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LAN AIRLINES REPORTS NET INCOME OF US$26.6 MILLION FOR THE SECOND QUARTER OF 2005

Santiago, Chile, August 3, 2005


LAN Airlines S.A., one of Latin America's leading passenger and cargo airlines, reported today its consolidated financial results for the second quarter and the six-month period ending in June 30, 2005. "LAN" or "the Company" makes reference to the consolidated entity, which includes several passenger and cargo airlines in Latin America. All figures were prepared in accordance with generally accepted accounting principles in Chile and are expressed in U.S dollars.


HIGHLIGHTS

· LAN earned US$26.6 million in net income for the second quarter of 2005 compared to US$31.5 million in 2004. This is a strong performance considering that this is seasonally the weakest quarter for LAN and since record fuel prices led to additional costs of approximately US$47 million.

· Operating income for the quarter amounted to US$15.8 million compared to US$33.9 million for the same period of last year.

· Fuel hedging gains, which are classified as a non-operating item, increased to US$16.5 million in 2005 from US$11.5 million in 2004.

· Total revenues for the quarter grew 23.3% mainly due to 26.5% growth in passenger revenues and a 17.3% rise in cargo revenues. Passenger and cargo revenues accounted for 55% and 39% of total revenues, respectively.

· On June 8, LAN Argentina initiated operations in Argentina with service from Buenos Aires to three domestic destinations. Given a better-than-expected performance, LAN Argentina plans to significantly increase capacity during the remainder of 2005.

· On June 29, LAN announced that it had signed a letter of intent with Airbus Industrie for the purchase of 25 short-haul aircraft. These aircraft, a mix of Airbus A318s and A319s, are expected to be incorporated to LAN's fleet between 2006 and 2008. As a consequence, LAN is to incorporate 34 Airbus short-haul aircraft between late 2005 and 2008.

· On July 28, LAN took delivery of its seventh Boeing 767-300F. This new freighter is the first of twelve new Boeing 767-300 passenger and cargo aircraft LAN is expected to receive between 2005 and 2008.

LAN Airlines earned US$26.6 million in net income for the second quarter compared to US$31.5 million for the same period of 2004. During its seasonally weakest quarter, LAN was impacted by record fuel prices -which led to $46.9 million in additional expenses. However, the Company overcame this incremental cost and posted its second-best result ever for the second quarter and its 12th consecutive quarterly profit. Sustained profitability has enabled LAN to continue advancing on its long-term plans and strengthening its operations. Strategic developments for the quarter included the successful launch of LAN Argentina and the signing of orders for Airbus short-haul aircraft and Boeing 767 long-haul passenger and cargo aircraft.

Operating income for the second quarter amounted to US$15.8 million in 2005 compared to US$33.9 million in 2004. Operating margins amounted to 2.8%, compared to 7.3% in 2004. Total revenues grew 23.3% to US$570.4 million, but were outpaced by a 29.3% increase in operating expenses to US$554.5 million. Fuel prices accounted for approximately US$46.9 million in additional costs, equivalent to approximately 8.2 points of operating margin. Non-operating income increased US$12.4 million and amounted to US$16.4 million, mainly driven by a US$16.5 million fuel-hedging gain and lower net interest expenses.

Passenger revenues for the quarter grew 26.5% compared to the same period last year and amounted to US$313.6 million. Revenue rose due to an 18.0% increase in passenger traffic and a 7.3% improvement in yields. Load-factors increased 1.7 points as traffic growth outpaced a 15.0% capacity increase. International capacity accounted for the majority of this increase, which has come mainly from the development of new intra-Latin American routes and the expansion of operations to the South Pacific and Europe. International load-factors have increased due to robust demand, a stronger position in key markets and the continued maturation of routes launched in 2004. Domestic traffic in Peru significantly increased given the expansion of operations implemented in late 2004. Load-factors in the Chilean domestic market rose as LAN slightly reduced capacity and adjusted itineraries and fleet. Consolidated yields improved driven by shorter average trip lengths, fuel-related fare increases and higher premium-class traffic.

Cargo revenues rose 17.3% to US$223.7 million dollars. Cargo traffic increased 9.0% while capacity grew 15.7%. As a consequence, cargo load factors decreased 4.1 points. However, unit revenues grew 1.4% as lower load-factors were fully offset by a 7.6% improvement in yields. Load factors declined as traffic flows significantly decelerated on both northbound and southbound routes. On southbound routes, this slowdown was mainly due to softer demand in several routes; especially those to Mexico and from Europe to Brazil. Northbound traffic weakened due to adjustments in the export mix, more competition on specific routes, and an increase in sea shipping. Yields increased as higher energy prices led to increases in cargo fuel surcharges.

Operating expenses increased 29.3%, compared to the same period last year. System capacity increased 15.7%, leading to a 10.5% increase in cost per ATK1. Higher fuel prices accounted for US$46.9 million in additional costs compared to 2004. Excluding the fuel price effect, operating costs rose 18.4% and cost per ATK increased 0.7%. Ex-fuel unit costs rose mainly due to higher personnel expenses and commercial costs. Personnel expenses increased driven by higher headcount and training costs to support expansion plans and also because of a stronger Chilean peso. Commercial cost increased because of revenue and traffic growth. These factors were partially offset by a reduction in per unit fleet expenses and process streamlining.

LAN continues to maintain a solid cash position. As of June 30, 2005 the Company held US$284 million in cash and other liquid assets. The Company continues to maintain no short-term debt and its long-term debt is used only to finance aircraft and features long repayment profiles.

In June, the Company, together with local partners, proceeded with the creation of an airline in Argentina. LAN Argentina initiated operations with service between Buenos Aires, Mendoza and Cordoba utilizing two Boeing 737-200s. Bariloche - a third destination - as well as an additional aircraft were subsequently added. Revenues for the first month of operations exceeded expectations driven by high load factors. LAN Argentina plans to continue growing in the second half of 2005 with the addition of two domestic and one international destination, as well as the incorporation of up to four additional Boeing 737-200s.

During the second quarter, LAN also finalized orders for short and long-haul aircraft that will provide it with the capacity necessary to support its future growth. Short-haul requirements will be filled through the purchase of 34 Airbus A318/A319 aircraft between 2005 and 2008. LAN had outstanding orders for nine Airbus A320-family aircraft and ordered 25 additional ones in June. These aircraft will be used to expand LAN's domestic and international networks in Latin America, and will also replace the Boeing 737-200s currently in operation. In order to respond to short-term capacity needs, in June, LAN leased nine used Boeing 737-200 aircraft, which will be gradually incorporated during the second half of 2005.

LAN also signed an order for additional Boeing 767-300 aircraft. As a consequence, LAN now plans to incorporate six Boeing 767-300F freighters and six Boeing 767-300ER passenger aircraft between 2005 and 2008. The first of these freighters was delivered in late July and a second one will join the Company's cargo fleet in October. LAN plans to receive one additional freighter in 2006, two in 2007 and one in 2008. Four of the new passenger Boeing 767-300ERs will be incorporated in 2006, to be followed by one in 2007 and one in 2008.

Despite record fuel prices and the costs associated with the launch of LAN Argentina, LAN posted a $26 million profit during its seasonally weakest quarter. This result differentiates LAN from its peers as it highlights the resiliency of its business model, reinforces LAN's strong financial profile and allows the Company to continue developing its competitive advantages. Although fuel prices will remain a key driver for future profitability levels, LAN is positioned to continue growing; the Company is currently implementing several initiatives aimed at strengthening its competitive ability. In addition to the incorporation of a significant number of new aircraft, these projects seek to further develop LAN's passenger and cargo networks, enhance customer satisfaction, streamline operations, and raise competitiveness. The Company's expects that this continuous effort to reinforce its strategic advantages will further differentiate it from its peers, consolidate it as Latin America's leading airline and continue creating value.

Consolidated Second Quarter Results
Net income for the second quarter of 2005 amounted to US$26.6 million compared to US$31.5 million for the same period of 2004. Net margin decreased 2.1 points from 6.8% in 2004 to 4.7% in 2005.
Operating income amounted to US$15.8 million compared to US$33.9 million in 2004. Operating margin for the quarter decreased 4.6 points to 2.8%.

Total operating revenues amounted to US$570.4 million, a 23.3% increase compared to the second quarter of 2004. This reflected a:
· 26.5% increase in passenger revenues to US$313.6 million,
· 17.3% increase in cargo revenues to US$223.7 million, and a
· 36.3% increase in other revenues to US$33.0 million.
Passenger and cargo revenues accounted for 55% and 39% of total revenues for second quarter, respectively.

Passenger revenues grew driven by an 18.0% increase in traffic and a 7.3% increase in yields. Load factor increased 1.7 points to 68.5% as traffic growth outpaced a 15.0% capacity increase. Overall, revenues per ASK increased 10.0%. Traffic grew as a 4.6% decrease in Chilean domestic traffic was offset by a 22.1% increase in international traffic (including domestic operations in Peru). International traffic accounted for 88% of total passenger traffic during the quarter. Yields grew mainly due to lower average trip lengths, a higher premium traffic component, improved segmentation and fuel-related fare increases.

Cargo revenues grew due to a 9.0% increase in traffic and a 7.6% improvement in yields, measured in RTKs. Yields rose primarily due the application of a higher fuel surcharge. Growth in cargo traffic was outpaced by a 15.7% increase in capacity, resulting in a 4.1-point decrease in cargo load factors to 66.3%. This was fully offset by higher yields and, as a consequence, revenues per ATK rose 1.4%.

Other revenues increased 36.3% due to increased handling and maintenance revenues and higher on-board sales.

Total operating expenses increased 29.3% during the quarter as capacity, measured in system ATKs, increased 15.7%. As a consequence, unit (ATK) costs increased 10.5%. Excluding the impact of higher fuel prices, unit costs increased 0.7%. Changes in operating expenses were driven by:
· Wages and benefits increased 27.5% mainly due to increases in headcount and a stronger Chilean peso.
· Fuel costs increased 68.5% due to a 47.5% increase in prices and a 14.3% increase in consumption.
· Commissions to agents rose 21.6% driven primarily by a 22.5% increase in traffic (passenger and cargo) revenues. As a percentage of traffic revenues, commissions remained almost flat, decreasing from 15.5% to 15.4% as lower average passenger commissions offset higher cargo commissions.
· Depreciation and amortization increased 3.2%.
· Other rental and landing fees increased 14.3% as the impact of increased operations on landing fees, ACMI leases, and ground-handling expenses was partially offset by efficiency gains and lower insurance expenses.
· Passenger service expenses rose 25.9%, mainly due to the 26.5% increase in passengers transported.
· Aircraft rentals increased 15.1% mainly because of the incorporation of additional Boeing 767 and Airbus A319 aircraft.
· Maintenance expenses rose 13.5% primarily because of capacity growth.
· Other operating expenses grew 23.1% due to increases in booking expenses, sales related costs and taxes, and expanded marketing activities.

Non-operating results for the second quarter of 2005 amounted to a US$16.4 million gain compared to a US$3.9 million gain in 2004. While interest income increased 128.3% due to higher cash balances and higher interest rates, interest expense decreased 1.5% due to a reduction in average debt. In the miscellaneous-net item, the Company recorded a US$21.7 million gain compared to a US$11.4 million gain in 2004. In 2005 this included a US$16.5 million fuel hedging gain (compared to a US$11.5 million gain in 2004) as well as a US$3.4 million foreign-exchange gain (compared to a US$0.7 million gain in 2004).

Consolidated First Half Results
Net income for the first half of 2005 amounted to US$72.9 million compared to US$79.6 million for the same period of 2004. Net margin decreased 2.1 points from 8.3% in 2004 to 6.2% in 2005.
Operating income for the first half of 2005 was US$72.4 million compared to US$96.9 million in 2004. Operating margin for this six-month period decreased 4.0 points to 6.1%.

Total operating revenues amounted to US$1,178.0 million, a 23.4% increase compared with the first half of 2004. This reflected a:
· 26.6% increase in passenger revenues to US$683.7 million,
· 20.6% increase in cargo revenues to US$434.6 million, and a
· 10.3% increase in other revenues to US$59.7 million.
Passenger and cargo revenues accounted for 58% and 37% of total revenues for the first half of 2005, respectively.

Passenger revenues grew driven by an 18.7% increase in traffic and a 6.6% increase in yields. Load factor increased 2.1 points to 72.6% as traffic growth outpaced a 15.3% capacity increase. Overall, revenues per ASK increased 9.8%. Traffic grew as a 2.4% decrease in Chilean domestic traffic was offset by a 23.2% increase in international traffic (including domestic operations in Peru). International traffic accounted for 86% of total passenger traffic during the first half. Yields grew mainly due to lower average trip lengths, improved segmentation, higher premium traffic and fuel-related fare increases.

Cargo revenues grew due to an 11.1% increase in traffic and a 8.5% improvement in yields, measured in RTKs. Yields rose primarily due the application of a higher fuel surcharge. Growth in cargo traffic outpaced a 15.3% increase in capacity, resulting in a 2.5-point decrease in cargo load factors to 65.9%. As a consequence, revenues per ATK rose 4.6%.

Other revenues grew 10.3% as higher revenues from on-board sales, third party maintenance, handling activities and courier operations were partially offset by lower aircraft leasing revenues.

Total operating expenses increased 28.9% in the first half of 2005 compared to 2004, as capacity, measured in system ATKs, increased 16.0%. As a consequence, unit (ATK) costs increased 11.4%. Excluding the impact of higher fuel prices, unit costs increased 2.5%. Changes in operating expenses were driven by:
· Wages and benefits increased 27.6% mainly due to increases in headcount and a stronger Chilean peso.
· Fuel costs increased 64.9% due to a 43.1% increase in prices and a 15.3% increase in consumption.
· Commissions to agents rose 24.2% driven primarily by a 24.2% increase in traffic (passenger and cargo) revenues. As a percentage of traffic revenues, commissions remained flat at 14.9% as lower average passenger commissions offset higher cargo commissions.
· Depreciation and amortization remained almost flat, increasing 0.2%.
· Other rental and landing fees increased 15.0% as the impact of increased operations on landing fees, ground-handling expenses, and ACMI leases was partially offset by efficiency gains and lower insurance expenses.
· Passenger service expenses increased 21.7%, mainly due to the 27.4% increase in passenger traffic.
· Aircraft rentals increased 13.6% mainly because of the incorporation of additional Boeing 767 and Airbus A320 aircraft.
· Maintenance expenses rose 19.4%. Excluding a one-time US$1.9 million reduction in provisions recorded during the first half of 2004, maintenance expenses rose 15.5%, primarily because of capacity growth.
· Other operating expenses grew 22.7% due to increases in booking expenses, sales related costs and taxes, and expanded marketing activities.

Non-operating results for the first half of 2005 amounted to a US$14.7 million gain compared to a US$0.5 million loss in 2004. While interest income increased 85.1% due to higher cash balances and higher interest rates, interest expense decreased 1.6% due to a reduction in average debt. In the miscellaneous-net item, the Company recorded a US$25.9 million gain compared to a US$14.2 million gain in 2004. In 2005 this included a US$25.4 million fuel hedging gain (compared to a US$18.8 million gain in 2004) as well as a US$0.2 million foreign-exchange gain (compared to a US$2.6 million loss in 2004).

About LAN
LAN is one of the leading airlines in Latin America. "LAN" refers to the consolidated entity which includes several passenger and cargo companies in Latin America. Through its own operations and code-share arrangements, LAN serves 15 destinations in Chile, eleven destinations in Peru, two in Ecuador, 27 destinations in Latin America, 25 in North America, ten destinations in Europe and four in the South Pacific. Currently, LAN operates 56 passenger aircraft and seven dedicated freighters.

LAN Airlines is a member of oneworld (TM), the most international of the global airline alliances. It has bilateral commercial agreements with oneworld partners American Airlines, British Airways, Iberia and Qantas and also with Alaska Airlines, AeroMexico, Mexicana, TAM and Lufthansa Cargo. For more information visit www.lan.com or www.oneworldalliance.com.

Note on Forwards Looking Statements
This report contains forward-looking statements. Such statements may include words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe" or other similar expressions. Forward-looking statements are statements that are not historical facts, including statements about our beliefs and expectations. These statements are based on current plans, estimates and projections, and, therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. These factors include. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them, whether in light of new information, future events or otherwise.

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