LATAM Airlines to grow capacity up to 4% in 2012

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LATAM Airlines Group expects capacity to grow between 3% and 4% in 2012 across both LAN's and TAM's operations.

TAM's domestic passenger capacity will fall by between 2% and 3% in 2012, says LATAM. LAN Cargo's available tonne kilometres for 2012 will grow by between 3% and 5%, mostly driven by the addition of two Boeing 777 freighters in the second half of the year.

"Passenger demand continues to be strong in most of South America and on international routes, as reflected in LAN's strong traffic growth and high load factors for the second quarter 2012. The Brazilian domestic market is operating with capacity discipline, providing the basis for improved profitability in that market," says LATAM.

LAN and TAM closed on their merger on 22 June, and LATAM says the integration is "proceeding smoothly".

The merged carrier expects pre-tax synergies of about $170 million to $200 million for the first year after the merger, and this will gradually grow to annual pre-tax synergies of between $600 million and $700 million starting four years after the merger's completion. LATAM projects a one-time cost of $200 million related to the merger, most of which will be incurred in the first 12 months after the closing of the merger.

"Approximately 40% of the total estimated potential synergies are expected to derive from revenue increases in the international passenger business, 20% from revenue increases in the cargo business, and the remaining 40% from cost savings," says LATAM.

The airline has started cross selling of LAN and TAM flights and has begun codesharing on various international routes, including Santiago-Orlando, Santiago-Madrid and Santiago-London.

LATAM has also started to integrate both carriers' cargo operations, with LAN's Brazilian cargo affiliate ABSA receiving approval to use the TAM Cargo branding. ABSA is receiving a fourth Boeing 767 freighter and this will be painted with the TAM Cargo livery. "Cargo operations outside Brazil will continue to be commercialised under the LAN Cargo brand, which has strong brand recognition in the markets where it operates," says LATAM.