Enrique Cueto Plaza
CEO, LAN Airlines
ACHIEVEMENTS LAN dropped “Chile” from its name to reflect its successful expansion to Argentina, Ecuador and Peru. During one of the most challenging operating environments in recent history, LAN posted record net income on $3.5 billion revenue in 2007. LAN formed an alliance with Brazil’s TAM, prepared to launch a cargo airline in Colombia, and announced the largest fleet expansion in its history.
BACKGROUND When the Cueto family led the purchase of LAN in 1994, Enrique Cueto jumped from CEO of cargo airline Fast Air to lead LAN. Cargo served as the backbone for his strategy to expand the Chilean passenger airline into an award-winning operation with shares listed on the New York Stock Exchange.
“The difference between LAN and other airlines is the manner in which our cargo and passenger businesses support each other, enabling us to deliver during difficult times with significantly better results.”
THE SINGAPORE AIRLINES OF SOUTH AMERICA
Enrique Cueto has transformed LAN Airlines into a world leader with a successful mix of cargo and passenger service in Chile, Peru, Ecuador and Argentina. LAN achieved record profits in 2007, but LAN CEO Cueto wants to take his three-legged-table strategy—security, service and efficiency—to more countries in Latin America. Cueto speaks with Latin Trade about what’s next for the multi-latina airline with annual revenues of US$3.5 billion.
Why are you starting airlines in Latin America?
Latin America is 5% or 6% of world traffic. The United States is a third of world traffic. Europe is 25%. If you take out Mexico and Brazil for the Latin America’s 6%, there’s only 3% left. Each one of our countries is 0% of nothing. British Airways is joining together with Iberia, and Air France with KLM, where they represent 24% of world traffic and they are considered small. Imagine our region. First, we need to grow. Second, we need hubs in Chile, Peru, Ecuador and now Argentina. We have always wanted to be the Singapore [Airlines] or Cathay [Pacific Airways] of South and Central America. When someone flies to South America, we want them to think about flying on LAN.
How are you achieving the record performance in the difficult operating environment?
The region has been growing like never before in history. We have very strong currencies in the region. So when we had to increase rates, we passed along the cost in dollars. Because the currencies were revaluing, the impact in local currency was much less. We are also working in very strong markets. The difference between LAN and other airlines is the way in which the cargo and passenger businesses complement each other to allow us to achieve significantly better results.
What role does cargo play?
We are far and away the largest cargo airline in Latin America. When currencies are strong, imports grow in importance. Transport rates have less on an impact on imports than exports. If you pay two or three dollars per kilo to ship imported technology and components in South America, one dollar more in transport costs is practically nothing compared to the total value of the merchandise. When you export asparagus and sell it at US$4, if transport goes up a $1 than, your costs increased 25%. Fortunately, increased costs [for LAN] came when less-price-sensitive cargo was growing.
Why are you expanding cargo operations on Colombia and Central America?
Cargo, unlike passengers, goes only one way. A passenger normally comes and goes. Not cargo. If computers are imported, you don’t take them back the next week. For that reason, traffic is entirely unbalanced. Our cargo operations with all-cargo aircraft require multiple traffic rights. Colombia is a big cargo exporter, especially to the United States. Central America, too. We lacked service [to these areas]. What we are trying to build a cargo gateway to Latin America from Miami.
What about the alliance with Brazilian airline TAM?
The Brazilian market is very large and we have always wanted to do something with Brazil. We have flights to Brazil from all of the South American countries where we operate. There’s important domestic traffic within Brazil and there are TAM passengers that want to fly within South America, to Buenos Aires and later to Santiago o to Lima and then Cusco.
Many Chilean multi-latinas are sold when the company reaches the stage of entering Brazil. Is there any possibility that LAN will be sold?
LAN is worth 4Bi (US$4 billion). LAN is worth more than British Airways. It is not going to be easy for someone to buy LAN. To the contrary, we need to understand what is happening in the world and take advantage of our current valuation.
Filed Under: 2008 WINNERS
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