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Bad news. I mean really, really bad news. On July 28 Chile’s LAN Airlines (LFL) reported that second quarter profit dropped a huge 93%, although the company did manage to stay profitable (to the tune of $4.2 million) during the quarter.

But maybe a turning point. On August 13 Chile’s central bank kept its benchmark interest rate unchanged at 0.5%. That signaled the bank’s intention to keep stimulating the economy but also indicated—in that the bank didn’t cut rates further—that the economy may be nearing a bottom after seven interest rate cuts.

LAN Airlines has come through the global economic slowdown in much better shape than most of the world’s airlines.

 Even the disastrous results of the second quarter were a result of a $53 million loss on fuel hedging rather than from a collapse in traffic. Excluding the fuel hedging losses the airline made a second quarter operating profit of $88 million, an increase of 56% from the second quarter of 2008.

Passenger revenue fell 11% in the quarter from the second quarter of 2008. Cargo revenues were hard hit, though, plunging 43% from the second quarter of 2008. The bulk of LAN’s air cargo revenue comes for its Chile to Miami routes that have been heavily hit by the U.S. recession.

Even in this tough period, though, LAN Airlines has kept its passenger load factor pretty much steady. In July 2009 it was 76%, down just 2.8% from July 2008. System passenger miles climbed 6.7% from July 2008. System capacity (measured by available seat miles) climbed by almost 11%.

Chilean economists project that the national economy shrank by 4.4% in the second quarter and that GDP will contract for all of 2009. That will be the first time in a decade that Chile’s economy has shown negative growth.

Chile’s national bank had raised rates to a high of 8.25% in 2008 to fight inflation that had reached 9.9%. Annual inflation in Chile slowed to 0.3% in July thanks to the country’s recession. Economists are projected deflation for 2009 as a whole because of falling fuel costs.

Those economists are projecting that the economy will pick up in the second half of 2009. Retail sales, new car sales, building permits, and cement orders all showed slight improvement in June.

(Full disclosure: I own shares of LAN Airlines in my personal portfolio.)