Lan accelerates 767 winglet installations and cargo expansion

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Lan has slightly reduced passenger capacity growth plans for the remainder of this year in order to accelerate the installation of winglets on its Boeing 767 fleet.

The Chilean carrier, meanwhile, has revised upwards growth plans for its cargo division citing strong demand.

Lan chief financial officer Alejandra de la Fuente told analysts today that passenger capacity for all of 2008 is now expected to be up 14% to 16%, compared to previous plans of a 16% to 18% increase. Cargo capacity is expected to be up 10% to 12% for 2008, compared to previous plans for an 8% to 10% increase.

De la Fuente says the slower passenger growth is being achieved by delaying plans to increase frequency on several long-haul routes. He says Lan has accelerated its plan for installing winglets on its Boeing 767 fleet and as a result over the remainder of this year 767 utilisation levels will be down.

Lan now plans to have its entire 767 passenger fleet retrofitted with blended winglets by the second quarter of 2010 and its entire 767 cargo fleet retrofitted by the third quarter of 2010.

Lan became one of the launch customer of Aviation Partners Boeing’s 767-300ER winglet retrofit programme in May 2007 when it placed an order for 15 shipsets, covering all eight of its freighters plus seven of its passenger aircraft, while taking options for another 20 shipsets.

The recent rise in oil prices has prompted Lan to expand and accelerate the programme to include its entire 767 fleet. De la Fuente points out the winglets will result in a 6% fuel consumption improvement per aircraft.

Lan now operates eight 767-300 freighters and 24 767-300ER passenger aircraft. It plans to add two more 767-300ERs in the second half of this year and another two next year. But ultimately all 28 of its 767-300ERs as well as its five A340s will be replaced with 32 new Boeing 787.

Lan has been reviewing the last several months options for additional aircraft to offset an expected two-year delay in its 787 deliveries, which were to begin in 2011. De la Fuente says Lan is now “working on extending some 767 operating leases” and is also looking at adding additional 767s to the fleet.

He adds Lan may also acquire additional Airbus A340s to provide interim capacity.

Lan, meanwhile, is accelerating cargo growth for the second half of this year in response to favourable market and competitive conditions.

In the second quarter cargo revenues shot up 49% to $413 million. Cargo capacity was only up 15% while yields increased by 33%.

Lan cargo executives say the growth was mainly driven by stronger inbound import markets as local currencies strengthened against the US dollar. Brazil, Colombia and Peru were the strongest markets, each registering cargo growth of nearly 30% compared to last year.

Lan plans further large capacity gains on the cargo side next year as the carrier starts to take delivery of its new fleet of four Boeing 777 freighters and launches a new cargo subsidiary in Colombia.

De la Fuente says the first 777 will be delivered in the first quarter of next year and initially used on routes between South America and Europe. He adds the Colombian carrier will also launch in the first quarter next year and “will further enhance are already strong network” in South America.

He adds the carrier’s competitive situation in the Latin American market will generally be enhanced by the new 777Fs. Lan already has a 40% share of the region’s cargo market and says the fact it operates a much more fuel efficient fleet than other cargo operators in the region gives it a huge competitive advantage given the current price of oil.

Most of Lan’s cargo competitors operate ageing McDonnell Douglas DC-10 freighters. Lan cargo executives says the new Boeing 777 fleet will give unit costs that will be more than 10% lower than DC-10 operators.

In the second quarter cargo accounted for 39% of the Lan’s revenues, up from 36% a year ago. “The Lan business model is different than other international carriers because cargo plays a much more important role,” says de la Fuente.