November 10, 2016 / 1:07 PM / in 2 years

LATAM Airlines moves to budget model for domestic flights

SANTIAGO, Nov 10 (Reuters) - LATAM Airlines , Latin America’s largest carrier, said it was moving to a new model for domestic flights in the region, reducing fares but charging extra for services that were previously included.

The company will cut its cheapest fares by up to 20 percent while levying fees for services such as baggage check-in, food and drink, and advance seat assignments.

“This change will allow us to be competitive and assure the sustainability of the group’s businesses in the long term,” the company said in a statement late on Wednesday.

Airlines elsewhere have increasingly turned to budget models.

Since its formation in a merger between Chile’s LAN and Brazil’s TAM in 2012, LATAM has struggled to meet investors’ expectations, repeatedly reporting losses as the region’s economic growth slowed and currencies weakened.

However, its shares have jumped about 70 percent this year on growing hopes that the worst of Brazil’s recession is over and that cost-cutting and capacity reductions at the airline will start to bear fruit.

“As the frequency of flight use (per person) in the region is still far below countries like the U.S. or England, Latin America still has a lot of growth potential,” said Executive President Enrique Cueto.

The company hopes the new model will increase passenger traffic by up to 50 percent by 2020, Cueto added.

LATAM said it planned to start using the new model in the first half of 2017 for domestic flights in Argentina, Brazil, Chile, Colombia, Ecuador and Peru. (Reporting by Antonio de la Jara; Writing by Rosalba O’Brien; Editing by Lisa Von Ahn)

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