Transforming services to prepare for the future

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LATAM Cargo, the leader in cargo transportation to, from and within Latin America, has been in the news recently for rationalising its fleet by getting rid of its B777 freighters. In lieu of three B777Fs, LATAM will operate five weekly B767 frequencies. By the end of this year, it will have 10 B767Fs and one MD-11F. Though at its peak, LATAM Cargo had four B777Fs and 12 767Fs. It recently opened two direct cargo routes from Brussels and Madrid to South America, with two and one weekly frequencies respectively, making the company the only airline to offer air freighter service between these cities and the region. Andrés Bianchi, Chief Executive Officer, LATAM Cargo, speaks to The STAT Trade Times about the changes and how he intends to focus on reinforcing LATAM Cargo’s competitiveness in order to maintain its leadership in Latin America.

Is the outlook positive for 2018? Do you expect to maintain the growth momentum?
We are increasingly confident of the market conditions. We also have initiatives that we have engaged in product development to fleet rationalisation. These took us long, but they are indeed is going to lead to a better value proposition going forward. I do understand that when you get rid of B777F, which is one the best freighters in the world and replace them with B767BCFs, it may sound very unconvincing. We have placed orders for three 767-300BCFs (Boeing Converted Freighter), the first will join the fleet in November this year followed by the second in 2019 and third in 2020. We are also operating a MD-11F on an ACMI basis for back-up and supplementary work.

What was the rationale for getting rid of B777 freighter?
We took them (B777Fs) under some expectations and we assumed that certain things are going to happen. Two things happened: Brazil and the rest of the region failed to grow as expected. Secondly there was a radical shift in the belly capacity with increasing wide-body passenger aircraft. Latin American market slowed; freighter demand declined as cargo moved to bellies.

We got access to pretty good belly capacities; so that took away demand from B777F. We could not use the 777s in optimal manner. Therefore, today the final set up of the B767 operation is looking pretty competitive. It is a much better product with 10 B767s and together they generate more synergies, a robust schedule, more backups, more flexibility. So overall the rational was that demand was not there to justify the B777s in our fleet and a larger B767 operation makes a lot more sense.

We were only flying B777Fs on Europe-South America rotations. We are going to put the B767Fs there and we are going to put extra flights and that compensates for the reduction in capacity created by withdrawing B777Fs. Ultimately, capacity almost remains the same.

Transforming services to prepare for the future

What are your plans for product innovations?
I think we did a significant shift in our approach to products, a few years ago. We are pretty happy with things that we developed then. We got ourselves CEIV certified by IATA; Pharma product is successful; our Flex (an innovative service for shipments that allow time flexibility) product is doing well. And certainly one of the things that we are looking to improve over time is our perishables offering. We are working on improving our perishable product in the next couple of years; this includes working on infrastructure at our key hubs and cool chain solutions. We are preparing for broader changes in our perishable offerings.

How do you look at the South American region and do you see air cargo volume improving from this region?
Air cargo volumes are certainly increasing in this region. This region, in particular, has completely different sets of products. Perishables export is improving. General cargo volumes are improving as well. There is a bunch of economic and political decisions which are positive. In general, the consensus is that the growth should remain positive for 2018; although this region has a knack for knocking your expectation.

How crucial is express cargo volume coming out of the e-commerce sector?
It is hard to isolate express volumes from general cargo right now for us in Latin America. But you are seeing a pickup in general cargo, which you could argue has more to do with e-commerce.

How has the rebranding worked for LATAM Cargo?
It is important and brings us some synergies. We are now selling a much better network into South America. We can serve most of the key markets with belly capacity and we are growing that capacity. This is complemented by our freighter operation, which gives us a very robust offering in terms of service. This wasn't there before. So, essentially today we can offer access to Brazil from 8 to 9 points in Europe. We couldn't do that before. We are able to combine freighter and belly capacity. We have access from the US to Brazil that we did not have before. We have inbound connectivity into Sao Paulo that gives our customers a lot more options. We can combine our freighter operation in a way that is lot more attractive to us than before in terms of returns. Over all, we have developed a much better solution to our customers after the merger. The most important thing in this is having the access to a really broad and attractive network.

What you think are the biggest challenges and pain points for LATAM Cargo?
There are many. We have a pipeline of projects that will address these challenges and pain points. If executed correctly, we will be in a much better state of business. Other initiatives include improving our perishables offerings. We are working on transforming our services to prepare us for the future. Clients are going to demand more and we have to enhance our products and service. Fleet rationalisation is part of this transformation process.

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