Lan Dominicana will start flights to Miami
LanChile expands in time of airline contraction
LanChile is bucking the trends in the airline industry -- expanding its service and making a profit.
As its next step, the Chilean airline group will launch LanEcuador, which will offer daily service from Miami and New York to Quito, and on to Guayaquil, beginning March 1. Then, the group hopes to start LanDominicana, which will offer daily service from Miami to the Dominican Republic.
LanDominicana will join a group of affiliates that includes LanPeru and cargo carriers MasAir, based in Mexico, and ABSA, based in Brazil. The passenger carriers have been created as joint ventures to surmount barriers to obtaining traffic rights in the region -- as a means toward LanChile's goal of becoming an airline for Latin America.
''We are a Chilean company,'' said Roberto Bianchi, LanChile's 33-year-old vice president of North and Central America and Asia, based in Miami. ``In order to grow, we have to position ourselves as a Latin American company.''
Unlike other airlines, LanChile operates both passenger and freighter flights, which has been a driving force behind much of its growth and profitability.
For LanChile, cargo revenue represents 42 percent of total revenue, passenger revenue amounts to 53 percent and other sources constitute 5 percent. Typically cargo represents 5 to 20 percent of an international airline's revenue. Cargo at American Airlines, for example, represents just 4 percent of revenue.
Three years ago, LanChile moved its cargo headquarters from Santiago, Chile, to Miami, and built a 420,000-square-foot new office and warehouse building. Here, the airline group can connect shipments between Europe and Latin America, as well as between the United States and Central and South America.
''Miami is our most important hub,'' said Armando Valdivieso, 39, chief executive of LanChile cargo. ``That's why we are in Miami and that is why we have this tremendous facility.''
Overall, LanChile has tripled its cargo revenue in the past seven years -- from $200 million in 1995 to $700 million in 2002. During that time frame, it has also more than tripled its passenger volume and revenue, cargo volume, number of aircraft and employees. The airline's fleet currently consists of 46 passenger planes and nine freighters.
Michael Miller, president of the Orlando-based aviation consulting firm Miller Air Group, calls LanChile ``the best-managed Latin American carrier.''
''They don't have the systemic problems that other airlines in the region have, including labor problems, fleet inefficiencies and historic conflicts with the government,'' he said.
To circumvent various countries' protectionist barriers to obtaining rights to routes, LanChile created LanPeru in 1999 and LanEcuador in 2002. On Dec. 16, LanEcuador became 100 percent owned by LanChile. LanDominicana will be 51 percent owned by Dominican investors and 49 percent by LanChile.
''We need to grow in Latin America, and this is the only way because we don't have the traffic rights -- we don't have open skies within our region,'' Bianchi said.
The strategy has also served to strengthen LanChile's brand recognition, said Coral Gables aviation consultant Stuart Klaskin, partner in Klaskin, Kushner and Co.
Still, Bianchi said the airline has taken a cautious approach to new markets.
''We're growing very fast, but every move we make has to be profitable,'' he said. ``We don't buy companies for the sake of expanding ourselves.''
LanChile's strengths, insiders and outsiders agree, lie in its diversification of cargo and passenger flights; flexibility to adjust capacity within markets; high utilization of aircraft, which keeps costs down; stable union relationships, and streamlined decision making.
GREAT SERVICE
Miller and Klaskin also point to LanChile's excellent service, particularly in first class and business class, which they say is on par with major airlines worldwide.
And they praise LanChile's decision to team with American Airlines as a code-share partner, which has driven passenger volume to the Chilean group.
But LanChile still faces challenges, including the dearth of open routes in Latin America and competition from U.S. carriers. Bianchi acknowledges that the airline carries a certain stigma as a Latin carrier and has to ``convince U.S. passengers that we are an alternative.''
From Miami, the LanChile Group now operates 32 weekly passenger flights and 49 weekly freighter flights. In cargo volume, LanChile and its affiliates flew 350,000 tons through Miami in 2001, which would make it the top cargo operator at Miami International Airport.
The airline group has laid its stake in various markets. Overall, it ranks as the No. 1 carrier from the United States to Chile, with about 35 percent of the passengers; No. 1 to Peru, with 29 percent; and No. 3 to Ecuador with about 25 percent, Bianchi said.
Still, the airline was not unscathed by the downturn in travel following Sept. 11, 2001. LanChile laid off 50 people, or 5 percent of its Miami staff, leaving it with 948 employees here, Bianchi said. Systemwide, the airline cut 600 jobs, or 6 percent of its worldwide staff, he said.
LanChile also consolidated some flights and decreased frequencies from Chile, while dedicating aircraft to markets where demand remained strong, such as Ecuador and Peru. Still, the airline did not eliminate any destinations, Bianchi said.
A FEW CUTBACKS
Like other carriers, LanChile has also cut costs and deferred some new aircraft deliveries. The company lost money in the fourth quarter of 2001 and the second quarter of 2002. But figures to date show the airline has earned $15.7 million through the third quarter of 2002. Bianchi said the company is expected to be profitable in the fourth quarter and for the year. Major U.S. carriers are losing billions of dollars.
Though industrywide airfares are down, Bianchi said the group expects that once the figures are in, it will have increased passenger volume by 10 percent in 2002, raising revenue 1 percent.
IN EXCELLENT SHAPE
''They're in extraordinarily good shape for the way the industry rests today,'' Klaskin said.
The company earned $10.8 million, or 3 cents per share, in 2001, and $48.4 million, or 15 cents per share, in 2000.
LanChile was founded in 1929 as a state-owned carrier. In 1994, private investors bought a majority of the shares from the Chilean government. In 1997, the group launched an initial public offering.
Today, four families own 82.1 percent of LanChile's shares, with the Cueto family, who are the largest shareholders, holding a 34 percent stake. Another 10.6 percent of the shares are listed on the Chilean stock exchange. LanChile is the only Latin American carrier listed on the New York Stock Exchange, where 7.4 percent of the stock is traded.
Well known in the air cargo industry, the Cueto family had owned cargo carrier Fastair, which they merged with LanChile. Enrique Cueto, 42, is now LanChile's chief executive; his brother, Ignacio Cueto, 37, is senior vice president of the passenger business.
LanChile began operations in Miami in 1979, occupying 3,000 square feet of space. By 1995, it had grown to 20,000 square feet.
In 1999 the airline began investing $70 million to build its new headquarters and warehouse building in Miami, the largest in the area. In August 2001 the company moved in. BWIA subleases 50,000 square feet of the building.
For its next step, LanChile's executives are focused on trying to enter the Argentine market by owning a local carrier. LanChile has evaluated the market for more than three years and at one time considered buying Aerolíneas Argentinas.
Argentina is a crucial missing piece for LanChile to recognize its goal of being the airline of Latin America, Bianchi said.
''You will see a company of ours in Argentina in the near future,'' he said, ``as soon as we can.''
Bet it will be called LanArgentina.
POSTED ON MAIMI HERALD 13th Jan 2003
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