tam day - operations

TAM DAY 2007“Unlocking Value”Unlocking Value

Operations Outlook

David Barioni

November 12, 2007November 12, 2007

One of the main pillars of our best fitting product is efficient delivery and becomes a reinforcing cycleefficient delivery, and becomes a reinforcing cycle

Prioriti e efforts and E ec te to deli er hatPrioritize efforts andinvestments where itmakes a bigger difference

Execute to deliver whatis expected at thelowest cost possible

Efficient Delivery

Monitor resultsresults

Are we delivering what we had intended to deliver?

Are there additional opportunities for improving the

22“Unlocking value”“Unlocking value”

Are there additional opportunities for improving the final product and reducing cost?

We intend to continue reducing costs aggressively, without deviating from our product fitwithout deviating from our product fit

Fleet, network and operations

Fleet, network and operations Distribution expensesDistribution expenses OverheadOverheadpp

Increase of aircraft size (addition of 11% aircraft = 16% seats)

I d t l th

Implementation of agreement with ABAV, transferring commissions on domestic sales in Brazil

Continued outsourcing of non-core activities

Continued revision of spans & lIncreased stage length

(new longhaul flights and overhub)

Fleet standardization for

Increase of direct sales through the call center and internet (focus on off peak sales)

& layers

Implementation of additional methods of payments lowering transaction costsFleet standardization for

domestic fleet

Alliances providing network optimization

sales)

New methods of payment

F b dl t t

lowering transaction costs

Implementation of new processes and systems in backoffice, eliminating

l kNew CCOA procedures

Decreased use of fuel through improved flight

Fare bundle strategy

Implementaton of eTAM portal for offline bases (reduction of GDS fees)

manual work

Enhanced sourcing strategy

procedures

Improved crew management

(reduction of GDS fees)


Increased automization at airports

Initiative focus

Fleet, network and Fleet, network and Fleet, network and operationsoperationsoperations

Fleet, network and Fleet, network and Fleet, network and operationsoperationsoperations Distribution expensesDistribution expensesDistribution expensesDistribution expensesDistribution expensesDistribution expenses OverheadOverheadOverheadOverheadOverheadOverheadpppppp

Increase of aircraft size Increase of aircraft size Increase of aircraft size (addition of 11% aircraft = (addition of 11% aircraft = (addition of 11% aircraft = 16% seats)16% seats)16% seats)

I d t l thI d t l thI d t l th

Implementation of Implementation of Implementation of agreement with ABAV, agreement with ABAV, agreement with ABAV, transferring commissions on transferring commissions on transferring commissions on domestic sales in Brazildomestic sales in Brazildomestic sales in Brazil

Continued outsourcing of Continued outsourcing of Continued outsourcing of nonnonnon---core activitiescore activitiescore activities

Continued revision of spans Continued revision of spans Continued revision of spans & l& l& lIncreased stage length Increased stage length Increased stage length

(new longhaul flights and (new longhaul flights and (new longhaul flights and overhub)overhub)overhub)

Fleet standardization forFleet standardization forFleet standardization for

Increase of direct sales Increase of direct sales Increase of direct sales through the call center and through the call center and through the call center and internet (focus on off peak internet (focus on off peak internet (focus on off peak sales)sales)sales)

& layers& layers& layers

Implementation of additional Implementation of additional Implementation of additional methods of payments methods of payments methods of payments lowering transaction costslowering transaction costslowering transaction costsFleet standardization for Fleet standardization for Fleet standardization for

domestic fleetdomestic fleetdomestic fleet

Alliances providing network Alliances providing network Alliances providing network optimizationoptimizationoptimization

sales)sales)sales)

New methods of New methods of New methods of paymentpaymentpayment

F b dl t tF b dl t tF b dl t t

lowering transaction costs lowering transaction costs lowering transaction costs

Implementation of new Implementation of new Implementation of new processes and systems in processes and systems in processes and systems in backoffice, eliminating backoffice, eliminating backoffice, eliminating

l kl kl kNew CCOA procedures

Decreased use of fuel Decreased use of fuel Decreased use of fuel through improved flight through improved flight through improved flight

Fare bundle strategyFare bundle strategyFare bundle strategy

Implementaton of eTAM Implementaton of eTAM Implementaton of eTAM portal for offline bases portal for offline bases portal for offline bases (reduction of GDS fees)(reduction of GDS fees)(reduction of GDS fees)

manual workmanual workmanual work

Enhanced sourcing strategyEnhanced sourcing strategyEnhanced sourcing strategy

proceduresproceduresprocedures

Improved crew Improved crew Improved crew management management management

(reduction of GDS fees)(reduction of GDS fees)(reduction of GDS fees)


Increased automization at Increased automization at Increased automization at airportsairportsairports

Since December 06, we have implemented the “CCOA” (Air Operations Control Center)CCOA (Air Operations Control Center)…

CCOACCOA Chief PilotChief Pilot

SchedulingScheduling AirportAirportMaintenanceMaintenance DOVDOVCoordinationCoordination

Goal is to maintain schedule “operational”, minimizing the final impact of unplanned events to customers and company


…and is monitoring the “day-to-day” implementation of the network with faster responsesof the network with faster responses

Physically “pooling together” areas which have direct contactPhysically pooling together areas which have direct contact with the day-to-day activities has provided a faster response time to non-planned issues

Definition of objectives and standards of operations have givenDefinition of objectives and standards of operations have given the CCOA more “autonomy” in decision making, also speeding up responses

Focus on safety and on-time performance, with no cancellations with efficient use of aircraft


As well as faster responses, there are other adjacent benefitsbenefits

Concentrates knowledge on real time basis of network status

Enhanced ability to supply airport and passengers with necessary information

Enhanced ability to measure over time repeated errors or bottlenecks in “delivering” network therefore better visibility to “work out” hidden problemsp

Creates better teamwork

M t l d t di f i d f d ti l iMutual understanding of issues and focused actions on solving them (no discording action plans)

Decreases cost of operationsDecreases cost of operations

Anticipation of problems allows for alternative solutions, decreasing high costs in “fixing” the network


high costs in fixing the network

Initiative focus





Continued revision of spans Continued revision of spans Continued revision of spans & l& l& l


I d t l thI d t l thI d t l thIncrease of direct sales Increase of direct sales Increase of direct sales through the call center and through the call center and through the call center and internet (focus on off peak internet (focus on off peak internet (focus on off peak sales)sales)sales)


Implementation of additional Implementation of additional Implementation of additional methods of payments methods of payments methods of payments lowering transaction costslowering transaction costslowering transaction costs

Increased stage length Increased stage length Increased stage length (new longhaul flights and (new longhaul flights and (new longhaul flights and overhub)overhub)overhub)

Fleet standardization forFleet standardization forFleet standardization for sales)sales)sales)





l kl kl k

Fleet standardization for Fleet standardization for Fleet standardization for domestic fleetdomestic fleetdomestic fleet





Enhanced sourcing strategyEnhanced sourcing strategyEnhanced sourcing strategyNew CCOA proceduresNew CCOA proceduresNew CCOA procedures

Decreased use of fuel Decreased use of fuel Decreased use of fuel through improved flight through improved flight through improved flight (reduction of GDS fees)(reduction of GDS fees)(reduction of GDS fees)proceduresproceduresprocedures

Improved crew management



We have increased crew flight hours to 74 hours/pilot

Flight hours/pilot/monthLegal limit 76

~1,500 pilots and co-il S b 2007

100

Legal limit ~76 hours/month

pilots at September 2007

Improvement in crew i i h i i60

7480

23%pairing has increasing total usage in 800 hours/day

60

40

60

y

Reformating simulator training has gained 4

20g g

hours/dayBefore Nov 07 After Nov 07

0


Additional operational measures for improved crew management and proceduresmanagement and procedures

Change in flight proceduresBreaks vs. thrust reversersAltitude of flights

Change in scheduling proceduresg g pTrade of day offAllocation of crew members in home bases

Deferral of training expensesDeferral of training expenses

New software for scheduling


New software for scheduling

Initiative focus







I d t l thI d t l thI d t l thIncrease of direct sales Increase of direct sales Increase of direct sales through the call center and through the call center and through the call center and internet (focus on off peak internet (focus on off peak internet (focus on off peak sales)sales)sales)




Fleet standardization forFleet standardization forFleet standardization for sales)sales)sales)





l kl kl k







Decreased use of fuel Decreased use of fuel Decreased use of fuel through improved flight through improved flight through improved flight (reduction of GDS fees)(reduction of GDS fees)(reduction of GDS fees)proceduresproceduresprocedures



Increased automization at airports

We have increased self check-in usage in 2007 in over 300%over 300%…

% Total Check-In(10 major airports)

0 8

1.0 10 major airports in Brazil

New focus for attendants:

9 %

73%0.6

0.8

KPIs based on no. of totem check-ins

95%

0.4

Inclusion of daily follow-up in morning meetings

D l t f

5%

6%

21%

0.2Development of confirmation engine speeding up boarding

5%Apr 06

0.0 Counter

Web check in

Counter check in

Oct 07 pass printingID no., TAM Fidelidade no e tkt no etc


Totem self check inWeb check in no., e-tkt no. etc

…reducing queue waiting time

In 18 months, demand has grown ~10%, while self check-in , g ,over 300%

Reduction of ~ 20% queue waiting timeq g

In 2007, with the new localization of totems in front of the counters we implemented luggage counterscounters, we implemented luggage counters

Split between only check-in, only luggage, and check-in/luggage

Luggage counter takes 1/4 less time than normal check-in


We plan to increase usage through a series of initiativesinitiatives

Expansion and renewal of totemsp

Repositioning airport totems in certain airports

T h l i l d t t t t / b h k i iTechnological update to totem/web check-in servicesServe non-TAM e-tkts (interline partners)All difi ti i b kiAllow modifications in bookingAllow use for all destinations

Optimized lay out to ensure luggage customers quickness for dispatch

Increase publicity to loyalty card customers


Initiative focus







Implementation of agreement with ABAV, transferring commissions on domestic sales in Brazil





Increase of direct sales Increase of direct sales Increase of direct sales through the call center and through the call center and through the call center and internet (focus on off peak internet (focus on off peak internet (focus on off peak sales)sales)sales) lowering transaction costs lowering transaction costs lowering transaction costs


l kl kl k



sales)sales)sales)


F b dl t tF b dl t tF b dl t t manual workmanual workmanual work










We signed an agreement with ABAV in October changing the structure of commissionschanging the structure of commissionsChanges with agreement, valid as of January:

Travel agent compensation Included in ticket valuePaid directly by TAM

Specified in the ticket valuePaid directly by the

Before After

Applicable

Paid directly by TAM6-7% of ticket value

Paid directly by the passenger10% of ticket value or R$ 30(whichever is greater)

All channels(whichever is greater)

Agencies linked to ABAV, TAM’s point of sales (storesTAM s point of sales (stores and TAM Viagens, outsourced agencies and call center) – excluding electronic

Expected benefits for TAM: no more commissions paid in the domestic market

sales


(reduction in commercial costs), fiscal benefits, increase in direct sales through website

Initiative focus





Implementation of Implementation of Implementation of agreement with ABAV, agreement with ABAV, agreement with ABAV, transferring commissions on transferring commissions on transferring commissions on domestic sales indomestic sales indomestic sales in Brazil


Continued revision of spans Continued revision of spans Continued revision of spans & l& l& lIncreased stage length Increased stage length Increased stage length

(new longhaul flights and (new longhaul flights and (new longhaul flights and overhub)overhub)overhub)


Increase of direct sales Increase of direct sales Increase of direct sales through the call center and through the call center and through the call center and internet (focus on off peak internet (focus on off peak internet (focus on off peak sales)sales)sales)


Implementation of additional Implementation of additional Implementation of additional methods of payments methods of payments methods of payments lowering transaction costslowering transaction costslowering transaction costsFleet standardization for Fleet standardization for Fleet standardization for

domestic fleetdomestic fleetdomestic fleet


sales)sales)sales)





l kl kl kNew CCOA proceduresNew CCOA proceduresNew CCOA procedures





Enhanced sourcing strategy






This year, we have initiated a revision of all our contracts and purchasing needscontracts and purchasing needs…

Initial focus on all non-aircraft related contractsInitial focus on all non aircraft related contracts

Implementation of unified sourcing policy

Centralization of purchasing activity/strategy, regardless of type of contract

Creation of special sourcing know-how for ample negotiations

Focus on reducing cost while maintaining or enhancing qualityg g g q y

Implementation of continuous monitoring process in order to control “inflation” in following yearscontrol inflation in following years


…with reduction of ongoing costs of up to 30% in each category of spend (1/2)each category of spend (1/2)

Example 1: Health Insurance (-5%)Example 1: Health Insurance (-5%)

St d i l lPreparationPreparation ResultResult

R i d ith t idStudy on main value levers, including different plan structures

Increase in volume due to

Remained with current provider

+1 doctor for first aid officeIncrease in volume due to internalization of stations

Increased tenure of contract

Upgrade of entry level, offering higher reimbursement rates and access to better labs and hopitals

RFP sent to various players, including current provider at the

p

Regional coverage

Inclusion of hiring medicaltime Inclusion of hiring medical evaluation

Return on claim %


…with reduction of ongoing costs of up to 30% in each category of spend (1/2)each category of spend (1/2)

Example 2: Tires (-30%)Example 2: Tires (-30%)

C t li ti f d t fPreparationPreparation ResultResult

C t li d h i (Centralization of data for preparation of negotiation

Purchase agreement for long term

Centralized purchasing (vs decentralized at stations)

Guarantees based on useful life ofPurchase agreement for long term (vs. spot purchasing)

Definition and standardization of

Guarantees based on useful life of tires

Delivery directly at given stations quality levels and exchange/ reusage levels

y y g(though centralized purchasing)

Aggregated services in analysing Aggregated services for volume guarantee

costs, life, wear, etc


With all our initiatives, we expect CASK ex-fuel in 2008 to decrease 7% while delivering a better productto decrease 7%, while delivering a better product

Guidance 2008Guidance 2008

Domestic market demand growth from 8% to 12% (in RPK terms)Domestic market demand growth from 8% to 12% (in RPK terms)Domestic market demand growth from 8% to 12% (in RPK terms)MarketMarket

Maintain the leadership in both domestic and international marketsMaintain the leadership in both domestic and international marketsMaintain the leadership in both domestic and international markets

ASK growth ofASK growth ofASK growth ofASK growth of ASK growth of ASK growth of

Domestic 14%Domestic 14%Domestic 14%

International 40%International 40%International 40%International 40%International 40%International 40%

Average load factor at approximately 70% overall Average load factor at approximately 70% overall Average load factor at approximately 70% overall

R d ti f 7% i t t l CASK f l i BR GAAP

TAMTAM

Reduction of 7% in total CASK ex-fuel in BR GAAP yoy

Three additional international destinations or frequencies in 2008Three additional international destinations or frequencies in 2008Three additional international destinations or frequencies in 2008


TAM: the best fitting product for the customer (stakeholders) based on efficienct delivery(stakeholders) based on efficienct delivery

UndisputableB tt S iUndisputableB tt S iBetter ServiceBetter Service

Sustainable Strategy

Low Operating

Low Operating Competitive

P iCompetitive

P i

Sustainable Strategyto Maintain Market

Leadershipand ProfitabilityOpe at g

CostsOpe at g

Costs PricesPrices


tam day - operations

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seatsi d t

additional opportunities

product fitfleet

final product

product fitwithout

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