Cargo

LATAM is Latin America’s largest cargo operator group, offering its clients the broadest connectivity between points in the region and around the world, with 139 destinations in 29 countries. The Company transports cargo in the holds (bellies) of 319 passenger aircraft and in 10 dedicated cargo aircraft (two Boeing 777-200F and eight Boeing 767-300F, excluding aircraft leased to other operators).

During the year 2016, the Company transported 944,000 tons; i.e. 6.4% less than in 2015.  The supply, measured in available tons per kilometer (ATKs), dropped by 5.3% and its load factor hovered around 51.7%, with a 1.9 percentage-point drop as compared to the previous year.  These results occurred within a complex air cargo demand scenario worldwide, which for years now has been showing low rates of growth.  In 2016, it increased by only 2.6% as compared to the previous year.

Insofar as markets are concerned, the highly challenging economic and political conditions of the region continued to have a negative impact in the air cargo business.  Although the flows from South America to the North benefited from the strengthening of the United States’ economy, overall Latin America’s air cargo traffic dropped by 5.7%.

Traffic within South America was the weakest (with an inter-annual contraction of 14%), with Brazil being the hardest hit and where the amount of kilograms transported at the domestic level dropped by 12%.  This impacted LATAM Cargo with a 3 percentage-point market share loss.  In spite of this, the Company remained as the country’s leading operator in the business.

On the other hand, import markets continued to show weakness during 2016, mainly the cargo traffic into Brazil. In order to confront this situation, the Company reduced its structural flight supply of cargo aircraft from Europe and the United States to this South American destination, as well as in its domestic operations.

With respect to Latin America’s export markets, since Chile’s salmon production was severely affected because of harmful algal blooms that increased fish mortality, this market dropped by 15% with respect to 2015. Fruit traffic from Chile and Argentina exhibited a healthy expansion and flowers from Colombia and Ecuador remained stable, albeit with a diminished LATAM share in such markets because of changes in the Company’s strategy.

The downward pressure on rates continued during this period, where yields at the global level were 4.1% lower than those in 2015, mostly as a result of the region’s oversupply of cargo fleet and passengers, in addition to low fuel prices. Although fuel prices increased by 48.5% throughout 2016, they remained at low levels if compared to those of the last years.

The Company remained focused on strengthening its operational efficiency in order to achieve a more agile and simpler organizational structure, aimed at providing a better experience to clients. Along these lines, we worked toward reducing and optimizing basic structural costs through a series of productivity initiatives, restructuring of the cargo fleet, third-party supplies and operation support processes.

In order to maximize the use of passenger aircraft holds (bellies), thereby yielding better asset profitability, LATAM Cargo continues adjusting its capacity.

During 2017, the Company will remove a Boeing 767F aircraft that was under lease, while also during the first quarter of that same year it envisages removing another two Boeing 777-F cargo aircraft from its fleet.

Additionally, during this period we managed to increase the productivity of our dedicated cargo fleet by leasing services to external operators, thereby improving their usage.  In this same sense, the year 2016 was also successful with respect to special operations and charters, totaling 176, principally in the region.

On the other hand, we developed LATAM Cargo’s new product portfolio, with an innovative proposal aligned with our clients’ needs, permitting us to deliver greater consistency and a clear promise to the market. Within this ambit, we made progress in transforming the Company’s internal processes aimed at guaranteeing compliance with our commitments to clients and created the Continuous Improvement Area in order to focus and follow up projects.

At the same time, during the second half of the year we launched the Net Promoter Score (NPS) as an indicator to measure client loyalty; an initiative framed within the Company’s will to put clients and their preferences at the center of our decision-making process.

All things considered, 2016 was indeed a challenging year for the LATAM Group’s cargo unit, and one in which we managed to ride a complex domestic and foreign context, while making progress in consolidating an integrated cargo and passenger network, strengthening connectivity, reinforcing our value proposal and portfolio of products for all clients, while continuing to optimize processes and costs in order to ensure the Company’s future competitiveness.