UPDATE 1-Brazil's TAM net doubles on lower fuel costs

* TAM sees signs of improving travel demand in Brazil

* Cost of fuel plunges, sparking surge in net income

* EBITDAR falls 74 pct in quarter as revenue tumbles (Recasts; adds details on fuel costs, currency hedges)

By Guillermo Parra-Bernal

SAO PAULO, Aug 14 (Reuters) - TAM Linhas Aereas (TAMM4.SA)(TAP.N), Brazil's biggest airline, said on Friday that second-quarter net income more than doubled as a sharp drop in the cost of fuel helped offset a decline in revenue.

The Sao Paulo-based company reported net profit of 788.9 million reais ($431 million), up from 337 million reais a year earlier, according to a securities filing.

Net revenue fell 9 percent to 2.27 billion reais from 2.50 billion reais, while costs rose at a slower pace, the company said.

Costs and expenses such as fuel, maintenance and airport fees rose 2.1 percent to 2.42 billion reais. Fuel costs fell 37 percent to 620 million reais.

The difference between revenue from financial investments and debt-servicing costs, known as net financial revenue, more than tripled to 1.28 billion reais from 374 million reais.

The company renegotiated 65 percent of its outstanding derivative contracts tied to fuel prices, saving up to $95 million, the filing said.

The company raised its estimate for an increase in passenger traffic in the local market this year to a range of 7 percent to 10 percent. It previously had expected 1 percent to 5 percent growth.

The airline said growth in available seats, a measure known in the industry as ASK, has risen 10.6 percent so far this year, compared with its forecast of 8 percent.

Occupancy rates remain in line with the company's 67 percent forecast at the start of the year, TAM said.

Earnings before interest, taxes, depreciation, amortization and lease rentals, a measure of operational profitability and cash generation known as EBITDAR, fell to 191.5 million reais from 318.1 million reais. ($1=1.832 reais) (Editing by Lisa Von Ahn)