Discuss about Lan Airline……………………..

Lan Airlines is in a very competitive market where majority of the competitors are aiming at increasing their market share in both cargo and passenger segments. An analysis of the Porter’s five forces model for this industry reveals the following;

Threat of new entrants

Due to the large capital outlays required for entry into the airlines industry, there are no many new entrants. But there exists intense competition among the existing players. Lan airlines has already established itself as a key player in the cargo industry.

Threat of substitutes  

The airline industry is mainly used by travelers who are covering large distances and have deadlines to meet. Majority of the cargo being transported is usually less bulky and mainly perishable goods that must arrive to their destinations at specific times. The only other means that the consumers can use like sea transport is slow and not economical. Therefore there will be no willingness by the customers to use these other means because the costs of doing so will be very great and uneconomical.

Bargaining power of buyers

The bargaining power of the customers is less because there are many passengers who are seeking these services that are on offer from the airlines. Due to the need for the service and the intense competition among the airlines, the pricing of the services seems to be favorable to the buyers.

Bargaining power of suppliers

The various airlines in the industry are competing and there is no dominant player who has the power to fix prices for the various services on offer. This means that the bargaining power of the suppliers is weak. Any slight increase in service prices in one company will make the customers go to other service providers for the same services at competitive prices. This will translate to loss of revenues and market share to the affected company.

Degree of rivalry

There is intense rivalry in this industry because there is no clear market leader. Most of the operators are almost the same in terms of size and they are competing in the same areas of passenger and cargo business. The switching costs are also very low because passengers and cargo owners will incur almost no extra costs if they shift to other airlines. The costs of exit for the airlines will be very high due to the huge capital invested in purchase of aircraft and other machinery and also the personnel. Due to the associated high costs of leaving the business most of the airlines offer competitive prices in order to attract more and more customers.

The main competitive advantages for Lan airlines include being established long time ago and having been in operation throughout giving it valuable experience in the business. Its services are also recognized to be of high quality guaranteeing it a good market share. The mergers with other companies like Ladeco give it access to more flight routes and wider market. Also being listed in stock exchanges like Santiago stock exchange gives it more capital to invest in planes and other assets enhancing more expansion.

The airline’s strategy is differentiated. It aims at consolidating its cargo business and then use it for the pervasive penetration to the passenger market.

The company aims at expanding into the main markets in the airlines industry i.e the cargo and passenger business in America and beyond. They will do this through investing in more aircraft, research and development and also technology.

The companies are led by a lean management team that is quick in making decisions. The quality of their services attracts a lot of customers to them. There is also the recruitment of qualified staff for both in flight and ground operations. They also have strong links with their customers and this encourages feedback. Lan is the leader in providing cargo business when compared with the other airlines. Its revenues have grown by over 100% between the year 2003 and 2007. But Lan’s revenues of 3,524.9 million dollars is second to TAM’s 4,594 million dollars in 2007.

The company has a clear organizational structure where there is the overall guidance from the board. It has management teams in the various destinations that make decisions on their operations in consultation with the board. There are ground management teams who are workers for the company in all their destinations.

The company aims at integrating its cargo business with the passenger business to enhance growth of both. This is due to its strategic market share in the cargo business. The company also aims at carrying out market surveys in prospective markets to guarantee future expansion. The employees who are engaged by the company will be offered training and development services to ensure they are up to date with requirements and demands of the industry of competency and high level of skills.

The company has clear code of ethics that guide employees approach to work and behavior issues. The company also consults with the relevant authorities in the industry to ensure compliance with set regulations in the industry.

The Lan airlines will gain considerable market share due to its heavy investment and strategic acquisitions that guarantee a foothold in most domestic and foreign markets.

Recommendation: The Lan airlines should pursue its growth strategy continuously since it has the relevant expertise and financial ability to compete. This will only be sustainable in the long run if it invests in research and development activities in the market and its fleet. This will ensure quality services to the customers and guarantee good revenues which will make the company attain its targets.

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