Three years after the merger of Chilean carrier LAN and Brazil’s TAM, Latam Airlines Group SA the new venture has been found the worst performer over the last 10 years according to the Bloomberg Americas Airline Index.
The stock price of the carrier’s continues to show a negative trend and is moreover reporting poor results. Consequently LATAM shares have reported a six-year low this month. According to Bloomberg, sales are expected to drop further through the third quarter of this year.
At the time of the merger back in 2012, Brazil’s economy was growing and the country’s currency was strong, but that has all changed in the meantime. A recent article in The Economist stated Brazil’s GDP was stagnant in 2014 and actually contracted by 1.6% during the first quarter of 2015, compared to last year’s Q1, and it is expected to shrink by 2% for the whole of 2015.
Interest rates as high as 13.75% have left consumers with little disposable income. Brazil’s government debt sits at 62%. It’s also troubling that unemployment in Brazil, which was below 5% for most of 2014, rose to 6.4% in April, with specialists targeting a figure of 8% later this year.
Another problem facing Latam is competition from Azul SA, which is backed by JetBlue Airways founder David Neeleman, and Avianca Brasil, the national carrier. Azul, however, has been unsuccessful in launching an IPO after several attempts. Only 22% of analysts recommend buying Latam now, compared to 71% back in June 2012.
The timing of the merger was also unfortunate. The two airlines’ joint reservations systems still are not operational and most likely won’t be until 2017. The aircraft from each respective carrier continue to fly under their own livery in their home countries, with separate air operator’s certificates. Latam has acknowledged “challenges,” but Tam CEO Claudia Sender told Bloomberg in May that “our objective is to be among the three best and biggest in the world.”