The strategic variance analysis of LAN and TAM airlines merger in the early 2010’s

Abstract

LAN and TAM used to be the flag carriers of Chile and Brazil, respectively until late 2000’s in the airline industry. The merger of both into LATAM Airlines was part of the strategy to construct a major regional power of air transportation, an evolution from national companies to a Latin America brand. This research analyzes the merger of LAN and TAM, which in the second decade of 21st Century formed one of the largest passenger air transportation groups. The concept of Strategic Variance Analysis (SVA) is used in some academic environments to evaluate a company’s operational revenue in two time periods, in this specific case, 2010-2013. The concept is easy to understand and relates the financial statements with businesses strategies approaches. Previous studies in the American airline industry have been conducted with SVA method. This paper compares the financial situation of former TAM before the merger (2010), and LATAM (2013), after the merger. The financial, operational, and fuel data are gathered from the National Civil Aviation Agency of Brazil, reclassified, and applied to calculate SVA. Then, as the final conclusion, SVA demonstrates that this merger was good, however it was insufficient to cover the rise in fuel prices during those years.