Geoffrey Jones/SANTIAGO
Chile's two major airlines, LAN Chile and Ladeco, have been working together formally for some two years, since LAN Chile took control of its struggling domestic contemporary in 1995. The take-over has helped both carriers, with Ladeco consolidating its domestic market position while LAN Chile has been able to concentrate on the development of international routes.
LAN Chile's origins can be traced back to Linea Aeropostal Santiago-Africa, founded in 1929. The airline survived the next 60 years, despite the country's less-than-tranquil political history and, in September 1989, was partially privatised. In May 1994, the Chilean Government sold the remainder of LAN Chile to the Cueto family, making it a 100% privately owned company.
LADECO CONTROL
In August 1995, the Chilean monopolies board approved LAN Chile's application to acquire control of the country's second-largest, mostly domestic airline, Ladeco (Linea Aerea del Cobre) from its then owners the Ibanez Group and Ansett Transport Industries. Iberia had at one stage held a 38% stake in Ladeco, but this was not considered beneficial as the Spanish airline's main interest seemed to rest with the flag carrier of nearby Argentina, Aerolineas Argentinas, in which the airline also had a shareholding. Iberia has since sold its stake in Ladeco.
"The 1994 privatisation gave us the springboard to strengthen, and then substantially grow, our core markets and move into solid profitability," says Patrick Kahr, LAN Chile's vice-president for international operations. "We've had the opportunity to invest in the fundamentals of an airline, its aircraft, staff training and service," adds Kahr, who lays great claim to fact that the airline boasts one of the most modern long-haul fleets in Latin America.
Immediately after privatisation, LAN Chile received a $20 million capital injection, and liabilities and financing on the aircraft in its fleet were renegotiated. Revenue and profitability increased substantially almost immediately after the privatisation. Between 1994 and 1996 revenues rose by 71% while net income was up a massive 500%. and operating margins were almost doubled from 3.6% to 6.7%. There have been further improvements this year, with the first six months showing operating margins improving to 7.3% from 6.1% for the same period in 1996.
Kahr says that profitability for 1997 is on target for a record figure. "In the first six months of 1996 we saw a $15.5 million profit. The corresponding figure for 1997 was $24.1 million. The annual profit for 1996 was $38.3 million compared with $25.4 million in 1995, so we expect 1997's figure to top the $50 million mark for the first time," he explains.
The Chilean economy has been growing significantly, the gross domestic product averaging 6.6% compound growth since 1992. LAN Chile has capitalised on the country's geographical remoteness and growing tourist industry, serving 15 domestic destinations, 15 others in Latin America and eight destinations in Europe, the South Pacific and the USA.
Kahr says that LAN Chile is very strong in South America and, rather than try to expand by adding new destinations, the airline instead concentrated on improving the service on its existing routes. "We're now the market leaders in all the markets that we operate in," he says.
Meanwhile, Ladeco's disastrous financial results in 1996 - the airline recorded a $5 million loss - forced it to re-assess and re-organise its operations under Chilean bankruptcy law.
As a result, the airline is confident that 1997 will see it move into the black, with a net profit of $6 million forecast. More than 1 million passengers will be carried annually for the first time in 1997, compared to 946,000 in 1996.
The LANChile fleet numbers 30 aircraft, including ten Boeing 767-300ERs, 14 Boeing 737-200s, and six dedicated cargo aircraft - a 737-200C and five McDonnell Douglas DC-8-71 freighters.
LAN Chile is a fan of the 737-200 despite the fact that it is more noisy and costly to operate compared to more-modern aircraft. "With noise limitations still a long way off in South America, it is now the best aircraft we have available to serve our regional markets," says Kahr.
The LAN Chile/Ladeco group is adding to its 737-200 fleet, with the lease of six ex-British Airways machines from GE Capital Aviation Services (GECAS). The airline is however believed to be close to finalising a deal which could see the 737s replaced by the A320 family.
Ladeco serves mainly the Chilean domestic market, from Arica in the north, to Punta Arenas in the south, and it competes with its owner on some routes. The two airlines operate as two separate brands, although many functions are shared, such as aircraft maintenance.
FIRST AIRCRAFT
Ladeco, which was set up in 1958, acquired its first jet-powered aircraft, a Boeing 727, in 1976. The airline later added Boeing 737-200s as well as BAC One-Elevens, a 737-300 and a Boeing 757-200 on lease. The One-Elevens were later disposed of, and when LAN Chile took control, the decision was taken to standardise on the 737-200 and the other aircraft were disposed of. Ladeco has eight 737-200s with two additional, ex-British Airways aircraft about to be introduced on lease from GECAS.
Rolando Medina, Ladeco's new marketing manager, says that the airline has a synergy with the 737. "Although not hushkitted, these aircraft will be suitable for all our current and planned destinations for the foreseeable future," he says, adding that the airline's close links with LAN Chile on maintenance are also important because LAN Chile is probably the leading maintainer of 737s in Chile. "We also prefer to lease aircraft, not wishing to tie up valuable capital," he says.
LAN Chile's focus on the 737 for short-haul routes has seen it dispose of its two leased BAe146-200s, which were used to serve mainly more remote destinations in the south of the country, where the runways were not suitable for the Boeings. The airports have now been improved, enabling the 737s to be used. The carrier will take another 767-300ER in 1998, which will coincide with the introduction of a new corporate livery as the airline seeks to present the image of a flourishing airline, and aims to be continent's leading international carrier.
FAST ACQUISITION
The DC-8 freighters, which were acquired in 1994 when LAN Chile purchased Chilean freight carrier Fast Air, are used mainly between Chile and other South American destinations and to the important US market. Fast Air also has two leased Boeing 747-200 freighters, which makes it the largest provider of international cargo services from Chile in freight-tonne-kilometre terms. The 737-200C is used domestically for carriage of small parcels, mail and newspapers throughout the straggling 4,400km (2,400nm) length of Chile. LanChile's air-cargo uplift has grown by an average of 12.1% annually over the last four years, and this is expected to increase by a further 15-20% a year over the next four years.
A new passenger route from Santiago to Orlando, Florida, will begin at the end of December, while its services to Madrid, in Spain, are being increased to daily, along with five onward flights a week to Frankfurt. Traffic growth on routes to Europe is among the highest on LAN Chile's system, with 14-15% increases annually.
ROUTES TRANSFERRED
LAN Chile now operates seven flights a day from Santiago to Buenos Aires, and during 1996 all of Ladeco's Brazilian routes were transferred. Chile has recently obtained additional traffic rights from Lima, Peru, and LAN Chile bid for the extra flights to enable it to boost its lucrative flights to the US destinations Los Angeles and New York, which it serves via Lima. A new once-a-week service to the Falklands Islands has also been started, being flown from Santiago via Punta Arenas at the southern tip of Chile.
Ladeco makes no bones about the difficult trading environment, with growing competition in the Chilean domestic market. As well as competing with LAN Chile on several routes, (although as distinctly different products) Ladeco faces new challenges from low-fare 737-200 operators National Airlines and Avant.
Medina claims that these new operators have "no locality and a smaller strength in ticket sales and distribution". Ladeco has a large number of sales agents nationally and is listed on the Gallileo and Sabre computer-reservations systems.
The airline's busiest routes are from the capital, Santiago, to Concepcion (145,600 passengers in 1996), La Serena (92,530 in 1996) and the northern mining towns of Iquique and Antofagasta, which represented 84,000 and 94,700 passengers respectively in 1996.
The airline, which is achieving an average load factor of just under 60%, has recently added a service to the northern copper mining town of Copiapo, while new services from Santiago de Chile to the Argentinian cities of Mendosa and Santiago are also possibilities.
In September 1997 LANChile signed an alliance with American Airlines covering full codeshare and frequent-flier benefits, and from March 1998 a similar alliance will take effect with Canadian Airlines International (CAI). While the tie-up with American provides links to Atlanta, Boston, Chicago, Houston, Philadelphia and Washington DC, the CAI connection adds Vancouver (via Los Angeles) and Toronto (via Buenos Aires) to the network. LAN Chile also codeshares with Air New Zealand from Santiago to Auckland.
Source: Flight International
