March 20, 2017 / 11:00 PM / in 9 months

LATAM Airlines sees Brazil recovery in second half

SANTIAGO (Reuters) - LATAM Airlines expects to see a recovery in its key Brazilian market in the second half of 2017 as it pares its fleet and rolls out a low-cost model in Chile to remain competitive, its chief executive said on Monday.

Battered by Brazil’s recent economic downturn, Latin America’s largest airline does not expect a return to its former investment grade status much before 2019, Enrique Cueto told Reuters in an interview in Santiago.

“To return to what we were before, that will take some time,” he said. “(But) we are going to see positive results from the second half.”

LATAM Airlines was formed in a 2012 merger between Brazil’s TAM and Chile’s LAN. The carrier’s leading position in the continent’s air traffic has few parallels.

But economic downturn in the region left the group struggling to live up to its early promise. Last week, it posted its first full-year profit since the merger.

LATAM has cut capacity, reduced costs and chopped fleet commitments in a bid to remain competitive and is now in good shape to face a quickly evolving market, Cueto said.

The company is rolling out a partial low-cost model in Chile this year as it faces a flurry of new entrants in South America and deals such as Avianca’s AVT_p.CN proposed tie-up with United.

Latam airlines chief executive Enrique Cueto poses for a picture during an interview with Reuters in Santiago, Chile March 20, 2017. REUTERS/Pablo Sanhueza

“We’re not going to be a low-cost company, but we will have a structure approximating the low-cost model,” he said. “We want to look after our business passengers but also the kid who just wants to take a carry-on bag on the plane and pay less.”

The other major trend in the airline industry is the formation of global networks to expand each carrier’s reach, said Cueto. To that end, LATAM is deepening ties with IAG’s British Airways.

Latam airlines chief executive Enrique Cueto poses for a picture during an interview with Reuters in Santiago, Chile March 20, 2017. REUTERS/Pablo Sanhueza

To satisfy Brazil’s regulator, it must add new routes to Europe, which may be from either Brasilia or the country’s northeast, he said, adding that LATAM was also revisiting the idea of forming a new hub in Brazil.

Another key partner is Qatar Airways, which bought a 10 percent stake in the group last year.

LATAM is leasing four planes to Qatar, which Cueto said was “a good agreement for both,” allowing LATAM to shift excess capacity in the short-term.

“Perhaps in two years when demand recovers we’ll need them,” he said.

Qatar is barred from raising its stake for more than two years, but “in the future we could discuss it,” he said.

Reporting by Antonio de la Jara and Rosalba O'Brien; Editing by Cynthia Osterman

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