LAN Talks About Growing Lima, TAM and Brazil, and oneworld (Across the Aisle Part 2)

Well here we are with part two of my conversation with LAN (see part one here) and you’ll see at the end that we talk about the importance of Japan Air Lines to the South American airline. That’s particularly appropriate since JAL announced today that it would be sticking with oneworld. (see my piece on BNET) I’m sure there are a lot of sighs of relief down in Santiago today since, as you’ll see, JAL is an important partner for the airline.

Cranky: Will the San Francisco flight go beyond Lima?
Pablo: Yes. The plane is going to continue to Sao Paulo. We have a lot of demand there from companies and leisure traffic going to Brazil. But also it will connect with Santiago and Buenos Aires and most of the rest of South America; we fly to more than 50 cities.

Cranky: It’s an interesting hub in the middle of the night in Lima.
Pablo: We’re making some changes actually. We are working right now on what we’re calling internally, the double hub. The one that you flew was in the middle of the night, but we want to have another connection bank in the middle of the day, around noon, so we will have more alternatives for US passengers.

Cranky: Will Los Angeles have a flight that gets in during the day?
Pablo: Yes, we will have both.

Cranky: When it that starting?
Pablo: We are still working on that because there is a lot of work to be done. It should be probably by June or something like that. The same will happen from New York. The feedback is the same, they don’t want to stop in Lima in the middle of the night.

Cranky: I assume there’s not much you can say about the rumors about TAM and LAN potentially working together?
Pablo: Of course. That’s some very confidential information that I don’t even have. What I can tell you is what our CEO has already stated for the last couple years is that for LAN it’s strategic to be in Brazil. We have been working on different alternatives to have something similar to what we have in Peru, Argentina, and now Ecuador. About this rumor with TAM, no we don’t have any concrete information.

Cranky: I was wondering about that with Brazil. Is there a reason you haven’t started LAN Brazil? Are there too many regulatory reasons?
Pablo: Yes, there are a couple of reasons but one of the main ones is the legal structure. In Argentina or Peru, for example, the government helped us to create these companies with local investors. In Brazil it’s much more complicated, because you can’t do that. You can’t have external investors having most of the equity. So in this case, that’s the main reason. Of course, we’ve been evaluating alternatives. Brazil is almost the size of the rest of South America altogether, so for LAN it would almost double the size of the company when we go to Brazil, so we have to be very careful.

Cranky: I’m always interested to watch LAN in South America because you’re obviously the broadest airline down there in terms of covering the continent well. I’m very interested to see what TACA and Avianca are going to do together. I assume you pay attention to them closely?
Pablo: Yeah, definitely. They are an important player now more than before but actually it’s not very threatening to us. We have been dealing with a lot of competition down there. They are not exactly where we are in South America. We believe that we still have important strategic differentiations, and our business model is, I believe, very strong. Of course, we are always looking at the competition. We are realistic.

Cranky: Can we expect further expansion in the US? Are you looking at additional cities?
Pablo: This year we are expecting a lot of growth. For example, out of New York, we are growing our seats 25%. We are growing a lot but more in terms of consolidating our routes and more frequencies, especially for the corporate travelers. Plus this new gateway to San Francisco. Then we might look at expansion like we did a couple years ago to Toronto, the last gateway we opened before SFO. We might evaluate something like Montreal or Vancouver or Chicago but there is no specific project with a concrete date. We know the next cities in terms of traffic that are important are Washington, Chicago, Vancouver, and we’re always evaluating them.

Cranky: I know I’ve heard some people wondering about Washington.
Pablo: Yeah, last year we were almost there. We had everything ready to fly to Washington from Lima a year ago, more or less, but the crisis was much worse than what we expected, especially on the cargo side of the business and then we had to withdraw the project. We expect to fly to Washington in the middle term.

We never start an important route and then drop it. We always start and then we stay there. We work with the community to increase tourism and traffic. That’s probably why we take a little longer on starting projects like this, but I’m pretty sure we’ll go to daily flights out of San Francisco before we reduce capacity.

Cranky: One more question and then I’ll let you go. Oneworld has been in the news a lot lately. Are you guys involved in the package that American, British Airways, and Qantas have put together? Are you happy with oneworld?
Pablo: In general I would say that we are very happy. We are still, even though we’ve been growing double digits over the last 10 years, we are still one of the small brothers. Being part of the AAdvantage program has been very important because we can go with American or with Iberia in Europe. Oneworld has been working well for us. We don’t see any good reason to look for alternatives.

Now, if you see things happen with JAL and Delta and everything is going to be restructured in the next 1 to 2 years, of course we’ll be willing to evaluate things. In markets like the US, it’s a point we use a lot, to promote LAN as part of oneworld because it gives us more awareness as an important world class airline.

Cranky: Do you get much traffic from JAL?
Pablo: I hope they don’t leave. They bring quite an amount of clients to our routes from LA and now we expect to have them in San Francisco, so that’s something we are working on with them.

Cranky: Thanks again for taking the time to speak with me.
Pablo: It was very nice to talk to you.