expects its merger with Brazil’s Grupo TAM to be completed in March as part of an expansion plan, under which the Santiago-based operator will also formally launch its LAN Colombia brand in December.
The merger received a boost late yesterday with a new accord between LAN and Chilean carrier PAL Airlines that resolves a dispute over the merger’s antitrust implications. According to LAN, PAL accepts the understanding that the larger carrier’s merger with TAM is not anti-competitive as well as LAN’s recent appeal on three demands made by Chile’s antitrust court. In return for this and PAL’s guarantee that it will not issue any further objection to the merger, LAN will cover the roughly $5 million of costs PAL has incurred by objecting to the merger.
This resolution enables LAN to proceed unhindered, for now, in its appeal against three of the 14 demands required by the Tribunal de Defensa de la Libre Competencia before the court approves the TAM merger. At issue are the TDLC’s call to end all code-share agreements with airlines outside of the chosen alliance, expected to be Oneworld, the access agents for Chile’s antitrust regulator Fiscalia Nacional Economica and the court will have to the carriers’ internal data and procedures, and the release of four of LAN’s fifth-freedom rights to Lima.
LAN must also gain approval from regulators in Brazil, Chile and the U.S. and must wait for shareholder backing from both operators before proceeding with the exchange offer and closing, which CEO Enrique Cueto says is likely to occur in March.
Separately, LAN is proceeding with its expansion across South America with the integration of Colombian operator Aires, and has already planned the introduction of threefor November (Aviation Daily, Aug. 1). This will be followed by the formal rebranding of the carrier as LAN Colombia in December, a marketing effort that contributed to a $10 million loss for the unit in the third quarter.
Systemwide, LAN’s third-quarter costs rose almost $330 million to $1.3 billion with increases posted across the board, dominated by the 57% or $167.5 million growth in fuel costs. Improved yields and expanded operations, however, added $334.2 million to LAN’s sales, which reached almost $1.5 billion for the three months to Sept. 30.
Operating income as a result grew 2.9% to $161.2 million, although the operating margin slipped 2.7 percentage points to 10.8%. A near $19 million increase in non-operating costs, however, depressed LAN’s net income 11% to $94.5 million and pushed down the net margin 2.9 points to 6.4%.
Growth remains a key factor in LAN’s success, and passenger capacity is still projected at 14-16% for 2011, some five to six points above that of the two preceding years. Into next year, this double-digit rate will continue, says Cueto, with 12-14% more available seat kilometers expected. Cargo growth of 12-14% for 2011 is expected to fall to 7-9% in 2012.
This growth is aided by a plan that adds 15 Airbus narrowbody aircraft to LAN’s fleet in 2011, eight in 2012, 10 in 2013 and 15 the year after. At the same time, the airline is adding threethis year, five next year and two in 2013, along with five in 2012, three in 2013 and four in 2014. LAN Cargo’s fleet also adds one 767F in 2011 and two 777Fs in 2012.