Lan Airlines Not Exactly Taking Off

We currently have a Hold recommendation on Lan Airlines S.A. (LFL), with a target price of $10 per share.  Lan Airlines is the main provider of domestic and international passenger and cargo air services in Chile and one of the leading airlines in Latin America.

The company’s operating results for the third quarter of 2008 were positive. In the third quarter, total operating revenue was US$1,204.6 million, a 37.7% increase over the same period of 2007, representing a 36.1% year-over-year increase in passenger revenues and a 51.4% year-over-year rise in cargo revenues. Passenger and cargo revenues accounted for 63% and 34% of total revenues, respectively, while other revenues were responsible for the balance.

Operating expenses rose 37% in the third quarter compared to the same period of 2007, mainly driven by higher fuel prices and due to the impact of the appreciation of local currencies and inflationary effects on wages and benefits, a higher proportion of ACMI leases, and an increase in operations costs.

We believe that its consistent positive results and solid balance sheet have enabled Lan to move ahead with a number of long-term initiatives. We believe these investments, which the company has made and plans to make, will add capacity and increase the company’s profitability in the short-to-medium term. However, the recession in the U.S. based on the recent global financial crisis is a matter of great concern.

Posted in Categories: Airlines, Contributor, External Research, Stocks, USA.

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