LATAM Airlines : reports consolidated operating income of US$82.1 million for first quarter 2019

LATAM AIRLINES GROUP REPORTS CONSOLIDATED OPERATING INCOME OF US$82.1 MILLION FOR FIRST QUARTER 2019

Santiago, Chile, May 16, 2019 - LATAM Airlines Group S.A. (NYSE: LTM; IPSA: LTM), the leading airline group in Latin America, announced today its consolidated financial results for the first quarter ending March 31, 2019. "LATAM" or "the Company" makes reference to the consolidated entity, which includes passenger and cargo airlines in Latin America. All figures were prepared in accordance with International Financial Reporting Standards (IFRS), including the recent adoption of IFRS16 accounting standard, and are expressed in U.S. dollars. The Brazilian real / US dollar average exchange rate for the quarter was BRL 3.77 per USD.

HIGHLIGHTS

∙Operating income amounted to US$82.1 million in the first quarter of 2019. Operating margin reached 3.3%, mainly due to declines in yields driven by the devaluation of local currencies, the consequent effect on international demand, especially in Argentina, and overcapacity in international routes. Net loss totaled US$60.1 million in the quarter ending March 31, 2019, compared with the US$92.2 million earned in the same period last year.

∙Total revenues decreased 7.5% year-on-year in the first quarter of 2019 to US$2,525.3 million due to a decrease in both passenger and cargo revenues. Passenger revenue declined 6.5% and cargo revenues decreased 10.9% as cargo unit revenue declined 10.6% year-over-year - also influenced by greater depreciation of regional currencies- resulting in lower imports to the region, especially to Brazil and Argentina.

∙Total operating expenses declined 0.7% year-over-year in the quarter, despite an increase of 6.7% in total ASKs. Excluding fuel costs, total operating costs declined 2.6% year-on-year in the first quarter. Cost per ASK decreased 6.9% year-over-year, while costs per ASK excluding fuel decreased 8.7% year-over-year, reflecting a leaner and more efficient organizational structure.

∙On April 30th, LATAM Airlines Brazil acquired the outstanding shares of Multiplus S.A., which has been de- listed and is now a privately held company, which will be merged into LATAM Airlines Brazil as announced last year. For the 27.3% acquired, LATAM Airlines Brazil paid US$303.7 million.

∙Elliot Management Corporation contacted LATAM to propose a restructuring plan for Avianca Brazil, consisting in dividing the company in seven independent productive units. LATAM Airlines Brazil has agreed to bid for at least one independent productive unit for a minimum amount of US$70 million in an upcoming auction. In addition, LATAM Airlines Brazil committed and funded US$13 million for working capital purposes to Avianca Brazil.

∙Given the impact of the devaluation of the Argentinian peso on international demand and overcapacity on routes to/from Brazil, LATAM is adjusting its international network and reducing capacity growth for 2019 to approximately 0-2% compared with 2018. On the other hand, LATAM Airlines Brazil is increasing the capacity of its domestic network to approximately 5-7% for 2019 due to recent developments in the Brazilian domestic market. The Company has signed a contract with Aircastle to lease 10 Airbus A320-200 aircraft to be operated by the affiliates of the group in their respective domestic markets, principally Brazil. As a result, the Company has revised down its total capacity guidance growth for this year from 4-6% to 3-5% as compared with 2018.

∙At LATAM's Annual Shareholders' Meeting on April 25, 2019, a dividend distribution totaling US$54.6 million was approved. This is equivalent to 30% of 2018 earnings and is the highest since the LAN and TAM

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association. Said dividend was paid today (Thursday May 16, 2019) to shareholders on record as of May 10, 2019.

∙Finally, at the same shareholders' meeting, Mr. Patrick Horn was elected as a new board member replacing Mr. Georges de Bourguignon, as a new independent board member.

MANAGEMENT COMMENTS ON THE FIRST QUARTER 2019

The first quarter of 2019 presented more challenging market conditions than we initially anticipated. Demand for international travel in Argentina further deteriorated as a consequence of the sustained devaluation of the Argentinian Peso, while we continued to see overcapacity in international routes to/from Brazil. This was exacerbated by the devaluation of other Latin American currencies such as the Brazilian real and the Chilean and Colombian peso, which put additional pressure in our yields measured in US dollars. As a result, our revenues per ASK declined by 12.3%, yields decreased 11.1% and load factor decreased1.1 percentage points.

Despite the challenging macroeconomic context, LATAM continues to make progress on our strategic initiatives. Our cost saving initiatives continue delivering positive results with total costs declining by 0.7%, despite 6.7% growth in operations in the first quarter. We carried more than 18 million passengers during this period, 800,000 more than the same period of last year. Cost initiatives continue to be among LATAM's highest priorities and will help us to tackle a challenging first half of the year.

We continue to adapt our network in line with current market conditions. Overcapacity in international routes to/from Brazil, made it necessary to suspend the inauguration of the Sao Paulo - Munich flight as well as suspending the Sao Paulo - Rome service from October 2019. In the context of weak international demand in Argentina, in March, LATAM suspended its services from Santiago and Sao Paulo to Tucuman and will suspend flights to Rosario from Santiago and Sao Paulo in the coming months. These network adjustments reflect LATAM Group's proactive capacity management. That said, there continues to be attractive opportunities to expand the network within South America. LATAM Airlines Group will offer non-stop flights from Santiago to Brasilia in October, LATAM Airlines Peru from Lima to Brasilia in November and LATAM Airlines Brazil from Asuncion to Brasilia starting in December, improving the connectivity between these capitals.

Moreover, domestic markets in South America continue offering attractive growth opportunities. The unbundled fares model implemented in 2017 has allowed us to compete efficiently with the low-cost competitors and as a result we continue to carry more passengers and increase our ancillary revenue generation. The expansion plan announced for the second half of 2019 in Colombia and the improvement of LATAM Airlines Peru's connectivity, especially from Lima, are examples of the growth potential that the Company has identified in these markets.

LATAM has refurbished three aircraft with the new cabin configurations. The first Boeing 767 is already being operated by LATAM Airlines Peru in international routes, while the first two Airbus A320s are operating in the domestic markets of Brazil and Peru. The new cabins are designed to offer an industry-leadingon-board experience with more options, flexibility and personalization, to better serve different passengers. At the same time, we will increase capacity by adding more seats per aircraft, thereby reducing our cost per ASK.

In the meantime, we continue to make progress towards the implementation of our Joint Business Agreements with American Airlines and International Airlines Group (IAG). We refiled an updated request for approval with the Department of Transportation in the United States, having received approval from the relevant authorities in Latin America. During April, we also presented our case to the Chilean Supreme Court, following the appeal made by third parties to the approval by Chile's competition authority in October 2018. LATAM now awaits the court's final ruling.

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Finally, on May 7, 2019, our onboard service and travel experience were recognized by the APEX Passenger Choice Awards as the 'Best Global Airline in South America' for the second year running. LATAM was also awarded with the 'Best Seat Comfort', 'Best Cabin Service', 'Best Entertainment' and 'Best Wi-Fi' in South America. In addition, LATAM Airlines was recognized for its 'Outstanding Food Service by a South American Carrier' in the PAX International Readership Awards in April 2019, also for the second consecutive year. These awards mark our continued commitment to improving our passengers' travel experience.

MANAGEMENT DISCUSSION AND ANALYSIS OF FIRST QUARTER 2019 RESULTS

Total revenues in the first quarter 2019 totaled US$2,525.3 million, compared to US$2,730.5 million in first quarter 2018. The 7.5% decrease was composed by a 6.5% decrease in passenger revenues, 10.9% in cargo revenues and 19.6% in other revenues. Passenger and cargo revenues accounted for 85.9% and 10.4% of the total operating revenue of the quarter, respectively.

Passenger revenuesdecreased 6.5% year-over-year in the first quarter as a result of a 12.3% decrease in consolidated passenger unit revenue (RASK) and a capacity increase of 6.7% year-over-year. The passenger RASK decline was driven by a 11.1% yield decrease, together with a load factor decrease of 1.1 p.p., mainly as a result of currency devaluation in the region and the contraction of Argentinian passengers for international travel as a consequence of the current economic scenario in Argentina.

Revenues per ASK for LATAM's main passenger business units are shown in the table below:

		For the three month period ended March 31
		RASK	ASK		Load Factor
		(US cents)	(millions)
	1Q19	% Change (YoY)	1Q19	Change (YoY)	1Q19	% Change (YoY)
Bussines Unit
Domestic SSC	6.5	-10.4%	6,910	9.6%	84.2%	0.5 pp
Domestic Brazil	6.2	-7.2% *	9,383	1.5%	82.1%	-0.2 pp
International	5.6	-15.2%	21,695	8.1%	85.1%	-2.2 pp
Total	5.7	-12.3%	37,989	6.7%	84.2%	-1.1 pp
*RASK in domestic Brazil	increased 7.3% measured in BRL excluding the proportional margin contribution from Multiplus
Note: revenues include ticket revenue, breakage, ancillary, frequent flyer program revenues and other revenues

The domestic operations of LATAM Airlines group's Spanish speaking country affiliates (SSC) -which include LATAM Airlines Chile, LATAM Airlines Peru, LATAM Airlines Argentina, LATAM Airlines Colombia and LATAM Airlines Ecuador- accounted for 20.1% of total passenger revenue in the quarter. Their consolidated capacity increased 9.6% year-over-year, while traffic measured in RPK rose 10.3%, especially in Peru and Chile. As a result, consolidated load factor rose 0.5 percentage points to 84.2%. Revenue per ASK in USD decreased 10.4% in the quarter, impacted by the depreciation of local currencies, especially the Argentinian, Chilean and Colombian Peso.

In Brazil's domestic passenger operation - which represented 25.8% of total passenger revenues in the quarter

-LATAM Airlines Brazil increased its domestic capacity by 1.5% year-over-year, while traffic measured in RPK increased 1.3% in the same period, thus resulting in a 0.2 percentage points decline in the load factor to 82.1%. Revenues per ASK decreased 7.2% year-over-year in USD exclusively as a result of the devaluation of the Brazilian real, as in local currency revenues per ASK increased by 7.3% year-over-year.

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International passenger operations accounted for 54.0% of total passenger revenues. Consolidated capacity increased 8.1% year-over-year in the quarter, while international traffic rose 5.5%. As a result, passenger load factor declined by 2.2 percentage points to 85.1%. Consolidated RASK declined 15.2%, mainly driven by lower demand from Argentina and capacity pressures in long haul routes from Brazil, especially to Europe.

Cargo revenuesdecreased by 10.9% in the quarter, reaching US$263.5 million, driven by a 12.6% decline in cargo yields, partially offset by an increase of 1.3 percentage points in the load factor to 56.0%. Import markets continued to show declines year-over-year, especially to Brazil and Argentina driven by weaker currencies. Furthermore, the sale of our former Mexican subsidiary MasAir in the second half of 2018 reduced our cargo revenues by approximately US$10 million. On the other hand, export markets continue improving, especially salmon from Chile. As a result, cargo revenues per ATK declined by 10.6% in comparison to the same quarter of the previous year.

Other revenuestotaled US$93.8 million in the first quarter of 2019, US$22.9 million less compared to the same period of last year. This year-over-year decline is due to lower revenues derived from Multiplus, driven by the devaluation of the Brazilian real.

Total operating expensesin the first quarter amounted to US$2,443.1 million, a 0.7% decrease compared to the same period of 2018 despite the 6.7% increase in total capacity. As a result, cost per ASK declined by 6.9% and Cost per ASK excluding fuel costs declined by 8.7% in the same period, as a result of the costs contention initiatives. Changes in operating expenses were mainly explained by:

∙Wages and benefits decreased 7.5%, explained by the 5.0% decline in the average headcount during the quarter, in line with the company's cost efficiency efforts, as well as the depreciation of local currencies.

∙Fuel costs rose 4.0%, mainly as a result of an 8.4% increase in fuel consumption. The latter was partially offset by a 6.2% decrease in the average fuel price per gallon (excluding hedge) as compared to the first quarter of 2018. The Company recognized a US$9.0 million loss related to hedging contracts, compared to US$7.2 million gain for the same quarter of 2018.

∙Commissions to agents decreased 10.1% due to a decline in passenger and cargo revenues.

∙Depreciation and amortization rose 0.8% due to 6 more aircraft in average in our fleet compared to the same period of 2018.

∙Other rental and landing fees increased 3.6%, mainly due to higher passenger and cargo operation as well as higher costs related to ground handling operations.

∙Passenger service expenses declined by 19.4% due to lower fixed costs associated with the outsourcing of catering services and lower rate of passenger contingencies during the quarter compared to the same period of 2018.

∙Maintenance expenses increased 5.5% due to an increase in costs associated to spare parts, as the company incorporated two Airbus A320neo during the quarter.

∙Other operating expenses decreased 1.5%, due to lower marketing expenses, as well as a decline in costs related to the passenger service system, as the company unified the reservation platform across the entire airline group in the second quarter of last year.

Non-operating results

∙Interest income decreased by US$6.3 million year-over-year to US$5.9 million in first quarter 2019, mainly due to a reversal of interests associated with PIS/COFINS tax payments in the first quarter 2019 and a lower return on financial investments of Multiplus.

∙Interest expense increased 3.8% to US$138.4 million in first quarter 2019, from US$133.4 million in the same period of 2018, mainly due to the issuance of US$600 million senior unsecured notes in January 2019.

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∙Under Other income (expense), the Company registered a US$6.9 million net gain, including a US$8.9 million in foreign exchange gain. This compares to the US$0.2 million net loss in other income (expense) in the first quarter of 2018, which included a foreign exchange loss of US$2.9 million.

Net lossin the first quarter amounted to US$60.1 million, compared with the gain of US$92.2 million compared to the same period of 2018, mainly explained by a US$188.3 million decrease in operating income. The latter was partially offset by a US$30.1 million decrease in income taxes as a result of a lower pre-tax result.

LIQUIDITY AND FINANCING

By the end of the quarter, LATAM´s net debt amounted to US$7.6 billion, a 3.5% increase compared to previous quarter, while leverage reached 4.3x from 3.9x in December 2018, including a decline of 8.2% in the last twelve month's EBITDA. For the balance of 2019, the Company has roughly US$770 million in debt maturities.

At the end of the first quarter 2019, LATAM reported US$1,544 million in cash and cash equivalents, including certain highly liquid investments accounted as other current financial assets. Furthermore, the Company´s liquidity position was enhanced by US$575 million of an undrawn revolving credit facility1 (RCF) line. Thus, LATAM's liquidity position amounted to 20.9% of the last twelve months' net revenue by March 31, 2019.

Regarding hedging, the main objective of LATAM Airlines Group Hedge Policy is to protect medium term liquidity risk from fuel price increases, while benefiting from fuel price reductions by building option structures with a cap and a floor (3-ways collar and 4-ways collar). Accordingly, the Company hedges a portion of its estimated fuel consumption. Hedge positions per quarter for the next months are shown in the table below:

	2Q19	3Q19	4Q19	1Q20
Hedge positions
Estimated Fuel consumption hedged	65%	42%	20%	0%

LATAM FLEET PLAN

LATAM maintains the wet lease contracts of two Airbus A330 with the Spanish airline Wamos and 2 Boeing 777-200 with Boeing Capital. These aircraft were leased in order to mitigate the impact of fewer Boeing 787 availability due to the extension of Rolls Royce's engine maintenance program.

Fleet commitments for 2019 amount to US$1,197 million, with approximately US$676 million accounting for capital expenditures. LATAM has successfully financed all its 2019 deliveries with a combination of sales&leasebacks and Jolco financing, with senior secured debt and Japanese equity. For 2020, expected fleet commitments amount to US$708 million. The Company is constantly working on adjusting its fleet to the current demand environment, so it can optimize its utilization and thus maximize profitability.

The table below reflects the updated fleet plan of LATAM until 2021:

1Subject to borrowing base availability

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