Slowly but surely, the Latin American carriers are restoring their pre-pandemic capacity levels. According to OAG, the region is approximately 25% below the number of flights it offered in 2019, above the world trends. Some operators have recovered faster and are already over pre-COVID levels, like Viva Aerobus, while others are lagging, like Avianca. So, let’s take a look at the Latin American airline’s recovery. 

Flights are coming back 

According to Cirium’s database, the airlines operating domestically and internationally in the Latin American region have scheduled 192,171 flights in October 2021. That number is a 27.2% decrease compared to October 2019. Nonetheless, the capacity in these flights has recovered faster since it is only 22.9% below its pre-pandemic numbers. 

Despite its ongoing recovery, LATAM Airlines Group has regained its status as Latin America’s largest carrier. The airline is scheduling 31,602 flights during the month. According to a statement provided by the carrier, it is operating at 56% currently. 

The Brazilian carrier Azul Linhas Aereas is the second-largest carrier in the region by the number of flights. It has scheduled 22,077 flights, an 82.6% recovery compared to 2019. In Brazil, Azul has had the best comeback in almost every category, compared with GOL and LATAM so far. 

Aeromexico is scheduling 14,057 flights in October, an 82.6% recovery as well. Then, it comes Volaris, the Mexican LCC, which is currently planning 13,811 flights, a 19% increase compared to 2019 levels. Both Volaris and Viva Aerobus (in seventh place, with 9,098 flights) are already over their pre-COVID numbers. 

Latin America’s most important routes

Prior to the COVID-19 pandemic, Latin America’s most important route was Rio de Janeiro-Sao Paulo in Brazil. It had 3,710 flights per month, offering over 563,000 seats, according to Cirium. In the second place, there was the route Bogota-Medellin, followed by three Mexican routes, from Mexico City to Cancun, Monterrey, and Guadalajara. 

The COVID-19 pandemic has changed this listing. According to our research, Mexico-Cancun is currently Latin America’s most important route. In October, it is offering 2,460 flights (all by Aeromexico, Volaris, and Viva Aerobus), a 94.6% recovery compared to the pre-pandemic levels. This route has almost wholly recovered despite losing one of its leading operators, Interjet. 

After Mexico-Cancun, the second-busiest route in Latin America is Bogota-Medellin (with a 68% recovery). Then it comes to the route Rio de Janeiro-Sao Paulo but only has recovered 52% of its pre-pandemic capacity.  

The top-5 is completed with Mexico-City-Monterrey (1,664 scheduled flights, with a recovery of 64%) and Bogota-Cali with 1,660 flights (74% recovery). 

A look at the Latin American airline’s recovery - finances

Worldwide, the International Air Transport Association (IATA) expects net industry losses to be approximately US$201 billion between 2020 and 2022. 

Last week, during IATA’s AGM, Willie Walsh said that airlines “have dramatically cut costs and adapted their business to whatever opportunities were available. That will see the $137.7 billion loss of 2020 reduce to $52 billion this year. And that will further reduce to $12 billion in 2022. We are well past the deepest point of the crisis. While serious issues remain, the path to recovery is coming into view. Aviation is demonstrating its resilience yet again.”

In Latin America, IATA expects demand to end 2021 around half of what it was two years ago. The carriers in Latin America will have net losses of around US$5.6 billion in 2021 and US$3.7 billion in 2022. IATA said, 

“Most of the region’s markets are open, but with some notable exceptions (Argentina, for example). The strength of the US-Latin American market will be a major contributing factor to improvement. Significant restructuring costs as the region’s carriers adjust to the new business realities will weigh on financial performance, keeping the region in a collective loss.” 

Earlier this week, LATAM released its five-year business plan as part of its financial reorganization. The South American airline group is forecasting when it will recover the profitability and how the market will behave in the coming years. Let’s review LATAM’s Chapter 11 Business Plan. 

Back to profitability

Prior to the COVID-19 pandemic, LATAM Airlines Group had revenues of more than US$10 billion and a sound business in South America. Nevertheless, the crisis has overthrown everything and LATAM had to begin a Chapter 11 bankruptcy process in the United States. 

The carrier has moved forward, and now it expects it will return to 2019’s profitability by 2024. Moreover, the company expects an operating margin (EBIT) of 11.2% in 2026, which would be the highest since 2010. 

Total revenues are projected to increase 13% by 2026, with passenger revenues growing 8% and cargo revenues increasing 59% compared to 2019, said the airline in a statement. 

All of this will be achieved because LATAM was able to reduce its cost base by US$900 million annually. The company also expects to improve its CASK ex-fuel by 3.3 cents in 2024. 

LATAM Airlines Group CEO, Roberto Alvo, said, 

“We will emerge from this process as a highly competitive and sustainable group of airlines, with a very efficient cost structure, all the while maintaining the unparalleled network and connectivity that LATAM offers in all the markets it serves.” 

LATAM new financing offers

The South American giant has also received several offers from stakeholders, which would provide more than US$5 billion of new funds. 

Each proposal contemplates raising the money through the issuance of new debt and equity. In consequence, if approved and implemented, it would result in the substantial dilution of existing shares. In the last few weeks, Avianca’s shares have been in decline due to this same reason. 

LATAM is also considering getting a possible additional third debtor-in-possession financing worth US$750 million. This money would come in addition to the existing US$1.3 billion Tranche A facility and the US$1.15 billion Tranche C facility, none of which are fully drawn. 

The airline said, 

“Given the currently favorable market conditions, LATAM is soliciting interest from potential lenders in providing a Tranche B Facility and will consider proposals to determine whether it is able to borrow funds at a more competitive rate than under the existing Tranche A and C facilities.”

What about LATAM’s demand recovery?

LATAM’s Chapter 11 business plan also included a vision of the demand recovery and operational projections through 2026. 

The Group forecasts a return to pre-pandemic capacity by 2024 and a growth of 7% by 2026, compared to 2019. LATAM expects domestic markets to recovery by 2022 and international ones by 2024. 

LATAM Airlines Brazil would lead the Group’s recovery. It is currently working at 77% of its pre-pandemic capacity, and LATAM expects to surpass 2019 levels earlier next year. 

Meanwhile, the domestic markets in Colombia, Ecuador, Peru, and Chile are already at 72% of their pre-pandemic capacities. 

Finally, LATAM is looking to extend the period of exclusivity to file a plan of reorganization through October 15, 2021. Additionally, the voting period would go all the way through December 15. LATAM and Aeromexico are facing similar timelines at the moment. 

Originally published here.

The Boeing 737 MAX is coming back after 20 months grounded worldwide due to accidents at Ethiopian and Lion Air. So far, only two countries have recertified the MAX: the US and Brazil. 

In Latin America, four carriers have MAX fleets. GOL Linhas Aereas in Brazil has seven Boeing 737 MAX8; in Mexico, Aeromexico has six; in Panama, Copa Airlines has six; and in Argentina, Aerolíneas Argentinas has five.

Brazil 

So far, GOL has provided the most certainty about its MAX plans going forward. For instance, since Brazil has recertified the aircraft, GOL plans to operate its seven aircraft in commercial flights starting tomorrow, December 9. Before reintegrating the MAX-8 into the fleet, GOL conducted training for 140 of its pilots in conjunction with Boeing. The practices took place in the United States, using a MAX simulator. 

Paulo Kakinoff, GOL’s CEO, said, 

“We are pleased about the return of the Boeing 737 MAX to our network. The MAX is one of the most efficient aircraft in aviation history and the only one to undergo a complete recertification process, ensuring the highest levels of safety and reliability.”

Additionally to the seven aircraft already in the fleet, GOL has a standing order for 95 more units. Initially, it was an order for 125 planes, but the Brazilian carrier reduced it to adapt better to the current pandemic. According to GOL, these 95 MAX are scheduled for delivery between 2022 and 2032; some of the aircraft that have already been built may fly to Brazil in the next few days.

Mexico

Aeromexico has a fleet of six Boeing 737 MAX8s. So far, the Mexican aviation regulatory body (AFAC) hasn’t recertified the type. It may take a while because the general director of AFAC recently resigned, leaving the newly created organization. 

This uncertainty can be seen at Aeromexico. We’ve asked the Mexican airline if it has a status regarding its MAX fleet but to no avail. Aeromexico expects to have a more precise panorama this week. 

Additionally, as Aeromexico is currently under Chapter 11 reorganization, it is analyzing every aspect of the business, including its standing order for up to 84 additional Boeing 737 MAX. 

Aeromexico has already shrunken its fleet’s size, rejecting several leasing contracts of Embraer E170 and Boeing 737-700 aircraft. It also switched the leasing contracts of its aircraft to PBH agreements. It is fair to expect a reduction in the MAX order. 

Panama

Copa Airlines has a fleet of six Boeing 737 MAX9. As Aeromexico, Copa doesn’t know when it will operate these planes again. Panama’s civil aviation authority hasn’t announced the recertification of the type, even when it said, a few months ago, that it would follow the FAA’s lead. 

Copa has a standing order for 55 Boeing 737 MAX8 and MAX9 airplanes. The Panamanian airline said a few things about the MAX on its third-quarter results. It stated,

• “The Company has a plan in place to comply with all new requirements and expects to return its six Boeing 737 MAX-9 aircraft to service soon.”
• “The Company is in advance discussions with Boeing to reach a settlement regarding the Boeing 737 MAX grounding. Subject to the outcome of these discussions, the Company expects to receive two Boeing 737 MAX-9 aircraft during the month of December 2020.”

Argentina

Last, we come to Argentina. Aerolineas Argentinas has a fleet of five MAX and an order of 12 remaining aircraft, including nine directly from Boeing and three through lessors. 

There is no information regarding the Argentinian Government reauthorizing the MAX operations in the country. The last we heard about Aerolineas’ MAX fleet was in February when the airline announced it was expecting compensation from Boeing for the grounding, possibly in the form of discounts on the remaining orders.