The Madrid-based International Airlines Group (IAG), a holding corporation controlling five airlines (British Airways, Iberia, Aer Lingus, Vueling, and LEVEL),…
LATAM Airlines Group to Close its Argentina Branch
Continuing its efforts to prepare for the post-pandemic world after its entry under Chapter 11 terms, LATAM Airlines Group has announced it is closing its branch in Argentina, LATAM Airlines Argentina. According to an official statement by the company, the ceasing will last indefinitely.
Before the pandemic, LATAM Argentina (previously LAN Argentina) was the second-largest airline of the country, having carried 2.5 million passengers domestically and owning 16% of the Argentine market, as per the local aviation authority’s data.
By taking the step, the group has presented a “Crisis-Preventing Procedure” under Argentina’s Ministry of Labor, by which it will start the procedures to lay off its local workforce of 1,705 employees, reported Clarín.
In a press release, the airline confirmed that while domestic operations will not be resumed, all international routes from and to Argentina will be undertaken by other airlines of the group, once border restrictions are relaxed. Clarín says this will ultimately allow LATAM to maintain 500 jobs in the country.
LATAM Airlines Group CEO, Roberto Alvo, has stated that “this is an unfortunate measure, but inevitable. LATAM, today, has to focus in the transformation of the group to adapt to aviation post COVID-19,” according to CNN Chile.
Passengers affected by the measures will be given the according orientations in the next days in LATAM’s website. The airline has already confirmed domestic passengers will be granted full refund in 30 to 45 days. To international flights, changes will be made free of charge subject to availability, with travel vouchers being given instead of a refund. Tickets bought with miles will be refunded through the LATAM Pass frequent flier program.
Why LATAM Argentina is Closing Down
Although the COVID-19 took a heavy toll in absolutely all branches of the LATAM Group, hence the Chapter 11 request, LATAM Argentina was in serious trouble already before the pandemic.
According to LATAM’s financial statements, the Argentine branch had been dragging down the results of the whole group. Losses at LATAM Argentina amounted at almost $266 million in 2018 and 2019 alone, while the sum of all other branches had a positive net result of $495 million in the same period.
Possibly the largest reason for these negative numbers were Argentina’s terrible economic results, with an inflation that started to get out of control, along with a continued recession and a massive devaluation of the Argentine Peso against the dollar. Growing competition with very aggressive ultra-low-cost carriers only managed to add injury to the insult.
In this sense, the coronavirus was only a trigger to LATAM Argentina’s closure. According to the press release published by the group, “the impact that the COVID-19 pandemic and the difficulty to generate the multiple agreements necessary to face the current situation helps to configure an extremely complex scenario, where there are no conditions to viabilize and sustain in long-term the operations of the branch.”
The text hints on difficulties that impeded the reach of “multiple agreements” that could assure the survival of the airline. La Nación reports that LATAM tried to reduce the earnings of all employees in April, May and June by half, but the the employees, along with the unions, refused to take the reductions. The airline took similar measures in other branches.
Argentina is one of the countries with the most severe internal travel restrictions in Latin America. Currently, all regular flights are banned, both domestic and international, until September.
How the Aviation Market in Argentina Will Look After COVID-19
Without LATAM, four players will remain in Argentina: state-owned Aerolíneas Argentinas (which is merging with fellow carrier Austral), ultra low-costs Flybondi and JetSMART and the diminished Andes Líneas Aéreas, which was already in terrible financial shape before COVID-19.
Aeropuertos Argentina 2000, manager of the small terminal El Palomar, base of both Flybondi and JetSMART, mentioned weeks ago it could close the airport and shift all operations to the larger Ezeiza Airport after travel restrictions are lifted. This generated a huge backlash by both airlines, that stated operating in a more expensive terminal would make their operations impossible from a low-cost perspective.
As there is no perspective of bail out from the cash-strapped Argentine government and these operators were already suffering with the poor economy situation in Argentina, the future of these airlines will be fully dependent of the faith of their investors. Regardless of any support, however, recovery of aviation in the country will take long. And with at least one important player withdrawn from the market, Aerolíneas Argentinas will certainly leave this crisis more powerful than ever before.
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