The Chilean government is trying hard to boost the economy. Yesterday, the Chilean Central Bank slashed its benchmark lending rate by 25 basis points to 0.5%. Henceforth, the bank will provide financial institutions with 90- to 180-day loans at the new 0.5% rate.
Chilean Airlines is also gaining some strength. During the week LAN Airlines S.A. (LFL), the main domestic and international passenger and cargo airline in Chile and one of the leading airlines in Latin America, announced a 9.3% increase in passenger traffic for the month of June 2009 due to the increase in capacity by 9.1%. LAN continued its expansion and renewal program by adding to its fleet through the Boeing Co. (BA).
International passenger traffic escalated by 3.7% and domestic passenger traffic rose by 25.9%. However, cargo traffic fell by 16.2% influenced by the global economic crisis. Second quarter 2009 seems to be very positive for LAN as passenger traffic grew in all the three months of the quarter.
Total passenger traffic in May rose by 11.4% of which domestic traffic increased by 30.2% and international traffic rose by 4.8%. In the month of April, passenger traffic rose 19.9%, with domestic traffic increasing 39.9% and international traffic growing 13.1%.
LAN accounts for approximately half of Chile’s international passenger traffic and three quarters of its domestic traffic. We believe that consistent positive results and solid financial and liquidity positions will enable LAN to move ahead with a number of long-term initiatives. Thus, we rate the shares of LAN a Hold.
However, we believe that the economy is still experiencing tough times and will take some more time to get better.