Larrain Vial Conference Santiago, Chile 16 17 March 2009
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, 2007. Information, tables and logos contained in this presentation may not be used without consent from LAN 1
LAN Market Cap & Ownership LAN Market Cap (March 11, 2009) US$ 2.653 Billion LAN Ownership (Feb. 09) 33% Others 25% 25% CUETO Group Chilean Pension Funds 5% 10% ADRs 9% EBLEN Group 26% PIÑERA Group 2
Contents I. LAN S DIVERSIFIED BUSINESS MODEL II. FINANCIAL OVERVIEW III. FUTURE OUTLOOK 3
LAN s Diversified Business Model: Passenger + Cargo Operations Diversified Business Model (% Operating Revenues) FY 2008 33% Cargo 34% Others 3% 20% Domestic Passenger 43% International Passenger LAN s business model is diversified between the passenger and cargo businesses This allows LAN the flexibility to better withstand unfavorable economic conditions 4
LAN Business Model: Distinct blend enhances returns and reduces risk Revenue Mix, Selected Companies, 2007 EVA 41% 6% 53% Passenger and Cargo Combination Lower Break-Even Load Factors Increased diversification LAN 34% 3% 64% Korean Air Cathay 22% 29% 19% 12% 59% 60% BELF Differential for passenger + cargo routes (2008) Singapore 19% 11% 70% Air France-KLM 12% 8% 80% BA 7% 7% 86% Qantas 6% 16% 79% Iberia 6% 21% 73% American 4% 6% 90% BELF w/o Cargo Cargo Contribution BELF w/ Cargo Delta 3% 9% 88% Note: BELF = Break-even load factor Cargo Others Passenger Source: Companies - Last Full Year reported / LAN as of Dec08. 5
LAN s Passenger Operations are Geographically Diversified Diversified Passenger Capacity (% ASKs) 1998 Dom. Chile 3% 28% 39% 72% 2003 Dom. Perú Dom. Chile 3% 20% 18% 59% 2008 Dom. Argentina Dom. Perú 6% 8% Dom. Chile 14% 48% 24% International Regional International (Long Haul) Regional International (Long Haul) LAN s business model is diversified geographically throughout Latin America and the rest of the world This allows LAN the flexibility to better withstand unfavorable economic conditions Approximately 50% of ASKs are currently originated in Chile 6
LAN s Regional Strategy Passenger Operations Multi-hub/Multi-airline model Interlocking hubs protect and complement each other Higher asset utilization Guayaquil 2003 TAM Commercial Agreement Implemented in December 2007 Main Routes: Santiago, Lima, Buenos Aires to Sao Paulo Domestic Markets Brazil Peru Chile Argentina Lima 1999 1.500 KM Santiago 1929 TAM / LAN Agreement 2008 Buenos Aires 2005 7
Leading Presence in South American Markets LAN Market Share in Passenger Markets* Market Size: Passengers Transported 2008 (millions) Ecuador International: 27% Millions of Passengers Guayaquil Peru International: 22% Domestic: 90% Lima Chile International: 57% Domestic: 84% Santiago Buenos Aires Argentina International: 19% Domestic: 34% Sources: DGAC Chile, DGAC Peru, Undersecretary of Transportation Argentina, DAC Ecuador, LAN Estimates. * Intl. M.S. for 2008, Domestic M.S. for January 2009, Lan estimates. ** Information for 2007 8
LAN S Domestic Operation in Chile North South Santiago Currently, LAN has regular operations to 13 markets in Chile: 6 in the North and 7 in the South including Easter Island. LAN competes with SKY Airlines in the domestic market (approx 15% market share). Santiago In April 2007 LAN implemented it s low cost model in the domestic market. 9
LAN Peru Domestic Operation Tumbes (2) Piura (4) Chiclayo (3) Cajamarca (1) Trujillo (3) Tarapoto (3) Lima Iquitos (5) Pucallpa (2) Arequipa (10) Puerto Maldonado (3) Cuzco (22) Juliaca (4) Lan Peru successfully inaugurated two new destinations: Tumbes and Cajamarca, serving now all 14 main destinations in Peru (all the available for A319) Additionally, Lan Peru increased its operations on the main destinations assuring two or more daily flights to each city (except the newly opened ones) and connecting Cusco to other two cities: Tacna and Iquitos Lan Peru competes with Star Peru and TACA Peru in the domestic market Tacna (3) (n) Number of daily arrivals/departures 10
LAN Argentina Domestic Operation Punta Cana LAN Argentina flights Santiago Córdoba San Juan Neuquén Bariloche Salta Tucumán Mendoza Lima Iguazú Miami Sao Paulo LAN Argentina currently serves twelve domestic destinations and has transported more than 3.7 million passengers. Route selection has been based on profitability Operations concentrated in main routes in order to gain market share and enhance competitive position No changes to the domestic fleet plan for 2009, with 8 aircraft in the domestic market 1 new route (Tucumán) and strong growth in current destinations C. Rivadavia Calafate Río Gallegos Ushuaia
LAN Ecuador: New Domestic Operation Lan Ecuador Destinations Highlights Galapagos New operation expected to start in April 2009 operating with 3 A320 family aircraft. Guayaquil Cuenca Quito LAN will be the only airline in Ecuador operating in both domestic & international markets. Authorization granted to operate the following routes: Guayaquil-Quito-Guayaquil (35 weekly frequencies) Guayaquil-Cuenca-Guayaquil (7 weekly frequencies) Quito-Cuenca-Quito (7 weekly frequencies) Quito/Guayaquil-Galapagos- Guayaquil/Quito (1 weekly frequency codeshare)
Latam Traffic Growth International Traffic Growth by Region Traffic growth by region (CAGR 2007 2027) Jan 09 vs RPK Growth RPK Growth Jan 08 January 09 2008 Africa -2,6% -4,0% Asia/Pacific -8,4% -1,5% Europe -5,7% 1,8% Latin America -1,4% 10,2% Middle East 3,1% 7,0% North America -6,2% 2,9% 7,0% 6,9% 5,7% 5,6% 3,5% 2,8% Industry -5,6% 3,5% Asia Pacific South America Middle East Africa Europe North America Source: IATA February 2009 Source: Boeing Current Market Outlook 2008 Latin American Enplanements per capita 0,25 0,26 0,11 0,19 0,29 0,19 0,24 0,22 México Colombia Chile Ecuador Perú Brasil Argentina Central América 0,14 0,13 0,06 0,24 0,19 0,11 0,62 0,02 Low enplanements represent growth opportunities in the region. Domestic enplanements per capita International enplanements per capita 13
Diversified Passenger & Cargo Network LAN is one the leading passenger and cargo operators in Latin America Toronto New York Amsterdam Houston Los Angeles Miami Frankfurt Madrid Mexico City Cancun Pta. Cana Merida San Jose Panama Medellin Caracas LAN Codeshare Sydney Auckland Papeete Easter Island Bogotá Quito Guayaquil Piura Chiclayo Trujillo Lima Arequipa Tacna Arica Iquique Antofagasta Calama Copiapo La Serena Santiago Concepcion Temuco Valdivia Osorno Pto. Montt Balmaceda Pta. Arenas Iquitos Tarapato Pucalpa Puerto Maldonado Cuzco La Paz Salta Manaos Asunción Rosario Cordoba Mendoza Bariloche Iguazú Montevideo Com. Rivadavia Rio Gallegos Ushuaia Curitiba Rio de Janeiro Sao Paulo Porto Alegre Buenos Aires Salvador Belo Horizonte Vitoria Passenger + Cargo Network Freighter Network 693 destinations worldwide 14
Latin America Cargo Market 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 Northbound Southbound Source: Boeing World Air Cargo 2008-2009 15
LAN CARGO is Well Prepared to Face 2009 Challenges Demand outlook for 2009: Southbound traffic likely to decrease due to economic slowdown and dollar appreciation Northbound traffic likely to maintain current levels (except for salmon exports from Chile) Cargo business strategy for 2009: Arrival of 2 B777F will represent discrete jump in operating efficiency Continuous tactical reallocation of capacity to defend yield and load factors Contingency growth plans to maintain adequate supply in core routes (e.g. Colombia, Central America, others) 16
New Cargo Operation in Colombia Colombia Highlights MIAMI Expected to start in 1Q09 Colombia is the largest air cargo market in Latin America in terms of exports to the United States. Estimated volume for the Colombian cargo market is approx 200,000 tons annually This operation will provide LAN Cargo with connectivity between Colombia and the rest of the region, US and Europe 17
Contents I. LAN S DIVERSIFIED BUSINESS MODEL II. FINANCIAL OVERVIEW III. FUTURE OUTLOOK 18
Strong Revenue Growth Operating Revenues 1993 2008 US$ US$ Millions 4.532 4.400 4.000 CAGR 21% 3.600 3.525 3.200 2.800 2.400 2.000 1.600 1.200 800 400 318 407 600 CAGR 24% 694 972 1.083 1.237 CAGR 1% 1.425 1.428 1.454 1.639 2.093 2.506 3.034 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 19
Consistent Profitability Despite Multiple Market Shocks (US$ millions) 600 550 500 450 400 350 300 250 200 150 100 50 0 $11 $15$6 $0 Operating Income and Net Income 1993 2008 Recession 9/11 & Argentine Crisis Increasing Fuel Prices $172$164 $142$147 $112 $80 $83 $84 $64 $62 $34 $46 $44 $51 $48 $48 $50 $25 $38 $31 $31 $11 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 $303 $241 $413 $308 $536 $336 Operating Income Net Income LAN Airlines has been consistently profitable under the current management 20
LAN Operates with High Efficiency Levels EBITDAR Margin Industry comparison 25% 23,4% 20% 19,2% Ebitdar Mg. (%) 15% 10% 7,1% 8,4% 9,2% 10,5% 12,7% 14,0% 16,3% 5% 2,4% 4,7% 0% United American GOL Continental Iberia British TAM AirFrance Ryanair LAN COPA Source: Companies Annual & Quarterly Reports 2008; for Air France, Gol and Tam LTM Sep 08. 21
LAN maintains a Solid Financial Position Solid balance sheet & low FX exposure No short-term debt; 8% of debt due within 12 months. No refinancing risk Debt amortizations for 2009 2011 between US$200MM & US$230MM per year. Cash & Cash Equivalents: US$472MM; representing 10.4% of LTM revenues. Ratio of 2.3 times Net Debt / EBITDA & Capitalization ratio of 72% International BBB credit rating (Fitch) Low exposure to FX changes: All debt denominated in US$ Approx. 84% of total revenues in US$ Approx. 71% of total costs in US$ 22
Fuel Hedging Fuel Hedging Program 2009-2010 Hedging Price Band (US$ barrel) US$140 US$140 US$140 US$140 US$140 US$107 US$104 US$ 94 US$ 92 US$ 92 % Total Consumption Hedged 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Average 2009: 27% @ US$ 101/Bbl 40% 30% 20% 20% 10% 1Q09 2Q09 3Q09 4Q09 1Q10 % Fuel Consumption Hedged 23
Contents I. LAN S DIVERSIFIED BUSINESS MODEL II. FINANCIAL OVERVIEW III. FUTURE OUTLOOK 24
2009 Estimated Capacity Expansion Passenger ASK Growth Cargo ATK Growth 25% 25% 20% 19.5% 20% 15% 10% 5% 0% 11.5% 11.5% ~10% 2006 2007 2008 2009E 15% 10% 5% 0% -5% -10% 7.0% 6.9% 12.3% ~ -5% 2006 2007 2008 2009E 25
Fleet Plan 150 120 90 60 +19 Average Fleet Age (Dic 08): 5.2 years 90 9 5 +6 95 9 5 26 26 +8 103 9 5 28 +10 113 3 9 5 28 Cargo Passenger Long Haul 141 4 9 32 32 Boeing 777-200F Cargo Boeing 767-300F Cargo Airbus 340-300 Boeing 787 30 50 53 59 Passenger Short Haul 68 68 Boeing 767-300ER 0 2008 2009 2010 2011 2012-18 Airbus A320/A319/A318 CAPEX 2008 2009 2010 2011 2012-18 Aircraft 754 274 493 599 4.300 Non Aircraft 124 165 124 109 US$6.4 Billion 2008-2018 26
LAN s Fleet is among the Youngest in the World Average Fleet Age for Selected Airlines (Years as of Sep 2008) (*) 5,2 (*) (*) LATAM (*) EUROPE NORTH AMERICA ASIA Source: Airlines reports, public information as of Sep 08/ LAN as of Dic08 (*) As of December 2007 27
Fleet Plan Flexibility 70 60 50 40 30 20 10 0 36% 24% MIN MAX PLAN 39% 28 Number of Long Haul Passenger Aircraft
In Conclusion LAN Continues to Grow in a Challenging Environment Diversified business model Strong footprint in Latin America Modern and fuel efficient fleet Effective fuel strategy Successful implementation of low cost model in domestic markets. 29