that was already completed in the U.S. and in Europe related to the way that certain elements of the fare were set in the cargo business, and this included all cargo operators worldwide, in Brazil specifically. The CADE made a ruling regarding APSA and that's why we provisioned this $22 million this quarter, but this is a process that this is still ongoing and we don't have a timeline as to when it could be resolved. It could be the next 4 or 5 years, it's not necessarily a short-term thing.

Operator

Your next question comes from the line of Bob McAdoo of Imperial Capital.

Bob McAdoo - Imperial Capital, LLC, Research Division

We've obviously heard a time or 2 now about the rights offering that you want to -- you say you need to have done by the end of the year or you have to go through a process again. Could you just tell us specifically what has to happen or what would be the timeline between now and the end of the year? What are the steps that you go through? To some of us up here, it's not clear since we've not been through a Chilean rights offering before or observed one. So could you kind of walk us through what the steps are over the next several weeks?

Gisela Escobar

Yes. Well, basically the steps -- what we, as Andrés mentioned, we received approval from the Chilean SVS yesterday. So that allows us now to set a record date and launch the rights offering period, which we expect to do within the next couple of weeks. The rights offering in Chile as a matter of law has to be open for a period of 30 days. So once we launched that rights offering, that will last for a period of 30 days and we hope those 30 days will conclude before the end of this year. During that period, the rights trade on the Chilean stock exchange automatically. So if you're a shareholder that doesn't want to subscribe to your rights, you can sell them on the Chilean stock exchange and someone else can acquire them. That's the way that the process works regularly in Chile. So this is nothing different than what's normal in the Chilean market.

Bob McAdoo - Imperial Capital, LLC, Research Division

And that's really what happens. And then, at some point, the people who buy those rights, then end up -- how does the whole thing close, I guess, that's what I'm trying to understand?

Gisela Escobar

At any point during those 30 days of the rights offering, the shareholder who has the right will subscribe. So in Chile, you basically present your intention to subscribe to the rights that you obtained either because you're a current shareholder or because you acquired the rights on the stock exchange.

Bob McAdoo - Imperial Capital, LLC, Research Division

And you have to do that during that 30-day period, is that what you're saying?

Gisela Escobar

Yes. Yes, that's right. You have to do it during the 30-day period.

Operator

Your next question comes from Duane Pfennigwerth of Evercore with a follow-up.

Duane Pfennigwerth - Evercore Partners Inc., Research Division

Just regarding your margin profile this quarter, 7.5%. I look back at historically long stand alone kind of low-double-digit operating margins in this kind of a period. I wonder if you'd comment on, what else that you can sort of control internally will drive further margin expansion from here or do you need help from the macro environment to get back to the margins that you posted historically? And then I guess, lastly, is there something about -- structurally about TAM that will prevent you from getting back to the margins that you once enjoyed?

Gisela Escobar

Well, we don't think -- I mean, going forward, I think there's still a lot to do internally and there's further efficiency improvement that we can achieve as we continue along the path of synergy generation. So we planned this process to be a 4-year period and we're only a little bit over a year from the merger. So we do expect to see continued improvement from elements that we can control. Now having said that, we're obviously not immune to whatever is going on in the macro environment and a stronger macro would help us and vice versa, let's say.

Operator

At this time, there are no additional questions in the queue. And I would like to turn the call back over to management for closing.

Gisela Escobar

Great. Well, thank you very much to everyone for participating today. And we're available, obviously, as usual, after the call if you have any additional follow-ups.

Enrique Cueto Plaza

Okay. Thank you very much. Bye.

Gisela Escobar

Bye.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.

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