LATAM to launch LCC domestic model; posts $5 million 3Q profit

By Mark Nensel

Santiago, Chile-based LATAM Airlines Group posted a $4.7 million net profit for the 2016 third quarter, reversed from a $113.3 million net loss in 3Q 2015.

Third-quarter revenue for the South American airline group—which comprises LATAM Airlines and its affiliates in Argentina, Brazil, Chile, Colombia, Ecuador, Paraguay and Peru; LATAM Cargo; and loyalty-program company Multiplus—grew modestly (0.2%) to $2.5 billion.

On Nov. 9, LATAM Airline Group and its affiliates announced the company will implement a low-cost carrier model—a “new travel model”—for domestic services in the six countries where it has domestic operations (Brazil, Chile, Peru, Argentina, Colombia and Ecuador).

Implementation of the program will be made by country and in stages beginning in the first half of 2017. LATAM said the model will affect 78% of the group’s passengers and 45% of the company’s capacity, and projects that basic fares on domestic routes will be up to 20% cheaper through to 2020 and passenger numbers on domestic routes will increase up to 50%.

“Our objective is that fares [will] continue to fall, widening access to air travel both to more people and to those who wish to fly more frequently. The new travel model seeks to satisfy the needs of today’s passengers, who value fast, convenient and seamless travel, as well as the ability to manage and personalize their travel experience, only paying for the services they require,” LATAM Airlines Group CEO Enrique Cueto said.

“The airline industry is being transformed and we feel confident that LATAM is well positioned to address the needs of today’s passengers by making their travel easier in a smart and relevant way,” LATAM said.

LATAM’s third-quarter passenger revenue decreased 0.6% YOY to $2.1 billion; cargo revenue fell 14.3% YOY to $265.6 million. The group’s consolidated yield was down 0.9% to 6.2 cents. Other revenue, however, increased 68.2% during the quarter to $153.6 million, primarily from a $28 million increase in sales from tour operators associated with the Rio Olympics.

LATAM said it was the first quarterly revenue gain after 11 consecutive months of revenue decline and reflected “a stronger currency environment in South America, especially the 8.3% appreciation of the Brazilian real, as well as a positive revenue per ASK trend in [Brazilian domestic and international routes] driven by significant capacity adjustments,” LATAM said. The company reduced domestic capacity in Brazil 13.2%, and revenues per ASK increased 8.6% during the quarter. Capacity on international routes between Brazil and the US were reduced approximately 31.5% during the quarter; RASK on these routes increased approximately 20% during the quarter, LATAM said.

LATAM deferred delivery of two Airbus A350 XWBs—from 2017 to 2018—during the quarter.

“Total fleet commitments for 2017 will amount to $482 million, the lowest in the history of LATAM, all of which will be operating leases, requiring no fleet capital expenditures in 2017,” LATAM said, adding the company will also redeliver one Airbus A320 in 2017 and sell one Boeing 767-300 in 2018. The company plans to fully phase out its A330 aircraft is “on track to be completed by year-end,” LATAM said.

The group’s operating expenses for the quarter decreased 1.1% to $2.4 billion, as aircraft maintenance expenses declined 12.3% and aircraft fuel costs fell 13.5% YOY. The group reported $152.3 million in operating income for the quarter, up 26.3% from $120.6 million in operating profit during 3Q 2015. The group’s operating margin for the quarter was 6%, up 1.3 points compared to 4.8% in 3Q 2015.

LATAM’s third-quarter consolidated systemwide traffic was down 1.4% YOY to 38 billion RPKs on a 2.1% systemwide decrease in capacity to 52 billion ASKs, producing a load factor of 73%, down 2.6 points YOY.

Passenger traffic was up 1.1% YOY during the quarter to 29.3 billion RPKs.  Passenger capacity was flat at 34.5 billion ASKs and the group’s passenger load factor increased 0.9 point YOY to 84.8%.

LATAM’s cargo traffic was down 9.2% to 824 million RTKs during the quarter; capacity decreased 5.9% to 1.7 billion ATKs; the group’s cargo load factor came in at 49.6%, down 1.8 points YOY.

As of Sept. 30, LATAM Airlines Group’s consolidated fleet comprised 339 aircraft: 244 Airbus A320 family aircraft, including the first A320neo delivered to an airline in the western hemisphere; six A330-200s and five A350-900s (two of which were delivered during the third quarter).  LATAM’s Boeing fleet includes 37 767-300s, 10 777-300ERs, 10 787-8s, 12 787-9s, four 777-200 freighters and 11 767-300 freighters.

 

This post was republished with permission from Air Transport World