LATAM Struggles In South America

LATAM has suffered big falls in passenger and cargo revenue in the second quarter of 2016 as macroeconomic conditions in South America continue to challenge.

LATAM, the Chilean-Brazilian airline group, has suffered big falls in passenger and cargo revenue in the second quarter of 2016 as macroeconomic conditions in South America continue to challenge.

Passenger sales were down 14 per cent on the year-before period, while cargo was down 22 per cent as the group’s net loss for the quarter almost doubled to $92m.

Management admitted the result had “not fully met our expectations” following efforts to restructure, consolidate and streamline the group’s operations.

“With this is mind… LATAM and its affiliate carriers have further advanced in the redesign of their domestic passenger business model, in order to increase competitiveness and ensure the sustainability of domestic operations in the long term,” said the company in a statement.

During the quarter LATAM cut capacity for it domestic Brazilian operations and raised it in Chile, Colombia, Argentina, Peru and Ecuador, but was stung by huge drops in yields across South America.

These left the group with an operating margin of just 0.1 per cent despite an almost one-third reduction in its fuel bill, and falls in almost all other costs.

Part of LATAM’s response is to pursue further cost measures for its domestic operations, but the group will also limit its capital outlay by deferring 12 A320neos and two A350s, which represent a total reduction of $829m in fleet commitments for 2017 and 2018.

On top of that the company will redeliver another five more A320s, three A319s, and one Boeing 777-200F next year.

Qatar Airways is also expected to bolster the company’s financial position by taking a 10 per cent stake in LATAM in a move that is expected to complete before the end of the year.

LATAM, says the deal should result in improved connectivity for its customers to the Middle East and Asia, though for now its focus must be closer to home.

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