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We are constantly adapting, OUR placing our customers in the heart of our decision- COMPANY making process. OUR COMPANY Latam by the Numbers 4 BEST AIRLINE in South America Global Traveler GT Tested Reader Survey Awards 24 countries 307 Average 137 operating age of destinations 30 new routes aircraft 7.9 years in 2017 LATAM 43.095 64 BY THE NUMBERS 67 employees nationalities million BRAZIL 52% passengers CHILE 27% carried ARGENTINA 6% 896 PERU 8% COLOMBIA 3% thousand OTHERS 1% ECUADOR 2% tons 144 USA 1% transported destinations OUR COMPANY Welcome Letter 5 Our commitment is to offer passengers a unique travel experience; this is why all our decisions focus on customer satisfaction. With the current trend aiming towards a customized travel. Welcome IN 2017 WE IMPLEMENTED A NEW BUSINESS MODEL FOR DOMESTIC MARKETS. SUPPORTED BY “MERCADO LATAM” AND A NEW SEGMENTED FARES STRUCTURE, THIS NEW MODEL BROUGHT TO OVER 85% OF OUR PASSENGERS THE ACCESS TO TARIFFS UP TO 40% LOWER AND A GREATER FLEXIBILITY IN THEIR TRAVEL. ITS ROLLOUT AMONG OUR DOMESTIC AFFILIATES IMPLIED A GREAT EFFORT FROM ALL OF US AT LATAM GROUP, AND WE ARE PROUD OF THE POSITIVE RESULTS WE HAVE OBTAINED. Also, after seeing the great difference to the international Enrique Cueto Plaza travel experience that on-board dining makes, we embarked CEO LATAM Group upon the challenge of redesigning the traditional food tray served on board the Economy cabin of flights lasting over seven hours. As a result, we developed a new dining Dear shareholders, experience, unique in the industry, that gives our passengers more options to choose from, a more comfortable format, n 2017 we experienced the greatest transformation in our and gourmet quality food that showcase the best of Latin recent history—a process that we undertook with the aim American and international cuisine, with over 300 new dishes. to improve our offer to passengers and move towards a All this is available at no additional cost to our passengers, I who have loved the new service. simpler and more efficient organization. We aspire to become one of the most admired airline groups in the world, and I am certain that the steps we have taken in the last few years in Along the same line, we have continued to invest in self-service terms of client initiatives, destinations network, productivity, technologies, so that our passengers can tend to themselves and sustainability have set us on the right path to achieve this. in a simple, transparent, and fully independent way. As an example, during 2017 we set up over 700 kiosks throughout more than 80 airports. IATA acknowledged our self-service initiatives and certified us in the “Platinum” category of its “Fast OUR COMPANY Welcome Letter 6 Travel” program, confirming our commitment with offering a volatile economic environment, thereby improving our leading travel experience in the industry. competitiveness. Simultaneously, in 2017 we continued to work towards obtaining the approval of the Joint Business Agreements (JBAs) IN 2017, WE MADE GREAT ACHIEVEMENTS IN with American Airlines and IAG (British Airways and Iberia). TERMS OF EXPANDING AND OPTIMIZING OUR The antitrust authorities of Brazil, Colombia, and Uruguay have NETWORK, OPENING 30 NEW ROUTES, INCLUDING already granted their approval, and we are only awaiting the IN LATAM GROUP WE UPHOLD A LONG-TERM SANTIAGO-MELBOURNE, WHOSE 15-HOUR resolution in Chile and the confirmation of Open Skies in Brazil COMMITMENT TO THE REGION, REFLECTED IN DURATION MAKES IT LATAM’S LONGEST NON- (which has already been approved by Congress). We expect to ITS SUSTAINABILITY STRATEGY, WHOSE FOCUS STOP FLIGHT. MOREOVER, WE CONTINUED TO complete this process in 2018 so we can begin to implement IS BOTH TO COMPENSATE THE ENVIRONMENTAL STRENGTHEN OUR HUBS, CONNECTING SAO these new agreements, which will provide our passengers with IMPACT OF OUR OPERATIONS AND TO ACTIVELY PAULO TO BARILOCHE AND MORE DOMESTIC access to a broader network of destinations, as well as more CONTRIBUTE TO SOCIETY. DESTINATIONS IN BRAZIL, LIMA TO RIO DE JANEIRO flights, better connection times, and better prices. AND CARTAGENA, BOTH LIMA AND SANTIAGO Accordingly, for the fourth consecutive year, we were included TO VARIOUS SECONDARY CITIES THROUGHOUT In order to expedite the coordination among our in the “World” category of the Dow Jones Sustainability Index ARGENTINA, AND SANTIAGO TO ORLANDO AND affiliates and streamline the decision-making process, (DJSI), which acknowledges the performance of the top 10% SANTA CRUZ. we defined a new organizational structure in 2017, leading companies in sustainability within this index, being shifting from business units to a functional structure that among the only three airline groups in this category worldwide. focuses on four main areas of responsibility—Clients, Operations, Marketing, and Finance. This will enable us to adapt continuously to an evolving industry and a OUR COMPANY Welcome Letter 7 The efforts we have made these past years have mirrored In a nutshell, 2017 was a year of transformation, with The major changes we implemented throughout 2017 were in a steady improvement of our financial results. In 2017, important steps towards a more efficient organization, with possible thanks to the work of the many teams involved. This operating income was the highest in our history, reaching a unique position in the market in terms of customers offer is why I cannot end this letter without first thanking everyone US$715 million, while net profit totaled US$155 million, and destinations network, so we can ensure that our business in the great LATAM family for their effort, commitment, and surpassing the US$69 million from 2016. On the revenue model will be competitive and sustainable in the long term. dedication. I encourage you to keep this same spirit alive and side, these results were boosted by the development of our to keep working with passion and excellence, ensuring that our business strategy, as well as an overall better economic clients’ dreams reach their destination, all this in our aim to environment in the markets where we operate. Moreover, become one of the most admired airline groups in the world. assisted by our productivity and efficiency measurements, we were able to keep costs increasing below 2016 inflation Enrique Cueto levels and the fuel increase of 2017, thus expanding our CEO LATAM Group operating margin to 7%. THE MARKET ACKNOWLEDGED THIS We also managed to make progress in strengthening our IMPROVEMENT, WHICH WAS REFLECTED IN financial front. In 2017, we continued with our investment THE 54% INCREASE OF STOCK PRICE IN 2017. I discipline, being the year with the lowest fleet commitments in WOULD LIKE TO THANK OUR SHAREHOLDERS LATAM’s history. We also achieved a significant improvement FOR THE TRUST THEY HAVE PLACED IN THIS in our debt profile, aside from disposing of a US$450 million ADMINISTRATION AND IN LATAM GROUP’S revolving credit facility, which was fully available at yearend. PROJECT. As a result, we achieved the highest cash flow and lowest indebtedness level since the association of LAN and TAM, maintaining a healthy liquidity level. 1 Subject to borrowing base availability OUR COMPANY Business Strategy 8 The Group’s business strategy is based on five success pillars that will enable it to guarantee the sustainability of its business in the long term, driving the growth of the region’s air traffic and improving its profitability. These five pillars are: strengthening and leadership in route network; customer experience; passenger segmentation; ancillary revenue; and Business operating efficiency. ONE OF THE MAIN STRENGTHS OF LATAM GROUP IS THE BROAD ROUTE NETWORK THAT IT HAS CREATED THROUGHOUT THE YEARS. THE AIRLINES OF THE GROUP ARE IN SIX DOMESTIC MARKETS IN THE REGION—BRAZIL, CHILE, ARGENTINA, PERU, COLOMBIA, AND ECUADOR—IN ADDITION TO OFFERING INTERREGIONAL FLIGHTS, AND INTERNATIONAL FLIGHTS THAT CONNECT SOUTH AMERICA AND THE REST OF THE WORLD. THIS BROAD NETWORK ENABLES LATAM TO ITS PASSENGERS A WIDE RANGE OF FLIGHTS, WITH SEVERAL DESTINATIONS, CONNECTIONS, AND ITINERARY OPTIONS. ATAM is the largest group of passenger and cargo airlines in South America. At December 2017, it was The Group seeks permanently to develop its route network. In L offering passenger transportation services to roughly this regard, the most relevant projects are the Joint Business 137 destinations in 24 countries, and cargo services to Agreement (JBA) that it expects to complete with IAG Group around 144 destinations in 29 countries, by operating a fleet (British Airways and Iberia) and American Airlines, and which of 307 airplanes, while having several bilateral alliances. would expand its offer to over 420 destinations. In 2017, the regulatory authorities of Brazil and Colombia gave their green light, following the steps of Uruguay’s authorization in 2016. Thus, the Chilean regulator’s approval for both agreements remains pending; besides the ratification of Open Skies between Brazil and the US, so the authority from the latter country can approve the agreement with American Airlines. Regarding the ratification of Open Skies, it’s worth highlighting that in 2017, both the Chamber of Deputies and the Senate of Brazil authorized this agreement, thus only remaining the approval from the Executive of this country. OUR COMPANY Business Strategy 9 In the aim to provide the best passenger connectivity, LATAM LATAM GROUP’S BUSINESS STRATEGY SEEKS TO Group opened 30 new routes in 2017, most of which feed PROVIDE PASSENGERS WITH MORE CONTROL OVER traffic to and from its main hubs–in Sao Paulo (Guarulhos), THEIR OWN TRAVEL EXPERIENCE, SO THEY CAN Lima, and Santiago–and whose strengthening made way for ADAPT IT TO THEIR OWN NEEDS AND THE GROUP CAN great progress in the expansion and optimization of its route FOCUS ON PROCESSES EXECUTION, SO ITS AIRLINES network.