LATAM May Face 4th Year Of Losses Due To Economic Uncertainty

Rosario Altgelt, LATAM Argentina’s CEO, said the airline will post its fourth consecutive year with financial losses in 2020. This due to the current uncertainty that certain airlines in Latin America are facing. Let’s dive into it.

LATAM Argentina Getty
LATAM faces its fourth year of financial losses. Photo: Getty Images.

Devaluation is a big concern

In an interview with El Cronista, Altgelt said that the strong devaluation of the Argentine peso is hitting the airline. The international market is declining, she added. Currently, one USD is equivalent to 62.53 Argentinian pesos. In consequence, people in the country are less apt to travel abroad. In 2019, the carrier lost more than nine million dollars.

Domestically, the airline also faces issues. “We have a sustainability problem because our revenues come in pesos but our costs are mainly in dollars. With the devaluation we are put in a very difficult situation,” she said.

LATAM Argentina is not the only airline with these issues. In 2018, Aerolíneas Argentinas (currently celebrating its 70th anniversary) lost approximately 348 million USD. Luis Malvido, who was CEO of the airline at that time, said the expenses grew 18% due to the devaluation.

LATAM Argentina Getty
In 2019, LATAM lost more than nine million dollars. Photo: Getty Images

Argentina’s underdevelopment

Over the years, Argentina has been one of the most volatile economies in Latin America. As a consequence, the country is underdeveloped in its aviation industry. Until a few years ago, low-cost carriers were not allowed to participate in a market serviced mainly by Aerolineas Argentinas and Austral Lineas Areas.

Also, until August 2018, Argentina had a fixed tariff setting the lower bar of the ticket prices in the country. This initiative hurt the free market and connectivity in the country. Last year, Avianca Argentina ceased operations and Norwegian Air Argentina sold its operation to Jetsmart.

“Only a third of the Argentinians that have the means to travel by air actually does it. The industry could be three times bigger if compared with other markets,” said Altgelt.

But the CEO of LATAM Argentina is seeing a wind of change. It all starts with the second most important airport in Buenos Aires.

Aeroparque Jorge Newbery by ANAC
Argentina recently opened Jorge Newbery Airfield to international flights. Photo: ANAC

The opening of international routes at Jorge Newbery Airfield

Last month, the Civil Aviation regulator in Argentina opened the Jorge Newbery Airfield to international flights. The internationalization of the airfield benefits the routes to countries that share a border with Argentina: Brazil, Paraguay, Chile, and Bolivia. It also benefits Peru, although it doesn’t share a border with the Argentinians.

“The main benefit goes to the passengers of Buenos Aires, by getting more destinations. But also, this opening creates more tourism, which is strategical for Argentina because the earnings are in US dollars,” said Altgelt.

So, what’s the airline doing? LATAM Argentina is developing a flight plan that it will present to the authorities. It wants to recover the routes it had from the airfield before the closure occurred in 2018.

Still, there are challenges ahead. There’s a tax of 30% for international travels, which affects the connectivity abroad, said Altgelt. Also, the low-cost airlines add an extra layer of complexity to its daily operations.

“The way to compete against them is with low-cost approaches. We have to give information to our clients for them to resolve their issues from their cellphones. They also can choose if they bring luggage, what seat to pick or if they want food. These low-cost practices are healthy. But, (to embrace them) the legacy carriers have to reinvent themselves. Low-cost airlines are born like that.”

Have you traveled recently with LATAM Argentina? Let us know your experience in the comments.