Brazil

Improving connectivity from the main hubs: Sao Paulo and Brasilia

With 210 million inhabitants, Brazil is by far the largest South American domestic market and the third worldwide, with more than 88 million passengers transported within the country during 2016. This is a market with low penetration in air transportation and high growth potential, which is why it continues to be an opportunity for the LATAM Group.

The year 2016 it was particularly complex for the transport of passengers in Brazil, with its economy undergoing a severe recession. As a result, the 2016 projections of the International Monetary Fund are for a 3.5% GDP slowdown, this being the first time that the country undergoes two consecutive years of economic contraction. In 2015, the drop in GDP was 3.8%, the worst performance since 1990.

At the beginning of 2016 the U.S. dollar surpassed the level of R$ 4, the highest in the history of the Real Plan; however, throughout the year it had a significant drop of 18%. Inflation, on the other hand, stood at 6.4%.

This recession had a direct impact on commercial aviation, particularly affecting the demand for corporate passengers (persons travelling on business). For the LATAM Group, Brazil’s domestic operation represents approximately 43% of the total number of passengers transported; a number higher than the sum of all its local operations in the Spanish-speaking countries where it operates.

Key toward mitigating the impact of the country’s slowdown and especially the weakness of the real has been the Company’s supply discipline applied since entering Brazil in 2012; a market that is yet characterized by a situation of overcapacity.

During 2016 the company continued focused on maintaining its strategic position within Brazil, enhancing connectivity from its major hubs, as are the Guarulhos and Brasilia terminals.

In this context, during 2016 LATAM Airlines Brazil reduced its supply by 11.5%, measured in ASK (available seats per kilometer), which adds to the 2.5% decrease applied in 2015; from 1.4% in 2014 and 8.4% in 2013. On the other hand, demand decreased by 10.7% measured in RPK (rented kilometers per passenger), resulting in a healthy total occupancy factor of 82.3% for the year, thus representing an advance of 0.8 percentage points when compared to the previous year.

By December 2016 the company operated 44 airports, with approximately 580 daily domestic flights. With 29 million passengers transported in the year, representing a 9.7% decline when compared to 2015, the Company closed the year as the second major market operator in domestic routes -with a 35% market share, measured in RPK (passengers transported per kilometer); namely, 1 percentage point less than the GOL airline; next came Blue with 17%, among the major competitors.

In order to develop its domestic operations, the Company used an average fleet of 100 aircraft, which included 30 Airbus A321 -three more than in 2015- allowing it to more efficiently serve high density routes. It should be noted that the LATAM Group is currently the only operator of this type of aircraft in Brazil. Another important achievement of this year was adding the first A320neo aircraft of the Americas to the LATAM Airlines Brazil fleet, whose initial flight took place on September 19.

Even amidst a challenging scenario, the company made great strides in the consolidation of its identity as LATAM Group; a brand that it used in its work as the official airline of the 2016 Olympic Games (August) and the 2016 Rio Paralympics (September).  The first aircraft with the new corporate image took off from Rio de Janeiro on May 2, bound for Geneva, Switzerland, to pick up the torch and convey it to the Brasilia terminal, the country’s most important hub for flights to the interior of the country. Subsequently, the company transported the Olympic flame over eight thousand kilometers in 12 domestic flights, for 15 days, landing in 13 cities of the North, Northeast and Central-West Brazil regions, in a special operation conducted over an Airbus A319 aircraft. In order to meet the demand stemming from the Olympic Games, the network of flights was fitted with more than 140 additional flights, whereas during the month of August the Rio-São Paulo system operated with an occupancy factor of 81% (compared to 68% in same month of 2015).

In 2016, and for the eighth consecutive year, TAM was the most recalled brand in the airlines category of the “Top of the Mind” ranking promoted by Folha de Sao Paulo newspaper. Also for the eighth consecutive year, the company won the airline category of the 19th Edition of the ranking of the most admired companies in Brazil, in the survey carried out by Officina Sophia.

Brazil

29 millions of passengers

100 airplanes

41 destinations (44 airports)

35% market share