LAN Traffic Surges - Analyst Blog

LAN Airlines S.A. (LFL) posted a 13.7% increase in total passenger traffic for December 2010 compared to December 2009. Domestic traffic and International traffic rose 10.7% and 15.0%, respectively. Cargo traffic surged 9.9% year over year, based on the growth in Latin American imports.

During the third quarter of fiscal 2010, LAN recorded a 14.2% increase in passenger traffic and 19.0% in cargo traffic.

The prime reason for the significant increase in passenger traffic was the recovery in market conditions and particularly the emerging economies like Latin America. Fuel prices are in their low-90s, down from the peak of nearly $150 per barrel in 2008. The International Air Transport Association (IATA) expects the airline industry to make a profit of $9.1 billion in 2011.

LAN's continuous fleet expansion and renewal program are also expected to fetch profitable returns in future. We are also optimistic about the merger between LAN and TAM S.A. (TAM) to be christened as LATAM Airlines Group S.A. ("LATAM"). The merger which was proposed in August 2010 is supposed to be completed by the middle of fiscal 2011.

According to the agreement, LAN will become the parent company with a 73% stake in TAM and shareholders of TAM will receive 0.9 shares of LATAM for each share of TAM. It will be an all-stock transaction of approximately $2.7 billion.

The merger is expected to provide annual synergies of approximately $400 million, out of which approximately $133 million will be realized in the first year of the close of transaction and $267 million in the next two years. Passengers and cargo customers of both companies will benefit from the increase in the number of flights, destinations and connections.

We reiterate our Neutral recommendation on LAN. The ADS also currently retains its short term Hold rating, equivalent to a Zacks #3 Rank.

 
LAN CHILE-ADR (LFL): Free Stock Analysis Report
 
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