Latam Airlines Group Reports Operating Margin of 9.4% and Net Income of US$102 Million Fro First Quarter 2016

Published on : Thursday, May 12, 2016

latam airlinesLATAM Airlines Group S.A. the leading airline group in Latin America, announced today its non-audited consolidated financial results for the first quarter ended March 31, 2016. “LATAM” or “the Company” makes reference to the consolidated entity, which includes passenger and cargo airlines in Latin America. All figures were prepared in accordance with International Financial Reporting Standards (IFRS) and are expressed in U.S. dollars. The Brazilian real / US dollar average exchange rate for the quarter was BRL 3.90 per USD.

 

HIGHLIGHTS

 

 

 

 

 

 

 

 

MANAGEMENT COMMENTS ON FIRST QUARTER 2016

 

LATAM Airlines Group continues to work in order to offer the best network, value and experience for its clients. Over the last few years, the Company has worked tirelessly to improve efficiency, develop its product and thrive within challenging market conditions. To accomplish these goals, LATAM has launched many initiatives that touch each and every part of the Company; ranging from cost reductions to fleet modernization and digital innovation.

 

“Initiatives such as continued capacity adjustments on both domestic and international operations in Brazil, fleet plan restructuring, and additional cost reduction measures, all serve to strengthen the Company and will allow us to maintain a solid financial position,” said Enrique Cueto, LATAM’s CEO.

 

While management has been proactive with these initiatives, some challenges the Company faces remain beyond its control. The slowdown in GDP growth in the region and the depreciation of all local currencies has impacted the airline industry.  Moreover, the economic and political situation in Brazil is especially difficult as Brazilian GDP continues to lag and the presidential impeachment process generates widespread uncertainty. Under these volatile conditions, it is paramount that we continue to adapt as needed in response to current and future events.

 

With this in mind, we continue to pursue opportunities to reduce capital expenditures, while maintaining at all times adequate liquidity levels. Furthermore, we remain convinced that cost efficiencies are critical and will lead to continuous and sustainable improvements in profitability.  Specifically, we are working to increase and accelerate the savings of our cost reduction plan on work fronts such as operational labor productivity, efficiencies in overhead and support functions, procurement and administrative and selling expenses.

 

Regarding the situation in Brazil, LATAM remains convinced that capacity adjustments are the key to managing market conditions. The Brazilian market is expected to remain challenged for at least the next two years, and as a result, LATAM Airlines Brazil has adjusted its capacity reductions in Brazilian domestic operations even further, reaching a reduction of 10% to 12% for full year 2016.

 

On the other hand, other parts of Latin America continue to grow. In fact, International and Spanish Speaking Country operations accounted for 75% of the Company’s passenger revenue. Likewise, the Company experienced demand growth and healthy profitability on its international and domestic operations of the LATAM Group in Chile, Argentina, Peru, Colombia and Ecuador.

 

The Company has recently embarked on an important project to redesign our domestic business model, including Spanish Speaking Countries (SSC) and Brazil. This project seeks to increase competitiveness and ensure the sustainability of our domestic business model in the long term, and we expect a positive impact on our profitability going forward. Along these lines, we are working on incorporating best practices and adapting to positive industry trends.

 

A key objective of this project is to reduce operating costs which, together with simplifications in back-office and support functions, will allow us to expand operations while controlling fixed costs, resulting in a significant reduction in overhead costs per ASK. At the same time, increased operational efficiencies will allow us to continue stimulating new demand and driving the growth of air travel in South America. Other key elements under evaluation include ancillary revenue initiatives and further development of digital technologies in order to improve and simplify our passengers’ experience.

 

At the end of April, LATAM was formally launched as the new brand of the Company. We are the first airline group in the world to launch an entirely new brand following a merger and in doing so we anticipate efficiencies in the medium and long term. Since the LAN and TAM association, there have been ongoing efforts to streamline the two businesses and the LATAM brand is a bold step forward in that process. For decades, LAN and TAM have been strong brands in their respective markets. Now, both are one and the same brand, ready to give the world a new look, a global brand, equipped to represent the best of South America on the international stage.

 

Additionally, as a service provider, customer satisfaction is central to the Company’s decision making. This quarter was no different, continuing the development of digital initiatives, for which the Company is investing US$50 million throughout the year.  One goal is to empower clients by providing them with end-to-end control of their reservation. In the form of a smartphone application, LATAM now permits clients to check-in, select seats, obtain their boarding passes and access up-to-the-minute flight information on every one of our flights. Additionally, and in conjunction with the brand roll out, the Company launched an updated webpage and mobile app to offer a more uniformed, LATAM branded experience. This improves consistency and will mitigate inefficiencies due to complications arising over previously incongruous digital customer experiences across the system.

 

While 2016 has and will continue to present a challenging environment, it is not without great opportunities. In the coming months, LATAM’s new, unified brand will become even more visible. The best network in Latin America continues to improve and will soon connect South America with Africa, the only flight of its kind for a South American carrier. LATAM aspires to be among the best airline groups in the world, and the initiatives currently underway offer a strong chance at realizing that goal.

 

MANAGEMENT DISCUSSION AND ANALYSIS OF FIRST QUARTER 2015 RESULTS

 

Total revenues in the first quarter 2016 totaled US$2,327.6 million compared to US$2,791.1 million in first quarter 2015. The decrease of 16.6% is driven by a 16.4% and 21.2% decrease in passenger and cargo revenues, respectively, as well as 4.0% decrease in other revenues. Passenger and cargo revenues accounted for 84.1% and 11.9% of total operating revenues, respectively, during the first three months of the year.

 

Passenger revenues decreased 16.4% during the quarter, which reflects a 3.3% increase in capacity, offset by a 19.1% decline in consolidated passenger unit revenue (RASK), when compared to the first quarter 2015. The RASK decrease was driven by a 19.7% drop in yields, while load factors showed an improvement of 0.6 p.p. to 83.9%. Yield performance continues to be negatively impacted by the weak macroeconomic scenario in South America, as well as weak local currencies, especially in Brazil.

 

 

Source:- Latam Airlines

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