Page 3

In July, LAN and its heavy maintenance union reached a new four-year collective bargaining agreement. This new contract was signed in advance of the expiration of the previous agreement in September 2004. The new contract provides for competitive compensation package as well increased schedule flexibility. This agreement underscores the constructive relationship LAN has developed with its employees.

LAN also signed a comprehensive alliance with Mexico's two main international carriers, AeroMexico and Mexicana. This new agreement expands LAN's previous alliance with AeroMexico on routes between Chile and Mexico, and incorporates LanChile, LanPeru and LanEcuador. Besides code sharing with Mexicana and AeroMexico on international flights from South America to Mexico, this partnership enhances LAN's network by adding more than ten new code share destinations in Mexico, Central America, the Caribbean and Canada. Additionally, passengers will benefit from reciprocal frequent-flyer benefits, final destination check-in, and enhanced VIP lounge access.

In July, several developments surrounded the Company's operations in Peru. Early in July, a court issued a cautionary order that could temporarily suspend LanPeru's operations pending an investigation into the company's minority shareholder. However, LanPeru has not been formally notified and, therefore, has not been required to suspend its operations. The Company expects that this lawsuit will be resolved favorably given that LanPeru and its shareholders comply with all Peruvian laws and regulations. Additionally, the Peruvian government issued two emergency decrees to ensure the continuity of air transport operations in Peru. Also in July, AeroContinente, Peru's main domestic airline was grounded after failing to secure the insurance policies required by Peruvian regulations. LanPeru increased its operations in response to the Peruvian government's contingency plan. By the end of July, AeroContinente reinitiated operations under a new name. LanPeru has stre ngthened its itinerary to satisfy increased passenger demand.

LAN's second quarter results, as well as the developments mentioned above, are extremely significant. Despite facing record fuel prices, LAN was able to post record first and second quarter profits, as well as an unprecedented 10.1% operating margin for the first half. This demonstrates LAN's ability to adjust to changing and challenging market conditions by leveraging its competitive advantages for increased profitability. This has led to an improved competitive position, a healthy balance sheet, and the accomplishment of key strategic objectives that provide a strong base for the future. LAN is today in an unprecedented position to exploit growth opportunities and implement new efficiency-oriented initiatives that are designed to lead to increased profitability and value creation for employees, customers, partners and shareholders.

For the second quarter of 2004, the Company reported US$31.5 million in net income compared to US$4.1 million for the same period of 2003. Operating income amounted to US$33.9 million compared to US$9.8 million in 2003.

Total operating revenues amounted to US$462.8 million, a 28.0% increase compared with the second quarter of 2003. This reflected a 28.0% increase in total passenger revenues to US$247.9 million, a 36.4% increase in cargo revenues to US$190.7 million, and a 13.5% decrease in other revenues to US$24.2 million.

Passenger revenues improved due to a 21.8% increase in traffic and a 5.0% increase in yields. Traffic growth outpaced a 16.4% capacity increase, leading to a 3.0 -point increase in load-factor to 66.8% . Traffic grew thanks to a 10.3% increase in domestic traffic and a 24.2% increase in international traffic. Yields grew as the impact of a 4.6% increase in average trip lengths was offset by better segmentation, higher premium traffic, the implementation of a fuel surcharges in specific routes, and improved domestic yields due to a stronger Chilean peso.

Cargo revenues grew due to a 23.8% increase in traffic and a 10.2% improvement in yields, measured in RTKs. Yields rose primarily due to an improved competitive environment and the application of a higher fuel surcharge. Growth in cargo traffic outpaced an 18.7% increase in capacity, resulting in a 2.9 -point increase in cargo load factors to 70.4% .

Other revenues decreased 13.5% mainly due to reduced aircraft lease revenues and lower sales by logistics affiliates.

Total operating expenses increased 21.9% during the quarter as capacity, measured in system ATKs, increased 18.2% . Per unit (ATK) costs (which include total operating expenses as well as net financing costs) increased 4.9% . Excluding the impact of higher fuel prices, per unit costs increased 0.2% . Wages and benefits increased 16.9% due to the impact of a stronger Chilean peso on domestic wages, increases in headcount, and higher bonus payments. Fuel costs rose 52.5% due to a 27.2% increase in prices and a 19.9% increase in consumption. (During the second quarter of 2004, the Company recorded an US$11.5 million fuel hedging gain compared to a US$0.2 million loss in 2003, which are recorded as non-operating gains/losses). Commissions to agents grew 33.8% due to the 31.5% increase in traffic (passenger and cargo) revenues. As a percentage of traffic revenues, commissions to agents increased 0.3 percentage points t o 15.5% due to changes in the revenue mix (cargo commissions are higher than passenger commissions) and as lower average passenger commissions offset increased average cargo commissions. Depreciation and amortization decreased 0.1% . Other rental and landing fees increased 12.5% as efficiency gains and lower insurance expenses partially offset the impact of increased operations and higher ACMI-lease expenses. Passenger service expenses increased 19.7% due to increased passenger traffic. Aircraft rentals fell 7.9% as the incorporation of new aircraft was fully offset by the reduction of lease rates during the first quarter of 2003. Maintenance expenses increased 34.9% due to increased operations and the net effect of a one-time US$0.6 million

Page 4

reduction in provisions in 2004 for the phase-out of DC-8 aircraft and a one-time US$2.5 million reduction in expenses in 2003. Finally, other operating expenses increased 15.6% due to increased sales and operations related expenses.

Operating margins for the quarter increased 4.6 points to 7.3% . Total non-operating results for the second quarter amounted to a US$3.9 million gain compared to a US$5.0 million loss in 2003. While interest income increased 47.1% due to higher cash balances, interest expense decreased 8.5% due to a reduction in average debt. In the miscellaneous net line, the Company recorded a US$11.4 million gain compared to a US$3.8 million gain in 2003. In 2004 this included a US$11.5 million fuel hedging gain (compared to a US$0.2 million loss in 2003) as well as a US$0.8 million foreign-exchange gain (compared to a US$4.4 million gain in 2003). Net margins improved 5.7 points from 1.1% in 2003 to 6.8% in 2004.

Consolidated First Half Results

For the first half of 2004, the Company reported US$79.6 million in net income compared to US$25.7 million for the same period of 2003. Operating income amounted to US$96.9 million compared to US$36.0 million in 2003.

Total operating revenues amounted to US$954.7 million, a 26.1% increase compared with the second quarter of 2003. This reflected a 29.0% increase in total passenger revenues to US$540.2 million, a 28.6% increase in cargo revenues to US$360.4 million, and a 7.3% decrease in other revenues to US$54.1 million.

Passenger revenues improved due to a 21.6% increase in traffic and a 6.1% increase in yields. Traffic growth outpaced a 13.9% capacity increase, leading to a 4.5 -point increase in load-factor to 70.5% . Traffic grew thanks to a 5.2% increase in domestic traffic and a 25.7% increase in international traffic. Yields grew as the impact of a 6.1% increase in average trip lengths was offset by better segmentation, higher premium traffic, and improved domestic yields due to a stronger Chilean peso.

Cargo revenues grew due to a 17.4% increase in traffic and a 9.5% improvement in yields, measured in RTKs. Yields rose primarily due to an improved competitive environment and the application of a higher fuel surcharge. Growth in cargo traffic outpaced a 14.9% increase in capacity, resulting in a 1.5 -point increase in cargo load factors to 68.4% .

Other revenues decreased 7.3% as reduced aircraft lease revenues and lower sales by logistics affiliates were partially offset by increased on-board sales and courier revenues.

Total operating expenses increased 18.9% during the quarter as capacity, measured in system ATKs, increased 14.8% . Per unit (ATK) costs (which include total operating expenses as well as net financing costs) increased 4.7% . Excluding the impact of higher fuel prices, per unit costs increased 1.8% . Wages and benefits increased 22.5% due to the impact of a stronger Chilean peso on domestic wages, increases in headcount, and higher bonus payments. Fuel costs rose 35.5% due to a 15.7% increase in prices and a 17.1% increase in consumption (during the first of 2004 the Company recorded an US$18.8 million fuel hedging gain compared to a US$6.7 million gain in 2003, both of which are recorded as non-operating gains). Commissions to agents grew 29.1% due to the 28.8% increase in traffic (passenger and cargo) revenues. As a percentage of traffic revenues, commissions to agents increased 0.1 percentage points to 14.9% as lower average passenger commissions offset increased average cargo commissions. Depreciation and amortization increased 3.2% . Other rental and landing fees increased 10.3% as increased operations and higher ACMI-lease expenses were partially offset by lower insurance costs and efficiency gains. Passenger service expenses increased 25.7% due to increased passenger traffic and costs associated with increased premium traffic. Aircraft rentals declined 11.9% as the incorporation of new aircraft was fully offset by the reduction of lease rates during the first quarter of 2003. Maintenance expenses increased 26.2% due to increased operations and the net effect of a one-time US$1.9 million reduction in provisions in 2004 for the phase out of DC-8 aircraft and the adjustment of return conditions of leased aircraft, as well as a one-time US$5.0 million reduction in expenses in 2003. Finally, other operating expenses increased 18.1% due to increased sales and operations related expenses.

Operating margins for the first half increased 5.4 points to 10.1% . Total non-operating results for the first half of 2004 amounted to a US$0.5 million loss compared to a US$5.2 million loss in 2003. While interest income increased 61.5% due to higher cash balances, interest expenses decreased 7.6% due to a reduction in average debt and lower interest rates. In the miscellaneous net line, the Company recorded a US$14.2 million gain in 2004 compared to a US$12.4 million gain in 2003. In 2004 this included a US$18.8 million fuel hedging gain (compared to a US$6.7 million gain in 2003) as well as a US$2.6 million foreign-exchange loss (compared to a US$4.1 million gain in 2003). Net margins improved 4.9 points from 3.4% in 2003 to 8.3% in 2004.

Page 5

Recent Events

New Corporate Name

On July 23, an extraordinary shareholders meeting approved changing the Company's corporate name to LAN Airlines S.A. This change seeks to align the Company's legal denomination to its regional growth strategy and its new brand image based on the LAN alliance concept. This change will be implemented once the formal steps required by Chilean regulations are completed.

Awards and Recognition

In July, Airline Business magazine presented LAN its Marketing Strategy award for its success in rebranding itself as an alliance of Latin American airlines. According to Airline Business this has enabled LAN to better share its assets and to leverage the strong reputation of its original brands. Additionally, the Official Airline Guide ("OAG") selected LAN as the "Best Airline in South America, Central America and the Caribbean". Also in July, LAN was selected as one of Chile's ten most respected companies. This survey was conducted by Chilean newspaper La Segunda and market research firm Adimark and included areas such as profitability, labor relations, and social responsibility.

******

LAN Airlines ("LAN") is one of the leading airlines groups in Latin America. The LAN Alliance includes LanChile, LanPeru and LanEcuador. Through the LAN Alliance and its code-share arrangements, LAN serves 15 destinations in Chile, seven destinations in Peru, two in Ecuador, 18 destinations in Latin America, 25 in North America, ten destinations in Europe and four in the South Pacific. Currently, the Company operates 52 passenger aircraft and seven dedicated freighters.

LAN 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.

Page 6

LAN Airlines S.A.

Consolidated Income Statement (in thousands of U.S. Dollars)

		For the Three-Month Period ended									For the Six-Month Period ended
		June 30,									June 30,
		2004			2003			% Change			2004			2003			%Change
REVENUES
Passenger		247,852			193,679			28.0	%		540,155			418,788			29.0	%
Cargo		190,680			139,781			36.4	%		360,419			280,170			28.6	%
Other		24,229			28,020			-13.5	%		54,088			58,367			-7.3	%
TOTAL OPERATING REVENUES		462,761			361,480			28.0	%		954,662			757,325			26.1	%
EXPENSES
Wages and Benefits		(66,902	)		(57,217	)		16.9	%		(134,053	)		(109,439	)		22.5	%
Aircraft Fuel		(86,377	)		(56,642	)		52.5	%		(169,330	)		(124,960	)		35.5	%
Commissions to Agents		(67,860	)		(50,730	)		33.8	%		(133,937	)		(103,755	)		29.1	%
Depreciation and Amortization		(18,763	)		(18,782	)		-0.1	%		(38,179	)		(36,981	)		3.2	%
Other Rental and Landing Fees		(65,435	)		(58,190	)		12.5	%		(132,397	)		(120,051	)		10.3	%
Passenger Services		(9,333	)		(7,795	)		19.7	%		(20,942	)		(16,662	)		25.7	%
Aircraft Rentals		(32,071	)		(34,809	)		-7.9	%		(64,694	)		(73,454	)		-11.9	%
Aircraft Maintenance		(28,050	)		(20,800	)		34.9	%		(56,250	)		(44,568	)		26.2	%
Other Operating Expenses		(54,052	)		(46,755	)		15.6	%		(107,991	)		(91,433	)		18.1	%
TOTAL OPERATING EXPENSES		(428,843	)		(351,720	)		21.9	%		(857,773	)		(721,303	)		18.9	%
OPERATING INCOME (LOSS)		33,918			9,760			247.5	%		96,889			36,022			169.0	%
OPERATING MARGIN		7.3	%		2.7	%		4.6	pp.		10.1	%		4.8	%		5.4			pts.
OTHER INCOME ( EXPENSE )
Interest Income		1,549			1,053			47.1	%		3,741			2,316			61.5	%
Interest Expenses		(9,013	)		(9,855	)		-8.5	%		(18,406	)		(19,911	)		-7.6	%
Miscellaneous-Net		11,397			3,813			198.9	%		14,203			12,408			14.5	%
TOTAL		3,933			(4,989	)		NM			(462	)		(5,187	)		-91.1	%
INCOME BEFORE MINORITY INTEREST		37,851			4,771			693.4	%		96,427			30,835			212.7	%
Minority Interest		764			165			363.0	%		975			350			178.6	%
INCOME (LOSS) BEFORE INCOME TAXES		38,615			4,936			682.3	%		97,402			31,185			212.3	%
Income Taxes		(7,163	)		(805	)		790.1	%		(17,829	)		(5,444	)		227.5	%
NET INCOME (LOSS)		31,452			4,131			661.3	%		79,573			25,741			209.1	%
NET MARGIN		6.8	%		1.1	%		5.7	pp.		8.3	%		3.4	%		4.9			pts.
Shares Outstanding		318,909,090			318,909,090						318,909,090			318,909,090
Earnings per share		0.10			0.01			661.3	%		0.25			0.08			209.1	%
Earnings per ADR		0.49			0.06			661.3	%		1.25			0.40			209.1	%

Page 7

LAN Airlines S.A.

Consolidated Operating Statistics

		For the Three-Month Period ended				For the Six-Month Period ended
		June 30,				June 30,
		2004	2003	% Change		2004	2003	% Change
Operating Statistics
System
ATKs (millions)		1,225.6	1,037.0	18.2%		2,466.1	2,148.1	14.8%
ASKs (millions)		4,903.2	4,214.1	16.4%		10,082.1	8,850.6	13.9%
RTKs (millions)		835.4	678.8	23.1%		1,686.4	1,417.3	19.0%
RPKs (millions)		3,275.7	2,688.5	21.8%		7,105.2	5,842.5	21.6%
Overall Load Factor (based on ATKs)%		68.2%	65.5%	2.7 pp.		68.4%	66.0%	2.4 pp.
Break-Even Load Factor (based on ATK)%		64.1%	65.3%	-1.2 pp.		62.1%	64.2%	-2.1 pp.
Yield based on RTKs (US Cents)		52.49	49.13	6.9%		53.40	49.32	8.3%
Operating Revenues per ATK (US Cents)		35.78	32.15	11.3%		36.52	32.54	12.2%
Operating Costs per ATK (US Cents)		33.62	32.06	4.9%		33.18	31.68	4.7%
Fuel Gallons Consumed (thousands)		71,072	59,280	19.9%		144,362	123,308	17.1%
Passenger
ASKs (millions)		4,903.2	4,214.1	16.4%		10,082.1	8,850.6	13.9%
RPKs (millions)		3,275.7	2,688.5	21.8%		7,105.2	5,842.5	21.6%
RTKs (millions)		294.8	242.0	21.8%		639.5	525.8	21.6%
Passengers Transported (thousands)		1,386.2	1,190.2	16.5%		2,937.0	2,562.0	14.6%
Load Factor (based on ASKs) %		66.8%	63.8%	3.0 pp.		70.5%	66.0%	4.5 pp.
Yield (based on RPKs, US Cents)		7.57	7.20	5.0%		7.60	7.17	6.1%
Yield (based on RTKs, US Cents)		84.07	80.04	5.0%		84.47	79.64	6.1%
Revenue/ASK (US cents)		5.05	4.60	10.0%		5.36	4.73	13.2%
Cargo
ATKs (thousands)		767.8	646.9	18.7%		1,530.5	1,332.4	14.9%
RTKs (thousands)		540.6	436.8	23.8%		1,047.0	891.5	17.4%
Tons Transported (thousands)		120.6	97.1	24.2%		237.2	196.2	20.9%
Load Factor (based on ATKs) %		70.4%	67.5%	2.9 pp.		68.4%	66.9%	1.5 pp.
Yield based on RTKs (US Cents)		35.27	32.00	10.2%		34.43	31.43	9.5%
Revenue/ATK (US Cents)		24.84	21.61	14.9%		23.55	21.03	12.0%

Page 8

LAN Airlines S.A. 
Consolidated Balance Sheet (in thousands of US$)

 

		Asof June 30,
		2004		2003
ASSETS
CURRENT ASSETS
Cash		6,373		4,177
Time Deposits		186,395		96,995
Marketable securities		89,862		31,607
Accounts and notes receivable -trade and other		166,501		145,872
Accounts and notes receivable from related companies		300		1,459
Inventories		36,452		33,922
Prepaid and recoverable taxes		13,100		8,046
Prepaid expenses		17,442		16,596
Deferred income tax assets		6,041		6,638
Other current assets		34,457		25,705
Total current assets		556,923		371,017
PROPERTY AND EQUIPMENT (net)
Aircraft		785,883		809,905
Other		195,949		192,370
Total property and equipment		981,832		1,002,275
OTHER ASSETS
Investments		1,581		2,081
Goodwill		44,248		46,733
Notes and accounts receivable from related companies		147		497
Long-term accounts receivable		10,528		11,013
Long-term deferred taxes		0		0
Deposits and other		110,941		77,435
Total other assets		167,445		137,759
Total assets		1,706,200		1,511,051
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans		0		0
Current portion of long-term loans from financial instituitions		63,468		63,100
Current portion of long term leasing obligations		21,558		15,600
Dividends Payable		218		37
Accounts payable		194,855		120,247
Notes and accounts payable to related companies		143		23
Other creditors		148		249
Air traffic liability		102,935		105,349
Other current liabilities		132,059		87,396
Total current liabilities		515,384		392,001
LONG-TERM LIABILITIES
Loans from financial institution		536,371		585,328
Other creditors		21,831		731
Provisions		79,258		68,265
Notes and accounts payable to related companies		371		1,086
Air traffic liability		49,929		62,408
Deferred taxes		58,182		28,760
Obligations under capital leases		57		9,010
Other Long-Term Liabilities		16,552		30,195
Total long-term liabilities		762,551		785,783
MINORITY INTEREST		2,905		3,515
SHAREHOLDERS' EQUITY
Common stoc k		134,303		134,303
Reserves		2,620		2,620
Interim Dividends		0		0
Retained earmings		288,437		192,829
Total shareholders´ equity		425,360		329,752
Total liabilities and shareholders´ equity		1,706,200		1,511,051