LATAM Q1 results

Dino D'Amore
By Dino D'Amore May 12, 2016 18:19

LATAM Q1 results

LATAM Airlines Group has reported an operating margin of 9.4% for first quarter 2016, an improvement of 1.3% over the same quarter in 2015, and net income of US$102 million, a US$142 million improvement over the first quarter 2015. The improvement in operating results was driven by a 17.8% drop in operating expenses, resulting from lower fuel prices, local currency devaluations and ongoing efficiency initiatives. LATAM maintains its operating margin guidance of 4.5% – 6.5% for full year 2016.

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.

LATAM says that it is continuing to closely monitor weak demand conditions in Brazil and to adjust capacity accordingly on both domestic and international operations in that market. Capacity reductions in LATAM Airlines Brazil operations reached 8.4% in first quarter 2016 relative to the same quarter in 2015. LATAM Airlines Brazil is adjusting its guidance for domestic capacity reductions in Brazil from 8% – 10% to a reduction of 10% – 12% for full year 2016. LATAM Airlines Brazil has also increased its Brazil – US capacity reductions given the weakness in demand. Currently, LATAM expects to decrease its ASKs in that market by 35% during the second half of 2016 as compared to the same period last year.

During the quarter, LATAM’s capacity on international routes increased by 9.4%. LATAM Airlines Brazil has continued to reduce capacity on routes with weaker demand, including operations between Brazil and United States. Traffic increased by 10.5%, with passenger load factors growing by 0.9 p.p. to 84.8%. Revenues per ASK in international passenger operations decreased 21.1% as compared to the first quarter of 2015.

Cargo revenues decreased by 21.2% in the quarter, driven by a 9.8% decline in cargo traffic and a 12.7% decline in cargo yields as compared to the first quarter of 2015. During the quarter, cargo demand remained weak, especially in the Brazilian domestic and international market. Pressures on cargo yields continued mainly as a result of the competitive landscape and the depreciation of local currencies, specifically the Brazilian Real. As a result, cargo revenues per ATK declined 18.4% as compared to the same quarter of the previous year.

The Company continues working to adjust freighter capacity, while focused on maximizing the belly utilization of the Company’s passenger fleet. In the first quarter, cargo capacity, as measured in ATKs, declined 3.4%, which includes an 8.9% reduction of freighter operations. In all, cargo load factor declined 3.6 p.p.

Other revenues decreased by 4.0%, amounting to US$93.4 million during the first quarter 2016, affected by a drop of 27% in revenue derived from Multiplus. This drop is primarily related to currency depreciation as revenue when measured in local currency fell 0.8%. The drop was offset by growth in freighter aircraft leases and tour revenue.

Total operating expenses in the first quarter declined to US$2,108.5 million, a 17.8% reduction as compared to the first quarter of 2015. Cost per ASK equivalent (including net financial expenses) decreased by 17.4%, including the effect of the 38.0% decrease in fuel costs. Furthermore, cost per ASK equivalent excluding fuel dropped 9.1%, mainly due to our ongoing cost reduction program, as well as the positive effect of local currency depreciations on our costs denominated in those currencies.

LATAM continues to evaluate opportunities to restructure its fleet, beyond the 37% reduction in fleet commitments for 2016. In response to the macroeconomic slowdown in South America and the resulting deceleration in demand for air travel, LATAM is currently working on further fleet reductions, targeting a decrease of US$2.0 to US$3.0 billion in our expected fleet assets for 2018. “We expect to achieve this reduction over the next 18 months through a combination of delivery delays and cancellations, sale of new and older planes and redelivery of aircraft to lessors as leases expire.”

“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,” said Enrique Cueto, LATAM’s CEO. “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.”

Dino D'Amore
By Dino D'Amore May 12, 2016 18:19