LATAM Airlines Group S. The., an airline group in Latina America, announced today its combined financial results for the fourth one fourth ended December 31, 2016. “ LATAM” or “ the Company” makes reference to the consolidated entity, including passenger and cargo airlines within Latin America. All figures had been prepared in accordance with International Financial Confirming Standards (IFRS) and are expressed within U. S. dollars. The B razil real / US dollar typical exchange rate for the quarter had been BRL 3. 29 per UNITED STATES DOLLAR

  LATAM Airlines Group reported a good operating margin of 7. 6% for fourth quarter 2016, a noticable difference of 1. 4 p. p. on the same quarter in 2015, plus net income of US$54. 3 mil, an US$70. 6 million enhancement over the fourth quarter 2015. The particular improvement in operating results had been driven by a 6. 7% embrace total revenues, reflecting a positive income per ASK trend in household and international routes in Brazilian as well as a stronger Brazilian currency.

Total revenues in fourth one fourth 2016 reached US$2, 569. a few million showing an improvement of six. 7%, mainly driven by a rise of 6. 9% in traveler revenue, after nine consecutive sectors of decline. This revenue enhancement consolidates and further improves third quarter’ s positive trend in income per ASK. For full 12 months 2016, revenues reached US$9, 527. 1 million, a decrease of six. 0% compared to the same period 2015, with the decline of 14. 7% occurring during the first half of the entire year, while increasing by 3. 4% during the second half of 2016.

  LATAM Airlines Brazil continues to see good resulting from the strategy of modifying passenger capacity on both domestic plus international routes in the Brazilian marketplace, with a significant increase in revenues for each ASK. Domestic capacity was decreased by 10. 9% during the 4th quarter, and consequently revenues per INQUIRE increased by 34. 8% when compared with the same quarter of 2015, powered by a 14. 8% increase in RASK in BRL as well as by the fourteen. 3% average appreciation of the B razil Real. Furthermore, LATAM Airlines Brazilian reduced capacity on international paths between Brazil and the US, getting to a reduction of approximately 36% during the 4th quarter compared to the same period this past year.

  For the full year 2016, working income reached US$567. 9 mil, an increase of 10. 5% compared to 2015. Operating margin reached six. 0%, 0. 9 p. g. above full year 2015, and line with the upper bound from the guidance provided by the Company. Net income attained US$69. 2 million for the 12 months 2016, compared to a net lack of US$219. 3 million for 2015, showing a positive net income for the first time given that 2011.

  During the quarter, the Company produced significant progress in its plan to decrease total fleet assets and navy commitments, reaching the lowest fleet dedication levels in the recent history of LATAM for 2017 and 2018. LATAM reduced fleet commitments for 2018 by US$1, 039 million but it will surely also reduce existing fleet resources by returning additional aircraft in comparison with the previous quarter fleet plan. Using this, the Company will have reached US$2. two billion reduction in fleet assets regarding 2016– 2018, in line with our formerly announced plans to achieve a loss of US$2. 0 to US$3. zero billion in our expected fleet possessions by 2018.

  During 2016, the organization achieved a significant improvement in its stability sheet deleveraging to 5. 3x as compared to 5. 8x in 2015. Furthermore, liquidity reached US$1. eight billion including undrawn committed lines of credit, representing 19% of last 12 months revenues. Liquidity was bolstered with the US$608. 4 million capital raise that was completed in December 28, 2016, through which Qatar Airways acquired 10% of LATAM’ s total gives

MANAGEMENT COMMENTS UPON FOURTH QUARTER 2016

The year 2016 was challenging regarding LATAM, with weakening regional financial systems and recession in Brazil, devalued local currencies and high pumpiing rates in certain countries. In this framework, LATAM continues to be the best positioned flight group in Latin America to reply to these deteriorated conditions, as we still improve margins, cash flow generation plus deleveraging its balance sheet, displaying the resilience of its business model. In addition, Qatar’ s investment recognizes LATAM’ s achievements and supports the project for the future, strengthening our certainty that we are on the right path to reach the goals.

Management has been positive to address these economic challenges concentrating on the aspects under our manage. We continue to pursue initiatives to help reduce costs, which were accelerated during the year plus resulted in an 8. 9% headcount reduction, as well as productivity increases upon various fronts. We also effectively restructured its fleet commitments, changing fleet deliveries to the current demand atmosphere in the region, reaching historically low degrees of fleet commitments for 2017, without cash out requirements.

We continue to keep work tirelessly to improve profitability and additional improve our free cash flow era, creating value for all our stakeholders while maintaining a solid cash placement and continue deleveraging the Company. On the coming years, we expect more improvement on this front as we keep on working on strengthening our operations, applying our new domestic business model plus seeking approval for our Joint Company Agreements (JBAs) with American Air carriers and IAG (British Airways plus Iberia). On this front, on Mar 8th, the administrative court associated with economic defense of CADE (Administrative Council for Economic Defense) within Brazil approved the JBA among LATAM Airlines Group and IAG, representing the final stage in this legal system of its evaluation process that started in June 2016.

Concerning our new travel model just for domestic services, the implementation may continue gradually over the coming a few months. During the second quarter, LATAM will begin to implement a branded fare design with clear attributes differentiation plus payable ancillaries to provide to our clients more accessible prices and more position to their needs. With this new providing, our passengers will have the ability to customize their travel experience by having the choice to add checked luggage, select their particular seats, change their flight, plus vary the amount of accrued kilometers or even points in the Frequent Flyer Applications, among others.

Furthermore, one of the most noticeable changes for our passengers is the purchase on board in domestic flights. “ Mercado LATAM”, the new service associated with purchase on board of beverages plus food, is already implemented in all associated with LATAM’ s domestic flights within Colombia and in Peru. It will be applied gradually in Chile, Argentina, Ecuador and Brazil over the coming several weeks. The objective is to improve the travel connection with our passengers who can access, based on their preferences, to a wide gastronomic selection of more than 50 products. In addition , since December 2016 the affiliate marketer carriers of LATAM Airlines Team (with the exception of LATAM Airlines Brazil’ s domestic plus regional flights) are charging for that oversized bags such as surfboards, Televisions, among others, consistently with the current characteristics of the industry.

The Company proceeds developing digital initiatives to encourage passengers by providing them a digital experience of end-to-end control of their reservation. Travellers of LATAM Airlines Chile plus LATAM Airlines Brasil can now alter their flights without calling the particular Contact Center, and during 2017 this service will be gradually extended to the other subsidiaries that are portion of the LATAM Airlines Group. Additionally , our own passengers will be able to advance or postpone the flight on the same day from the travel, providing more flexibility for their journey.

MANAGEMENT DEBATE AND ANALYSIS OF FOURTH ONE FOURTH 2016 RESULTS

Complete revenues in fourth quarter 2016 totaled US$2, 569. 3 mil compared to US$2, 407. 0 mil in fourth quarter 2015. The particular increase of 6. 7% is because of a 6. 9% increase in traveler revenues, showing an improvement for the first time right after nine consecutive quarters of traveler revenue decline,   reflecting an optimistic revenue per ASK trend within domestic and international routes within Brazil as well as a stronger Brazilian foreign currency. Additionally , revenues were boosted with a 54. 2% increase in of various other revenues, partially offset by a loss of 7. 7% in cargo income. Passenger and cargo revenues made up 82. 2% and 12. 0% of total operating revenues, correspondingly, in fourth quarter 2016.

Total revenues for full calendar year 2016 reached US$9, 527. one million compared to US$10, 125. 7 million in 2015. The loss of 5. 9% is a result of a six. 3% and 16. 5% reduction in passenger and cargo revenues, correspondingly, partially offset by a 39. 7% increase in other revenues. Passenger plus cargo revenues accounted for 82. 7% and 11. 7% of complete operating revenues, respectively, for the complete year 2016.  

Passenger income increased 6. 9% throughout the quarter as a result of a 7. 6% increase in consolidated passenger unit income (RASK) offsetting the 0. 8% capacity decrease, when compared to fourth one fourth 2015. The RASK increase had been driven by a 6. 1% embrace yields, while load factors demonstrated an improvement of 1. 3 p. l. to 84. 5%. The produce recovery during this quarter was mainly driven by the improvement in produces in Brazil domestic and worldwide, partially offset by weaker requirement in the Spanish Speaking markets.

During the fourth quarter 2016, need in the airline group’ s The spanish language speaking country affiliates (SSC, including LATAM Airlines Chile, LATAM Air carriers Peru, LATAM Airlines Argentina, LATAM Airlines Colombia and LATAM Air carriers Ecuador), which accounts for a twenty one. 2% of total passenger profits, showed an increase of 6. 9% in passenger traffic as assessed in RPKs. However , despite steady local currencies during the quarter, RASK continued under pressure mainly due to a less strong macroeconomic scenario which has impacted need throughout the region combined with a more competing environment. Passenger capacity as assessed in ASKs grew by seven. 4% during the quarter, while weight factors showed a decrease of zero. 4 p. p. to seventy eight. 2%.

In the domestic Brazilian passenger operations, which represents the 28. 9% of total traveler revenues, LATAM Airlines Brazil  is constantly on the adjust capacity resulting in a significant enhancement during the quarter with revenues for each ASK increasing by 34. 8% in USD and 14. 8% in BRL. Domestic capacity has been reduced by 10. 9% plus traffic as measured in RPKs decline by 9. 4% within fourth quarter 2016 as compared to exactly the same quarter of 2015. As a result, fill factor increased 1 . 4 g. p. to 83. 2%.

 

The airline group’ s capacity on international ways, which represents a 49. 9% of total passenger revenues, improved by 2 . 2% during the one fourth. LATAM Airlines Brazil has ongoing to reduce capacity on routes along with weaker demand, specifically between Brazilian and the US. As a result of capacity modifications and the stronger demand environment associated with the appreciation of the Brazilian foreign currency, RASK on those routes improved during the quarter compared to the same time period last year. On the other hand, LATAM Airlines Team and its affiliates have added capability on routes between Spanish Talking Countries and the US and European countries. Traffic increased by 4. 4%, with passenger load factors increasing by 1 . 8 p. g. to 86. 3%. Revenues for each ASK in international passenger procedures increased by 3. 9% when compared with the fourth quarter of 2015 highlighting an improved revenue trend.

 

Cargo revenues   reduced by 7. 7% in the one fourth, driven by a 3. 1% decrease in cargo traffic and a four. 8% decline in cargo produces as compared to the fourth quarter of 2015. Exports to North America were generally impacted by lower production in the trout industry as well as a decrease of certain items as flowers and Asparagus, partly offset by an improvement in imports from North America and Europe in order to Brazil, as a result of the appreciation from the Brazilian Real. As a result, cargo income per ATK declined 1 . 9% as compared to the same quarter of the earlier year.

 

LATAM and its affiliates continue working to modify freighter capacity, while focused on increasing the belly utilization of the traveler fleet. In the fourth quarter packages capacity, as measured in ATKs, declined 5. 9%, which includes a thirteen. 2% reduction of freighter procedures, resulting in a load factor of 57. 0%, which represents an improvement of just one. 7 percentage points as compared to your fourth quarter 2015.

 

Other revenues improved by 54. 2% reaching US$147. 9 million during fourth one fourth 2016. This growth is mainly due to gains on aircraft product sales and leaseback transactions as well as a rise in revenues derived from aircraft rents.

 

Total operating expenses in the 4th quarter reached US$2, 374. one million, a 5. 2% raise as compared to the same period of 2015. This particular increase is explained by US$121. 0 million of non-recurring expenses associated mainly to fleet product sales and redeliveries, severance payments, and others. Cost per ASK equivalent (including net financial expenses) excluding non-recurring costs increased by 2 . 3% when compared to the same period 2015. Even though the Company continues with the implementation from the ongoing costs reductions efforts, the particular increase in unit costs this one fourth reflects the negative impact an excellent source of inflation rates in the region, the valued local currencies, and the 2 . 7% decline in capacity as compared to your fourth quarter 2015.

 

Changes in operating expenses had been mainly due to the following:

 

[if !supportLists] ·                   [endif] Wages and advantages   increased by seven. 6% mainly explained by the boost of US$44. 0 million within severance payments and performance bonus deals during the fourth quarter 2016 when compared with the same period 2015. Excluding these types of effects, wages and benefits expenses declined by 2 . 0% powered by the 6. 1% decline within headcount, partially offset by the gratitude of local currencies during the time period, especially the Brazilian real.

[if !supportLists] ·                   [endif] Fuel costs decreased by 2 . 8% generally as a result of a 3. 6% reduction in the gallons consumed during the time period as compared to the fourth quarter of 2015 as well as a fuel hedge gain known during the quarter, which totaled US$4. 4 million, relative to an US$40. 5 million loss in the 4th quarter 2015, partially offsetting the particular 7. 3% increase in the average gasoline price per gallon (excluding hedge) as compared to the fourth quarter of 2015. At the same time, the Company recognized an US$2. 8 million loss related to foreign exchange hedging contracts, mainly Brazilian genuine, compared to an US$7. 6 mil gain recognized in the same amount of last year.

[if !supportLists] ·                   [endif] Commissions in order to agents increased simply by 11. 5% mainly due to the detrimental impact of the 14. 3% typical appreciation of the Brazilian real within passenger commissions at LATAM Air carriers Brazil, and in line with the six. 9% increase in passenger revenues.

[if !supportLists] ·                   [endif] Depreciation and amortization increased by 7. 8% due to the negative impact of the gratitude of the Brazilian real during the 4th quarter, as well as an increase in amount expenses of our intangible assets associated with TAM´ s brand.

[if !supportLists] ·                   [endif] Other rental and landing charges increased by several. 4% mainly due to an increase within aeronautical rates.

[if !supportLists] ·                   [endif] Traveler service expenses improved by 4. 6% despite the loss of 1 . 0% in the number of traveler transported, explained by a lower evaluation base due to a reversal of US$3. 7 million related to catering costs in fourth quarter 2015. Not including this effect, passenger services dropped 0. 5%.

[if !supportLists] ·                   [endif] Airplane rentals increased simply by 11. 5% as a result of the use of more modern aircraft under working leases. The Company had more Airbus A321s, Boeing 787s and Airbus A350 this year while reducing the amount of Airbus A320s, Airbus A330s plus Boeing 767s relative to the fourth one fourth of 2015, bringing the total number associated with leased aircraft to 110, in comparison with 107 during the same period of 2015.

[if !supportLists] ·                   [endif] Maintenance expenses continued to decrease this one fourth by 9. 5% due to efficiencies related to the renewal of our navy partially offset by higher plane redelivery costs related to the Company´ s fleet rightsizing initiatives.

[if !supportLists] ·                   [endif] Other operating expenses increased by 14. 4%, mainly driven by certain non-recurring items as mentioned above, including US$53. 5 million related to fleet product sales and redeliveries.

 

Non-operating outcomes

                                 

[if !supportLists] ·                   [endif] Interest earnings increased by 107. 8% to US$21. 8 mil in fourth quarter 2016 through US$10. 5 million in the exact same period 2015 mainly due to the decrease of the investments market value in Argentina. This reduction in the market value had been related to the local currency depreciation within Argentina in December 2015.

[if !supportLists] ·                   [endif] Interest expense improved by 5. 9% to US$105. 8 million in fourth one fourth 2016 from US$99. 9 mil, mainly due to the recognition of non-cash expenses related to prepayment of the spinning credit facility.

[if !supportLists] ·                   [endif] Under Other income (expense), the Company recognized an US$81. 8 million net loss, which includes US$68. 0 million of plane redelivery costs, and US$7. two million in foreign exchange losses. This particular compares to the US$124. 0 mil loss in other income (expense) within the fourth quarter of 2015, including the recognition of an US$71. 0 mil provision mainly related to aircraft redelivery costs, and a foreign exchange loss of US$57. 1 million.

 

Net Income increased from a loss of US$16. several million on fourth quarter 2015 to a gain of US$54. 3 or more million in the same period 2016 mainly explained by an increase associated with US$46. 0 million in the working result as well as an US$50. 0 mil lower foreign exchange loss compared with exact same period 2015, partially offset simply by 42. 2% decrease in the positive taxes as compared to the same period 2015.