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The Challenges of the Latin American Airline Industry How Grupo TACA succeeded in a challenging economic environment

The Challenges of the Latin American Airline Industry How Grupo TACA succeeded in a challenging economic environment. Gabriela Kaynor Brian Mottola March 8, 2003. Today’s Agenda. Purpose Privatization Movement Early years of aviation in Latin America TACA’s inception TACA’s alliances

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The Challenges of the Latin American Airline Industry How Grupo TACA succeeded in a challenging economic environment

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  1. The Challenges of the Latin American Airline Industry How Grupo TACA succeeded in a challenging economic environment Gabriela Kaynor Brian Mottola March 8, 2003

  2. Today’s Agenda • Purpose • Privatization Movement • Early years of aviation in Latin America • TACA’s inception • TACA’s alliances • TACA’s competition • History of other Latin American airlines • Conclusions

  3. Privatization Movement • Latin American economies are stagnant • State-owned companies in many industries • 12% of GDP in Latin America • Privatization encouraged to create efficiency • Govt’s severed burdens of state-ownership • Privatized industries create needed tax revenue

  4. The Birth of TACA • TACA – Transportes Aereos Centroamericanos • Est. 1931 by Lowell Yerex in Honduras • Entrepreneurial opportunity existed • Quickly grew into a strong regional airline • Linked all Central American capital cities • Linked Mexico and Caribbean

  5. Birth of TACA (Cont’d.) • TACA formed airlines in different countries • Named “TACA de (country’s name)” • Nicaragua, Belize, Costa Rica • Parent company was TACA de Honduras • Enabled local air routes to be established • Used small, aging aircraft to reduce its costs • Faced increased competition from int’l airlines • Pan American Airways, Trans World Airlines

  6. The Original TACA dissolves • TACA country members want own nat’l airline • By 1948, all TACA shares resold to govt’s • Beginning of the end of original TACA corporation • TACA El Salvador was only airline left under original TACA banner • Changed name to TACA International Airlines • Beginning of modern-day TACA

  7. TACA International Airlines TACA Airbus A-319

  8. TACA’s Route Map

  9. TACA International Airlines • Current CEO Federico Bloch started with the Company in 1979 • His vision  setting up subsidiary airlines through partnerships in Latin America • Bloch has received multiple awards and accolades for his outstanding achievements within this very competitive industry.

  10. TACA Alliances • Bloch pursued the acquisition of several Central American National Airlines. Complete by 1991. • Guatemala (Aviateca), Honduras (SAHSA), Nicaragua (NICA) & Costa Rica (LACSA) • They also have feeders in Cuba and Peru • Alliance with American Airlines • Conglomerate with National & International airlines under one umbrella

  11. Competitive Advantages.. • Cross border alliances • Quasi- Monopoly for domestic markets • Control of pricing for Central American fares • Multiple “hubs” • Increased number of destinations • Growth opportunity in South America

  12. Side Effects…. • Pursuit of customer oriented business practices becomes secondary • Multiple connecting flights to reach destinations • Subject to economy swings in Latin American Countries • Proven profitability attracts competition

  13. Competitors • Other Latin American Airlines have tried to follow suit with this business model • Successful competitors include • Aerocontinente Peru • Lan Chile • VASP from Brazil • Unsuccessful stories • VIASA Venezuela

  14. LAN CHILE • Linea Aerea Nacional – founded in 1932 as a government owned carrier • In 1989 they sold 51% of their shares to SAS (Scandinavian Airline Services) • 1994 – 100% Privatized • 1995 – Acquired Lan Express • 1996 – 44% sales growth (3rd largest in the Industry

  15. Executive VP Enrique Cueto (Executive of the Year 2001) • Vision  Become one of Top 10 airlines • Strategies to survive after 2000 decline • Reduction in frequency of domestic flights • Increasing capacity utilization • Built strong alliances with international partners • Separate business structure • Cargo Operation – Lan Cargo • Passenger Operation – Lan Pax

  16. VIASA (Venezuela) • 1959- Shift from a government airline (AEROPOSTAL) to a private venture • AEROPOSTAL 51% capital • AVIANSA(owned by PAN AM Airlines) 49% • Formed alliance with KLM • Cargo Operation Subsidiary TRANSCARGA • 1975 – First reported loss • 1976 - Airline Nationalized again

  17. Effects of Nationalization.. • Government was covering up losses and inefficiencies • No operational or strategic improvements being made • 1989 – Venezuela’s economy starts to weaken – seeking a bidder • KLM vs. IBERIA • 1991 –IBERIA wins the bid • 1997 – Airline closed for good under acrimony.

  18. CONCLUSIONS • Privatization works – better service & efficiency • TACA’s business model transcends time and regions • Airline industry is susceptible to sociopolitical events – especially in volatile Latin America

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