Lan Airlines Case

Lan Airlines competes in three different business segments, which are as follows: short-haul domestic routes in Chile, Peru, and Argentina, long-haul international routes, and international air cargo service. These business segments are all operated differently, and as a result, Lan Airlines implements different business level strategies for each.

The first segment is short-haul domestic routes to Chile, Peru, and Argentina. Lan Airlines used a cost leader strategy for this business segment. The low cost model had already become popular in Europe in the mid 1990's and Gol from Brazil adopted this model a few years later. Lan Airlines wanted to keep their image of high quality and premium service, so the low cost approach was implemented for only short-haul domestic flights. Ticket prices for these flights were reduced by 20%, resulting in a demand increase from 30% - 50% on certain weeks. By cutting costs and lowering ticket prices, Lan Airlines was able to increase its demand by 500,000 passengers on flights to Chile and Peru. With an increase in demand for short-haul flights, Lan was able to use newer, more efficient planes that were able to fly more hours each day. Lan's cost leader strategy for short-haul flights resulted in increased demand and stimulated growth.

Long-haul international routes are the second business segment of Lan Airlines. The business level strategy utilized in this segment is being a focused differentiator. Although fare prices, in certain cases, were lower than some competitors, this was not Lan Airlines main focus. Lan's image was that of high quality and premium services, and keeping this image was always a goal kept in mind when making decisions. Lan offered a full range of services on long-haul international flights. Over the last few years a new premium business class was added to Boeing 767 long-haul planes. This addition made Lan the first airline to offer beds on flights between Latin America and the United States. Maintaining competitive prices is important for Lan, but providing the best service was Lan's goal. Prices will increase with all of the available services on long-haul international flights, but if a high quality service is offered, Lan believes demand won't decrease. If passengers really enjoyed their flight, the premium quality will draw them back again. The perceived value of Lan Airline's services increased, especially after receiving various awards for its high level of service.

The third business segment of Lan Airlines is its international air cargo service, which operates as a differentiator. Lan has a cargo facility and Miami International Airport that is the largest Latin American airline with dedicated cargo assets on U.S. soil. Lan's image is that of high quality and excellent service. This favorable image allows Lan's air cargo segment the opportunity to ship a wide variety of goods; from live animals to a rock groups