080623 Citi

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080623 Citi

  1. 1. June, 2008 Citi's 1 st Annual Brazil Equity Conference
  2. 2. Information and Projection <ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul>
  3. 3. The domestic market grew 11% from January to May 2008 Source: ANAC Accum. market growth 2006 12% Accum. market growth 2005 19% Accum. market growth 2007 12% Accum. market growth 2008 11% 2007 2005 2006 2008
  4. 4. The international market (among Brazilian carriers) is recuperating, and grew 43% in 2008… Source: ANAC Accum. Market growth 2008 43% Acum TAM 2006 41% Acum TAM 2007 71% Acum TAM 2005 40% Acum TAM 2008 48% Accum. market growth 2005 7% Accum. market decrease 2006 30% Accum. market decrease 2007 5% 2007 2005 2006 2008
  5. 5. … with higher growth anticipated for Brazilian carriers due to the unbalance in the bilateral agreements * estimates
  6. 6. We are both domestic and international market leaders TAM’s Domestic Market Share* Source: ANAC * RPK – Revenue passenger kilometer TAM’s International Market Share* – Among Brazilian carriers
  7. 7. We are strengthening our product in the international market through fleet and network <ul><li>Increased widebody fleet plan for the next 10 years, substituting older aircraft </li></ul><ul><ul><li>2 A340s (delivered in 2007) </li></ul></ul><ul><ul><li>8 B777-300ERs (4 in 2008, 4 in 2012) </li></ul></ul><ul><ul><li>22 A350s (as of 2013) </li></ul></ul><ul><ul><li>New A330 reducing fleet average age </li></ul></ul><ul><ul><li>Complete phase-out of F100 (impact on intra South American routes) </li></ul></ul><ul><li>Expansion of network through additional destinations and frequencies </li></ul><ul><li>New full code share agreements at each major country – United Airlines; Lufthansa; LAN Group and TAP </li></ul><ul><li>Memorandum of understanding with Air Canada end Swiss </li></ul><ul><li>Focus on South American coverage – integration of TAM Mercosur activities </li></ul>
  8. 8. The international operations works as a natural hedge Approximately 50% of our costs (including fuel) are exposed to foreign currencies -17% ASK proportion Revenues originated in the international operations are expected to reach 45% - 50% until Dec/2008
  9. 9. Our gross revenue increased 23%... <ul><li>Domestic passenger revenue grew 21% </li></ul><ul><ul><li>RPK increased 15% </li></ul></ul><ul><ul><li>ASK increased 14% </li></ul></ul><ul><li>International passenger revenue grew 21% </li></ul><ul><ul><li>RPK increased 61% </li></ul></ul><ul><ul><li>ASK increased 50% </li></ul></ul><ul><li>Cargo revenue grew 37% </li></ul><ul><li>Other revenue grew 26% </li></ul>23%
  10. 10. ...but total RASK reduced 2%... <ul><li>RASK total ¹ ² </li></ul><ul><li>RASK scheduled domestic² </li></ul><ul><ul><li>Domestic load factor - % </li></ul></ul><ul><ul><li>Yield scheduled domestic³ </li></ul></ul><ul><li>RASK scheduled international² </li></ul><ul><ul><li>International load factor - % </li></ul></ul><ul><ul><li>Yield scheduled international³ </li></ul></ul><ul><ul><li>Yield scheduled international³ (USD cents) </li></ul></ul>1 Q 07 16,72 14,54 69,4 22,00 14,07 71,3 19,78 9,65 4 Q 07 17,87 16,69 70,4 24,90 11,26 71,0 15,88 8,96 1 Q 08 16,38 15,37 69,9 23,09 11,39 76,9 14,82 8,47 1 Q 08 vs 1 Q 07 -2, 1 % 5,7% 0,5 p.p. 5,0% -19,0% 5,6 p.p. -25,1% -12,2% 1 Q 08 vs 4 Q 07 -8,3% -7,9% -0,5 p.p. -7,3% 1,2% 5,9 p.p. -6,7% -5,4% 1 Includes charter, cargo and Other revenues, net of taxes 2 Net of taxes 3 Gross of taxes R$ Cents
  11. 11. ...while total CASK increased 2%...
  12. 12. ...reducing the spread (RASK-CASK)...
  13. 13. ...impacting our margins in BR GAAP... Margin over net revenue -20% 19% 12% -80% 5% 0,8% 3% 0,1% -96% BR GAAP
  14. 14. ...and in US GAAP... Margin over net revenue -14% 18% 13% -43% 8% 4% 8% 2% -66% US GAAP
  15. 15. ...reducing our earnings per share -96% -66%
  16. 16. The main difference between BR and US GAAP is the accounting treatment of aircraft leasing 44 aircrafts are reclassified as capital leases as per SFAS nº 13
  17. 17. We are well positioned compared to other airline companies US GAAP
  18. 18. Our balance sheet remains solid * LTM
  19. 19. Brazilian domestic market has high growth potential Boardings per capita Boardings per capita, adjusted by GDP per capita at PPP Source: World Bank Data, Credit Suisse Research as of 2006 Annual Trips / Person Market’s RPK GDP TAM’s RPK Growth of Brazilian Domestic Market 1.70 1.85 2.32 0.62 0.60 0.55 0.50 0.82 Japan US Argentina Chile Mexico Russia Brazil Germany
  20. 20. High concentration of passengers in 10 airports Source: ANAC <ul><li>Important barrier to entry for newcomers </li></ul><ul><li>Limited ability for other competitors to grow </li></ul><ul><li>10 main airports in Brazil carry 70% of all passenger traffic </li></ul><ul><li>TAM has in aggregate ~40% of all slots available in these airports </li></ul>% Total Domestic Passengers Boarded Curitiba Recife Porto Alegre Confins Salvador Galeão Guarulhos Brasília Congonhas Santos Dumont 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% % TAM slots 44% 42% 33% 30% 39% 37% 27% 39% 36% 25%
  21. 21. As Brazil becomes “stable”, the leisure segment will become increasingly more important * TAM Estimates Traveling is one of the top “desire” items for consumption
  22. 22. We will be expanding our fare bundle strategy for the domestic market in 2008... <ul><li>Addition of extra features in the segmented bundles </li></ul><ul><li>Ability to “sell up” categories </li></ul><ul><ul><li>Potential for further revenue increase </li></ul></ul><ul><li>Harmonization of the fare bundle strategy to TAM Fidelidade growth </li></ul>
  23. 23. ...increasing capillarity of sales through our new methods of payments... <ul><li>Launched new methods of payment in May 2007 </li></ul><ul><ul><li>Payment at lottery stores </li></ul></ul><ul><ul><ul><li>Approximately 9,000 stores in Brazil </li></ul></ul></ul><ul><ul><ul><li>Already functioning as bank correspondent </li></ul></ul></ul><ul><ul><li>Billing slips </li></ul></ul><ul><ul><li>Automatic debit </li></ul></ul><ul><ul><li>Financing for passengers via direct consumer credit with the main retail banks </li></ul></ul>Focus on leisure/lower income segments
  24. 24. ...optimizing the utilization of our aircraft on off peak hours * Average day in October, 2007 Off Peak Off Peak Off Peak Peak Peak
  25. 25. We are beginning to evaluate new potential business units in the company TAM Linhas Aéreas MRO (São Carlos) Loyalty Program Handling Cargo <ul><li>Already structured as a business unit with focus in maximizing assets </li></ul><ul><li>None or little focus on selling services to third-parties </li></ul><ul><li>Not structured as business units </li></ul>
  26. 26. We have a positive outlook for 2008 <ul><li>Maintain leadership in both domestic and international markets </li></ul><ul><li>ASK growth of </li></ul><ul><ul><li>Domestic 14% </li></ul></ul><ul><ul><li>International 40% </li></ul></ul><ul><li>Average load factor at approximately 70% overall </li></ul><ul><li>Reduction of 7% in total CASK ex-fuel in BR GAAP yoy </li></ul><ul><li>Three additional international destinations or frequencies in 2008 </li></ul><ul><li>Domestic market demand growth from 8% to 12% (in RPK terms) </li></ul>2008 Guidance TAM Market Actual - 1Q08 10.9% 49.2% dom* 69.8% intl* 14.2% 49.7% 73.2% -5.5% --- * From January to May
  27. 27. Our growth plan is supported by a flexible fleet plan B777 MD11 Airbus wide-body Airbus narrow-body F100 Since dec/07 we are monofleet in domestic operations B767

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