LATAM Airlines Group has initiated the process of establishing a low-cost carrier, Chile's El Mercurio newspaper has reported citing government documents.

According to the report, the South American carrier group has submitted a letter of intent to the Chilean civil aviation authority (Dirección General de Aeronáutica Civil - DGAC) in March informing it of its intention to pursue a new AOC.

During an earnings call last month, LANChile's Chief Financial Officer Ramiro Alfonsin confirmed studies pertaining to a possible LCC were underway but that no firm plans had yet been finalized.

LATAM is facing increased competition not only in the Chilean domestic market, where it competes with LCCs SKY Airline (Chile) (H2, Santiago de Chile Int'l) and JetSMART (JA, Santiago de Chile Int'l), but around South America as a whole where the low-cost concept has begun to take root. To that end, the report adds that LATAM has also considered establishing a budget carrier in Argentina, where it already has LATAM Airlines Argentina, but is coy on the prospect given existing laws governing minimum airfares.