Lan records $117m 4Q net profit and 19.7% operating margin

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Chilean carrier Lan has reported strong results for the fourth quarter, including a 16% jump in fourth quarter net profits to $117 million and a record high 19.7% operating margin.

Lan's revenues soared 13% in the quarter to $1.2 billion while expenses increased only 4% to $947 million. As a result, the carrier's operating profits soared 76% in the quarter from $132 million to $232 million.

That equates to an almost unheard of 19.7% operating margin, which Lan says is a "historical high". The carrier credits the unusually high operating margin to "strong operating performance, especially in the passenger business, as well as a significant decline in fuel prices during the quarter".

Passenger revenues were up 22% in the quarter to $781 million despite capacity increasing only 12%. This resulted in a 10% improvement in passenger yields.

Lan says yields increased "as a result of improved revenue management and the fact that revenues accounted for during the quarter included higher fuel surcharges".

Lan's cargo business, however, showed signs of weakness and threatens to drag down the carrier's earnings in 2009. While Lan's cargo revenues were up 4% to $364 million, traffic was down 3% despite a 5% increase in capacity.

Lan says its cargo business has been "impacted mainly by a slowdown in Latin American import markets driven by the global economic slowdown as well as the depreciation of local currencies in relation to the US dollar". In response to this slowdown, Lan says it is decreasing the number of freighters it wet leases and has readjusted its cargo capacity plans for 2009.

Lan now plans to reduce its cargo capacity by 5% this year but passenger capacity will still increase by 10%. The passenger capacity increases are being driven by increases in the Argentine, Chilean and Peruvian domestic markets, which remain relatively strong compared to international markets where the effects of the current economic downturn are more pronounced.

On a net basis, Lan's fourth quarter results were impacted by several special charges, including a $59 million provision in relation to a plea agreement signed with the US Department of Justice regarding an investigation into alleged air cargo price fixing. Lan also recorded a $25 million fuel hedging loss in the quarter.

Despite the one-time charges, Lan still recorded a 16% improvement in its fourth quarter net result from $101 million to $117 million.

For the full year, Lan's net income increased by 9% from $308 million to $336 million. The carrier's operating profit soared 30% to $536 million.

Revenues for the full year were up 29% to $4.5 billion, including a 30% increase in passenger revenues to $2.9 billion and a 32% increase in cargo revenues to $1.5 billion. For the full year, Lan's operating margin was 11.8%.