1. In the second half of 2022, LATAM Cargo announced a significant expansion of its transatlantic freighter business, nearly doubling capacity between European and U.S.A destinations, as well as improved connection to Central and South America through New York and Miami. Could you elaborate on your cargo plans and by when should we anticipate the service to begin?
This is part of a larger expansion plan that we revealed in 2021 when we indicated we would raise our fighter fleet from 11 to anything in between 20 – 22 aircraft by the end of 2023. The aim behind the transatlantic expansion is to give more service options to our clients in Europe, including both US stops and using the Miami hub to deliver new destinations. It’s the simplest and most straightforward method for us to increase the number of European destinations we offer, therefore assisting our clients in their quest to visit additional countries in South and Central America.
2. LATAM acquired their most recent Boeing 767 freighter conversion in May. What will be the primary purpose of this freighter?
We acquired three freighters between December and May, and we will receive two more in September and December, as well as more aircraft in 2023. So each aircraft is essentially a building block in our strategy to grow, and the last freighter that we got enabled us to increase our capacity between North America, South America, and back, particularly reinforcing our position in the flower markets of South America and they also enable us to start launching some of the freighter services between Europe and North America and then down connecting to South America.
When we talk about northbound cargo products, it’s primarily flowers and Salmon, and we are increasing our capacity by combining freighters and recovering the belly operation out of South America. Now, on the southern route, we are transporting the regular commodities we transport which include electronics, mining equipment, and consumer goods.
3. In the first quarter of 2022, LATAM Cargo generated 430.7 million dollars in sales, a 63.5 % increase over the first quarter of 2019. Who do you believe should be credited for this success? How did you achieve this? And what are your profit intentions for the 2nd half of this year?
The success indicates, on the one hand, a tremendous effort by the team to maintain capacity in the face of the loss of all belly capacity in 2019. Prior to Covid, about half of our capacity came from long haul belly capacity, which was clearly captured rather substantially during the pandemic and is currently being recovered. To do this, we increased the usage of the cargo fleet while also adding extra planes, and also running passenger freighters, which were quite restricted during the first half of this year.
On the other hand, you would see an increase in rates, which is consistent with what we have observed globally. Also, for well-known reasons, fuel prices increased in the later months of the first half, which was partly passed on to the consumer.
But what’s driving this result is basically the focus of a team in providing solutions to our clients in the midst of all the hardship that came with the pandemic.
4. What are your intentions for the next half of 2022?
The next half of the year will be filled with uncertainty. I believe there are many moving parts at this moment, both in terms of demand and also, I mean, demand coming from two sources, production challenges in certain nations, most notably China. Also, there is a lot of political and economic instability in the destination countries, particularly those regions in South America. In terms of forecasting, those two factors form or have a complicated situation.
Our primary goal is to continue to provide the finest solutions to our customers’ demands while remaining highly adaptable and nimble in terms of adjusting the network to whatever those needs may be in the face of these unpredictable times. At the same time, we are using two areas in which we have spent heavily over the previous four years that is, creating a far better customer experience by providing our goods in a more efficient manner and adding value to user capabilities. While also capitalising on the cost savings that we have been able to achieve.
Going forward even if those scenarios shifted from a traditional peak scenario for the end of the year to a more bearish situation in terms of demand, we believe we are well prepared for the second half of the year.
5. What are the most significant challenges confronting cargo operators today?
The level of uncertainty that we face is the first challenge that occurs to me. We are coming off a time in which demand exceeded supply, and it is unclear whether this will happen in the second half of this year or in 2023. So the first challenge is the mix of predicting and adaptability. The second significant challenge is staffing or service difficulties at key destinations. This has occurred in various stages in many countries. Some countries have faced this in 2021, while others are enduring it in 2022, and you will need to adapt and navigate in order to present better choices to your customers. I believe that the offset will be what happens in the second half of 2023 in terms of capacity constraints, which may compel us to adjust our network to some level. The third element is fuel price volatility. Fuel prices have already been raised, however, with fuel prices fluctuating as much as they have, it is difficult for some networks to remain viable. As a result, we must be very flexible in how we manage our capacity in the future.
6. Fuel prices have been volatile in recent months as a result of geopolitical events and airspace closures. How is this affecting global demand, and how are things likely to change?
I believe that when you look at the price, consumers are modifying their shopping patterns, shifting items, and rebalancing, and their purchase capacity gets stretched. As a result, demand for some items, particularly discretionary ones, is likely to be impacted, and we must be mindful of this. At the same time, when authorities react to this, greater inflation may put a damper on or postpone some investment initiatives, and so on. So I believe there will be an impact on demand, but how large that impact will be is something we are all trying to model. In our situation, we’re focusing on scenarios and attempting to figure out what we would do and what would provide us additional options later on. Now, clearly, fuel costs impact such scenarios since they define whether enterprises may become unprofitable, or at a particular level. So it’s balancing both the impact of fuel prices on demand as a secondary variable and the direct impact on cost, which is what we are trying to control.
7. How are you addressing the issue of staff shortages? What fueled this shortage? Are you expecting any impacts from your capacity growth plans?
Staffing shortages hit us the hardest in 2021. Because our core facilities are that we operate by ourselves, in countries where this has already occurred, namely the United States and South America. It’s clearly a difficulty, especially given the fact that we operate at airports, the security, limits are obviously required to operate in a facility like that. So it’s not like employing people and then training them and then they are up and running; you have to teach them, acquire the badges, and there’s a significant lag between the day you hire and the day people can work. That is a lengthy procedure, and in certain countries or jurisdictions, it is much longer than expected.
So, I believe what’s driving this is, the new labour market, which means you have to alter your employee value offer to some level. Also, when we started witnessing a more dramatic recovery in passenger demand, it took airlines a while to respond.
However, in our specific case, we have made it very clear that components such as safety and security are vital, and we would much prefer just other things that caught on training or other aspects of the process. Fortunately for us, in 2022, we are focusing less on ourselves and more on what is occurring at other airports where we have hired third-party services to determine whether improvements are required.
8. A recent incident occurred when a flight was compelled to make an emergency landing owing to a fire started in cargo caused by lithium batteries. Do you believe the government should introduce new safety requirements for the transportation of flammable lithium batteries? How concerned are you about the safety of lithium transport?
This is a crucial issue, and we at LATAM Cargo take it very seriously. We have some of the most stringent criteria for lithium battery transportation, and we will always maintain them at the highest possible level. There is no simple explanation for why this occurs. I feel that a three-pronged strategy will make more sense, and this is because when you look at why this happens, there are three major origins of the problem.
One, there are people who are unaware that the safety of lithium batteries is a concern and hence do not take the required precautions to avoid something from happening. To overcome this, you must create awareness. Two, then there are some who are aware of the dangers and are prepared to go to any length to avoid them. However, anything may fall through the cracks at times, which is a concern. In this instance, you should strengthen procedures and maybe add certain safety and additional safety standards, such as cargo scanning.
Then the third type is people who know lithium batteries are dangerous but refuse to comply with safety requirements. In this case, governments must be very active and deliberate in prosecuting people who are doing this because the consequences of what they are doing are quite significant. So, I believe it is more prudent to take a wide view of the situation and focus on these three specific levers in order to handle this very significant problem.
9. There is a strong emphasis on achieving sustainability. LATAM has offered an offset program called ‘Let’s Fly Neutral’ for air freight transportation, where we make an important commitment to their partners. Can you please explain how this program help to reduce carbon emission? Senator recently joined hands with LATAM, Are any other partnerships under the pipeline?
CO2 is a highly complicated problem, there is no one way we will be able to meet our CO2 reduction targets, rather, it will be a mix of many things. For example, even if we concentrate on sustainable aviation fuels and look at the best available solutions in terms of fuel burn reduction, we as an industry are still falling short of the effect we need to make. As a result, it makes sense to consider a variety of distinct metrics and incorporate them into a programme. We are always striving to reduce and improve our fuel use. ‘Let’s Fly Neutral’ is a solution based on offsets that can take several shapes or forms. We are concentrating on high-quality offsets that have an immediate impact. How does it work? Basically, our offsets are focused on preservation. Unfortunately, a substantial number of trees are cut down each year, resulting in a loss of CO2 absorption capacity. The goal of this initiative is to conserve such trees, which will have a short-term benefit since those trees will be up and contributing to the reduction of CO2 emissions.
So my focus is on forest preservation in our home markets, where we feel we can make a significant contribution to mitigating CO2 emissions. From that standpoint, it’s a programme that we have opened to a number of clients, Senator International has joined in, we also have a programme with Kuehne + Nagel. We are adding a product from a southern producer, one of the largest in the world, called mo we, and we have all the clients who are bound to sign new contracts, both on the southbound and northbound markets. The objective is to use a multi-pronged strategy to handle the problem in the most effective way possible.
10. Digitalisation and modern technologies are now demanded. You signed a deal with cargo.one in December 2021; how has the collaboration been so far? What are your digitalization plans for 2022 and 2023?
Digitalization is essential to the value proposition profits bring and to future efficiency. It’s a win-win situation since it makes you a better supplier while also making your firm more efficient. That is why, at the core of our operations, is an agreement we signed with Wipro some years ago to convert all of our IP platforms into a single input system called CROAMIS. The fact that we are nearing completion of the deployment of CROAMIS and foreign business, as well as the imminent integration to roll over domestic operations into the new system, enables us to do a lot more diverse things on the detail side.
The agreements we have with Webcargo and cargo.one are part of it, but they are made possible by the fact that we have this fantastic new technology called CROAMIS supporting our operations. Now, our ability to interface with marketplaces is really important because it provides our customers with more ways to contact us, and our plan is to leverage these new channels to allow our clients to pick how they work with us. Our objective is to provide them with everything from direct host to host connections to markets to an upgraded online interface to make the process easier, quicker, and more comfortable.