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Airlines are making big money just about everywhere in the world, with one major exception — Latin America.
LATAM Airlines Group, the large carrier formed after the 2012 merger of Chile’s LAN and Brazil’s TAM, lost $92.1 million (U.S.) in the second quarter, as it continues to struggle amid a “volatile” South America macroeconomic environment, management said Friday.
The airline, among the last in the world to report second quarter earnings, said passenger revenues fell 13.7 percent, year-over-year, while cargo revenues decreased 22.3 percent. Its operating margin was a mere 0.1 percent.
In addition to overall economic troubles in its core markets, LATAM said it faced losses related to “devaluations of Latin America currencies” during the second quarter.
The earnings announcement came less than a month after Qatar Airways said it would acquire 10 percent of the company, a transaction that will ensure LATAM receives a fresh infusion of $613 million of capital. On LATAM’s earnings call, executives said Qatar approached them about the investment, which should be finalized later this year.
Brazil remains a a major problem, LATAM executives said, though demand has picked up slightly in recent weeks. The company said it slashed its domestic Brazil capacity by 13.7 percent in the second quarter, on a year-over-year basis.
The airline is calculating that it still has a “long way to go” before its Brazil business returns to pre-crisis revenues, Roberto Alvo, chief corporate officer, said on the airline’s earnings call. “But for the first time in many quarters we’re starting to see a very timid …. change in trend,” he added.
LATAM is also continuing to cut international flights from Brazil, saying Friday it expects to fly 35 percent less capacity between the United States and Brazil in the second half of this year, compared to 2015. Many of the world’s other large airlines also have pulled flights from Brazil.
“That’s a market that has been very, very hurt and although we’ve seen some stabilization between demand and supply …. that market still has a long ways to go to come back to the revenues …that we saw in previous years,” Alvo said of long-haul Brazil flights.
As it cuts Brazil capacity, the airline said it will add more routes between Latin America’s Spanish-speaking countries and the United States and Europe. One example is a new Lima to Barcelona flight set to start late this year.