Monday, October 19, 2020
Perfil

ECONOMY | 20-06-2020 10:03

LATAM airline departs Argentina as virus crisis hits home

Chilean-Brazilian airline LATAM – which filed for bankruptcy in the US last month – announces its subsidiary in Argentina will cease operations for an indefinite period. More than 1,700 jobs now at risk.

LATAM Airlines Argentina has announced that the company will cease operating in the country after 15 years, citing local industry conditions and the coronavirus pandemic.

The Chilean-Brazilian airline, Latin America's largest, said Wednesday that operations at its Argentine subsidiary would be suspended “indefinitely.”

The company said in a statement the move was "a result of current market conditions, exacerbated by the impact of the Covid-19 pandemic and the difficulty of building structural agreements with local industry actors, which has made it impossible to foresee a viable and sustainable long-term project.”

The Argentine subsidiary has been in operation for 15 years but its 12 domestic routes have been shut down by the virus, while four international destinations are to be operated by other LATAM subsidiaries. Both passenger and cargo flights would be halted, the company said.

Destinations covered by cargo flights include Buenos Aires, Iguazú, Bariloche, Salta, Tucumán, Mendoza, Córdoba, Neuquén, Comodoro Rivadavia, Río Gallegos, El Calafate and Ushuaia.

"It's unfortunate but inevitable news. LATAM must now focus on transforming the group to adapt to post Covid-19 aviation," the firm’s CEO Roberto Alvo said.

The Chilean-Brazilian carrier is in crisis due to the border closures and measures put in place by South American countries to contain the coronavirus pandemic. Last month the Argentine branch’s parent company, LATAM Airlines Group SA, filed for bankruptcy protection in the US having scaled back operations by 95 percent in April.

The petition for protection, filed under Chapter 11 of US legislation, should allow LATAM to  continue operating while it develops a plan to pay creditors and reset the business. 

The airline, whose shareholders include the Cueto family, from Chile, and Delta Air Lines Inc, is operating with a reduced service and has received guarantees for a bankruptcy loan of up to US $900 million.

Domestic impact

LATAM was formed in 2012 from a merger between Chilean airline LAN and Brazilians TAM. 

Before the pandemic it served 145 destinations in 26 countries, employing 42,000 people and operating 1,400 flights a day, transporting 74 million passengers a year.

At least 1,700 employees work at the firm's Argentine subsidiary. Their future has not yet been discussed, though the government said this week that workers would receive wages for this month under the government’s state aid ATP programme.

"Argentina has always been a fundamental country and will continue to be so. The other subsidiaries of the LATAM group will continue connecting passengers from that country with Latin America and the world," said Alvo.

Argentina was one of the first countries in Latin America to introduce the strictest measures to stop the spread of Covid-19. In April, the country announced that commercial airlines could only sell airline tickets and operate regularly after September 1. 

Now, the government is seeking to authorise international flights with a maximum passenger capacity of 70 percent since mid-August, with domestic operations that would start earlier in July.

The ALTA regional aviation trade group recently warned the government that the airlines in Argentina face an “imminent and substantial risk” with flights grounded.

State monopoly?

LATAM’s decision will have a big impact for passengers, effectively giving state airline Aerolíneas Argentinas a monopoly on flights at Buenos Aires City’s Aeroparque Jorge Newbery airport.

The departing carrier held 16 percent market share of domestic flights in 2019, transporting around 3.1 million passengers. That put it in second place behind the dominant Aerolíneas, which accounted for 63 percent.

Despite those figures, both airlines are struggling. LATAM Airlines Argentina recorded pre-pandemic losses totalling some US$260 million over the last two years, while Aerolíneas has depended on subsidies ever since its nationalisation in 2008. In a recent interview with Bloomberg, the state carrier’s chief, Pablo Ceriani, confirmed that budget shortfalls – which are expected to reach US$880 million this year – would continue for some time.

“One of the conditions for profitability is demand, and that won’t be normal until 2022,” he said.

There has often been tension between the two airlines, with many local outlets saying members of La Cámpora both inside and outside the state airline have deliberately sought to make life difficult for the Chilean-Brazilian airline. Reports cite allegations of bribery, regulatory pressure, the blocking of fleet upgrades and even a dispute over hanger space at Aeroparque Jorge Newbery.

'Opportunity'

LATAM has also clashed with the government, which ordered it to backtrack on its attempt to slash employee wages by 50 percent due to the pandemic.

In an interview published Friday, Tierra del Fuego Province Governor Gustavo Melella described LATAM's departure as both “a shame” and “an opportunity” for the state airline.

“For us with tourism it is a loss because many tourists used LATAM to reach our province. It’s an opportunity for Aerolíneas Argentinas," he told Perfil.

LATAM said that it would soon release details "through its official channels" regarding refunds of tickets. Domestic flights purchased with a credit card would be automatically refunded within 45 days. Passengers with tickets are encouraged to visit latam.com/administratuviaje to learn more.

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