LAN has reported a net income of US$76.1 million
in Q1 2012, a decrease of 21.8% compared to Q1 2011.
Operating income in the quarter decreased 27.4%,
reaching US$111.2 million, with a 7.2% operating margin. Results
this quarter were impacted by a 14.7% increase in fuel prices and
a more challenging environment in the cargo business, as well as
by the ongoing development of LAN Colombia’s operations.
During Q1 2012, LAN’s consolidated
revenues increased 12.6% compared to Q1 2011. Passenger
revenues increased 16.4% during the quarter, driven by continued
traffic growth and a 2.2% expansion in yields. Passenger traffic
growth during the quarter reached 14.0%, while load factors
reached 82.9%, 1.9 points higher than 2011, and an historically
high level even considering the high season. Total passenger
capacity as measured in ASKs grew 11.3% and revenues per ASK
(RASK) increased 4.6%.
Capacity increases focused mainly on
domestic routes within Chile and regional routes within South
During Q1 2012, cargo revenues
increased 6.2%, driven by a 1.5% increase in cargo traffic and a
4.7% increase in yields, despite a more challenging scenario in
Latin American cargo markets. Capacity increased 2.3% during the
quarter. As a consequence, load factors decreased from 67.9% to
67.4%. Yields showed a 4.7% improvement compared to first quarter
2011, driven by a higher fuel surcharge, greater than anticipated
seasonal demand, and itinerary optimization, leading to a 3.8% increase in unit revenue.
The low increase in cargo
capacity during the quarter is a result of no additional
freighters being incorporated since January 2011 in addition to
decreased availability in the bellies of passenger aircraft due to
a higher passenger load factor. On the other hand, the low
increase in traffic during the quarter is a response to weaker
cargo markets, increasing competition in routes into Latin
America, as well as new regulations in Argentina that reduced
imports during February 2012, partially offset by growth of the
Chilean export market.
Operating expenses increased 17.7% compared to first quarter 2011,
while costs per ATK (including net financial expenses) increased
11.9%. Operating costs were also impacted by ongoing expenses
related to the development of LAN Colombia’s operations.
Higher fuel prices during the quarter, which increased 14.7%
compared to Q1 2011, generated US$65.0 million in increased fuel costs. Nevertheless, LAN partially offset this
impact via fuel surcharges in both passenger and cargo operations. Starting in March 2011, fuel surcharges based on WTI incorporated
the crack spread to be better aligned with variations in jet fuel
prices. During the quarter, the company’s financial hedging
strategy resulted in a US$13.6 million fuel hedge gain. LAN has hedged approximately 50% of its estimated fuel consumption for the
rest of 2012. The fuel hedging strategy consists of a combination
of collars, swaps and call options for WTI and Brent.
continued to maintain a solid financial position, with adequate
liquidity and a solid financial structure, as reflected by the company’s BBB Investment Grade international credit rating
(Fitch). LAN is one of the few airlines in the world with an Investment Grade rating. At the end of the quarter, LAN reported
US$276.8 million in cash and cash equivalents representing 4.7% of
revenues for the last twelve months. As of 31 March 2012, the
company reported deposits with aircraft manufacturers (pre-delivery payments) of US$1,118.9 million, US$571.9 million of
which were funded directly by LAN. In 2011, the company also
secured committed credit lines for US$208 million. Additionally,
the company has practically no short-term debt, while its long-term debt is mainly related to aircraft financing and has 12
to 15 year repayment profiles with competitive interest rates.
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