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News Article

LATAM Airlines Shuts Down Operations in Argentina

By Alicia Arizpe | Thu, 06/18/2020 - 12:01

Bad news continue to accumulate for Latin American airlines in the wake of COVID-19. Today, LATAM Airlines Group, after filing for bankruptcy protection less than a month ago, ceased the operations of its Argentina subsidiary indefinitely.

LATAM Airlines has been severely impacted by the COVID-19 outbreak. The airline is the largest in all of Latin America with its main hub in Santiago, Chile, and secondary hubs in Colombia, Ecuador, Peru and Argentina. Border closures in some of these mayor hubs brought demand to unprecedented lows. Pre-pandemic, LATAM Airlines performed regular flights among 130 destinations in 24 countries including Cancun and Mexico City. However, the outbreak forced LATAM to cancel 90 percent of its international flights. Just in April, the airline saw a decrease in revenue passenger kilometers (RPK) of 96.6 percent and a decrease in capacity of 94.3 percent. May was no better, with a 96.5 percent year-on-year decrease in traffic measured in RPKs and a decrease of 93.3 percent in assigned passenger kilometers (ASK). Altogether, LATAM transported only 191,000 passengers during the month, a sharp decrease from May 2019’s 5.74 million.

While the airline had showed positive pre-pandemic results, the significant decrease in passengers caused by measures to contain the spread of COVID-19 led LATAM Airlines to file for Chapter 11 protection in a US court on May 26. “LATAM entered the COVID-19 pandemic as a healthy and profitable airline group, yet exceptional circumstances have led to a collapse in global demand that has not only brought aviation to a virtual standstill but has also changed the industry for the foreseeable future,” said Roberto Alvo, Chief Executive Officer of LATAM.

LATAM Airlines’ bad results are leading the company to adjust their operations to address the new market reality. In response to the current environment, the group announced it would indefinitely cease all passenger and cargo operations in Argentina, one of its main hubs. “This is regrettable but inevitable news. Today, LATAM must focus on transforming the group to adapt to post-COVID-19 aviation. Argentina has always been a fundamental country for the group and will remain so, with LATAM’s other affiliates continuing to connect passengers from Argentina with Latin America and the world,” said Alvo.

LATAM Airlines Argentina operated in 12 domestic destinations that will now be halted, while international flights to Brazil, Chile, Peru and the US and all international air cargo operations will be managed by other LATAM Arilines affiliates. The news might be shocking to some considering that LATAM Airlines Argentina was the second largest airline in the country, after the state-owned Aerolíneas Argentinas, with 16 percent of the total market and 22 percent of the international market. However, the Argentinian subsidiary had been dragging financial problems since 2018, which had been hurting the entire LATAM Airlines Group. During 2018 and 2019, the subsidiary say losses amounted to US$266 million, which were offset by the significant gains from the rest of LATAM Airlines Group’s subsidiaries. In March, LATAM Airlines Argentina’s troubles worsened as the country closed its borders for international flights. These restrictions are expected to stay in place until September, although the local Minister of Transport has analyzed the possibility of lifting these restrictions by August.

The airline also highlighted the poor support from the local government in its decision to close operations in Argentina. “The impact that LATAM Airlines Argentina has suffered under COVID-19 and the difficulty to generate the necessary agreements to deal with the current situation contribute to generate an extremely complex scenario, where the conditions to sustain the long-term operations of a subsidiary are not there,” said LATAM Airlines Argentina to CNN.

Airlines in Latin America rank last in government support. A report from the International Air Transport Association (IATA) estimated that governments in the region have pledged US$300 million to the sector, while North American governments had pledged US$66 billion, Europe US$30 billion, Asia Pacific US$26 billion and Africa US$800 million. Earlier this week, IATA had reiterated its call on governments to support a sector that contributed US$167 billion to the GDP of the region, warning that failure to do so might put 3.5 million jobs at risk. “The impact on airlines in the region continues to be brutal. Passenger traffic has ground to a halt and revenue streams have dried up,” says Peter Cerdá, Regional Vice President for the Americas at IATA.

LATAM Airlines had also requested financial support from the governments where its hubs were located, including Chile, Brazil, Colombia and Peru, but so far this has not come to fruition. During March and April, IATA urged governments in the region to provide relief to the industry in the form of direct financial support, loans and other tax relief measures. Lucas Palacio, Chile’s Economy Minister, dismissed support for the troubled airline telling media “we are prioritizing people and I think it is rushed. I think it is wishful thinking for one company to be asking something of that nature.”

Closing LATAM Airlines Argentina leaves in limbo the 1,715 jobs supplied by the airline. Considering the potential job and economic losses the sector is facing, industry associations continue requesting support from Latin American governments. “No amount of cost cutting will save airlines from a liquidity crisis that is imminent and severe. This will have detrimental effects on countries’ economies and jobs. Governments must act fast,” says Peter Cerdá, Regional Vice President for the Americas at IATA. “Air transport is essential for our region and cannot be allowed to disappear.”

Alicia Arizpe Alicia Arizpe Senior Writer