Latin America’s leading freight carrier intends to substantially up the rates in 2015. It’s a reaction to the poor market situation in Brazil and falling revenues. Less main deck capacity, more tonnage transported in the holds of passenger aircraft and a stiff cost saving program are the other priorities standing on the airline’s agenda for reaching its financial and operational targets.
Year end 2014 is tough for LAN Cargo. But 2015 might not be any better if some strategic adjustments are not made. “Brazil hosted the soccer World Cup in which we had pinned great hopes that the
event would substantially stimulate air freight transports,” recalls Guido Henke, LAN Cargo’s Director Europe.
But what happened? “Almost nothing,” confesses the somehow disappointed manager.
Sluggish market environment
Even before the tournament began, Brazil developed into LAN Cargo’s Achilles heel stimulating the carrier’s cargo biz very little. Already since more than two years Latin Americas largest economy is stagnating, without showing any encouraging signs of recovery. And the bad news is that most market analysts expect no real changes in 2015 either.
That’s quite a somber outlook for LAN Cargo, by far number one air freight carrier to and from Brazil. Guido say: “In average, 60 percent of our volumes flown on trade lanes from Europe to Latin America are addressed to consignees in Brazil.” Unfortunately, he adds, there is little economic growth in other parts of the vast Subcontinent either, since “imports into Argentina, Chile or Peru have slowed down as well in recent times,” he notes.
Economic stagnation in LAN Cargo’s natural home market instead of growth – this has rung the alarm bells at the carrier’s headquarters, causing the top managers to think over their growth strategy. As consequence, they came up with a multi-pronged approach to better the financial situation. It consists of downscaling the freighter fleet to avoid expensive overcapacity, imposing a stiff cost cutting program, increase customer satisfaction, enhance shareholder value and promote professional, social, and personal skills by encouraging the individual motivation of the team members.
Shrinking freighter fleet
The downscaling, or as Henke prefers to say: the ‘rightsizing’ of the freighter fleet is in full swing. From 16 cargo aircraft a year ago LAN Cargo is down to 13, with one additional 767F leaving the fleet in January. This will bring the total freighter fleet down to twelve aircraft - eight 767Fs and four Boeing Triple Seven freighters. “That’s sufficient to satisfy the main deck needs of the markets,” estimates Guido Henke. But he makes it very clear that “we do not intend stepping out of main deck capacity altogether. We will always combine and support our belly capacity with the necessary freighter capacity.”
Guido adds that the downsizing of the freighter fleet doesn’t affect his company’s European traffic. “We continue serving Europe six times a week, deploying our 777Fs.” Three of them fly back to South America from Frankfurt and the other three out of Amsterdam. To capitalize on the strong pharma biz, one of the AMS flights is routed via Basel, Switzerland before returning to Latin America.
Guido draws the attention to another important change LAN Cargo is currently facing: the changes in the proportion of main deck and belly capacity. “We used to transport 60 percent of our total cargo with freighter aircraft, but after LAN and TAM having merged to become LATAM a lot of TAM’s passenger aircraft came into the fleet and with them huge lower deck capacity.” So today the ratio freighter freight to passenger freight has changed considerably, lowering the freighter share to 35 percent and upping the belly portion to 65 percent, he states.
Quite a paradigm shift.
Asked about LAN Cargo’s intended rate increase he tells that they are still evaluating the final numbers.
Guido refuses to deliver insights before flying off to Buenos Aires where the Argentina-born manager spends Christmas and New Year with his family.