Tuesday, June 26, 2012

LAN v. Aerolíneas: a Tale of Two Airlines

The Southern Cone’s two major airlines, Aerolíneas Argentinas and Chile’s LAN Airlines, both originated as state-run carriers at a time when virtually every South American country ran its own flagship. In the early days of South American air travel, of course, only the state had the resources to purchase planes and operate flights - often with military pilots - to a network of destinations around each country and overseas.
The history’s a little more complicated than that, but for many decades both airlines operated at greater or lesser, mostly lesser, levels of efficiency, and they often bled money. Once, when I flew on Aerolíneas from Buenos Aires to Miami in early 1981, I recall no more  than about 20 passengers on the entire plane and, though I wasn’t in first class, I was able to stretch out across three seats for a good night’s sleep. Admittedly, this is anecdotal evidence from a single experience, but it's not hard to imagine the scale of losses on one of the continent's most popular international routes.
LAN underwent privatization in late 1989, while Aerolíneas did so a year later, but since then their histories could not be more different. Under its Chilean ownership – which once included current Chilean president Sebastián Piñera - LAN has modernized its fleet, professionalized its services, and expanded its routes (with subsidiaries in Ecuador, Peru, Colombia and Argentina). Most recently, it has merged with Brazil’s TAM to form the LATAM Airlines Group, the tenth-largest system in the world. While retaining their brand names, LAN and TAM together will cover some 150 destinations in 22 countries. They are also partners of the OneWorld Alliance, with codeshares and frequent flyer programs around the globe.

Aerolíneas has moved in the opposite direction. Its privatization failed for a variety of reasons – some of them political rather than economic – and its operations became notorious for delays and cancellations under a series of Argentine and Spanish owners; at one point, its only foreign destination was Madrid. The company even suffered a bankruptcy in 2003 and, in 2008, the government of the late President Néstor Kirchner expropriated and renationalized it.

I'd like to be able to say that state management has improved matters but, to all appearances, things have gotten worse. Now managed by political appointees allied with the Peronist youth wing La Cámpora, Aerolíneas remains an operational and financial catastrophe. In a recent TV program, investigative journalist Jorge Lanata detailed further deterioration under the new regime, which has expanded its personnel even as it has reduced its schedules and continues to hemorrhage losses.

I can’t repeat all Lanata’s findings here, but a couple examples really stand out. The company is presently paying US$565,000 monthly rent for a Jumbo jet, parked at the international airport at Ezeiza, that it cannot return until the lease expires in February of 2014. Its only recent use has been a high-profile trade mission that current president Cristina Fernández led to Angola – a country whose ability to acquire Argentine exports is limited – last month.

Perhaps the most damning stat, though, is the fact that the company fills every one of the 280 seats on its daily Buenos Aires to Madrid route, but that it would have to sell another 40 just to break even. On top of that, only recently has it managed to negotiate codeshare agreements with AirFrance-KLM in Europe and Delta in the United States; for many years, the company had no frequent flyer program, and only recently has it joined the AirFrance-KLM Flying Blue program.

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