Chile’s LATAM Airlines, the largest airline in the region, posted a US$ 60 million loss in the first quarter, compared with a US$ 92 million profit in the same period last year, due to a strong U.S. dollar and weak demand from Argentina.
The airline said in a securities filing it was reducing its forecast for growth in its international flights to a maximum of 2% growth, compared with a previous guidance of between 3% and 5%.
In Brazil, however, which is LATAM’s largest domestic market, the airline said it was raising its forecast for capacity growth to between 5% and 7% due to the crisis facing its competitor Avianca Brasil, which is undergoing a bankruptcy protection process.
Still, growth in Brazil is unlikely to offset lower growth in international flights, which brings in over 50% of the airline’s total revenue, twice the current value of the Brazilian domestic market, according to its financial statements.
In response to weak demand from depressed Argentina, which is struggling with rampant inflation, LATAM said it had cut two international routes there and was in the process of cutting two more.
LATAM and its competitors, including Brazil’s Gol Linhas Aereas Inteligentes, have been faced with increased pressure in recent quarters due to the depreciation of emerging market currencies, especially the Brazilian real and the Argentine peso.
While passengers pay for tickets largely in domestic currencies, significant air travel costs are denominated in U.S. dollars, such as the price of fuel and of aircraft leases.