Latin carriers generally remain bullish about their prospects for 2009 despite the global recession and are confident of continuing to outperform other regions.
Chile-based airline group LAN and Panama's Copa in particular enjoyed strong years in 2008 and do not expect any deterioration in their financials.
After reporting a $336 million net profit for 2008, LAN executives said they expected to at least match in 2009 their 2008 operating profit margin of 12%. LAN also has so far maintained its plan to increase passenger capacity by 10% this year, saying most of the growth is in domestic and intra-Latin American markets, which remain relatively strong.
Copa, which recorded a $152 million net profit for 2008 and a 17% operating margin, also remains upbeat as its business model revolves mainly around intra-Latin American traffic. Copa chief executive Pedro Heilbron told analysts the region's economies continue to hold up relatively well and Panama in particular remains strong. Panama's GDP is still expected to grow this year, driven by expansion of the Panama Canal and government infrastructure projects. "We think there's going be a softer landing in Panama. It's going to obviously slow down from double digits to mid-single digits, but much better then what we're seeing in the rest of the world," Heilbron says.
Latin America's largest market, Brazil, seems to be shakier as the country's GDP begins to shrink and as competition intensifies following the launch of new low-cost carrier Azul. But TAM chief financial officer Libano Miranda Barroso remains relatively upbeat about 2009 and says the Brazilian market continues to hold up relatively well: "For the first quarter we had, despite all the crisis signals, a nice quarter."
However, citing the current "macroeconomic outlook", TAM has scaled down its 2009 projection for domestic RPK growth from between 5%- 9% to between 1%-5%. It also has reduced its projected 2009 system-wide load factor from 70% to 67%. TAM has not yet adjusted its capacity plans for 2009, which includes 8% and 20% increases on the domesticand international networks respectively. But it says it is considering making an adjustment in May.
TAM is still expected to remain in the black this year after turning a profit of 689 million real ($311 million) at an operating level in 2008. Net, itlost 1.34 billion real driven by fuel hedge losses and the depreciation of the real.
Brazil's second major carrier, Gol, incurred a 1.39 billion real net loss in 2008 as well as an operating loss of 89 million real. It is more bullish on 2009, calling 2008 "a year of significant transformation" as it eliminated all the long-haul flying at its Varig unit. In October Varig and Gol were integrated under one operating certificate, giving it a lower cost base which should improve the group's position for 2009.
Remaining cautious
But Gol chief executive Constantino de Oliveira Junior remains cautious, saying "we expect a lower GDP growth for the economy in the country than we were expecting at the end of last year". As a result, Gol is now projecting an average load factor of only 59% this year.
Some analysts are even less optimistic about the prospects for Brazilian carriers. JP Morgan analyst Jamie Baker says revenue "trends for both Gol and TAM are expected to weaken as the year wears on, a function of continued supply growth, negative GDP and competition from Azul. Unlike in North America, where some have identified signs of demand stabilisation, we expect Brazilian fundamentals to deteriorate further."
Baker is more upbeat about Copa, saying the carrier's "fundamentals stand in sharp contrast to those in Brazil" and pointing out Panama's GDP is still expected to grow. "Plus, Panama remains a growing, dollar-based economy with nary a start-up airline in sight," he adds.
It is more difficult to gauge the performance of the rest of the region because LAN, Copa, Gol and TAM are Latin America's only publicly traded carriers. Colombia's Avianca, however, stated it remains optimistic after posting a $28 million profit for 2008. Aeromexico and Mexicana, which both ended 2008 in the red, also say they still believe they will meet their targets this year of being profitable, despite intense competition in the Mexico (see related story p44).
However, IATA chief economist Brian Pearce sees Mexico as one of the region's weaker markets, given its reliance on the US economy. "I think Mexico will have a very hard time given the weakness of the US market," Pearce says.
While IATA is projecting its Latin members will incur around $600 million in losses in 2009, Pearce says: "It's a region of tremendous diversity in terms of financial performance." He adds there is very mixed picture in Latin America. "Some carriers still seem to be making profits, others not. We see Latin America overall being affected by the US downturn, especially in international markets."
ALTA executive director De Gunten agrees with IATA that "this year will be worse than last year", but still expects Latin America to outperform other regions. "I think we'll start to follow the rest of the world but the numbers won't be as bad."
On the whole De Gunten says Latin carriers in 2008 were "positive at an operating level" but negative at a net level due to fuel hedge losses after the sharp drop in oil prices. Perhaps more concerning, and for the first time in several years, ALTA members recorded a collective drop in traffic in February. RPKs were down 2%, driven by a 5% drop in traffic to Europe. De Gunten expects ALTA traffic to continue to trend down "but at a different rate than the rest of the world".
He says ALTA is more bullish than IATA, which reported a 4% drop in Latin carrier traffic in February and is projecting an 8% drop this year. De Gunten points out the IATA figures exclude Gol and several other ALTA members. He says he remains relatively upbeat because Latin economies for the most part are stable and not as dependent on the US.
He adds most Latin countries are also not as affected by the global financial crisis because they were not involved in "the toxic assets of European and US banks".
Source: Airline Business
