LAN works on new business plan for Aires and AerOasis

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LAN is expected to complete within the next two months a new business plan for Colombia's Aires and Colombian-start-up AerOasis.

The Chile-based airline group completed in late November its acquisition of Aires. Since the deal was completed Aires has already increased fares, improved reliability and cut almost its entire international network. Colombian industry sources expect more changes by March as LAN is now conducting a more detailed analysis of Aires and working on a new business plan for the carrier.

Sources say LAN is also now working on a plan for proposed start-up AerOasis, which is in the final stages of securing an operating certificate from Colombian authorities. LAN holds an option to buy AerOasis as part of deal it forged last spring that included helping the new carrier with the start-up process and sourcing aircraft.

After LAN unveiled its intention to buy Aires it seemed unlikely it would move forward with its previously stated intention of exercising this option, leaving AerOasis as a potential new independent carrier competing in the domestic Colombian market. But now all indications are both AerOasis and Aires will be merged under LAN.

While all three carriers are refusing to divulge any details until LAN unveils its plan for Aires and AerOasis, expected in February or early March, sources say LAN will end up owning both operating certificates. Sources say the approximately 150 employees already hired by AerOasis, including pilots who are now temporarily flying for LAN in other countries, will work for LAN's new Colombian entity alongside Aires crew and staff.

Aires' nine Boeing 737-700s will likely be replaced by A320 family aircraft - the narrowbody type used exclusively by LAN and selected by AerOasis. But the process of replacing the 737s will likely take at least several months as LAN works with Aires' lessors on potential trades or early returns.

AerOasis completed proving flights last year using three A320s, two of which it were sourced directly from leasing companies while the third aircraft was subleased from LAN. The LAN aircraft has since left Colombia, but is expected to return shortly to help AerOasis complete the certification process.

New airlines in Colombia are required to start operations with at least three aircraft. But sources say LAN may choose not to use the AerOasis operating certificate once it is secured and instead only use the Aires certificate. AerOasis hold authorities for several domestic routes but Aires also has the rights to operate these routes.

Aires currently operates its nine 737-700s in single class configuration. But LAN is expected to go with a two-class configuration for its new Colombian passenger operation, following the short-haul model it uses in other South American countries.

Aires followed a legacy regional carrier model until early 2009, when it launched a low-cost operation on domestic trunk routes which was later expanded to include new services to the US. Aires has since grown its traffic by more than 300% and surpassed Copa Colombia as the country's second largest domestic carrier after market leader Avianca.

While Aires' foray into the low-cost carrier sector was hugely successful from a market share standpoint the carrier has had operational problems and was about to run out of cash prior to LAN's rescue. LAN ended up paying only $12 million after one month of due diligence drove down the price from an original estimate of $32.5 million.

Aires last month announced the suspension of five of its six international routes, leaving only Bogota-Fort Lauderdale. The carrier says it decided to cut its international network in order to improve its domestic operation but it is also believed the five routes axed were unprofitable.

The changes to the international network means Aires is now using its nine 737-700s mainly on domestic trunk routes with the one exception of Bogota-Fort Lauderdale. Aires also continues to operate on regional routes using 11 Bombardier Dash 8 Q200 turboprops while a newly acquired fleet of four Q400s are used on a mix of regional and trunk routes.

As part of its current analysis of the Aires business, LAN is now looking at options for the regional operation. As LAN does not have any regional aircraft at its other South American bases, industry observers expect the Aires regional operation could eventually be sold off or shut down.