The Business Year

Hernan Pasman

COLOMBIA - Transport

Time to Soar

Executive Director, LAN

Bio

Hernan Pasman is a graduate in Industrial Engineering from the Technological Institute of Buenos Aires (ITBA) and received an MBA from Kellogg Graduate School of Management at Northwestern University. He began his career in 1995 working for companies such as Motorola and Telefónica Argentina. He was later associated Citicorp Equity Investments, and for four years worked as Project Manager at McKinsey and Company. He has been involved for nine years at LAN, where he became the Vice-President of Strategic Planning and Management Control in the operational areas of LAN Airlines in Chile, while in 2007 he served as COO of LAN Argentina and since 2010 has been the head of the Executive Office of LAN Colombia.

"High operating costs represent a challenge for the country and its domestic market."

What are the core reasons behind LAN’s impressive growth in the Colombian market over the past few years?

We have been growing at a rate of 15% for the past three years alongside the Colombian economy. Two of the main features of the current state of development of the Colombian air transportation market are increasing competition and growing demand. We also observe a considerable drop in the price of tickets. LAN has definitely benefited from the expansion of the local economy, and the current trends are the key drivers of the growth in our sector—in 2013, the sector grew 12%, and we expect to close 2014 with a 10% growth rate. The main driver of such sector expansion has been tourism, rather than the business segment. Business travelers grow at a rate similar to that of the national economy, at around 4%, whereas the tourism segment grows at a much faster pace. This is also due to the prices in the latter segment, which are proportionally comparable to those of bus transportation. I expect a 20% growth rate for 2014, whereas in capacity terms the number is at 15%.

What is the potential to grow the business segment?

MICE tourism has been growing at a 70% rate more or less in the past few years. However, we should keep in mind that these travelers tend to come from abroad. Increasing levels of security, economic stability, and the improvement of the country’s image at the international level have been key economic drivers that justify such impressive growth.

“High operating costs represent a challenge for the country and its domestic market.”

As you expand economic activities in Colombia, how is LAN working in terms of partnerships with tour operators and public administrations?

We have an alliance with ProExport and Marca Paí­s here in Colombia. These are two institutions we closely and regularly work with in order to increase the number of visitors to Colombia. For example, LAN operates in 150 countries and we have an initiative with those two organizations to bring around 100 international tour operators to Colombia, where we travel with them for an entire week. This is how we try to sell the country abroad in order to increase tourism figures. We do this once a year.

How do LAN’s passengers benefit from the company joining the oneworld Alliance?

That was a move we implemented in 2013 that gives our passenger greater connectivity. We travel to over 150 destinations, and thanks to oneworld our passengers can now reach more than twice that number. On top of that, there are other additional benefits such as VIP areas around the world, exclusive services, redeem miles, and so on. For us, being part of the oneworld Alliance is a massive plus in terms of increased passenger numbers, alliances, and strategic partnership in order to offer more comprehensive and better services to passengers. And also it has already had an impact on our income—I would say that thanks to LAN joining this alliance we had a 4% boost in our income, more or less. It is a win-win situation for us, our passengers, and the rest of partners in the alliance.

What are the main business lines LAN Colombia invests in at the moment?

Facilities, equipment, and technology are our three main investment focuses. For example, over the past few years we have renovated our entire fleet, as a result of which LAN today operates one of the youngest fleets in Colombia. We completed the entire fleet renovation as recently as March 2014. We have invested over $1 billion since we arrived in Colombia, 70% of which has been in our fleet, and the remaining 30% in infrastructure and technology.

Who are your main competitors?

Despite what many think, VivaColombia is not our competitor because it works to a completely different business model. We are not a local carrier, but to an extent we target the same audience as Avianca and Copa. Over the past few years, competition has increased, but the challenges that presents foster more robust company development. One of our main competitive advantages is our prices. We also have a well-structured business model that differentiates us from the competition; we do not offer business class within Colombia as Avianca does, for example, as it is not as profitable as many might think. That service is reserved for our international flights only, and we try to get the maximum number of average passengers within our planes. Finally, punctual flights are another of our main competitive advantages, and we have back-up planes to keep our passengers moving as scheduled.

How many domestic destinations do you serve?

We fly to 20 Colombian destinations, this market accounts for the highest number of domestic flights for LAN in Latin America. This has been at the heart of our business strategy from the very outset, as we have some five or six competitors in Colombia, whereas in other regional markets the competition falls to two or three players. At the moment, we hold a market share of 40% and only Avianca’s market share is higher.

Do you believe that lower operating costs in the Colombian air transport sector will lead to a greater foreign investment presence?

High operating costs represent a challenge for the country and its domestic market. Our main challenge as a local market is to be as competitive as other regional markets due to the high operating costs at El Dorado Airport, the main airport hub for both the country and the region. We have considered the possibility of setting up a hub in other Latin American cities to reduce costs, but unfortunately the sector lacks infrastructure. All in all, I would say that the lack of infrastructure is the main challenge the sector faces, followed by local and regional competitiveness, and regulation. We still have issues concerning Colombia’s regulatory framework that need addressing. For example, Colombia has three institutions—Civil Aeronautic, the Superintendence of Industry and Commerce, and the Superintendence of Transport—that oversee sector regulation, which is excessive and some times they don’t have the local industry’s needs in mind to be competitive.

What are LAN’s plans to expand its international routes?

We are set to commence operations in Cancún at the end of 2014 and will thereafter expand flights in the US, Latin America, and Europe. We are set to aggressively expand our international profile within the next few years. Regarding the Colombian domestic market, we expect to grow at over 10% and increase passenger numbers to around 4 million a year. Meanwhile, at the international level, our expectations are much higher.

© The Business Year – October 2014

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