Sky Airline: Business Model Transformation and Future Challenges
Sky Airline (Sky or the Company) had a traditional Full Service Carrier (FSC) business model (BM), under which the Company was struggling financially, mainly because it was competing with a more efficient airline: LATAM, the leader in the aviation industry in South America. To differentiate from competition and take advantage of value migration in the industry, Sky transformed its FSC model into a low cost carrier model (LCC). The transformation has proven to be successful. Financial results improved dramatically and the company s market share in domestic operations is approaching 30%. However, in 2017 a new competitor, Jet Smart, started operations in Chile and has announced plans to expand operations to other countries in the southern cone of Latin America, the same markets in which Sky operates. In December 2017, Jet Smart announced the purchase of 76 new Airbus 320 family in a deal valued at US$8.4 billion. Airbus will deliver Jet Smart?s order between 2018 and 2026. The threat to Sky is credible given that Indigo Partners owns Jet Smart (Indigo is an investment fund specialized in operating ultra-low cost carriers ULCC) such as Frontier Airlines in the US, Volaris in Mexico, and Wizz Air in Eastern Europe). At almost the same time, the leading South American carrier LATAM announced it would initiate formal studies in April 2018 about the feasibility of starting up a new LCC. The market dynamics of these threats should bring further price pressures on the aviation market in the southern cone of Latin America. Thus, after successfully completing a transformation of its business model (1Q2017), the company faces additional challenges that may involve a further transformation of its BM.