BTG Pactual VI Latin American CEO Conference 2015 New York, October 2015
This presentation may include forward-looking comments regarding the Company s business outlook and anticipated financial and operating results. These expectations are highly dependent on the economy, the airline industry, commodity prices, international markets and external events. Therefore, they are subject to change and we undertake no obligation to publicly update or revise any forward looking statements to reflect events or circumstances that may arise after the date of this presentation. More information on the risk factors that could affect our results are contained on our Form 20-F for the year ended December 31, 2014. Information, tables and logos contained in this presentation may not be used without consent from LATAM Airlines Group S.A. 2
LATAM Business Model 3
LATAM is the largest airline group in Latin America Unique regional platform provides LATAM with an exceptional advantage Dom. Colombia 19% market share #2 Dom. Ecuador 37% market share #1 Dom. Brazil 38% market share #1 Dom. Peru 63% market share #1 6 Home markets (~90% of regional traffic) ~50% Market share intra-regional flights 3x its next competitor in terms of revenues Dom. Chile 78% market share #1 Dom. Argentina 27% market share #2 4
Investment Highlights Unique regional network with presence in 6 Home markets World class airline operator LATAM Airlines compares to largest international carriers 3x its next largest South American competitor in terms of revenues Strong market position in countries with high growth potential Number 1 or 2 in all the Home markets where LATAM operates 4 different business units with presence in 6 different countries Compared to developed countries, Latin America has low trips per capita rates Diversified business operations Solid long term hub strategy (Santiago, Lima, Brasilia, Sao Paulo) Strong long term traffic growth expectations for the region Low cost business model in all of LATAM s domestic operations Flexible and comprehensive business strategy Maximize efficiency and cost reductions Capture the preference of customers Best network of destinations One of the most modern fleets in Latin America and in the World Average fleet age of ~7.0 years One of the first airlines in the region to start renewing its fleet Lower unscheduled maintenance costs and lower fuel consumption 5
20% 19% 19% 18% 18% 18% 18% 17% 17% 16% 16% LATAM Airlines Compares to the Largest International Carriers LTM Revenues (US$ billion) 42,0 40,9 38,4 38,4 30,1 25,4 23,8 19,0 15,1 13,6 13,0 11,8 11,7 11,5 11,5 10,9 4,6 3,7 2,7 2,5 LTM EBITDAR Margin % 25% 23% 23% 22% 22% 21% 13% 10% 9% Source: The Airline Analyst. (1) Emirates figures are for the FY ended March 31 st, 2015. 6
Diversified Business Units International Passenger LTM Rev 40% Domestic Brazil LTM Rev 27% Domestic SSC 1 LTM Rev 16% 24 destinations 13.7 million passengers US$ 4.6bn LTM 40 destinations 33.5 million passengers US$ 3.1bn LTM LATAM Airlines Group 71 destinations 5 countries 21.0 million passengers US$ 1.8bn LTM Cargo LTM Rev 14% FFP 143 destinations 1.1 million tons 1.6bn LTM Multiplus 2 : 13.8 million members Lanpass: 9.8 million members Total Rev. 3 = US$ 11,450 mm Note: Information for LTM June 30 st, 2015 (1) The group of Spanish Speaking Countries SSC is composed of Chile, Argentina, Peru, Colombia and Ecuador (2) Multiplus is 73% owned by LATAM. (3) Revenues include total operating revenues and other operating income. Breakdown of passenger revenues are Company estimates 7
Latin America Continues to Offer Significant Growth Potential Passenger traffic growth estimates* (RPKs 2014 2033) Trips per capita 2014** 6.4% 6.3% 6.2% 5.9% Ecuador 0.50 World Average 5.0% 4.4% 3.9% 2.9% Argentina Peru Mexico Brazil Colombia Chile 0.50 0.54 0.55 0.56 0.71 1.02 USA 2.68 UK 3.73 Middle East Asia Pacific Latin America Africa CIS Europe North America (*) RPKs to, from and within the continent, according to Boeing. (**) Domestic and international trips by all carriers. Source: Boeing, IATA and LATAM estimates. 8
One of the Most Modern Fleets in Latin America and the World LATAM is one of the first airlines in the region to start renewing its fleet The average age of LATAM s fleet is approx. 7.0 years, making it one of the most modern in Latin America and in the world Modern fleet allows for lower unscheduled maintenance costs, lower fuel consumption, and operational and cost efficiencies achieved through operating fewer fleet types Flexible fleet arrangements to respond to market conditions Short Haul Long Haul Seats 2Q15 2018 Dash Q200 37 7 A319 144 52 - A320/N 168-174 155 + A321/N 220 24 + Total 238 Seats 2Q15 2018 A330 223 11 B767 221-238 38 - B787-8/9 247 10 + B787-9 313 3 + A350 348 0 + B777 363 10 - Total 74 A321 Cost per ASK is 9% lower than A320 w/sharklets B787-9 operating cost per ASK is ~21%, 24%, 29% lower than older B767s, A340 and A330, respectively. 9
LATAM defined its strategy and aspiration Be the leading airline group in South America and one of the top airline groups in the world Network leadership Customer experience Cost competitiveness We are the best and most convenient option for customers because we offer more destinations with better schedule and competitive price Customers want to choose us because of our customer experience and of what our brand stands for Competitors can t afford pricing us out of existing markets or keep us away from new markets Strengthening the use of regional hubs Strengthen partnership and alliances Manage our fleet models best suited for each market Focus on increasing NPS Focus on generating one brand Reaffirm cost competitiveness Consolidate cost improvement culture 10
Network: Strengthening the use of regional hubs Key trends Map of LATAM s hubs 2015 New flights Sao Paolo Barcelona Toronto (Via New York) Cancun Punta del Este Lima Antofagasta Orlando Montevideo Brasilia Orlando Buenos Aires Punta Cana Santiago Milan (Via Sao Paulo) Lima Santiago Bogota North East Brasilia Sao Paulo LATAM hubs Connecting flows Source: LATAM Strategic Planning 11
Customer experience: Continuous Improvement Culture & context transformation Digital Increase care perception transforming our client facing leaders. Contingency and Contact Center Wireless entertainment system for personal devices in 68 aircraft. We expect to complete the implementation in all of our narrow body fleet by 1Q16. On-time performance Live Chat now available in flights from SCL, LIM and BOG Flight Status available in LAN.com and LAN APP 2Q15 OTP for LATAM was 88.9%, increasing 4.8 p.p. as compared to 2Q14. 1H15 NPS for TAM increased 7.0 p.p. as compared to 1H14. 12
Customer Experience: Continuous Improvement Airport Standardize policies and product Check-in unification implemented at our 10 main airports Self bag tag is being tested in two airports (GRU,BSB) VIP Lounge: GRU, BOG, EZE, SCL LATAM Passenger Service System Cabin unification, inspired by colors and textures of the region, on all of our new B787-9, 5 A321 and 4A320 Harmonization of our in-flight service New Brand implementation TAM will migrate to the SabreSonic CSS technology, improving service as well as efficiency for the Group. Visibility starting 2016 Process of implementation over a 3 year period 13
Costs: Realistic Cost Reduction Target of ~5% of Total Operating Costs from 2015 2018 Work Fronts Fuel, Fees,& Fleet Operational Labor Overhead Procurement Distribution & Commissions TOTAL Other Crews Contact Center Main Cost Saving Drivers Fuel Efficiency Initiatives Supply Chain Efficiency Project Simplification Project Total Cost of Ownership Passenger Service System Channel Mix Financial and Others Cost Saving Target (%) 2% 7% (3-10%) 20% (15%-25%) 7% 8% 18% 5% US$ 800 14
Costs: Improvement in our cost performance CASK-equivalent 1 ex fuel (US cents) -12.1% 4,2 4,1 4,0 4,2 3,7 2012 2013 2014 Jun 14 Jun 15 Source: Company estimates ¹ASK-equivalent is the sum of passenger ASKs and the quotient of cargo ATK and 0.095 (including LAN and TAM cargo operations) 15
Financial Results 16
Financial Performance in a Challenging Scenario Revenues (US$mm) RASK (US Cents) 13.222 13.266 12.471-16.4% 6.225 5.204 2012* 2013 2014 Jun'14 Jun'15 14,00 12,00 10,00 8,00 6,00 4,00 2,00,00-18.8% 8,3 8,4 8,0 8,2 6,6 2012* 2013 2014 Jun'14 Jun'15 Operating Expenses (US$mm) CASK-equivalent (US Cents) 15.000 13.000 11.000 9.000 7.000 5.000 3.000 1.000 (1.000) 13.131 12.622 11,958-18.7% 6.097 4.960 2012* 2013 2014 Jun'14 Jun'15-19.0% 6,4 6,2 6,1 6,3 5,1 2012* 2013 2014 Jun'14 Jun'15 *Proforma information published in LATAM Airlines press release as of Dec 13 Source: Company filings 17
Financial Performance in a Challenging Scenario EBIT (US$mm) and Margin (%) Adjusted EBITDAR (US$mm) and Margin (%) 1.300 1.100 900 700 500 300 100 (100) 4,9% 0,7% 4,1% 2,1% 4,7% 644 508 244 91 128 2012 2013 2014 Jun'14 Jun'15 10,0% 4.000 3.500 0,0% 3.000 (10,0%) 2.500 2.000 (20,0%) 1.500 1.000 (30,0%) 500 (40,0%) 0 (50,0%) 13,9% 16,0% 16,2% 18,7% 14,2% 2.127 2.026 1.376 882 974 2012 2013 2014 Jun'14 Jun'15 25,0% 15,0% 5,0% (5,0%) (15,0% (25,0% Net Loss (US$mm) 1H2015 FX Loss (US$) -290-482 -130 +104-169 (110) (100) (90) (281) (523) 2012* 2013 2014 Jun'14 Jun'15 Improvement in operating income despite weak macroeconomic environment Revenues impacted by weak demand in Brazil and currency devaluations. Important reduction in costs driven by lower fuel prices, efficiencies and currency depreciations. Net Results impacted by exchange rate variations *Proforma Information published in LATAM Airlines press release as of Dec 13 Source: Company filings 18
LATAM s fleet plan focused on fleet renewal Total aircraft at the end of the year¹ 325 326 333 13 12 11 74 75 76 +23 aircraft -22 aircraft +25 aircraft -18 aircraft 238 239 246 2014 2015 2016 21 A321 10 B787 36 A321 17 B787 + 1 A350 48 A321 22 B787 + 7 A350 Fleet Commitments US$bn 1.19 1.69 2.00 Since 2013, we have invested US$ 176 million in restructuring LATAM s fleet and deferred US$2.3 billion of fleet commitments (¹) Note: This fleet plan doesn t include two of its 767-300Fs leased in 2014 and an additional Boeing 767-300F leased during March 2015. 19
Credit Metrics Adjusted Gross Debt / Adjusted EBITDAR Adjusted Net Debt / Adjusted EBITDAR 7,9x 6,1x 6,2x 5,8x 7,2x 4,9x 5,4x 5,1x 2012* 2013 2014 Jun'15 LTM Adjusted EBITDAR / Interest Exp. & Rents 2012* 2013 2014 Jun'15 LTM Cash and Cash Equivalents as % of Revenues 1,8x 2,4x 2,1x 2,3x 8,5% 19,3% 12,3% 13,1% 2012* 2013 2014 Jun'15 LTM 2012* 2013 2014 Jun'15 LTM (*) 2012 ratios were calculated with the pro-forma EBITDAR and Revenues published in LATAM Airlines press release as of Dec 13 20
LATAM s FX Risk Exposure Reduction Operating exposure 1 Balance sheet exposure Gap between revenues and costs in BRL of 6 p.p. Financial Hedge of: US$310mm covering 2H15 BRL exposure at an average rate of BRL 3.20 per USD. US$ 5mm covering 1Q16 BRL exposure at an average rate of BRL 3.46 per USD. LATAM FX rate composition (%) Balance sheet exposure reduced by: 33 aircraft were transferred from TAM to LATAM to reduce the exposure by approximately US$ 652 million Reduction of TAM s debt in USD Balance sheet exposure (US$bn) Others BRL 100% 100% 13% Others 12% 29% BRL 23% 4,0 USD 58% USD 65% 2,0 <1.0 Revenue Cost 4Q12 4Q13 4Q14 1. Company estimates as of August 11 th, 2015. 21
% Total Consumption Hedged Prudent Approach in Managing Oil Price Exposure LATAM has hedged approximately 42% of its estimated fuel consumption for the next year 1 42% 40% 50% 40% 4 Way Collar Collar 25% 25% 10% 10% Q315 Q415 Q116 Q216 Q316 Q416 (1) Company estimates as of August 31 th, 2015 22
Guidance 2015 Guidance Previous Revised ASK Growth International (Long Haul & Regional) 4% - 6% 4% - 6% Brazil Domestic 0% (4%) (2%) SSC domestic 4% - 6% 4% - 6% TOTAL 2% - 4% 2% - 4% ATK Growth (2%) - 0% (2%) - 0% Operating Margin 6% - 8% 3.5% - 5.0% 23
Business Units 24
International Passenger Business Unit Market Facts Operations 4.6 $ LTM revenues (US$ Bn) % of Total revenues 40% Weak demand in Brazil is offset by adjusting points of sale mix within the region in order to focus on the markets with stronger demand. Passengers (MM) Change (%) % of Total ASKs 6.8 +2% 50% Focus on strengthening the use of our regional hubs and our routes to the Caribbean. Highly competitive markets. Strengthen our network through alliances with key partners. Capacity (ASK millions) Unit Revenue (RASK US$ cents) Market Share (%) US S. America 21% Europe-S. America 11% CAGR +0.1% 2015 4-6% y-o-y 2.6% y-o-y (11.2%) 65.452 67.159 65.539 33.480 7,9 7,9 7,6 6,8 2012 2013 2014 Jun'15 2012 2013 2014 Jun'15 25
Domestic Brazil Passenger Business Unit Market Facts Operations $ % of Total revenues 27% Weak corporate demand and weak GDP growth expectations in Brazil. LTM revenues (US$ Bn) 3.1 Depreciation of the Brazilian real. Passengers (MM) Change (%) % of Total ASKs 16.0-1% 33% Adjusting the domestic network and reducing domestic capacity by approximately 8% to 10% by year-end. Continuous strengthening our hubs in Brasilia and São Paulo/Guarulhos. Capacity (ASK millions) Unit Revenue (RASK US$ cents) 2015-2/-4% Market Share (%) 37% 48.211 44.164 43.561 y-o-y 0.2% 21.180 8,8 9,2 8,6 y-o-y (28.8%) 6,4 2012 2013 2014 Jun'15 2012 2013 2014 Jun'15 26
Spanish Speaking Countries ( SSC ) Passenger Business Unit Market Facts Operations $ % of Total revenues 16% Demand growing at a moderate pace. LTM revenues (US$ Bn) 1.8 Depreciation and volatility of local currencies. Passengers (MM) Change (%) 10.2 +4% Yields showing improvements when measured in local currencies as compared to 2014. % of Total ASKs 17% Capacity (ASK millions) Unit Revenue (RASK US$ cents) Market Share (%) Argentina Chile Colombia Ecuador Peru 27% 78% 19% 37% 63% 18.347 CAGR 7.2% 20.368 21.101 2015 4-6% y-o-y 4.0% 10.540 2012 2013 2014 Jun'15 10,2 9,6 9,1 y-o-y (5.5%) 8,5 2012 2013 2014 Jun'15 27
Cargo Business Unit Market Facts Operations 1.6 $ LTM revenues (US$ Bn) % of Total revenues 14% Tons (MM) Change (%) 0.5-12% Weak cargo markets, especially in the Brazilian domestic and international market. Pressure on yields as a result of the competitive scenario and currency depreciation, mainly Brazilian real and the Euro. Focus on maximizing the belly utilization of the passenger fleet. Market Share (%) US Latin America 39% Capacity (ATK millions) Unit Revenue (RASK US$ cents) Europe-Latin America Domestic Brazil 24% 54% 2015-2/0% y-o-y (2.3%) y-o-y (17.1%) 7.646 7.652 7.220 3.507 25,4 24,3 23,7 19,5 2012 2013 2014 Jun'15 2012 2013 2014 Jun'15 28
Thank you LATAM Airlines Group Investor Relations Santiago, Chile InvestorRelations@lan.com (56-2) 2 565 8785 www.latamairlinesgroup.net 29