Larrain Vial Conference - LAN Airlines · Larrain Vial Conference Santiago, Chile ... Fuel Prices...
Transcript of Larrain Vial Conference - LAN Airlines · Larrain Vial Conference Santiago, Chile ... Fuel Prices...
Larrain Vial ConferenceSantiago, Chile
16 – 17 March 2009
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This presentation may include forward-looking comments regarding the Company’s business outlook and
anticipated financial and operating results. These expectations are highly dependent on the
economy, the airline industry, commodity prices, international markets and external events.
Therefore, they are subject to change and we undertake no obligation to publicly update or revise
any forward looking statements to reflect events or circumstances that may arise after the date of
this presentation. More information on the risk factors that could affect our results are contained on
our Form 20-F for the year ended December 31, 2007.
Information, tables and logos contained in this presentation may not be used without consent from LAN
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LAN Market Cap & Ownership
LAN Market Cap (March 11, 2009)
US$ 2.653 Billion
33%
25%
10%
25%
CUETO Group
26%
PIÑERA Group9%
EBLEN Group
ADRs
5%Chilean Pension Funds
Others
LAN Ownership (Feb. 09)
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Contents
I. LAN’S DIVERSIFIED BUSINESS MODEL
II. FINANCIAL OVERVIEW
III. FUTURE OUTLOOK
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LAN’s Diversified Business Model: Passenger + Cargo Operations
Diversified Business Model(% Operating Revenues)
3%
20%
Domestic Passenger
43%
International Passenger
34%Cargo
Others
� LAN’s business model is diversified between the passenger and cargo businesses
� This allows LAN the flexibility to better withstand unfavorable economic conditions
FY 2008
33%
5
7%
12%
19%
34%
41%
21%
16%
7%
8%
11%
6%
88%
90%
73%
79%
86%
80%
70%
60%
59%
53%
3%
4%
6%
6%
22%
29%
9%
6%
19%
12%
3% 64%
Delta
American
Iberia
Qantas
BA
Air France-KLM
Singapore
Cathay
Korean Air
LAN
EVA
Cargo Others Passenger
LAN Business Model: Distinct blend enhances returns and reduces risk
Revenue Mix, Selected Companies, 2007
BELF w/o Cargo
CargoContribution
BELF w/ Cargo
Note: BELF = Break-even load factor
BELF Differential for passenger + cargo routes (2008)
Passenger and Cargo Combination
– Lower Break-Even Load Factors
– Increased diversification
Source: Companies - Last Full Year reported / LAN as of Dec08.
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LAN’s Passenger Operations are Geographically Diversified
48%
International(Long Haul)
24%
Regional
14%Dom. Chile
8%
Dom. Perú6%
Dom. Argentina
39%
3%
Diversified Passenger Capacity(% ASKs)
20081998
Dom. Chile
International
28%
72%
20%
18% 59%
3%
2003
Regional
International(Long Haul)
Dom. Perú
Dom. Chile
� LAN’s business model is diversified geographically throughout Latin America and the rest of the world
� This allows LAN the flexibility to better withstand unfavorable economic conditions
�Approximately 50% of ASKs are currently originated in Chile
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Guayaquil
2003
Buenos Aires
2005
Santiago
1929
Lima
1999
LAN’s Regional Strategy – Passenger Operations
Multi-hub/Multi-airline model– Interlocking hubs protect and
complement each other
– Higher asset utilization
1.500 KM
TAM Commercial Agreement– Implemented in December 2007
– Main Routes: Santiago, Lima, Buenos Aires to Sao Paulo
– Domestic Markets
• Brazil
• Peru
• Chile
• Argentina
TAM / LAN Agreement
2008
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Sources: DGAC Chile, DGAC Peru, Undersecretary of Transportation Argentina, DAC Ecuador, LAN Estimates.
* Intl. M.S. for 2008, Domestic M.S. for January 2009, Lan estimates.
** Information for 2007
Leading Presence in South American Markets
Market Size: Passengers Transported 2008(millions)
LAN Market Share in Passenger Markets*
Millions ofPassengers
Peru
International: 22%
Domestic: 90%
Argentina
International: 19%
Domestic: 34%
Chile
International: 57%
Domestic: 84%
EcuadorInternational: 27%
Buenos AiresSantiago
Guayaquil
Lima
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LAN´S Domestic Operation in Chile
North South
Currently, LAN has regular operations to 13 markets in Chile: 6 in the North and 7 in the South including Easter Island.
LAN competes with SKY Airlines in the domestic market (approx 15% market share).
Santiago
Santiago
In April 2007 LAN implemented it´s “low cost”model in the domestic market.
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• Lan Peru successfully inaugurated two new destinations: Tumbes and Cajamarca, serving now all 14 main destinations in Peru (all the available for A319)
• Additionally, Lan Peru increased its operations on the main destinations assuring two or more daily flights to each city (except the newly opened ones) and connecting Cusco to other two cities: Tacna and Iquitos
• Lan Peru competes with Star Peru and TACA Peru in the domestic market
(n) Number of daily arrivals/departures
Lima
Juliaca (4)
Cuzco (22)
Arequipa (10)
Puerto
Maldonado (3)
Tacna (3)
Iquitos (5)
Cajamarca (1)Tumbes (2)
Pucallpa (2)
Chiclayo (3)
Piura (4)Tarapoto (3)
Trujillo (3)
LAN Peru Domestic Operation
• LAN Argentina currently serves twelve domestic destinations and has transported more than 3.7 million passengers.
• Route selection has been based on profitability
• Operations concentrated in main routes in order to gain market share and enhance competitive position
• No changes to the domestic fleet plan for 2009, with 8 aircraft in the domestic market
• 1 new route (Tucumán) and strong growth in current destinations
Miami
Sao Paulo
Punta Cana
LAN Argentina flights
Mendoza
Córdoba
Salta
Bariloche
Calafate
Ushuaia
Río Gallegos
IguazúTucumán
Neuquén
C. Rivadavia
San Juan
Lima
Santiago
LAN Argentina Domestic Operation
LAN Ecuador: New Domestic Operation
� New operation expected to start in April 2009 operating with 3 A320 family aircraft.
� LAN will be the only airline in Ecuador operating in both domestic & international markets.
� Authorization granted to operate the following routes:
� Guayaquil-Quito-Guayaquil (35 weekly frequencies)
� Guayaquil-Cuenca-Guayaquil (7 weeklyfrequencies)
� Quito-Cuenca-Quito (7 weeklyfrequencies)
� Quito/Guayaquil-Galapagos-Guayaquil/Quito (1 weekly frequency –codeshare)
Lan Ecuador Destinations Highlights
Cuenca
Quito
Guayaquil
Galapagos
Jan 09 vs RPK Growth RPK Growth
Jan 08 January 09 2008
Africa -2,6% -4,0%
Asia/Pacific -8,4% -1,5%
Europe -5,7% 1,8%
Latin America -1,4% 10,2%
Middle East 3,1% 7,0%
North America -6,2% 2,9%
Industry -5,6% 3,5%
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Latam Traffic Growth
Source: IATA – February 2009
Traffic growth by region
(CAGR 2007 – 2027)
Source: Boeing – Current Market Outlook 2008
5,7%
Middle East
5,6%
Africa
3,5%
Europe
2,8%
North America
7,0%
Asia Pacific
6,9%
South America
International Traffic Growth by Region
0,260,19 0,24 0,22
0,130,24
0,110,02
0,25
0,11
0,290,19
0,140,06
0,19
0,62
México Colombia Chile Ecuador Perú Brasil Argentina CentralAmérica
Domestic enplanements per capita International enplanements per capita
Latin American Enplanements per capita
Low enplanementsrepresent growth
opportunities in theregion.
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Diversified Passenger & Cargo Network
Madrid
Easter Island
Auckland
Papeete
Sydney
FrankfurtLos Angeles
Mexico City
Caracas
Sao Paulo
Buenos AiresMontevideo
Cancun
Bariloche
Pta. Arenas
Arica
La Paz
Pto. Montt
Cuzco
Lima
Bogotá
Santiago
Rosario
Quito
Pta. Cana
Guayaquil
Ushuaia
Salta
Rio Gallegos
Com. Rivadavia
Cordoba
Iguazú
IquiqueAntofagasta
CalamaCopiapo
La Serena
Mendoza
Concepcion
Balmaceda
TemucoValdiviaOsorno
TacnaArequipa
Puerto Maldonado
Iquitos
Piura
TarapatoPucalpa
ChiclayoTrujillo
Houston
San JosePanama
Merida
Rio de Janeiro
Porto Alegre
VitoriaBelo HorizonteSalvador
Manaos
Passenger + Cargo NetworkFreighter Network
Curitiba
Asunción
Amsterdam
Miami
LAN is one the leading passenger and cargo operators in Latin America
New York
Medellin
Toronto
LAN
Codeshare
693 destinationsworldwide
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Latin America Cargo Market
Source: Boeing World Air Cargo 2008 - 2009
Northbound
� Fish, flowers and vegetables dominate Northbound Flows
� Consumer electronics, machinery, spare parts and automotive parts dominate Southbound Flows
� Operational efficiencies must be obtained by managing unbalanced flows and seasonal fluctuations
Southbound
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LAN CARGO is Well Prepared to Face 2009 Challenges
� Arrival of 2 B777F will represent discrete jump in operating efficiency
� Continuous tactical reallocation of capacity to defend yield and load factors
� Contingency growth plans to maintain adequate supply in core routes (e.g. Colombia, Central America, others)
� Southbound traffic likely to decrease due to economic slowdown and dollar appreciation
� Northbound traffic likely to maintain current levels (except forsalmon exports from Chile)
Demand outlook for 2009:
Cargo business strategy for 2009:
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New Cargo Operation in Colombia
� Expected to start in 1Q09
� Colombia is the largest air cargo market in Latin America in terms of exports to the United States.
� Estimated volume for the Colombian cargo market is approx 200,000 tons annually
� This operation will provide LAN Cargo with connectivity between Colombia and the rest of the region, US and Europe
Colombia Highlights
MIAMI
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Contents
I. LAN’S DIVERSIFIED BUSINESS MODEL
II. FINANCIAL OVERVIEW
III. FUTURE OUTLOOK
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318 407600 694
9721.083
1.2371.425 1.428 1.454
1.639
2.093
2.506
3.034
3.525
4.532
0
400
800
1.200
1.600
2.000
2.400
2.800
3.200
3.600
4.000
4.400
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
US$ Million
Strong Revenue Growth
CAGR24%
CAGR1%
CAGR21%
Operating Revenues 1993 – 2008
US$ Millions
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$11 $15$34 $44
$83$62
$112
$172
$303
$413
$536
$6
$308$336
$46$80
$51 $50
$142
$38$0
$25
$64$31
$48 $48$11
$31
$84
$164$147
$241
0
50
100
150
200
250
300
350
400
450
500
550
600
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Operating Income and Net Income 1993 – 2008
Operating Income Net Income
(US$ millions)
Recession
9/11 & Argentine CrisisIncreasing Fuel Prices
� LAN Airlines has been consistently profitable under the current management
Consistent Profitability Despite Multiple Market Shocks
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LAN Operates with High Efficiency Levels
EBITDAR Margin Industry comparison
Source: Companies Annual & Quarterly Reports 2008; for Air France, Gol and Tam LTM Sep 08.
2,4%
4,7%
7,1%
8,4%9,2%
10,5%
12,7%
14,0%
16,3%
19,2%
23,4%
0%
5%
10%
15%
20%
25%
Uni
ted
Amer
ican
GOL
Cont
inen
tal
Iber
ia
Briti
sh
TAM
AirF
ranc
eRy
anai
r
LAN
COPA
Eb
itd
ar
Mg
. (%
)
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LAN maintains a Solid Financial Position
Solid balance sheet & low FX exposure
� No short-term debt; 8% of debt due within 12 months. No refinancing risk
� Debt amortizations for 2009 – 2011 between US$200MM & US$230MM per year.
� Cash & Cash Equivalents: US$472MM; representing 10.4% of LTM revenues.
�Ratio of 2.3 times Net Debt / EBITDA & Capitalization ratio of 72%
�Low exposure to FX changes:
�All debt denominated in US$
� Approx. 84% of total revenues in US$
� Approx. 71% of total costs in US$
International BBB credit rating (Fitch)
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Fuel Hedging
Fuel Hedging Program 2009-2010
30%
40%
20% 20%
10%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1Q09 2Q09 3Q09 4Q09 1Q10
% T
ota
l C
on
su
mp
tio
n H
ed
ge
d
% Fuel Consumption Hedged
US$140 US$140 US$140 US$140 US$140Hedging Price Band(US$ barrel)
US$107 US$104 US$ 94 US$ 92 US$ 92
Average 2009: 27% @ US$ 101/Bbl
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Contents
I. LAN’S DIVERSIFIED BUSINESS MODEL
II. FINANCIAL OVERVIEW
III. FUTURE OUTLOOK
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2009 Estimated Capacity Expansion
0%
5%
10%
15%
20%
25%
2006 2007 2008 2009E
19.5%
11.5%11.5%
-10%
-5%
0%
5%
10%
15%
20%
25%
2006 2007 2008 2009E
7.0% 6.9%
12.3%
Passenger ASK Growth Cargo ATK Growth
~10%
~ -5%
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50 53 5968 68
32
5 5
5
9 9
9
3
4
26 2628
28
32
59
9
0
30
60
90
120
150
2008 2009 2010 2011 2012-18
Boeing 777-200F Cargo
Boeing 767-300F Cargo
Airbus 340-300
Boeing 787
Boeing 767-300ER
Airbus A320/A319/A318
US$6.4 Billion2008-2018
Fleet Plan
141
9095
103113
Average Fleet Age (Dic 08): 5.2 years Cargo
Passenger Long Haul
Passenger Short Haul
CAPEX 2008 2009 2010 2011 2012-18
Aircraft 754 274 493 599 4.300
Non Aircraft 124 165 124 109
+19+6
+8+10
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LAN’s Fleet is among the Youngest in the World
Average Fleet Age for Selected Airlines (Years as of Sep 2008)
(*) As of December 2007
(*)
(*)
(*)
(*)LATAM
EUROPE
NORTH AMERICA
ASIA
Source: Airlines reports, public information as of Sep 08/ LAN as of Dic08
5,2
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Fleet Plan Flexibility
0
10
20
30
40
50
60
70
Nu
mb
er
of
Lo
ng
Ha
ul P
as
se
ng
er
Air
cra
ft
MIN MAX PLAN
36%
24%39%
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� Diversified business model
� Strong footprint in Latin America
� Modern and fuel efficient fleet
� Effective fuel strategy
� Successful implementation of “low cost” model in domestic markets.
In Conclusion…LAN Continues to Grow in a Challenging Environment