Santiago-based LATAM Airlines Group posted a $94 million net profit for the first quarter of 2018, up 43.2% compared to 1Q 2017’s $66 million net income, driven by a 50% year-over-year (YOY) rise in operating income. The company said the operating income was boosted by unit revenue and capacity growth across LATAM’s passenger and cargo business.

LATAM’s first-quarter operating margin was 8.4%, up 2.2 points year-over-year (YOY), as operating income reached $228.5 million, compared to $152.3 million in 1Q 2017.

Total operating revenue increased 10.2% YOY to $2.7 billion as the company reported increased traffic and yields across all its passenger markets. Passenger RASK increased 7% YOY while passenger capacity rose 2.3%. Yield increased 6.2%, attributable, LATAM said, to a strong pricing environment in international long-haul routes from Spanish-speaking countries to the US and Europe as well as increased demand in the Brazilian domestic market.

“We are seeing a good demand response to our business model for the domestic markets we launched last year … [with] the highest growth coming from the domestic SSC markets [up 5.5%],” LATAM said.

LATAM’s cargo revenue for the quarter increased 16.6% YOY as the overall demand environment improved in the region, with imports of electronics and capital goods from North America and Europe to Brazil—and salmon exports from Chile—on the rise.

LATAM’s consolidated first-quarter expenses were up 7.6% to $2.5 billion, largely driven by a 20.6% rise in fuel costs YOY. Notably, LATAM’s CASK excluding fuel increased 0.2%, a result of “costs contention initiatives” put in place in 2017; the company’s wages and benefits expenses fell 2% YOY, explained, LATAM said, “by the 4.3% decline in the average headcount during the quarter.”

During the quarter, LATAM took delivery of two Airbus A321s and returned one Boeing 767-300F freighter, while adding an A330 on short-term lease from Spanish leisure carrier Wamos Air. LATAM said the A330 was brought in to mitigate the impact of fewer Boeing 787 aircraft available due to the extension of Rolls-Royce’s mandated Trent 1000 engine maintenance program. Seven of LATAM’s 24-aircraft 787 fleet “are currently on ground awaiting engine maintenance from Rolls-Royce,” the company said.

In total, LATAM has leased five aircraft—four Airbus A330-200s and a 747-400, all from Wamos Air—since March 2018. The aircraft will be flown on several long-haul international routes including Guayaquil-Madrid, Santiago-Bogotá, and Guayaquil-New York, in place of the idle 787s.

LATAM’s consolidated passenger traffic for the quarter increased 3.6% to 30.4 billion RPKs, as overall capacity increased 2.9% to 35.6 billion ASKs, leading to an 85.3% load factor, up 0.6 point YOY.  

The company is maintaining its preliminary guidance of a 7.5% to 9.5% operating margin for full-year 2018 and capacity growth for the year between 5% and 7%.

Additionally, LATAM offered a preliminary estimate of approximately $25 million in lost revenue stemming from the nearly month-long cabin crew strike in April, which curtailed LATAM’s domestic operations in Chile by about 50%. Approximately 2,000 flights were canceled or rescheduled. LATAM said as of May 3 “almost all cabin crew members have individually decided to resume their work” and domestic operations in Chile are “operating under normal conditions.”

Mark Nensel