LATAM's Great Hope

Latin America’s largest airline typically performs better in the second half of the year. But the first half of 2019 was unusually bad for LATAM. Is there a prosperous path forward?

That’s the question many are asking following the carrier’s $21m H1 net loss, excluding special items, coupled with a lowly 2.5% operating margin. Last year, LATAM’s H1 operating margin was almost four full points higher. The airline still expects to end 2019 with a full-year operating margin somewhere between 7% and 9%, which even at the lower end would top the slightly below 7% figure it reported for all of 2018. The forecast thus implies a fairly bullish view about the current half which began in July.

Bullish? Really? This, after all, South America, a continent battered by currency depreciation, declining revenue from commodity exports, and yet another economic crisis in Argentina. Many of LATAM’s first-half problems, sure enough, trace back to these macroeconomic woes beyond its control. The problem is not severe shorthaul overcapacity of the sort afflicting many European and Asian carriers. LATAM did face some overcapacity on longhaul routes to the U.S. and Europe. It faced some cargo headaches too, though not as painful as those hurting Asian carriers. Its fuel problem was mostly a currency problem. To the extent it had a demand problem, that too was largely currency related—domestic demand throughout South America, it said, was healthy. In sum, LATAM’s problems are mostly macroeconomic problems.

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