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LAN AIRLINES REPORTS NET INCOME OF US$21.8 MILLION EXCLUDING EXTRAORDINARY ITEMS

Santiago, July 25th, 2006

LAN Airlines S.A. (NYSE: LFL), one of Latin America's leading passenger and cargo airlines, reported today its consolidated financial results for the second quarter and six-month period ended on June 30, 2006. "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 reported net income of $16.5 million in the second quarter of 2006. This result includes a US$6.4 million one-time, non-operating charge for severance payments. As a consequence, net income excluding extraordinary items amounted to US$21.8 million, compared to US$26.6 million in 2005. The Company's profitability was impacted mainly by lower non-operating results, as operating profits rose 60.6% to US$25.4 million. This underscores LAN's ability to adapt to challenging conditions by rapidly adjusting its operations and deploying cost containment measures. Furthermore, during the quarter LAN advanced on a number of initiatives aimed at reinforcing the Company's competitiveness, supporting future expansion plans and raising profitability.

LAN recorded a solid operating performance during the second quarter, which is usually the weakest due to seasonality in South America. Specifically, total revenues increased 21.0% while operating margin improved 0.9 points to 3.7%. This represents a major accomplishment for the Company as it faced US$36.4 million in additional costs due high fuel prices and absorbed a US$9.4 million loss in the Argentine domestic market in the same period. Operating performance was further impacted by the costs necessary to prepare the Company for an aggressive fleet expansion in the second half of the year. LAN mitigated these factors by continuing to apply fuel-pass through mechanisms, proactively managing capacity, and implementing efficiency enhancements.

Passenger revenues grew 23.1% due to a 6.8% expansion in capacity and a 15.3% improvement in revenues per ASK. The latter resulted from a 16.4% improvement in yield while load-factors decreased 0.7 points during the quarter. During the second quarter, the Company managed capacity to respond to demand growth and market opportunities. As a consequence, capacity grew on routes to Europe, the South Pacific and within South America, while it decreased on segments to the Caribbean. Capacity in the Chilean domestic market grew moderately, while it decreased slightly in the Peruvian domestic market. Capacity in the Argentine domestic market grew significantly given a low comparison base as these operations began only in June 2005. Load-factor was impacted mainly by higher yield, which rose principally due to improved segmentation and the usage of fuel cost pass-through mechanisms. Yield rose further due to the appreciation of the Chilean Peso.

Cargo revenues rose 19.7% as capacity rose 6.0% and unit cargo revenues increased 12.9%. Higher revenues per ATK resulted from an 11.4% improvement in yield, as well as a 0.9 points rise in load factors. Conditions in the cargo business remain challenging given the imbalance caused by weak exports and strong imports into Latin America. In response to these conditions, LAN has adjusted its aircraft rotations in order to support northbound flights with stop-overs in various export markets. Additionally, the Company is also using its fleet of Boeing 767 freighters to provide most of its dedicated cargo capacity, leveraging their low operating costs and their ability to adequately serve key destinations. Yield rose due to careful route selection, fuel-cost pass through mechanisms and fare increase.

Operating expenses rose 19.8% compared to second quarter of 2005 as capacity increased 6.7%. This led to a 14.0% rise in total cost per ATK (which include net financial expenses). Excluding the impact of higher fuel prices, which generated US$36.4 million in additional costs for the quarter, unit costs rose 7.5%. Ex-fuel, unit costs rose due to increased headcount, a stronger Chilean Peso, the effect of higher unit revenues over commercial costs and the expansion of incentive programs on certain cargo markets. These factors were partially offset by efficiency gains on fleet related expenses, maintenance costs, and fuel consumption.

Weaker non-operating results had a dramatic impact on profitability. The Company recorded a US$8.8 million loss in 2006 compared to a US$16.4 million gain in 2005. In June 2006, LAN recorded a one-time US$6.4 million charge due to severance payments. Additionally, fuel hedging gains decreased by US$6.1 million to US$10.4 million, while foreign exchange gains moved from a US$3.5 million profit in 2005 to a negligible gain in 2006.

LAN continues to maintain a solid financial position, with ample liquidity and a sound financing structure. By the end of the quarter LAN had US$185 million in cash, cash equivalents and committed credit lines. Additionally, the Company's long-term debt only finances aircraft, has 12 to 18-year repayment profiles and features very competitive interest rates.

Continued positive results and a solid balance sheet have enabled LAN to continue advancing on a number of long- term initiatives. These plans, which encompass all levels and business units, are aimed at improving LAN's long-term strategic position by enabling the Company to address opportunities, strengthen its market position and raise competitiveness.

As part of these plans, LAN continues to expand its fleet and improve its customers' travel experience. In June the Company incorporated a new Boeing 767-300ER featuring its recently-launched Premium Business Class and upgraded Economy Class. This was the second Boeing 767-300ER delivery of 2006 and will be followed by a third aircraft in late July and a fourth in November. The Company will also incorporate eight Airbus A319 aircraft between August and September and a Boeing 767-300F freighter in October.

Meanwhile, LAN Argentina has advanced on a number of key projects aimed at strengthening its operations. In June, the airline incorporated its first Airbus A320 aircraft as part of its plan to replace its Boeing 737-200s. Utilization of A320s is expected to enable LAN Argentina to improve its customer appeal, raise reliability standards and enhance efficiency.

During the quarter, LAN completed a thorough analysis of all of its support areas. This evaluation aimed to identify potential efficiency gains arising from the utilization of new information technology platforms and systems, as well as from the implementation of process simplification and outsourcing initiatives. Based on the results of this process, the Company reduced staffing levels. This generated a US$6.4 million one-time severance charge to results for the second quarter and the Company estimates it will generate approximately US$15 million in annual savings.

LAN's alliance network received a boost in July after oneworld announced the upcoming incorporation of three new members: JAL from Japan, Malev from Hungary, and Royal Jordanian from Jordan. The incorporation of these new members, planned for 2007, will expand oneworld's passenger capacity by more than 20% and strengthens the alliance's position in Asia, Central Europe and the Middle East.

These actions mentioned above are part of a broad set of initiatives aimed at reinforcing LAN's future performance. The Company's strong second quarter operating performance, which was impacted by losses in new ventures, provides a solid base for long-term growth and profitability. As a consequence, LAN is in position to plan for capacity expansion in response to growth opportunities, while leveraging opportunities to improve its cost performance. Combined, these elements will enable LAN to consolidate its position as Latin America's leading international carrier.


Consolidated Second Quarter Results

Net income for the second quarter of 2006 amounted to US$16.5 million compared to US$26.6 million for the same period of 2005. Net income excluding extraordinary items amounted to US$21.8 million. Net margin decreased 2.3 points from 4.7% in 2005 to 2.4% in 2006. Excluding extraordinary items, net margin amounted to 3.2%.
Operating income amounted to US$25.4 million compared to US$15.8 million in 2005. Operating margin for the quarter increased 0.9 points to 3.7%.

Total operating revenues increased 21.0% year-on-year to US$690.0 million. This reflected a:

Passenger and cargo revenues accounted for 56% and 39% of total revenues for the quarter, respectively.

Passenger revenues grew driven by a 5.7% increase in traffic and a 16.4% increase in yields. Load factor decreased 0.7 points to 67.8% as a 6.8% increase in capacity offset the traffic increase. Overall, revenues per ASK increased 15.3%. Traffic grew as a result of a 4.2% increase in Chilean domestic traffic and a 5.9% increase in international traffic (including domestic operations in Peru and Argentina). International traffic accounted for 88% of total passenger traffic during the quarter. Yields grew mainly due to cost pass-through initiatives and improved segmentation.

Cargo revenues grew due to a 7.5% increase in traffic and an 11.4% improvement in yield. Yield rose primarily due to higher southbound rates and cost-based rate increases. Traffic growth outpaced a 6.0% increase in capacity and led to a 0.9 point rise in load factors rose to 67.3%.As a consequence, revenues per ATK rose 12.9%.

Other revenues increased 9.5% as increased on-board sales, handling and courier revenues offset lower maintenance revenues.

Total operating expenses increased 19.8% during the quarter as capacity, measured in system ATKs, increased 6.7%. As a consequence, unit (ATK) costs increased 14.0%. Excluding the impact of higher fuel prices that led to US$36.4 million in additional expenses, unit costs increased 7.5%. Changes in operating expenses were driven by:

Non-operating results for the second quarter of 2006 amounted to a US$8.8 million loss compared to a US$16.4 million gain in 2005. Interest income decreased 61.7% due to lower average cash balances. Interest expenses increased 56.3% due to increased average long-term debt. In the miscellaneous-net item, the Company recorded a US$3.7 million gain compared to a US$21.7 million gain in 2005. In 2006, this included a US$10.4 million fuel hedging gain (compared to a US$16.5 million gain in 2005) as well as a negligible foreign-exchange loss (compared to a US$3.5 million gain in 2005).

Consolidated First Half Results

Net income for the first half of 2006 amounted to US$96.1 million compared to US$72.9 million for 2005. Net margin increased 0.6 points from 6.2% in 2005 to 6.8% in 2006. Excluding extraordinary items, net income decreased 7.0% to US$ 67.8 million and net margins amounted to 4.8%.
Operating income for the first half of 2006 was US$94.1 million compared to US$72.4 million in 2005. Operating margin for the first half increased 0.5 points to 6.6%.

Total operating revenues amounted to US$1.4 billion in the first half of 2006, a 20.4% increase compared with the first half of 2005. This reflected a:

Passenger and cargo revenues accounted for 58% and 37% of total revenues for 2006, respectively.

Passenger revenues were driven by a 5.3% increase in traffic and an 14.3% increase in yields. Load factor decreased 1.1 points to 71.5%, as a 6.9% capacity increase outpaced traffic growth. Overall, revenues per ASK rose 12.6%. Traffic grew due to a 0.7% increase in Chilean domestic traffic and a 6.0% increase in international traffic (including domestic operations in Peru and Argentina). International traffic accounted for 86% of total passenger traffic during 2006. Yields grew mainly as a result of the implementation of cost pass-through initiatives, improved segmentation, and higher premium traffic.

Cargo revenues grew due to a 8.3% increase in traffic and a 11.0% improvement in yields, measured in RTKs. Yields rose primarily due to improvements in southbound rates and cost driven rates increases. A 8.6% increase in capacity outpaced the growth in cargo traffic, resulting in a 0.1-point decrease in cargo load factors to 65.8%. As a consequence, revenues per ATK rose 10.8%.

Other revenues grew 21.4% as higher revenues from on-board sales, handling activities and courier operations.

Total operating expenses increased 19.8% in 2006 compared to 2005, as capacity, measured in system ATKs, increased 7.2%. As a consequence, unit (ATK) costs increased 12.4%. Excluding the impact of higher fuel prices, which led to $74.0 million in additional expenses, unit costs increased 5.9%. The changes in operating expenses were driven by:

Non-operating results for the first half 2006 amounted to a US$19.4 million gain compared to a US$14.7 million gain in 2005. Interest income decreased 45.7% due to lower average cash balances. Interest expenses increased 44.7% due to an increase in average debt. In the miscellaneous-net item, the Company recorded a US$41.9 million gain compared to a US$25.9 million gain in the same period of 2005. In the first half 2006 this included a US$7.5 million fuel hedging gain (compared to a US$25.4 million gain in 2005) as well as a US$0.9 million foreign-exchange loss (compared to a US$0.2 million gain in 2005).