Value Chain Analysis of the Airlines in Chile.

Commercial Relationships

The airline industry value chain in Chile involves a complex web of commercial relationships spanning from the acquisition of aircraft to the final delivery of passengers and cargo. These relationships are critical for the smooth functioning of the industry and reflect various contractual and market-based interactions between different types of players at each stage.

At the initial stage, Aircraft Acquisition & Maintenance, airlines like LATAM, SKY Airline, and JetSMART engage in significant commercial relationships with Aircraft Manufacturers such as Airbus and Boeing. These relationships involve high-value purchase agreements or long-term leasing contracts with Leasing Companies. Financial Institutions play a crucial role by providing the necessary capital through loans or other financing mechanisms. For maintenance, airlines interact with Independent MRO providers or their own internal MRO divisions, as well as Component Suppliers who provide parts and materials. The nature of these relationships is contractual, often involving long-term commitments for fleet supply and ongoing service level agreements for maintenance. The need for wet lease agreements reported by some airlines in Latin America, including potentially those operating in Chile like LATAM, highlights a commercial relationship where one airline leases an aircraft and crew from another airline, typically to cover capacity shortfalls due to issues like aircraft shortages or personnel availability.

In Network Planning & Scheduling, airlines' planning departments collaborate with Airport Authorities to negotiate access to airport slots and facilities. This is a crucial interaction governed by regulations and commercial agreements for using airport infrastructure. While not strictly commercial in the sense of purchasing a product, the relationship with Air Traffic Control (DGAC in Chile) is essential for operational planning and execution, ensuring flight paths and timings are coordinated and approved. Market research firms may be contracted for route development analysis.

For Marketing & Sales (Distribution), airlines engage in extensive commercial relationships to reach customers. Airlines work with Advertising Agencies and Digital Marketing Firms for promotional campaigns, typically through service contracts. A major area of commercial interaction is with Online Travel Agencies (OTAs) and traditional Travel Agencies. Airlines provide inventory (tickets) to these intermediaries, and the relationship is based on commission structures or booking fees. Global Distribution Systems (GDS) act as technological intermediaries, facilitating the display and booking of airline tickets across various platforms, involving subscription or transaction-based fees. Airlines also manage direct sales channels (websites, apps), establishing direct commercial relationships with end consumers, often facilitated by payment processors and IT service providers. Customer Relationship Management (CRM) involves internal processes and potential contracts with CRM Software Providers.

Passenger & Cargo Handling (Airport Operations) involves significant commercial relationships at airports. Airlines contract with Airport Operators for the use of terminals, gates, and runways, paying fees based on aircraft size, frequency, and passenger volumes. Handling Agents are often employed by airlines to manage ground operations such as check-in, baggage handling, and aircraft servicing, based on service level agreements. For cargo, airlines' cargo divisions interact with Cargo Handling Agents at airports and Freight Forwarders who consolidate and manage cargo shipments, operating through service contracts and volume-based fees. Customs Authorities are involved in cargo processing, representing a regulatory interaction rather than a purely commercial one, though associated fees may apply.

In Flight Operations, airlines have commercial relationships primarily with Fuel Suppliers and Airport Fuel Services for the provision of aviation fuel, involving bulk purchase agreements and logistics contracts. Training Organizations may be contracted for pilot and crew training services. While Air Traffic Control (DGAC) is a regulatory body, interactions are essential for flight safety and efficiency.

Finally, Ancillary Services involve commercial relationships focused on generating additional revenue from passengers. Catering Companies provide onboard food and beverages through supply contracts. Airlines also partner with Partner Companies like insurance providers or car rental agencies, offering their services through the airline's platforms, typically based on commission-sharing agreements. The sale of services like checked baggage, seat selection, and priority boarding represents a direct commercial transaction between the airline and the passenger, where the passenger pays an additional fee for these options, particularly central to the business models of low-cost carriers like SKY and JetSMART.

Table summarizing commercial relationships:

Value Chain Step	Key Players Involved	Examples of Commercial Relationships
Aircraft Acquisition & Maintenance	Airlines, Manufacturers, Leasing Companies, Financial Institutions, MRO Providers	Purchase agreements, Lease contracts, Loans, Service level agreements for maintenance, Component supply
Network Planning & Scheduling	Airlines, Airport Authorities	Airport access agreements, Slot negotiation
Marketing & Sales (Distribution)	Airlines, Advertising Agencies, OTAs, Travel Agencies, GDS, Payment Processors	Marketing service contracts, Commission agreements (OTAs/Agencies), GDS fees, Direct sales contracts
Passenger & Cargo Handling (Airport Ops)	Airlines, Airport Operators, Handling Agents, Cargo Agents, Freight Forwarders	Airport usage fees, Ground handling service contracts, Cargo handling agreements
Flight Operations	Airlines, Fuel Suppliers, Airport Fuel Services, Training Organizations	Fuel supply contracts, Training service contracts
Ancillary Services	Airlines, Catering Companies, Partner Companies (Insurance, Car Rental)	Catering supply contracts, Commission-sharing agreements (Partners), Direct sale of services to passengers

Products and Services Exchanged

Across the airline value chain in Chile, a diverse range of products and services are exchanged between the various players. These exchanges enable the core business of transporting passengers and cargo and generate revenue streams for different entities.

In the Aircraft Acquisition & Maintenance step, the primary "product" exchanged is the aircraft itself, either through direct purchase from manufacturers or through long-term leases from leasing companies. Alongside the aircraft, related services like aircraft financing (loans from financial institutions) and maintenance, repair, and overhaul (MRO) services are exchanged. MRO providers offer specialized labor, expertise, and access to equipment and facilities, while component suppliers provide aircraft parts and materials. These exchanges are vital for maintaining a safe and operational fleet, a fundamental requirement for the airline business.

Network Planning & Scheduling involves the exchange of intangible assets and services. Airlines exchange network planning expertise internally. Externally, they exchange access to airport infrastructure and slots with airport authorities, which are effectively services provided by the airport operator for a fee. Market research firms provide market analysis and feasibility studies as consulting services to airlines for route development decisions.

Marketing & Sales (Distribution) is centered around the exchange of services related to promoting and selling flights. Advertising agencies and digital marketing firms provide marketing and advertising services to airlines to build brand awareness and promote routes. Online Travel Agencies (OTAs) and Travel Agencies provide ticket distribution and sales services, offering airlines access to a wider customer base in exchange for commissions. Global Distribution Systems (GDS) provide booking and reservation technology services. Ultimately, the core product exchanged with the end consumer in this stage is the airline ticket, representing a contract for passenger or cargo transport, along with associated booking confirmations and travel documentation.

Passenger & Cargo Handling (Airport Operations) involves the exchange of essential ground services at airports. Airport operators provide airport infrastructure access services (runways, terminals, gates) and related support services. Handling agents provide a suite of ground handling services including check-in assistance, baggage sorting and loading, aircraft pushback, and other ground movements. For cargo, cargo handling agents provide cargo processing services such as acceptance, screening, storage, and loading/unloading of goods. Freight forwarders provide logistics and consolidation services for cargo shipments.

In Flight Operations, the main products and services exchanged relate directly to operating the flight. Fuel suppliers provide aviation fuel. Training organizations provide flight crew training services. Internally, airlines exchange operational planning and execution services. While Air Traffic Control (DGAC) is regulatory, the exchange is effectively one of air traffic control services and instructions for safe navigation within controlled airspace.

Finally, Ancillary Services represent the exchange of additional products and services beyond the basic airfare. Catering companies provide onboard food and beverage products and related service provision. Airlines offer various additional services such as checked baggage allowance, seat selection, priority boarding, and partnerships facilitate the exchange of travel insurance or car rental services to passengers. These are optional purchases for the passenger, adding to the airline's revenue.

Table summarizing products and services exchanged:

Value Chain Step	Key Exchange	Description
Aircraft Acquisition & Maintenance	Aircraft, Financing, MRO Services, Aircraft Parts	Purchase/lease of planes, Capital provision, Repair and maintenance labor/expertise, Supply of components
Network Planning & Scheduling	Airport Access & Slots, Market Analysis Services	Permission to use airport infrastructure at specific times, Consulting on route viability
Marketing & Sales (Distribution)	Marketing Services, Ticket Distribution, Booking Technology, Airline Tickets	Advertising campaigns, Sales through intermediaries, GDS access, Contract for passenger/cargo transport
Passenger & Cargo Handling (Airport Ops)	Airport Infrastructure Services, Ground Handling Services, Cargo Handling Services, Logistics Services	Use of terminals/runways, Check-in/baggage/ground movement support, Cargo processing, Shipment consolidation
Flight Operations	Aviation Fuel, Flight Crew Training, Air Traffic Control Services	Fuel for aircraft, Training for pilots/cabin crew, Guidance and control for safe navigation
Ancillary Services	Onboard Food & Beverages, Checked Baggage Allowance, Seat Selection, Priority Boarding, Partner Services	Food/drinks sold onboard, Option to carry checked bags, Choice of seat, Faster boarding, Insurance/rental sales

Business Models

The commercial relationships and exchanges within the Chilean airline industry value chain are shaped by and integral to the distinct business models employed by the main players, primarily LATAM Airlines Group, SKY Airline, and JetSMART.

LATAM Airlines Group operates largely under a hybrid or traditional full-service carrier model, albeit with elements of cost optimization. Their business model relies on an extensive, complex network covering domestic routes in Chile and several international destinations across Latin America and globally. This requires sophisticated network planning and scheduling, maintaining a diverse fleet (though facing shortages impacting operations), and engaging in comprehensive marketing and sales across multiple channels, including direct sales and intermediaries. Relationships with manufacturers, lessors, and MRO providers support a large and varied fleet. Their revenue model includes base fares which often bundle certain services, but also incorporates significant ancillary revenue streams from services like upgraded seating, lounge access, and potentially other add-ons depending on the fare class. The commercial relationship with passengers involves loyalty programs and a focus on service quality, although this can vary by route and fare type. Their cargo operations also represent a significant business line with its own set of commercial relationships with freight forwarders and cargo clients.

SKY Airline operates as a pure low-cost carrier (LCC). Their business model is fundamentally driven by cost efficiency, which influences their commercial relationships and operations. They focus on operating a modern, standardized fleet (Airbus A320 family), allowing for streamlined maintenance relationships. Network planning focuses on point-to-point routes, though they operate both domestic and international flights. Marketing and sales heavily emphasize low base fares, with sales primarily driven through their direct online channels. Commercial relationships with OTAs and travel agencies may exist but are typically structured to align with a low-cost approach. A core component of their revenue model, crucial for profitability, comes from ancillary services. The commercial relationship with passengers is transactional, with almost all services beyond the basic seat costing extra (checked baggage, seat selection, priority boarding, onboard services). Their handling and flight operations are geared towards rapid turnarounds and efficiency to maximize aircraft utilization.

JetSMART operates as an ultra low-cost carrier (ULCC), representing an even more stringent focus on cost minimization than SKY. Their business model is built on extreme efficiency and a heavy reliance on ancillary revenue. Their aircraft acquisition strategy centers on a highly standardized fleet to reduce maintenance complexity and training costs. Network planning focuses strictly on point-to-point routes. Marketing emphasizes extremely low base fares ("ultra-low prices"). Sales are almost exclusively direct online. The commercial relationship with passengers is highly unbundled; the base fare covers only the seat, and nearly everything else – including carry-on bags beyond a personal item, checked baggage, seat selection, water, snacks, and priority services – is an additional paid ancillary service. These ancillary services form a critical, often majority, portion of their total revenue, shaping their commercial interactions with passengers. Their ground operations and flight execution are optimized for minimal turnaround times to maximize daily flight hours per aircraft.

Aerovías DAP likely operates a niche or regional carrier model. Given its small domestic market share (0.8%), its business model is probably focused on specific regional routes in Chile not adequately served by the larger carriers. This would involve more localized relationships with specific airports and potentially a less complex network and fleet structure compared to the major players. Their revenue would come primarily from ticket sales on these specific routes.

International Airlines operating to Chile (e.g., American Airlines, Avianca, Copa Airlines, Iberia, Air France, Delta Air Lines, Turkish Airlines) operate diverse global business models (full-service, network carriers, potentially hybrids). Their operations in Chile represent a part of their larger global network. Their commercial relationships in Chile focus on airport access, passenger and cargo handling (often through local agents), and sales distribution, integrating Chile into their worldwide route structures and sales networks. Their revenue from Chile comes from ticket sales on international routes, which contributes to their overall financial performance.

In summary, the commercial relationships in the Chilean airline value chain are deeply intertwined with the business models: LATAM's hybrid model drives relationships supporting a complex network and broader service offering, while SKY and JetSMART's LCC/ULCC models dictate relationships focused on cost efficiency and maximizing ancillary revenue from unbundled services.

Bottlenecks and Challenges

Despite the significant passenger growth and financial recovery experienced by some players like LATAM in 2024 and Q1 2025, the Chilean airline industry value chain faces several significant bottlenecks and challenges that can impact operations, profitability, and the overall passenger experience.

A major bottleneck identified in the context is aircraft availability and maintenance. Some airlines in Latin America, including potentially those operating in Chile like LATAM, have faced aircraft shortages. This issue can disrupt network planning, force airlines to cancel flights or resort to expensive wet lease agreements to cover routes, as mentioned for some international routes. Dependence on manufacturers for new deliveries and MRO providers for timely maintenance can create vulnerabilities if supply chains or labor availability are constrained.

Closely related to aircraft is the challenge of personnel shortages, particularly skilled labor like pilots and maintenance technicians. The context notes that some airlines in Latin America have resorted to wet leasing partly due to personnel shortages. This can impact flight operations and crew management, potentially leading to flight delays or cancellations if crew availability is insufficient.

Airport infrastructure and capacity can also pose challenges. While not explicitly detailed as a bottleneck in the provided text beyond the mention of negotiating airport access and slots, airport congestion, limited gate availability, or inefficient ground handling processes can create delays and impact the crucial turnaround times, especially critical for the efficiency-focused models of LCCs like SKY and JetSMART. The relationship and agreements with Airport Operators are key here.

Market dynamics and competition represent ongoing challenges. The Chilean domestic market is dominated by LATAM, with strong competition from LCCs SKY and JetSMART. Maintaining market share (as seen with LATAM gaining share) and profitability in a competitive environment requires continuous optimization across all value chain steps, from route planning to sales strategies. The entry or reduction of services by international airlines also impacts the competitive landscape for international routes.

Passenger complaints and customer satisfaction are highlighted as a challenge, with JetSMART implementing measures to reduce complaints. This indicates potential bottlenecks in customer service processes, communication, or operational reliability (e.g., delays, cancellations, baggage issues) within the sales, handling, and flight operations steps. Addressing these issues requires investment in CRM, ground handling efficiency, and operational reliability.

Economic factors and currency fluctuations (not explicitly detailed in the provided text but a common industry challenge) can impact fuel costs, aircraft financing, and international ticket sales, affecting the financial performance of airlines operating in Chile, although LATAM reported strong financial results in 2024 and Q1 2025 despite the broader economic context.

Finally, while not a traditional bottleneck but an increasing challenge, environmental sustainability is a growing concern impacting the industry. Airlines face pressure to reduce emissions, which can influence aircraft acquisition strategies (favoring newer, more fuel-efficient models like the A321XLR mentioned for SKY) and fuel management practices. While the provided text only briefly mentions LATAM's work on environmental impact, it is an overarching challenge influencing long-term investment and operational decisions.

In summary, the main bottlenecks and challenges in the Chilean airline value chain stem from external supply constraints (aircraft, personnel), infrastructure limitations (airports), intense market competition, the need to manage customer expectations and complaints, and broader economic and environmental pressures.

References

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