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LATAM confident of future but fears odds against a fast cargo pickup

SINCE the launch of Latin American carrier LATAM in June 2012 established through a merger between Chile's LAN Airlines and Brazil's TAM Lineas Areas the cargo business has not been good for the new carrier despite the successful track records of both partners.

Cargo was a big part of the merged company's post-deal plan. LAN operated a large fleet of Boeing 767 and 777 freighters and, prior to the merger, cargo generated 28 per cent of LAN's revenue.

TAM did not operate any freighters, but its belly freight operation was significant, generating nine per cent of annual revenue. And both carriers were seeing strong year-on-year growth in their cargo traffic.

With LAN gaining access to Tam抯 vast domestic cargo network in Brazil and strong connections to Portugal, and TAM gaining access to LAN's main-deck and belly freight network across the Americas and parts of Europe TAM didn't serve, the stage seemed set for the development of a cargo operation that could claim a place on the global stage, reported Atlanta-area Air Cargo World.

But in the years since, Brazil's economy tanked and its exchange rate fell against the dollar, coupled with falling intra-Latin American trade, and demand for imports drying up, competition increased and strong growth in cargo traffic soon became a thing of the past.

Cargo traffic stagnated in 2012 and remained stubbornly flat throughout 2013. The situation deteriorated in 2014, when LATAM reported a 3.3 per cent decline in cargo volume. But that was just a precursor to this year, when the bottom fell out of demand, and Latham抯 first half cargo traffic was down 11 per cent, compared to the same period a year earlier.

Cargo revenue has plunged even more sharply than traffic volumes, with the carrier reporting cargo revenue down eight per cent last year, and down 16.3 per cent in the first quarter of 2015.

Despite the challenges thrown in its path, LATAM is still looking confidently towards the future. It has dealt with the tough times of the last three years by cutting costs, and reducing the size of its freighter fleet, while adding new cargo-friendly B787 and Airbus A350 passenger aircraft.

As LAN cargo's senior vice-president, sales and marketing, Alvaro Carrel, pointed out, when cargo demand does return to the region, LATAM will be well-placed to take advantage of it.