Transcript LAN Airlines S.A. - University of Pittsburgh

Plus3 Chile
A presentation by:
Caitlin Magley
Benjamin Zeldes
Jessica Kaschak
Timothy Kraus
Plus3 Chile
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Capital – Santiago
Population – 16.2 Million
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6.3 Million in Santiago
Is a market-oriented economy
based mostly in foreign trade.
Attracts much foreign investment
mostly in gas, water, electricity and
mining.
 Unemployment has been declining
over the past three years.
 GDP = $234.4 Billion USD
 18% of the population is below the
poverty line (vs. US’ 12%)
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Plus3 Chile
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Chile accounts for 1/3 of the world’s copper
production
It also the world’s fifth largest exporter of wine
Exports: US 15.6%, Japan 10.5%, China 8.6%,
Netherlands 6.7%, South Korea 5.9%, Italy 4.9%, Brazil
4.8%, France 4.2% (2006)
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Copper, fruit, fish products, paper and pulp, chemicals,
wine.
Imports: US 15.6%, Argentina 12.6%, Brazil 11.8%,
China 9.7% (2006)
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Petroleum and petroleum products, chemicals, electrical
and telecommunications equipment, industrial
machinery, vehicles, natural gas
Plus3 Chile
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Chile is an extremely isolated country with a
very tight-knit business community.
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Produces a need for fast-paced, reliable
transportation and cargo services internationally.
As the South American economy has rapidly
grown over the past decades, so too has LAN
airlines and the need for more air traffic.
Firms such as Airbus and Boeing have
continuously developed and improved upon
Airplane design, manufacturing, and
components.
Plus3 Chile
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LAN Airlines primarily serves one major industry:
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Scheduled Passenger Air Transportation
 “Product Line” – Flights
 Product Category – Coach/Economy, Business, First Classes
 Also serves Cargo Industry
 Accounts for about 40% of current income, but LAN is trying
to depend less upon the cargo industry.
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Major Competitors:
Air France-KLM
 Delta Airlines
 Gol Linhas Aéreas Inteligentes
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Plus3 Chile
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Continuously increasing oil prices combined with
a highly competitive market forces the airline
industry players to keep prices as low as possible
while trying to earn profits.
Dynamics of international airports causes ground
crews and flight crews to maintain a strict schedule
industry wide.
Web sites such as hotwire.com, orbitz.com, and
priceline.com offer discounted seats on select
airlines.
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Allows for increased traffic, full planes, and therefore
higher profit.
Plus3 Chile
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In a global environment, the
Airline industry provides a
“golden mix” of both business
and engineering aspects.
Is interesting to see how
airlines are able to make
profits (business) and also
reduce their carbon footprint
(engineering) in such a highly
competitive environment.
People will constantly need to
travel, especially in modern
times for leisure and business.
Plus3 Chile
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Based in Santiago, Chile
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Main Hub at Comodoro Arturo Merino Benítez
International Airport
Employs just over 15,000
Annual Sales of just over $3 Billion
Is the main passenger airline in South America
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Is one of the major cargo carriers in South America
as well
Plus3 Chile
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1929 - Linea Aeropostal Santiago-Arica created to transport passengers along
peruvian border.
1932 – Becomes government controlled airline under name: Linea Aerea Nacional
(LAN Chile). Carries 5000+ passengers
1935-1960 – Service increases and many domestic routes added. 27,000 passenger
journeys recorded.
1960-1970 – International service increases greatly.
With increased competition, LAN Chile begins to suffer and eventually is forced to
shut down as a result of bankruptcy in 1984. A new LAN Chile is started and is
98.7% owned and controlled by the Chilean government. LAN Chile regains 50% of
the domestic market share.
1989 – LAN Chile is privatized with 51% sold to SAS airlines.
1995 – The Cueto Family purchases a controlling interest of LAN Airlines, fully
privatizing the firm.
1997 – The company reorganizes and offers $100 million in depository shares on the
NYSE. Also forms an alliance with American Airlines for their Frequent Flier
program.
2000 - LAN Chile operates as the largest domestic and international passenger/cargo
air carrier in Chile and a leading airline firm in Latin America.
2001 - Net income plunges nearly 78% to $10.8 million on sales of $1.42 billion. The
firm downsizes its cargo fleet, believing that smaller, newer planes will allow it to
offer more reliable and frequent service
Plus3 Chile
LAN Airlines went public November 7th, 1997 at an opening price of
2.75 USD. Its stock is currently priced at $14.40 (as of April 9th 2008)
Plus3 Chile
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All LAN Airlines planes are jet propeled
Air is compressed in engine a, combustion
reaction creates heat and gas, the high pressure
gas is then expelled out the back of the engine
at high speed
The wing provides lift by creating an area of
low pressure above and high pressure below
Plus3 Chile
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Planes
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Boeing
Airbus
Jet Fuel
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Similar to Kerosene
Made up of many (as many as 11) different
Hydrocarbons
Plus3 Chile
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LAN has taken steps to reduce its
carbon footprint
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More efficient planes (Airbus A320) are
being purchased as a part of LAN’s
Fleet Renewal Program to reduce
carbon emissions by 10%
 A320s also reduce noise pollution
 Winglet tip extensions
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Numerous reforestation projects near
its main airports
The airline industry is attempting to
use biofuels in airplanes
Plus3 Chile
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Must meet international safety regulations
LAN is dedicated to continuously inspecting
and maintaining their fleet in accordance with
these regulations
Employ skilled mechanics, engineers, and
pilots to ensure safety and on time arrivals and
departures
LAN has recently signed mutual support
contracts with several other airlines, such as
Lufthansa and Mexicana airlines
Plus3 Chile
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The majority of pilots are graduates with 4 year
degrees with a variety of majors. An engineering
degree is certainly not required.
Engineers are more often utilized on the ground
than as flight crew. Engineers are more involved in
service and maintenance of the planes.
There are a variety of other non-technical
employees in fields such as customer service and
management
Plus3 Chile
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With rapidly increasing costs, how does LAN
Airlines compensate and is still able to earn
positive operating income?
What routes is LAN currently expanding into and
what are some future markets the firm is
exploring? (What is the next step?)
How else is LAN working to reduce carbon
emissions?
What kind of ground support structure does LAN
employ? Ground Workers? Mechanical Engineers?
(i.e. how does a degree in engineering fit in at LAN
airlines?)
Plus3 Chile
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How is international studies worked into your
business curriculum here in Chile?
Do you mainly study Chilean business or
international business?
Is it common for students to hold internships here,
and if so, what type?
What types of engineering co-op opportunities and
programs are available to students? Do you do
many on-site visits to companies?
What do you do in your free time?
Have you traveled outside of Chile?