LATAM Airlines Will Adopt Low Prices

Chile's LAN Airlines completed a takeover of Brazilian TAM last week, creating the world's second-largest airline by market value, reports Reuters.

The new carrier, that is called LATAM Airlines Group, launches its operations at a time of slowing economic growth. That means that the airline will need to adopt low prices to boost profits in a challenging market.

Chief Executive Enrique Cueto said last week in Sao Paulo: "We will focus on Brazil and, as LATAM, we will introduce important changes in the local airline market... There are great opportunities stemming from stimulating demand and enforcing a disciplined use of capacity, something that hasn't happened in years."

The creation of LATAM Airlines comes amid growing mergers and acquisitions activity among airlines in Brazil as carriers struggle with high labor costs, an unwieldy tax burden and overcrowded airports.  By fetching higher ratings, LATAM will be able to borrow at a cheaper cost while operations rise globally, Mr. Cueto added. Both companies kept their plane orders plans unchanged, meaning the need for funds will increase over the coming years.

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