Latam Airlines Group SA, once the world’s most valuable carrier, is in its strongest financial condition since predecessor Lan Airlines bought Brazil’s TAM in 2012, said Chief Financial Officer Ramiro Alfonsin, in an interview in Santiago.
The airline has had to navigate Brazil’s worst recession in history, as well as try to combine two companies with vastly different cultures.
Now we’re focusing on cutting down the cost of our debt, on competing efficiently with new entrants in the market, Alfonsin said Friday after the release of Latam Airlines’ second quarter results.
Investors seem to be in agreement. The American depositary receipts advanced 1.5 percent to $11.94 and yields on its dollar bonds contracted after the carrier reported revenue and earnings before items that beat estimates.
Not even the net loss of $138 million attributed to the weaker Brazilian real and costs from the return of some aircraft as it cuts its fleet dampened enthusiasm.
The focus is instead on a 20 percent increase in earnings before interest, tax, depreciation, amortization and rentals, or Ebitdar, and passenger unit revenue growth that was the highest since the first quarter of 2015.
And even though Brazil hurt results in the quarter, demand for domestic flights started recovering in March after falling for 20 straight months, according to the Brazilian airline association.
Analysts have also grown more positive on the stock, with the average price target for the ADRs at its highest in two years.
It’s still a far cry from 2012, when Latam Airlines was the world’s largest airline by market capitalization. The shares peaked in 2010 at more than $30. It now ranks 15th among global peers, after China’s Hainan Airlines Holding Co. and Australia’s Qantas Airways Ltd.
Latam aggressively downsized its fleet and reduced routes in Brazil, Latin America’s largest economy, losing the medal of largest airline by market share in the country in the process.
Still, analysts see risks for Latam’s future as the entry of new low-cost carriers may lead to a price war in its key domestic Spanish speaking countries.
This year, JetSmart, which is owned by Indigo Partners LLC, began operations in Chile, while Viva Peru is operating in Peru. FlyBondi, created of Cartesian Capital Group LLC, is set to begin operations in Argentina later this year.
Latam is confident it will be in a good position to compete with the new entrants and defend its market share.
Ticket prices for domestic flights in Chile have fallen by around 40 percent since 2007 and there is some room for more cuts without compromising the quality of our service, Alfonsin said. And low-cost carriers can’t compete with flight connectivity.
If anything, the low-cost carriers will stimulate more traffic.
Chile's LAN Airlines and Brazil's TAM Airlines signed a non-binding agreement on 13 August 2010, a binding agreement on 19 January 2011, and papers to close the merger on 22 June 2012, with TAM Airlines shareholders agreeing to the takeover by LAN Airlines.Enrique Cueto, former CEO of LAN, is CEO of LATAM; Mauricio Rolim Amaro, formerly vice-chairman of TAM, became LATAM chairman.
The agreement to establish LATAM was approved by Chilean authorities on 21 September 2011, with 11 restrictions.
These include transferring four landing slots at Sao Paulo-Guarulhos International Airport to competitors interested in operating flights to Santiago de Chile's Comodoro Arturo Merino Benítez International Airport; renouncing membership to either the Oneworld or Star Alliance airline alliance; restricting the increase in capacity on flights between Brazil and Chile; and opening code-share possibilities and fidelity program membership to interested competitors.
On 14 December 2011, Brazilian authorities approved the agreement, imposing similar restrictions as Chilean authorities: LATAM would have to choose an alliance by August 2012; and frequencies between Sao Paulo and Santiago de Chile would have to be reduced. At the time TAM had two pairs of slots while LAN had four, LAN had to relinquish two pairs to competitors interested in using them.
On 7 March 2013, LATAM announced its final decision to choose Oneworld as its global airline alliance; as a result TAM left Star Alliance during the second quarter of FY2014 to join Oneworld.
In August 2015 it was announced that all LATAM Airline Group airlines would fully rebrand as LATAM, with one unified livery to be applied on all aircraft by 2018.The first of these aircraft were repainted or delivered new in a new LATAM livery in April 2016.
LATAM Airlines Group is currently working on the rebranding process, which is expected to be completed by 2019. Changes are becoming gradually more evident in physical spaces, on aircraft, at business offices, airport service counters, web sites, uniforms among others.
Some changes are already in place, mainly in passenger travel experiences, such as the new cabin interiors which have been incorporated into the fleet, new VIP lounges in Sao Paulo and Santiago currently open to the public and forming part of the largest network of frequent flyer lounges in the region, and digital platforms such as the onboard entertainment system for mobile devices.
Latam Shareholders
- Chile Cueto Group 28%
- Chile Administradoras de Fondos de Pensiones (AFP) 20%
- Qatar Airways 10%
- Foreign investors 10%
- Chile Eblen Group 6%
- Chile Bethia Group 6%
- United States American depositary receipts (ADR) 5%
- Brazil Amaro Group 3%
- Others 12%
LATAM Airlines Group is one of the largest airline groups in the world in terms of network connections, with its subsidiaries operating a combined fleet of 319 aircraft providing passenger transport services to 133 destinations in 23 countries; and 15 aircraft providing cargo services to 149 destinations in 28 countries.
LATAM’s main hubs are Santiago de Chile's Comodoro Arturo Merino Benítez International Airport, Jorge Chavez International Airport in Lima, Sao Paulo–Guarulhos International Airport and El Dorado International Airport in Bogota. The company is exploring the creation of a new hub in northeastern Brazil with the objective of expanding operations between Europe and South America.Bogota was recently announced as the new hub for the Caribbean.
The airlines majority- and minority-owned by LATAM Airlines Group through the primary airlines' various subsidiaries are as follows:
Chile: LATAM Chile
Argentina: LATAM Argentina
Chile: LATAM Cargo Chile
Chile: LATAM Express
Colombia: LATAM Colombia
Colombia: LATAM Cargo Colombia
Ecuador: LATAM Ecuador
Mexico: LATAM Cargo Mexico
Peru: LATAM Perú
Brazil: LATAM Brasil
Brazil: LATAM Cargo Brasil
Paraguay: LATAM Paraguay
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