When One Business Model Isn't Enough: LAN Airlines

Introduction

How LAN’s Three Models Interrelate

The Challenge of Managing Multiple Models

Distinguishing Complements From Substitutes

Trying to operate more than one business model at a time• To expand new market• To make more efficient use of fixed asset and resources• To Develop new income

VS

Direct-Sell

2 Business model- DVD by mail- Streaming video services

Flourishes by running 3 distinctly different operation at the same time

Latin American Network Airlines

Latin American Network Airlines

How LAN’s Three Models Interrelate

Full service international passenger-airline business model

Cargo-Business Model

No-frills passenger model

How LAN’s Three Models Interrelate

Boeing 787 Dreamliner

• Full service international passenger-airline

Two classes• Coach Class

Hot meals & beveragesMultilingual personal-entertainment

• Business ClassFully flat beds

How LAN’s Three Models Interrelate

• Cargo business model

Premium Service• Transports high-value products

Salmon from Chile Asparagus from Peru Computer, Mobile phones from U.S.

• Revenue 2011 Q2: 31% of total revenue

How LAN’s Three Models Interrelate

Set out in 2007Lower-cost Lower-overheadNo KitchenNo meal & beverageE-Ticket

• No-frills passenger model

Mutually Reinforcing Advantages

• Maximal use of physical assets Increased utilization of as costly as asset as aircraft Change from parking to delivery time

• Reduction of the break-even load factor(BELF) Combining cargo and passenger operation

• Diversification of revenues and profits Minimize risks

• Reduce threat of entry by other airlines Increased the number of routes

• One-stop shop for cargo in Latin America

How Two Business Models Complement Each Others

The Challenge of Managing Multiple Models

History of LAN :

• 1994 Chilean privatized LAN -> Cueto Family

• Begun Cargo business with Fast air since 1970’s

• Combine Cargo and Passenger service

Profit potential of LAN international’s route• Wide body air craft• Reputation and reliability

“Why doesn’t every airline do what LAN does ?”

The Challenge of Managing Multiple Models

• Additional complexity• Complex logistic system that coordinate with cargo and

passengers.• Additional criterion to passenger fares.• Gives priority to carrying passengers.

• Broader organizational skills• Require different sale, marketing, technical skills.

• Extensively training its flight and maintenance crew

The Challenge of Managing Multiple Models

• Greater flexibility employee• Pilot fly even on two hours notice, more fly.

• Instituting a performance-related pay and bonus.

• Additional investments• Invest in warehouse for each country.• Regulatory constraint prevent non-national company.

• Create series of separate company : LAN Peru, Ecuador, Colombia, Argentina.

• Alliance in Mexico and several country.

Distinguishing Complements From Substitutes

Distinguishing Complements From Substitutes

Advantages using more than one business model

• Decreasing the break-even load factor• Combining cargo and passengers• Flying to more places

• Better services to passengers and increase customers• Using grow revenue provided by cargo operation

• Increase barriers to entry• Flying to more places make other airline harder to enter and grow

Advantages using more than one business model

• Increases barriers to imitation• Optimizing the use of aircraft and network of route

• Increases switching costs• Leading passenger airline connecting from Latin America • One-stop shop for cargo in the region

Distinguishing Complements From Substitutes

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