Another profitable year expected for LAN

LAN Airlines is feeling the effects of the industry crisis but said it expects to report a profit this year thanks to its domestic strength in Chile, Argentina, Peru and Ecuador and a robust cash position.

Company officials in Santiago said the company generated $248 million in net income in the 12 months ended June 30 and they expect some $4 billion in revenue in 2009 on a 15% increase in passenger numbers to 15 million. LAN claimed its cash position is strong, with $700 million in cash and equivalents. It was $69.2 million in the black through the first six months.

Nevertheless, it has suffered a 20% drop in yield in some markets, the effect of which has been mitigated by its ability to cut costs by the same margin in some areas, VP-Business Planning and Control-Passenger Division Ernesto Solis Grau said. “Reduced fuel costs have also helped us. We are continuing to fine tune where we can increase prices,” he said. He claimed LAN’s EBITDAR margin of 22.7% is one of the highest in the industry.

Cargo revenue, which comprises 34% of LAN’s total, plunged 43.4% in the first quarter on a 12.7% year-over-year drop in capacity and a 19.9% dip in traffic to 596.4 million RTKs. But it sees signs of recovery in the freight market and is working on new ideas to compensate for falling demand. It launched LAN Cargo Colombia this year, operating from its main cargo base in Miami to Medellin and Bogota. “This is a regional strategy. We also have a cargo subsidiary in Brazil operating flights from Sao Paolo to Manaus,” Solis Grau said. It has not grounded any of its freighters.

Freight is key for LAN. Belly cargo on passenger aircraft is allowing the carrier to reach breakeven on those flights with a 65% load factor. “Without cargo, we must have a 79% load factor. The cargo business has a direct impact to the bottom line and that’s why it is so important for us,” he said. LAN took delivery of two 777-200 freighters in the first quarter. A third aircraft is scheduled for delivery in 2011.

The airline currently operates 13 A318s, 20 A319s, 18 A320s, 26 767-300ERs, nine 767-300Fs and the two 777-200Fs. Next year it expects to operate 103 aircraft and is targeting 115 in 2011 and 147 by 2013-14. It has 26 787s on order and is expecting the first in 2013. “We don’t have more information [about the delivery schedule],” Solis Grau said. It will add two new 767-300s this year.