080130 raymond james
TRANSCRIPT
2008 Growth Airline Conference Raymond James
January, 2008
2 2
Information and ProjectionThis notice may contain estimates for future events. These estimates merely reflect the expectations of the Company’s management, and involve risks and uncertainties. The Company is not responsible for investment operations or decisions taken based on information contained in this communication. These estimates are subject to changes without prior notice.
This material has been prepared by TAM S.A. (“TAM“ or the “Company”) includes certain forward-looking statements that are based principally on TAM’s current expectations and on projections of future events and financial trends that currently affect or might affect TAM’s business, and are not guarantees of future performance. They are based on management’s expectations that involve a number of business risks and uncertainties, any of each could cause actual financial condition and results of operations to differ materially from those set out in TAM’s forward-looking statements. TAM undertakes no obligation to publicly update or revise any forwardlooking statements.
This material is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Likewise it does not give and should not be treated as giving investment advice. It has no regard to the specific investment objectives, financial situation or particular needs of any recipient. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. It should not be regarded by recipients as a substitute for the exercise of their own judgment.
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2007 was a year of many challenges
Macro Economy
Airline Industry
Airlines Brazil
TAM
High volatility (e.g. subprime crisis)
Fuel prices Scarcity of aircraft, seats, etc due to
overall growth in the sector Conclusion of the “Varig” questionmark Changes in the governing structure of
the industry Collapse of BRA
Impact of infrastructure on operations Accident
4 4
We have continued to be the leading domestic carrier
14.4
20.3
42.4
20.7
8.5
14.5
40.3
30.6
13.5
38.9
11.7
34.6
12.2
33.6
19.4
33.0
8.8
31.1
22.3
35.8
25.5
25.9
41.3
10.3
34.0
47.8
39.6
48.9
2000 2001 2002 2003 2004 2005 2006 20070
20
40
60
80
100%
Domestic Market Share (RPKs)
TAMGOLVARIGVASPTRANSBRASILBRAOther
5 5
Previousperiod
Currentperiod
J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND80859095
100105110115120125130
Domestic Market - Variation
Previousperiod
Currentperiod
J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND80859095
100105110115120125130
Domestic Market - Variation
Source: ANAC
Accum. market growth 2006
12%
The domestic market growth reached 12% in the year accumulated
Accum. market growth 2005
19%
Accum. market growth 2004
12%
Accum. market growth 2007
12%
2004
2005
2006
2007
6 6
We have also become the leading Brazilian carrier in the international market
75.0
7.4
82.1
13.9
87.4
12.5
87.9
12.0
85.4
14.5
77.0
18.4
50.4
7.3
37.3
13.1
14.2
67.5
2000 2001 2002 2003 2004 2005 2006 20070
20
40
60
80
100%
International Market Share (RPKs)
TAMGOLVARIGVASPTRANSBRASILOther
7 7
Previousperiod
Market
TAM
J FMAM J J A SOND J FMAM J J A SOND J F MAM J J A SOND J FMAM J J A SOND406080
100120140160180
200
International Market - Variation(vs previous year)
Source: ANAC
The international market (among Brazilian carriers) is recuperating
Accum. Market growth 2004
8%
Accum. market growth 2005
7% Accum. market decrease 2006
30%
Accum. market decrease 2007
5%
Acum TAM 200641%
Acum TAM 2007 71%
Acum TAM 200540%
Acum. TAM 200430%
2004
2007
2005
2006
8 8
53.3%
46.7%
53.8%
46.2%
71.5%
28.5%
65.0%
35.0%
2004 2005 2006 2007*0
20
40
60
80
100%
% International traffic
Braziliancarriers
Intlcarriers
The growth potential for Brazilian carriers is higher due to the unbalance in the bilateral agreements
* estimates
9 9
We are strengthening our product in the international market through fleet and network... Increased widebody fleet plan for the next 10 years,
substituting older aircraft 2 A340s (delivered in 2007) 8 B777-300ERs (4 in 2008, 4 in 2012) 22 A350s (as of 2013) New A330 reducing fleet average age Complete phase-out of F100 (impact on intra South American
routes)
Expansion of network through additional destinations and frequencies
New full code share agreements at each major country Focus on South American coverage – integration of TAM
Mercosur activities
10 10
21%
79%
33%
67%
34%
66%
34%
66%
3Q06 1Q07 2Q07 3Q070
20
40
60
80
100%
Revenues(Passenger + Cargo)
DomesticInternational
% ASK Int% ASK Dom
Dollarexchangerate
27%73%
R$2.174
33%67%
R$2.050
37%63%
R$1.926
37%63%
R$1.839
The international operations works as a natural hedge
Approximately 50% of our costs
(including fuel) are exposed to foreign
currencies
Revenues originated in the
international operations are
expected to reach 45% - 50% in the next 12 months
11 11
As Brazil becomes “stable”, the leisure segment will become increasingly more important
Leisu
reBu
sines
s
2000 2001 2002 2003 2004 2005 2006 2007
17.9
26.6 27.0 25.228.2
35.439.7
44.4
0
10
20
30
40
50
Domestic Market Passenger Mix (RPK M)
CAGR
11%
22%
Travelling is one of the top “desire” items for consumption
* TAM Estimates
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We will be expanding our fare bundle strategy for the domestic market in 2008... Addition of extra
features in the segmented bundles
Ability to “sell up” categories Potential for
further revenue increase
Harmonization of the fare bundle strategy to TAM Fidelidade growth
13 13
...increasing capillarity of sales through our new methods of payments... Launched new methods of payment in May 2007
Payment at lottery stores Approximately 9,000 stores in Brazil Already functioning as bank correspondent
Billing slips Automatic debit Financing for passengers via direct consumer credit with
the main retail banks
Focus on leisure/lower income segments
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...optimizing the utilization of our aircraft on off peak hours
* Average day in October, 2007
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2350
55
60
65
70
75
80%
Domestic load factor per hour
Off Peak Off Peak Off PeakPeakPeak
15 15
TAM had its origin as a regional carrier…
TAMPremium / Business
Commodity / Leisure
Reg
iona
lInternational
TAM’s Origin
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… until 1998, was focused in domestic transportation of business passengers…
TAMPremium / Business
Commodity / Leisure
Reg
iona
lInternational
TAM up to 1998
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… and now, it serves a full spectrum of passengers under one brand
TAMPremium / Business
Commodity / Leisure
Reg
iona
lInternational
First class
Business class
Economy class
Commercial
agreements
with
regional
carriers
18 18
We are beginning to evaluate new potential business units in the company
TAM Linhas Aéreas
MRO(São Carlos)
Loyalty Program HandlingCargo
Already structured as a business unit with focus in maximizing assets
None or little focus on selling services to third-parties
Not structured as business units
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Average domestic market share above 50%
Average domestic load factor at approximately 70%
Aircraft utilization per day (block hour) higher than 13 hours
Reduction of 7% in total CASK ex-fuel in BR GAAP yoy
Opportunity in the international marketThird frequency to ParisInauguration of two new international
long haul frequencies
Market demand growth from 10% to 15% (in RPK terms)
Guidance 2007
TAM
Market
We continue with our 2007 guidance, disclosed Dec 2006, demonstrating our commitment to investors
11.9%
2007
• Since January• Milan, Frankfurt
and Madrid
48.9%70.5%
12.8*
8.5%*
* Jan – Sep Accumulated
20 20
3
14
88
4
418
101
420
104
422
110
424
113
8
24
115
2007 2008 2009 2010 2011 2012
109123 128
136 141 147
0
50
100
150
Total Fleet
Our growth plan is supported by a flexible fleet plan
B777 MD11 Airbus wide-body Airbus narrow-body F100
TAM will be
monofleet in the
domestic operations by 1Q08
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Maintain the leadership in both domestic and international markets
ASK growth of Domestic 14% International 40%
Average load factor at approximately 70% overall Reduction of 7% in total CASK ex-fuel in BR GAAP yoyThree additional international destinations or frequencies in
2008
Domestic market demand growth from 8% to 12% (in RPK terms)
Guidance 2008
TAM
Market
We have a positive outlook for 2008
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2008 Growth Airline Conference Raymond James
January, 2008