Gonzalo
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What Is The Big Secret Of LAN?

Tue Dec 11, 2012 5:00 pm

Being sort of "national carrier" of a small country like Chile, with a limited O&D market, and having its home base in one of the worst possible locations in terms of "hubbing", LAN has become one of the strongest brands in the region, expanded almost all over the continent with presence in several countries, and, despite being far from "perfect" or "the best", is offering a good product and is definitely a success in terms of business.
So, what is the secret of LA ? Why are they successful where others fail miserably, even when the conditions are better for them ?

Theories ?

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Polot
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RE: What Is The Big Secret Of LAN?

Tue Dec 11, 2012 5:09 pm

Simple- they are well managed, mostly free from government interference, and have been for a long time now. Contrast that to its peers in South America and it is pretty clear why LAN has become such a force. LAN has been able to exploit other countries inability to successfully run an airline for their own benefit.
 
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RE: What Is The Big Secret Of LAN?

Tue Dec 11, 2012 5:45 pm

Quoting Gonzalo (Thread starter):
So, what is the secret of LA ? Why are they successful where others fail miserably, even when the conditions are better for them ?

They are the best amongst the worst... that makes them go quite a long way ahead of the others, eg: AR   
They are also one of the first in the region to embrace the relaxed crossborder aviation regulations/agreements.

Quoting Gonzalo (Thread starter):
Being sort of "national carrier" of a small country like Chile, with a limited O&D market, and having its home base in one of the worst possible locations in terms of "hubbing",

The limited O&D market and 'one of the worst possible locations for a hub', and I may add, the geographical shape of the country, forced them to think slightly differently from their neighbours... this, is a bonus/edge if used correctly.

The only one close to them, IMHO, is Avianca, who took longer to leave the old paradigm. TAM is fortunate in its position due to the large home market and the demise of Varig... Others such as PLUNA, had tiny home markets, so they had huge challenges even if they suceeded (the aircraft choice was one killer).

They were quite lucky in my opinion, and they really did use their luck as a stepping stone (instead of relying on it). Others who did the same were... well, unlucky (home politics, etc... Chile was lucky on this front too! Sometimes, being on the far edge of the world, helps... the other country that's like this, is New Zealand!    )

One other factor is, how they used LIM, even before there was LAN-Peru. The demise of AeroPeru did assist too!   . LIM, brings them a lot of business, and they were able to use it as a stepping stone to go north. If LA was solely based/hubbed in SCL, they'd be much smaller today. If I remember correctly, LIM to LA was like SIN to QF! The only difference here is that the homecarrier at LIM went bust, and SQ didn't!   
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IrishAyes
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RE: What Is The Big Secret Of LAN?

Tue Dec 11, 2012 6:20 pm

Quoting Polot (Reply 1):
Simple- they are well managed, mostly free from government interference, and have been for a long time now.

   this is precisely the answer. As the old saying goes, "the fish stinks from the head." An airline that is well-managed, despite formidable market conditions, can achieve long-term success if the cards are played right.

LAN isn't the only airline that has blossomed in spite of geographical positioning: Air New Zealand can be honed in here as a shining example of a flag-carrier that has long embraced marketing creativity, product innovation and strategic management as part of a forward-thinking mentality allowing it to out-edge its competitors. Cross-compare that with Qantas, who has to re-invent itself pretty much top-down in a fight for survival.

WestJet is another example of a wildly successful airline birthed in a country where the travel market isn't ginormous: Canada.

Now, with respect to the government interference, I'd argue that it can go both ways. There are government propped airlines that have been hugely profitable and have outlined ambitious strategic plans moving forward, such as Ethiopian. There are also government-backed airlines that have been in consistent free-fall for decades, such as Air India.

Then again you have privately-owned that are well-managed and profitable, such as Spirit, and those which are poorly managed and unprofitable, such as United Airlines.
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RE: What Is The Big Secret Of LAN?

Tue Dec 11, 2012 6:56 pm

Quoting Polot (Reply 1):
they are well managed

        

I wholeheartedly agree with you.



.

Quoting mandala499 (Reply 2):
One other factor is, how they used LIM, even before there was LAN-Peru.

No, not really. LIM was just another international destination for LAN before LAN Perú.


.

Quoting mandala499 (Reply 2):
If LA was solely based/hubbed in SCL, they'd be much smaller today.

Agreed.
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timpdx
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RE: What Is The Big Secret Of LAN?

Tue Dec 11, 2012 7:25 pm

It helps that South America is a pretty high priced part of the world for air fares.
 
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Polot
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RE: What Is The Big Secret Of LAN?

Tue Dec 11, 2012 7:34 pm

Quoting IrishAyes (Reply 3):
Now, with respect to the government interference, I'd argue that it can go both ways. There are government propped airlines that have been hugely profitable and have outlined ambitious strategic plans moving forward, such as Ethiopian. There are also government-backed airlines that have been in consistent free-fall for decades, such as Air India.

Yes, I definitely agree with you there. Unfortunately in South America they tend to fall more in the Air India category than the Ethiopian one.
 
PRAirbus
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RE: What Is The Big Secret Of LAN?

Tue Dec 11, 2012 7:51 pm

Cheap labor is part of their secret too...I've heard from LAN employees....cheap labor and a short leash on employees' necks!
 
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TWA772LR
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RE: What Is The Big Secret Of LAN?

Tue Dec 11, 2012 8:32 pm

Could LAN,and other airlines (namely BA), use SCL as a connection point from Europe to Australia, NZ, and Oceania?
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Polot
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RE: What Is The Big Secret Of LAN?

Tue Dec 11, 2012 8:39 pm

Quoting TWA772LR (Reply 8):
Could LAN,and other airlines (namely BA), use SCL as a connection point from Europe to Australia, NZ, and Oceania?

It is too far out of the way. Much faster going via the Mideast/Southeast Asia.
 
PRAirbus
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RE: What Is The Big Secret Of LAN?

Tue Dec 11, 2012 10:11 pm

Wonder if LATAM will move to AA North terminal in MIA, they should!
 
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RE: What Is The Big Secret Of LAN?

Tue Dec 11, 2012 10:51 pm

Quoting Gonzalo (Thread starter):
Being sort of "national carrier" of a small country like Chile, with a limited O&D market, and having its home base in one of the worst possible locations in terms of "hubbing", LAN has become one of the strongest brands in the region, expanded almost all over the continent with presence in several countries, and, despite being far from "perfect" or "the best", is offering a good product and is definitely a success in terms of business.

Chile's limitations also discouraged competitors. It is a marginal market and location, so as long as LAN is large enough to be difficult to compete against in Chile while not overexpanding or being pressured excessively by investors to show growth, they were able to keep what market it has to itself.
 
Viscount724
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RE: What Is The Big Secret Of LAN?

Tue Dec 11, 2012 11:18 pm

Quoting IrishAyes (Reply 3):
WestJet is another example of a wildly successful airline birthed in a country where the travel market isn't ginormous: Canada.

But much larger than Chile.
 
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RE: What Is The Big Secret Of LAN?

Tue Dec 11, 2012 11:33 pm

Quoting TWA772LR (Reply 8):

Could LAN,and other airlines (namely BA), use SCL as a connection point from Europe to Australia, NZ, and Oceania?

Nah. It's far longer. According to GCM, a flight going LHR-SCL-SYD is 14,288 NM. Whereas the commonly utilized LHR-SIN-SYD is 10,672 NM. That's roughly a 4,000 mi difference aka 8 hours + of travel time.

Moreover, the purpose of connecting the UK and OZ over Asia is that these scissor flights also account for UK-Asia and OZ-Asia traffic as well, whereas the market size for UK-Chile and Chile-Australia is much smaller. Chile-Australia works well for OneWorld connections (over the AKL stoppover and SYD) to Asia for the rest of South America, but not for Europe nor the US.

Although ANZ flows over LAX to AKL, that distance is still far less than LHR-SCL-SYD and of course the market demands merit the purpose of the westernly route.

Quoting Viscount724 (Reply 12):
But much larger than Chile.

Nevertheless still very relevant, considering that the Canadian government tends to be very protectionist of the flag carrier (Air Canada) which hasn't been a stellar performer of the past decade. WestJet's growth and profitability successes speak to its way of managing the airline.
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 12:28 am

Quoting IrishAyes (Reply 13):
Quoting Viscount724 (Reply 12):
But much larger than Chile.

Nevertheless still very relevant, considering that the Canadian government tends to be very protectionist of the flag carrier (Air Canada)

Routes where WS is competing with AC are virtually all Open Skies. Where is the Canadian government protectionist of AC on domestic and transborder routes? Those are free-for-all markets where any Canadian carriers (and US carriers on transborder) can operate without any restrictions. Many other WS international routes to the Caribbean etc. are also very liberal. And should WS ever decide to fly to Europe, the 27 countries in the EU (plus Switzerland, Norway and Iceland) are also Open Skies markets where they can operate without restrictions.

And AC is no more a "flag carrier" than any other Canadian carrier that operates international routes. That term is now largely obsolete where arilines are privately-owned businesses like any other.
 
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 11:39 am

Quoting timpdx (Reply 5):
It helps that South America is a pretty high priced part of the world for air fares.

Indeed LAN doesn't have to cope with the incessant LCC competition that the likes of QF/BA/AF etc etc have to. If you want to fly around South America, you have barely any choice at all - even the dodgy companies are expensive. If I want to fly domestically in the UK, I've generally got lots of choice. This cannot be said of domestic/short haul air travel around this continent.

Yes they're well managed, but if they were having to slash costs to the same degree as competitors elsewhere in the world in order to remain in the game, it might be a different story.
 
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 12:00 pm

Quoting Gonzalo (Thread starter):
Being sort of "national carrier" of a small country like Chile, with a limited O&D market, and having its home base in one of the worst possible locations in terms of "hubbing", LAN has become one of the strongest brands in the region, expanded almost all over the continent with presence in several countries, and, despite being far from "perfect" or "the best", is offering a good product and is definitely a success in terms of business.

Here's a nice video summarizing LAN's growth through 2010:
Historia de LAN Airlines
 
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 12:15 pm

Quoting Polot (Reply 1):
Simple- they are well managed, mostly free from government interference, and have been for a long time now. Contrast that to its peers in South America and it is pretty clear why LAN has become such a force. LAN has been able to exploit other countries inability to successfully run an airline for their own benefit.

The LAN of today started about 15 years ago and was helped by the demise of the flag airlines in Peru and Ecuador. Good management practices and vision turned them into the Continent's major force. TAM was the crowning and transforming merger, by joining Brazil to the group LAN became the dominant force in Latin America and now internationally. Buying 787's also helps solidify LAN's forward vision.

The protectionist practices of Chile's neighbors also helped LAN, some governments saw the vision and followed LAN's wisdom by allowing their flag airlines restructure and merge, Avianca is the example I am thinking of. Today because of LAN's vision and leadership there is only one "old style" governemnt owned airline in Latin America, we all know its name; but that country's main airport is an attractive destination even welcoming Emirates and Qatar.

What will LAN do next ? Buy Copa.

Quoting PRAirbus (Reply 10):
Wonder if LATAM will move to AA North terminal in MIA, they should!

LAN always has had plans to move to AA's MIA North Termial, so LATAM probably will move.
 
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 12:35 pm

Quoting jfk777 (Reply 17):
The LAN of today started about 15 years ago and was helped by the demise of the flag airlines in Peru and Ecuador.

TAME is currently Ecuador's national flag carrier. LAN Ecuador was only permitted to launch domestic flights within Ecuador a few years ago and is still growing in that domestic market.

Quoting jfk777 (Reply 17):
What will LAN do next ?

Continue to grow organically and focus on the synergies created from combining with TAM; which has created huge potential for future growth. Chile, Ecuador and Perú continue to experience strong demand for domestic flights and LAN is responding by increasing frequencies on many domestic routes. The airline is also increasing frequencies on regional routes within South America and just recently increased frequencies into JFK, LAX and MIA.

Quoting jfk777 (Reply 17):

Quoting PRAirbus (Reply 10):
Wonder if LATAM will move to AA North terminal in MIA, they should!

LAN always has had plans to move to AA's MIA North Termial, so LATAM probably will move.

The current concourse E will eventually be LATAM's new home at MIA. LATAM operates many widebody flights into MIA daily and couldn't possibly move into the North Terminal.
 
PlunaCRJ
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 2:45 pm

Quoting Polot (Reply 1):
they are well managed

Indeed.

Quoting Gonzalo (Thread starter):
Being sort of "national carrier" of a small country like Chile,

I believe Chile's long and thin shape helped LAN here. Despite its (relatively) small size, there are some very large distances inside Chile. As a fact, I have read somewhere that Chile's most northern point is nearer Cuba's most southern point than Chile's own most southern point.

This surely helps to establish a rather important domestic market.

Quoting timpdx (Reply 5):
It helps that South America is a pretty high priced part of the world for air fares.

        

This is the absolute key here. South America is vastly underserved, competition is extremely lacking, and fares are thus very high.

Quoting jfk777 (Reply 17):

What will LAN do next ? Buy Copa.

Oh no, please no more consolidation. We already have had a lot of that already.

CM and TA (AV?) already have an oligopolistic control of the Central American market (much, MUCH worse than the one we have down here in the Southern Cone).

What would be nice would be to see LAN through LAN Colombia entering this market stirring things up a bit.

Plus, Copa is doing great, it has found its niche, and does not need a merger. Copa´s one hub model doesn´t combine well with LATAM "multiple hub- multiple destinations" model either.
 
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 3:17 pm

Quoting PlunaCRJ (Reply 19):
This is the absolute key here. South America is vastly underserved, competition is extremely lacking, and fares are thus very high.

Yes, and the key here is Brasil. Much has changed in Brasil over the past decade, following the deregulation of its domestic fare system. Brasil is, by far, the largest commercial aviation market in Latin America and no longer needs to protect its domestic carriers.

I foresee Brasil embracing Open Skies policies and open foreign ownership policies with its neighbors in Latin America in the future. More competition, not less, is required and liberalizing the regional markets, not just the national markets, would go a long way to enhancing and developing new traffic flows.

There is no reason why LA, along with its TAM subsidiary in Brasil, cannot benefit from this trend. AV's majority shareholder, Synergy SA in Brasil, must also be focused on developing its operations in Brasil.

Should lawmakers and the Executive in Brasilia decide to make smart and forward-looking policies, everyone will benefit, especially travelers.

LA operates very effectively in the region and is has the benefit of understanding markets throughout the region, not just Chile, not just Peru, not just Brasil, in an integrated manner. This is key to its future.
 
2travel2know2
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 4:57 pm

A major reason for the success of LA (the original Chilean airline) has been to know how to fill the void left by other airlines in countries like Perú, Ecuador and Argentina. And they had done a good job.
Its growth isn't like when Salvadorean TA took over its competitors in Central America.

Quoting PlunaCRJ (Reply 19):
Plus, Copa is doing great, it has found its niche, and does not need a merger. Copa´s one hub model doesn´t combine well with LATAM "multiple hub- multiple destinations" model either.

Here we believe that if LATAM wants to do something in Panama, they better set up a CM competitor and if that happens most likely CM will try to force LATAM to base it in an airport other than PTY.
I'm not on CM's payroll.
 
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IrishAyes
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 5:46 pm

Quoting Viscount724 (Reply 14):
Where is the Canadian government protectionist of AC on domestic and transborder routes?

I was referring to Air Canada as a whole, not its route network. This is a general thread about airline management, not network planning.

Although, if you are going to isolate routes as you mentioned in your response, my argument still holds when it comes to intercontinental flights in and out of Canada. Do I need to mention the whole EK/EY debacle as an example? That pretty much sums up everything in a nutshell.

Quoting Viscount724 (Reply 14):
And AC is no more a "flag carrier" than any other Canadian carrier that operates international routes. That term is now largely obsolete where arilines are privately-owned businesses like any other.

Yet, they receive an overwhelmingly large amount of assistance from the Canadian government, far moreso than its competitors. Let's start with AC's poisoned labor relations:

What happened earlier this year when an unusually high number of AC pilots called in sick, and the Canadian government had to intervene to prevent pilots and mechanics from striking?

What about another government intervention in late 2011 when Air Canada's 6800 unionized flight attendants were preparing for a strike after they rejected two tentative agreements for pension reform?

AC also won relief from the Canadian government to freeze pension payments for 21 months and then cap contributions from 2011 through 2013.

Now the AC Pilots Association is suing the Canadian government for intervention and passing the Protective Air Service Act, which they feel violate Canadian labor laws. Key word here: Protective.

Nevertheless, thanks to these measures, AC happily enjoyed financial rebound by Q3 2012 and turned a profit and announced a slew of new long-haul routes to keep shareholders happy.

Let's not forget about the Canadian taxes (although this isn't specific to Air Canada, it nevertheless is a relevant fact). They are absurdly high, and SHOULD serve as a major contribution to the aviation sector.

Despite all of this, AC seems to undergo wave after wave of transformation, now all set to launch a LCC subsidiary. Hasn't this been tried (and failed?) before in better times? Care to Tango, anyone?

If this isn't favoritism, then I don't know what is.
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shanxz
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 6:48 pm

Strange no one mentioned Cargo! That has been one of the strongest pillars of LAN's successes. It wasn't the just passenger business - it was the fish, the wines, the meat!

In fact, LAN is one of the fewest airlines in the world with a very clear 30-30-30 strategies. 30% of the business is international/global. 30% is within South America/regional. And 30% of the business is cargo.

This split is vital during the aviation industry cycles - when international traffic is weak, regional demand is strong (people travel short haul). When passenger biz is down, cargo might be strong. Hence, damping the effect of economic cycles to a certain extent.
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 7:08 pm

Quoting shanxz (Reply 23):
In fact, LAN is one of the fewest airlines in the world with a very clear 30-30-30 strategies. 30% of the business is international/global. 30% is within South America/regional. And 30% of the business is cargo.

Well, they bought an airline (TAM), which has its core business in the domestic market.
 
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 8:10 pm

Quoting PlunaCRJ (Reply 19):
Plus, Copa is doing great, it has found its niche, and does not need a merger. Copa´s one hub model doesn´t combine well with LATAM "multiple hub- multiple destinations" model either

Panama has space to grow in the future. In GRU they are bursting at the seems and have to turn away A380 because there have no space to park them between flights. Panama is essentially the Atlanta of Latin America and could be leveraged more if long haul was flown from there. LAN 787 any one ?
 
Viscount724
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 8:20 pm

Quoting IrishAyes (Reply 22):
Despite all of this, AC seems to undergo wave after wave of transformation, now all set to launch a LCC subsidiary. Hasn't this been tried (and failed?) before in better times? Care to Tango, anyone?

Tango wasn't an LCC subsidiary. It was fully part of mainline AC. It was just a brand and a few higher-density aircraft to spread costs over a larger base. After union concessions were agreed, it served no purpose and it was converted to what remains just a name for the more restrictive fares.

Zip was an LCC subsidiary and worked fairly well to make use of the ex-CP 737s before they were retired. Some of their ground staff were also employed separately at lower salaries, unlike Tango.
 
LipeGIG
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 8:25 pm

Quoting Polot (Reply 1):
Simple- they are well managed, mostly free from government interference, and have been for a long time now.

Yes, you're right, but they also have a different business model from the majority of their competitors.

LA runs a clear multi-hub system, but they also take the most advantage of few destinations together with that multi-hub strategy. They have a very interesting and unique business model in which MIA, MAD and JFK plays an interesting role allowing lower fixed costs.
Instead of running 1 or 2 flights to 15 different markets, taking the cost of 15 offices plus equipment & staff needs, they run less where they have a very intensive operation (specially MIA).

Plus, their business product is above anything else in the Americas (and they got the yields they focus), their equipment is right sized (763 and now 787) and they handle so well cargo as many do not imagine.
Ahh, their economy is far from being crowded and the service is very good. So people also pay the premium.

LAN in the end, is well managed as Polot said, but also means an airline that delivers what the 2012 customers are willing to get for the amount of money they are willing to spend.
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 8:31 pm

Quoting jfk777 (Reply 25):
LAN 787 any one ?

LAN's 787s will fly from BOG, GIG, GRU, GYE, LIM, UIO, SCL, etc. GRU is getting a new terminal. Both LIM and SCL have implemented plans to expand there respective airports and build new runways. It is very important to note that passenger traffic at both SCL and LIM is increasing rapidly.
 
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IrishAyes
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 10:05 pm

Quoting Viscount724 (Reply 26):
Tango wasn't an LCC subsidiary. It was fully part of mainline AC. It was just a brand and a few higher-density aircraft to spread costs over a larger base. After union concessions were agreed, it served no purpose and it was converted to what remains just a name for the more restrictive fares.

Zip was an LCC subsidiary and worked fairly well to make use of the ex-CP 737s before they were retired. Some of their ground staff were also employed separately at lower salaries, unlike Tango.

My apologies, I mixed up the brand names. But I think you got my general drift  
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PlunaCRJ
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RE: What Is The Big Secret Of LAN?

Wed Dec 12, 2012 10:44 pm

Quoting 2travel2know2 (Reply 21):
Here we believe that if LATAM wants to do something in Panama, they better set up a CM competitor and if that happens most likely CM will try to force LATAM to base it in an airport other than PTY.

Given CM´s position in PTY, wouldn´t make more sense to not make a hub there as well? I believe BOG through LAN Colombia would be an easy way to enter the Central American market. For flights between Central American destinations, they could do things like BOG-SJO-TGU for example. If CM can do these stops (I believe Copa Colombia does them as well with flights originating in Colombia), LAN would be able to do them as well, right?

I am not really sure about this, I am not familiar with the agreements in place.

Quoting LipeGIG (Reply 27):
Ahh, their economy is far from being crowded

Unfortunately the 787 changed that... Economy in their 767s is outstanding though.

Quoting SCL767 (Reply 28):
LAN's 787s will fly from BOG, GIG, GRU, GYE, LIM, UIO, SCL, etc.

EZE is the only current LATAM base you do not explicitly mention in that list. And EZE was LA's first 787 destination from SCL. Apart from the current (let´s say temporary) restrictions for new airplanes that 4M faces, is there any other reason for that?