Transcript The Challenges of the Latin American Airline Industry

The Challenges of the Latin
American Airline Industry
How Grupo TACA succeeded in a challenging
economic environment
Gabriela Kaynor
Brian Mottola
March 8, 2003
Today’s Agenda
Purpose
Privatization Movement
Early years of aviation in Latin America
TACA’s inception
TACA’s alliances
TACA’s competition
History of other Latin American airlines
Conclusions
Privatization Movement
Latin American economies are stagnant
State-owned companies in many industries
12% of GDP in Latin America
Privatization encouraged to create efficiency
Govt’s severed burdens of state-ownership
Privatized industries create needed tax
revenue
The Birth of TACA
TACA – Transportes Aereos Centroamericanos
Est. 1931 by Lowell Yerex in Honduras
Entrepreneurial opportunity existed
Quickly grew into a strong regional airline
Linked all Central American capital cities
Linked Mexico and Caribbean
Birth of TACA (Cont’d.)
TACA formed airlines in different countries
Named “TACA de (country’s name)”
Nicaragua, Belize, Costa Rica
Parent company was TACA de Honduras
Enabled local air routes to be established
Used small, aging aircraft to reduce its costs
Faced increased competition from int’l airlines
Pan American Airways, Trans World Airlines
The Original TACA dissolves
TACA country members want own nat’l airline
By 1948, all TACA shares resold to govt’s
Beginning of the end of original TACA corporation
TACA El Salvador was only airline left under
original TACA banner
Changed name to TACA International Airlines
Beginning of modern-day TACA
TACA International Airlines
TACA Airbus A-319
TACA’s Route Map
TACA International Airlines
Current CEO Federico Bloch started with the
Company in 1979
His vision  setting up subsidiary airlines
through partnerships in Latin America
Bloch has received multiple awards and
accolades for his outstanding achievements
within this very competitive industry.
TACA Alliances
Bloch pursued the acquisition of several
Central American National Airlines. Complete
by 1991.
Guatemala (Aviateca), Honduras (SAHSA),
Nicaragua (NICA) & Costa Rica (LACSA)
They also have feeders in Cuba and Peru
Alliance with American Airlines
Conglomerate with National & International
airlines under one umbrella
Competitive Advantages..
Cross border alliances
Quasi- Monopoly for domestic markets
Control of pricing for Central American
fares
Multiple “hubs”
Increased number of destinations
Growth opportunity in South America
Side Effects….
Pursuit of customer oriented business
practices becomes secondary
Multiple connecting flights to reach
destinations
Subject to economy swings in Latin
American Countries
Proven profitability attracts competition
Competitors
Other Latin American Airlines have tried
to follow suit with this business model
Successful competitors include
Aerocontinente Peru
Lan Chile
VASP from Brazil
Unsuccessful stories
VIASA Venezuela
LAN CHILE
Linea Aerea Nacional – founded in 1932
as a government owned carrier
In 1989 they sold 51% of their shares
to SAS (Scandinavian Airline Services)
1994 – 100% Privatized
1995 – Acquired Lan Express
1996 – 44% sales growth (3rd largest in
the Industry
Executive VP Enrique Cueto (Executive of the
Year 2001)
Vision  Become one of Top 10 airlines
Strategies to survive after 2000 decline
Reduction in frequency of domestic flights
• Increasing capacity utilization
Built strong alliances with international partners
Separate business structure
• Cargo Operation – Lan Cargo
• Passenger Operation – Lan Pax
VIASA (Venezuela)
1959- Shift from a government airline
(AEROPOSTAL) to a private venture
• AEROPOSTAL 51% capital
• AVIANSA(owned by PAN AM Airlines) 49%
• Formed alliance with KLM
Cargo Operation Subsidiary TRANSCARGA
1975 – First reported loss
1976 - Airline Nationalized again
Effects of Nationalization..
Government was covering up losses and
inefficiencies
No operational or strategic improvements being
made
1989 – Venezuela’s economy starts to weaken
– seeking a bidder
KLM vs. IBERIA
1991 –IBERIA wins the bid
1997 – Airline closed for good under
acrimony.
CONCLUSIONS
Privatization works – better service &
efficiency
TACA’s business model transcends time and
regions
Airline industry is susceptible to sociopolitical
events – especially in volatile Latin America