Lan Airlines in 2008 Connecting the World to Latin America Case Solution

LAN carried 38% of the total cargo in the bellies of the passenger planes in 2007. There is no other cargo service that has an extensive distribution system in Latin America, but LAN has built it by doing strategic partnerships with the local distributors. LAN also has a strategic alliance with Lufthansa cargo to cover its cargo business in Europe.

2. What advantages does it provide for LAN?

According to the Chairman of the Board, LAN, the model of LAN merging passenger and cargo operations generates various benefits for the LAN. This allows LAN to operate in a more efficient manner by integrating cargo business with the passenger routes. The chairman also states that it helps LAN adapt to changing economic scenarios. The combination of cargo and passenger operations yields more revenue to the company. In 2007, 33% of revenue came from cargo business in passenger airplanes and freighters. By pursuing this model, the LAN also managed to cut its costs without compromising on service and quality. The costs would have been much higher if the business of cargo and passengers had been separated. In 2007, LAN managed to reduce the overall break-even load factor from 70% to 61.9%. LAN successfully managed the flights in light of the different demands for both businesses on different routes. For instance, LAN scheduled flight between three points Santiago-Madrid-Frankfurt carrying both passengers and cargo.