International Operation

Twelve new international routes during 2016

The international passenger operation considers regional flights within South America and The Caribbean, and the long-range ones between this subcontinent and the rest of the world. In 2016, the company served 50 destinations in 25 countries, with 29 regional (including four cities in the Caribbean) and 32 long-haul routes.

During the year 2016, the international business continued to develop amidst a complex regional macroeconomic environment, characterized by the weak growth in the countries in which LATAM operates, added to Brazil’s second decline year, in addition to a significant devaluation of Latin American currencies.

During this period, moreover, the market was characterized by a strong competitive pressure in the region, mostly attributable to the entry of new operators in international routes to/from Spanish-speaking countries, and by an increased supply in the industry in general, as a result of the adjustments introduced in Brazil and the subsequent reallocation of such capacity.

In order to mitigate the effects of this complex scenario, the LATAM Group intensified the downsizing of its supply of routes from Brazil to the United States, with reductions of up to 35% capacity toward the end of 2016.  By contrast, it continued to boost its supply along those routes with greater demand, especially from Spanish-speaking countries, both for regional as well as long-haul flights, while also launching new routes to the United States, Europe and Africa.

As a result of the reduced capacity applied by different operators in Brazil, added to the appreciation of currencies, mainly the Brazilian Real, market conditions indeed improved as of the second half of the year, which resulted in a recovery of average tariffs on international flights.

Within this context, the LATAM Group remained the main operator in these regional flights, with 15 million passengers transported; i.e. 6.7% more than in the previous year.  Of the total passengers transported in this period, 9.2 million corresponded to passengers flying regional routes and 5.9 million to passengers flying long-haul flights.

Its consolidated traffic of passengers transported in international flights (measured in RPK) increased 7.4% as compared to the previous year, while its capacity (measured in ASK) increased by 5.6%, thereby turning out a healthy occupation factor of 82.6%; i.e. an increase of 1.4 percentage points in relation to 2015.

The LATAM Group’s international operation has had a significant growth in recent years thanks to the delivery of a unique, improved and differentiating proposal and to the continued strengthening of the connections network; an attribute that is highly valued by the passengers in this type of operations.

In line with its objective of consolidating its network leadership while offering the best connectivity to its passengers, in 2016 the Company opened up 12 new international routes, seven of which are regional and five long-hauls.

Regional flights

At the regional level, in 2016 we opened the Lima-Montevideo routes, with five weekly flights; Lima-Rosario and Lima-Salta, with four and three weekly flights, respectively, thereby boosting the Peruvian capital as one of LATAM’s main hubs in the region.   Along the same lines, the Company announced the opening of the Lima-Cartagena de Indias (Colombia) route as of January 2017, thus becoming the first industry operator to connect these two cities. With four weekly frequencies, this new route aims at strengthening the connectivity between Peru and Colombia; which, as of this date, has seven weekly frequencies along the Lima-Bogota route operated by LATAM Peru and 14 weekly frequencies along the Bogota-Lima route operated by LATAM Colombia.

Additionally, the Company announced the opening of the Lima-Mendoza (Argentina) route as of February 2017.  Thus, LATAM Peru will have added nine new international destinations in just two years, expanding to 29 its network of flights and direct connections from the capital of Peru to the world.

Other international routes inaugurated in 2016 are Bogota-Buenos Aires, Iquique-La Paz, Iquique-Santa Cruz and Santiago-La Paz.  On the other hand, the Company announced the beginning of direct flights between Santiago, Chile to Santa Cruz, Bolivia as of March 2017, with three weekly frequencies, also becoming the only airline to operate direct services between the two cities, offering greater comfort and faster travel times than any other operator.

All things considered, in terms of regional routes, the Company maintained its market leadership increasing its market share to 45%, measured in terms of capacity (ASK).  Its main competitors on these routes are: Avianca, Aerolíneas Argentinas and GOL, which achieved a market rate of 23%, 11% and 9%, respectively, among others.

Long-haul operations

On long-distance routes, the Company covered 20 destinations as of December 2016; with the United States and Europe remaining the most relevant markets and, consequently, the most strategic for LATAM.

During this year, the Company inaugurated five new routes, three of which are to the United States, prominent among which is a direct non-stop flight between Lima and Washington.  This is the only regional airline to directly connect (with three weekly frequencies) the capitals of Peru and the United States.  Washington thus became the fifth destination served by the LATAM Group in that country from Lima, adding to its operations in New York, Miami, Los Angeles and Orlando from where passengers can connect to over 60 cities within the United States, thanks to the agreements entered into with our partner airlines.  The other two routes to the United States inaugurated during this year are: Recife-Miami and Santiago-Los Angeles.

Moreover, in December 2016, the Company opened a non-stop route between Lima and Barcelona, with three flights per week; an operation that complements the LATAM Group’s direct daily flights between Sao Paulo and Barcelona, as well as its direct services from Lima, Sao Paulo, Santiago and Guayaquil (Ecuador) to Madrid, whose passengers can make flight connections to/from Barcelona through Iberia, its OneWorld ally.

Among the main milestones of the year stands out the opening in October of direct flights between Guarulhos (Sao Paulo) to Johannesburg, South Africa’s largest and most populated city, thus becoming the only Latin American airline connecting the region with a country of the African continent with its own flights and three weekly frequencies.

With respect to flights to North America (which, in addition to the five US destinations include Cancun and Mexico City), LATAM positioned itself as the second market operator (measured in ASK) with a 20% market share, after American Airlines’ 21% and Copa’s 13%, among its main competitors.  Regarding operations to Europe, the Company stood in third place, with a 13% market share (versus 12% in 2015) measured in ASK; a market that is led by Air France-KLM and the IAG Group, with 21% and 19%, respectively.

In terms of Oceania operations, on the other hand, LATAM consolidated itself as the main operator, expanding its market share to 44% (versus 43% in 2015), where it competes the Australia’s Quantas and Air New Zealand, which reached market shares of 36% and 20%, respectively.  In this case, the Company flies to Auckland, Sydney, Papeete and Easter Island.

It is worth noting that in 2016 LATAM announced a new direct flight between Santiago, Chile and Melbourne, Australia beginning in October 2017, thereby reinforcing its commitment to the Asia Pacific region, as well as the connectivity between South America and Oceania.  With a stretch of 11,000 kilometers and duration of 15 hours, this will become the longest flight in LATAM’s history. Moreover, it will become the first airline ever to link Latin American countries non-stop to Melbourne, Australia’s second largest city with 4.5 million inhabitants.  The Company is poised to operate this route tree times per week, this becoming the second Australian city, along with Sydney, where LATAM operates (via Auckland in New Zealand).

Additionally, in 2016 the Company continued to strengthen its commercial alliances with other Airlines, such as inter-line agreements, shared codes and its OneWorld Alliance membership.  In this realm, the shared code agreement entered into between LATAM Airlines Colombia and Iberia, aimed at strengthening non-stop flights to Europe, stands out.  The routes offered via this agreement are: Bogota-Madrid, with seven weekly frequencies, Cali-Madrid and Medellin-Madrid, with three weekly frequencies, respectively.

In this respect, however, LATAM’s most relevant and strategic project is its Joint Business Agreement (JBA) with American Airlines and the International Airlines Group (for its British Airways and Iberia airlines), which will permit to expand the Group’s international network to over 420 destinations in North America and Europe, principally, offering more flights and better connection times, in addition to better prices to destinations never before flown by LATAM. These agreements deepen the relationship between the LATAM Group and the other members of OneWorld Alliance, reflecting a worldwide industry trend that took off some two decades ago.  The Company expects the respective approval processes to make quick progress and soon become a reality in order to connect ever more persons from Latin America with the rest of the world and vice-versa.

Fleet

In order to develop its international operations, in 2016 the Company used a fleet comprised of an average of 122 aircraft throughout the year.  In order to serve its regional routes it operated aircraft of the Airbus A320 family.  Whereas, for long-haul flights it used Boeing 767 and 787 aircraft (in their versions 8 and 9), in addition to the new Airbus A350 incorporated to its fleet, which as of December 2016 totaled seven such units. The latter aircraft were mostly allocated to boost the routes from Sao Paulo to Miami and Orlando, in the USA, and from Sao Paulo to Madrid and Milan, in Europe.

It is worth noting that in December we incorporated a third Boeing 767-300 to the fleet of LATAM Airlines Argentina (following 10 years of work and commitment in the country), enabling it to expand its supply of flights along the Buenos Aires-Miami route, increasing such frequencies from 7 to 11 per week.

In terms of service, in addition to offering flights using the most modern fleet of the continent, the Company continued to invest this year in technological platforms and/or solutions to optimize its passengers travel experience.  In addition to the entertainment system which they can access using their own mobile devices during the flights, it is worth highlighting an application that affords them greater control over their trip, such as checking-in, selecting their seat, saving their boarding passes without the need to print them, checking the status of the flight and carrying a register of all their trips in their smartphones, among other options.

Additionally, the LATAM Group made available to its clients yet another application permitting them to learn about the status of their flight and choose, via the airline’s website, the best rescheduling alternatives in case of delays or contingencies, speeding up the entire process and making it more effective. All of the above, in line with the objective of improving and progressively simplifying the travel experience of its passengers.

International

15,1 millions of passengers

122 airplanes

27 destinations