Annual Report 2014 Annual Report 2014
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ANNUAL REPORT 2014 ANNUAL REPORT 2014 Index OUR COMPANY 3 OPERATIONS 59 SUSTAINABILITY 105 Message from the Chairman of the Board 4 International Passenger Operations 60 Financial Statement Message from the CEO of 6 Argentina 63 LATAM Airlines Grouo Brazil 64 Subsidiaries and Affiliated Companies Business Strategy 8 Chile 66 Our History 10 Colombia 67 Sworn Statement Fleet 15 Ecuador 69 Destinations 21 Peru 70 Our People 30 Cargo operation 72 Company Information 32 Customer Loyalty Programs 74 Property, Plant and Equipment 76 CORPORATE GOVERNANCE 33 RESULTS 2014 78 Board of Directors 34 Senior Management 37 Industry Overview 79 Corporate Governance Practices 44 Regulatory Framework 81 Ownership Structure and 51 Financial Results 87 Principal Shareholders Awards and Recognitions 92 Financial Policy 55 Stock Market information 93 Additional information 99 Material Facts 100 Risk factors 102 2 ANNUAL REPORT 2014 / OUR COMPANY OUR HISTORY WELCOME MESSAGE FLEET DESTINATIONS COMPANY INFORMATION OUR PEOPLE BUSINESS STRATEGY SUBSIDIARIES AND AFFILIATED COMPANIES 3 ANNUAL REPORT 2014 / OUR COMPANY Message from the Chairman of the Board For LATAM Airlines Group, DEAR SHAREHOLDERS, In 2014, the company moved forward with its fleet renewal plan to reduce the number 2014 was a year of For LATAM Airlines Group, 2014 was a year of of models it operates, gradually taking less renovation during which we took important efficient models out of service and allocating renovation during which steps towards achieving our mission of aircraft according to which are most becoming one of the world’s three most appropriate for each of its markets. The fleet we took important steps important airline groups in the world. Despite renewal plan forms part of our long-term macroeconomic and other external factors that strategy which we believe is essential in order towards achieving our had an adverse effect on our business, LATAM to achieve a cost-efficient operation and Airlines Group made progress on numerous enhance the competitiveness of our airlines mission of becoming one fronts of its renovation plan, including fleet in the long term. In line with this, ten modern renewal, the continuous improvement of our latest-technology Boeing 787 Dreamliners were of the world’s three most product and the renovation of the airport incorporated into LAN’s fleet while, in TAM’s infrastructure we use for our operations. long-haul fleet, Airbus A330s were replaced important airline groups in with Boeing 767s, which will allow it to make Our achievements during the year reinforce important savings on fuel as well as offering a the world. our belief that the decision which LAN and better product to passengers. TAM took over two years ago to combine their businesses was the right one. Getting where As regards the renewal and continuous we are today has certainly been difficult but, improvement of our product, TAM also if we were to go back in time, we would do began to remodel the cabins of its Boeing it all again. We continue to make progress 777s, eliminating first class and reconfiguring towards the objectives we established for business class in order to significantly improve the association. Although aware that the passengers’ travel experience. TAM also joined challenge we have set ourselves will require oneworld which became the global alliance of further efforts in the years to come, we have LATAM Airlines Group. For our customers, this confidence in the sound foundations we have will mean more comfortable travel, increased laid down. connectivity and greater opportunities to redeem their points/miles. Another important 4 ANNUAL REPORT 2014 / OUR COMPANY Message from the Chairman of the Board milestone was the opening of our new VIP Having achieved important and tangible lounges in Sao Paulo and Santiago in October progress on numerous fronts during such 2014 and March 2015, respectively. This took a challenging year allows us to look to the the number of new lounges we have opened in future with great confidence since we have the past 18 months to four, including Bogotá systematically overcome obstacles and taken and Buenos Aires. important steps towards our companies’ integration, fulfilling our goal of not only The significant investments that Brazil made becoming one of the world’s leading airlines in infrastructure and, particularly, airports but also a company to which our employees prior to the Football World Cup have had a are happy to belong. positive long-term impact for that country’s airline industry. Thanks to these investments, Mauricio Amaro we were able to move our operations to Chairman of the Board Terminal 3 at the Guarulhos Airport and LATAM Airlines Group Terminal 2 at the Brasilia Airport. These very important milestones will enable us to continue developing connectivity through our hubs, reducing connection times and offering our passengers greater comfort. Finally, I would like to point out that LAN and TAM were once again recognized by their passengers, taking first and second place, respectively, in the Best South American Airlines prize in the Skytrax World Airline Awards. This prize is regarded as a global barometer of customer satisfaction since it is awarded exclusively on the basis of passengers’ opinions. 5 ANNUAL REPORT 2014 / OUR COMPANY Message from the Ceo Latam Airlines Group Although the integration DEAR SHAREHOLDERS, all stages of their journey, seeking always to differentiate ourselves as regards service. In this of LAN and TAM has taken The consolidation of LATAM Airlines Group as context, we have approved investments for over Latin America’s best airline group has been US$100 million to boost the use of technology time, we are convinced our paramount focus in recent years and, to in all our passenger contact points. Our aim is this end, we have worked consistently and with for passengers to be able to manage their travel that the association of discipline. Along the way, we have achieved in a simple, transparent and totally independent great progress and, although results have manner. Similarly, we are working to migrate to a these two companies has been slower in coming than we anticipated, we new single brand as well as to develop a unified also know that, looking to the long term, the culture, product and value proposition, all of meant gains for all of association between LAN and TAM is the most which will enable LATAM Airlines Group to be strategic decision we have made. We also firmly fully perceived as a single airline company. us - LAN, TAM and LATAM believe that LATAM Airlines Group is the group of airlines best prepared to address adverse We believe that, in order to achieve these Airlines Group scenarios because we have a position in the objectives, the most important element that region that is unique in the world. sets us apart is our people. We have the best human team, a team of people who are All this is the fruit of many years of work and passionate about their work and focused shows us that we are on the right road to on the construction of a common culture, achieve our objective of positioning LATAM which is the basis of all we do and to which Airlines Group as one of the world’s three most safety, the customer, collaboration as a team important airline groups by 2018. In order to and excellence in every sphere are central. achieve this goal, we have designed a strategic This is the way in which we have harnessed plan based on critical factors for success that our organization to the goal of offering our seek to take advantage of our strengths and customers distinctive value, consistently our great potential. surpassing our competitors. Our strategy focuses primarily on constantly As an organization, we have always worked enhancing our customers’ experience during to be the best option for any one traveling 6 ANNUAL REPORT 2014 / OUR COMPANY Message from the Ceo Latam Airlines Group within, to or from South America, constantly We are aware that, in our region, the coming countries where we operate. They have given striving to expand our connectivity and years will be complex and challenging, due to the best of themselves in contributing to the strengthen our network. There is no other slower growth of its economies and important consolidation of this historic project for Latin airline group in the world that is present in depreciations of its currencies. We are, America’s airline industry. And, above all, I seven domestic markets in a single continent however, convinced that the strategic plan would like to invite them to continue working as is the case of LATAM Airlines Group which, in we have drawn up and are implementing will with the same passion and commitment to addition, has regional, international and cargo allow us to successfully achieve our long-term make LATAM Airlines Group one of the world’s operations. In order to take advantage of this goals, overcoming the difficulties that currently three most important airline groups. potential, we have set ourselves the goal of affect our markets and the volatility inherent increasing connectivity within South America to the context in which we operate. We know Enrique Cueto and strengthening our hubs in the region, that we cannot be oblivious to the realities CEO particularly Sao Paulo’s Guarulhos Airport - the of our industry and the region in which we LATAM Airlines Group principal gate of entry into South America - as operate. We have, therefore, given priority to well as Brasilia and Lima. proactive risk management, taking into account all our stakeholders, in line with our belief We have, in addition, redefined our that a broad and integral view of risk and its cost structure in a bid to increase our proper management are key for our long-term competitiveness and simplify the organization, success.