Tags: LFL | LAN | TAM | airlines | Latin America | stocks | investing

Chile’s LAN Aims to Buy Huge Brazil Carrier

By    |   Friday, 27 May 2011 10:54 AM

Chilean airline LAN (LFL) is already Latin America’s best-rated airline and its biggest airline by market value, but its $3.7 billion purchase of Brazil’s TAM (TAM) will clear the runway for landing in new markets as well as creating important synergies.

The new conglomerate will be called LATAM Airlines and will be the 11th-largest in the world by passenger volume, but first the merger, announced in August, must be approved by antitrust authorities in Chile and in Brazil.

Chile's antitrust court held a public hearing in Santiago this week to review the case after the national consumer watchdog called for an investigation, but analysts say it is unlikely the court will stop the takeover.

“Even though the (antitrust court) is investigating, we consider the probability that the merger will not be approved to be very low,” Chilean brokerage Bci Estudios said in a report.

LAN has been accused of predatory pricing policies by competitors due to a virtual monopoly over domestic routes in Chile, but at the hearing LAN promised to guarantee lower fares and more competition on key routes shared with TAM.

Enrique Cueto, LAN’s CEO, will hold the same position in LATAM. He said after the hearing that he is confident the measures address consumer concerns.

“We believe the mitigation measures resolve all these problems, but we will let the court decide and go from there,” he said.

The court is expected to rule by August, but LAN does not expect the merger to be completed until the first quarter of 2012.

LAN’s passenger traffic rose 28 percent in April compared to the same month in 2010 after growing 21 percent in the first quarter.

The company cancelled dozens of flights in the same period last year when a massive earthquake damaged Santiago’s Arturo Merino Benitez International Airport and temporarily halted landings.

Barring future interruptions, LAN expects its passenger traffic to grow between 16 and 18 percent in 2011.

Friendlier skies

Despite picking up more passengers, LAN’s first quarter profit, which rose 10 percent from a year earlier to $97.2 million, came in short of market expectations as higher fuel costs hurt margins.

"Fuel costs rose 43.5 percent, which is equivalent to $118.1 million in increased cost," the company said, citing higher prices for the increase, despite hedging.

Revenue rose 31.9 percent during the quarter to $1.37 billion mainly due to a 32 percent increase in passenger revenue, said LAN.

LAN, which is part of the Oneworld alliance, is headquartered in Santiago with business units in Argentina, Ecuador, Peru, and Colombia as well as cargo operations in Brazil, Mexico, and the United States.

The airline plans to spend around $4.6 billion on its fleet of aircraft through 2014, CFO Alejandro de la Fuente said in an earnings conference call in April.

Over the last 52 weeks, LAN’s ADR has traded at a high of $32.68 and a low of $17.86, having gained 62 percent in that same period.

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Chilean airline LAN (LFL) is already Latin America s best-rated airline and its biggest airline by market value, but its $3.7 billion purchase of Brazil s TAM (TAM) will clear the runway for landing in new markets as well as creating important synergies. The new...
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Friday, 27 May 2011 10:54 AM
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