LAN Airlines S.A.

1
LAN Airlines S.A.

• A presentation by
• Caitlin Magley
• Benjamin Zeldes
• Jessica Kaschak
• Timothy Kraus

2
Chile

• Capital Santiago
• Population 16.2 Million
• 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)

3
Chiles Imports/Exports

• Chile accounts for 1/3 of the worlds copper
  production
• It also the worlds 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)
• Copper, fruit, fish products, paper and pulp,
  chemicals, wine.
• Imports US 15.6, Argentina 12.6, Brazil 11.8,
  China 9.7 (2006)
• Petroleum and petroleum products, chemicals,
  electrical and telecommunications equipment,
  industrial machinery, vehicles, natural gas

4
Business in Chile

• Chile is an extremely isolated country with a
  very tight-knit business community.
• 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.

5
Industry Analysis

• LAN Airlines primarily serves one major industry
  
• 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.
• Major Competitors
• Air France-KLM
• Delta Airlines
• Gol Linhas Aéreas Inteligentes

6
Industry Challenges/Opportunities

• 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.
• Allows for increased traffic, full planes, and
  therefore higher profit.

7
Industry Interest

• 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.

8
An Introduction to LAN Airlines S.A.

• Based in Santiago, Chile
• 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
• Is one of the major cargo carriers in South
  America as well

9
History

• 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

10
Financial
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)
11
Basic Engineering Principles

• 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

12
Material Components

• Planes
• Boeing
• Airbus
• Jet Fuel
• Similar to Kerosene
• Made up of many (as many as 11) different
  Hydrocarbons

13
Environmental Factors

• LAN has taken steps to reduce its carbon
  footprint
• More efficient planes (Airbus A320) are being
  purchased as a part of LANs Fleet Renewal
  Program to reduce carbon emissions by 10
• A320s also reduce noise pollution
• Winglet tip extensions
• Numerous reforestation projects near its main
  airports
• The airline industry is attempting to use
  biofuels in airplanes

14
Safety

• 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

15
Workforce

• 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

16
Questions for LAN Airlines

• 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?)

17
Questions for students

• 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?