Strikes, Low-Cost Rivalry Make for Tough Times at Latam Airlines

(Bloomberg) -- Increasing competition is making it hard to be Latam Airlines.

After a union of cabin crew employees went on strike in Chile April 10, asking for improved working conditions, the carrier said that it couldn’t oblige, citing intensifying rivalry in the domestic market.

"Low-cost operators offer fewer benefits than we do, and they pay less than we do," Ignacio Cueto, Latam’s chairman, told reporters today. "We simply can’t compromise the profitability of the company."

The strike underlines a new reality in Chile’s transportation market and legacy carriers may need to adapt, including cutting employee costs, to keep up with low-cost carriers that are quickly sucking up market share.

"Low-cost carriers and low prices are here to stay," Cueto said.

Cueto was referring to rival Sky Airline SA, which began operations in 2002 and has been operating as a low-cost carrier since 2013 -- it even hired a former head of operations from RyanAir -- and JetSmart, which started up nine months ago and already claims to control almost 12 percent of the domestic market.

Investors haven’t much been ruffled by the strike. Shares are down less than one percent since it began.

Latam hasn’t stood still: Since completing the merger of Chile’s Lan Airlines with Brazil’s Tam SA in 2015, the company has reduced headcount to about 42,000 employees from more than 55,000, Cueto said. He didn’t say that it was the end of layoffs when asked by reporters. The company has also begun flying its domestic Chile flights as a low-cost operator, charging for suitcases and food.

The cabin crew union at Lan Express said that their members were being overworked and showing symptoms of fatigue. They didn’t ask for raises, but rather for a change in their schedules from 10 working days followed by 4 rest days, to 5 work days followed by 4 rest days and returning other benefits they had won from the company. Latam didn’t budge and said that no one in the industry gets those kinds of working conditions.

After 17 days, the union unilaterally said that it would end the strike and revert back to previous working conditions, as several of its members were returning to work anyway. Latam contends the strike is still on -- it has affected more than 400,000 passengers in Chile and is costing up to $1.5 million daily, according to the chairman -- as it waits for an announcement from a labor contracts regulator.

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