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Transportation and Logistic Transportation and Logistic ConferenceConference Deutsche Bank
July 10, 2007
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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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Low OperatingCosts
UndisputableBetter Service
CompetitivePrices
Sustainable Strategyto Maintain Market
Leadershipand Profitability
TAM is a low cost company with better service at competitive prices
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Previousperiod
Currentperiod
J F MAM J J A S OND J F MAM J J A S OND J F MAM J J A S OND J F MAM80859095
100105110115120125130
Domestic Market - Variation
Source: ANAC
Accum. market growth 2006 ~12%
The domestic market growth still strong in 2007, reaching 14% in the first 5 months of the year
Accum. market growth 2005 ~19%
Accum. market growth 2004 ~12%
Accum. market growth 2007 ~14%
2004 2005 2006 2007
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33.0%35.8%
47.8% 49.1%43.5%
2003 2004 2005 2006 Jan - Mai
TAM 49.7%
GOL 40.8%
Other3,2%
BRA2,2%Varig
4,1%
We have been domestic market leaders since 2003, ending May with 49,7%
Domestic Market Share - May/07
Domestic Market Share (RPK’s)
Source: ANAC
BRA 3,4%
Varig 4,6%
Other 5,1%
TAM 48,5%
GOL 38,5%
Domestic Market Share – 1Q07
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Previousperiod
Market
TAM
J F MAM J J A S OND J F MAM J J A S OND J F MAM J J A S OND J F MAM406080
100120140160180200
International Market - Variation(vs previous year)
Source: ANAC
The international market (among the Brazilian carriers) has been diminishing…
Accum. market growth 2004 ~8%
Accum. market growth 2005 ~7%
Accum. market
decrease 2006 ~30%
Accum. market decrease 2007 ~33%
Acum TAM 2006~41% Acum TAM 2007
~82%Acum TAM 2005
~40%Acum. TAM 2004~30%
2004 2005 2006 2007
8 8
12.00% 14.3%
37.3%
65.2%
18.8%
2003 2004 2005 2006 Jan - Apr
TAM 72.4%
GOL 13.7%
Varig 10.1%
Other 3,9%
International Market Share– May/07
International Market Share
Since July 2006, we are international market leaders among the Brazilian companies
Source: ANAC
International Market Share – 1Q07
TAM 60.9%
Varig12.1%
GOL 17.9%
Other9.1%
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86103
284
1,114
158157
503
1,039
1Q06 1Q07
1,587
1,856
0
500
1,000
1,500
2,000
Gross Revenues (R$ M)
Dom.Pax
Int.Pax
CargoOther
17%
Domestic passenger revenue reduced 6.7%
RPK growth 22%ASK growth 22%
International passenger revenue growth 77%
RPK growth 64%ASK growth 78%
Cargo revenue growth 52%Other revenue growth 48%
Increase of sales of Loyalty Program points and expired tickets compensated by the sub-leasing
Strong revenue growth quarter over quarter
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1Q06
19.8
20.268.4
31.0
14.377.4
18.5
8.5
4Q06
19.3
17.569.7
26.4
16.673.7
22.6
10.6
1Q07
16.7
14.569.3
22.0
14.171.3
19.8
9.6
1Q06 vs 1Q07
-15.4%
-28.2% 0.8 p.p.
-29.0%
-1.5% -6.2 p.p.
7.2%
13.6%
4Q06 vs 1Q07
-13.3%
-17.1% -0.3 p.p.
-16.7%
-15.2% -2.4 p.p.
-12.4%
-8.7%
Our total RASK reduced 15%, mainly because of domestic yield decrease of 29%...
RASK Total1
RASK Scheduled Domestic2
LF Scheduled Domestic
Yield Scheduled Domestic3
RASK Scheduled International2
LF Scheduled International
Yield Scheduled International3 (em R$)
Yield Scheduled International3 (em USD)
1 Includes charter, cargo and Other revenues, net of taxes2 Net of taxes3 Gross of taxes
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CASK
CASKex-fuel
1Q06 2Q06 3Q06 4Q06 1Q07
17.4318.69 18.43
16.98 15.92
0
5
10
15
20
Total CASK (BR GAAP - R$ cents)1Q06 vs 1Q07
-7.5%
-8.7%
...and our CASK decreased 8.7% compared to 1Q06
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RASKCASK
2002 2003 2004 2005 2006 1T0715
20
25
RASK/CASK (R$ Cents)BR GAAP
EBITMargin
Spread
-7.1%
-1.1
-0.9%
-0.2
6.5%
1.4
7.5%
1.5
13.6%
2.8
4.8%
0.9
The decline in revenue decreased the spread (RASK-CASK)…
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1Q06 1Q07
376340
0
100
200
300
400
EBITDAR(BR GAAP - R$ M)
1Q06 1Q07
189
88
0
50
100
150
200
EBIT(BR GAAP - R$ M)
Margin over Net Revenue
1Q06 1Q07
127
59
0
50
100
150
Net Income(BR GAAP - R$ M)
...reducing our margins in BR GAAP...
-9%-53% -53%
24%
19%12%
5% 3%
8%
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1Q06 1Q07
373331
0
100
200
300
400
EBITDAR (US GAAP - R$ M)
1Q06 1Q07
238
146
0
50
100
150
200
250
300
EBIT(US GAAP - R$ M)
24%
15%
8%18%
1Q06 1Q07
268
138
0
40
80
120
160
200
240
280
Net Income(US GAAP - R$ M)
8%
-11%
17%- 39%
...and US GAAP
- 49%
Margin over Net Revenue
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BR GAAP Leasing IncomeTaxes
Others US GAAP
59.2
119.3
-44.53.9 137.9
0
50
100
150
200
Net Profit Reconciliationto US GAAP 39 aircrafts are reclassified as
capital leases as per SFAS nº 13
The main difference between BR and US GAAP is the accounting treatment of aircraft leasing
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1Q06 1Q07
0.85
0.39
Earnings per shareBR GAAP (R$)
1Q06 1Q07
1.80
0.92
Earnings per shareUS GAAP (R$)
Our EPS decreased
-54% -49%
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Our foreign revenues increased, reducing the mismatch in currencies
20%
80%
33%
67%
1Q06 1Q07
100% 100%
0
20
40
60
80
100%
Revenues(Passenger + Cargo)
DomesticInternational
Approximately 50% of our costs
(including fuel) are exposed to foreign
currencies
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Since our second public share offer, our ADR had an increase in valuation of 73%
Accumulated variation since March 10, 2006
0,5
1,0
1,5
2,0
10-mar-06 29-jun-07
TAMM4 IBOVESPA DOW JONES ADR TAM
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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 hoursReduction of 7% in total CASK ex-fuel in BR
GAAP yoyOpportunity in the international market
Third frequency to ParisInauguration of two new international
long haul frequencies
Market demand growth from 10% to 15% (in RPK terms)
Guidance 2007
TAM
Market
Our expectations for 2007, disclosed in December 2006, are still the same
13.6%*
1Q07
• Since January• Milan since
March
49.1%*71.5%*
13
7.5%
* Jan-May accumulated
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Domestic Market 2007 International Market 2007
~30% increase in ASKs At least an additional 3
destinations Strengthening of international
gateways for domestic market Guarulhos Galeão
Increasing of frequency on main domestic markets Brasília Congonhas Confins
Implementing overhub flights: new city-pairs
~60-70% increase in ASKs Additional daily frequency to
Paris beginning in January New flight to Milan in 1S07 Additional longhaul frequency or
destination to be disclosed Strengthening of Latin American
presence, both frequencies and destinations
In 2007, we will be expanding both frequencies and destinations
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Due to international market opportunity, we are strengthening our international partnerships...
Signature of several MOUs: Code-share with TAP serving several destinations in Portugal and
integration of TAM’s Programa Fidelidade TAM with TAP’s Programa Victoria da TAP. Operations starting in July;
Code-share with LAN with unlimited seat sales within South America: Brazil, Chile, Argentina, Peru, Venezuela and integration with LAN’s PASS;
Code-share with United Airlines serving several destinations in the USA (strong hubs in Chicago and Washington) and integration with Mileage Plus;
Code-share with Lufthansa serving the German market – connecting point of flights to Europe, Asia, Middle East and Africa. Integration with Miles & More
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...increasing our fleet and maintaining one of the youngest fleets in the world
3
15
88
6
416
103
420
106
420
112
620
115
2007 2008 2009 2010 2011
112123
130 136 141
0
50
100
150
Total Fleet
F100
Airbusnarrow-body
Airbuswide-body
MD11B777
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Fleet and network Distribution costs Overhead
Increase of block hours to over 13 hours per day per aircraft in 2007
6 extra seats in the A319/320 fleet
Increase in direct sales through: Site improvement Fare bundles Call center
outsourcing New means of
payment Insourcing of
representatives Adjusting indirect sales
commissions to higher % on offpeak flights
Outsourcing of non-core activities
Redefinition of service standards
Review of spans&layers in the hierarquy
Implementation of new automated processes
Improved sourcing capabilities
Our cost targets are aggressive, but the roadmap is already laid out
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Source: Public reports of December 31, 2006 (except for Air Asia and Malaysia, which refer to 2005 figures)
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
8.0 13.0 18.0 23.0 28.0 33.0 38.0
2006 EBITDAR Margin (%)
Cash
Cos
ts (
$ ce
nts/
ASK)
We continue among the most profitable companies in the world
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Investor Relations
Phone: (11) 5582-9715
Fax: (11) 5582-8149
email: invest@tam.com.br
Website: www.tam.com.br/ri
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