MercoPress. South Atlantic News Agency

Latam airlines has poor performance in 2Q; defers incorporation of new aircraft

LATAM has racked up repeated losses since it was formed in the 2012 merger of Chile's LAN and Brazil's TAM, hamstrung by Brazil's economic problems

Latin America's largest airline, reported a wider-than-forecast net loss in the second quarter of US$92 million, as it struggles to overcome tough economic conditions in its key markets. The airline made a loss of US$50 million in the same period a year ago, a quarter that is traditionally weak for seasonal reasons.

 Sales for the second three months of 2016 were US$2.1 billion, down from US$2.4 billion a year ago. In the first six months, the airline made a US$10 million profit.

LATAM has racked up repeated losses since it was formed in the 2012 merger of Chile's LAN and Brazil's TAM, hamstrung by Brazil's economic problems and negative currency effects. It has said that any recovery in its bottom line will depend on a turnaround in Brazil, currently mired in deep recession.

The macroeconomic environment remained “challenging”, the company said in its report, “there is a pressure on tariffs, that is impacting results,” said investor relations manager Gisela Escobar at a post-earnings presentation. “We have seen more competition on international routes in recent months.”

LATAM has continued to cut capacity out of and within Brazil, shifting toward more stable and lucrative international routes, and building up Lima as a hub.

Acknowledging that results “had not fully met our expectations”, the company said it was looking to increase innovation and “ancillary revenues” and cut costs in order to make domestic operations sustainable in the long-term.

The airline maintained its margin guidance of 4.5% to 6.5% for 2016, and said previously announced fleet reductions were proceeding in line with plans. This revenue decrease continues to reflect a weak macroeconomic environment, – especially in Brazil – and the devaluations of Latin American currencies during the period.

Part of this decline was offset by the continued positive trend in costs, with total operating expenses declining by 12%, resulting in a 10.5% decline in costs per ASK equivalent.

As of August 2016, LATAM Airlines Group has reduced fleet assets for 2017-2018 by US$1.1 billion, in line with the company’s previously announced plans to achieve a decrease of US$2.0 to US$3.0 billion in expected fleet assets for 2018.

LATAM said the company has deferred 12 Airbus 320neo and two A350 aircraft, and has also opted to redeliver five additional A320s, three A319s and one Boeing 777-200 freighter in 2017.

In July, LATAM entered into an agreement with Qatar Airways to acquire up to 10% of LATAM’s total shares. A shareholders meeting on Aug. 18 will determine whether the agreement is approved. Once approved, the capital infusion of US$ 613 million should come in the 2016 fourth quarter.

“It will be used to strengthen the financial position of the company, reducing debt while expecting to end the year with a cash position of approximately US$1.5 billion, which we consider to be an adequate level for the company under current market conditions,” LATAM said.

As of June 30, LATAM Airlines Group’s consolidated fleet comprised 333 aircraft including 241 Airbus A320 family aircraft, five A330-200s and three A350-900s. LATAM’s Boeing fleet includes 37 767-300 passenger aircraft, 11 767-300F cargo aircraft, 10 777-300ERs, four 777-200Fs, plus 10 787-8 and 12 787-9 Dreamliners.

LATAM has racked up repeated losses since it was formed in the 2012 merger of Chile's LAN and Brazil's TAM, hamstrung by Brazil's economic problems and negative currency effects. It has said that any recovery in its bottom line will depend on a turnaround in Brazil, currently mired in deep recession.