LATAM’s First Quarter Since Merger Judged a Success

 - August 20, 2012, 9:15 AM
Chile’s LAN and Brazil’s TAM posted a combined net income of $49.7 million last quarter.

For the first time since the June 22 merger of Chile’s LAN and Brazil’s TAM, LATAM Airlines Group last week released the combined airlines’ quarterly financial results, along with a schedule for its planned fleet overhaul.

While soundly beating analysts’ estimates for earnings per share, LATAM reported net income of $49.7 million during the quarter on revenue of $1.58 billion. Highlights for the quarter included continuing strong passenger demand in most of Latin America and sustained capacity discipline in the domestic Brazilian market, the company said. However, it added that the quarter presented a “challenging” environment due to reduced cargo demand and depreciation of local currencies against the U.S. dollar, particularly in the case of the Brazilian real.

Through 2014 Latin America’s largest airline group plans to spend $7.87 billion on fleet restructuring, led by the addition of 12 more Airbus A320-series narrowbodies through the end of this year, 21 next year and 25 in 2014. During this year’s second quarter LAN took delivery of three A320s and a single Boeing 767-300, while TAM received four A320s. LAN also returned three Boeing 737-700s and TAM returned three leased Airbus A320s.

LATAM expects this year to take delivery of its first three Boeing 787s of 32 on order, followed by five next year and 12 in 2014. For the rest of this year, it also expects to take delivery of a pair of 777 Freighters, along with eight 767-300s and four 777-300s. The fleet plan also calls for the return of 21 airplanes, leaving it with 319 by the end of this year.

“The integration with TAM is proceeding smoothly, with important advances during the first weeks of joint operations,” said the company. “We remain confident that the announced $600- to $700 million in synergies are achievable, and that we will begin to see the positive results of the business combination in the third quarter 2012.”

LATAM estimates “synergies” will total between $170 million and $200 million during the first full year of combined operation. It expects 40 percent of the benefit to come from revenue gains in international markets, 20 percent from revenue increases in the cargo business and 40 percent from cost savings.