MIDTERM REPORT:

STRATEGY OF LATAM

Course

Strategy

Teacher

Maria Esther Caballero

Members

Alessandra Calixto

Valeria Mazuelos

Peyton Stoner

Arianna Vega

Universidad del Pacífico

May 2019

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INDEX

1. LATAM’s Business Market

1.1 Market Definition
1.2 Market Potential
1.3 LATAM’s Capabilities to compete in the market
1.4 Recommendations
2. LATAM’s Price and Advertisement Strategy
2.1 Price Strategy
2.2 Advertisement Strategy
2.3 Strategy’s Dominance
3. LATAM’s Model of Competition
3.1 Market Share Estimation
3.2 Market Changes
3.3 Model of Competition: Oligopoly
4. LATAM’s Business Capabilities
4.1 Key Capabilities Comparison
4.2 New Capabilities Identification
5. LATAM’s Competitive Advantage
5.1 Reputation: Competitive Advantage
5.2 R&D and Innovation Capabilities
6. LATAM’s Organizational Chart

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1. LATAM’s Business Model

1.1 Market definition

Target segment
LATAM’s target segment is divided in two parts: adults and young adults from 20 years old up to
approximately 60, that belong to the socioeconomic segment A, B and C, and have the desire of
travel whether it is for fun or for work. Including people or companies that want to transport
cargo over long distances.

Customer profile
LATAM’s customer profile is a person over 18 who has the desire to visit places outside his or
her city or country, either alone or with his family and friends. This can occur for different
reasons, whether for pleasure or work. It is true that LATAM tries to address all socioeconomic
sectors; this should focus on people who have the purchasing power to buy a plane ticket.

Product portfolio
In order to offer products or services, LATAM is divided in two parts:

LATAM Airlines offers two types of seat: economy and business class. The main difference
besides of the price, is the higher quality of the service and more comfortable seats.

Economy class is usually bought by families or friends; while, for the business class is more
focused for people who travel for work.

On the other hand, LATAM Cargo offers three services that vary on levels of need. These
services provide solutions for a range of needs, from the most urgent shipments to the most
flexible ones:
● Express: For most urgent shipments
● Standard: It is available in all the flights
● Flex: Low-cost and for shipments that need to reach destination within a specific period
of time.

LATAM’s Market Share

At the national level, it is pretty clear that LATAM is the leader of the airline industry. In January
2019, LATAM Peru had the highest participation in the national air traffic transporting 655 796
passengers which represented 62.9% of market share. Followed by Peruvian Airlines with 127
455 passengers (12.2%); Viva Airlines with 122 681 (11.8%); Avianca Peru with 94 512 (9.1%)
and Star Peru with 20 184 (1.9%). (DGAC, 2019). (Exhibit 1)

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LATAM has been the leader for many years in Peru due to their variety of destinations and their
reputation they have gained over the years. Even though, many airlines are present, LATAM
over the years have had more of the 50% of market share and these new low-cost airlines have
a really small percentages of the market.

Competitors and degree of competition (concentrated / fragmented market)

The most important competitors for LATAM are currently the low-cost airlines that have gained a
good position in the market. People are preferring to buy tickets in those airlines due to its low
prices and because those are short-haul flights, they do not care about receiving an excellent
service or receive food or beverages.

According to LATAM Peru CEO, Félix Antelo, Peru is the country in South America with the
most aero commercial competition, that means, with more competitors in the domestic and
international market. In the domestic market, the most important airlines are Peruvian Airlines
and Viva Air. Those are low cost airlines that have had an aggressive expansion over the
country and had captured many new passengers. Even though, their market share is very low in
comparison to LATAM, it is important that LATAM develops new strategies in order to get back
customers that now they buy tickets in those airlines. Also, since April 2019, the new entrance
of a low-cost airline, Sky Airlines, has generated a price war in order to capture more people
with their low prices. In the international market, it also exists airlines such as American Airlines,
Avianca, Copa Airlines, etc. However, the market is still being concentrated by LATAM because
it is a company that offers many types of services and as it was mentioned before, they have
many destinations. Also, due to their strategic alliances with other airlines, they can get to 143
destinations and 26 countries.

Price Structure
In 2017, LATAM made a price restructure in order to be able to compete with low cost airlines.
They make a new rate structure that allows the passengers to choose the services they want for
their trip while offering many alternatives within each service. Currently, LATAM offers 4 types of
rates known as Promo, Light, Plus and Top. While for LATAM Cargo the price depends on the
size and the quantity a company or person wants to send. With this new model, LATAM has
decreased on average, 25% its basic fares.

1.2 Market Potential

Trends
LATAM wants to guide its vision for the future and its commitments to align more and more with
the standards of sustainability and global trends in the field (Memoria Anual, 2017). Currently, it
exists two relevant trends that airlines have to take into account in order to have a better
approach to their customers:

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 ● Technology: people are more practical; they try to use technology in order to minimize
time in some activities. In the case of buying tickets, they prefer to buy online instead of
go to some travel agency. Besides, they want to be able to check the information of their
trip at any time. That is why LATAM has its own website to buy tickets and schedule a
shipment in the case of LATAM Cargo.
● Social Responsibility: people are worried about the climate change; they support eco-
friendly companies. In the case of airplanes, they do generate pollution due to their
emission of CO2. So, LATAM has developed a sustainability strategy in order to
approach these concerns. One of the dimensions of it is about to mitigate the climate
change. This seeks a balance between mitigating risks and identifying new opportunities
for managing actual and potential environmental impacts, stressing reduction of the
operations’ carbon footprint and the promotion of eco-efficient practices (Exhibit 2).
(Sustainability Report, 2017)

Threats
A possible threat is that people are not loyal to some airline in specific. It is true that LATAM has
more than the fifty percent of market share; however, the success of low cost airlines has been
the prove that people are willing to sacrifice a good service for a low price ticket.

Another threat could be that airlines can have the same destinations for long-haul flights at a
better price than LATAM, and because it does not exist loyalty from the clients, LATAM could
lose many passengers and they would need to restructure its business in order to get them
back.

1.3 LATAM’s Capabilities to compete in the market

Low 1 - High 5

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Network operation
LATAM has a strong network operation which plays a role in their success. They are very
connected by being the only airline with seven home markets. This means they have
headquarters in Chile, Argentina, Brazil, Colombia, Ecuador, Paraguay and Peru. The alliance
with One World allows them to essentially reach 160 countries.

They reach out to more than just the average traveler, they provide services for all business for
faster shipping. With cargo planes this can almost double their market. Since the end of
January, they are constructing a new project, the Perishable Hub. This will meet the needs of
business’ exporting fresh goods. The Thermo-Pallet Trailer also provides the necessary
temperature for medicines, but is more expensive. With trained staff exporting animals is also at
a business’ convenience.

Customer Service
The technology is competitive but not outstanding when comparing other airlines and their apps
and websites. The technology they have planned for the Perishable Hub features cold
chambers which leads to faster delivery and is specialized according to the good.

LATAM as a “Mega Airline,” was rated the most punctual in 2018. This was measured by how
often they arrive on time with a fifteen-minute window, their results were 85.6%. This increases
loyalty, therefore, encouraging more credit card sales and reward members.

Sales and Marketing

The 2% increase brought them to just over 10 million US$ in revenues. This increase came from
hiring more workers for less, and improving efficiency and cutting out some services.

Product Development
Risk management is observed in two categories: flow and balance. Flow is calculated by the net
result of costs and income. Capacity of passengers has increased by 6.5%, therefore increasing
revenues.

Pricing Strategy
Domestic flights could be lower cost and more competitive. Although, this is not that significant
because the actual flight is not expensive because no food is provided and the amount of gas is
low. For international flights it is more important to be cost effective, they stay competitive by
offering different classes to meet all budgets of consumers.

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Comparison to Competitors
LATAM holds 56% of available seats per kilometer (ASK), in Jorge Chavez Airport. The fact that
they have two types of aircrafts gives them an advantage to have more opportunities and further
partnerships. They have the most cargo planes and are competitive when it comes to lounges.

Peruvian Airlines have 15% of ASK in the largest airport in Peru. Perhaps they have more than
Avianca because of their name. They are doing good for how recently they were established.

Avianca holds around 11% of ASK at Jorge Chavez. This is surprising because they have been
established since 1919. They have a stronger hold in international flights after they established
their alliance with Sociedad Aeronáutica de Medellin and Helicópteros Nacionales de Colombia
in 1994.

1.4 Recommendation

Framework for forecasting: domestic Airline Estimation for 2020

LATAM is making the small improvements that keep their reputation high and customers loyal.
These improvements include ticket kiosks and more benefits included in the cost of the ticket.
This keeps them dominating in the field when it comes to domestic passenger share. This
represents their available seat per kilometer (ASK), meaning LATAM has the largest carrying
capacity. Their Boeing 777 aircraft can hold 379 passengers and their smallest aircraft, Airbus
319, holds 144 passengers.

The forecast for the next five years their dominance will remain unless they lose a few planes.
Boeing has a better reputation for passenger aircrafts while airbus represents cargo. They are in
the top ten when comparing all aircrafts. They are behind Chinese and other European aircrafts.

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Source: Peru DGAC.

2. LATAM’s Price strategy and Advertisement

Strategy

2.1 Price Strategy

Until 2017, LATAM had a traditional rate structure, they offered a complete service with a
standard price. If the passenger wanted a better service, there were two options: to either travel
in economy cabin or in the business cabin. The main difference were the seats and the food
offered, where economy ones had a much lower quality, consequently, they had lower costs as
well. However, in July of 2017, LATAM decided to make a new rate structure that allows the
passengers to choose the services they want for their trip while offering many alternatives within
each service. “From a model that only depended on seats availability, time and demand of the
flights to a tiered one in which the price was increased, according to the services used. This
modification aims to reduce the structural rate by 25%”, said by Felix Antelo, CEO of LATAM
Airlines Peru to Semana Económica.

Nowadays, LATAM offers 4 types of rates known as Promo, Light, Plus and Top, the ones that
are shown in chart N°1.

Chart N°1: Services offered by each type of rate

● Promo Rate: It is the cheapest rate offered, which leads it to not always be available. It
will only be launched on specific dates for passengers who wish to plan a trip with little
time anticipation. It allows traveling with only a carry-on baggage; however, the
possibility of paying for a checked baggage exists.
● Light Rate: For passengers who do not want to use all the services the company offers,
reducing the price to pay. it provides: a carry-on baggage on board and accumulation of
LATAM Pass miles. Both the checked baggage and seat selection have an extra cost
that ranges from $3-$15, respectively. It does not allow to make changes or refunds; it is
almost the same as the Promo rate.

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 ● Plus Rate: It includes almost all services, but extra charges are made for choosing a
preferred seat, changes and refunds. Made up of carry-on luggage, a checked baggage
of 23 kg., selection of seats and accumulation of LATAM Pass miles. The additional
costs are for the choice of the preferred seat, changes and refunds.
● Top Rate: It is the rate that includes all the benefits and has a greater flexibility. It is for
anyone who values service just as much as the transport that an airline normally offers.
It considers both carry-on baggage and checked luggage, seat selection, favorite food
choice, changes and returns without cost and accumulation of LATAM Pass miles.

With the cheapest rates, LATAM seeks to capture passengers with greater price sensitivity and,
consequently, increase air traffic in the region by 50% by the year 2020. At the same time, the
LATAM Group maintains its differentiating stamp, with its frequent passenger program,
destination network, free onboard entertainment, among others (Memoria Anual, 2017). This
new price strategy was made because the airline wanted to compete with low cost airlines that
have become more popular in the last few years, the ones that have reduced the entry price.
However, LATAM has implemented an opposite strategy: low rates for short-haul flights and a
premium service for long-haul flights. This has had a positive impact and its revenues have
increased.

Competitors reaction to the company’s price strategy

Most of airlines have kept their price strategy, since prices in the air transport industry cannot be
as determined by the same companies as in other industries due to the constant demand of the
service. This, however, is not the case for LATAM, the one that changed its approach towards
the new low-cost companies by reacting similarly to those: offering low rates by including less
transaction costs into those tickets. This has been beneficial for people that tend to have shorter
trips and do not want to travel with a lot of luggage. On the other hand, it is a matter of time that
other airlines will adapt their service and can offer low cost services while not being entirely low-
cost such as LATAM.

This is the case of American Airlines, the one that in 2018 announced that they were going to
offer low-cost rates as well to travel through the North Atlantic Sea. Besides, they were
analyzing the possibility of making a joint-venture with British Airways, Iberia and Finnair in
order to allow passengers to purchase low cost tickets with any of these airlines. Similarly,
Iberia introduced in November 2017 Premium Economy rate on long-haul flights, that would be
a medium class, located between LATAM's Economy and Business rates, providing something
different.

Final result considering pricing dynamic on this market

Price is not established by enterprises per se, it is a result in the demand of the market, which
makes companies within this industry have a very big demanded quantity in some seasons and
a lower one in others; which results in companies having different price tags for the exact same
services with the only difference of dates. A way for airlines to engage deeper with their
customers is by achieving the mix of a good price plus service differentiation, which could lead

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to a higher demand, specially of those customers that value service just as much as a product.
However, in this industry, better service is mostly more valued by customers searching for
higher cost tickets, which shortens the quantity of customers that are willing to switch airlines
when the price is the same, even if the service is different. This is why low-cost companies have
been able to provide lower-quality service without losing money, because they have ended up
increasing their revenues until a point where low prices are still rentable.

Who was the winner with these strategies?

The winner depends on the customer and his or her needs. However, since there are so many
competitors in this industry, it appears to have made it impossible for airlines to have every
single aspect the market requires. These companies have realized this situation and are finding
a balance between lower prices and better service, but it does not apply for low-cost airlines, the
ones that are constantly decreasing prices but are still very competitive, because they have
been adapting in order to fill customers' most latent needs instead of the secondary ones.

2.2 Advertising strategy

Definition
LATAM's advertising strategy is focused in communicating three different messages to their
customers:

Structural price reductions: LATAM offers different options to its passengers, so they can
choose the best option for them. The goal of the firm is that its customer travels more often.

Brand campaigns: LATAM is a global brand that takes the best of LAN and its history in the
country - more than 85 years - with the best connectivity in the region, the most modern and
efficient fleet and more than 130 destinations in the world. LATAM has special relationship with
the countries where it works, including Peru. Its brand campaigns have focused on
communicating the LATAM news to the passengers, such as improvements in the travel
experience, new routes, fleet upgrades, awards, image changes, new alliances, etc. The
objective of these campaigns is to remind customers that they are the best alternative when
traveling.

Tactical campaigns: The firm always question itself about how to make people travel.
Eventually, LATAM understood that it needed to encourage tourism inside and outside the
countries and it worked. Also, LATAM Airlines comprehend that the new generations make trips
being fully informed. That's why it started promote tourism in an informative way always
enhancing how beneficial can travelling be for oneself. It encourages people to know, to enjoy,
to live new experiences, take advantage of opportunities, make their dreams come true and
discover new horizons in the world, mainly in Latin America. An example of a campaign is
"Vamos / LATAM”, where the firm incorporated important points, such as informing about the
destinations that a tourist can enjoy in a certain city and supporting regional trade. It also

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highlights the cultures in the region, the gastronomy and tourist attractions in Latin America.
Using Content Marketing, LATAM Airlines has generated to inform customers more about the
tourist destinations of this airline.

Competitors reactions to the company's advertising strategy

LATAM is the leader in Peru, even though this country is the one with the most competitors in
Latin America. This highlights the market's big potential to grow if its compared to other
countries (Argentina, Colombia, Chile; where people use airplanes more frequently). This leads
to affirm that airlines can increase their market share in Peru if they know how to compete
accordingly to the customers' needs.

A case worth highlighting next to LATAM is Peruvian Airlines which is the biggest competitor in
the domestic market and has a similar approach in its advertising strategy. Since it is a Peruvian
firm, it still mostly has national flights, so its main goal so far is to position itself as the best
airline for Peruvians. They focus on working on its prices by making them affordable and to get
to those regions that other firms do not get to, such as the Amazon area. This way its customers
can travel more around the country in a much more efficient way with the Peruvian stamp on top
of it, having the fact of "Peruvian pride" to its favor. An example of a Peruvian Airlines campaign
read “Peruvians closer to their dreams” where the main target was to get to the millennials, a
generation that connects flights and trips to a higher status as well as to a better life.

Evaluation of final result considering all strategies developed

With these three tactics LATAM has continued to reach its customers by getting a better
understanding of them, achieved by analyzing the market they are in and the behavior these
customers have towards the industry. LATAM wants to encourage them to travel and
accomplish their dreams, and will go as far as to inform them on country's cultures, cities'
itineraries and even best vacation seasons in each destiny. They play a huge part in the
Peruvian airline industry by holding a big portion of the market share (almost 63% as of March
2019) and keep rates competitive by constantly adapting and providing more customer-
conscious price-tags.

2.3 Strategy’s Dominance

Has LATAM develop a dominant strategy?

LATAM has grown to be a successful company since it was established in 1929. Afterwards, as
the joint company of both Lan and TAM. They have adapted new networks and improved
customer service by offering what the market actually wants. Furthermore, they ensure to keep
safety and market approach as their main priorities, which shows the big enfasis they have tried
to keep towards the needs of the customers and by actually satisfying them, which is preceded
in the diverse clientele, competitive prices, and global reach they have.

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  LATAM has reached seven home markets which gives them an advantage to bridge
regionally and internationally.
 Stayed loyal to one brand but established other operations and partnerships.
 A strategy to keep prices low is to reduce operating costs by 5%, which is later destined
for the lower base prices.
 Risk and stakeholder management.

Next goal
Focus on carbon footprint; they are involved in Sustainable Development Goals (SDG),
a significant move due to today’s society constantly getting more concerned with the
environment.

3. LATAM’S Model of Competition

3.1 Market Share Estimation

LATAM is growing and is successful because it has been stationed at the largest airports in
Peru first. They have the most competitive services when it comes to booking round trips and
reaching the most destinations. They can seat the most travelers on a plane therefore,
dominating the market. Lima is an important city to have business in because it is the largest
one in Peru, with the airport Jorge Chavez. Now, when looking at other competitors, the
competition is not threatening, but it is there. Viva Air Peru is on the rise because they have
increased their boarding capacity (Anna Aero, 2019). Peruvian Airlines is competitive simply
because of the name, it is most popular in Peru. This means they have the domestic travelers’
loyalty while missing out on international opportunities. In comparison to the world, South
America is delayed on world-wild agreements like the Open Skies Policy (Engle, 2014). It is safe
to say that LATAM will keep a hold on their market share in Latin America. They will keep their
reputation sharp as they start to aim their focus towards the environment and human rights
(Sustainability Report, 2018). This is valid because the Gravity Model proves this point when it
comes to international business, and why they are choosing to grow in Brazil first. So, our
estimation is that they will keep their market share around 60%, mainly because of the

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 perception the Peruvian market has towards the brand given the long time it has been operating
here. However, it will lose as much impact as it currently holds due to the augmentation in
market share other airlines are arranging to create thanks to the increase in low-cost flights
demand, which can be a threat for LATAM in the far future.

3.2 Market Changes

Millennials desire to know the world

Young people born in the 80s and early 2000s are changing the travel industry. In comparison to
other customers, this generation likes to travel frequently and not just to common tourist places.
They want to find a purpose to their trip, so they care about the experience and take informative
decisions of their destinations. According to the Tourism minister, in Peru, they are the market
segment who has grown the most, so firms like airlines try to satisfy their needs and adapt to their
habits. Three key factors they care are price, service client and knowledge about their destination.

E- commerce
Technology is a necessary tool for companies, especially in the case of airlines industry because it
affects directly the firm's revenues. Nowadays, most of the selling made by airline companies are
thanks to the internet. According to WNS magazine, firm´s websites has facilitated the purchase of
tickets and today, almost 75% of air tickets are bought online. Smartphones and tablets make
easier for consumers to stay connect and to purchase a ticket faster. So, e-commerce helps to
increase revenues and lower operational costs easily.

Low - cost airlines

The airlines industry is sensible to price, so consumers will tend select a firm over other because of
the ticket price. The entrance of lower - cost companies to the market change the rules of the
game in this industry. Firms who were already functioning in the market has to change their
strategy and adapt to the new conditions the market required. For example, when sky airlines
entered the market, LATAM started to change its prices structure similarly to the one its competitor
use.

3.3 LATAM’s Model of Competition: Oligopoly

The airline industry could be considered as an oligopoly in Peru due to the high concentration that
few companies have in the market. One of the characteristics of this type of market is that exists an
interdependency between companies. There can be considered two types of relationships:
Collusive and non-collusive behavior. (Freire y Blanc). In this case, the airline business has a non-
collusive behavior, that means that they compete between each other and adopt strategic positions.
Their main goal is to obtain most part of the market. In Peru, this market has two major companies:
LATAM and Peruvian Airlines, they have approximately 72.32% of market share. It is an advantage

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being this type of market, because they can reduce their costs due to their negotiating power with
the aeronautical industry. Besides, they have the control of their secondary businesses such as
“aircraft leasing” for their airlines. This alliance allows the passengers to travel with no problems
because the airlines would have enough float. However, being an oligopoly leads to set similar
prices that could be high or low depending on the season and the destination. Because of that the
customer do not have another choice because most of the tickets have a similar range of rate. Also,
the structure of most airlines has changed so, even though the passengers could find an economic
rate, they do not receive anymore the services that they had for free when they bought a ticket.

Currently, LATAM has 63% of market share in Peru (CAPA, 2019), that makes it the leader of the
region in the airline industry. LATAM has a strong position in South-America, especially in Peru that
is Group’s third largest market measured by ASK deployment, behind Brazil and Chile. Peru is an
important market because its prominence in Latin America’s aviation industry has continued to
expand as domestic and international passenger’s growth reached 8.5% and 10%, respectively, in
2017. (CAPA, 2018). Therefore, the company has tried to capture this market in order to increase
its revenues. LATAM has managed to position itself as one of the best airlines, due to its quality of
service and prices. Besides, they have adapted to the market in such a way to continue maintaining
the same number of customers and even increase it. Finally, Peru's passenger market continues to
grow as LATAM maintains its dominance in the country's domestic sector. (CAPA, 2018)

4. LATAM’s Business Capabilities

4.1 Key Capabilities

LATAM airlines is a company whose goal is to maximize its utility by taking advantage of their
capabilities. Some of their most important capabilities are:

Leading presence in key markets of South America

LATAM has already a well-defined position in the market of national and international flights. In
most of South America markets, it is the airline firm with most market share of the industry. This
helps to build a strong reputation of the firm and to increase the confidence of their customers.

A diversified base of income generation

LATAM has divided its income generation base on two aspects. First, it is the transport of the
passenger and second what the customer is carrying with him/her. As of December 2010, revenues
from passenger transportation accounted for 68.8% of total revenues and cargo revenues
accounted for 28.3% of total revenues.

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 Cost structure with high utilization of its assets
The airline also tries to reduce its costs at the maximum. it mainly focuses on the productivity of its
workers and its machinery. The firm search for employees compromises with its objective and focus
on reaching them. Also, it invests on efficient airplanes who can be use constantly.

Strong strategic alliances

Their reputation as a firm helps it to have alliances in the different country where they work. The
firm has built a solid reputation that facilitates its entry to different regions and to have agreements
with other companies.

Chart is a representation of data between international and domestic flights.

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4.2 New Dynamic Capabilities
Since Dynamic Capabilities are ‘the ability of an organization to create, extend, or modify its
resource base to adapt to changing environment understanding the market and technologies’, it
is important for LATAM to be aware that the airline business, for instance, is a very volatile one;
making it key for airlines to be constant in their renewal and enhance the competitive advantage
they have as well as those they can generate in time.

LATAM, for instance, needs some specific ones to accurately develop themselves in the
changing airline market:

High Specialization in product and processes: every time the product the airline customers
require becomes more complex, even when discussing low-cost business model. This happens
because every rate provided by airlines has different characteristics and involves different
processes, and the one company that happens to develop that the best will have the
competitive advantage.

High Research and Innovation techniques: Since airplanes involve such high-technology,
despite the fact of LATAM not producing its airplanes (as most firms), it is important that they
remain updated with the latest technology these involve, as well as their workers need to be
competent in the way they operate them so they reduce the risk and rates of accidents.

Cost Reduction and adapting: despite the already existing cost adapting and renewal, LATAM
remains not so competitive in the low-cost market in comparison to merely low cost airlines,
which proves a risk for LATAM to not address the entirety of the market, leaving an open gap for
other airlines to make their customers more loyal throughout the years. This is why LATAM
needs to implement new rates and keep updating its processes so they are more efficient and
can accurately reduce costs.

4.3 Development of Capabilities

In order to develop new capabilities, LATAM must be aware of three main factors:

Customer Demand: Due to LATAM offers a service, it is necessary to assess what are the
customers’ needs and define which necessities seems like the most important. LATAM has to
base its capabilities on this in order to have a good impact on its customers.

Strategic Importance: LATAM has to prioritize which capabilities will be the ones that have
major impact in its performance and could create a competitive advantage in comparison to
other airlines. It must identify which capacities seem to lack in each area and decide if they have
a strategic importance in order to build them.

Competitors’ capabilities: LATAM must take into account the capabilities of its competitors as
it needs to assess whether these are relevant enough for people to prefer them. Besides, to
compare its capabilities and theirs to identify which ones LATAM needs to improve or
implement.

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What do they need to do to build new capacities?
First, LATAM needs to prioritize which are the most relevant topics for both stakeholders and for
LATAM and the industry in general. To determine the most relevant topics in managing for
sustainability, LATAM takes into account the operation’s actual and potential impacts on its
different stakeholder groups, their perceptions and expectations, global trends, industry and
sustainability directives, the commitments assumed by the Group and its vision of the future.
(Sustainability Report, 2017). As it can be seen in the graph, LATAM made a matrix in order to
distribute the relevance of 10 main topics for both stakeholders’ groups and LATAM and the
sector.

On the other hand, LATAM has to keep investing in professional training in order to have a
trained staff. This is important because employees form a key piece in the success of a
company, especially for a service company. In this way, new capacities can be created in
different areas. This is why in 2017, LATAM and its affiliates invested more than US$26.5
million in professional training. The total number of hours training was 1.74 million. This
represents an average of 39.8 hours per employee, an increase of 10% over 2016.
(Sustainability Report, 2017).

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Source: Sustainability Report, 2017

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5. Competitive Advantages

5.1 Reputation
Merco is a global evaluation that measures firm’s reputation measuring 6 variables (directors,
workers, benchmarking, consumers, digital, experts). A company gets a grade in each of these
factors and the sum determines its position in the ranking. LATAM´s reputation its outstanding
comparing with the rest of companies. In the 2017 Peruvian ranking, the airline was in position
26 with 6715 points out of 10000 points winning its competitor Avianca.

Even though its actual position its outstanding, it's necessary to mention that comparing to the
2017 ranking with the 2015, LATAM has lower its general reputation. In 2015, the airline was in
position 11 comparing to the rest of firms in Perú, reducing 15 positions.

5.2 R&D and Innovation Capabilities

LATAM´s main objective has always been focused on its passengers. The company search that
their customers experience is the best. In that sense, the airline has been characterized by the
development and constant search for innovative projects in order to guarantee more
connectivity options and a better travel experience for passengers. Some of their main projects’
innovations are related to

● Airplanes models
● Design of the cabins

Organizational Chart

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Exhibit 1

20
Source: DGAC, 2018. Own Elaboration

Exhibit 2

Source: Sustainability Report, 2017

Resources:

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https://centreforaviation.com/analysis/reports/latam-airlines-group-1-in-peru-domestic--regional-markets-promising-
404440

https://www.latam.com/en_us/about-us/our-fleet/

http://incargonews.com/en/latam-cargo-starts-the-construction-of-its-new-perishable-hub-in-guarulhos/
#.XMNMeehKhPY

https://www.aircraftcompare.com/rank/Top-10-Passenger-Airplanes/1

https://www.peruvian.pe/pe/pe/conozcanos/nuestra-flota

https://www.airfleets.net/flottecie/LATAM%20Chile.htm

https://prezi.com/p/23phz-nqb-rf/modelo-de-negocio-latam/

https://prezi.com/xhg3on3x39_x/lan-airlines/

https://www.avianca.com/pe/en/about-us/who-we-are/

http://www.latamairlinesgroup.net/phoenix.zhtml?c=251289&p=irol-reportssustainability

https://www.questionpro.com/blog/es/advertising-week-latam-2019/

http://semanaeconomica.com/article/sectores-y-empresas/turismo/254155-latam-se-enfrenta-a-las-low-cost-esta-es-
su-estrategia-combinada/

https://www.latam.com/en_un/about-us/history/

https://centreforaviation.com/analysis/reports/latin-america-leading-airlines-the-start-ups-and-market-stimulation-
427911

https://centreforaviation.com/news/latam-airlines-peru-holds-63-of-perus-domestic-market-share-890103

https://www.anna.aero/2019/01/21/peru-prospers-from-continued-growth-with-12-more-seats-flown-in-2018-chile-
overtakes-us-to-become-leading-international-market/

https://simplywall.st/stocks/us/transportation/nyse-ltm/latam-airlines-group

https://centreforaviation.com/analysis/reports/latam-airlines-group-1-in-peru-domestic--regional-markets-promising-
404440

https://2009-2017.state.gov/e/eb/rls/rm/2014/234954.htm

https://www.eltiempo.com/vida/viajar/viajes-de-los-millennials-por-el-mundo-42733

https://www.wns.com/insights/articles/articledetail/62/5-trends-for-the-global-airline-industry

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http://www.latamcargo.com/en/servicios

https://www.america-retail.com/peru/peru-aerolineas-low-cost-aun-no-impactan-en-el-mercado-de-transporte-aereo/

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