By Lisa Yulkowski
SANTIAGO, Oct 27 (Reuters) - Third-quarter net profit for
Chile's dominant airline, LAN, is expected to rise 29.9 percent
from a year ago, on brisk revenue growth and effective offsets
to rising fuel costs, according to a Reuters poll on Monday.
The average response of four industry analysts put LAN's
(LAN.SN) (LFL.N) third-quarter net at $102.4 million, compared
with $78.8 million in the same period last year, on an
estimated revenue increase of 34.5 percent to $1.181 billion.
LAN, which accounts for more than half of Chile's
international flights and about three-quarters of its domestic
flights, has fared better than most in the industry as fuel
costs outpaced growth in revenue.
"We expect earnings to grow as sharp increases in fuel are
passed on to passengers. But higher costs will moderate
operating results," said Cristina Acle, head of research with
Corpgroup.
Growth in earnings before interest and tax (EBIT) is
expected to slow to 7.3 percent, but should be offset by
increases in non-operating profit.
Analysts say the company, one of the region's biggest
airlines, has been able to soften the impact of volatile fuel
costs by passing on those costs to customers and with effective
hedging measures.
"We expect non-operating results to be positive due to
gains from hedging on oil prices, which should be in the order
of $25 million," Acle added.
LAN posted growth in passenger traffic of 13 percent in the
first three quarters as the passenger load factor improved 1.2
percentage points to 76.9 percent.
LAN, with affiliates in Ecuador, Peru and Argentina, has
been able to stimulate demand by lowering regional short-haul
fares, while implementing cost cuts that include a more
efficient fleet of narrow body aircraft for flights of 4 hours
or less.
FUEL CRISIS FADES, DEMAND WORRIES LOOM
While analysts say LAN, with its cost efficiency and mix of
passenger and cargo traffic, is better positioned that many of
its competitors, the new concern amid a widening U.S. financial
crisis and slower global growth is demand.
"The cargo business gives it an advantage compared with
other airlines," said Felipe Mercado, an analyst with the
Banchile brokerage, "But what's boosted the cargo business has
been imports, and the strong depreciation in local currencies
could imply deceleration (in coming quarters)."
The company reported an increase in cargo traffic of 11.8
percent in the first nine months of the year, as capacity
increased 15.1 percent, but growth in September slowed to 8.8
percent.
Although lower fuel prices should help company
profitability, the effect on demand and fares is still not
clear.
"We'll have to see how the global financial crisis affects
the real economy, in this case, the airline industry," Mercado
said.
LAN is scheduled to report its third-quarter results on
Tuesday afternoon.
The following table shows the average estimates from the
Reuters poll compared with result from the same quarter in
2007. All figures are in U.S. dollars.
==============================================================
JUL-SEPT 2008(E) JUL-SEPT 2007 PCT CHANGE
AVG ESTIMATE
Revenue $1,181.8 mln $878.0 mln +34.5 pct
EBIT* $ 109.5 mln $102.0 mln + 7.3 pct
EBITDA** $ 156.8 mln $141.7 mln +10.7 pct
EBITDAR*** $ 196.4 mln $181.7 mln + 8.1 pct
Net profit $ 102.4 mln $ 78.8 mln +29.9 pct
Earnings/ADR $ 0.31 $ 0.23 +33.3 pct
===============================================================
*EBIT = earnings before interest and tax. Estimates ranged from
$106.1 million to $115 million.
**EBITDA = earnings before interest, tax, depreciation and
amortization. Estimates ranged from $153.4 million to $161.6
million.
***EBITDAR = earnings before interest, tax, depreciation,
amortization, and aircraft rental fees. Estimates ranged from
$192.4 million to $202.1 million.
($1 = 552.47 Chilean pesos at the end of September)
(Reporting by Lisa Yulkowski, editing by Susan Kelly)
