Chief Executive Officer Roberto Alvo said refining remains a bottleneck and the market wants a lasting resolution to the conflict, so energy prices may not quickly retreat. Latam's planning assumptions put Q3 jet fuel at $147 a barrel and Q4 at $130, far below the roughly $190 currently trading, a gap that Alvo said could also mean slower capacity growth.
Alvo declined to detail how higher fuel will affect the outlook before third quarter results on Nov. 3. The airline cut full year adjusted Ebitda guidance in May, then struck a slightly more upbeat tone in August after lowering its fuel price assumptions.
Alvo told Bloomberg News that passenger demand remains solid even with higher fares. "Travelers may be replacing cars or televisions less frequently" to prioritize travel and experiences, he said.
A shift toward higher value customers has helped offset a small drop in plane occupancy. Alvo added the carrier is willing to accept fewer passengers if that supports higher overall revenue.
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Load factor - the share of seats filled - has trailed year earlier levels since April. September closed a quarter with load factor at 83.7 percent, down 1.7 percentage points from a year ago. In a note this month, Citi said the metric is likely to stay muted because rising fuel costs push up fares and pressure demand.
Latam is expanding in Brazil and sees Mexico as another growth path. Incoming extra long range Airbus aircraft could open service to Monterrey and Guadalajara, adding to the existing services to Mexico City and Cancún. Connectivity between Mexico and Brazil remain sparse, with just two daily flights, which creates opportunity to add more departures from the capital and other cities in Mexico.
The bottom line: watch the tension between fuel costs and capacity decisions against resilience in demand and mix. Latam reports on Nov. 3.
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