Published on February 20, 2014
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 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
Full service international passenger-airline business model Cargo-Business Model No-frills passenger model
• Full service international passenger-airline Two classes • Coach Class Hot meals & beverages Multilingual personal-entertainment • Business Class Fully flat beds Boeing 787 Dreamliner
• 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
• No-frills passenger model Set out in 2007 Lower-cost Lower-overhead No Kitchen No meal & beverage E-Ticket
• 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
“Why doesn’t every airline do what LAN does ?” 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
• 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
• 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.
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
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