Taking Cargo and People, Chilean Airline Flourishes

November 26, 2003
Taking Cargo and People, Chilean Airline Flourishes
By LARRY ROHTER

SANTIAGO, Chile, Nov. 23 - These are terrible times for airlines all over Latin America, as one carrier after another closes, staggers under huge losses, scales back routes or reluctantly merges with rivals. But at the shiny new glass headquarters of LanChile here, things have never been better.

In this year's third quarter, profit tripled, to $22 million, its best quarter ever, and profits for 2003 are expected to reach a record $64 million. As a result, LanChile's share price in Chile has more than doubled since the start of the year, and the value of its American depository rights has gained more than 140 percent.

"They're a model company whose management and ownership know how to be efficient and have a clear vision," said Robert Booth, chairman of Aviation Management Services, a Miami consulting firm. "It's an ideal situation, and they are doing everything right."

At first glance, it would seem unlikely that a company based in a country of only 15 million, isolated in the far southern reaches of the continent, should have become a Latin American powerhouse. But since the privatization of the national flag carrier a decade ago, LanChile has specialized in turning what seem to be obstacles into opportunities.

While other regional carriers, for example, have been battered by both weak local economies and the downturn in passenger traffic after the Sept. 11, 2001, attacks, LanChile has largely been insulated. Cargo accounts for an extraordinary 40 percent of its business, compared with 5 percent or less for carriers like American, Delta and United.

"Lan is actually two concerns that are of equal importance, with a business model that is unique in the world," Alejandro de la Fuente, LanChile's chief financial officer, said in an interview. "We live in a distant land that exports a lot of perishable products, operating long-haul planes that are capable of carrying a lot in their holds, and that means we can carry fewer passengers and still be profitable."

With a free trade agreement between Chile and the United States scheduled to take effect on Jan. 1, the prospects are good for additional growth in the export of items like salmon, fruit and flowers. Company officials predict a 15 percent increase in revenue from both cargo and passenger traffic for next year and estimate that by 2006 total revenue will rise to $2.3 billion, up nearly half from the current $1.6 billion.

In a region where nationalism and protectionism still work to defend national flag carriers, Chile is also unusual in having an open-skies policy, which LanChile officials say has forced them to be more efficient in managing labor and fuel costs. The company dominates domestic routes, carrying 80 percent of passengers, but the small size of the market has forced it to look beyond its borders for traffic and profits.

With Argentine carriers weakened by that country's economic collapse, LanChile dominates the busy Santiago-Buenos Aires route, which it also uses to feed its flights to Miami and Madrid. The company attracts passengers with a fleet of planes more modern than those of most of its rivals. It also benefits from its membership in the OneWorld Alliance, along with the likes of American Airlines and British Airways, and the code-sharing arrangements that flow from that.

In the rest of the region, by contrast, the picture remains largely cheerless. In Central America, regional carriers like Taca and Copa Airlines of Panama are doing well, but most South American airlines are struggling to emerge from lean years dragged down by dollar-denominated debts and weak local currencies that drive up the cost of leasing aircraft and buying fuel.

Full article:
http://www.nytimes.com/2003/11/26/bu...6lanchile.html

I don't know how true it is, but I remember reading a while back that they can drop loads under 50% and still make a profit. I also heard that when they get Lan Dominicana and Lan Ecuador up and running, they are going to be eyeing one of the failing Colombian airlines and are going to look into starting Lan Brazil. Again, I don't know how true it is, but it's an interesting vision after looking at the other South American airlines.

An expanded route network in South America would be most welcome. OW has the edge over *A with a direct flight between Sydney-Santiago de Chile but when it comes to exploring intra-South America, using limited segments of a RTW ticket, *A continues to have the edge.

An interesting point re QoS on the handful of [mainly international] LA flights I've taken over the years: many of the cabin attendants appear to be well educated and look on their job as a career [vs some of the cretins who end up begrudgingly pushing trollies on other OW carriers]. Net effect: happy / professional staff = happy pax.

Also worth mentioning that on trans Pacific/Atlantic flights, I've never seen an empty Y seat on LA...

[This message has been edited by virtualtroy (edited Nov 30, 2003).]

Sitting in the LanChile lounge at SCL while reading this, I am most pleased to read this article. And I think the A340 that I will take off on soon just pulled up to the gate in front of me

LAN Brasil would be most welcome. Brazilian domestic service used to be of fairly high standard, but those days are long gone. We need more competition among carriers here, but the government (elected as left, governing as right) is doing exactly the opposite by trying force a merger on TAM and VARIG. At the moment, the merger looks quite unlikely to actually occur, but competition has been massively reduced by code sharing. The only real alternative at the moment is the low-cost carrier GOL.

After several INT and DOM LA flights a few years ago, I found them of very high standard. Something to make others "very afraid" of. Its good to see a high profile South American company doing well after the misery that many went through during the hyper-inflation years.

Can any one tell me the standard of LanChile business class is like? I'll be flying on a code share on them end on this month from AKL-SYD. Their website gave me a good impression of the airline, nice seats and good food and service. Pitty I am only eating breakfast in a flight that leaves at 6am.

The standard of business is very high - decent (not excellent) seats, touchscreen IFE on certain widebody aircraft (A340s, some 767s), decent and ample, but not excellent, food. Good to very good wines. Occasionally a few curt FAs but mostly very polite and professional, and sometimes very sweet.