Capacity cuts to international markets and improved performance in Brazil helped push LATAM Airlines Group’s profit up 50% year-over-year in the third quarter to $86.3 million.
Capacity cuts to international markets and improved performance in Brazil helped push LATAM Airlines Group’s profit up 50% year-over-year in the third quarter to $86.3 million.
The profits follow a troubling first half of 2019 for LATAM. The airline racked up nearly $123 million in losses during the first six months of the year.
“This improvement reflects a proactive capacity management across our international markets and healthy domestic demands,” says LATAM chief financial officer Ramiro Alfonsin, during the company’s earnings call on 13 November. “Capacity adjustments in our international markets are bearings results.”
The results come despite notable challenges in several countries in which LATAM operates, including Argentina and LATAM’s home country of Chile. Social unrest in Chile will likely cost the airline company $30 million in the fourth quarter, it predicts.
As a result, LATAM now projects it will have a full-year operating margin of 7% – at the low end of its previous 7-9% guidance.
LATAM cut capacity on some international routes this year in response to difficult economic and social conditions. It slashed capacity to Argentina by about 20%, it says.
The company’s third quarter operating revenue jumped 6.9% year-on-year to $2.7 billion. Passenger revenue was up 11% and cargo revenue was down nearly 10%. The company’s operating expenses climbed 5.5% year-on-year in the quarter to $2.4 billion, leaving a $269 million operating profit.
LATAM’s third quarter capacity on international flights, measured in available seat miles (ASM), declined 4.1% in the quarter.
That change significantly reduced LATAM’s exposure to international markets. In the third quarter, revenue from international flights accounted for 54% of LATAM’s revenue, down from 57% in just three months, notes vice-president of corporate finance Andres de Valle.
LATAM received only 5% of third quarter revenue from international Argentina flights, down from 9% one year earlier.
The company also cut capacity on international flights to Brazil.
But, it increased capacity nearly 10% on intra-Brazil flights in response to a hole in the market created by the failure of a previous competitor, Avianca Brazil.
LATAM’s intra-Brazil revenue per available seat mile (RASM) jumped nearly 23% year-on-year in the third quarter and revenue from Brazil accounted for 42% of LATAM’s revenue, up from 35% one year earlier.
During the third quarter, LATAM bolstered its fleet six Airbus A320s, two A320neos and one A350, ending the period with 335 aircraft.
