管理層發言
Hello, everyone. Thank you for joining us, and welcome to the Second Quarter 2026 LATAM Airlines Group Earnings Conference Call. The operator provided instructions for participants on the Q&A process. 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 believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in the published 20-F 2026 guidance earnings release, financial statements and related CMF and SEC filings. The company's actual results may differ significantly from those projected or suggested in any forward-looking statements 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. I will now hand the conference over to Ricardo Dourado, CFO. Mr. Dourado, please go ahead.
Thank you. Hello, everyone, and good morning. Welcome to our second quarter 2026 conference, and thank you all for joining us today. Here with me is Roberto Alvo, our CEO; Andrés Del Valle, Corporate Finance Director; and Tori Creighton, Head of Investor Relations, and we will present the highlights and results for the second quarter 2026. I will hand it over to Roberto to share his opening remarks. Roberto?
Good morning, and thank you, Ricardo. The second quarter of 2026 was an important demonstration of the resilience of LATAM Group's business model. During this period, the industry faced one of the sharpest increases in jet fuel prices in recent years, creating a significant cost headwind across the sector. As we estimated back in May alongside our first quarter publication, the impact of higher jet fuel prices was in excess of $700 million in the second quarter alone. Yet despite this environment, LATAM delivered profitable results, reflecting an adjusted operating margin of 5.4%, which was also on the higher end of the estimate that we had made of mid- to low single digits back then. These results are not explained by a single initiative. They are the outcome of a business that has been consistently strengthened over the last several years to perform across different environments, which starts with a dedicated effort to care for our customers, constantly improving their experience and making them willing to experience LATAM. In addition to this, a diversified business structure integrating our passenger, cargo and LATAM Pass businesses, together with an effective commercial strategy, a competitive cost structure, a strong balance sheet and, above all, the commitment of more than 43,000 employees across the group, enable LATAM's agile response while maintaining a focus on profitability. Throughout the quarter, this ecosystem delivered exactly what it was designed to deliver. Customer preference remains strong across the network, particularly in the Premium segment, which now accounts for 29% of the passenger revenues, allowing the group to partially offset higher fuel costs through fare adjustments while preserving healthy demand. At the same time, cargo, loyalty and other ancillary sources of revenue diversification reinforce the resilience of the model during a particularly challenging period. Diversification only becomes an asset when it's supported by effective execution and LATAM has consistently demonstrated that capability. During the period, the group rapidly activated multiple commercial and operational initiatives to mitigate the impact of higher fuel prices while continuing to invest in customer experience, operational reliability and the long-term competitiveness of the business. Financial strength also remained a key enabler, particularly in such a volatile environment. A strong balance sheet and healthy liquidity—over 26% of last 12 months' revenues—provided LATAM with the flexibility to navigate a period of heightened uncertainty without losing focus on its long-term strategy and value-creating objectives. As we enter the second half of 2026, the environment remains highly dynamic. The significant swings in jet fuel prices we have seen over the last few weeks are a clear reminder that volatility continues to be present. The second quarter provided us with one of the most severe fuel crises the industry has experienced in recent years, and we believe we have navigated it well. We don't expect that price volatility to decrease during the remainder of the current quarter. In this sense, we remain cautious, although this quarter also reinforced our confidence in the group's ability to navigate this challenging environment. As we now enter what is seasonally a stronger half of the year for the business, we do so with the confidence that comes from having demonstrated the resilience of our business model. LATAM Group has commercial and financial tools, operational flexibility and, most importantly, the people and the mindset to continue adapting effectively, navigating volatility and creating long-term value. Finally, regarding guidance, given the information we gathered in the past quarter and therefore better visibility, we are reinstating our full list of parameters, and we have improved our outlook for the year. However, it is important to note that because of the high fuel price volatility, these numbers should not be only seen as our expectation given the stated assumptions, but also as an understanding of the resilience of the model in the current environment. With that said, I'll hand it over to Ricardo to go over specifics of LATAM's performance during the quarter. Thank you.
Thank you, Roberto. Please join me on Slide 4 to have a look at our overall results. As Roberto just explained, the second quarter was defined by an unprecedented increase in jet fuel prices. During the quarter, the all-in average fuel price, including hedge, increased by more than 80% year-over-year, resulting in a 93% increase in total fuel costs and creating one of the most significant cost headwinds the industry has faced in recent years. In response, LATAM rapidly implemented revenue management actions and targeted capacity adjustments. With these, total revenues increased almost 28% year-over-year, reaching nearly $4.2 billion. This was propelled by passenger revenues, which grew 28%, reflecting the consistent capacity growth together with the successful implementation of continued fare adjustments while preserving resilient demand across the network. Cargo revenues increased almost 22%, benefiting from both higher yields and continued growth in tonnage transported, which demonstrates the flexibility of this business to adjust pricing given its significantly shorter booking cycle. On the cost side, adjusted costs excluding fuel increased by 14%, broadly in line with the continued growth of the operation. It's worth noting that part of this increase reflects costs that are directly linked to higher passenger fares, together with the depreciation of local currencies, particularly the Brazilian real, which pressures the dollar-denominated cost base. Just as a reference, the Brazilian real in Q2 2025 was BRL 5.66 and now was BRL 5.05. That said, passenger CASK ex fuel remained sequentially in line at $0.045. Despite this unprecedented fuel environment and while growing capacity by 8.9% at a healthy 82% consolidated load factor, LATAM remained profitable and delivered an adjusted operating margin, as Roberto mentioned, of 5.4% during what is seasonally the weakest quarter of the year. This translated all the way to the bottom line with the group generating a positive net income of $125 million. These results demonstrate that while the fuel shock had a significant impact on CASK and costs, the combination of effective execution, commercial flexibility and the resilience of LATAM's diversified business model allowed the group to increase unit revenues this quarter, successfully mitigating a substantial portion of that impact. Let's now take a closer look at the commercial execution behind these results on the next slide, Slide 5. During the quarter, LATAM Group continued executing its profitable growth strategy, increasing consolidated capacity by 8.9% year-over-year alongside some targeted capacity adjustments to mitigate the impact of higher fuel prices. These actions were selective, allowing LATAM to preserve profitability without compromising the strength, connectivity or integrity of its overall network. Importantly, demand for LATAM Group remained resilient across all markets, even under a high fare environment. Consolidated load factors declined modestly from 83.5% to 81.8%, remaining at healthy levels across all markets where the group's affiliates operate during the quarter. It's worth mentioning that particularly in June, there was a higher impact on demand, reflecting the temporary impact of the FIFA World Cup on travel patterns across South America. This combination of effective capacity management, a differentiated value proposition, revenue actions and resilient demand translated into a 17.5% increase in consolidated passenger RASK during the quarter, which allowed LATAM Group affiliates to successfully pass through a significant portion of the increase in fuel costs. Looking at the different markets, LATAM's affiliates in the Spanish-speaking countries' domestic markets delivered a particularly strong performance, increasing passenger RASK by 15% in local currency or 20% in U.S. dollars. LATAM Airlines Brazil and its domestic market also successfully increased unit revenues with passenger RASK growing 12% in local currency and almost 24% in U.S. dollars, demonstrating its ability to implement fare adjustments while preserving healthy demand. Lastly, the International segment increased passenger RASK by almost 13%, even while expanding capacity by 12%. The quality of LATAM's revenues also plays an important role. Premium demand continued to demonstrate greater resilience than the broader market, allowing the group to implement fare adjustments while preserving passenger preference across the network. Let's jump now to Slide 6 to take a better view at this. LATAM's resilient revenue quality was particularly evident in two areas that continue to deliver exceptional results for the group: Premium traffic and the LATAM Pass ecosystem. In a quarter as challenged as this one, these two elements once again proved to be especially valuable because they make up a part of the LATAM customer base that is structurally less elastic and more resilient. On the Premium side, demand remained strong and continued to enhance the quality of the group's revenue mix, with Premium revenues now representing 29% of passenger revenues and growing at a rate faster than main cabin revenues. More importantly, this segment continued to respond positively to the differentiated value proposition LATAM has built over time and reflected in Net Promoter Score, which remained three points above the overall passenger average, in line with historically high levels. This confirms that the investments made in product and services continue to strengthen customer preference. LATAM Pass also remained a key lever during the quarter. The program continued to deepen customer engagement and strengthen loyalty across the network while supporting a more resilient and higher-quality revenue base. Over time, LATAM Pass has evolved well beyond the traditional frequent flyer program into a broader engagement ecosystem, allowing the group's affiliates to strengthen their customers' relationship both in and beyond the travel experience. Today, more than 67% of passenger revenues are generated by LATAM Pass members, up from 60% previously, reinforcing the growing importance of the program within the commercial ecosystem. The engagement of Elite members also continues to deepen. While the number of Elite members increased by 26% year-over-year, third-party sales generated by this segment grew 48% compared to the same period of 2025, highlighting the increasing relevance of these customers across the broader LATAM Pass ecosystem and their growing engagement with the partner network. Altogether, the trust in the LATAM brand by customers, the alignment with Premium customers and the LATAM Pass ecosystem help explain why LATAM affiliates were able to preserve revenue quality and successfully pass through a significant portion of higher fuel costs during the quarter. More importantly, they represent the strategic pillars that create value across the cycle, not only strengthening the group's resilience during periods of heightened volatility, but also driving structural growth that will continue to support LATAM Group's commercial performance as the operating environment improves over time. Let's move to Slide 7. The differentiated value proposition we just discussed is not only reflected in Premium and LATAM Pass; it is the result of several complementary elements working together with the network playing a central role. The incorporation of the Embraer E2 is a key enabler of this strategy, allowing LATAM Group to further strengthen its Premium offer, expand connectivity and open new sources of profitable growth. The entry into service initiatives are advancing positively and are on track. The first aircraft have already been manufactured, cabin certification is currently underway, and the seventh aircraft is already in production. LATAM Airlines Brazil expects to receive the first 12 aircraft between October and December of this year with commercial operations confirmed to begin on November 3, 2026. The network will increase capillarity while further strengthening LATAM Airlines Brazil connectivity. The initial deployment will cover a total of 42 domestic routes within the Brazilian market, which includes 8 new routes: 4 connecting Guarulhos with the new destinations of Cabo Frio, Ji-Paraná, Rondonópolis and Macaé, enabling LATAM Airlines Brazil to expand into markets that were previously not part of its network; and 4 additional routes linking existing bases. These aircraft provide the flexibility to expand the group's connectivity across Brazil, increasing capillarity and broadening access to regions with attractive corporate and leisure demand profiles while creating new opportunities. Altogether, LATAM Airlines Brazil will reach a total of 67 domestic destinations, the largest network in its history compared to 44 in 2019. Looking ahead, the airline is also evaluating up to 18 potential new bases for the next phase of its Embraer E2 expansion as additional aircraft are delivered beginning early 2027. Beyond the domestic market, while this network expansion significantly enhances connectivity within Brazil, the strategic value goes well beyond domestic travel. By connecting smaller regional markets into the main focus cities, the Embraer E2 will provide customers with access to LATAM Group's extensive network across South America and the four continents served by the group. That increases the connectivity of the overall network, broadens LATAM Group's addressable market and further enhances the group's value proposition. From a product perspective, the Embraer E2 will feature both the economy and premium economy cabin, reinforcing consistency across the fleet and preserving the differentiated experience that LATAM Group customers expect. Even with a differentiated aircraft configuration, the group will continue delivering a consistent product standard so that a new aircraft type does not mean a different customer experience. Overall, the incorporation of the Embraer E2 is not only about adding aircraft; it's about reinforcing the network, improving connectivity through a more efficient and versatile aircraft and continuing to build on the differentiated value proposition that LATAM Group has developed across the region. Moving on to Slide 8. Let's get back into the quarter's performance and take a look at cash generation. The group's strong operating performance continued to translate into solid cash generation during this quarter. LATAM generated $476 million in adjusted operating cash flow, even considering the impact of high jet fuel prices, once again demonstrating the business's ability to consistently convert earnings into cash. As a result, the group generated a positive change in cash, close to $150 million before dividend payments, and ended the quarter with a positive net cash variation of $110 million. It's worth noting that the dividend payments correspond only with the remaining balance required to complete the mandatory 30% dividend distributed based on 2025 net income. As you may recall, LATAM had already distributed $400 million in interim dividends during the fourth quarter of 2025; this payment simply reflects the remaining balance. This consistent cash generation remains one of LATAM's key pillars, providing the financial flexibility to continue investing in the business, strengthening the balance sheet and executing the group's long-term strategy. Moving on to Slide 9, see how this translates into continuing to strengthen the balance sheet and level of liquidity. The group closed the quarter with liquidity of more than $4.2 billion, equivalent to 26.2% of last 12 months' revenues. On the leverage side, adjusted net leverage remained at 1.5x, comfortably below the company's financial policy target and consistent with the planned capital management that has characterized LATAM over the last several years. This liquidity and net leverage position, together with management's perception that the stock is undervalued at current prices, supported the Board's decision to propose a new share repurchase program, which was approved by shareholders early this week. The new program contemplates a duration of no more than five years and allows for the repurchase of up to 5% of the company's total subscribed and paid shares. With these, shareholders have delegated to the Board of Directors the authority to determine the terms of the program's execution, including its timing, mechanisms, pricing and other relevant conditions. With this, we remain confident that the strength and fundamentals of LATAM's business model, the commercial strategy and execution capacity, both commercially and operationally, combined with the strength of the capital structure, maintain the solid foundations of the aspiration contained in the financial policy. The policy, which considers the preservation of liquidity ratios between 21% and 25% and a net leverage below 2x, allows us to continue on the path of improving LATAM's credit ratings. Now let's move to Slide 10. Following the second quarter and as Roberto mentioned, we see a more constructive outlook for jet fuel prices over the remainder of the year. LATAM is updating its full-year guidance for 2026, reincorporating the full set of metrics, including capacity with year-over-year growth between 9% and 10% and revenue projections between $17.3 billion and $17.7 billion, among others. The updated guidance reflects a more constructive backdrop for the remainder of the year than the one anticipated when the prior guidance was issued, particularly with respect to fuel prices. Based on the assumptions incorporated today, LATAM expects the second quarter to have represented the most challenged operating environment of the year. As the group enters a seasonally stronger second half of the year under more favorable fuel assumptions, the updated outlook also incorporates what LATAM demonstrated during the quarter: its ability to execute with discipline and deliver solid results even under challenging conditions. Turning first to the assumptions behind the updated guidance. In the prior guidance, LATAM assumed an average fuel price of $170 per barrel for the third quarter and $150 for the fourth quarter. Today, reflecting the evolution of the market, the company now expects average fuel prices of $147 per barrel in the third quarter and $130 per barrel in the fourth quarter. Based on these updated assumptions, LATAM now expects adjusted EBITDA between $4.1 billion and $4.4 billion, improving the midpoint of the prior guidance by $250 million. Passenger CASK ex fuel is expected to remain in line with the prior guidance between $0.045 and $0.047 as the assumption for the BRL exchange rate stayed at the same level of BRL 5.15 per dollar. In terms of the balance sheet, liquidity is expected to end the year at at least $4.7 billion, while adjusted net leverage is projected to be equal to or below 1.6x. Overall, the updated guidance reflects a business that has multiple levers to deliver results, and that's now supported by a more constructive macroeconomic backdrop despite the level of uncertainty and continued fuel price volatility. Lastly, let's move on to Slide 11 for a few closing remarks. First, the second quarter did not change our strategy. It validated it. In one of the most challenging operating environments in recent years, LATAM once again demonstrated that the business has been built and planned to perform across different macro and market conditions with now even more solid and tested foundations. Second, the group showed that it has multiple levers to deliver results. Effective execution, commercial flexibility and the group's diversified ecosystem allowed LATAM to preserve profitability, increase unit revenues and mitigate a substantial portion of the fuel shock. Third, the high level of trust from customers and the quality of the group's revenue base continued to be among LATAM's key elements. Premium customers and the LATAM Pass ecosystem once again supported a more resilient demand profile, allowing the group to preserve revenue quality even at significantly higher fare levels, holding a profitable growth strategy that combines capacity increases with healthy load factor levels. And finally, LATAM is updating its full-year guidance for 2026 to reflect a more constructive outlook for the remainder of the year. Having demonstrated the ability to deliver solid results during what we expect to have been the most challenging quarter of the year, the group now enters a more favorable operating backdrop while remaining focused on disciplined execution, risk and revenue management. Thank you, and let's open the line for questions.
分析師問答
The operator provided instructions for the Q&A session. Your first call comes from Michael Linenberg from Deutsche Bank.
Well done, the fact that we're now back to an EBITDA guide for the year that is within spitting distance of where you were prior to the war even beginning. So, well done on the revenue recapture and revenue recovery. I have two questions here. Just more specifically on the International, where PRASK was up just under 13%. Can you just give me a better feel for how that looked via geography? And I don't care about Oceania or Africa. I care more about Europe, North America and just regional—how those may have differed the trends in those various key markets?
Mike, thanks for the comments. Yes, across the board, International was solid. In previous quarters, I mentioned that we saw a little bit of weakness from South America to the U.S., linked at some point in time with potential visa restrictions and with announcements and policies by the U.S. government in general. We have seen a bit of an improvement in those lines versus what we had seen in previous quarters. Europe remains very solid. We had a little bit of a slowdown in demand generally because of the World Cup, actually a little bit more than what we expected. We know that these events always have an impact, and I think this also had some impact on the second quarter results; otherwise, results probably would have been a bit better. But regardless of that, demand remains very solid. In the regionals, I would divide it by country: Argentina is a little bit slower, and this is probably a function of Argentina's economic situation at this point in time. It was very strong at the beginning of the year, so it's a little bit weaker now. The northern part of South America is in a good place. But I wouldn't mark any specific large concerns with respect to how we're seeing international demand. And Oceania, even though you said you don't want to hear about it, is also in a good place.
Okay. Good. And then just my second question to Ricardo: I did see that you took a tax credit in the quarter. What drove that? And what's a good tax rate that we should use for the back half of 2026?
Michael, the tax credit I mentioned is a regular, business-as-usual situation because we have a different tax environment in each country. So in some countries we could have, at some moment, additional provisions or tax credits that could arise from local administrative or even judicial decisions. So that was the reason we have that situation today in one affiliate. I think the best way to see it, Michael, because this is not a one-off itself, is to look at a last 12- or 24-month average tax rate, and I think that could be a good driver for you.
Can you hear me?
Now we can hear you, yes.
Okay, yes, sorry, I was on mute. My question is if you think about 2027 now that visibility is gradually improving, and looking at your fleet plan, the average number suggests that fleet should be increasing by mid- to high single digits into next year. Just wondering if that's a fair assumption for capacity growth into 2027. And thinking about this yield environment given the fuel spike, is it fair to assume that once fuel comes down, LATAM and the rest of the industry should be able to keep most of the price increases that we saw throughout 2026 into 2027?
Thank you, Guilherme. Let me see if I understood your fleet question correctly. Yes, we have on the fleet plan that increase in fleet that you see in 2027. Remember that we're receiving a significant number of Embraers in the last two months of the year. So even though the count for the end of the year of 410 accounts for a dozen Embraers, they basically will not fly much in 2026. So we'll see the impact of the Embraer fleet most significantly in 2027. We haven't finalized our capacity plans for 2027, so we don't have a figure for you yet, but we have the potential of growing significantly with this part of the fleet. Also remember that we have a number of older aircraft that we have decided to keep—the 319s—that provide flexibility downward in case of need. Regarding your fare question for 2027, I would love to have a crystal ball here. My comment is demand is strong and stable. Premium revenues are growing. We see a lot of premium leisure and corporate demand. Ultimately, I think that the fare environment in 2027—if fuel goes down to something that looks more like 2024 or 2025—will end up being a function of industry capacity. What we have seen in the past is that fares tend to stick a little longer when they're high before coming down. But let's see how the environment behaves; for the remainder of the year we have a good outlook in terms of demand and the capacity we are deploying matches what we believe passengers want to fly for the remainder of the year.
Your next call comes from the line of Andre Ferreira with Bradesco BBI.
Andre from Bradesco. I have two questions. One: recently the Brazil Development Bank approved credit for airlines using the Civil Aviation Fund at attractive rates. Do you plan on using it? And what's the latest on when the credit will actually be disbursed? My second question: in the guidance, you raised domestic Brazil ASK guidance to 8% to 9% while cutting domestic Spanish-speaking countries to 4% to 5%. Looking at RASK in the two regions year-over-year, they are somewhat similar. So was this driven by relatively better demand trends, capacity discipline by competitors, or fuel-driven economics? What was the driving force in that decision?
Sorry, the audio was quite bad. I think we understood your questions. On the first regarding FNAC, I'll pass it to Ricardo, and I'll take the capacity question on domestic Brazil for the guidance.
Regarding FNAC, it was public that there was a line of credit provided to Brazilian airlines. We are taking part of that line of credit. We are still having ongoing conversations with BNDES in terms of how we should execute that line, but so far, that's the information we have: the line is available for the entire market in Brazil until the end of this year.
Regarding capacity for domestic Brazil, and I think you were comparing it to domestic Spanish-speaking countries: remember we have the Embraer fleet coming into domestic Brazil specifically, so we're accounting for that in the guidance. We see very healthy demand in Brazil in general and a number of opportunities to continue growing our network, as explained before. Domestic Brazil capacity is a bit higher in this guidance than what we published at the beginning of the year; this is basically a function of the robustness we see in demand and the solidity of our network and presence in Brazil. Also remember our fleet has a lot of flexibility, so we can move capacity around within the network and the current spread of capacity that you see between Spanish-speaking countries and Brazil is a function of where we see the opportunities. On domestic Spanish-speaking countries, we are seeing a somewhat weaker domestic Chile environment; the economy hasn't grown for the last six or seven months based on available reports, and that has a small impact on the average we see in Spanish-speaking countries. Our position in domestic Chile is still very healthy, with a 65% market share. The outlook remains positive for the remainder of the year. I hope we answered your questions, because we answered your questions, okay?
Yes. Sorry for the audio, but you answered it perfectly.
Your next question comes from Jens Spiess from Morgan Stanley.
Congrats on the results considering the challenging environment—quite impressive. I have two questions. One: on your hedging and the hedging results for the quarter. You had a negative fuel-hedging result, so I'm trying to understand how to forecast it into the future. I understand your hedging strategy protects up to a certain range, but we're still a bit surprised to see a negative result on that line. Can you help us forecast that line going forward? You're now incorporating more downside protection without limits. My second question: in general, how are you seeing the competitive environment evolving in the Brazilian market, not just in terms of capacity but prices? You've been very successful in raising prices, so what's your sense of how things are heading?
Thank you, Jens. Remember that last quarter we disclosed that we had added some additional calls together with the collars—the traditional collars that LATAM used to protect against fuel price volatility. The negative impact this quarter came from the premiums we paid for those calls. Because of the positive evolution in prices, we had a relevant concentration of negative impact from the premiums, much more than the positive impact that will come from the settlement of the hedge. Also, if you see the disclosure we have for the next quarter, we have close to 8% of the protection in terms of volumes for Q3 in calls; that was higher at the beginning of the crisis. So everything you should project is connected with this: the level of calls that we used in Q2 was higher than the level of calls for Q3. Because of that, the level of premiums should be lower. That's the way you should forecast. Yes, we continue to use collars. In some ways, we could widen the ranges in terms of protection to capture more downside protection under the same hedge policy. We just need to wait and see market conditions to understand how we should move forward.
Regarding the competitive environment in domestic Brazil: in 2025, domestic Brazil was the fastest-growing of the 10 largest domestic markets in the world. This year, despite the fuel situation, the trend continues. We see good market development. We have taken a leading position at the most important airport in Brazil, Guarulhos. Today our relative frequency share at that airport is around 2.5x versus the second carrier. Guarulhos is the entry point for international travel to Brazil; 65% of international capacity to Brazil flies into that airport. So our combination of the hub in Guarulhos, together with Brasilia and our hub in the Northeast in Fortaleza and our presence in Congonhas, constitutes a very solid footprint for serving corporate and leisure demand in Brazil. This will be reinforced with the addition of routes for the Embraers. Market capacity is in the high single digits if you account for all carriers, which is consistent with the dynamism of the domestic market. Overall, we have a good and positive outlook for the remainder of the year for the Brazilian market.
Your next question comes from the line of Filipe Nielsen with Citi.
I have one question regarding the E2 strategy. It was quite clear about the first phase and how you're deploying the aircraft. I wanted to understand a bit better the strategy behind choosing the markets and routes. Is it more focused on opening new markets, or are you targeting gaps or regions that should enable more feed for your main cabin or international routes? How did you choose the markets? Also, how do you see profitability regarding CASK and margin profile compared to the other aircraft and routes you already serve in the country?
Thanks. On the Embraer, let me separate existing routes from new routes. On existing routes, the E2 allows us to do two things. One is to rightsize the aircraft to demand at specific times of day where the A320 may be a little big. In some cases we are replacing A320 frequencies with E2 frequencies. Second, we can add new times when demand is lower, so you may see more frequencies than you would have with only A320s, which improves the product on those routes. On new routes, there are two possibilities: one is to operate airports where the E2 can fly but the A320 or A319 cannot, due to runway or infrastructure; and two, to operate airports where we do fly today with the A320 fleet or especially A319s, and because the older aircraft are less efficient, the economics of operating E2s is much better than operating the 319. Those are the drivers for deploying E2s across the network, whether for current routes or new routes. We haven't yet flown the E2, so I can't give you operational results, but we're very confident; it looks like a great airplane. We have seen other operators' experiences, and all have been very positive. We're excited and anxious for November to arrive and to have our first flights with Embraer planes in Brazil.
Your next question comes from the line of Gabriel Rezende with Itau Bank.
Two questions from our side. First, can you remind us a little more about the company's dividend policy and how you think about shareholder remuneration when deciding between share buybacks versus dividends? What's the possibility for coming quarters on top of the share buyback you already announced? Second, it's a bit tricky for us to calculate your actual CASK growth because of all the different FX components. How are you seeing operational leverage improving and potentially diluting CASK as we look into the capacity expansion you're planning for the coming quarters under cost and FX?
We had a shareholders' meeting approving a buyback for up to 5% of our shares. In Chile, buybacks need to be approved by shareholders and have limits: you can only buy up to 5% and have up to five years to execute. What we approved was the program; now the Board has the ability to decide how to execute it. We prioritize growth of the business first. If we see profitable growth opportunities, that's the first priority. On top of that, we look at the financial policy and meeting its targets. Any excess cash after those two points is considered for capital allocation. Now with the buyback, we have another option in addition to dividends; we also consider re-profiling or changing the debt. As weeks and months progress and we have a better outlook for the next quarters and years, the Board will have the ability to execute on the buyback program. Also, the Chilean stock exchange revamped procedures, making buybacks more streamlined; it's simpler now than in the past, which increases companies' ability to execute these programs.
Gabriel, regarding your question about CASK: because we are not providing guidance for next years, I'll answer with two considerations. Yes, we have an impact from inflation and cost escalations, but we also have operational leverage that could dilute part of the cost increase with capacity and by managing the business efficiently. Remember, when we updated guidance for this year, the passenger CASK ex fuel was almost the same as updated in Q1, but higher than the original guidance disclosed in December mainly because of the change in the FX assumption. So it's important to incorporate FX assumptions into your model because they have an impact. If you look at the group's CASK since 2019, we've had an intense efficiency agenda, including digitalization and other levers that have allowed us to hold CASK for many years. Having said that, we are working hard to keep costs as a competitive advantage for the group.
One additional clarification: you asked about the mix of currencies. We have costs in Chilean pesos, Peruvian soles, Colombian pesos, and so on, but the real one that matters most is the Brazilian real. When we provide guidance, we focus on the Real because it is the most significant currency for our cost base. The other currencies are relatively small. So you can simplify models by assuming the Real is what matters for FX changes in cost. The majority of the difference between the guidance we gave in December and the guidance we have today is related to the appreciation of the Real. That gives you a data point for modeling.
And another side comment: don't forget to also look at the impact of FX on RASK, because RASK is also affected by currency movements. After all, it's important to look at the evolution of both RASK and CASK together.
Your next question comes from Joao Frizo with Goldman Sachs.
I have a quick follow-up on the guidance for leverage. You mentioned you're expecting leverage to be below 1.6x at year-end. I wanted to hear your thoughts on what leverage would be excluding the planes that are expected to come in towards the end of this year. Leverage comes first, right? Then EBITDA comes afterwards. So what's leverage without the planes that will only generate EBITDA at the end of this year or beginning of 2027?
Thank you. We're not providing a breakdown excluding specific fleet items. It's important to note that whatever financing approach we choose for the fleet—finance lease or operating lease—it's accounted for as debt. The updated guidance to be at or below 1.6x includes our decisions on how and when we will finance the fleet. We added some additional facilities in this quarter, and those are included in our net leverage forecast. It would be complicated to split that level of leverage excluding the fleet, but it's fairly straightforward for you to calculate it using the list of debt we’ve provided in the attachments to the earnings release. I hope that helps.
There are no further questions at this time. I will now turn the call back to Ricardo Dourado for closing remarks.
Thank you all again for participating in today's call. If you have any further questions, please reach out to our Investor Relations team. Thank you again, and have a nice day.
This concludes today's call. Thank you for attending. You may now disconnect.