LAN Posts Discouraging Results

Chile-based LAN Airlines S.A. (LFL - Analyst Report) yesterday reported discouraging results for the third quarter 2009. Net income of US$52.1 million was 37.3% lower than  net income of US$83.0 million in the third quarter of 2008. Excluding non-operating extraordinary items recognized in the third quarter 2008, net income decreased 58.3%.

Consolidated revenues declined 19.1%, driven mainly by lower yields in both the cargo and passenger businesses. This was partially offset by a 14.3% decline in operating expenses, driven mainly by lower fuel costs. Operating income reached US$92.4 million a 46.1% decrease compared to US$171.3 million in the same quarter of previous year. Operating margin reached 10.1%, compared to 15.1% in the same period of 2008.

Third quarter 2009 results continued to be impacted by fuel hedging losses, although to a much lesser extent than in previous quarters. The fuel hedging loss during the quarter amounted to US$14.4 million compared to a fuel hedging gain of US$29.2 million in the third quarter 2008. Excluding the impact of fuel hedging, LAN's operating margin reached 11.6% in the third quarter 2009 compared to 12.5% in the third quarter 2008.

During the quarter, LAN undertook several initiatives to increase the value of its frequent flyer program, LANPASS, which currently has 3.1 million members worldwide. These initiatives included the launch of a new Flexible Award Exchange Program, as well as the launch of a LANPASS Visa card in Ecuador and co-branding campaigns in Argentina, Uruguay and Chile.

In line with LAN's continued commitment to expand its route network and improve connectivity for passengers traveling within the region, LAN Peru continued to strengthen its regional operations based at its hub in Lima. With this objective, LAN Peru launched new regional routes from Lima to Cali, Colombia; Punta Cana, Dominican Republic; Cordoba, Argentina; and Cancun, via Mexico City.

The company’s near-term outlook is not as bright as it was a few months ago, primarily due to the international economic crisis. However, we believe Chile will perform reasonably during 2009.