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Avianca-TACA enjoys profitable first year as merged entity

6th April, 2011

Avianca-TACA is confident of a successful debut on the Colombian stock exchange after a profitable first year as Latin America’s fourth largest airline group. Colombia-based Avianca and El Salvador-based TACA completed their historic merger in early 2010, creating the fourth largest airline group in Latin America after LAN, TAM and Gol.

With Ecuador’s AeroGal and Avianca Brazil having also now formally joined the group, Avianca-TACA consists of 13 carriers from 10 countries.

Airlines included in Avianca-TACA

Carrier Country

Number of
aircraft in service

Avianca Colombia 56
TACA International El Salvador 34
AeroGal Ecuador 18
Avianca Brazil Brazil 17
Sansa* Costa Rica 13
La Costeña* Nicaragua 7
Aeroperlas* Panama 6
TACA Peru Peru 5
Aviateca* Guatemala 4
Tampa Cargo Colombia 4
Isleña* Hondurus 3
VIP^ Ecuador 3
Lacsa Costa Rica 2
Total   172

In its first results announcement as a combined entity, Avianca-TACA last week reported it generated revenues of USD3.1 billion and transported almost 18 million passengers in 2010. The airline group turned an EBITDA operating profit of USD409 million and net income was USD50 million. The results include a USD58 million provision related to the retirement of Avianca’s Fokker 100 fleet, which are being replaced this year with ex-Mexicana Airbus A318s.

No year-on-year comparisons are available as Avianca previously reported its financials separately while TACA has historically not made its results public. In 2009, Avianca generated revenues of about USD2 billion while TACA generated revenues of about USD1 billion.

The airline group says the merger has already allowed it to improve operational efficiencies and capture synergies. The savings generated from the early phases of the merger allowed Avianca-TACA to post a profit despite tougher than expected market conditions last year. The airline group initially forecasted it would turn a net profit of about USD100 million in 2010.

Conditions in Avianca’s home market of Colombia were particularly tough last year, reflecting intense competition. Fares and yields in the domestic market plummeted due to expansion at low-cost carrier Aires, resulting in what many considered to be irrational competition. Yields have since improved as Aires has retracted its lower fares since being taken over by LAN late last year.

The improvement in market conditions in Colombia and the realisation of additional synergies created by the merger are expected to lead to higher profits in 2011. So far Avianca-TACA have identified about USD200 million in synergies, most of which have not yet been realised as the group has not yet merged its systems and processes.

As of the end of 2010, USD54 million in synergies had been generated, beating an original target of US35 million for the first year. About half of the remaining USD146 million will be realised this year and half in 2012, when the integration process will be completed. In the end the group will also likely generate more than the initial USD200 million projection for total annual synergies as it is continuing to identify additional new synergies as it works its way through the integration process.

The group’s outlook for 2012 will also be improved as it starts to realise some of the benefits of being a member of a global alliance. The Star Alliance late last year accepted Avianca-TACA as a new member and the group will formally join the alliance in the first half of next year.

This year the group is working on merging the Avianca and TACA frequent flyer programmes. The group is also now working on selecting a single brand, although it will need to keep separate operating certificates to meet regulatory requirements.

With Avianca-TACA already profitable and its outlook rosy, the group last week decided to pursue an initial public offering, initially listing in Bogota. The offering process is already underway and will close on 15 April. One hundred million shares are being offered at a price of COP5,000 each.

The proceeds, expected to be about USD250 million, will be used to fund fleet and network expansion. The group says it now has a combined fleet of 142 aircraft operating to more than 100 destinations in 25 countries. This excludes small turboprops operating in Central America under the TACA Regional brand.

The group last year completed a joint network plan focussing on its Bogota, Lima and San Salvador hubs. Avianca-TACA says it now operates 1,180 weekly flights from its main hub in Bogota, with connections to 19 domestic and 22 international destinations. San Salvador features 250 weekly flights to 23 international destinations while Lima has 220 weekly flights to 21 international and four domestic destinations.

A smaller mini-hub in San Jose, Costa Rica currently consists of 163 international flights per week. Avianca-TACA also has large domestic presences in Ecuador through its AeroGal unit and in Brazil through Avianca Brazil.

In Colombia last year Avianca captured 52% of the domestic market and 38% of the international market, based on Colombian CAA capacity data.

Colombia domestic market share (by seat capacity) by carrier: 2007 to 2010

In Peru, Avianca-TACA last year captured 17% of the international market, according to Peruvian CAA data based on total passengers carried. The group only captured 3% of the Peruvian domestic market in 2010, but this will increase significantly in 2011 as its TACA Peru unit, which until earlier this year only operated one domestic route and was primarily an international operator, has embarked on a major domestic expansion project.

In Brazil, Avianca is relatively small, capturing only 2.6% of the domestic market in 2010, according to Brazilian ANAC data based on RPKs. Avianca Brazil only launched its first international service late last year, connecting Sao Paulo with the group’s Bogota hub.

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