Tam Jp Morgan 20080910 Port

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  • 1. September, 2008
  • 2. 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. 2
  • 3. The domestic market grew 10% from January to July 2008 Domestic Market - Variation (vs previous period) 130 125 120 115 Current 110 Period 105 Previous 100 Period 95 90 Accum. market Accum. market Accum. market Accum. market growth 2005 growth 2006 growth 2007 growth 2008 85 19% 12% 12% 10% 80 J F MA M J J A S O ND J F MA M J J A S O ND J F MA M J J A S O ND J F MA M J J 2005 2006 2007 2008 Source: ANAC 3
  • 4. The international market (among Brazilian carriers) is recovering and grew 38% … International Market - Variation (vs previous period) Acum TAM 2007 71% 200 Acum TAM 2008 44% 180 Acum TAM 2006 Acum TAM 2005 41% TAM 160 40% Market 140 120 Previous 100 Period 80 Accum. market Accum. Market Accum. market Accum. market decrease 2006 growth 2005 decrease 2007 growth 2008 60 30% 7% 5% 38% 40 J F MAM J J A S ON D J F MA M J J A S ON D J F MA M J J A S O N D J F MA M J J 2005 2006 2007 2008 Source: ANAC 4
  • 5. …with higher growth anticipated for Brazilian carriers due to the unbalance in the bilateral agreements… % international passenger 100% 80 58.2% 57.7% 66.9% 69.8% 71.2% 60 40 Intl Carriers 41.8% 42.3% 20 33.1% 30.2% 28.8% Brazilian Carriers 0 2004 2005 2006 2007 June 2008* Source: ANAC annual report 5 * estimates
  • 6. …observed in many countries, as the example between Brazil and USA Weekly Frequencies Brazilian Carriers Foreign Carriers USA 126* 35 105 126* Spain 51 7 51 35 France 30 21 28 30 Germany 21 7 14 21 England 14 7 10 14 Italy 14 77 14 150 100 50 0 50 100 150 Available space on bilateral Operated by Brazilian Carriers Operated by Foreign Carriers * 21 frequencies limited to the cities in the north, northeast and central west regions of 6 Brazil and/or Belo Horizonte
  • 7. We are both domestic and international market leaders TAM’s Domestic Market Share* TAM’s Domestic Market Share* 51,1% 49,30% 48,9% 48,2% 48,0% 43,5% 35,8% 33,0% 2003 2004 2005 2006 2007 Jan - Jul 2008 2Q08 jul/08 TAM’s International Market Share* – Among Brazilian carriers TAM’s International Market Share* – Among Brazilian carriers 74,0% 72,5% 70,9% 67,5% 37,5% 18,8% 14,3% 12,0% 2003 2004 2005 2006 2007 Jan - Jul 2008 2Q08 jul/08 Source: ANAC 7 * RPK – Revenue passenger kilometer
  • 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 8
  • 9. Our mix of international revenue reduced due to the appreciation of Real and increase of domestic yield Revenue Approximately 50% (Passenger + Cargo) Approximately 50% of our costs of our costs 100% (including fuel) are (including fuel) are exposed to foreign 31% exposed to foreign 34% 80 currencies currencies 60 40 69% 66% 20 International Domestic 0 2Q07 2Q08 ASK proportion International 37% 38% Domestic 63% 62% Dollar exchange 1.926 1.592 -17% rate 9
  • 10. Our gross revenue increased 27%... Domestic passenger revenue Gross Revenue (R$ M) grew 31% 3,000 27% RPK increased 8% 2,615 2,500 226 ASK increased 14% 256 2,054 2,000 156 International passenger revenue 603 196 grew 13% 1,500 531 RPK increased 29% 1,000 ASK increased 22% 1,530 1,170 500 Cargo revenue grew 31% 0 2Q07 2Q08 Other revenue grew 45% Domestic Pax International Pax Cargo Other 10
  • 11. ...and total RASK increased 9.5%... 2Q08 vs 2Q08 vs 2Q08 vs 2Q08 vs R$ Cents 2Q07 1Q08 2Q08 2Q07 1Q08 2Q08 2Q07 1Q08 2Q07 1Q08 RASK total ¹ ² 16.80 16.38 18.40 9.5 12.3 RASK scheduled domestic² 15.26 15.37 17.66 15.7 14.9 Domestic load factor - % -3.9 p.p. -1.8 p.p. 71.9 69.9 68.1 Yield scheduled domestic³ 22.25 23.09 27.23 22.4 17.9 RASK scheduled international² 12.30 11.39 11.48 -6.7 0.8 69.1 76.9 73.4 4.3 p.p. -3.5 p.p. International load factor - % 17.83 14.82 15.64 -12.3 5.5 Yield scheduled international³ RASK scheduled 6.39 6.51 7.21 12.9 10.7 international² (USD cents) Yield scheduled international³ 9.26 8.47 9.82 6.1 16.0 (USD cents) 1 Includes charter. cargo and Other revenues. net of taxes 11 2 Net of taxes 3 Gross of taxes
  • 12. ...and the total CASK increased 8.4%... Total CASK BR GAAP - R$ cents 2Q08 vs 2Q07 20 17.91 16.52 15 8.4% CASK 10 CASK excl-fuel -3.4% 5 0 2Q07 2Q08 12
  • 13. ...increasing the spread (RASK-CASK)... RASK/CASK (R$ Cents) BR GAAP 19 18.40 17.91 18 16.80 17 16.52 16 CASK RASK 15 2Q07 2Q08 Spread 0.28 0.49 EBIT 1.7% 2.7% Margin 13
  • 14. ...impacting our margins in BR GAAP... BR GAAP EBITDAR - R$ M EBIT - R$ M Net Income - R$ M 60 400 80 50 67 19% 103% 40 301 300 60 252 20 2% 200 40 33 0 3% -1% 13% 100 20 12% 2% -20 -29 0 0 -40 2Q07 2Q08 2Q07 2Q08 2Q07 2Q08 Margin over net revenue 14
  • 15. ...and in US GAAP... US GAAP Net Income - R$ M EBITDAR - R$ M EBIT - R$ M 250 300 100 16% 277 92 34% 209% 214 250 239 200 80 69 200 150 60 150 100 40 100 4% 69 3% 9% 12% 11% 50 20 50 4% 0 0 0 2Q07 2Q08 2Q07 2Q08 2Q07 2Q08 Margin over net revenue 15
  • 16. ...increasing our earnings per share Earnings per share Earnings per share BR GAAP (R$) US GAAP (R$) 1.42 0.33 0.46 -0.19 2Q07 2Q08 2Q07 2Q08 16
  • 17. The main difference between BR and US GAAP is the accounting treatment of aircraft leasing 46 aircrafts are 46 aircrafts are Net Profit Reconciliation reclassified as capital reclassified as capital to US GAAP leases as per SFAS nº 13 leases as per SFAS nº 13 400 261 300 214 -84 200 -13 100 50 0 BR GAAP Leasing Income Others US GAAP Taxes 17
  • 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 18 ** Aircraft and flight equipment leases of the last twelve months x 7
  • 19. Brazilian domestic market has high growth potential Growth of Brazilian Domestic Market Annual Trips / Person 2.32 US 256.8 1.85 Japan TAM’s RPK 228.2 1.70 Germany 0.82 Argentina 176.4 175.4 Market’s RPK 0.62 157.6 Chile 140.6 0.60 Mexico 121.2 GDP 100 0.55 112.0 117.4 Russia 111.4 107.3 104.9 100 0.50 Brazil 2003 2004 2005 2006 2007 Boardings per capita Boardings per capita, adjusted by GDP per capita at PPP Source: World Bank Data, Credit Suisse Research as of 2006 19
  • 20. High concentration of passengers in 11 airports % Total Domestic Passengers Boarded % TAM slots Important barrier to entry for 43% CGH newcomers 34% GRU Limited ability for other 39% BSB competitors to grow 32% GIG 44% SSA 11 main airports in Brazil 42% CNF carry 72% of all passenger 27% POA traffic 26% CWB 40% REC TAM has in aggregate ~40% 32% SDU of all slots available in these 46% FOR airports 0% 5% 10% 15% 20% 2007 2006 Source: ANAC 20
  • 21. As Brazil becomes “stable”, the leisure segment will become increasingly more important Domestic Market Passenger Mix (RPK M) CAGR 50 44.4 39.7 Leisure 40 22% 35.4 30 28.2 27.0 26.6 25.2 20 Business 17.9 11% 10 0 2000 2001 2002 2003 2004 2005 2006 2007 Traveling is one of the top “desire” items for consumption * TAM Estimates 21
  • 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 22
  • 23. ...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 23
  • 24. ...optimizing the utilization of our aircraft on off peak hours Load Factor per hour Off Peak Peak Off Peak Peak Off Peak 80% 75 70 65 60 Oct 2007 2Q08 55 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
  • 25. We are beginning to evaluate new potential business units in the company TAM Linhas Aéreas MRO Loyalty Cargo Handling (São Carlos) Program Already None or little focus on selling structured as services to third-parties a business Not structured as business units unit with focus in maximizing assets 25
  • 26. After the shareholders agreement, Amaro Aviation integrated the controlling block Previous % of shares Actual % of shares Total shares = 150,585,147 Total shares = 150,585,147 39.7% 60.3% 33.3% 66.7% 100% 100% 10.5%* 15.3% 80 80 70.9% 78.4% 60 60 89.4%* 84.7%* 40 40 4.6%* 0.8% 20 20 24.5%* 20.8%* 0 0 ON PN ON PN TEP + NF Amaro Aviation Other shareholders * Controlling block 26
  • 27. We have a positive outlook for 2008 2008 Guidance Jan – Jul 2008 Domestic market demand growth from 8% to 12% (in Market 10.0% RPK terms) 49.3% dom Maintain leadership in both domestic and international 70.9% intl markets ASK growth of Domestic 14% 13.7% 33.0% International 40% 72.2% Average load factor at approximately 70% overall TAM Reduction of 7% in total CASK ex-fuel in BR GAAP yoy -4.5%* Brasília – Buenos Aires Three additional international destinations or Rio de Janeiro – Miami frequencies in 2008 São Paulo – Lima Rio de Janeiro – NY** São Paulo – Orlando** * Accumulated from January to June, 2008 27 ** In final approval phase by ANAC
  • 28. Our growth plan is supported by a flexible fleet plan Total fleet 149 150 143 8 138 4 4 4 130 4 4 125 3 4 22 22 4 4 115 20 4 18 16 14 100 Since Since dec/07 we dec/07 we are are 115 113 110 88 monofleet in monofleet in 104 50 101 domestic domestic operations operations 10 0 2007 2008 2009 2010 2011 2012 B777 MD11 B767 Airbus wide-body Airbus narrow-body F100 28
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