LATAM Airlines Group Reports Operating Income Of US$121 Million And Operating Margin Reaches 4.8 Per Cent In Third Quarter 2015
LATAM Airlines Group S.A, the leading airline group in Latin America, announced its consolidated financial results for the third quarter ended 30 September, 2015. “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 3.54 per USD.
• LATAM Airlines Group reported operating income of US$120.6 million for the third quarter 2015, with operating margin reaching 4.8 per cent, an increase of 1.0 percentage point compared to the third quarter of 2014. Profitability improvements this quarter were driven by cost efficiencies as a result of lower fuel prices, as well as by the Company’s ongoing cost savings initiatives. Excluding fuel, cost per ASK equivalent decreased by 13.7 per cent as compared to third quarter 2014.
• As a result of a weaker macroeconomic environment in South America and the significant devaluations of Latin American currencies during the period, especially the 55.5 per cent depreciation of the Brazilian real, total revenues for the Group during the third quarter 2015 declined by 19.9 per cent as compared to third quarter 2014.
• LATAM reported a net loss of US$113.3 million in third quarter 2015, similar to the net loss of US$107.8 million in third quarter 2014. Non-operating results include a non-cash foreign exchange loss of US$241.1 million mostly recognised at TAM as a result of the 27.2 per cent devaluation of the Brazilian real during the quarter. The Company has been able to mitigate this foreign exchange loss over time by reducing its balance sheet exposure to the Brazilian real.
• Considering the challenging economic scenario in Brazil and the resulting slowdown in the airline industry, TAM reduced domestic capacity in Brazil by 5.9 per cent in September 2015 and, as previously announced, it is reducing capacity during the fourth quarter 2015 by approximately eight per cent to ten per cent as compared to 2014. As a result, the Company has already shown improvements in revenues per ASK, which increased by 10.7 per cent as compared to the previous quarter, and by 6.0 per cent as compared to third quarter 2014, when measured in Brazilian reais.
• In order to adjust to weaker expected demand conditions, LATAM Airlines Group is revising its fleet capital expenditures for the next three years. The Company has undertaken a plan to restructure its delivery schedule for 2016–2018, aiming to reduce fleet commitments for the period by approximately 40 per cent, equivalent to a reduction of approximately US$3.0 billion, through deferrals and sales of both wide body and narrow body aircraft. This restructuring seeks primarily to adjust capacity to the prevailing market conditions in Latin America, and is in line with our focus on maintaining a healthy balance sheet and adequate liquidity by reducing capex and pre-delivery payments. During this year, the Company has already successfully accomplished a significant portion of this plan, achieving a reduction of approximately US$1.8 billion in fleet commitments for the period, including the deferral of certain aircraft originally scheduled for delivery in 2017 and 2018. In addition to these ongoing negotiations, the Company is planning the redelivery of 20 aircraft for 2016, including the phase out of its ten remaining Airbus A330s. Furthermore, the Company continues to rationalise freighter capacity, having finalised the sublease of one of its four 777-200Fs to a third party.
• LATAM seeks to maintain an adequate level of liquidity, which we consider to be in the range of US$1.5 billion. As of 30 September, 2015, the Company had US$1,542.3 million in cash and cash equivalents, which represents 14.2 per cent of last twelve months revenue. Regarding our fleet commitments, we have completed approximately 80 per cent of our fleet financing requirements for 2016.