SANTIAGO: Latin America's largest carrier LATAM Airlines Group SA is expected to report it made a loss in the second quarter as a faltering Brazilian economy takes its toll on the group that was created in the costly and complex merger of LAN and TAM.
The company was formed when Chile's flagship LAN took over Brazil's TAM last year, but its Brazilian operations have struggled since the merger as the value of the real slides and costs rise.
Analysts are expecting LATAM to post a net loss of $276 million in the three months to June 2013, according to a median of five analysts polled by Reuters.
That would be on revenues of around $3 billion, according to Thomson Reuters estimates.
Last year, the Santiago-based company, which completed the merger in June 2012, reported a net profit of $49.7 million for the same quarter, a traditionally weak period outside the main holiday seasons, but has since revised that to a loss of $461 million.
In the first quarter of 2013, its profit fell by nearly half to $42.7 million.
Costs associated with the merger, a tax overhaul in Chile and cooling demand in regional powerhouse Brazil have all dragged down the airline in the last year.
Earlier this month, over 800 job cuts were announced as part of a cost-cutting program, while in June, it approved a $1 billion capital increase to renew its fleet and boost its finances.
The company's shares have more than halved since the merger, trading at 6,330 pesos in Santiago on Friday.
Despite the bleak early start, many analysts remain positive on the long-term outlook for the group.
Rival International Consolidated Airlines Group SA, which formed when British Airways merged with Iberia in 2011, said earlier this month that the reorganization of the unprofitable Spanish carrier was starting to bear fruit.
LATAM might be able to do the same as TAM reduces its fleet and LAN applies the methods that have made it an efficient airline.
"LATAM is doing its job of adjusting capacity to meet demand, which will result in a year-on-year-improvement in operational margins," said Itau in a report.
The company remains highly valued compared with to its peers, with a 12-month forward price earnings ratio of 16.4, compared with a sector median of 10.5.
LATAM is will report second-quarter results on Tuesday.
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