Good day, and thank you for standing by. Welcome to the LATAM Airlines Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. Before I turn the call over to management, I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations, and as such, constitute forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives, and expected performance or guidance are forward-looking statements.
These statements are based on a range of assumptions that LATAM Group believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in our CMF and SEC filings. The company's actual results may differ significantly from those projected or suggested in any forward-looking statement due to a variety of factors, which are discussed in detail in our SEC filings. If there are any members of the press on the call, please note that for the media, this is a listen-only call. Now I'd like to turn it over to Ramiro Alfonsín, CFO.
Thank you, Jill. Hello, everyone, good morning. Welcome to our first quarter 2023 conference call, thank you for joining us today. My name is Ramiro Alfonsín, I am the CFO of LATAM Airlines Group. Here with me today is Mr. Roberto Alvo, CEO of LATAM Airlines Group, Andrés del Valle, VP of Corporate Finance, and Tori Creighton, Head of Investor Relations, and we will present our highlights and results for the first quarter of 2023. I'd like to pass the presentation to Roberto to set the stage for our first quarter results.
Thank you, Ramiro. We are very excited to announce that after challenging times following our financial restructuring and emergence of Chapter 11, been able to go back to operational and bottom-line profitability. We achieved these solid results despite softness in cargo demand and passenger demand impact on Peruvian operations due to the social-political unrest between September and October. We believe. Sorry, I hear some bouncing back. It's. Can you hear me okay?
Yes, we can hear you okay.
Okay, great. This result was mainly driven by increasing our passenger operations in a healthy demand context, which has allowed us to significantly recover our network, essentially matching the number of destinations compared to pre-pandemic context. In addition, LATAM's more efficient cost structure has been reflected in a reduction of our unit costs when compared to 2019, even taking into account inflationary pressures throughout the period. Despite the above, our levels of operations are still not fully recovered, with passenger capacity reaching 86.2% levels during the quarter, and jet fuel prices continue to remain elevated, in elevated levels with high volatility regardless of the recent reductions in the last months. These quarterly results are a solid proof of our strategy as we intend to keep strengthening in our operations, we continue expanding our network and presence where we operate.
During the quarter, the group also continued its firm commitment to our sustainability goals, reaching 88% reduction on single-use plastics during the 1st quarter, which is in line with our commitment to eliminate 100% of single-use plastics by the end of the current year. We're very proud to share that during August 1st, LATAM made its first flight using sustainable aviation fuel, SAF, operating in one of our cargo flights from Europe to the United States. Recently, LATAM also announced the expansion of the alliance with the Fundación Cataruben located in the Colombian Orinoquia Wetlands region, which aims for the conservation of 575,000 hectares to capture more than 11 million tons of CO2 by 2030.
We recently announced the expansion of our culture with VOEPASS in Brazil, which will further increase our leadership position in domestic Brazil with 13 new routes that will allow passengers to connect with LATAM in Brazil. Important changes have occurred also in the Colombian market, specifically following the cessation of operations from 2 operators facing financial difficulties, to which we have reacted proactively with a strong focus on continuity of the Colombian air travel market, reallocating stranded passenger flights, Airbus A320 aircraft, and more than 200 employees to our operations. We're confident that these actions will bring more opportunities for LATAM in order to further strengthen the presence in Colombia and in the region. Our affiliate, LATAM Airlines Colombia, is now a solid second player in the Colombian market. We're currently seeing a stable scenario in terms of demand and booking curves.
LATAM Group continues to see strong load factors, loyalty of customers, and an improvement in our service and offering. With regard to the corporate demand recovery, we are approximately 98% of 2019 levels in the first quarter, which is a positive highlight. The second quarter of the year, which is not historically the strongest in terms of seasonality for us, but we do keep observing healthy context both in terms of industry and demand that allow us to remain cautiously optimistic about the near term and the rest of the year. With that, I'd like to turn the microphone over to Ramiro to further discuss our financial and operational results.
It's a bit choppy at some times, I guess we all heard you quite well. Please join me on slide 2. During the first quarter, LATAM Group continued to increase its passenger capacity in a context of strong passenger demand, and with the international segment driving this improvement. With regard to the operations, the group's passenger operations measured in ASKs grew 26% compared to 2022 levels. Consolidated revenue per ASK increased 24% in the first quarter in a context marked by strong demand for air travel and by high jet fuel prices. International operations represented 47% of the quarter's capacity, followed by domestic Brazil with 35% and the Spanish-speaking countries with 18%.
This latter partially affected by a year-over-year decrease in domestic Peru as a result of certain interruptions in airport operations associated to the process in the country during the first quarter. It is worth noting that the recovery in the operations has been accompanied by a healthy consolidated load factor of 81% for the group. Cargo continues to be an important pillar for the group's operations. No one offers a one-stop-shop cargo solution and the capillarity and network offering or facilities and capabilities to transport dangerous goods, pharmaceuticals, and others like LATAM. Cargo capacity increased 19% compared to the first quarter of 2022, and yields continued to be significantly higher than 2019 levels. We look at the LATAM's Group market positions on slide 3, we can note that LATAM continues to be highly competitive in all the different markets where it operates.
Notably, LATAM has once again recovered its leadership position between North America and the countries where it operates domestically in South America, reaching a capacity share of 19%, which increases to over 25% of the market when adding Delta's capacity share now operating under the JV agreement. We are very proud of the important presence that we have been able to build throughout our entire network, which currently positions us as a leader in 3 of the 5 domestic markets where we operate, and as leaders within South America, both between South America, North America, and Asia-Pacific. During the 1st quarter of 2022, the group transported 17 million passengers, by far more than any other airline in the region. This is a result of the competitive market shares accompanied by an efficient cost structure and healthy levels of liquidity, allowing for continued organic growth.
On slide 4, you can see that this quarter LATAM registered an adjusted operating margin of 10.5%. Despite operations not being fully recovered or the impact of the social political unrest in Peru, adjusted EBITDA amounted to $573 million. In the first quarter, total operating revenues increased a notable 43%. As operations continued to recover, passenger revenues increased 61% over the same period of 2022. Cargo revenues registered a 12% decrease, mainly explained by the softening of cargo yields that are still 42% over the 2019 levels. Total adjusted operating costs during the quarter increased by 23% versus 2022, mainly explained by the increase in the aircraft fuel cost line, which increased 41% following a 14% increase in the fuel price during the quarter.
Ex-fuel adjusted operating expenses were up 13% from 2022 levels, while ASKs increased 26%. Therefore, LATAM reported a passenger CASK ex-fuel of $0.04, 10% lower than in 2022, reflecting the important cost saving initiatives that we implemented. Adjusted EBIT amounted to $295 million, and net income of the parent company to $121 million. The group generated $199 million in cash in the quarter, therefore improving its liquidity to $2.5 billion. Cash generation and liquidity levels are very distant to other competitors in the region. Finally, total fleet cash cost amounted to $199 million for all of our 300 aircraft. Please join me on slide 5 to take a closer look to our cost structure.
We are proud to continue showing improvements compared to the previous year, to the previous quarter, and even to pre-pandemic levels. In the first quarter of 2023, we reported passenger CASK ex-fuel of $0.04, which is 10% lower than the same period of 2022 and below the 2019 figure as well. That is even taking into account the significant inflationary pressures that the region and the world have experienced during this time. LATAM cost structure is extremely competitive, both on an absolute and on a relative basis when compared to European or U.S. carriers that you can find on the right-hand side of the slide.
When one looks at the available public information of other carriers, you see increasing cost units, especially following the inflationary pressures worldwide. Last quarter, as we emerged from Chapter 11 stronger and more competitive, we commented about the importance of capital and cost structure and how LATAM was reporting solid figures on both those fronts. This quarter, as you can see in slide 6, we have built upon that strong foundation and reported higher levels of liquidity and quarter-over-quarter leverage reduction. LATAM Group generated cash amounted to $199 million this quarter and presented $2.5 billion liquidity. This represents 24% of liquidity as a percentage of last 12 months revenues. In terms of leverage, the group reached an adjusted leverage of 3 times, the best in LATAM's history.
When we look at our debt maturity profile, it's very important to highlight that LATAM has no significant non-fleet debt maturities in the next four years. As of today, LATAM only has maturities coming from our exit financing due in 2027, and it is worth mentioning that this can be refinanced in 2024. As you can see on the next slide, LATAM Group has seen a sustained improvement in its capacity measured in ASK with a noticeable path to recovery in the past quarters. The financial results on the lower hand have mirrored this recovery with healthy numbers and the best last twelve months EBITDA since the Chapter 11 filing. Lastly, I would like to highlight that the first quarter EBITDA was $565 million, and the last twelve months EBITDA amounted to $1.6 billion.
Let's turn to our cash flow statement on slide eight. In the first quarter of 2023, LATAM generated a positive cash flow of $199 million, driven by a very strong adjusted operational cash flow of $409 million in the quarter. This strong result was mainly due to the recovery in operations and the ramp up in demand during the first part of the year. As a result, LATAM was able to cover its investments, including maintenance and growth, which mainly consisted on engine maintenance and resulted in a positive unlevered free cash flow of $289 million for the quarter. Let me conclude on slide nine. LATAM continues to grow.
Its growth is leveraged in a unique network and an extremely competitive cost structure that is combined with a strong capital structure, enabling us to increase our operations by 26% measured in ASK compared to the last year. LATAM has begun 2023 with $121 million in net income and is presenting an adjusted double-digit operating margin of 10.5%. The continued cost saving initiatives have been successful, and we are seeing this impact, having reported a passenger CASK ex-fuel of $0.04 in the first quarter, a reduction of 10% from last year. Finally, LATAM continues to strengthen its capital structure. LATAM generated $199 million, improved its liquidity to $2.5 million, and continues to reduce leverage, reporting a record low in LATAM's history of 3x adjusted leverage.
With that, I thank you for your attention, and we would like to open the floor for any questions.
Thank you, Ramiro. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. When I do move someone in to speak it, there's a little bit of a lag, so just hold on for a second. Our first question comes from Guilherme Mendes with J.P. Morgan.
Good morning, everyone. Roberto, Ramiro, Andrés, Tori, thanks for taking my questions. I actually have 2. The first one is on the guidance. We saw pretty strong performance in the first quarter, especially in terms of margins, and I understand that you reaffirm your guidance for the year, but just wondering if you see any kind of upside potential for your current estimates. The second question, which is kind of a related question in terms of tariffs, first, if you could explore how was the performance between segment leisure and corporate and maybe between regions as well. According to the first question, if you see some upside for you going forward over the coming few quarters. Thank you.
Hi, Guilherme, and thank you for your questions. I'll take the first one on guidance. As you know, we announced guidance on January 19th last year, and we're still at the beginning of May, and we're seeing a macroeconomic context that is volatile. The political atmosphere here in the region is still a little bit choppy. We're seeing fuel prices with a lot of volatility. So at this time, we continually are reviewing projections, and we will timely inform the market in case of any material changes. At this time, as you said, we are reaffirming our guidance.
All right. thanks, Guilherme. I'll just take the second question here. In general, segments are, I would say, stable, and in healthy
Flows is strong both to Europe and to US. Some weakness between Peru and the US, given the social unrest in the beginning of the year here. Domestics in general are stable. Again, domestic Peru is probably the country with a little bit more weakness for the same reasons. Cargo, we have a slowdown of cargo vis-a-vis last year, still better than 2022. We had a long Lunar New Year in China, as you know, that impacted some flows as well. I had the numbers when 5% traffic in the region, but now we see some stability in the softness, we have slightly better uptake for the remaining of the year. In general, I would say the demand is in a good level. Segments are generally good.
I explained, 98% of our corporate traffic came back, is also in a good place. Just to remind you that second quarter is seasonally the lowest for us. We're now in the moments of more downside demand, not downside demand, but slower demand just because of seasonality reasons. Thank you.
Okay, now hold for the next question. Michael Linenberg with Deutsche Bank, you can now ask your question.
Hi there. This is actually Shannon Doherty on for Mike. Thank you for taking my question. Just my first one, are you guys facing issues procuring new aircraft or seeing delays in the maintenance of your existing fleet like many other carriers are? If so, how are you compensating for this?
Hi. I'll take this. All engine manufacturers that are in airframers are struggling. It's well known in the market. Currently, all of our operation, all of our fleet is operating despite of the challenges of both supply chain and engine deliveries. We're monitoring this very closely. We don't expect any significant disruption to our operations given the situation, but we are putting a lot of focus today in making sure that we can run our operations smoothly despite the challenges from some of our suppliers.
That's great. For my second question, it sounds like the board approved, you know, the future distribution of dividends. Can you remind us of what that dividend policy would be? Is that, you know, 2023 then, or maybe 2024 and beyond?
Yes. For the shareholders meeting, we capitalize some retained losses that will allow us to distribute dividends if we have positive results in 2023. Here in Chile, we have a legal constraint that we need to distribute 30%, at least 30% of the net income of the company into dividends.
Thank you very much.
Okay, hold, please for the next question. Next we have Victor Mizusaki with Bradesco BBI. Go ahead with your question.
Hi. Thank you. I have just a quick question here. Basically, LATAM issued some, I mean, the 2027 and the 2029 bonds as part of the plan to emerge from Chapter 11. When we take a look on your results, I mean, the first quarter, actually, the numbers are improving really fast. My question is, I mean, if you have any plans or if there any kind of possibility to refinance these bonds?
Yes, thank you. Thank you, Victor. Yes, we can refinance the bonds. We're constantly monitoring the market. The 2027 bonds and the Term Loan B can be refinanced from 2024 onwards, and we are going to be analyzing that according to market conditions.
Okay, thank you.
Great. As we bring up the new next question, I just want to remind everyone that if you have a question, you can press star 11 on your telephone and wait for your name to be announced. Then to withdraw a question, press star 11 again. Please stand by as we bring our next question to the stage. We have Stephen Trent with Citi. Go ahead with your question.
Hi, guys. Actually it's Felipe for Stephen Trent's team speaking. Thanks for taking my question. We have two questions on our side. I'll start it with the first one, and then then I'll do the second. The first one would be where if you see any specific regions that drove stronger margins, like we spoke about a little about tariffs differences between regions, but I was curious to hear about differences in margins between different regions and corridors. That's the first one. Then I'll do the second.
Yes. Hi, Felipe. Thank you for your question. We're seeing as Roberto mentioned, a strong international segment. It has been growing well. We see steady demand there. Generally, I would say that we see all the segments performing reasonably well, with the exception of the Peru-U.S. segments. Corporate demand, we see it now fully recovered to pre-pandemic levels. We're seeing a stable demand throughout the different segments that we operate in.
Okay. Thanks. Regarding the joint business agreement with Delta Air Lines, what should be the next steps for LATAM in this agreement? Is there any chance that you do something similar with Aeroméxico in Mexico? Thank you.
Hi, Felipe. This season, the summer season of 2023 is the first season we were publish capacity, so that's an important first step with Delta. We look and we feel very confident of the development of the relationship with them. It's actually a great team to work with. We've announced already 2 important routes as part of the JVs. We'll start São Paulo to Los Angeles in July of this year, and also we will start operating Bogota to Orlando as well in the third quarter of the year.
I guess that what you will see in the next months is, as we think about how to enhance the network and provide better options for our passengers, aligning of our networks, particularly in our hubs, making sure that we increase connectivity for our passengers beyond our hubs, both in the northern side, so in the U.S., as well as in South America. We're exploring new routes and new operations. As we get those, agreed and streamlined, we'll publish them. All in all, we feel very, very confident , with respect to how this has been evolving. We are clear the first, player in the South America to U.S. market by far, and I think that we're starting to feel this in terms of the ability we have, to provide options for our customers and also in our frequent flyer program.
Strong start JV agreement. With respect to the second part of your question, we're always analyzing ideas and opportunities to doing things. I'm not gonna talk about any of those, but of course our take is always to see if we can develop and strengthen the network for our customers, and looking forward to serving them better.
Thank you for your question.
Great. Thanks.
While I bring up the next question, there are just a couple in queue, so if anyone does have a question, reminder to press star one one, and you will be placed in the Q&A queue. Now we could bring Neil Glynn with Air Control Tower. Go ahead with your question.
Good morning. If I could ask two questions, please. The first one with respect to ex-fuel unit costs. You obviously highlighted there, I think 3.7% below pre-pandemic levels on the slide. Just interested, can you give us some color as to where you're experiencing the most difficulty preventing costs creeping back in? As 2023 progresses, how do you think about getting comfortable with 2024 and keeping those unit costs below pre-pandemic levels? Then the second question with respect to Colombia. Can you provide an update on your expectations for developments there and with the two carrier failures in the local market, what is your latest ambition to grow in the market over the medium term? Thank you.
Yeah. Thank you. Thank you, Neil, and thank you for your 2 questions. I'll take the first one regarding ex-fuel unit costs. As you know, we have worked tremendously during the Chapter 11. We renegotiated over 1,000 contracts, setting new rules containing escalation, and that has helped us a lot in this inflationary context. We think we have unique pricing on the fleet side, Neil. We're seeing pressures in different aspects, but basically related to inflation from our suppliers. We're seeing some pressure on the engine side, related also to inflation and supply chain issues that affects on the depreciation side of those engines. I would say that our concern now is the impact of new costs in order to grow.
We expect to continue to grow in Q2 and Q3. Therefore, we're increasing our operations, we're increasing our pilot training, and this is putting a little bit of pressure into the costs. It's linked to the growth, and growth that we think is profitable and with good return on capital for the company.
Thanks.
Neil. I think it's important to remember that Colombia is the second-largest market in South America, domestically after Brazil. It's an important and strategic market for LATAM. We purchased a company called AIRES 11 years ago, 12 years ago. We had 10% market share at the time. Today, with the changes in the market that we have seen, we expect to be approximately 35%, 34% of the domestic market. We incorporated 5 aircraft in March in order to compensate for the loss of capacity for the American in Colombia and increase to compensate for any percentage. We also have every country in America fly to Brazil, to Ecuador, to Peru, and to Chile. We're strengthening that, complementing that with the strengthening of our networks with Delta as partners in Colombia.
Today, we're already the fourth-largest player in the U.S. to Colombia market. We were, by ourselves, way below that before, and we expect to keep on improve. At the end of the day, our expectation here is, you know, to be a very good, solid, reliable alternative for our passengers in Colombia, whether they fly domestically or international. This complements our network really well, allowing us also to improve our one-stop shop offering to people that want to fly into the region, adding a significant network to, as I said, the second-largest market in South America. Very happy about the move and what we've been able to achieve in the last 45, 60 days, and confident with respect to our development in Colombia going forward.
Many thanks.
Thank you for that question. We have a final question coming up. Stand by. Bruno Amorim, who is an analyst. Go with your question.
Hi. Thank you very much. One question. Can you explain how your net debt from around $5 billion today is going to around $6.1 billion per guidance by the end of the year? Is it cash flow driven, or is it just lease liabilities, non-cash, driven by increase in number of aircraft? Thank you.
Yes, Bruno, thank you. Thank you for your question. We are incorporating fleet during 2023. We are receiving certain Boeing 787 and certain narrow bodies that are going to increase our debt levels. It's still a volatile environment. There are postponements of fleet deliveries that are being discussed with certain OEMs, that number can vary. At this point, I think that's a fair assessment of our end of year net debt.
Is it driven by just aircraft and non-cash movements? It's not you're burning cash.
No, no, absolutely not. It's driven by arrival of aircraft, and all those aircraft in 2023 are already fully financed, so no cash out.
Thank you very much. Thank you.
No. No.
Okay, wonderful. With the conclusion of the questions, I will now turn it back to Ramiro and Roberto for final comments.
Well, thank you. Thank you all for joining us again. Our investor relations team is around for any further questions. Have a very nice day. Thank you.
Thank you for your participation in today's conference call. This does conclude the program, and you may now disconnect.
Thank you, Jill.
All right. Thank you all.
Thank you, Jill.
Wonderful. Thank you. Tori, if there's any questions, you can let me know in chat, or otherwise if we're okay. Will do. I think we're good on our end, but appreciate your help today. Okay, wonderful. Thank you all. Thanks. Bye-bye.
Thank you.