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September, 2008

Tam Jp Morgan 20080910 Port

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Page 1: Tam Jp Morgan 20080910 Port

September, 2008

Page 2: Tam Jp Morgan 20080910 Port

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.

Page 3: Tam Jp Morgan 20080910 Port

3

PreviousPeriod

CurrentPeriod

J F MA M J J A SO ND J F MA M J J A SO ND J F MA M J J A SO ND J F MA M J J8085

9095

100105110

115120125

130

Domestic Market - Variation(vs previous period)

The domestic market grew 10% from January to July 2008

Source: ANAC

Accum. market growth 2006

12%

Accum. market growth 2005

19%

Accum. market growth 2007

12%

Accum. market growth 2008

10%

20072005 2006 2008

Page 4: Tam Jp Morgan 20080910 Port

4

PreviousPeriod

Market

TAM

J F MAM J J A SON D J F MA M J J A SON D J F MA M J J A SON D J F MA M J J40

60

80

100

120

140

160

180

200

International Market - Variation(vs previous period)

The international market (among Brazilian carriers) is recovering and grew 38% …

Source: ANAC

Accum. Marketgrowth 2008

38%

Acum TAM 200641%

Acum TAM 200771%

Acum TAM 200540%

Acum TAM 200844%

Accum. market growth 2005

7%

Accum. market decrease 2006

30%

Accum. market decrease 2007

5%

20072005 2006 2008

Page 5: Tam Jp Morgan 20080910 Port

5

…with higher growth anticipated for Brazilian carriers due to the unbalance in the bilateral agreements…

Source: ANAC annual report

* estimates

58.2%

41.8%

57.7%

42.3%

66.9%

33.1%

71.2%

28.8%

69.8%

30.2%

2004 2005 2006 2007 June2008*

0

20

40

60

80

100%

% international passenger

BrazilianCarriers

IntlCarriers

Page 6: Tam Jp Morgan 20080910 Port

6

…observed in many countries, as the example between Brazil and USA

77

107

147

2821

357

10535

Italy

England

Germany

France

Spain

USA

1414

1414

2121

3030

5151

126*126*

150 100 50 0 50 100 150

Weekly Frequencies

* 21 frequencies limited to the cities in the north, northeast and central west regions of Brazil and/or Belo Horizonte

Brazilian Carriers Foreign Carriers

Available space on bilateral Operated by Brazilian Carriers Operated by Foreign Carriers

Page 7: Tam Jp Morgan 20080910 Port

7

We are both domestic and international market leaders

TAM’s Domestic Market Share*TAM’s Domestic Market Share*

Source: ANAC

* RPK – Revenue passenger kilometer

TAM’s International Market Share* – Among Brazilian carriersTAM’s International Market Share* – Among Brazilian carriers

33,0%35,8%

48,0% 48,9% 49,30% 48,2%51,1%

43,5%

2003 2004 2005 2006 2007 Jan - Jul 2008 2Q08 jul/08

12,0% 14,3%

37,5%

67,5% 70,9% 74,0% 72,5%

18,8%

2003 2004 2005 2006 2007 Jan - Jul 2008 2Q08 jul/08

Page 8: Tam Jp Morgan 20080910 Port

8

We are strengthening our network in the international market through fleet and partnerships

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 Airbus fleet average age

2 B767-300ERs

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 – United Airlines; Lufthansa; LAN Group and TAP

Memorandum of understanding with Air Canada end Swiss

Focus on South American coverage – integration of TAM Airlines (Mercosur) activities

Page 9: Tam Jp Morgan 20080910 Port

9

Our mix of international revenue reduced due to the appreciation of Real and increase of domestic yield

34%

66%

31%

69%

2Q07 2Q080

20

40

60

80

100%

Revenue(Passenger + Cargo)

DomesticInternational

Dollarexchangerate

DomesticInternational

1.926

63%37%

1.592

62%38%

Approximately 50% of our costs

(including fuel) are exposed to foreign

currencies

Approximately 50% of our costs

(including fuel) are exposed to foreign

currencies

-17%

ASK proportion

Page 10: Tam Jp Morgan 20080910 Port

10

156196

531

1,170

226

256

603

1,530

2Q07 2Q08

2,054

2,615

0

500

1,000

1,500

2,000

2,500

3,000

Gross Revenue (R$ M) Domestic passenger revenue grew 31%

RPK increased 8%

ASK increased 14%

International passenger revenue grew 13%

RPK increased 29%

ASK increased 22%

Cargo revenue grew 31%

Other revenue grew 45%

Our gross revenue increased 27%...

27%

Domestic Pax International Pax Cargo Other

Page 11: Tam Jp Morgan 20080910 Port

11

...and total RASK increased 9.5%...

RASK total ¹ ²

RASK scheduled domestic²

Domestic load factor - %

Yield scheduled domestic³

RASK scheduled international²

International load factor - %

Yield scheduled international³

Yield scheduled international³(USD cents)

2Q072Q07 1Q081Q08 2Q082Q08 2Q08 vs 2Q07

2Q08 vs 2Q07

2Q08 vs 1Q08

2Q08 vs 1Q08

R$ Cents

1 Includes charter. cargo and Other revenues. net of taxes2 Net of taxes3 Gross of taxes

16.80

15.26

71.9

22.25

12.30

69.1

17.83

9.26

16.38

15.37

69.9

23.09

11.39

76.9

14.82

8.47

18.40

17.66

68.1

27.23

11.48

73.4

15.64

9.82

9.5

15.7

-3.9 p.p.

22.4

-6.7

4.3 p.p.

-12.3

6.1

12.3

14.9

-1.8 p.p.

17.9

0.8

-3.5 p.p.

5.5

16.0

6.39 6.51 7.21 12.9 10.7RASK scheduled international² (USD cents)

Page 12: Tam Jp Morgan 20080910 Port

12

...and the total CASK increased 8.4%...

CASK

CASK excl-fuel

2Q07 2Q08

16.5217.91

0

5

10

15

20

Total CASKBR GAAP - R$ cents

2Q08 vs 2Q07

-3.4%

8.4%

Page 13: Tam Jp Morgan 20080910 Port

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...increasing the spread (RASK-CASK)...

2Q07 2Q08

16.8016.52

18.40

17.91

15

16

17

18

19

RASK/CASK (R$ Cents)BR GAAP

RASKCASK

EBITMargin

Spread

1.7%

0.28

2.7%

0.49

Page 14: Tam Jp Morgan 20080910 Port

14

...impacting our margins in BR GAAP...

Margin over net revenue2Q07 2Q08

252

301

0

100

200

300

400

EBITDAR - R$ M

19%

13% 12%

2Q07 2Q08

33

67

0

20

40

60

80

EBIT - R$ M

103%

2%

3%

2Q07 2Q08

-29

50

-40

-20

0

20

40

60

Net Income - R$ M

-1%

2%

BR GAAP

Page 15: Tam Jp Morgan 20080910 Port

15

...and in US GAAP...

Margin over net revenue

US GAAP

2Q07 2Q08

239

277

0

50

100

150

200

250

300

EBITDAR - R$ M

16%

12% 11%

2Q07 2Q08

69

92

0

20

40

60

80

100

EBIT - R$ M

34%

3%4%

2Q07 2Q08

69

214

0

50

100

150

200

250

Net Income - R$ M

4%

9%

209%

Page 16: Tam Jp Morgan 20080910 Port

16

...increasing our earnings per share

2Q07 2Q08

0.46

1.42

Earnings per shareUS GAAP (R$)

2Q07 2Q08

-0.19

0.33

Earnings per shareBR GAAP (R$)

Page 17: Tam Jp Morgan 20080910 Port

17

BR GAAP Leasing IncomeTaxes

Others US GAAP

50

261

-84 -13214

0

100

200

300

400

Net Profit Reconciliation to US GAAP

46 aircrafts are reclassified as capital

leases as per SFAS nº 13

46 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

Page 18: Tam Jp Morgan 20080910 Port

18

Our balance sheet remains solid

R$ million - BRGAAP 2008* 2007 2006 2005 2004

Cash (1) 2.009 2.607 2.453 995 297

Short-Term Debt (2) 837 1.005 363 216 204

Long-Term Debt (3) 1.301 1.345 895 425 399

Total Debt (A) = (2) + (3) 2.138 2.350 1.258 641 603

Shareholder's Equity (4) 1.539 1.527 1.449 760 191

Capitalization (B) = (3 + 4) 2.839 2.872 2.344 1.185 590

Aircraft and flight equipment leases** (5) 6.193 5.976 5.032 4.389 4.557

Total Debt Adjusted (C) = (A + 5) 8.331 8.326 6.290 5.030 5.160

Total Capitalization Adjusted (D) = (3 + 4 + 5) 9.032 8.848 7.376 5.574 5.147

Debt / Capitalization (A / B) 75% 82% 54% 54% 102%

Adjusted Debt / Adjusted Capitalization (C / D) 92% 94% 85% 90% 100%

Adjusted Net Debt / Adjusted Capitalization (C - 1) / (D) 70% 65% 52% 72% 94%

* LTM

** Aircraft and flight equipment leases of the last twelve months x 7

Page 19: Tam Jp Morgan 20080910 Port

19

Brazilian domestic market has high growth potential

Boardings per capita

Boardings per capita, adjusted by GDP per capita at PPPSource: World Bank Data, Credit Suisse Research as of 2006

Annual Trips / Person

1.70

1.85

2.32

0.62

0.60

0.55

0.50

0.82

Japan

US

Argentina

Chile

Mexico

Russia

Brazil

Germany

100107.3 111.4

117.4100

140.6

157.6

100

121.2

175.4

228.2

256.8

104.9

176.4

112.0

2003 2004 2005 2006 2007

Market’s RPK

GDP

TAM’s RPK

Growth of Brazilian Domestic Market

Page 20: Tam Jp Morgan 20080910 Port

20

High concentration of passengers in 11 airports

Source: ANAC

Important barrier to entry for newcomers

Limited ability for other competitors to grow

11 main airports in Brazil carry 72% of all passenger traffic

TAM has in aggregate ~40% of all slots available in these airports

% Total Domestic Passengers Boarded% TAM slots

43%

34%

39%

32%

44%

42%

27%

26%

40%

32%

46%

0% 5% 10% 15% 20%

FOR

SDU

REC

CWB

POA

CNF

SSA

GIG

BSB

GRU

CGH

20062007

Page 21: Tam Jp Morgan 20080910 Port

21

As Brazil becomes “stable”, the leisure segment will become increasingly more important

Leis

ure

Busi

nes

s

2000 2001 2002 2003 2004 2005 2006 2007

17.9

26.6 27.025.2

28.2

35.4

39.7

44.4

0

10

20

30

40

50

Domestic Market Passenger Mix (RPK M)

CAGR

11%

22%

Traveling is one of the top “desire”

items for consumption

* TAM Estimates

Page 22: Tam Jp Morgan 20080910 Port

22

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

Page 23: Tam Jp Morgan 20080910 Port

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...increasing capillarity of sales through our new methods of payments... Launched new methods of payment in May 2007

Payment at lottery storesApproximately 9,000 stores in Brazil

Already functioning as bank correspondent

Billing slipsAutomatic debit Financing for passengers via direct consumer credit with the main retail banks

Focus on leisure/lower income segments

Page 24: Tam Jp Morgan 20080910 Port

24

...optimizing the utilization of our aircraft on off peak hours

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2355

60

65

70

75

80%

Load Factor per hour

2Q08Oct 2007

Off Peak Peak Off Peak Peak Off Peak

Page 25: Tam Jp Morgan 20080910 Port

25

We are beginning to evaluate new potential business units in the company

TAM Linhas AéreasTAM Linhas Aéreas

MRO(São Carlos)

MRO(São Carlos)

Loyalty Program Loyalty

Program HandlingHandlingCargoCargo

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

Page 26: Tam Jp Morgan 20080910 Port

26

After the shareholders agreement, Amaro

Aviation integrated the controlling block

15.3%

84.7%*

78.4%

0.8%

20.8%*

ON PN

39.7% 60.3%

0

20

40

60

80

100%

Previous % of sharesTotal shares = 150,585,147

10.5%*

89.4%*

70.9%

4.6%*

24.5%*

ON PN

33.3% 66.7%

0

20

40

60

80

100%

Actual % of sharesTotal shares = 150,585,147

TEP + NF Amaro Aviation Other shareholders

* Controlling block

Page 27: Tam Jp Morgan 20080910 Port

27

Maintain 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 yoy

Three additional international destinations or frequencies in 2008

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

2008 Guidance2008 Guidance

We have a positive outlook for 2008

TAMTAM

MarketMarket

Jan – Jul 2008Jan – Jul 2008

10.0%

49.3% dom70.9% intl

13.7%33.0%

72.2%

-4.5%*

* Accumulated from January to June, 2008** In final approval phase by ANAC

Brasília – Buenos AiresRio de Janeiro – MiamiSão Paulo – LimaRio de Janeiro – NY**São Paulo – Orlando**

Page 28: Tam Jp Morgan 20080910 Port

28

Our growth plan is supported by a flexible fleet plan

3

14

88

10

44

16

101

44

18

104

44

20

110

44

22

113

84

22

115

2007 2008 2009 2010 2011 2012

115125

130138

143149

0

50

100

150

Total fleet

B777 MD11 Airbus wide-body Airbus narrow-body F100

Since dec/07 we

are monofleet in

domestic operations

Since dec/07 we

are monofleet in

domestic operations

B767

Page 29: Tam Jp Morgan 20080910 Port

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