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

Q4 2013 Results Earnings Conference Call

March 18, 2014 10:00 AM ET

Executives

Gisela Escobar - Corporate Controller and IR Officer

Andrés Osorio - Chief Financial Officer

Roberto Alvo - Chief Corporate Officer

Damian Scokin - CEO of the International Passenger Operation

Analysts

Catherine O'Brien - Deutsche Bank

Savi Syth - Raymond James

Jeff Eisenberg - Evercore

Eduardo Couto - Morgan Stanley

Stephen Trent - Citi

Greg Lum - Goldman Sachs

Bob McAdoo - Imperial Capital

Ricardo Fernandez - Lanin Partners

Operator

Good day, everyone, and welcome to LATAM Airlines Group Earnings Release Conference Call. As just a reminder, this conference is being recorded. LATAM Airlines Group earnings release for this period was distributed on Monday, March 17th. If you have not received it, you can find it on 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. Gisela Escobar Corporate Controller and Investor Relations Officer of LATAM Airlines Group. Ms. Escobar, please proceed.

Gisela Escobar

Great. Thank you very much, good morning everyone and thanks for joining the call. This morning we have here in the room in Santiago, Andrés Osorio who is the CFO of LATAM, Roberto Alvo, who is the Chief Corporate Officer and we're also joined by (inaudible) who is In-charge of the Domestic Brazil Passenger Operations and Damian Scokin who is the CEO of the International Passenger Operations. As well as Andrés del Valle who is the Corporate Finance Director.

I am going to turn the call over to Andrés Osorio for some opening remarks and then we’re going to go through the slide presentation which is on our website.

Andrés Osorio

Hi everybody, good morning. Thanks for being with us. I want to remark some highlights before Gisela present on a more detail our information.

LATAM has shown the significant improvement in operating income despite a negative effect of the depreciation of the Brazilian real and the non-recurring costs related to the redeliveries of certain aircrafts. Over the past year LATAM has effectively completed the restructuring of its balance sheet, including the successful capital increase that’s raised $940 million. With this, the company achieved significant progress in an important and a strategic process that seek to strengthen the balance sheet and financial position of LATAM, through reducing the leverage and improving liquidity.

As of December, LATAM has reduced exposure to the Brazilian real on TAM’s balance sheet from $4.1 billion in June 30, 2012 to $2 billion by the end of 2013. And we expected to reduce this exposure to approximately $500 million by June 2014. The company has accelerated its fleet restructuring plan in order to [place out] our older aircraft and incorporate new technologies and larger aircraft models in order to have cost efficient operations, increasing LATAM competitiveness in the long-haul and better product for our passengers. This has led to anticipate redeliveries of certain aircrafts all of which generate approximately $29 million in non-recurring costs during 2013 and $17.5 million for the fourth quarter.

TAM continues to make significant improvement in the financial results of the Domestic Brazil Passenger Operations, maintaining capacity discipline, 6% reduction quarter-over-quarter, improved market segmentation and revenue management practices, that have result in increased yield and healthy load factor of 81.6%, leading to significant increase in RASK 11.3% in Brazil reals.

LATAM continues to see positive result from our strategy of rationalizing international passengers. RASK has increased as well mainly as a result of the capacity rationalization and the consolidation of Guarulhos Airport at the main half for the regional and long-haul traffic in South America. More details about this highlight will comment Gisela. Thanks again.

Gisela Escobar

Great. Thanks Andrés. If you turn to the slide presentation on slide number two, which is the first slide, you can see some highlights of our results for the quarter and for the full year. You can see that in the fourth quarter revenues are down approximately 2%, which is despite the devaluations of local currencies both in Brazil and in the other Spanish speaking countries. And we have a decline in operating expenses that leads to a strong improvement in our operating income. Operating margin for the quarter reached 6.9% and for the year reached 4.9%. We recognized during the fourth quarter of 2013 and also to some extent during earlier quarters of the year certain non-recurring expenses related to the restructuring of our fleet which we will describe in more detail later on, but basically excluding these expenses which amounted to $17 million in the fourth quarter, operating margin reached 7.4%. At the net income level, we have a $46 million loss that is mainly related to the foreign exchange loss, as a result of the depreciation of the Brazilian currency compared to the September 2015 and that depreciation was about 6%.

If we look at the next slide, you can see the analysis of our improvement in EBIT margin, we have a negative impact from the yields decline that is approximately a 1% yields decline in the passenger business overall, and approximately a 7% yield decline in the cargo business. And this is offset by improvement in load factors both in the passenger and in the cargo business.

We also have a positive impact from fuel expenses as a result of a 6% decline in the fuel price and also a 6% reduction in the number of fuel gallons consumed as a result of a smaller operation. Overall ASKs during the quarter reduced by 4.5% as compared to the fourth quarter of 2012.

If you go to slide number 4, you can see that in our -- we are providing more detail than we have previously provided with respect to our revenues per ASK. Overall for LATAM passenger business, revenue per ASK was up almost 4%. And you can see on the slide, the breakdown among the different business units.

In the international passenger business unit, capacity was down approximately 7% and revenue per ASK was up approximately 7%, mainly driven by a strong improvement in load factors of about six points. In the domestic Brazil, a business unit which represents about 34% of our total passenger revenue, passenger capacity is down approximately 6%, load factors are up 1.4 percentage points and revenue per ASK is up 2% in U.S. dollars. If we look at this number in the Brazil real, it’s an increase of approximately 11.3%.

When we look at the Spanish speaking countries which are the other five countries in South America, where LATAM Airlines provides domestic passenger services, all of these together represent 16% of our total passenger revenues. And here we’ve been increasing passenger capacity approximately 6% in the quarter with stronger load factors but a 5.5% decline in revenues per ASK.

This decline is mainly driven by lower yields that results from a devaluation of local currencies in all of these markets in the fourth quarter in Chile, the Chilean pesos devalued by approximately 8%; similar in Peru also close to 8% devaluation; in Argentina, it was over 25%; and the Colombian peso in the quarter also devalued by approximately 6%. So, this has been impacting the yields in our other domestic market.

When we look specifically at the domestic Brazil operations, we continue to see the same trends that we have been showing in prior quarters. We continue to see strong load factors, load factor at TAM reached 80% for the full year 2013, higher than the industry average. And we continue to be very rational in terms of our capacity plans.

In 2013, ASKs were down 8.4%. And our current guidance for 2014 is that we will be flat in terms of capacity. And with that we have maintained TAM’s market share at approximately 40% with strong leadership in the corporate passengers.

On the international passenger business, as we have been discussing also in prior quarters, we have been implementing certain strategies as a result of the integration of LAN and TAM. Mainly we have done significant rationalization of capacity, especially on long haul routes, both on the LAN network and from Brazil. We have a strong reduction in ASKs, especially out of Rio to Europe and to the United States. And we have also seen an overall in the long haul routes an 11% reduction in ASKs when we compared December 2013 to December 2012, so a strong reduction in the long haul operation.

We have been focusing on developing the hub at Guarulhos airport which basically requires change in the itineraries that we are currently operating. And we expect to implement that towards the second half of this year, after the expansion of terminal 3 at Guarulhos.

We have also been implementing certain fleet changes. At TAM, we have replaced the older Airbus A330s in the TAM fleet and we are replacing them with Boeing 767s that were previously operated by LAN which provide an improvement in terms of cost per ASK and also an improved product for the customers since the 767s have the full flat business class product. And we have also implemented the code share agreement between TAM and American Airlines which has been operating since August of last year.

When we look at the cargo numbers, we have seen as we have already mentioned, a significant change in the cargo operation as a result of the merger with TAM where the belly capacity becomes significantly more relevant. as a percentage of our total cargo capacity, today we operate approximately 50% of our 80 ATKs in freighters and 50% in bellies. We have been reducing actively our cargo capacity, mainly on the freighter fleet, focusing on utilizing the belly capacity of our passenger aircraft, and also responding to a weaker demand especially on southbound group.

Cargo traffic overall was down 4% in the fourth quarter and cargo load factors were up 1.4 points. We have been as I mentioned focusing on the belly capacity and we are still seeing a very competitive cargo environment especially in the Brazilian market.

When we look at our operating cost we’ve seen in the fourth quarter compared to the fourth quarter of 2012, a decline of close to 5% in terms of wages. This is driven by a decline in headcount of close to 1% and also by the depreciation of the local currency, since significant percentage of wages and benefits are paid in local currencies, both in Brazilian reals and Chilean pesos.

When we look at aircraft cost, these are approximately 15% of total costs. And here we’re including depreciation, aircraft rentals and maintenance but we are excluding the non-recurring costs that I mentioned at the beginning. We have a 1% decline in aircraft cost and then we have about a 3% decline in other cost line. That leads to a 3% decline in cost per ASK equivalent in the fourth quarter. And when we add fuel, it’s a 6% decline in cost per ASK equivalent as a result of our lower fuel expenses during the quarter.

Moving to the balance sheet, we’ve been -- I think it’s important to highlight that the progress that we’ve made in terms of reducing the exposure of TAM’s balance sheet to the depreciations of the Brazilian currency, we have reduced the exposure by half. We basically brought it down to $2 billion at the close of last year compared to $4 billion right after the merger, at the end of 2012. And we expect to make much more progress here during the first half of this year and to reach June with about $0.5 billion of exposure. This will reduce the volatility in our income statement in the non-operating line where we see the -- where we need to adjust the exchange rate differences for the imbalance of the LATAM balance sheet. In the fourth quarter this was about $140 million of impact, but this is something that we expect to be mitigated going forward.

We also as you know completed successfully our capital raising effort. We completed the process in January of this year and raised a total of $940 million with the issuance of 62 million shares. And in addition to that earlier in the year in November we had closed the placement of a securitized bond for $450 million.

So this leads our balance sheet together with a much improved cash flow generation of operation, it leads to a much stronger leverage profile. We reduced our leverage ratio from 7.2 times to 4.9 times at the close of December 2013 and we’re also in a much stronger liquidity position with cash reaching approximately 19% of revenues at the close of the year.

I am going to turn it over now to Roberto Alvo to discuss our fleet restructuring program.

Roberto Alvo

Thank you, Gisela. During the second semester of last year the company took a decision to move forward quickly with regards of an important fleet restructuring of the company. We expect to single-aisle operations -- we’ll be operating 737s and Q400s in Colombia that were acquired from the acquisition of AIRES and we also have Q200s we’ve decided to take those airplanes out faster than the original lease contracts these airplanes have. So we're not flying 737s and Q400s anymore. Those airplanes have been ground and we delivered some of them -- will be delivered first semester of this year. And we'll still bring Q200s in the next few months and we’ll also ground them and take them out in next couple of years.

So we’ll remain basically with an A320 family dedicated fleet in both domestic [operations], Spanish-speaking domestic operations.

We expect to [clean] out long haul fleet. The company had several models that are separating today; we also took a decision of streamlining this getting rid of less efficient aircrafts, renewing our fleet and improving our product. The company currently operates, has 20 330s, of which nine have been grounded, seven of those airplanes will be redelivered during the first semester of this year. And we expect to completely [phase] out the 300s, 330s in the next 24 to 30 months.

We’ve also grounded the 345s of TAM that have been -- that are in the process of redelivery. And we’ll also phase out the 343s in LAN as of next year. At the end of the day the company we will focus on 767s and 787s. And receive this in medium-term as that airplane becomes operational once it’s delivered at the end of 2015.

We're transferring 767s from our currently LAN operation to TAM operation in order to replace the capacity that is being taking out on the phase out of the 330s. Those 767s out of the LAN operation have been steadily replaced by 787s that we have received last year and then we expect to receive during the course of the year. In total, we will basically take out more than 50 airplanes that are old, that are less efficient and that have a much worst product than the one that we have offered on the 767s and 787s.

The new fleet represents a substantial decrease in cost per ASK, over 25% reduction, 350 versus the 330 and the 767 particularly also have [boarding] advantage in cost per ASK as compared to 330.

With respect to the next couple of years what you see in the slide number 11 is the sequence of aircraft we expect to receive and redeliver in 2014 and 2015. The airplanes we’ll receive in 2014 are basically 320 family airplanes plus five 787s. And in 2015, we expect to receive an additional of seven 787-9s and 321s and we expect to take out some fleet, older 320, 319s and the remaining part of the 330.

Gisela Escobar

The final slide here on the presentation shows our current fuel hedge position. We've hedged for the first three quarters of this year approximately 40% of our estimated fuel consumption with a mixture of jet fuel swaps and collars. And the details are on the slide.

That concludes the presentation that we have prepared. We'll be happy to answer any questions you may have.

Operator

(Operator Instructions).

Gisela Escobar

I apologize; I actually forgot to mention the final slide which shows our 2014 guidance. And there the numbers have not changed; they are the same guidance that we had already published at the end of last year basically relatively flat capacity growth both in passenger and in cargo. And an estimated EBIT margin of between 6% and 8%, excluding the non-recurring cost that we may incur related to the fleet restructuring that we have described. And the assumptions behind those numbers are in average exchange rate for the Brazilian real of 2.4 for the full year and a jet fuel price of $120 per barrel.

Now that really is the final slide, I apologize for that. Now we’ll be happy to take questions.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question will be from the line of Michael Linenberg, Deutsche Bank.

Catherine O'Brien - Deutsche Bank

Good morning everyone. This is actually Catherine O'Brien in for Mike. My first question is, now that American Airlines and US Airways merger is complete and the combined company has chosen to stay in the oneworld alliance, have you already -- are you already able to start booking passengers on US Airways [quoted] flights or will that take some further implementation?

Andrés Osorio

At the moment we’re currently booking passengers on American Airlines and as soon as they integrate their systems, we’ll be able to increase that into US Airways.

Catherine O'Brien - Deutsche Bank

Okay, great. Would you ever consider forging a closer relationship with the new American maybe something like what Delta has arranged with a couple of your Latin American peers?

Andrés Osorio

The alliance strategy of LATAM considers increasing the intensity of the relationship with all our partners both in Europe and the U.S.

Catherine O'Brien - Deutsche Bank

Okay, great. Just one last quick one, I know that Venezuela is a relatively small part of your network, but could you tell us about what percentage of your revenue to sales in Venezuela represent?

Gisela Escobar

Venezuela’s overall of LATAM revenues is less than 1%.

Catherine O'Brien - Deutsche Bank

Okay.

Gisela Escobar

And in terms of our current cash position in Venezuela which maybe the next question we have approximately $150 million that are currently in Venezuela.

Catherine O'Brien - Deutsche Bank

Okay. Have you had any update from the government on what the repatriation process will be going forward or…?

Andrés Osorio

No, there haven’t been any updates from the government; we still look for more detail because there is still the same situation as of the last quarter, no news on that front.

Catherine O'Brien - Deutsche Bank

Alright, thank you. That’s all from me.

Operator

The next question will be from the line of Savi Syth, Raymond James.

Savi Syth - Raymond James

Hi, good morning. Regarding the weakness in Spanish-speaking countries, I understand it’s the weakness in the currency, but if this continues, is there more that you could do to reduce capacity because it seems that the other thing that put a lot of pressure there is just the strong capacity growth?

Gisela Escobar

Well, there is still, I mean we still see a healthy demand in those markets, so we do have planned if you look at our guidance a growth of around 8% in terms of total ASKs between 6% and 8% in all of those markets.

I would, the main impact that we have seen during the fourth quarter really was more related to the currency. We obviously maybe evaluate and we do have flexibility in our fleet if we see the situation significantly changed, but for now we are maintaining our growth estimates for the year.

Savi Syth - Raymond James

Understood, okay. And then on the cargo side, it seems like cargo weakened from what you saw in the third quarter into the fourth quarter, is that right? And then also if you could just provide a little bit of an outlook on the first quarter here and if I recall that was a delay in grain season last year and then how that might impact first quarter versus second quarter this year?

Roberto Alvo

Well, the cargo market has not get worst in the fourth quarter; let’s just say a stable situation where we’ve seen in the whole year, which has been coming down since the end of 2012. So, the third quarter was more of the same especially when we are looking about the southbound traffic. What affected us on the northbound in the fourth quarter of 2013 was the weakness of the northbound coming out of Argentina. Argentina is the first market where we see the start of the high season, the fruits high season. And it was particularly weak this year and affected our figures on the northbound segment. The rest of the northbound business coming out of Chile or Peru or the Ecuador and Columbia has been performed very strong the whole year and with an increase compared with the previous year.

Actually the fruits coming out of Chile were -- the volumes were much larger than the previous year. What really affected us, it was as I said before the [expert] from Argentina. On the southbound we’ve seen -- we’ve missed all year around and we foresee for the near future that we will continue to be that way, which is much related to the weakness of the economies mainly Brazil, which has a very slow GDP growth prospects for the year and also for the currency, has been -- they are down compared to a dollar has affected the imports.

Savi Syth - Raymond James

Understood, thanks Roberto.

Operator

The next question will be from the line of Duane Pfennigwerth, Evercore.

Jeff Eisenberg - Evercore

Hi good morning. This is Jeff Eisenberg in for Duane. I guess first can you describe the competitive capacity environment as you see it particularly within Brazil and on your long haul international routes to the U.S.?

Unidentified Company Representative

Hi good morning this is (inaudible) speaking. Although domestic Brazil markets we expect -- I would guidance to grow, still grow some capacity. And the rest of the industry we have to guide around we will low no than 5%.

Andrés Osorio

As per the international business, they are looking similar, we plan on a flat growth going forward for the rest of the year and we see competitors increasing mildly their capacity at the lower pace than the last couple of years.

Jeff Eisenberg - Evercore

Okay, thanks. And then I'm wondering about this the improvement in (inaudible) that you described at São Paulo. If you can describe, what's going on. Are you guys making the banks more dense or is this just tactical retiming of flights?

And then what metrics do you follow when you're evaluating that and how do they relate to the bottom line as you see it? Thanks.

Unidentified Company Representative

The increase capacity at the Guarulhos Airport is big opportunity for LATAM. As you probably know it is currently important constraints not only at the over capacity, but in our ability to haul the simultaneous flight. So, we don't have total certainty going forward, but our initial designs show further ability to build a stronger more capital hub within Guarulhos.

The exact impact of that is still uncertain given that the full capacity is there, but still unknown and we need to take real implementation by everything we are planning. It’s a great opportunity, but still uncertain.

Jeff Eisenberg - Evercore

Okay. Thank you for taking the questions.

Unidentified Company Representative

Yes. About domestic, what we're tracking is obviously the number of connecting passengers and the competitiveness of our (inaudible) vis-à-vis other carriers in connecting different parts of Latin American with both Europe and the U.S. And we are able to put together much more competitive products than the ones that we have now.

Jeff Eisenberg - Evercore

Got it. Thank you.

Operator

Your next question will be from the line of Eduardo Couto, Morgan Stanley.

Eduardo Couto - Morgan Stanley

Hi, good morning Gisela and the rest of the LATAM team. I have two questions, one is regarding the fleet restructuring cost that you had in the fourth quarter. You mentioned that you’re going to continue to have these costs in the next I think two years, now actually two years or so. Do you have an idea of this fleet restructuring cost for 2014, at least a rough number? That’s the first question.

Andrés Osorio

We’re not disclosing certain numbers at this point in time, because we’re in the middle of certain important negotiations, and we foresee that they could be impacted by -- any discloser could impact the negotiations we’re undertaking. We expect nonetheless that the value of non-recurring expenses that we’ll undertake this year will be higher than the ones that we undertook in 2013 which were $29 million.

Eduardo Couto - Morgan Stanley

Okay. It really helps. And just the second question guys regarding Brazil, you reported I think around 11% RASK growth in the fourth quarter. Do you expect to maintain your double-digit RASK growth in local currency in Brazil for this year or do you think the RASK growth should decelerate in 2014?

Andrés Osorio

Eduardo, just to finish I wanted to say on the previous question, we expect to give -- to be able to give you more certain numbers at the conference call we’ll hold next quarter when we release first quarter numbers [of 2014].

Eduardo Couto - Morgan Stanley

Okay. But it should be higher than last year, right?

Andrés Osorio

Right.

Unidentified Company Representative

Yes. And going to give your question about Brazil, the answer is yes. We expect to maintain our growth in two digits of RASK, because it was totally sustainable. Now we are having a much better segmentation of the market and we truly believe that our value proposition allow us to have better market share in corporate segment and also we’re having high load factor to cost by capturing a lot of market share also in the leisure segment. So, this makes a higher load factor on better yield, we believe that we will maintain during the year.

Eduardo Couto - Morgan Stanley

But your load factor is already high enough, so the idea is to raise fares, now?

Unidentified Company Representative

During the low season that means from February to June, we think that we have opportunity. But for sure the yield and the fair will be pushed at RASK also.

Eduardo Couto - Morgan Stanley

Okay. And what’s your view about the impact for the World Cup, especially on the second quarter now, because we have June which tends to be still a good month in terms of business passengers but we have the first round of the World Cup already taking place in June. So what are your expectations for the impact of the World Cup on -- especially on the second quarter result?

Unidentified Company Representative

For sure, the World Cup will be a main issue for us. Let me split the answer in two, one is long-term, we’re gaining at the industry at the airport (inaudible) and also would have better place to have connections and provide better service to our clients and this will stay forever. And your question about second quarter, the short-term, we are focusing also very much on the service level and to take care about the clients during the World Cup. On the financial side I would say that we are working very hard to neutralize the results and expecting [the further] results very similar on previous years.

Eduardo Couto - Morgan Stanley

Okay. Thank you very much.

Operator

Your next question will be from the line of Stephen Trent, Citi.

Stephen Trent - Citi

Hi, good morning everybody. Two to three questions from me. The first is, in Brazil there is the potential for the Domi administration to launch a regional aviation plan. Just curious how you guys are thinking about that with respect to whether that could move the needle on your capacity plant in that market and whether you might see a need or desire to make adjustments on 750 seat fleet?

Unidentified Company Representative

We’ve been following this issue with other airline of states in Brazil and with the government and so far we haven’t received any structural and final proposal. What I could say is that we always are starting new projects in cargo and passenger international connection. And we are now operational on the same group of project so we’re analyzing [interruptions] but we don’t have any concrete to answer above that.

Stephen Trent - Citi

Okay, fair enough. And also two other quick questions also on Brazil. Do you see any potential headwind on your local operations in the event that Brazil does have to undertake energy rationing?

Unidentified Company Representative

No, the answer is no.

Stephen Trent - Citi

Perfect, perfect. And finally, final question and I’ll let someone else ask. In terms of long term synergy targets for the LAN, TAM merger, I’m guessing that no change at this time?

Gisela Escobar

No, we have met so far the targets that we had for the synergies. We completed this year with approximately $300 million of synergies of basically -- at the EBIT level that were related to the synergy initiatives that we have been tracking. And that puts us very well on track to achieve the target that we had for June of 2016 to reach the run rate of $600 million to $700 million.

Stephen Trent - Citi

Okay. I’ll leave it at that. Thanks Gisela.

Operator

Your next question is from the line of Greg Lum, Goldman Sachs.

Greg Lum - Goldman Sachs

Hi, good morning. Thanks for the questions. I just had two quick questions. The first is, I was wondering if you could give us a little bit of background for your strategy for sale leaseback for 2014.

Andrés Osorio

Yes. With all the white body aircrafts, we are financing with ECA or Ex-Im guarantees, we’ve done sale and leasebacks related to the 320 aircrafts, we are also financing and owning the 321s, and we just concluded at 777 sale and leaseback operations in line with our plan of phasing out the 777 in the latter part of the decade which will be replaced by [350s] as they are being delivered by us. And we have no other operations other than those expected during this...

Greg Lum - Goldman Sachs

Thanks. That’s helpful. And then I was just wondering if we could drill a little bit further into your capacity plans on the Latin American side. I was wondering if you could maybe tell us what your capacity plans are for Argentina and Venezuela specifically.

Unidentified Company Representative

In the case of Venezuela, we are currently holding the same capacity, we currently have published. We don’t have immediate plan for rationalization and the same applies for Argentina.

Greg Lum - Goldman Sachs

Thank you.

Operator

Your next question will be from the line of [Luke Rudowski, Focus Right].

Unidentified Analyst

Hi, good afternoon. I was hoping that you could provide us with a little bit of insight on your online distribution strategy, particularly as it impacts your direct channels for LATAM Airlines? And what your growth prospects are for direct online bookings?

Unidentified Company Representative

We are currently taking, starting to take advantage of the joint forces of LAN and TAM in terms of strengthening our online sales. We are at the moment mainly focused on being able to offer, both compensation each other sides, but in the next future, we plan to take that into the next level by overhauling and building a single side with all the features. That’s the status of that front at the moment.

Unidentified Analyst

Right. Could you elaborate a little bit about just overall distribution in terms of your passenger revenue is the share of your online channel? Approximately what percentage of your bookings comes from your website versus offline and OTA channels?

Andrés Osorio

Yes. We check that very carefully and those numbers have been growing steadily over the last few years, but we don’t probably disclose those figures.

Operator

Your next question will be from the line of Bob McAdoo, Imperial Capital.

Bob McAdoo - Imperial Capital

Hi, couple of questions. On the Spanish-speaking side of the network, where are the countries where you’re growing your capacity? And then the second question is, could you give us some more color on your disclosure about commission charges? It’s a little confusing to me because you say, some parts up 38% then there is the down 18% and the up 14%, it’s unclear what really happened with commissions, could you give us some color on that too please? Thank you.

Gisela Escobar

Yes, sure. On the Spanish-speaking operations, the growth, basically the largest of our Spanish-speaking countries are Chile and Peru. And we are growing in both of those markets, as well as in Colombia. So the growth that you see for 2014 is coming for the most parts from those three markets. Ecuador, Argentina are for the moment not significant growth plans for this year.

Regarding the commissions, we have what you see in the commissions cost is basically -- the comparison is a little bit dirty because we have in the fourth quarter of 2012 an $18 million one-time lower cost as a result of the basically the adjustment of certain TAM commissions that had been accounted for -- basically had been accounted for double in previous quarter. So that generates a one-time charge that makes that line increase significantly. If you take out those $18 million one-time that we saw in the fourth quarter of 2012, the actual increase is 14%. And that 14% is mainly related to increased sales efforts in the Brazilian market and especially on the international side, not the domestic.

Bob McAdoo - Imperial Capital

Very good. Thank you. That’s very helpful. I appreciate it.

Operator

Your next question will be from the line of Ricardo Fernandez, Lanin Partners.

Ricardo Fernandez - Lanin Partners

Yes. Hi everyone, couple of questions. First is, have you experienced any decrease or what’s the demand outlook with the FX volatility we have seen in Chile and other markets in terms of passengers? And how have you reacted in terms of yields if there has been any reduction in demand?

Andrés Osorio

We have not experienced demand reductions in any of our large point of sales particularly in Chile.

Ricardo Fernandez - Lanin Partners

So everything continues to be priced more or less in dollars and customers or demand is just simply paying higher?

Andrés Osorio

Other than technical and [capital] we will react to the specific market conditions, no major changes on that at least in the international business.

Ricardo Fernandez - Lanin Partners

Okay. And then more specifically, Chile, they recently have waved the visa requirements to go to the U.S. starting I think the end of the -- or beginning of April. Do you envision any substantial increase in demand for that and/or are you taking any action for any potential increase in demand?

Andrés Osorio

Yes. Actually if you’re track what has happened with other markets and with this change took effect, we expect an increase of passengers to the U.S. and we are taking commercial action to take that into consideration.

Ricardo Fernandez - Lanin Partners

But it doesn’t change your guidance for full year at all?

Andrés Osorio

No.

Ricardo Fernandez - Lanin Partners

Okay. And then the last question, any update on integrating LANPASS with Multiplus or vice versa or strategy for the two separate mileage programs?

Roberto Alvo

The first step of our strategy was basically to harmonize the most important features of the both frequent flyer programs. We undertook that, we did that early last year; we’re now embarking the second step of harmonization of these programs mainly in the softer benefits that we give to passengers saying upgrades and (inaudible) et cetera. At this moment, we are not planning to do any integration of the Multiplus business with the LANPASS business in the way that Multiplus is organized. So our focus has been harmonizing the frequent flyer programs for both LAN and TAM and Multiplus stays with the business they have for the short-term.

Ricardo Fernandez - Lanin Partners

I see. Okay. Thank you very much.

Operator

At this time, I’m showing we have no further questions in queue. I would like to turn it back to management for any closing remarks.

Gisela Escobar

Great. Well, thank you everyone. Thanks very much for participating today. And we are of course available if you have any follow-up questions later on.

Operator

And ladies and gentlemen, thank you again for joining us today. Please feel free to contact our Investor Relations department if you any additional questions. We look forward to speaking with you again. This does conclude today’s conference. We thank you for your participation. You may now disconnect. Have a great day.

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