FIFA World Cup Negatively Impacts LATAM Airlines Group's Second Quarter Numbers

latamLATAM Airlines Group S.A., a major airline group in Latin America, announced today its consolidated financial results for the second quarter ended June 30.

LATAM Airlines Group reported operating income of $15.4 million with an operating margin of 0.5 percent for the second quarter of 2014, representing a decrease of 0.8 percentage points as compared to the second quarter of 2013. 

Results this quarter were negatively affected by reduced passenger and cargo demand during the FIFA World Cup soccer tournament held in Brazil, as well as by very week seed exports in the cargo business. 

RELATED: Traffic Down, Load Factor Up for LATAM

LATAM Airlines Group was highly successful in managing the extremely complex operations during the World Cup in Brazil. LATAM Airlines Group said it is very satisfied with its performance during this challenging period, where it transported almost three million passengers in the domestic markets with more than 1.100 extra domestic and international flights, maintaining service standards for its customers, which resulted in an on-time performance of 95 percent.

In advance of the World Cup, TAM reduced capacity by 5.1 percent for the month of June, period during which most of the soccer tournament was held. This allowed the company to operate with high load factors during a month in which traffic decreased by 5.2 percent as compared to the same period in 2013. 

Decreased traffic during the World Cup period was a result of reduced corporate travel due to 12 holidays in Brazil, as well as a reduction in domestic and international leisure demand during the winter holidays, which are usually a period of high seasonal demand. The company estimates the impact of the World Cup on LATAM’S operating margin – in both domestic and international operations - to be between $140 million and $160 million during June and July, of which roughly $30 million impacted the month of June, with a higher impact during the month of July.

“The significant infrastructure investments in Brazil prior to the World Cup, especially in airports, will have a lasting and very positive impact on the continued development of the airline industry in Brazil,” said Enrique Cueto, CEO of LATAM Airlines Group, in a written release. “TAM’s move to Terminal 3 at Guarulhos Airport and to Pier 2 at the Brasilia airport will enable us to continue improving connectivity through our hubs, and increasing on time performance.”

LATAM continues to rationalize capacity in both passenger and cargo operations with reductions of 1.5 percent and 7.5 percent, respectively during the second quarter 2014 as compared to the same period of the previous year. Passenger load factors continue to increase in all markets, reaching record levels at 82.4 percent and driving higher RASK.

During the second quarter 2014, LATAM adjusted the exchange rate for its cash held in Bolivares in Venezuela to the “SICAD I” exchange rate, recognizing a one-time non-operating charge of $56.3 million. In order to continue serving Venezuela, the company has been adjusting the number of frequencies since the first quarter of 2014, resulting in a decrease of 44 percent in ASKs in the second quarter of 2014 as compared to the same period 2013.

LATAM Airlines Group’s net loss reached $58.9 million for second quarter 2014, compared to a net loss of $329.8 million for the same period 2013.

LATAM has successfully restructured its balance sheet and has a solid financial position, having reduced its net debt by $1.8 billion in the last twelve months. 

Additionally, LATAM has continued to reduce its exposure to the Brazilian real on TAM’s balance sheet from $2 billion on December 31, 2013 to $1 billion on June 30, 2014, and expects to reduce this exposure to roughly $500 million by September.