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LATAM Airlines Group; newly profitable but caution reigns as low cost entrants prepare to pounce

During 2016 LATAM Airlines Group recorded its first annual profit since 2011, and its first quarterly increase in revenues during 4Q2016 after nine consecutive quarters of decline.

Much of the improvement was driven by a slow recovery in the company’s largest market, Brazil. However, unit revenues in Brazil remain below their historical highs. The country’s two largest airlines – LATAM Airlines Brazil and Gol – continue to practice capacity discipline while other Brazilian airlines plan to expand supply in 2017, which could affect the tenuous recovery just beginning in the country.

Even as overall conditions in Latin America appear to be improving, LATAM is still feeling some macroeconomic pressure in its Spanish speaking markets. In certain geographies, LATAM is facing competitive pressure from capacity increases by its rivals as well as the debut of new low cost airlines in Peru and Chile that is likely to intensify pricing pressure in those regions.  

Despite growing signs of a recovery, LATAM remains one of the more cautious operators in the region, with planned capacity growth for 2017 that is lower than that of some of its larger rivals, which feel confident that demand is robust enough to absorb their planned growth.

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