27-Oct-2009 4:25 PM

LAN up despite fall in net income for 3Q2009; American Airlines tumbles

The AMEX Airline Index fell 2.4% on Monday, as the majority of North and South American carriers' stocks tumbled, as the Dow dropped 1.1% due to losses in the financial sector. Oil prices also fell, down 2.3%, to USD78.68.

American Airlines drops 7%

American Airlines' (-7.0%) stock fell on reports the carrier may have to give up some of its landing and take off slots to allow for EU approval of its proposed alliance with British Airways and Iberia. The oneworld alliance carriers have applied for anti-trust immunity in Europe and the US to allow them to coordinate fares and schedules.

According to various media reports, the European Commission is likely to find that the planned trans-Atlantic cooperative business agreement between the carriers would result in “appreciable competitive harm” on seven routes between the EU and the US. The EC is expected to find that the agreement breaches European competition rules, unless its concerns are addressed.

Routes of concern reportedly include services from London to New York, Dallas, Boston, Miami and Chicago and Madrid-Miami and Madrid-Chicago routes. Remedies could include the transfer of take-off and landing slots to other carriers. The US Department of Transportation is due to announce its preliminary decision on the anti-trust application by 31-Oct-2009.

Air Canada forecasts improvement in revenue with Continental entering the Star Alliance

Air Canada (+0.7%) CEO, Calin Rovinescu meanwhile stated during trading that the carrier’s passengers will gain access to 77 new destinations when Continental Airlines becomes a member of the Star Alliance on 27-Oct-2009.

Mr Rovinescu stated Continental’s entry into the alliance would provide increased revenue for the carrier, but stated he was unable to forecast how much. Continental has forecast it will generate USD100 million more in revenue from its membership in the Star Alliance than it did in SkyTeam.

The carrier also hopes to see increased traffic on services to the US, with the launch of a separate codeshare deal on Atlantic services between the two, commencing in 2010.

LAN net income falls 37.3% in 3Q2009

LAN (+0.4%) rose slightly, after reporting net income of USD52.1 million for 3Q2009. This represented a 37.3% decrease compared to net income of USD83.0 million in 3Q2008. Excluding non-operating extraordinary items recognised in 3Q2008, net income decreased 58.3%.

Consolidated revenues meanwhile declined 19.1% year-on-year, driven mainly by lower yields in both the cargo and passenger businesses. This was partially offset by a 14.3% decline in operating expenses, driven mainly by lower fuel costs.

3Q2009 results continued to be impacted by fuel hedging losses, although to a much lesser extent than in previous quarters. The fuel hedging loss during the quarter amounted to USD14.4 million compared to a fuel hedging gain of USD29.2 million in 3Q2008. Excluding the impact of fuel hedging, LAN’s operating margin reached 11.6%, compared to 12.5% in 3Q2008.

North & South America selected airlines daily share price movements (% change): 26-Oct-09