LATAM Airlines reported an operating income of US$295.2 million for the fourth quarter of 2018, a 9.3% increase compared to year-ago period. Operating margin reached 10.6%, an increase of 0.8 percentage points, driven by a 2.3% increase in passenger revenues and relatively flat operating expenses, despite the 27.9% increase in fuel costs during the quarter. For the full year 2018, LATAM achieved an operating margin of 6.8%.
The airline group’s reported net income was US$148.7 million for the fourth quarter 2018. For the full year 2018, net income reached US$181.9 million, compared with US$155.3 million in 2017 – the highest result since the association between LAN and TAM, despite the US$157.7 million foreign exchange loss and the US$664 million increase in fuel costs during 2018.
Total revenues in fourth quarter reached US$2,788.3 million, an improvement of 0.8% year-on-year. This increase was driven by a 2.3% increase in passenger revenues as a result of 6.5% capacity growth (ASK) despite a 4.0% decline in passenger revenue per available seat kilometer (RASK). For full year 2018, revenues reached US$10,368.2 million, an increase of 2.0% compared with the same period in 2017.
Total operating expenses declined 0.2% year-over-year in the fourth quarter to US$2,493.2 million, despite a 27.9% increase in fuel cost compared with the same period last year. Excluding fuel costs, total operating costs declined 10.1% year-over-year in the fourth quarter.
LATAM’s gross financial debt decreased by US$630 million, reaching a leverage of 4.3x, which represents a reduction from 4.5x at the end of 2017. Furthermore, free cash flow reached US$1,158.6 million and liquidity reached US$2.0 billion, including cash, cash equivalents and US$600 million of an undrawn revolving credit facility (RCF), equivalent to 19.3% of the last 12 months’ revenues. In addition, in January 2019, LATAM successfully priced a US$600 million senior unsecured notes issuance, due in 2026, at an annual coupon rate of 7.0%.
Management stated that LATAM enjoyed healthy financial results in 2018 despite the fact that it had been a challenging year for the airline industry in South America with increasing fuel prices, political instability prior to the presidential election in Brazil, economic volatility in Argentina and the devaluation of local currencies, which impacted demand for international travel.
LATAM states that it is continuing to make cost savings. In 2018, it exercised a US$2.2 billion reduction in fleet commitments between 2018 and 2021. LATAM maintains the wet lease contracts of two Airbus A330 with the Spanish airline Wamos and two 777-200 with Boeing Capital. These aircraft were leased in order to mitigate the impact of fewer Boeing 787 aircraft available due to the extension of Rolls Royce’s engine maintenance program.
Fleet commitments for 2019 amount to US$1,197 million, with approximately US$540 million accounting for capital expenditures. For 2020, expected fleet commitments amount to US$708 million. LATAM says that it is constantly working on adjusting its fleet to the current demand environment, so it can optimize its utilisation and thus maximise profitability.
In February 2019, LATAM inaugurated a maintenance hangar at Guarulhos International Airport, Sao Paulo, which he hopes will provide an estimated annual cost reduction of approximately US$5.5 million. The facility has the capacity to serve seven widebody aircraft simultaneously or up to 19 narrow body aircraft in a space of more than 65,000 m2.