Airline Leader Interview, LATAM Airlines Colombia CEO Santiago Alvarez

Transcript

Karen Walker:My name is Karen, Karen Walker. I'm editor-in-chief of Air Transport World and the air transport side of Aviation Week Network. So I am delighted to, to be here today, and my first duty is very special indeed. It's to welcome on the stage the Chief Executive Officer at LATAM Airlines, Santiago Álvarez. Santiago, can you join me, please? Delighted to be with you. I want to maximize our conversation time and more importantly to hear directly from you. Fascinating airline, fascinating market, and interesting times. So I will keep the bio description very short. It is in the program, of course, but as I said, You're the CEO at LATAM Airlines Colombia. You joined LATAM Airlines some 8 years ago. We were talking yesterday. This is the first time ever I've come across an airline CEO who joined the industry having been in the media industry before. He was at one of the national newspapers in Colombia. So gives me great hope for my industry. Santiago, you then became CEO at LATAM Airlines Colombia in 2017, I believe. Is that right? So could we just start with a little bit of a broad top-line view from you in terms of LATAM? A lot's been happening, of course, there. Incredibly successful brand. So just give me a little bit of a sense of sort of, you know, the way that is and the priorities there, and then we'll call down to LATAM Colombia.

Santiago Álvarez:Okay, so first of all, um, good morning to everybody. It's very nice to be here. Happy to see a lot of friends in this room, um, and, and very happy to be here in Trinidad and Tobago. And as you said, a lot of things has happened in the, in the past 3 years. We will never forget the pandemic, but we will never forget how we recovered from So first of all, in LATAM, we really decided— we decided to reshape our priorities. So we set a new framework around our people, our customer, our environment, and our results in that same order. And that has a reason. When you have happy employees, you will have happy customers. And when you have happy customers, So in the in the people in the people priority, we we are redefining our culture the way we want our people to behave in front of the customers. And so we have a new culture definition that's in Spanish, but it's jets justos empáticos transparentes y simples. And that's the way how we want. People to behave in front of the clients and to behave within the company. And then our customers— we, we live for our customers. We, we have to deliver the best for our customers, and, and that is all around value proposition— our product, our network. We're working on that. We, we have a better network today than we used to have back in 2019, so we're very proud about that. We have around 306 routes. We serve 145 destinations with those 306 routes. And so we're, we're very happy of what's happening around network. We're also working a lot in product. We, we just finished our, our retrofit in, in, in all the A320 fleet. So, so we have a standardized fleet right now with a standardized product, with products for everyone. We have premium seats, we have economy seats. And, and, and the other thing that we changed about our customers is, is the way we approach them, changing a lot our, our, our service, our, our, our approach to the market, digitalizing all the airline. And, and we used the time in the pandemic to do that. So In the middle of the struggle of the pandemic, we worked on those things. And then our environment, we will talk about sustainability, so I'm not gonna waste time right now talking about that. We have to take care about our environment, the communities where we operate. We have to be assets in the countries where we operate. And then our results, if we do well, Everything else, the results will come. And obviously we have to take care about our cash flows, or we have to manage our debt, we have to do all the things that airlines have to do. And but the results will come after doing everything else very good. We have very ambitious plans in Brazil. We're growing in Brazil a lot. Brazil has a great opportunity, the largest market in the region. Recently, we announced a $2 billion investment in the next few years to grow our fleet, to serve more markets within Brazil. We're working very hard there. Then Colombia, I have to talk about Colombia. We have made a lot of progress in the past 2 years. We will talk about Colombia a little after this question, so I will leave it there. Um, and then the, the greatest thing that has happened to LATAM in the last month was we, we were able to go back to, to relist our ADRs in the New York Stock Exchange. So that's very important for the company to access to, to new investors, to, to show the reliability of the company, the strength of the company. Um, and, and we're very happy because we made it and we were the first Latin America airline to go back to that capital market, that it is very, very, very important for us.

Karen Walker:Excellent. So what I'm hearing there is a big strong focus on service. You know, you're a service company. The customer— get that right, other things will follow. LATAM, of course, is a fantastic brand, an international brand. You've got that. You talked about the New York Stock Exchange return, which is fantastic also. But you're also a Colombian. What you're doing is that you're a Colombian airline, you're a proud Colombian, and that is a fascinating market in itself. It has challenges, but fascinating market. Let's just hone in a little bit there. You briefly mentioned A320s. As a— for Colombia Airlines, where are you with your fleet? Are you, you know, are you where you need to be? What are you looking at?

Santiago Álvarez:Okay, so Colombia. I know many people here in this room know Colombia and know how challenging it is as a market in the airline industry. And many movements have been around in the industry in the past 5 years. A couple of airlines were out of the markets last year, so that brings an opportunity to LATAM. We decided to invest in the market to bring more airplanes. And when— if we talk about 2019, we had a fleet of 15 aircraft based in Colombia. Right now we have 30 aircraft based in Colombia. So as you can see, we grew a lot. We have a better position today. We're more relevant. Were more relevant for the corporate passenger in Colombia. And so we have made a lot of progress there. We still have a lot of room to go, and we understand that, that market is tough. You have to be— if you want to be there for long, you have to be, um, you have to be very consistent, and you have to make your decisions, um, in a, in a, in a proper way. You, you cannot try to go too fast because maybe it won't work because it is tough. Many players want to be there. Every time someone is out of the market, then another will come. We received recently JetSmart in the market. And what we're seeing right now, it's a little bit of oversupply. We just presented our results for the first half of the year. And we showed that we grew 19% in passengers, but when you see load factors, we're seeing load factors around 70, 79%, 78% in the industry. And we're seeing that all airlines have to, to be very aggressive in terms of, of prices to stimulate demand, and, and then the result is, is 79% load factor. So that's, that's a very clear sign of of oversupply. And then the other one is that if you compare the seats that the market has available in the domestic in 2024 against 2019, it grew 30% and the economy hasn't grown that much.

Karen Walker:Yeah.

Santiago Álvarez:And so that's, that's part of the challenge that we have today. We also have challenges around infrastructure, around taxes. We always talk about taxes with, with the government. Around 35% of a domestic ticket in Colombia is because of the VTA tax and airport fees. So it's very high when you compare it with other markets. And we also have very creative congressmen with a lot of bills proposing different things, pet transportation, tax reduction, which is good, but for for example, price control, which is terrible for this industry. We also have to deal with all of those ideas.

Karen Walker:There was a history to that that really became clear, I think, as you mentioned about the pandemic, that in Colombia and in most Latin American countries that did not get anything like that financial and government support that you saw, for example, in the United States. So you had to really come through it on your own.

Santiago Álvarez:Yeah.

Karen Walker:And that's, you know, that's an ongoing process to still be dealing with that while building up. But as you say, it's a policy thing as well, isn't it? It's about recognizing that if you're just going to tax the heck out of an airline, it's just so much harder to— it's harder to compete. and to build and do that additional connectivity that you're looking for.

Santiago Álvarez:Yeah, and not only hard to compete, but it's, it's hard to democratize the service. And our countries need aviation. Aviation is very important in our country because the infrastructure is not good in roads. We don't have trains. And so the, the, the air transport is very relevant, very important. So we have to make it accessible to everybody, and we have to understand that we are in a poor region of the world. So that, that plays as well in the, in the recipe that we have to, to make up for customers.

Karen Walker:And you have to, you have to sort of be a low-cost carrier in terms of sort of your offerings and competition, as well as still being a sort of, you know, a more traditional type of carrier as well. You've got to, you've got to sort of work at both.

Santiago Álvarez:Yes. Yeah, low-cost carriers are a reality in, in our markets all around the world, and we have learned to compete with, with those type of carriers. We have made a lot of changes to our business model in order to compete with, with low-cost carriers. We're not defined as a low-cost carrier. We, we understand that and we act as a a full-service company, but we have added a lot of products, a lot of new ways of doing things to be more efficient and, and to, and to be very disciplined with our costs in order to, to be able to, to compete and, and to offer a lot of product, a different product segmentation to everybody so that we can serve all our customers.

Karen Walker:You mentioned sustainability. We can't go anywhere in this industry without, uh, without talking about that huge, huge topic. Uh, we all know that. I'm just going to say right off the bat here, just make it crystal clear, that there is nothing like the air transport industry globally, especially, uh, for being ahead of this. They've— it's long been one of the cleanest transport industries, but I would say industries generally, and has taken this very seriously from very early on. And they're working incredibly hard right now as an industry, and they have incredibly tough goals they intend to meet on sustainability, the net zero goal, etc. So I think in, again, in South America, the Caribbean, there are certain additional challenges on this, not least the availability of sustainable aviation fuel, SAF. That's a problem generally, but I think it's particularly so here. But let's just talk a little bit about sustainability through your eyes, through your airline's eyes, because again, the conversation we had yesterday, and I think a lot of people forget this, is that it's the bigger picture as well. It's the— all the things you're doing in not just on the fuel side, but on the other side Talk to me a little bit about that.

Santiago Álvarez:Okay, sure. Every time we talk about sustainability in LATAM, we have to go back to the pandemic. We hate the pandemic. Everybody had a very bad time during the pandemic. I'm sure everybody in this room did. But we have to go back there because the pandemic was, was a good spot for us to rethink our sustainability strategy and we redefine it. During that period. And 3 years after starting working on it, we can show a lot of results. So first of all, in waste management, we can say that we ended last year with our commitment on single-use plastic completed. Removed all the single-use plastic from our operation. That was very tough because every time you started analyzing a process, you found some kind of plastic being used there. So we, we, we had a long way there. We worked for 2 years, and now we can say that we are able to operate without using plastic or single use plastic. Then the second thing is we put in place a waste management program in our flights, Recycle Your Flight. That's also working very well. It starts with the separation of the waste, but then the management of the waste after the flight ends. Then in Colombia, we started We joined a very big project, around 500,000 hectares in Colombia are being protected with this project that's called Ceuta's View. And so it's a beautiful project where we join and we work with families, the owners of those lands to protect the environment, the ecosystem. And we have, We have to put money on those communities and we get back our carbon credits from doing that activity. The very nice thing about this is that we work with the communities, we know them, we know how they behave, what they're doing, how they do it, and then we make our compensation. That project has a stock of around 11 million tons tons for the next 5 years. So, so the potential is, is big, but it's not going to be enough. So then we have to start talking about SAF. And SAF, as we all know, is very important for the, for the decarbonization objectives that we have or commitments that we have for the future. But the reality is that there's not even a single drop being produced in this part of the world. And so So we're pushing a lot of the stakeholders to start working on this. The first thing we did is to hire MIT to make research and understand the potential of the region in producing SAF. The result of the research was that Brazil and Colombia were the 2 countries where the most opportunities around SAF production. It confirmed, as we already know, that the costs of producing SAF are very high, around 1.8 in a mature stage of the production, 1.8 times the cost of fuel. So the challenges are still there and we understand, or we're motivating the government because they have to understand that this has to be accompanied with subsidies, with public policies. A lot of stakeholders have to participate in the process and start developing the industry, which has a lot of potential. But as I said, it's— we have to start from scratch, and we're pushing that very hard.

Karen Walker:Again, it's— what you were saying about the conservation side, I think, is very interesting and critical for this for that part of the world, for, you know, the countries where LATAM Airlines are based have some of the most important regions in terms of, you know, the future of climate change, etc. So you're actively taking part in that work, and I don't think that's getting enough credit.

Santiago Álvarez:Yeah, we feel very responsible to— in the in the developing of that industry, we're not going to produce the SAF, but we are going to use it. And so as end users, we will have to be very active there and pushing the, the different stakeholders, starting with the government. We have to make SAF alive. We have to start from the laws. The law have to recognize SAF as a fuel because it doesn't recognize it today.

Karen Walker:And that has to be a government policy, isn't it? Yeah, of course. It's not something that airlines can do alone.

Santiago Álvarez:Sure.

Karen Walker:Absolutely not, no. So again, let's just talk a little bit about Colombia as a destination in itself. You know, they're not directly comparable, but you look from a sort of like a— where the US tourist typically is going to if they're thinking about going to that part of the world, and they're thinking Mexico often. You know, that's, you know, the— we all know about the sort of honeymoon destinations and the— That's the reference. Yeah, that's right. Um, uh, so Colombia is a destination that's important, uh, for you, for you as an airline. What, what still needs to be done there?

Santiago Álvarez:Okay, I'm not a good judge here because I'm Colombian. No, you're the perfect judge. I'm gonna say that Colombia is beautiful, and I'm gonna say that—

Karen Walker:It is.

Santiago Álvarez:Colombia is a great place which you have to visit if you haven't gone there. The diversity of the food, of the people, our warmness, everybody is welcome in Colombia. We also have challenges. Every country has challenges. We have challenges on security, on drug dealing. We have a lot of problems, social problems in our country, but we all, We also have beautiful places to visit, a lot of culture, music, food, as I already said. There are many reasons that you can tell people to go visit Colombia. I think the government is doing a well job there, not specifically this one, but all the governments have made efforts to bring people to Colombia. So this one is not the exception. And this year we're expecting around 6 million foreigners visiting Colombia. So that's a big number for us. And it's still a lot to go when you compare it with Mexico or other countries which are more developed in the tourism industry. But we're sure that we need more investment, more hotels there, and just More infrastructure from the airline perspective because airports are short of capacity today.

Karen Walker:Mm-hmm.

Santiago Álvarez:You, for example, go to Cartagena. It's the most important city from the tourism perspective, and the airport is collapsed. We need a plan for that, and we always push the government for that because Because if we don't have the airport, we're not going to have the visitors. And so seeing it from the airline perspective, we have to work in infrastructure. And if the infrastructure is there, then the rest of the things are a little bit easier because it's just about promotion and telling good things about the country. But connectivity is going to be key for developing the industry in the future. But we're doing well, we're growing every year, we grow the amount of visitors that, that go to Colombia. And so everybody is welcome there and hope the next CAPA event is in Colombia again.

Karen Walker:So a build it and they will come sort of philosophy here. You mentioned the connectivity there. Can you just talk a little bit about the building, especially as we are, you know, here in the Caribbean? Yeah. What's needed in your eyes as There's a lot of talk about, you know, need more connectivity wherever you go in the Caribbean. And what's needed there? What do you see that— I mean, you came through Panama, didn't you, to get here? I came through Panama, right.

Santiago Álvarez:Just like the minister that to go to Caracas, he had to take 2 flights. It's the same for Colombia. And I think there are a lot of opportunities. The markets are growing. The Caribbean is growing. LATAM is not very into the Caribbean right now. When you see LATAM from its hubs, the Caribbean is not very important. So there's a space where I'm sure we can work on. But then when you start seeing the problems that we have, infrastructure and taxes. And we have to solve all those things. And we have to start solving them from our home markets. So in Colombia, we'll always push for that. We work— I was seeing here Peter Cerda from IATA.

Karen Walker:Yes.

Santiago Álvarez:So we always work there and with ALTA in insisting the government the importance of doing this because we cannot be seen as a good tax We have to be seen as an economic developer, because if we bring passengers, the rest will come after us— the tourism, the consumption. So that's key.

Karen Walker:Yeah, absolutely. You've got to have the infrastructure there, and you can't be paying over the odds to get there.

Santiago Álvarez:And then another thing, for example, from the airline perspective is the commercial alliances. We have a very clear one with Delta. And when you work together between 2 big airlines and very important airlines, you share the risk and you are more able to invest and try new markets and try new things. And so we have been working with Delta for a couple of years now. We have launched 5 routes in a mature market between South America and Colombia, and we're giving the opportunity to all LATAM passengers to fly to multiple domestic destinations in the US and Canada through this commercial alliance. So that's another important thing where we have to to take care about how to grow because we cannot make the growth alone. We have to make the growth along with partners as well.

Karen Walker:Yeah, the power of alliances and partnerships, in your case particularly with Delta, but that spreads out through the SkyTeam. I think that was a real big lesson of the pandemic. If you got partners at that time, you were in a better position. We all know of Delta's track record. Too, of course. Interesting thing about that is that Ed Bastian, CEO at Delta, will, will talk to that from the other way. He'll, he'll say how important—

Santiago Álvarez:From the US.

Karen Walker:Yes, that LATAM is to Delta. So it's not a one-way street. Absolutely.

Santiago Álvarez:Yeah, it has to be in, in both ways.

Karen Walker:Yeah, yeah, that's right. Yes, he sort of calls it the, um, the, the SkyTeam, but then there's the inner Delta team in which Key partners like the LATAM carriers are critical. So we're getting short of time. I will just give you a warning. If you have a question or two from the audience, we'll give you a moment in a second. So if you have a question, don't be shy. But let me just sort of conclude with you, Santiago, about— it's difficult, I know, in this industry of all industries, you never know what's going to happen around the corner. You can make all the predictions you like and then Crystal ball. Yeah, and not one you really want to mess with. But if you look ahead to the next, you know, 6 months, 12 months for your airline, what are your, you know, maybe your top 3 priorities?

Santiago Álvarez:Okay, no, we're not changing our priorities. I already told you which they are and where are we working, what are our focus right now. I think Brazil is is that hotspot right now where LATAM is working a lot and wants to grow and to invest there, to have a larger network there. So Brazil, I would say, is going to spend a lot of time in LATAM's executives.

Karen Walker:Cool.

Santiago Álvarez:And then we always feel a very big responsibility. 42% of, of the intra-South America traffic is, is provided by LATAM. So we have, we have a big responsibility with the region, with the countries where we operate. We, we operate in 5 domestic countries: Peru, Ecuador, Chile, Brazil, Colombia. And so, so we're committed with all those markets, with all those, all those communities. We're committed with the climate change efforts that we have to make. And so we will keep our track on that and maybe just focus a lot on the Brazilian case.

Karen Walker:And that will be on the—

Santiago Álvarez:We're having challenges for our growth. Everybody knows it's a reality. The supply change— chain, sorry, in the industry is suffering. We have a lot of airplanes on ground because of Because of this, this kind of problems that, that the industry is having in the, in the, in the supply chain. Yeah. Um, so we're, we're working with those manufacturers and, and that's another—

Karen Walker:And that's on the engine and aircraft side?

Santiago Álvarez:In the engine and the aircraft side, everywhere in the narrowbody, in the widebody. So that, that makes growth challenging. And so we're— I think we're going to be a little— growing a little less than we're expecting because of that. That's a short-term problem that we're facing, and we hope it's going to be solved in the next 15 months or 20 months. I'm not sure.

Karen Walker:That's a long time in this industry.

Santiago Álvarez:Yeah, it's a long time.

Karen Walker:Yeah, but so cautious optimism. Optimism is what I'm hearing.

Santiago Álvarez:Yeah, but we have to see it going forward 10 years, 15 years. So this is—

Karen Walker:We are pretty much at the end of the time, but does anybody have a question? Raise your hand if so.

Santiago Álvarez:No. Shy.

Karen Walker:They're shy. They're shy.

Santiago Álvarez:I know. Shy audience.

Karen Walker:But we are pretty much at the end of the allotted time. Delightful to meet you. Wishing you And LATAM, in particular LATAM Colombia, all best.

Santiago Álvarez:Thank you, Karen. It was a pleasure to be here, and thanks, CAPA, again for the invitation.

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