In the second quarter, LATAM Airlines Group reported an operating result of US $ 6.5 million and an operating margin of 0.3%, 1.8 percentage points lower than in the same period of 2017. During the quarter, the Company was confronted with a strike cabin crew in Chile and was also impacted by a national strike by lorry drivers in Brazil, which affected the operating result with a loss of US $ 38 million. Moreover, the Group had a lower availability of its Boeing 787 fleet, given the maintenance by Rolls Royce of its engines, which meant that part of this fleet remained in maintenance. This is a situation at industry level that affects these engines. For the first half of 2018, operating profit increased 17.2% year-on-year to US $ 235.0 million, representing an operating margin of 4.6%, 0.4 percentage points higher than the same. 2017 period.

LATAM recorded a loss of US $ 114 million in the second quarter, a decrease of 17.7% compared to the second quarter of 2017, despite a negative impact of USD 79 million in this period on exchange rate losses, mainly as a result of the write-down from the Brazilian real. For the first semester of 2018 the last line recorded a loss of US $ 19.7 million, 73% less than the first half of 2017.

Total revenue increased by 3.7% year-on-year in the second quarter of 2018 to US $ 2,357 million. This increase was mainly explained by an increase in passenger income of 3.6% as a result of an increase in capacity by 4.6% (ASK) and a decrease in passenger revenues of 1.0% for ASK; performed by a few long-distance routes in Brazil, especially the United States, while the RASK of the international routes of Spanish-speaking countries (SSC) remained healthy. Freight revenues recovered during the quarter and increased 16.8% year-on-year in the quarter, driven by a recovery of both imports and exports from the region.

Total operating expenses increased by 5.6% year-on-year in the second quarter to US $ 2,351 million, mainly due to the 34.3% increase in fuel costs compared to the same period in 2017. Excluding the cost of fuel, the operating expenses in the second quarter of 2.9% year-on-year. The costs per ASK increased by 0.9% on an annual basis, while fuel decreased by 7.2% on an annual basis, due to a simpler and more efficient cost structure. Cost efficiency remains one of LATAM's main priorities and that is why the company continues to work on the continuous development of its cost initiatives. In line with this, LATAM announced Monday that it will outsource its ground handling activities at the Guarulhos airports in Sao Paulo and Galeao in Rio de Janeiro. This decision follows the guideline that has already been initiated by LATAM and that it is a worldwide trend to outsource specialized services for these ancillary activities.

On 22 May Brazil ratified the Open Skies agreement with the United States, which was previously ratified by the latter. This is another step towards the implementation of the joint-business agreements (JBAs) of LATAM with American Airlines and IAG (British Airways and Iberia), pending approval from the Free Competition Tribunal (TDLC) in Chile and the Department of Transportation (DOT) in the United States.

LATAM continues to work with Rolls Royce and Boeing to reduce the impact of the Trent 1000 engine industry, affecting the operational readiness of the Boeing 787 aircraft. Although this situation has caused a significant operational impact for the company, this has been mitigated during the quarter by the exploitation of law leases, as well as by the modification of travel routes and flight material on certain routes. The company has made every effort to minimize the travel experience of its passengers and expects only minor operational failures for the remainder of the year. After a maximum of 13 decommissioned aircraft in June, the Group currently has six of its 24 Boeing 787 aircraft out of operation, a number that is expected to be phased out, in anticipation of preventive maintenance by Rolls Royce. In July, the company returned a plane in the form of wet-lease and in September it expects to return two of the six remaining aircraft that are currently rented in wet and dry mode. In the same month, LATAM Airlines Ecuador returns to normal flights on the Guayaquil-Madrid and Guayaquil-New York routes, from Airbus A330 aircraft to Boeing 767. LATAM expects to gradually restore more Boeing 787 aircraft to its operations in the course of the year.

During the quarter, the company reduced its vehicle fleet commitments for 2018 from US $ 714 million to US $ 507 million, in response to the current demand environment and delays at the manufacturer. The operational fleet that was expected by the end of 2018 and 2019 was now reduced to 312 and 320 aircraft respectively (of 318 and 324 aircraft respectively in the fleet plan of the previous quarter).

LATAM has lowered its outlook for this year's operating margin to a range between 6.5% and 8.0% (compared to previous guidelines from 7.5% to 9.5%) and capacity growth (ASK) to a range from 4% to 6% (from 5% to 7%) after integration of the impact of the strike in Chile and adjustments to the network as a result of higher fuel prices and depreciated currencies.

"The strike of cabin crew in Chile and the national strike of lorry drivers in Brazil affected the results of the second quarter with US $ 38 million, which means an impact of 1.6 percentage points on the operating margin for the quarter. semester of the year, we are pleased to announce that we have successfully concluded the negotiations with the LATAM Cargo pilots and the cabin crew of LATAM Airlines Peru and LATAM Airlines Chile, "said the general management of LATAM.

"At the same time, we have made progress in improving our experience for passengers with the migration of the passenger service system (PSS): the reservation, stock and check platform used by LATAM Airlines Brasil and LATAM Airlines Paraguay from Amadeus to Saber, with which it It will bring together a spare platform for the entire group of airlines, which will result in additional cost savings for LATAM. "We had a smooth integration with minor consequences, the most important of which resulted in a lower capacity utilization for the operations in the domestic market of Brazil.

In addition, we will continue to strengthen our network and benefit from attractive growth opportunities from our hubs and on certain strategic point-to-point routes. In this context, we launched new international destinations for our hub in Sao Paulo-Guarulhos in Las Vegas and Boston, along with the new Guarulhos – Tucuman and Salvador de Bahia – Orlando routes, all operated by LATAM Airlines Brazil. In addition, LATAM Airlines launched Peru Santiago – Cusco in August. LATAM Airlines Brazil also announced a new flight from Sao Paulo-Guarulhos to Munich in 2019, which will be our ninth destination to Europe.

On August 15, 2018, the Argentinian government eliminated the minimum reference rate for cabotage flights, thereby removing the limitation on the minimum tariffs of the airlines. That is why we start selling tickets in Argentina in September under our new sales model for the home markets. This model leads to the last of our six domestic markets, enabling us to stimulate demand for more passengers in each country. and generating additional revenue through already implemented initiatives in Brazil, Chile, Peru, Colombia and Ecuador. In addition, we will begin to implement this new sales model on regional routes at the beginning of the fourth quarter, thereby increasing the success we have seen in the results of domestic markets to international flights. In this way, about 90% of our total passengers will fly under this new model at the end of this year.

In recent years we have invested in our digital experience through the development of mobile applications, our website and automated services at airports; We have introduced a new flexible pricing structure for domestic markets through the splitting of services, and we have revolutionized our on-board catering. Now we will invest in the onboard experience, one of our most important differentiating factors and one of the most relevant factors for passenger satisfaction. "As one of the most important factors in the choice of an airline and the satisfaction of passengers, we believe that the transformation of our experience on board will not only help to strengthen loyalty with our current passengers, but will also attract new customers", Claudia Sender, vice president of clients. We will invest approximately US $ 400 million in upgrading cabins for about two-thirds of our fleet over the next three years. The transformation of our cabins enables us to offer an onboard experience experience in the industry and to better serve each passenger with more options, flexibility and customization. For passengers traveling on long-distance routes, LATAM will transform the cabin of some of its Boeing 767 and 777 wide-body aircraft, as well as implement the new design for the Boeing 787 and Airbus A350 aircraft that will be received in the following years. For passengers traveling on domestic flights and routes within Latin America, LATAM will transform the cabin of more than 150 Airbus A320 and A321 aircraft, thus achieving a homogeneous configuration in the narrow hull fleet.

The analysis of the results of the administration

Total revenue for the second quarter of 2018 reached US $ 2,357.4 million compared to US $ 2,273.7 million in the same period of 2017. This 3.7% increase was driven by an increase of 3.6% and 16 , 8% in revenue for passengers and freight, respectively. Passenger and freight revenues represented 83.0% and 12.7% of the total operating income for the quarter respectively.

Passenger turnover increased by 3.6% in the second quarter compared to the fourth quarter as a result of an increase in capacity by 4.6%, while the turnover of consolidated passengers increased ASK (RASK) by 1.0%. decreased year. The decline in the RASK of the passenger was the result of a revenue growth of 1.7%, together with a decrease of the occupancy factor of 2.2 percentage points, which was influenced by the strikes in Chile and Brazil, the migration of the system of booking tickets and the maintenance program of the Rolls Royce engine – with 81.5%. Return growth was mainly driven by a solid price environment on international long-distance routes from Spanish-speaking countries (particularly the United States and Europe).

The subsidiaries of the Spanish-speaking countries of the LATAM Airlines Group (SSC) -including LATAM Airlines Chile, LATAM Airlines Peru, LATAM Airlines Argentina, LATAM Airlines Colombia and LATAM Airlines Ecuador- accounted for 17.9% of the total revenue of passengers in the quarter. The total capacity of these markets remained stable from year to year, as the decline in Chile's capacity, as a result of the April strike, offset the consolidated capacity growth in the rest of the Spanish-speaking countries. The traffic measured in RPK increased by 1.1%, while the occupancy rate increased by 0.9 percentage point to 80.3%. ASK revenue measured in USD fell 3.5% in the quarter, mainly due to the depreciation of the Argentine peso.

In Brazilian domestic operations, which accounted for 25.0% of total passenger revenues in the quarter, LATAM Airlines Brazil increased its capacity by 6.1% year-on-year, strengthening connectivity mainly in the Guarulhos hub. On the other hand, traffic measured in RPK rose by 2.5% over the same period, recording a 2.7 percentage point decrease in occupancy rate to 77.2%. This fall is partly explained by the truckers' strike and the migration of the ticket reservation system, which caused small disruptions in the operations. As a result, ASK revenues declined 0.5% year-on-year in local currency (down 9.7% in USD).

In international passenger traffic, which accounted for 57.1% of total passenger revenues, capacity increased year-on-year by 5.3% on a quarterly basis. International traffic increased by 1.8%, with capacity utilization decreasing by 2.9 percentage points to 83.9%. The consolidated RASK grew by 4.3%, mainly thanks to routes from Spanish-speaking countries to the United States and Europe. In addition, demand and RASK continued to improve on regional flights.

Freight revenues increased 16.8% in the quarter and reached US $ 299.7 million, driven by an increase in freight yields of 6.7%, mainly due to a better demand environment in the region. In addition, the freight load factor reached 54.9%, an improvement of 1.0 percentage point compared to the second quarter of 2017. The imports from North America and Europe to Brazil and Chile showed an improvement in ATK turnover, hand in hand increased imports of electronic goods and capital. Export markets also showed a recovery after several years, mainly due to the export of salmon from Chile.

As a result, ATK's freight revenue improved by 8.7% compared to the same quarter of the previous year, consolidating and further improving the positive trend registered since the beginning of last year. The payload, measured in ATK, showed an increase of 7.5% in the second quarter of 2018.

Other revenues reached US $ 101.1 million in the second quarter of 2018, a decrease of 21.6% compared to the same period of the previous year. This year-on-year decrease is the result of lower revenues of Multiplus, partly as a result of the depreciation of the Brazilian real and the accounting changes (IFRS-15) carried out in 2018, and lower subleases of aircraft to third parties compared to the second quarter of 2017.

Operating expenses in the second quarter were US $ 2,350.9 million, an increase of 5.6% compared to the same period in 2017. This increase is mainly explained by US $ 174 million in higher fuel costs as a result of an increase of 35%. , 6% in the average price per gallon (excluding hedge) compared to the second quarter of 2017. The costs per ASK excluding fuel costs decreased by 7.2% in the same period, as a result of cost control initiatives implemented in 2017, which contributes To a year-on-year increase of 4.6% capacity during the quarter. The changes in operating expenses were mainly explained by:

Salaries and benefits declined by 3.7%, explained by the 3.9% decrease in the number of employees during the quarter, as well as the depreciation of 12.2% of the Brazilian real and 49.4% of the Argentine peso. . This was partially offset by the annual increase in unit wages, mainly due to adjustments for inflation, as well as the appreciation of the Chilean peso by 6.4%.

Fuel costs increased by 34.3%, reflecting the 35.6% increase in the average fuel price per gallon (excluding coverage) compared to the second quarter of 2017. The latter was partially offset by US $ 10.4 million. fuel coverage increases, compared to hedging losses of US $ 10.5 million in the same period of 2017. On the other hand, the company recognized a gain of US $ 6.2 million for exchange rate hedges, which is in the second quarter of the previous year comparable to a neutral balance for the same concept.

Commissions paid to agents fell by 5.9% due to lower commissions of passengers in the activities of LATAM Airlines Brazil due to the depreciation of the Brazilian real, which was partially offset by a larger passenger and freight transport during the quarter.

Depreciation and amortization, decreased by 2.4%, due to the positive impact of the depreciation of 12.2% of the Brazilian real in the quarter, partly offset by a larger number of own aircraft compared to the same period of 2017 .

-Other rental agreements and landing fees increased by 9.4%, due to the increase in the number of passengers and freight, as well as higher costs related to their ground-handling activities.

– Passenger service costs increased by 22.4% as a result of greater compensation to passengers as a result of the strikes that occurred in Chile during the quarter.

-Aircraft rental, recorded a decrease of 10.5%, in line with the previous quarter, due to a decrease of six aircraft in our fleet under operating lease.

– Maintenance costs decreased by 8.3%, as the company recorded lower costs due to the return of aircraft, due to the fact that it returned an aircraft in operating leases in the quarter compared to seven aircraft returned in the same period last year .

-Other operating expenses decreased 10.4%, due to lower marketing and advertising costs and lower costs related to the redemption of points in the loyalty program as a result of the accounting changes (IFRS-15) that were implemented in 2018.