LATAM Airlines Group has reported strong operating results for first quarter 2015, with operating income reaching US$227 million, 102% higher than the US$113 million reported in first quarter 2014. Operating margin reached 8.1%, compared to 3.5% in the same period 2014.
The significant margin expansion during the first quarter 2015 was mainly driven by a 16% reduction in the Company’s operating costs. Cost per ASK equivalent decreased by 17%, including the effect of lower fuel prices. Furthermore, excluding fuel, cost per ASK equivalent decreased by 10%, which the airline said reflected “efficiencies achieved as a result of our ongoing cost reduction programs, as well as the effect of local currency depreciations on our costs denominated in those currencies”.
LATAM reported a net loss of US$40 million in first quarter 2015, similar to a net loss of US$41 million in first quarter 2014. Non-operating losses were driven by a non-cash foreign exchange loss of US$205 million mostly recognized at TAM as a result of the 20% devaluation of the Brazilian real during the quarter. The Company has mitigated foreign exchange losses by consistently reducing the exposure to the Brazilian real on TAM’s balance sheet.
As reported yesterday on this news service, LATAM Airlines Group successfully priced its first EETC issuance, becoming the first EETC issuer in Latin America and the largest outside the United States. The total amount of US$1,021 million will finance 17 new aircrafts (11 Airbus A321s, 2 Airbus A350-900 and 4 Boeing 787-9s), which are currently scheduled for delivery between July 2015 and March 2016.
The company ended the quarter with 85.8% of its flights on time, increasing 3.9 p.p. as compared to the same quarter of last year. The increase of its on-time performance is a result of a 6.6 p.p. increase in the domestic Brazil operations and a 5.2 p.p. increase in the international operations.
During the first quarter 2015 LATAM took delivery of the first two B787-9s in Latin America.
Total revenues in the first quarter 2015 reached US$2,791.1 million compared to US$3,177.4 million in first quarter 2014. The decrease of 12.2% is a result of a 12.8% decrease in passenger revenues and a 16.7% decrease in cargo revenues, partially offset by a 42.8% increase in other revenues. Passenger and cargo revenues accounted for 84.0% and 12.6% of total revenues, respectively, in first quarter 2015.
Passenger revenues decreased 12.8% during the quarter. Total passenger capacity increased by 2.1% in the quarter and total passenger traffic as measured in RPKs increased by 3.0%, with passenger load factors reaching a very healthy 83.4%, 0.7 percentage points higher than the same period in 2014. However, RASK decreased by 14.7% when compared to the first quarter 2014, driven by a decrease of 15.4% in yields. Yields continue to be impacted by the slower macroeconomic scenario in South America, the depreciation of local currencies (especially the Brazilian real, Chilean peso and Colombian peso), and a decrease in corporate demand in Brazil.
Cargo revenues decreased by 16.7% in the quarter, driven by a 9.6% decline in cargo traffic and a 3.3% decline in cargo capacity. Cargo yields declined by 7.9% as compared to the first quarter 2014 due to competitive pressures from regional and international cargo carriers, the depreciation of local currencies, mainly the Brazilian Real and the Euro, and a lower cargo fuel surcharge related to the drop in fuel prices.
In line with the LATAM’s approach towards a more rational and disciplined freighter capacity, and an enhanced focus on optimizing the belly utilization of the passenger fleet, the Company leased 3 Boeing 767-300Fs to another cargo operator in a different market for a period of three years. The Company materialized the lease of two of these freighters last year, and this quarter leased the third one.
Other revenues increased by 42.8%, amounting to US$97.3 million during the first quarter 2015. This result is mainly explained by a US$24.7 million increase in revenues from Multiplus as a result of more breakage and non-air redemptions.