The Latin American cargo carrier is in the midst of rebalancing their fleet, switching from Boeing 777F equipment to the smaller Boeing 767F. The latter is better suited for the markets served by LATAM Cargo, argues their Head of Cargo, Andrés Bianchi.
In LATAM Cargo’s annals, 2017 can be overwritten as the “year of transformation” one future day, during which the freight division has adapted to changing market conditions. This rapid transition becomes particularly evident when taking a closer look at the freighter fleet, seen by the phasing out of the Boeing Triple Seven freighters that are down to one from formerly four units. Now the days of the last remaining B777F are numbered as well as Cargo Chief Andrés Bianchi confirms. Once gone, LATAM Cargo will operate a uniform fleet of Boeing 767Fs, whose number will be upped from currently eight to ten in 2018. With supposedly more to come in the years after since LATAM will start a P2F conversion program for this specific Boeing variant.
Downscaling main deck capacity reduces financial risks
Since LATAM is a combination carrier operating a mixed fleet of 303 passenger and freighter aircraft, it goes without saying that in addition to the main deck capacity offered by the 767Fs and a single leased MD-11F, there is ample room for freight transport in the lower deck compartments of their passenger fleet. “The Latin American market requires freighters complementing belly-hold space and, therefore, we plan to continue operating these type of aircraft,” argues Andrés.
According to him the phasing out of the B777Fs and the turn to the B767F fleet is based on two main reasons: the significant contraction of the Latin American cargo market during the last three to four years and the additional lower deck capacity brought in by Brazil’s TAM through the merger with LAN Chile. Particularly on a number of intercontinental routes “our success in taking advantage of TAM’s large belly-hold offerings made our previous freighter fleet partially redundant,” argues the manager. He added to this “operating Boeing Triple Sevens on our core routes became less attractive as running an attractive and consistent freighter itinerary was difficult as freighter-only demand to South America shrank. Our analysis shows that efficiently providing the kind of service our customers require is difficult with an aircraft offering a capacity of 102 tons: either you significantly increase your market share or you operate multi-segment routes that raise costs dramatically. In contrast, the B767Fs are designed for uplifting up to 54 tons, almost 50 percent less than their larger sister model.
Leased MD-11F as back-up
“The B767Fs allow us to build a schedule that’s more robust and less vulnerable to market fluctuations. It has successfully provided the bulk of our capacity on North America-South America markets and we can build on that base to support our European operation. The economies of scale we get from the North American operation help offset the advantages the Triple Seven has on longer haul routes,” Mr. Bianchi holds. The aircraft will operate the same transatlantic routes as the B777Fs did, flying from South America to Miami first and onwards to Amsterdam and Frankfurt. On the way back they stop over at Dakar, Senegal for refueling, continuing their journey to Viracopos, Brazil and thereafter to Santiago de Chile. In addition, they fly on domestic Brazilian sectors.
A wet leased MD-11F complements the freighter network, mainly used to provide extra lift on some key routes and as a standby aircraft in case of traffic disruptions, airport congestions, strikes or also for accomplishing charter missions.
New intercontinental routes
Meanwhile, the carrier has announced that they will add Lisbon, Rome, Tel Aviv and Boston to their network in 2018. “Evaluation of these routes included a cargo perspective and we are very confident about their potential,” states Andrés. “As a matter of fact we analyzed potential rates together with the cargo flows that we can expect both on a point-to-point and connecting basis.” He went on to say: “We are in the process of building the set-up needed for conducting the business successfully.” He adds to this that if cargo does not perform it could lead to a gap relative to management’s overall route calculations.
Including the four new destinations standing on the 2018 schedule, the airline group will then offer services to 144 cities in 27 countries.
According to available financial and performance data, the group achieved an operating income of US$244 million in Q3 of 2017, up a remarkable 60.2 percentage points in a year-on-year comparison. The operating margin reached 9.2%, an increase of 3.2 percent compared to 6.0% on the same period last year.
Positive traffic and financial indicators
The cargo division accounted for 10.3 percent of total operating revenues (+2.5 percent y-o-y). Main drivers of the ongoing upswing were the Brazilian import market that has recovered remarkably after 19 consecutive quarters of decline, and the thriving exports of vegetables, flowers and other perishables along the Pacific Rim stretching from Chile to Colombia. “Currently, our freighter fleet is fully utilized, with the aircraft operating on average 15 hours,” says Andrés. But the load factor, standing at 54.2 percent, although 4.6 percentage points up to Q3 2016, is still to be improved. “While aggregate cargo metrics showed a slightly positive trend in the third quarter, we are more satisfied by the way we achieved that result: we increased belly load factors while drastically right sizing our asset base. Leveraging the right kind of capacity with an efficient, fully utilized fleet is a key objective of ours and we are having success doing so.”
Concerning the recently announced joint business agreement between LATAM, American Airlines and the IAG Group that includes both passenger and cargo, most countries served by the airlines have approved the getting-together of the oneworld trio meanwhile. Only exception so far is Chile, but there are signs that the regulator may soon decide on the pact. Andrés says that LATAM Cargo is working with both American and IAG in their respective agreements on fine-tuning the cargo framework so that the specs can be implemented as soon as possible.