This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ FOR YOUR CONSIDERATION: IN AMERICA - IN THEATRES NOVEMBER 26 Fox Searchlight Pictures proudly presents IN AMERICA directed by Academy Award(R) Nominee Jim Sheridan (My Left Foot and In The Name of the Father). IN AMERICA stars Samantha Morton, Paddy Considine and Djimon Hounsou. For more info: http://www.foxsearchlight.com/inamerica \----------------------------------------------------------/ Taking Cargo and People, Chilean Airline Flourishes November 26, 2003 By LARRY ROHTER SANTIAGO, Chile, Nov. 23 - These are terrible times for airlines all over Latin America, as one carrier after another closes, staggers under huge losses, scales back routes or reluctantly merges with rivals. But at the shiny new glass headquarters of LanChile here, things have never been better. In this year's third quarter, profit tripled, to $22 million, its best quarter ever, and profits for 2003 are expected to reach a record $64 million. As a result, LanChile's share price in Chile has more than doubled since the start of the year, and the value of its American depository rights has gained more than 140 percent. "They're a model company whose management and ownership know how to be efficient and have a clear vision," said Robert Booth, chairman of Aviation Management Services, a Miami consulting firm. "It's an ideal situation, and they are doing everything right." At first glance, it would seem unlikely that a company based in a country of only 15 million, isolated in the far southern reaches of the continent, should have become a Latin American powerhouse. But since the privatization of the national flag carrier a decade ago, LanChile has specialized in turning what seem to be obstacles into opportunities. While other regional carriers, for example, have been battered by both weak local economies and the downturn in passenger traffic after the Sept. 11, 2001, attacks, LanChile has largely been insulated. Cargo accounts for an extraordinary 40 percent of its business, compared with 5 percent or less for carriers like American, Delta and United. "Lan is actually two concerns that are of equal importance, with a business model that is unique in the world," Alejandro de la Fuente, LanChile's chief financial officer, said in an interview. "We live in a distant land that exports a lot of perishable products, operating long-haul planes that are capable of carrying a lot in their holds, and that means we can carry fewer passengers and still be profitable." With a free trade agreement between Chile and the United States scheduled to take effect on Jan. 1, the prospects are good for additional growth in the export of items like salmon, fruit and flowers. Company officials predict a 15 percent increase in revenue from both cargo and passenger traffic for next year and estimate that by 2006 total revenue will rise to $2.3 billion, up nearly half from the current $1.6 billion. In a region where nationalism and protectionism still work to defend national flag carriers, Chile is also unusual in having an open-skies policy, which LanChile officials say has forced them to be more efficient in managing labor and fuel costs. The company dominates domestic routes, carrying 80 percent of passengers, but the small size of the market has forced it to look beyond its borders for traffic and profits. With Argentine carriers weakened by that country's economic collapse, LanChile dominates the busy Santiago-Buenos Aires route, which it also uses to feed its flights to Miami and Madrid. The company attracts passengers with a fleet of planes more modern than those of most of its rivals. It also benefits from its membership in the OneWorld Alliance, along with the likes of American Airlines and British Airways, and the code-sharing arrangements that flow from that. In the rest of the region, by contrast, the picture remains largely cheerless. In Central America, regional carriers like Taca and Copa Airlines of Panama are doing well, but most South American airlines are struggling to emerge from lean years dragged down by dollar-denominated debts and weak local currencies that drive up the cost of leasing aircraft and buying fuel. Before it devalued its currency in 1999, for instance, Brazil, the region's largest and most attractive market, had four major carriers. Since then, one has gone bankrupt, a second has been forced to shrink its fleet and routes, and the remaining two, Varig and Tam, are being pressed by the Brazilian government to merge, despite the resistance of their own directors and employees. "That's a real mess, and there is no way of telling what will happen," Mr. Booth said. "There's a real problem with merging very different corporate cultures." He added that a merger would be made more difficult by "the lack of continuity in the corner office at Varig, where they keep changing C.E.O.'s all the time" as the company's situation worsens. But problems in neighboring countries have also benefited LanChile. In Peru, Ecuador and most recently the Dominican Republic, with the attraction of its huge traffic between Santo Domingo and New York and Miami, the company established subsidiaries after the collapse of local carriers. These newcomers have quickly become profitable and allowed LanChile greater use of its planes. LanChile's own figures indicate that its cargo planes are typically in the air 15 hours a day, nearly twice the typical time. During the day, for example, a plane arriving in Miami after an overnight run from Santiago will make a short hop to Santo Domingo or Guayaquil, Ecuador, before heading back to Miami to make the return trip home that night. "They're very good at keeping their planes flying and flying," said Ben Laidler, who follows LanChile for UBS Securities here. "American flies to Santiago but has to keep their plane sitting around all day, which is a huge waste of money that doesn't affect LanChile at the other end." Given LanChile's strong performance and the expansion it has been enjoying even in difficult times, inevitably there is speculation about additional moves. Carriers like Avianca of Colombia, which is in Chapter 11 but has enormous appeal as a cargo carrier, are actively being shopped by owners whose core business is not aviation and who are thus eager to cut their losses. "They're not done," Mr. Laidler said, noting that LanChile has also acquired cargo carriers in Brazil and Mexico and a minority interest in a United States-based freight airline. "But there is a huge difference between what LanChile has done in Peru and Ecuador and actually buying something and inheriting a complicated legacy of labor contracts and plane leases." Others argue that LanChile has reached a stage in which its go-it-alone philosophy serves as an impediment to growth. Fernando Dozo, an aviation consultant in Buenos Aires, maintains that "they don't have a corporate culture of association with partners" and thus lack the capital to become more than a regional force. "To consolidate their position, they need a foothold in the Argentine and Brazilian markets," he said. "But that would be a tough bet for them on their own, one that could turn out like Napoleon's invasion of Russia." LanChile officials acknowledged that they had been approached about taking over airlines in Argentina and Colombia and that they are interested in expanding their presence in both countries. But they say they are wary of being too ambitious or cocky. "We're going to continue to go step by step, and not take big leaps with some sort of a spectacular mega-acquisition," Mr. de la Fuente said. "When we expand, we always want to be prudent and not do anything that would make us lose our leverage or our investment-grade rating." http://www.nytimes.com/2003/11/26/business/worldbusiness/26lanchile.html?ex=1070857553&ei=1&en=ec91e3ad5cf34d63 --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! 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