Latin America’s largest airline, LATAM Cargo, is boosting its intercontinental reach.
Having launched flights from São Paulo to Boston in early July (its second new US route from its Brazilian hub opened in eight months), LATAM Airlines has set its sights on transatlantic expansion.
It plans to start services to Lisbon in September, followed by flights to Tel Aviv three months later – the only direct route between Latin America and Israel. In the first half of next year management intends to add Munich to the network.
Andrés Bianchi, CEO of LATAM Cargo, is looking forward to the new routes. Outbound they will further enhance the capacity that the carrier provides to exporters from the region.
In the opposite direction the cargo division is working on building feeder networks to the new stations, he says. Above all, Munich should offer good access to the industrial centres in southern Germany.
LATAM’s international expansion has been hampered by the problems of Rolls-Royce engines on the 787-9s. “We were probably one of the hardest hit companies. About half of our 787 fleet was grounded at some point,” remarks Bianchi.
LATAM has some more 787s on order as well as A350-1000s. “We’re looking for growth in our widebody capacity,” he says.
The airline’s freighter fleet has also seen some change. Earlier this year it sold is remaining two B777-200 cargo planes to Atlas Air.
The 777s – ordered at a time when Latin America was booming and before the merger with TAM, which brought in a lot of belly capacity – were meant for Europe and trunk routes in Latin America but are not well suited to multi-stop routings.
The 767, historically the backbone of the freighter fleet, is better suited to the airline’s core markets and eight hour segments, according to Bianchi.
He has been unequivocal on the importance of freighters in the airline’s business, calling them ‘an integral part of LATAM’s cargo proposition’.
The departure of the final two 777 freighters does not reduce the carrier’s freighter capacity, as it is adding more 767-300 cargo aircraft to its line-up. It took delivery of one in May and is adding three more by converting passenger aircraft from its own fleet into all-cargo configuration.
The first of these is due to enter service in November, and one each is to come on stream in 2019 and 2020.
The unit due in November will be used to cut back on LATAM’s use of ACMI capacity, but the following two are earmarked for expansion. These shifts will bring the freighter fleet to 12 units.
The withdrawal of the last 777F prompted a reshuffle of the carrier’s transatlantic freighter schedule. In lieu of three weekly 777 flights to Europe, it now operates five weekly frequencies with 767s, which is roughly the same capacity in terms of ATKs (available tonne-kilometres) Bianchi notes.
At the same time, LATAM Cargo shifted the routing and is now serving Madrid and Brussels.
“We took advantage of the higher flexibility to open Madrid. Brussels had a lot to do with the constraints in Amsterdam,” says Bianchi. The results have been better than expected, he adds.
In the Americas LATAM made one change to the freighter operation this year, adding Antofagasta in northern Chile to the network with twice weekly flights from Miami that continue to Santiago. The airport is an important gateway to supply mining activities in the region.
At this point some potential destinations are under review, but no major additions or changes are on the agenda. “By and large we are keeping the same network,” says Bianchi.
Buoyed by the recovery in its home region, LATAM Cargo has been on a roll. After a contraction in 2016, owing to a depressed market (particularly Brazil, the largest economy in its region), cargo revenues climbed again last year, up 6.7 per cent over the previous year.
The momentum held in the first quarter, which saw a 16.6 per cent rise in cargo revenues to $295.8 million. Yields advanced 7.1 per cent in the period, while the load factor was up 1.9 per cent points.
According to Bianchi, these numbers are a better reflection of the carrier’s progress than the 2017 results. “Last year we were phasing out the 777s and readjusting. Now it is more like comparing apples to apples,” he remarks.
The second quarter was less buoyant. Outbound flows were still going well, but on the inbound side traffic ‘cooled off a bit’, which Bianchi attributes in part to the truck strike in Brazil. Political uncertainty in parts of the region, such as upcoming elections in Brazil, have also been a factor, he adds.
On the whole he is optimistic about the remainder of 2018, notwithstanding question marks over barriers to trade. “We are looking for a good second half of the year,” Bianchi says.
“We are all in wait-and-see mode to see how flows will be affected by trade wars and how goods will move around. Otherwise, I believe there will be a continuation of what we have seen so far.”
Perishables, which dominate outbound flows from Latin America, have been doing well. China’s growing appetite for fruits, vegetables and other types of food has been a significant driver.
LATAM has no direct flights to this market, so the cultivation of interline relationships with transpacific carriers has been a key plank in the cargo division’s strategy.
“We need connectivity to a growing Asian market as part of our value proposition as the leading carrier in and out of Latin America,” comments Bianchi. “We will boost the quality and quantity of our interline partners.”
One possible avenue to develop in that arena is the relationship with American Airlines, which is set to become a good deal closer in the wake of an open skies agreement between Brazil and the US.
The Brazilian authorities have given their blessing, but the US government has yet to ratify it. Open skies has been a prerequisite for antitrust immunity for a proposed joint venture between the two carriers.
To date there has not been any exchange of ideas with AA Cargo management on this issue. To open this discussion, antitrust immunity has to be in place first, Bianchi remarks.
The joint venture project is driven by the passenger business, but he sees a lot of potential on the cargo side – to provide new routes, better connections and better solutions for LATAM’s customers.
“This will open up new alternatives for our cargo customers. We can build better solutions for our customers with our partners,” he says.
Two years ago LATAM Cargo embarked on a revamp of its product portfolio. A key objective in this was to offer more flexibility and provide customers with more choice, a broader spectrum between high value and more cost effective solutions.
The results so far have been encouraging but work on the value proposition is by no means complete, Bianchi stresses.
Better flow of information, improved tracking as well as operational support in connecting markets are on his agenda there, and so are further improvements in the cold chain.
Last year LATAM obtained CEIV certification, the first airline in the Americas to achieve this accreditation.
One critical piece in the puzzle for Bianchi is an overhaul of his company’s IT infrastructure from a multitude of systems into a single platform. In June LATAM announced that it had picked India-based Wipro to provide it with a cloud-based next-generation system.
Bianchi describes the current set up as a complicated and diverse landscape of legacy systems built piece by piece over time. “We have integration issues with systems. We are slower and have a forced silo strategy,” he says.
According to him, the new system will transform both LATAM’s internal operations and the way how it interacts with its clientele.
For the airline’s customers it will usher in a new tracking system and a range of self-service tools such as e-booking, e-claims and e-rates.
As many as 45 employees will be dedicated exclusively to the execution of the project, which is scheduled to be completed in 2020. The first stage will cover international markets.
On the ground, airport infrastructure and the impact of passenger-related construction are issues – as are slot restrictions in some overseas gateways.
The developments in Frankfurt and Amsterdam have been a concern, as are constraints at Lima, which prompted the airline to signal earlier this year that it would not launch any new international flights from the Peruvian capital for the time being owing to the saturation of the airport.
Lima is planning a second runway and a new passenger terminal.
Meanwhile, Santiago is going through an expansion, while São Paulo’s Guarulhos Airport recently completed a major renovation project. “There is still work to be done on our three main hubs,” Bianchi says.
He also intends to spend more effort on the product portfolio. The overhaul so far has concentrated chiefly on the international sector, now the focus is shifting to domestic services, notably a door-to-door network in Brazil.
A single solution will not suffice there. In some markets B2C traffic is going strong, in others the focus is more on the B2B segment.