LAN AIRLINES Corporate Update May, 2011
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, 2010. Information, tables and logos contained in this presentation may not be used without consent from LAN 2
Contents I. LAN S BUSINESS MODEL II. FINANCIAL RESULTS III. AGREEMENT WITH TAM 3
LAN's Ownership LAN s Ownership (Apr 30, 2011) Free Float 48.6% Other 27,5% Cueto Group 34,0% Chilean Pension Funds 13,3% Other Foreign Investors 4,2% ADRs 3,6% Bethia Group 8,0% Eblen Group 9,4% LAN s market capitalization (May 11, 2011) US$ 9.7 billion Source: DCV and Bloomberg 4
Diversified Business Model Revenue Breakdown (LTM 1Q 2011 % of operating revenues) Other * 3.0% Cargo 28.0% Intl. Passengers 44.0% Domestic Passengers 25.0% Total operating revenues (LTM 1Q 2011) US$ 4,853 million * Other Revenues includes Aircraft Leases, Logistic and Courier, Ground Services, Storage & Customs Brokerage, Duty Free, etc 5
Regional Strategy Mexico City, 2000 Miami Headquarters Aires Bogotá, 2010 Bogotá, 2009 LAN Ecuador Guayaquil, 2003 Sao Paulo, 2001 LAN Peru Lima, 1999 LAN Airlines Santiago, 1929 LAN Argentina Buenos Aires, 2005 6
Geographically Diversified Business LAN Passenger Capacity (by ASK) Market Growth (LAN ASK growth 1Q2011) Colombia +100% Long Haul +6% 1998 Ecuador +86% +5% Regional +27% Dom. Argent. 6% Dom. Colombia 4% Dom. Ecuador 1% Peru Dom. Peru 7% +28% Intl. (Long Haul) 43% 1Q 2011 Chile Argentina -4% Regional 23% Dom. Chile 16% 7
Colombia: Second Largest Market in the Region Barranquilla Cartagena Santa Marta Colombia represents an attractive opportunity to strengthen our position in Latin America Colombia is the second largest market in the region with 13 million domestic passengers and 6 million international passenger in 2010 Medellín Pereira Cali Bucaramanga Bogotá Cúcuta Arauca Puerto Carreño Puerto Inirida Acquisition of a strong player with relevant position Colombia has all the necessary conditions to apply our domestic, passenger and cargo models Florencia Mitú
Colombia: Turnaround of Colombian Airline AIRES Acquisition of AIRES: In November 2010, LAN acquired 98.9% of AIRES for US$12 million (excluding debt) AIRES Fleet: BOEING 737-700 Aircraft: 9 Seats: 148 DASH 8-Q400 Aircraft: 4 Seats: 78 DASH 8-200 Aircraft: 11 Seats: 37 Aspects of the turnaround process: Implement LAN standards (IOSA Certification) Improving flight offers and quality of service Eliminate unprofitable routes Apply revenue management Integration of domestic cargo operations Define the new organizational structure and infrastructure Converting AIRES into LAN Colombia
Leading Presence in the Region LAN s Market Share (passenger markets*) Colombia: Intl:9% Dom: 20% Market Sizes (mm pax transported in 2010**) Ecuador Intl:23% Dom: 20% Peru Intl:44% Dom: 66% 75 60 45 30 15 0 71,9 15,9 13,2 9,1 2,8 3,7 5,1 6,0 5,0 5,5 6,8 6,2 Ecuador Chile Peru Argentina Colombia Brazil International Domestic Chile Intl:62% Dom: 77% Argentina Intl:16% Dom: 30% * Sources: International market shares as of Dec 2010; domestic market shares as of Mar 2011 ** Sources: DGAC Chile, DGAC Peru, Undersecretary of Transportation Argentina, DGAC Ecuador, Aerocivil Colombia, ANAC Brazil, LAN estimates 10
Region s High Growth Potential Trips per Capita (as of 2010) GDP Growth Projections (2011E) 6,1% 6,5% 6,0% Peru Argentina Peru Argentina 0,35 0,38 World Average 4.0% 4,5% 4,1% Ecuador Ecuador 0,44 Colombia Brazil 0,44 Chile Peru Argentina Colombia Brazil Brazil Colombia 0,44 Boeing Growth Projections (Passenger RPK %CAGR up to 2029) Chile Chile 0,66 6,8% 7,1% 6,9% 5,5% USAUnited States 2,25 4,4% 3,4% UK United Kingdom 2,36 0,0 0,5 1,0 1,5 2,0 2,5 Source: Boeing, IMF, CIA, Bloomberg and LAN estimates Asia-PacificN. America Europe Mid. East Latam Africa 11
Efficiencies of Passenger + Cargo Mix Revenue Mix (selected companies FY 2010) Korean Air 33% 55% 12% Cathay LAN Singapore 29% 28% 18% 66% 66% 69% 5% 3% 16% Passenger and cargo combination allows: Lower break even load factors (BELFs) Increased diversification Air France-KLM 13% 74% 13% Lufthansa 11% 70% 19% Gol TAM British Airways 10% 9% 8% 78% 90% 87% 13% 5% BELF Differential (long haul passenger + cargo routes Jul 2010, based on SCL MIA route) Iberia 7% 74% 19% Qantas 6% 80% 14% Copa 5% 95% American 3% 86% 11% Delta 3% 86% 11% 0% 25% 50% 75% 100% Load Factor (%) 69% BELF w/o Cargo 18% Cargo Contribution 51% BELF w/ Cargo Cargo Passenger Other Source: Companies information for FY 2010 12
Cargo Business: Consolidation and Expansion Amsterdam Frankfurt Growth Drivers: Strong Brazilian import market driven by an appreciated local currency Miami Bogota 3 additional Boeing 767F to add capacity to the growing northbound routes (recovery of the salmon industry) Guayaquil Manaus Fortaleza Recife Strengthening of new domestic routes within Brazil Lima Santiago Sao Paulo Buenos Aires Active capacity management and new revenue management tools have allowed more efficient growth 13
Cargo Business: Latin America Cargo Market Northbound Southbound 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 Source: Boeing World Air Cargo 2008-2009 14
Contents I. LAN S BUSINESS MODEL II. FINANCIAL RESULTS III. AGREEMENT WITH TAM 15
Revenue Growth LAN s Operating Revenues (1993 2010) 5.000 4.000 US$ mm CAGR 20% 3.525 4.283 CAGR 3% 3.656 4.523 3.000 2.000 1.000 318 407 CAGR 24% 600 694 972 CAGR 1% 1.425 1.428 1.454 1.639 1.237 1.083 2.093 2.506 3.034 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q 2011 Revenues +31.9% Note: 2008 2010 under IFRS; previous years under Chilean GAAP 16
Consistent Profitability US$ mm LAN s Net Income (1993 2010) Financial crisis + salmon crisis + swine flu Increasing fuel prices 420 400 300 Recession 9/11 & Argentinian crisis 241 308 336 231 200 164 147 100 0 84 64 48 48 38 25 31 31 0 6 11 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q 2011 Net Income +10.1% Note: 2008 2010 under IFRS; previous years under Chilean GAAP 17
High Efficiency Levels EBITDAR Margin (FY 2010 industry comparison) EBITDAR Mg % 30% 25% 22,0% 23,5% 23,6% 25,2% 25,7% 20% 18,0% 19,8% 15% 10% 8,9% 10,3% 10,7% 11,9% 12,9% 13,0% 14,3% 14,8% 15,4% 5% 0% Source: Companies information for FY 2010 18
Highlights 1Q 2011 Results (US$ million) 1Q 2010 1Q 2011 % Change (YoY) Total Revenues 1,035 1,365 31.9% Passenger Revenues 741 978 32.0% Cargo Revenues 266 346 30.2% Total Operating Expenses -892-1,212 35.8% Operating Income 143 153 7.3% Operating Margin 13.8% 11.2% -2.6 pp Net Income 88 97 10.1% EBITDAR * 249 293 17.6% EBITDAR Margin 24.1% 21.5% -2.6 pp 1Q 2011 results reflect strong growth in both passenger and cargo businesses EBITDAR margin decreased 2.6 point s for 1Q11, reaching 21.5% 1Q 2011 Results include a US$11 million negative impact generated in Aires. * EBITDAR = Operating income + depreciation & amortization + aircraft rentals 19
Passenger Business: Revenue Increases 32.0% in 1Q 2011 +18.2% +20.5% +1.6 pp. 10.232 12.094 8.118 9.786 79,3% 80,9% Pax Capacity (million ASK) Pax Traffic (million RPK) Pax Load Factor +9.5% +11.7% 9,1 10,0 7,2 8,1 Pax Yield (US$ cents) Pax RASK (US$ cents) 1Q 2010 1Q 2011 20
Cargo Business: Revenue Increases 30.2% in 1Q 2011 +18.0% +16.6% -0.8 pp. 1.063 1.254 731 852 68,7% 67,9% Cargo Capacity (million ATK) Cargo Traffic (million RTK) Cargo Load Factor +11.7% +10.4% 40,7 25,0 27,6 36,4 Cargo Yield (US$ cents) Cargo RATK (US$ cents) 1Q 2010 1Q 2011 21
Solid Financial Position 4,4 EBITDAR / Interest Expense 4,2 4,0 3,8 3,6 3,4 3,2 48.9 4,1 4,2 4,1 3,8 44.1 3,5 Mar-10 Jun-10 Sep-10 dec-10 Mar-11 March 2011 Cash Balance: US$388 million, representing 8% of LTM revenues US$ 160 million committed credit lines Long term debt related to fleet financing Low interest rates 4,6 4,4 Adj. Debt / EBITDAR 4,2 4,0 3,8 3,6 4,4 4,1 3,9 3,8 3,9 41,3 LAN remains one of the few investment grade airlines in the world 43,5 3,4 Mar-10 Jun-10 Sep-10 dec-10 Mar-11 22
Current High Fuel Scenario WTI Prices (US$) US$ 108.9 (4 May 2011) Fuel Surcharges: LAN applies fuel surcharges in line with practices in the industry in passenger and cargo businesses Operations: LAN has adjusted the capacity on certain routes as part of tactical decisions Efficiency Initiatives: LAN is constantly developing efficiency initiatives, which now become more attractive Fuel Hedging: Active fuel hedging strategy
Efficiency Initiatives Installation of winglets in all the B767 fleet Between 4% and 5% additional efficiency in fuel consumption B767-300 Winglets LEAN Fuel Project Reduction of 2% of the fuel consumption per flight Reconfiguration of cabins in LAN Ecuador s B767s Reduction of 7% of costs per ASK by increasing the amount of Economy seats
Fuel Hedge Fuel Hedge (% of consumption) 80% 60% 40% 20% 0% 48% 27% 10% 10% 27% 8% 9% 10% 18% 16% 9% 3% 1Q11 2Q11 3Q11 4Q11 WTI Swap WTI Collar 1 WTI Collar 2 WTI Call Option HO Call Option WTI Swap: $78.5 $79.0 $85.9 $100.3 WTI Collar 1: $62 / $85 $60 / $85 $60 / $90 $60 / $90 WTI Collar 2: $70 / $105 WTI Call Option: $120 $130 HO Call Option: $144.9 25
LAN s Fleet Plan: Growth and Flexibility LAN s Fleet Plan (2010-2014) 200 160 120 131 2 11 5 28 149 2 12 5 31 169 4 12 5 5 36 186 4 12 5 8 40 195 4 12 5 12 40 Boeing 777-200F Cargo Boeing 767-300F Cargo Airbus 340-300 Boeing 787 80 40 61 76 84 94 109 Boeing 767-300ER Airbus A320 Fam Boeing 737-700 Dash Q200 & Q400 0 9 9 9 9 2 15 14 14 14 11 2010 2011 2012 2013 2014 Total Fleet Capex (US$ MM) 434 841 1,810 1,343 1,119 US$ 5.5 Bn 26
LAN s Fleet Plan: Deliveries 2011-2014 20 13 15 15 A320 Fam Short Haul 2011 2012 2013 2014 3 5 7 3 4 4 B787 B767 Long Haul 2011 2012 2013 2014 1 2 B777F B767F Cargo 2011 2012 2013 2014 27
2011 Estimated Capacity Expansion Passenger ASK Growth Cargo ATK Growth 25% 20% 15% 10% 11,5% 10,2% 9,2% 16% -18% 25% 20% 15% 10% 12,3% 20,5% 16%-18% 5% 5% 0% 0% -5% -10% 2008 2009 2010 2011E -5% -10% -6,0% 2008 2009 2010 2011E Expansion in regional markets Strengthen Lima hub and increase connectivity within the region Continue growth in domestic markets 3 additional B767 freighters (2010-2011) Increased operations in Brazil and Europe Increased capacity in bellies of passenger aircraft 28
Contents I. LAN S BUSINESS MODEL II. FINANCIAL RESULTS III. AGREEMENT WITH TAM 29
LATAM Airlines Group: Status and Next Steps August 13, 2010: LAN and TAM announce their intentions to combine March 1, 2011: ANAC approved the proposed corporate structure May 26, 2011: Public Hearing LAN, TAM and interested parties will give their opinion about the transaction to the TDLC Court (May 10, 2011 is the deadline for delivering related information to the TDLC) January 18, 2011: LAN and TAM signed binding agreements Approvals & Registrations: CVM (Brazil), SVS (Chile), SEC (USA) Shareholder Meetings Exchange Offer & Closing Antitrust authorities in Chile, Brazil, Spain, Germany, Italy and Argentina *Pending steps 30
LATAM Airlines Group: Benefits for our Clients Our clients will have access to a network of over 120 destinations in 23 countries Opportunity to open new international destinations which couldn t be possible with each airline operating separately For cargo clients, the new airline group will provide more capacity, frequencies and destinations 31
LATAM Airlines Group: Corporate Structure TEP Brazil 13.5% LAN Controlling shareholders 24.1% Others LAN 46.6% Others TAM 15.8% LATAM AIRLINES GROUP (Currently LAN) Chile 80% Class A Shares (voting) 20% Class A Shares (voting) 100% Class B Shares (non voting) HoldCo Chile 100% ON Shares 100% PN Shares TAM S.A. Brazil 100% 100% TLA Brazil Pantanal Brazil 100% TAM Milor Brazil 32
LATAM Airlines Group: LAN and TAM Today Note: Most recent figures (as of Dec 2010) 33
LATAM Airlines Group: Unparalleled Service in the Region Estimated Synergies of US$400 Million Revenues: Passenger US$170 MM ; Cargo US$110 MM Costs: US$120 MM SOURCE: Company 20-F filings, Airline Business, + IR presentation, company websites and LAN estimates 34
LATAM Airlines Group: Consolidation of Traffic = Growth 35
LAN AIRLINES Corporate Update