Aerolineas Argentinas CEO eyes cuts to costs, not routes

August 10, 2016 1:24 PM EDT

Isela Costantini, President of state-run Aerolineas Argentina poses during an interview in Buenos Aires, Argentina, August 9, 2016. REUTERS/Enrique Marcarian


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By Rosalba O'Brien and Walter Bianchi

BUENOS AIRES (Reuters) - With a new market-friendly team in charge, state-run carrier Aerolineas Argentinas is going through major changes, but the ax is falling on costs rather than routes, Chief Executive Officer Isela Costantini told Reuters.

Costantini, a private sector veteran who previously ran the local arm of General Motors (NYSE: GM), was appointed to turn around the airline by President Mauricio Macri shortly after his December inauguration.

Macri has enacted a raft of policies to open up Argentina to investors and return it to international capital markets, including the settlement of a court case filed by hedge funds over unpaid debt. However, much of the economy remains moribund and analysts expect this year to end in recession.

Aerolineas [AERA.UL] was nationalized in 2008, under the previous government. While some customers applauded the increased connections to remote parts of the country and improved service that followed, the financial position of the company was not so rosy, the CEO said.

"We saw that the company needed $1 billion and it seemed absurd to those of us from the private sector, a company with that kind of cash flow doesn't exist," said Costantini, speaking during a Reuters Summit on Argentina.

"What was clear was that this was a black box and we would find things we had no clue about. There was a lack of management, no business plan."

Unions and passengers have expressed fears that the new administration would cut jobs and routes and return the company to private hands. Aerolineas' main competitor in the southern cone is privately-owned Chile-based LATAM Airlines .

But Costantini ruled out privatization and said that, while the company is looking carefully at the routes the airline is flying, it is focusing more on cost-cutting.

"Our idea was instead of the scenario where we make cuts where we are losing money, we make the most of the planes, we improve productivity, we take additional cargo, we change the planes," she said.

The previously loss-making Buenos Aires-New York JFK route was now profitable, she said, pointing to Aerolineas' SkyTeam alliance as crucial in bringing in more international passengers.

Aerolineas also recently carried out a refinancing to reduce its previously exorbitant interest rates.

"That shows there is credibility for the group," said Costantini. "It is supported by the image of a country that is more credible, that pays its debts."

(Reporting by Rosalba O'Brien and Walter Bianchi; Editing by Tom Brown)



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