Citigroup
15th Annual Latin America Conference


          New York, March, 2007
TAM is a low cost company with better service at
competitive prices


                         Undisputable
              ...
Since 2004 the domestic market growth has been
 double digit
 Domestic Market - Variation

          130
          125
   ...
We have been domestic market leaders since 2003

                                                Domestic Market Share (RP...
The international market (among the Brazilian carriers)
 has been diminishing…
International Market - Variation
(vs previo...
Since July 2006, we are international market leaders
 among the Brazilian companies
                                      ...
TAM has the most extensive domestic network...

                           TAM                  GOL                 Varig
...
...and is the leading Brazilian international carrier
                                    Long haul market
               ...
Strong revenue growth quarter over quarter

                                                  Domestic passenger revenue g...
Our total RASK reduced 6.3%, but international RASK
increased 8.8%...
                                                    ...
...and our CASK decreased 9.6%, reaching the lowest
CASK in the past 3 years…
Total CASK (BR GAAP - R$ cents)
            ...
…increasing our spread (RASK – CASK)…

RASK/CASK (R$ Cents)
BR GAAP

         25




                                     ...
...improving our margins in BR GAAP...

                                  EBIT
  EBITDAR                                  ...
...and US GAAP...

                                  EBIT                       Net Income
  EBITDAR
                     ...
The main difference between BR and US GAAP is the
accounting treatment of aircraft leasing
Net Profit Reconciliation
to US...
…resulting in a significant improvement in the EPS

Earnings per share           Earnings per share
BR GAAP (R$)          ...
2006 results were the best reported since the
beginning of our turnaround…
                  2003     2004      2005      ...
…increasing our foreign revenues, reducing the
mismatch in currencies…
                                          Approxima...
...reflecting in an even more solid balance sheet

                                             Net Adjusted Debt (R$ M)
C...
Since our second public share offer, our share has
outperformed both the Ibovespa and Dow Jones

 Accumulated variation si...
We have delivered a strong 2006
                       Guidance 2006                                  2006

          Mark...
Our expectations for 2007, disclosed in December
2006, are still the same
                             Guidance 2007      ...
In 2007, we will be expanding both frequencies and
destinations...
          Domestic Market 2007                   Intern...
...increasing our fleet and maintaining one of the
youngest fleets in the world
Total Fleet


              150           ...
Our cost targets are aggressive, but the roadmap is
already laid out

  Fleet and network            Distribution costs   ...
We are innovating in the way we offer our product,
servicing the client better at a lower cost

                          ...
TAM is one of the most lucrative airlines in the world
                                                                   ...
Information and Projection
  This notice may contain estimates for future events. These estimates merely reflect the expec...
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Citigroup - 15th Annual Latin America Conference

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Citigroup - 15th Annual Latin America Conference

  1. 1. Citigroup 15th Annual Latin America Conference New York, March, 2007
  2. 2. TAM is a low cost company with better service at competitive prices Undisputable Better Service Sustainable Strategy to Maintain Market Leadership and Profitability Low Operating Competitive Costs Prices 2
  3. 3. Since 2004 the domestic market growth has been double digit Domestic Market - Variation 130 125 120 Current 115 period 110 105 Previous 100 period 95 90 Accum. market growth Accum. market growth Accum. market growth Accum. market growth 2004 ~12% 2005 ~19% 2006 ~12% 2007 ~14% 85 80 J F M AM J J A S OND J F MA M J J A S O ND J F MA M J J A S ON D J F 2004 2005 2006 2007 Source: ANAC 3
  4. 4. We have been domestic market leaders since 2003 Domestic Market Share (RPK’s) 47,8% 43,5% 35,8% 34,9% 33,0% 30,7% 27,2% 21,8% 19,2% 1998 1999 2000 2001 2002 2003 2004 2005 2006 Domestic Market Share (RPK’s) – 4Q06 Domestic Market Share (RPK’s) - Feb/06 Domestic Market Share (RPK’s) – 4Q06 Domestic Market Share (RPK’s) - Feb/06 BRA 3,9% Other 4,8% Other 5,0% BRA 3,6% Varig 4,7% Varig 5,0% TAM TAM 47,3% 50,3% GOL GOL 36,1% 37,1% Source: ANAC 4
  5. 5. The international market (among the Brazilian carriers) has been diminishing… International Market - Variation (vs previous year) TAM 180 Acum. TAM 2004 Acum TAM 2005 Acum TAM 2006 Acum TAM 2007 ~30% ~40% ~41% ~65% 160 140 120 Previous 100 period Accum. market growth Accum. market growth 80 2004 ~8% 2005 ~7% Market Accum. 60 market Accum. market decrease 2006 ~30% 40 decrease 2007 ~40% J F MAM J J A SO ND J F MA M J J A S ON D J F MA M J J A SO ND J F 2004 2005 2006 2007 Source: ANAC 5
  6. 6. Since July 2006, we are international market leaders among the Brazilian companies International Market Share 37,3% 18,8% 14,3% 13,9% 12,5% 12,0% 7,9% 3,8% 0,1% 1998 1999 2000 2001 2002 2003 2004 2005 2006 International Market Share– 4Q06 International Market Share– Feb/06 International Market Share– 4Q06 International Market Share– Feb/06 Varig Other Other 11,8% Varig 8,2% 9,9% 16,9% TAM TAM GOL 60,0% 61,0% GOL 18,9% 13,2% Source: ANAC 6
  7. 7. TAM has the most extensive domestic network... TAM GOL Varig ASKs 4Q061 7.299 5.376 780 Destinations3 48+262 48 12 Non-stop city 129 109 12 links3 Daily 342 264 44 Roundtrips3 1 In million ASKs 2 26 destinations served through operational agreements with OceanAir, Pantanal, Passaredo, Total, Trip 3 Based on December, 2006 reported routes (HOTRANs) 7
  8. 8. ...and is the leading Brazilian international carrier Long haul market Paris 3x per day London 1x per day NY 2x per day Miami 3x per day Latin American market Buenos Aires 7x per day Santiago 2x per day Asuncion 8x per day Lima 1x per day Montevideo 1x per day Ciudad del Este 3x per day Sta Cruz dl Sierra 1x per day Cochabamba 1x per day Note: Based on Jan 2007 network 8
  9. 9. Strong revenue growth quarter over quarter Domestic passenger revenue growth 9.4% Gross Revenues (R$ M) RPK growth 27% 2,400 23% ASK growth 26% 2,037 International passenger revenue 137 growth 60% 68 147 1,800 1,658 RPK growth 45% 121 467 ASK growth 47% 292 1,200 Cargo revenue growth 21% Other revenue growth 101% 1,285 600 1,175 Other Cargo Increase of sales of Loyalty Int. Program points and expired tickets Pax Dom. compensated by the sub-leasing Pax 0 4Q05 4Q06 9
  10. 10. Our total RASK reduced 6.3%, but international RASK increased 8.8%... 4T05 vs 3T06 vs 4T05 vs 3T06 vs 4T05 3T06 4T06 4T05 3T06 4T06 4T06 4T06 4T06 4T06 RASK Total1 20.6 22.2 19.3 -6.3% -13.0% RASK Scheduled Domestic2 20.6 22.4 17.5 -15.0% -21.7% LF Scheduled Domestic 68.0 75.1 69.7 1.7 p.p. -5.4 p.p. Yield Scheduled 31.8 31.4 26.4 -16.9% -15.9% Domestic3 RASK Scheduled International2 15.3 18.5 16.6 8.8% -10.4% LF Scheduled 74.7 79.6 73.7 -1.1 p.p. -5.9 p.p. International Yield Scheduled 20.4 23.3 22.6 10.5% -3.0% International3 (em R$) Yield Scheduled 8.7 10.7 10.6 21.0% -1.4% International3 (em USD) 1 Includes charter, cargo and Other revenues, net of taxes 10 2 Net of taxes 3 Gross of taxes
  11. 11. ...and our CASK decreased 9.6%, reaching the lowest CASK in the past 3 years… Total CASK (BR GAAP - R$ cents) 4Q06 vs 4Q05 20 18.77 18.69 18.43 17.43 16.98 CASK 15 -9.6% 10 CASK -6.1% ex-fuel 5 0 4Q05 1Q06 2Q06 3Q06 4Q06 11
  12. 12. …increasing our spread (RASK – CASK)… RASK/CASK (R$ Cents) BR GAAP 25 RASK 20 CASK 15 2002 2003 2004 2005 2006 -0.3 -0.2 1.4 1.5 2.8 Spread EBIT 13.6% Margin -7.1% -0.9% 6.5% 7.5% 12
  13. 13. ...improving our margins in BR GAAP... EBIT EBITDAR Net Income (BR GAAP - R$ M) (BR GAAP - R$ M) (BR GAAP - R$ M) 300 500 150 437 135 36% 250 236 400 70% 107% 323 200 22.5% 100 300 12.1% 150 139 6.9% 65 20.4% 200 100 50 100 8.8% 4.1% 50 0 0 0 4Q05 4Q06 4Q05 4Q06 4Q05 4Q06 Margin over Net Revenue 13
  14. 14. ...and US GAAP... EBIT Net Income EBITDAR (US GAAP - R$ M) (US GAAP - R$ M) (US GAAP - R$ M) 300 400 200 372 29% 166 250 229 150 45% 290 300 8,5% 446% 200 100 19,1% 158 150 200 11,7% 50 100 18,5% 10,1% 100 0 50 -3,1% -50 0 0 -48 4Q05 4Q06 4Q05 4Q06 4Q05 4Q06 Margin over Net Revenue 14
  15. 15. The main difference between BR and US GAAP is the accounting treatment of aircraft leasing Net Profit Reconciliation to US GAAP 200 16 166 30 150 135 -15 100 39 aircrafts are reclassified as 39 aircrafts are reclassified as 50 capital leases as per SFAS nº capital leases as per SFAS nº 13 13 0 BR GAAP Leasing Income Others US GAAP Taxes 15
  16. 16. …resulting in a significant improvement in the EPS Earnings per share Earnings per share BR GAAP (R$) US GAAP (R$) 0.90 1.10 100% 433% 0.45 -0.33 4Q05 4Q06 4Q05 4Q06 16
  17. 17. 2006 results were the best reported since the beginning of our turnaround… 2003 2004 2005 2006 2003 2004 2005 2006 Net revenues 3,891M 4,520M 5,649M 7,345M EBIT (194)M 295M 425M 996M Net income 174M 341M 187M 556M RASK total 19.95 21.53 20.16 20.65 CASK 20.13 20.12 18.63 17.84 EPS R$2.83 R$5.56 R$1.30 R$3.69 No. shares (k) 61,365 61,365 144,059 150,563 17
  18. 18. …increasing our foreign revenues, reducing the mismatch in currencies… Approximately 50% Approximately 50% Revenues (Passenger + Cargo) of our costs of our costs (including fuel) are (including fuel) are 100% 100% 100% exposed to foreign exposed to foreign currencies currencies 21% 28% 80 60 40 79% 72% 20 International Domestic 0 4Q05 4Q06 18
  19. 19. ...reflecting in an even more solid balance sheet Net Adjusted Debt (R$ M) Cash (R$ M) 7,7x 4,7x 6,290 3,5x 6,133 2,453 5,160 5,030 2,1x 995 297 2003 2004 2005 2006 172 Adj Debt / 106% 100% 90% 85% 2003 2004 2005 2006 Adj Cap Net adjusted Debt / EBITDAR (Net Adjusted Debt = Financial Debt + Operational Leases – Cash) 19
  20. 20. Since our second public share offer, our share has outperformed both the Ibovespa and Dow Jones Accumulated variation since March,10 2006 1.8 1.6 ADR TAM TAMM4 1.4 IBOVESPA 1.2 DOW JONES 1.0 0.8 0.6 3/10/2006 3/21/2007 20
  21. 21. We have delivered a strong 2006 Guidance 2006 2006 Market demand growth 12.3% 12% a 15% Market (in RPK terms) Average market share 47.8% 45% 73.1% 69.5% Average load factor Aircraft utilization per above 12 12.7 TAM day (block hour) 4.3% CASK reduction yoy 5% (ex-fuel 6.0%) Daily to NY Since May New international flights • • Flight to London Started in October • • 21
  22. 22. Our expectations for 2007, disclosed in December 2006, are still the same Guidance 2007 Acum. 2007 Market demand growth from 10% to 15% (in RPK 14.0% Market terms) 47.3% Average domestic market share above 50% Average domestic load factor at approximately 70% 71.2% NA Aircraft utilization per day (block hour) higher than 13 hours NA Reduction of 7% in total CASK ex-fuel in BR GAAP TAM yoy Opportunity in the international market Third frequency to Paris Since January • Inauguration of two new international long haul Milan as of • frequencies March, 30 22
  23. 23. In 2007, we will be expanding both frequencies and destinations... Domestic Market 2007 International Market 2007 Domestic Market 2007 International Market 2007 ~30% increase in ASKs ~60-70% increase in ASKs At least an additional 3 destinations Additional daily frequency to Paris beginning in January Strengthening of international gateways for domestic market New flight to Milan in 1S07 Guarulhos Additional long haul frequency or destination to be disclosed Galeão Increasing of frequency on main Strengthening of Latin American domestic markets presence, both frequencies and destinations Brasília Congonhas Confins Implementing over hub flights: new city-pairs 23
  24. 24. ...increasing our fleet and maintaining one of the youngest fleets in the world Total Fleet 150 4 4 132 4 126 121 3 16 109 16 14 100 95 12 10 112 64 106 103 50 88 B777 MD11 A330 A319/320 21 F100 6 0 2006 2007 2008 2009 2010 Average Age 7.8 6.0 5.0 6.0 7.0 TAM will be monofleet in the domestic market by 1S08 24
  25. 25. Our cost targets are aggressive, but the roadmap is already laid out Fleet and network Distribution costs Overhead Increase in direct sales Increase of block hours to Outsourcing of non-core through: over 13 hours per day per activities aircraft in 2007 Site improvement Redefinition of service 6 extra seats in the standards Fare bundles A319/320 fleet Review of spans&layers in Call center outsourcing the hierarquy New means of payment Implementation of new Insourcing of automated processes representatives Improved sourcing Adjusting indirect sales capabilities commissions to higher % on off-peak flights 25
  26. 26. We are innovating in the way we offer our product, servicing the client better at a lower cost TAM has specific products designed for every part of the client spectrum (from leisure to business) 26
  27. 27. TAM is one of the most lucrative airlines in the world Net Net EBITDAR EBIT Net Income EBITDAR EBIT EBITDAR EBIT Net Income EBITDAR EBIT Income Income (US$ MM) (US$ MM) (US$ MM) Margin (%) Margin (%) (US$ MM) (US$ MM) (US$ MM) Margin (%) Margin (%) Margin (%) Margin (%) TAM 779 501 372 23,1 14,9 11,0 GOL 489 322 262 28,0 18,4 15,0 Ryanair 778 580 488 33,8 25,2 21,2 Southwest 1.607 934 499 17,7 10,3 5,5 Virgin 321 177 133 23,0 12,7 8,1 West Jet 455 206 117 34,6 15,7 8,9 Jet Blue 381 127 (1) 16,1 5,4 0,0 Média 672 391 246 25,5 14,6 9,8 (ex.TAM) Virgin Blue with 2006 annualized based Nine months to June 2006; WestJet with 2006 annualized based on Nine Months Ended September 2006 27 Period ended December 2006 for the other airlines; USGAAP
  28. 28. Information and Projection This 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. 28
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