Roberto Alvo on stepping in as CEO and the way forward for LATAM Airways
- LATAM became one of the 10 largest airlines in the world and clearly a very successful international, even global brand on the industry.
- You take over as CEO of the company during a time where the pandemic, COVID, is beginning to spread through Asia into Europe.
- You take the helm of LATAM, and less than two months after, in May, you’re filing for chapter 11.
In a live interview, Peter Cerda of the CAPA – Centre for Aviation, talks with Robert Alvo, the recently-named CEO of LATAM Airlines.
Peter Cerda:
I have the sincere pleasure of interviewing one of Latin American’s premiere aviation leaders, Roberto Alvo, the chief executive officer of LATAM. Buenos dias Roberto, how are you?
Roberto Alvo:
Hola Peter, hi Peter, how are you? Pleasure seeing you and a pleasure to be here for everyone who will be joining. Thanks again.
Peter Cerda:
So, let me just start straight out. I have a couple of really important dates here. September 2019, you are announced as the new CEO for [Enrique Cueto 00:01:03], a legend, someone who has established the premier airline in the region. You’re the heir to succeed the big, big airline. Just a few months after, March is the big day for you. You take over as CEO of the company during a time where the pandemic, COVID, is beginning to spread through Asia into Europe. You take the helm of LATAM, and less than two months after, in May, you’re filing for chapter 11. Not a very attractive honeymoon that you’ve had. And since then, it’s just been one year of tremendous challenges, not only globally, but on a regional level. Latin America and the Caribbean have been particularly hit. Most of our borders have been closed. How has this one year been for you have? And do you regret that September date when it was announced that you would be the next CEO? Did you ever imagine you would be where you are today?
Roberto Alvo:
No. Well, I mean, first, for me, it’s a great honor to have the opportunity to succeed probably the most prominent CEO that the industry in Latin America has had. Enrique spent 25 years of his life building LATAM from a very small freighter airline to what it is today. LATAM became one of the 10 largest airlines in the world and clearly a very successful international, even global brand on the industry. So, for me, it was a huge source of pride to take the helm, as we mentioned it, and to try to make LATAM even better. And to fill those very big shoes, which is of course a great responsibility.
Yes, and as you said, who would have known that less than 60 days after I took over, I had to take the company into chapter 11. I mean, it doesn’t look well in my CV when I say, “CEO, less than 60 days took the company in chapter 11.” It doesn’t look really good. But that it’s been an incredible year, honestly. Yeah. And I never believed that we’ll be in the position we are today. I think that for every leader in their industry, we’re managing probably the most challenging time that any company may have outside of war time. But at the same time, it has been an incredible experience. And I’m so thrilled to see how this group of companies has been able to navigate these very challenging scenarios. Very proud about each one of the 29,000 employees that work on LATAM. And we wouldn’t be here if it wasn’t for each and every one of them. And it’s been a great learning experience for, I guess, all of us.
So, I’m really happy to be here, even though it sounds a little bit strange and ironic. It’s probably one of the greatest moments to be leading a company in this very, very strange circumstances.
Peter Cerda:
Roberto, we’re going to touch and go really deep into LATAM in a few minutes. Let’s stay with the crisis a little bit longer. You’re an airline that had pre-COVID, at the end of December 2019, over 330 airplanes, you flew to more than 30 countries, 145 destinations. With COVID, with our borders closing, we went from 1700 city connections on a regional scale globally to 640 in April, which with our load turn, now we’re about 1400 city connections. How devastating have the restrictions that have been imposed on the industry, in terms of closure borders, quarantine measures by governments, how difficult has that been for you as an airline to be able to manage through this crisis?
Roberto Alvo:
It [inaudible 00:04:49] been dramatic Peter. On March 11, we flew 1,650 flights. On March 29 last year, we were down to 50 flights a day. So, 96% of less capacity in less than 20 days. I think that we all endured that. And we spent four months almost operating nothing, less than 10% of our capacity. And in the region in particular, the recovery has been relatively slow as compared to other regions, with many restrictions imposed, as you said, by different governments. Probably the most difficult thing is the changing of the restrictions and the lack of ability that customers have to plan at all, with all these conditions changing. I think that we all appreciate social distancing, that’s important and necessary. But unfortunately, a set of conditions that we have seen here, and for sure in other regions of the world, has been extremely challenging for airlines.
I think that the recovery, and we will probably talk a little bit about the future, is going to be challenged by these rules. And we need to think about how do we make the airline industry come back as fast as possible. And the governments will definitely play a key role here.
Peter Cerda:
Let’s talk a little bit about the governments here. We have a very challenging environment. In our region we’re constantly hit with social, economic, political situations year after year. Has the governments in our region done enough to help the industry during this crisis?
Roberto Alvo:
It’s a difficult question to answer. As you know, we did not get, in the region, help from governments to survive and to be rescued, like many companies in the Northern hemisphere have had. It is true though that our governments are relatively poor. These are poor countries [inaudible 00:06:37]. and I fully appreciate that governments face a huge number of challenges and needs. And this is a region where there’s a lot of poor people. And I totally understand the need for them to be helped.
Now having said that, I believe that the government’s still can do much more. And the way the governments navigate the next months as the crisis hopefully starts to wind down with the vaccines, will be key to the success of airlines that fly in the region or airlines that want to fly to the region. I would love to see our governments in the region work in a more coordinated fashion. I think that we need it. This is a very large piece of the world. And unfortunately, there’s little alternative to airlines flying when you want to move. Roads are not the greatest. We have a very little, very small train system in the region. So, airline is definitely key to making sure that connectivity in the region remains and returns, and that the economic development that comes with that is ensured.
Peter Cerda:
[inaudible 00:07:48], you touched on an important point, the vaccine, and bringing confidence. LATAM [inaudible 00:07:53] your region, the region, not only inter-regional, but also international. LATAM’s going to play an important role in bringing these vaccinations to Latin America and bringing it to the different communities. What role have you been playing with government? How have the governments been coordinating with you? Because this is a very important endeavor. As you say, we don’t have infrastructure that we can bring the vaccines by other modes of transportation. Once in the region, it’s got to be airlift. And LATAM is going to play a really important role. How is that coordination going?
Roberto Alvo:
Well, we brought ourselves forward and contacted every government in the region and seeing which ways we can help. I can tell you too, at this point, we have transported to the region, to South America, almost 20 million doses of vaccine. Which is probably almost all the vaccines that have been brought to the region. We committed ourselves to helping the communities where we operate and the countries where we have operations by distributing domestically all the vaccines that they want to for free. And at this point in time, we have already distributed more than 9 million vaccines domestically. And we have reached the most remote places in the region, like the Patagonia in Chile, the Galápagos Islands in Ecuador and the Amazonian Rainforest in Peru and in Brazil. So, we’re very proud that we are, I think, putting a grain of salt in this endeavor and making sure that we can help the vaccination process as fast as we can. So, our commitment to the governments where we operate is to continue not only shipping vaccines for free, but also medical personnel and any other thing that is necessary to making sure that the governments have the resources to fight this terrible pandemic.
Peter Cerda:
And certainly, these are just examples of how close we are to our societies, to our governments and [inaudible 00:09:53] throughout the entire region of… We don’t get this in the press, the industry doesn’t get this type of visibility, that you on a daily basis, your airline is transporting medical equipment, is transporting service people to help. And you’re now carrying that vaccine. As an industry, do we need to do more self promotion?
Roberto Alvo:
I mean, of course it helps. But you can take this two ways. I think that the importance of the airline industry in the region is underscored, definitely by societies in general. I think that we can do more. I don’t think that we should use the helping the pandemic as the best way of doing that. I think that our role, being a member of these societies, is to help. We can be low-key in that respect. I personally feel very proud, and my organization definitely feels very proud of helping. And I don’t think that we need any kind of praise for doing that. We have huge challenges going forward, and I think that we have an incredible potential of growth in the region. But for the time being, and as a pandemic goes, I’m happy to make sure that we can do the best that we can just to help here. And if we do that anonymously, I’m fine with that.
Peter Cerda:
Let’s shift gears to post-crisis or moving with the restart. What do you see, based on the experience that we’ve had this past year, do you see permanent changes in the way that travelers will book their experience and what they expect of the travel experience moving forward?
Roberto Alvo:
That’s a good question. And it’s still, I guess, a little bit difficult to foretell exactly what will happen. I think that definitely self-management of the flight experience will increase. I think that people will be more interested in making sure that they have total control of their time and their flight experience until they board the plane. And I believe by the way that if airlines provide that kind of service will have happier customers.
So yes, I think that [inaudible 00:11:57] acceleration and transformation is going to be key and important. I think that some of the safety measures that have been taken during this time will remain, at least will remain for a while. I think that also allows us to think about caring for our passenger in different ways of just having a good flight experience. And we should take advantage of that. But other than that, I’m not sure that it will fundamentally change. Maybe we will see a significant change in the industry structure going forward. But what I see, what I hear is, I mean, people just wanting to get on a plane as soon as they can, as fast as they can. And I think that we’re all waiting for that moment to happen.
Peter Cerda:
Do you think we’ll have less airlines in the region? Do you think this is an opportunity for further consolidation, and some airlines just will not be able to overcome the tremendous financial challenges that they’ve experienced over the last year, and what’s still to come in this first part of the year?
Roberto Alvo:
You just do the simple math. And I think it easy to understand that there’s going to be a significant industrial change in the following years. The industry has debt for 70 or 60% of their revenues prior to the crisis. Today not only the industry as a whole had to get $200 billion plus of debt. But the recovery is going to be slow, and we will have probably 200% of debt to revenues, for the airlines that have not brought themselves into a restructuring process like us. And that, I don’t think is sustainable. How this is going to shave down, I don’t know. But I believe that we will see for a while a significant set-up in how the industry is composed today. Just the math doesn’t add up if you don’t think about that, at least in the next couple of years.
Peter Cerda:
So, we talked a little bit about government, we talked about consolidation. Let me just give you a couple of numbers of our region. The last time the region was actually in the black, Latin American carriers, was back in 2017. Where the industry collectively of Latin American carriers made about $500 million. Since then, every other year, we’ve lost money in this part of the world. Obviously, this last year, 5 billion. This year, we hope to bring it down to about $3.3 billion in losses. This is a challenging environment. You have good airlines in this region, good connectivity. Pre-COVID, you and [inaudible 00:14:38] were growing. We were better connected in Latin American than ever before. But we’re still losing money. What needs to change fundamentally for our region to become more competitive, like in other regions around the world? And what do governments need to do differently or to assist in that way?
Roberto Alvo:
I mean, this region has huge growth potential. Flights per passenger here are a fourth or a fifth of what you see in developed economies. With bigger geographies, more difficult to connect because of the size, because of the distance, because of just the conditions. So, I don’t have a doubt that the airline industry in Southern America will try as we go forward. Having said that though definitely will have difficult times.
But I’d like to focus more on LATAM, if you ask me, rather the industry, because I don’t want to talk for other people. At the end of the day, this has been a very interesting moment for LATAM. Probably the most important learning we’ve gotten from this crisis is that we have been able to put our thoughts, our beliefs, our paradigms in front of us and examine them. And see what stands and what needs to be changed.
And it’s incredible to see how the organization have understood that there’s a very different way about going with this business. Or about how we simplify ourselves with change, the flight experience for our customers. We become more efficient. We become more caring for the societies and the environment as a whole. And it is a little bit ironic, but this crisis for sure will allow us to be much stronger as LATAM than prior to the crisis. I am very optimistic particularly about our company. And as we navigate through the chapter 11 process, which is a difficult circumstance to be. The chapter itself with the changes we’re making are making me feel very optimistic about LATAMS future in the next few years.
Peter Cerda:
And talking about the future and chapter 11, why the decision? What really pushed you to that point that you both believed at the time, that was the best course of action in order to, I imagine, position yourself as an airline towards the future, once we come out of the crisis?
Roberto Alvo:
I think that when we realized it was very evident for us that we wouldn’t get government help. Or that that government help will come with the condition of us restructuring ourselves. It became quite clear that we could take longer or shorter period of time, but we would need to put ourselves in the position of restructuring the company, as many have. And the ones that haven’t, most of them is because they have been assisted by the government. It has been probably the toughest decision that the board or the company has been able to take. As you know, the Cueto family have been important shareholders of this company for 25 years and they were faced with the decision of losing everything. And I’m impressed about the trust they have of these organizations. And then on the deep, they decided to reinvest in the company and become lenders of LATAM.
As I see it now, definitely for the company, this is going to be a great opportunity. The restructuring on the chapter will allow us to be leaner, much more efficient, and we will have a stronger balance sheet than the one we had when we entered the process. So, I feel very, very good about where we stand and what we need to do. It is unfortunate that we had to take this decision. But I’m sure that for the company, this is going to be extremely, extremely good in time.
Peter Cerda:
What does LATAM look like, once you come out of chapter 11, I imagine there’s some speculation you may come out sometime this year, mid this year or beginning of next? What will LATAM look like? Are you going to maintain the same level of connectivity airplanes or will it be a different LATAM?
Roberto Alvo:
I mean, we will be there to supply with our capacity, the demand, as the demand recovers. LATAM will remain being, for sure, the largest, most important, with a better network company in Latin America, for sure. The size of the recovery, the speed of the recovery will depend very much on the circumstances. But I see a group of companies that will have a significant presence in all the major economies of Latin America. We will keep providing the connectivity within South America that we have. Prior to the crisis, 4 out of 10 passengers that wanted to move internationally within South America were carried by LATAM. And we were able also to connect the region with all five continents, which is the only airline that can do that. So LATAM will be smaller or bigger than what it entered, it will depend much more than anything on demand and eventually on industry reshaping. But you can rest assured that as we exit the chapter, hopefully at the end of the year, this is our target, we will be definitely the best way to travel within or to the region, on the airline industry.
Peter Cerda:
LATAM has done tremendous amount of expansion over the years, bringing more connectivity, as you say, to all the continents, bringing more social wellbeing to our societies in the region. Is it a sour note that you had to close LATAM Argentina, that you had to pull out, where in the past you’ve been instilling yourself throughout the region?
Roberto Alvo:
Absolutely. I personally spent three years in Argentina, was the CFO when we started our operation there. So, for me in particular, it was a very sad moment when we had to make the decision of doing it. Argentina is twice as big as Chile in population, is three times as big as Chile in surface area. And Chile carried more passengers domestically and internationally than Argentina in 2019. So, it is a great economy, it is a great market. It is huge potential, is very underdeveloped. But we just couldn’t find the set of circumstances where we could believe that we could have a sustainable operation in Argentina any longer. And we took that very hard decision. But again, I think that this crisis is when you put again, your thoughts and your beliefs and your emotions in front of you and do that. And at the end of the day, that also helped us to focus and redeploy our priorities and the opportunities.
Today we’re looking into the Colombian market, which is the second largest market in the region. It’s a great opportunity for LATAM. We have been able in the last years to position ourselves as clearly the second operator in Colombia. We have come to a very, very solid cost position. I believe that we can be extremely competitive in our cost, even with low cost carriers. And we believe that the compliment that the geography of Colombia has, with respect to the rest of the network of LATAM, is just perfect. So yes, it is very sad not to be able to find a way to feel that we could be sustainable in Argentina. But a problem always brings an opportunity. And now we can refocus our resources where we believe we have better chances of succeeding.
Peter Cerda:
Do you see yourself in the case of Colombia and Peru, with two big hubs, two main markets, too much capacity in those areas, or there’s enough room to grow for you?
Roberto Alvo:
No, again, I think that the region itself has a significant growth potential. And I think that the compliment of our Lima hub, with [inaudible 00:22:34] operation in the Northern part of the subcontinent, is very clear. So, I don’t see any challenges with respect to that. And the combination of what we have today, São Paulo, Lima and Santiago, which allows us to connect South America with almost everywhere in the best of ways, is a huge benefit to any large deployment or operation that we could have in the Northern part of the other South American subcontinent.
Peter Cerda:
Let’s talk about Brazil a little bit, our biggest economy, biggest country. You have a strong presence in the country. How do you see Brazil moving forward in the years to come? This is an economy we would expect a market for aviation that should be booming. We should be at historic levels. Do you see that happening in the next couple years?
Roberto Alvo:
It’s a good question. When we joined forces with TAM back in 2012, the real to the dollar was 1.6. In the last few days, it reached a historical maximum of 5.7. So, for any domestic operator that has cost in dollars and revenues in real, this is an extremely challenging moment. If you add to that the increase of the fuel price, it is definitely a compelling case for a difficult situation. Having said that though Brazil is huge, and I believe that the development of Brazil is there. It is a little bit hard to tell how fast that will be. The recovery of the country itself is interesting to see. Brazil is our largest market, 40% of our resources and our capacity sits in Brazil. And it’s clearly the cornerstone of the LATAM network. So, we will see how this goes. But LATAM’s permanent position being the largest carrier from [inaudible 00:24:26] to the world. And one of the largest domestic carriers, providing connectivity between anywhere to anywhere in Brazil will still stand.
Peter Cerda:
LATAM, Azul, GOL, is there enough in Brazil for all three of you?
Roberto Alvo:
I believe so. I think, definitely three players in a market such as Brazil can work very well. I think that we have probably two of the most challenging competitors, in terms that they are really good competing with us in Brazil. And I feel very good about the fact that that is a challenge that has been posed to ourselves. So, I very much respect them. I think that they both have done a great job. And I’m happy to try to win the market from them.
Peter Cerda:
Let’s switch a little bit to partners. I know many of the audience watching us… LATAM was a long member of One World, for many, many years. Then the relationship with Delta came into the family, to discussion, your exit from One World. Has the crisis now impacted that strategy that you have in place with Delta? Has it delayed it? Is it still on course? Tell us a little bit of the decision you made to leave One World and that building block that you have with Delta moving forward? How will this make LATAM even stronger?
Roberto Alvo:
Well, of course it was a very interesting decision to make that change. And however, I feel very good about our relationship with Delta. No, it has not delayed the process at all. We are in the process of getting anti-trust approvals from the different countries where we need to file for having a JVA functioning. Just 10 days ago, we got the final approval with no restriction from the anti-trust authority in Brazil, which makes us very happy. And we’re working now the other countries.
I have to tell you that I’m honest to be very surprised about how Delta [inaudible 00:26:32] partnerships. I think they’re very constructive, it’s definitely different. It is great to have the opportunity to work with them. I believe the combination of Delta and LATAM will definitely provide, in the Americas, the best solution for the passengers. It’s going to be the most compelling network. And I’m really, really happy to have them on our side. They have been really supportive. And I’m looking forward to enhancing our relationships. We will clear out hopefully all the regulatory process in the next few months. And we’ll deploy what we dreamed about deploying, which the best network in the Americas.
Peter Cerda:
During this time of crisis, passenger, obviously, demand was down, but cargo was something that became quite strong, quite important for the industry. You just announced a couple of days ago that you’re going to be reinvesting or refocusing on cargo. You’re converting seven 767s into cargo. Tell us a little bit about that change of strategy.
Roberto Alvo:
It’s eight 767s, up to eight 767s. At some point in time, we had a mixed fleet with 777s and 767s. I think that we became convinced that for the region, the best airplane is a 767. We see important opportunities of growth. We are, by far, the most important carrier of cargo from and to the region. We were able to keep, during this pandemic, fortunately, the countries connected on air freight. We’re been operating around 15% more our freighters. And using a lot of our passenger airplanes as passenger freighters to keep the economies connected. We took the decision of growing because we believe that the region has the potential of it. We can complement our already best product offering by making sure that we can provide, particularly the flower growers in Ecuador and in Columbia with better opportunities and more capacity.
So, as we think about cargo going forward, which has been, by the way, a cornerstone in these last months for LATAM. It is definitely a business that has been very, very healthy and has helped us a lot navigating this crisis. As we go forward, the DNA of LATAM has always been to combine cargo with passengers. We believe that has been really good for the company. And we intend to enhance that internal cooperation and making sure that we can provide for our cargo customers the best network within the region and also flying abroad.
Peter Cerda:
Roberto, we’re coming to an end to this conversation today. Let’s talk a little bit about social responsibility, sustainability, of your company. You talk about your 29,000 employees in very challenging environments. How’s the organization going to change? How is your organization from a people standpoint, from a human standpoint, going to change? Working from home, doing things differently, what are you looking at as the leader of your organization? How will it be different?
Roberto Alvo:
I think this is probably one of the most important things we’re focused on at this point in time, Peter. I think that having the best network, having a great SSP, having a good [inaudible 00:29:47], having a competitive cost, are all necessary things for an airline to be successful and sustainable. But as mathematicians would say, “Necessary but not sufficient.”
In our societies, you want to be sustainable. We have to be the best citizens we can be. LATAM needs to be seen as an asset to the societies where LATAM operates. That means that we have an important challenge, internal challenge, in making sure that we can do that. We want to be seen as, and we call this internally as [JETS 00:30:27], which is just as fair, empathetic, transparent and simple. And we need to be those four things for our customers, for our people, for the environment, for all of our stakeholders. So, the most interesting change that I think we’re enduring in LATAM is to see how we can become that for the societies where we operate. And I believe that without that, no airline is truly going to be sustainable with what the societies expect from them. So, it is important and good to have all those hard airline features that I mentioned, today I believe it’s not enough.
Peter Cerda:
Roberto, I’m going to end with one note about yourself. Unfortunately, the honeymoon that you should have had never took place, you’ve been confined in your office or your home for almost a year. So, aviation, in itself, hasn’t been able to get to talk to you on a personal basis. I know you’re a big fan of cooking, astronomy and mountain biking. During the last year, which of these three things have been able to keep you somewhat balanced in your day to day, considering you’re probably working 18 to 20 hours a day? What have you been able to do consistent?
Roberto Alvo:
Well, definitely cooking and biking needs to be balanced, otherwise the waistline suffers. And I haven’t been good at it, if I can tell you that. I mean, the lockdowns have been really bad for that balance. But yes, I mean, it’s been very, very, very taxing on everyone, on all of us. But I think that it’s good to stop and enjoy the things that you enjoy doing in life. For me, going to the kitchen and spending a morning cooking is just a way of remembering that there’s much more than what we do on a daily basis regarding our professional careers. And biking provides me with the opportunity just to liberate the mind a little bit. So, astronomy, well, we live in cities, it’s difficult to enjoy that. There’ll be a time where I’ll have hopefully more time to do that. But it’s definitely been a good compliment to these times. And my wife probably thinks that I overtook the cooking a little bit, in excess of the biking. We’ll have to take care of that, I guess.
Peter Cerda:
Well, I hear you’re a superb cook. So, we look forward to that opportunity to in the future. Roberto, thank you very much for your time. Best of luck. We have no doubt that you will do a tremendous job in bringing LATAM to the place where it deserves to be, where it is. And we look forward to working collaboratively with you to make sure that LATAM and the region is successful in the years to come. [foreign language 00:33:16].
#rebuildingtravel
Interview: Roberto Alvo on stepping in as CEO and the future of LATAM Airlines
The CEO of LATAM Airlines, Roberto Alvo, speaks about taking over as CEO of the premier airline in Latin America, which has been particularly hard hit from COVID-19.
- LATAM became one of the 10 largest airlines in the world and clearly a very successful international, even global brand on the industry.
- You take over as CEO of the company during a time where the pandemic, COVID, is beginning to spread through Asia into Europe.
- You take the helm of LATAM, and less than two months after, in May, you’re filing for chapter 11.
In a live interview, Peter Cerda of the CAPA – Centre for Aviation, talks with Robert Alvo, the recently-named CEO of LATAM Airlines.
Peter Cerda:
I have the sincere pleasure of interviewing one of Latin American’s premiere aviation leaders, Roberto Alvo, the chief executive officer of LATAM. Buenos dias Roberto, how are you?
Roberto Alvo:
Hola Peter, hi Peter, how are you? Pleasure seeing you and a pleasure to be here for everyone who will be joining. Thanks again.
Peter Cerda:
So, let me just start straight out. I have a couple of really important dates here. September 2019, you are announced as the new CEO for [Enrique Cueto 00:01:03], a legend, someone who has established the premier airline in the region. You’re the heir to succeed the big, big airline. Just a few months after, March is the big day for you. You take over as CEO of the company during a time where the pandemic, COVID, is beginning to spread through Asia into Europe. You take the helm of LATAM, and less than two months after, in May, you’re filing for chapter 11. Not a very attractive honeymoon that you’ve had. And since then, it’s just been one year of tremendous challenges, not only globally, but on a regional level. Latin America and the Caribbean have been particularly hit. Most of our borders have been closed. How has this one year been for you have? And do you regret that September date when it was announced that you would be the next CEO? Did you ever imagine you would be where you are today?
Roberto Alvo:
No. Well, I mean, first, for me, it’s a great honor to have the opportunity to succeed probably the most prominent CEO that the industry in Latin America has had. Enrique spent 25 years of his life building LATAM from a very small freighter airline to what it is today. LATAM became one of the 10 largest airlines in the world and clearly a very successful international, even global brand on the industry. So, for me, it was a huge source of pride to take the helm, as we mentioned it, and to try to make LATAM even better. And to fill those very big shoes, which is of course a great responsibility.
Yes, and as you said, who would have known that less than 60 days after I took over, I had to take the company into chapter 11. I mean, it doesn’t look well in my CV when I say, “CEO, less than 60 days took the company in chapter 11.” It doesn’t look really good. But that it’s been an incredible year, honestly. Yeah. And I never believed that we’ll be in the position we are today. I think that for every leader in their industry, we’re managing probably the most challenging time that any company may have outside of war time. But at the same time, it has been an incredible experience. And I’m so thrilled to see how this group of companies has been able to navigate these very challenging scenarios. Very proud about each one of the 29,000 employees that work on LATAM. And we wouldn’t be here if it wasn’t for each and every one of them. And it’s been a great learning experience for, I guess, all of us.
So, I’m really happy to be here, even though it sounds a little bit strange and ironic. It’s probably one of the greatest moments to be leading a company in this very, very strange circumstances.
Peter Cerda:
Roberto, we’re going to touch and go really deep into LATAM in a few minutes. Let’s stay with the crisis a little bit longer. You’re an airline that had pre-COVID, at the end of December 2019, over 330 airplanes, you flew to more than 30 countries, 145 destinations. With COVID, with our borders closing, we went from 1700 city connections on a regional scale globally to 640 in April, which with our load turn, now we’re about 1400 city connections. How devastating have the restrictions that have been imposed on the industry, in terms of closure borders, quarantine measures by governments, how difficult has that been for you as an airline to be able to manage through this crisis?
Roberto Alvo:
It [inaudible 00:04:49] been dramatic Peter. On March 11, we flew 1,650 flights. On March 29 last year, we were down to 50 flights a day. So, 96% of less capacity in less than 20 days. I think that we all endured that. And we spent four months almost operating nothing, less than 10% of our capacity. And in the region in particular, the recovery has been relatively slow as compared to other regions, with many restrictions imposed, as you said, by different governments. Probably the most difficult thing is the changing of the restrictions and the lack of ability that customers have to plan at all, with all these conditions changing. I think that we all appreciate social distancing, that’s important and necessary. But unfortunately, a set of conditions that we have seen here, and for sure in other regions of the world, has been extremely challenging for airlines.
I think that the recovery, and we will probably talk a little bit about the future, is going to be challenged by these rules. And we need to think about how do we make the airline industry come back as fast as possible. And the governments will definitely play a key role here.
Peter Cerda:
Let’s talk a little bit about the governments here. We have a very challenging environment. In our region we’re constantly hit with social, economic, political situations year after year. Has the governments in our region done enough to help the industry during this crisis?
Roberto Alvo:
It’s a difficult question to answer. As you know, we did not get, in the region, help from governments to survive and to be rescued, like many companies in the Northern hemisphere have had. It is true though that our governments are relatively poor. These are poor countries [inaudible 00:06:37]. and I fully appreciate that governments face a huge number of challenges and needs. And this is a region where there’s a lot of poor people. And I totally understand the need for them to be helped.
Now having said that, I believe that the government’s still can do much more. And the way the governments navigate the next months as the crisis hopefully starts to wind down with the vaccines, will be key to the success of airlines that fly in the region or airlines that want to fly to the region. I would love to see our governments in the region work in a more coordinated fashion. I think that we need it. This is a very large piece of the world. And unfortunately, there’s little alternative to airlines flying when you want to move. Roads are not the greatest. We have a very little, very small train system in the region. So, airline is definitely key to making sure that connectivity in the region remains and returns, and that the economic development that comes with that is ensured.
Peter Cerda:
[inaudible 00:07:48], you touched on an important point, the vaccine, and bringing confidence. LATAM [inaudible 00:07:53] your region, the region, not only inter-regional, but also international. LATAM’s going to play an important role in bringing these vaccinations to Latin America and bringing it to the different communities. What role have you been playing with government? How have the governments been coordinating with you? Because this is a very important endeavor. As you say, we don’t have infrastructure that we can bring the vaccines by other modes of transportation. Once in the region, it’s got to be airlift. And LATAM is going to play a really important role. How is that coordination going?
Roberto Alvo:
Well, we brought ourselves forward and contacted every government in the region and seeing which ways we can help. I can tell you too, at this point, we have transported to the region, to South America, almost 20 million doses of vaccine. Which is probably almost all the vaccines that have been brought to the region. We committed ourselves to helping the communities where we operate and the countries where we have operations by distributing domestically all the vaccines that they want to for free. And at this point in time, we have already distributed more than 9 million vaccines domestically. And we have reached the most remote places in the region, like the Patagonia in Chile, the Galápagos Islands in Ecuador and the Amazonian Rainforest in Peru and in Brazil. So, we’re very proud that we are, I think, putting a grain of salt in this endeavor and making sure that we can help the vaccination process as fast as we can. So, our commitment to the governments where we operate is to continue not only shipping vaccines for free, but also medical personnel and any other thing that is necessary to making sure that the governments have the resources to fight this terrible pandemic.
Peter Cerda:
And certainly, these are just examples of how close we are to our societies, to our governments and [inaudible 00:09:53] throughout the entire region of… We don’t get this in the press, the industry doesn’t get this type of visibility, that you on a daily basis, your airline is transporting medical equipment, is transporting service people to help. And you’re now carrying that vaccine. As an industry, do we need to do more self promotion?
Roberto Alvo:
I mean, of course it helps. But you can take this two ways. I think that the importance of the airline industry in the region is underscored, definitely by societies in general. I think that we can do more. I don’t think that we should use the helping the pandemic as the best way of doing that. I think that our role, being a member of these societies, is to help. We can be low-key in that respect. I personally feel very proud, and my organization definitely feels very proud of helping. And I don’t think that we need any kind of praise for doing that. We have huge challenges going forward, and I think that we have an incredible potential of growth in the region. But for the time being, and as a pandemic goes, I’m happy to make sure that we can do the best that we can just to help here. And if we do that anonymously, I’m fine with that.
Peter Cerda:
Let’s shift gears to post-crisis or moving with the restart. What do you see, based on the experience that we’ve had this past year, do you see permanent changes in the way that travelers will book their experience and what they expect of the travel experience moving forward?
Roberto Alvo:
That’s a good question. And it’s still, I guess, a little bit difficult to foretell exactly what will happen. I think that definitely self-management of the flight experience will increase. I think that people will be more interested in making sure that they have total control of their time and their flight experience until they board the plane. And I believe by the way that if airlines provide that kind of service will have happier customers.
So yes, I think that [inaudible 00:11:57] acceleration and transformation is going to be key and important. I think that some of the safety measures that have been taken during this time will remain, at least will remain for a while. I think that also allows us to think about caring for our passenger in different ways of just having a good flight experience. And we should take advantage of that. But other than that, I’m not sure that it will fundamentally change. Maybe we will see a significant change in the industry structure going forward. But what I see, what I hear is, I mean, people just wanting to get on a plane as soon as they can, as fast as they can. And I think that we’re all waiting for that moment to happen.
Peter Cerda:
Do you think we’ll have less airlines in the region? Do you think this is an opportunity for further consolidation, and some airlines just will not be able to overcome the tremendous financial challenges that they’ve experienced over the last year, and what’s still to come in this first part of the year?
Roberto Alvo:
You just do the simple math. And I think it easy to understand that there’s going to be a significant industrial change in the following years. The industry has debt for 70 or 60% of their revenues prior to the crisis. Today not only the industry as a whole had to get $200 billion plus of debt. But the recovery is going to be slow, and we will have probably 200% of debt to revenues, for the airlines that have not brought themselves into a restructuring process like us. And that, I don’t think is sustainable. How this is going to shave down, I don’t know. But I believe that we will see for a while a significant set-up in how the industry is composed today. Just the math doesn’t add up if you don’t think about that, at least in the next couple of years.
Peter Cerda:
So, we talked a little bit about government, we talked about consolidation. Let me just give you a couple of numbers of our region. The last time the region was actually in the black, Latin American carriers, was back in 2017. Where the industry collectively of Latin American carriers made about $500 million. Since then, every other year, we’ve lost money in this part of the world. Obviously, this last year, 5 billion. This year, we hope to bring it down to about $3.3 billion in losses. This is a challenging environment. You have good airlines in this region, good connectivity. Pre-COVID, you and [inaudible 00:14:38] were growing. We were better connected in Latin American than ever before. But we’re still losing money. What needs to change fundamentally for our region to become more competitive, like in other regions around the world? And what do governments need to do differently or to assist in that way?
Roberto Alvo:
I mean, this region has huge growth potential. Flights per passenger here are a fourth or a fifth of what you see in developed economies. With bigger geographies, more difficult to connect because of the size, because of the distance, because of just the conditions. So, I don’t have a doubt that the airline industry in Southern America will try as we go forward. Having said that though definitely will have difficult times.
But I’d like to focus more on LATAM, if you ask me, rather the industry, because I don’t want to talk for other people. At the end of the day, this has been a very interesting moment for LATAM. Probably the most important learning we’ve gotten from this crisis is that we have been able to put our thoughts, our beliefs, our paradigms in front of us and examine them. And see what stands and what needs to be changed.
And it’s incredible to see how the organization have understood that there’s a very different way about going with this business. Or about how we simplify ourselves with change, the flight experience for our customers. We become more efficient. We become more caring for the societies and the environment as a whole. And it is a little bit ironic, but this crisis for sure will allow us to be much stronger as LATAM than prior to the crisis. I am very optimistic particularly about our company. And as we navigate through the chapter 11 process, which is a difficult circumstance to be. The chapter itself with the changes we’re making are making me feel very optimistic about LATAMS future in the next few years.
Peter Cerda:
And talking about the future and chapter 11, why the decision? What really pushed you to that point that you both believed at the time, that was the best course of action in order to, I imagine, position yourself as an airline towards the future, once we come out of the crisis?
Roberto Alvo:
I think that when we realized it was very evident for us that we wouldn’t get government help. Or that that government help will come with the condition of us restructuring ourselves. It became quite clear that we could take longer or shorter period of time, but we would need to put ourselves in the position of restructuring the company, as many have. And the ones that haven’t, most of them is because they have been assisted by the government. It has been probably the toughest decision that the board or the company has been able to take. As you know, the Cueto family have been important shareholders of this company for 25 years and they were faced with the decision of losing everything. And I’m impressed about the trust they have of these organizations. And then on the deep, they decided to reinvest in the company and become lenders of LATAM.
As I see it now, definitely for the company, this is going to be a great opportunity. The restructuring on the chapter will allow us to be leaner, much more efficient, and we will have a stronger balance sheet than the one we had when we entered the process. So, I feel very, very good about where we stand and what we need to do. It is unfortunate that we had to take this decision. But I’m sure that for the company, this is going to be extremely, extremely good in time.
Peter Cerda:
What does LATAM look like, once you come out of chapter 11, I imagine there’s some speculation you may come out sometime this year, mid this year or beginning of next? What will LATAM look like? Are you going to maintain the same level of connectivity airplanes or will it be a different LATAM?
Roberto Alvo:
I mean, we will be there to supply with our capacity, the demand, as the demand recovers. LATAM will remain being, for sure, the largest, most important, with a better network company in Latin America, for sure. The size of the recovery, the speed of the recovery will depend very much on the circumstances. But I see a group of companies that will have a significant presence in all the major economies of Latin America. We will keep providing the connectivity within South America that we have. Prior to the crisis, 4 out of 10 passengers that wanted to move internationally within South America were carried by LATAM. And we were able also to connect the region with all five continents, which is the only airline that can do that. So LATAM will be smaller or bigger than what it entered, it will depend much more than anything on demand and eventually on industry reshaping. But you can rest assured that as we exit the chapter, hopefully at the end of the year, this is our target, we will be definitely the best way to travel within or to the region, on the airline industry.
Peter Cerda:
LATAM has done tremendous amount of expansion over the years, bringing more connectivity, as you say, to all the continents, bringing more social wellbeing to our societies in the region. Is it a sour note that you had to close LATAM Argentina, that you had to pull out, where in the past you’ve been instilling yourself throughout the region?
Roberto Alvo:
Absolutely. I personally spent three years in Argentina, was the CFO when we started our operation there. So, for me in particular, it was a very sad moment when we had to make the decision of doing it. Argentina is twice as big as Chile in population, is three times as big as Chile in surface area. And Chile carried more passengers domestically and internationally than Argentina in 2019. So, it is a great economy, it is a great market. It is huge potential, is very underdeveloped. But we just couldn’t find the set of circumstances where we could believe that we could have a sustainable operation in Argentina any longer. And we took that very hard decision. But again, I think that this crisis is when you put again, your thoughts and your beliefs and your emotions in front of you and do that. And at the end of the day, that also helped us to focus and redeploy our priorities and the opportunities.
Today we’re looking into the Colombian market, which is the second largest market in the region. It’s a great opportunity for LATAM. We have been able in the last years to position ourselves as clearly the second operator in Colombia. We have come to a very, very solid cost position. I believe that we can be extremely competitive in our cost, even with low cost carriers. And we believe that the compliment that the geography of Colombia has, with respect to the rest of the network of LATAM, is just perfect. So yes, it is very sad not to be able to find a way to feel that we could be sustainable in Argentina. But a problem always brings an opportunity. And now we can refocus our resources where we believe we have better chances of succeeding.
Peter Cerda:
Do you see yourself in the case of Colombia and Peru, with two big hubs, two main markets, too much capacity in those areas, or there’s enough room to grow for you?
Roberto Alvo:
No, again, I think that the region itself has a significant growth potential. And I think that the compliment of our Lima hub, with [inaudible 00:22:34] operation in the Northern part of the subcontinent, is very clear. So, I don’t see any challenges with respect to that. And the combination of what we have today, São Paulo, Lima and Santiago, which allows us to connect South America with almost everywhere in the best of ways, is a huge benefit to any large deployment or operation that we could have in the Northern part of the other South American subcontinent.
Peter Cerda:
Let’s talk about Brazil a little bit, our biggest economy, biggest country. You have a strong presence in the country. How do you see Brazil moving forward in the years to come? This is an economy we would expect a market for aviation that should be booming. We should be at historic levels. Do you see that happening in the next couple years?
Roberto Alvo:
It’s a good question. When we joined forces with TAM back in 2012, the real to the dollar was 1.6. In the last few days, it reached a historical maximum of 5.7. So, for any domestic operator that has cost in dollars and revenues in real, this is an extremely challenging moment. If you add to that the increase of the fuel price, it is definitely a compelling case for a difficult situation. Having said that though Brazil is huge, and I believe that the development of Brazil is there. It is a little bit hard to tell how fast that will be. The recovery of the country itself is interesting to see. Brazil is our largest market, 40% of our resources and our capacity sits in Brazil. And it’s clearly the cornerstone of the LATAM network. So, we will see how this goes. But LATAM’s permanent position being the largest carrier from [inaudible 00:24:26] to the world. And one of the largest domestic carriers, providing connectivity between anywhere to anywhere in Brazil will still stand.
Peter Cerda:
LATAM, Azul, GOL, is there enough in Brazil for all three of you?
Roberto Alvo:
I believe so. I think, definitely three players in a market such as Brazil can work very well. I think that we have probably two of the most challenging competitors, in terms that they are really good competing with us in Brazil. And I feel very good about the fact that that is a challenge that has been posed to ourselves. So, I very much respect them. I think that they both have done a great job. And I’m happy to try to win the market from them.
Peter Cerda:
Let’s switch a little bit to partners. I know many of the audience watching us… LATAM was a long member of One World, for many, many years. Then the relationship with Delta came into the family, to discussion, your exit from One World. Has the crisis now impacted that strategy that you have in place with Delta? Has it delayed it? Is it still on course? Tell us a little bit of the decision you made to leave One World and that building block that you have with Delta moving forward? How will this make LATAM even stronger?
Roberto Alvo:
Well, of course it was a very interesting decision to make that change. And however, I feel very good about our relationship with Delta. No, it has not delayed the process at all. We are in the process of getting anti-trust approvals from the different countries where we need to file for having a JVA functioning. Just 10 days ago, we got the final approval with no restriction from the anti-trust authority in Brazil, which makes us very happy. And we’re working now the other countries.
I have to tell you that I’m honest to be very surprised about how Delta [inaudible 00:26:32] partnerships. I think they’re very constructive, it’s definitely different. It is great to have the opportunity to work with them. I believe the combination of Delta and LATAM will definitely provide, in the Americas, the best solution for the passengers. It’s going to be the most compelling network. And I’m really, really happy to have them on our side. They have been really supportive. And I’m looking forward to enhancing our relationships. We will clear out hopefully all the regulatory process in the next few months. And we’ll deploy what we dreamed about deploying, which the best network in the Americas.
Peter Cerda:
During this time of crisis, passenger, obviously, demand was down, but cargo was something that became quite strong, quite important for the industry. You just announced a couple of days ago that you’re going to be reinvesting or refocusing on cargo. You’re converting seven 767s into cargo. Tell us a little bit about that change of strategy.
Roberto Alvo:
It’s eight 767s, up to eight 767s. At some point in time, we had a mixed fleet with 777s and 767s. I think that we became convinced that for the region, the best airplane is a 767. We see important opportunities of growth. We are, by far, the most important carrier of cargo from and to the region. We were able to keep, during this pandemic, fortunately, the countries connected on air freight. We’re been operating around 15% more our freighters. And using a lot of our passenger airplanes as passenger freighters to keep the economies connected. We took the decision of growing because we believe that the region has the potential of it. We can complement our already best product offering by making sure that we can provide, particularly the flower growers in Ecuador and in Columbia with better opportunities and more capacity.
So, as we think about cargo going forward, which has been, by the way, a cornerstone in these last months for LATAM. It is definitely a business that has been very, very healthy and has helped us a lot navigating this crisis. As we go forward, the DNA of LATAM has always been to combine cargo with passengers. We believe that has been really good for the company. And we intend to enhance that internal cooperation and making sure that we can provide for our cargo customers the best network within the region and also flying abroad.
Peter Cerda:
Roberto, we’re coming to an end to this conversation today. Let’s talk a little bit about social responsibility, sustainability, of your company. You talk about your 29,000 employees in very challenging environments. How’s the organization going to change? How is your organization from a people standpoint, from a human standpoint, going to change? Working from home, doing things differently, what are you looking at as the leader of your organization? How will it be different?
Roberto Alvo:
I think this is probably one of the most important things we’re focused on at this point in time, Peter. I think that having the best network, having a great SSP, having a good [inaudible 00:29:47], having a competitive cost, are all necessary things for an airline to be successful and sustainable. But as mathematicians would say, “Necessary but not sufficient.”
In our societies, you want to be sustainable. We have to be the best citizens we can be. LATAM needs to be seen as an asset to the societies where LATAM operates. That means that we have an important challenge, internal challenge, in making sure that we can do that. We want to be seen as, and we call this internally as [JETS 00:30:27], which is just as fair, empathetic, transparent and simple. And we need to be those four things for our customers, for our people, for the environment, for all of our stakeholders. So, the most interesting change that I think we’re enduring in LATAM is to see how we can become that for the societies where we operate. And I believe that without that, no airline is truly going to be sustainable with what the societies expect from them. So, it is important and good to have all those hard airline features that I mentioned, today I believe it’s not enough.
Peter Cerda:
Roberto, I’m going to end with one note about yourself. Unfortunately, the honeymoon that you should have had never took place, you’ve been confined in your office or your home for almost a year. So, aviation, in itself, hasn’t been able to get to talk to you on a personal basis. I know you’re a big fan of cooking, astronomy and mountain biking. During the last year, which of these three things have been able to keep you somewhat balanced in your day to day, considering you’re probably working 18 to 20 hours a day? What have you been able to do consistent?
Roberto Alvo:
Well, definitely cooking and biking needs to be balanced, otherwise the waistline suffers. And I haven’t been good at it, if I can tell you that. I mean, the lockdowns have been really bad for that balance. But yes, I mean, it’s been very, very, very taxing on everyone, on all of us. But I think that it’s good to stop and enjoy the things that you enjoy doing in life. For me, going to the kitchen and spending a morning cooking is just a way of remembering that there’s much more than what we do on a daily basis regarding our professional careers. And biking provides me with the opportunity just to liberate the mind a little bit. So, astronomy, well, we live in cities, it’s difficult to enjoy that. There’ll be a time where I’ll have hopefully more time to do that. But it’s definitely been a good compliment to these times. And my wife probably thinks that I overtook the cooking a little bit, in excess of the biking. We’ll have to take care of that, I guess.
Peter Cerda:
Well, I hear you’re a superb cook. So, we look forward to that opportunity to in the future. Roberto, thank you very much for your time. Best of luck. We have no doubt that you will do a tremendous job in bringing LATAM to the place where it deserves to be, where it is. And we look forward to working collaboratively with you to make sure that LATAM and the region is successful in the years to come. [foreign language 00:33:16].
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