SECOND REPORT:

PRICE AND ADVERTISING STRATEGY

OF LATAM

Course

Strategy

Teacher

Maria Esther Caballero

Members

Alessandra Calixto

Valeria Mazuelos

Peyton Stoner

Arianna Vega

Universidad del Pacífico

April 2019
A. LATAM'S PRICE STRATEGY

a. Description

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 the availability of seats, 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 of $15 and $3, respectively. It does not allow to make changes
or refunds, it is almost the same as the Promo rate.
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
aimed at the corporate segment or the person 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.

b. 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.

c. 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 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.

d. 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.

B. ADVERTISING STRATEGY

a. Definition

LATAM's advertising strategy is focused in communicating three different messages

to their customers:

i. 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.

ii. 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.

iii. 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 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.

b. 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.

c. 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.

C. HAS LATAM DEVELOPED 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 emphasis 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.

- 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: to 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.

D. REFERENCES

● 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