Case Analysis Report for Lan Airlines
1. The main actor is the Lan Airline and its CEO Cueto. Secondary, the case discusses the
Airlines main competitors and alliance like American Airline and Lufthansa Cargo (and
other South American Airlines).
2. The main problem in the case study is whether Lan will be able to successfully
implement three distinct business models (low-cost for domestic flights, full-service for
international flights, and global cargo business) or not. Indirectly, perusing these three
different business strategies in a mature business implies that this company needs to do a
low-cost and a differentiation strategy. According to the textbook (p. 157) firms can
simultaneously implement these two strategies if they learn how to manage the
contradictions inherent in these two strategies (para. 4).
3. Likely solutions:
First, the airline could chose to only operate in one business e.g. cargo business and only
fly one type of plane. This will decrease cost related to buying and maintaining planes.
(Sell the other business sectors)
Second, the company could hire external strategy consultants to help the company merge
their essentially three different business strategies. The reason why I suggest external
consultants is because the company may have a strong internal culture (because they have
been operating for a long time) and it may be hard for the existing managers to
objectively see and evaluate the current business situation in order to suggest ways to
implement that new strategy.
Third, the company could split up into three different/independent businesses each with
their own business strategy. This way the company can manage cost and revenues
independently and worst case get rid of the least profitable business. This help understand
each business better.
4. This case can be connected to chapter 4 and 5. For domestic flight the company choses a
low-cost business strategy. According to chapter 4 Lan has sources of cost advantages. It
has already established a base of airplanes, which is a huge cost advantage (new entrance
would have to observe this cost). In addition, the airlines has made connection with major
airports and allied with other airplane companies. In addition, they experienced a
learning-curve, which is the result of previous existence and operations in the airplane
business. Over time they became very efficient in in handling ground turn-around times
and staff training. All these are sources of cost leadership. For international flights,
however, if the company wants to maintain competitive with other airlines (without
dropping the cost), it needs to find a differentiation strategy. So, if the company could
come up with a way to make its international flights more special/different, it may be able
to attract more customers. Maybe, the company could do the same as McDonald’s
(example in the book page156). They could try to find something that attracts a lot of
customers (grow market share), than operate more planes (with that feature) on a high
scale to reduce cost.
5. This case compare so the Wii case we studied in class. The industries are mature in both
the video gaming industry and the airline industry, thus they are faced with similar
problems. For instance, there are barriers to entry that limit the number of new entrance
(this is good); however, the existing competitors are strong. While in the Wii case
Nintendo struggled to come up with a new product to stay in business (Wii), Lan needs to
come up with a new strategy to stay competitive. For instance, Lan could come up with
some customer feature that no other company has. Similarities in both cases are that the
firms could go out of business if they do not keep up with analyzing the consumer’s
needs and responding accordingly. While Nintendo was the first gaming company to
speak to a brought audience (the casual gamer), Lan needs to come up with an idea to
differentiate its airline (maybe even be the first one to make a move). This differentiation
could be something like combining all three business areas successfully into one. This in
return could offer customer value by reducing operating cost as well as the cost for plane
tickets.