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By Sean Geary

LAN Airlines S.A. (LFL) reported a 14.7% year-over-year passenger increase for the month of March, reports Reuters. As well, the South American carrier grew 14% YOY for the quarter.Further, LFL reported that the company was able to increase load factors while also increasing capacity. International passenger traffic for all of its South American operations increased 13.7%, while cargo grew 2.7%.

Along with COPA (CPA) of Panama, LFL is a best-of-breed Latin American carrier. The airline is a top three carrier in Argentina, Chile, Colombia, Ecuador, and Peru. Further, LFL is consolidating its position in large domestic markets like Argentina where the inefficient, state-run incumbent Aerolineas Argentinas is losing a million dollars a day. Its proposed merger with Brazilian giant TAM (TAM) would make it the largest carrier in Brazil — not to mention the largest carrier in the world in terms of current market capitalization.

The airline continues to expand, developing its Lima base –a more optimal geographic alternative to Santiago– into an intercontinental hub. The deliveries of Boeing (BA) 787s later this year will allow the company to both operate long, thin routes profitably and increase capacity on existing routes using more efficient, and thus more profitable, aircraft.

Unlike most other Latin American airlines like GOL (GOL) which are overly exposed to a single currency and said currency’s performance against the dollar, because of its subsidiaries in multiple countries, LFL generates revenues in a handful of currencies which substantially reduces its currency risk.

Evidently, LFL has plenty of positive catalysts going forward, but one big negative one: oil. Like most other airlines, consistently high fuel prices are squeezing LFL’s profit margins. Although the company has hedged roughly one third of its fuel consumption for the first three quarters of 2012, oil prices over a hundred dollars will still adversely affect the stock. However, a substantial decrease in oil prices would allow LFL to fully take advantage of positive macroeconomic trends in Latin America and would solidify the bullish case for the Chilean company.

LFL is up roughly 2% today to 28.73 in New York trading. Traders will want to pay attention to how LFL reacts in the vicinity of both 27.50 and 29.50, the stock’s 50-day moving average and its year-to-date high, respectively. Positive global macroeconomic news or a move down in oil could see LFL test its 52-week high of 31.91.

Long-term investors may want to wait for a significant pullback before jumping in, as LFL is a little rich here with a forward P/E of 20.53.

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Source: Chilean Airline LAN Is Best Of Breed