TAM DAY

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TAM DAY

  1. 1. TAM DAY 2007 “Unlocking Value” Welcome Maria Claudia Amaro Chairman of the Board November 12, 2007
  2. 2. TAM’s Essence Our Vision To work with the “Commitment to Service”, making people happier Our Mission To be people’s preferred airline company, with happiness, creativity, respect and responsibility 2 “Unlocking value” “Unlocking value” 2
  3. 3. Our Commandments 1 - Nothing substitutes profit 2 - In search of greatness you don´t do your best 3 - Safety comes first, then the client 4 - The best way to make money is to stop loosing it 5 - Think before you act 6 - Humbleness is essential 7 - If you do not have the intelligence to create, you must have courage to copy 3 “Unlocking value” “Unlocking value” 3
  4. 4. Our Attributes Passion for Aviation 4 “Unlocking value” “Unlocking value” 4
  5. 5. TAM’s Beliefs Public: For all people Needs: who value an efficient, rewarding, safe and serene experience Context: with an airline company, Brand: TAM Differentiation: is the leader and innovative company which offers services and attendance in a working environment and relationship with the “Spirit of Serving” which are present in all moments. 5 “Unlocking value” “Unlocking value” 5
  6. 6. Our commitments Commitment to the highest levels of corporate governance Tag along rights Professional management Transparent relationship with stakeholders 6 “Unlocking value” “Unlocking value” 6
  7. 7. TAM DAY 2007 “Unlocking Value” Strategy Overview Marco Bologna November 12, 2007
  8. 8. 2007 has been a year of many challenges... High volatility (e.g. subprime crisis) Macro Economy Fuel prices Scarcity of aircraft, seats, etc due to overall Airline Industry growth in the sector Conclusion of the “Varig” questionmark Airlines Changes in the governing structure of the industry Brazil Collapse of BRA Impact of infrastructure on operations TAM Accident 2 “Unlocking value” “Unlocking value” 2
  9. 9. ...and, as in the past 31 years, TAM has shown its ability to grow and adapt Our purpose today... We will be discussing our actions in 2007 ...demonstrating what we have done differently ...and what we are going to do in the future 3 “Unlocking value” “Unlocking value” 3
  10. 10. We have not only continued to be the leading domestic carrier... Domestic Market Share (RPKs) 100% 8.5 8.8 12.2 13.5 14.4 10.3 14.5 80 25.5 31.1 20.3 33.6 39.2 38.9 34.0 60 40.3 25.9 22.3 19.4 42.4 40 11.7 Other BRA TRANSBRASIL 48.8 47.8 20 41.3 VASP 35.8 34.6 33.0 30.6 VARIG 20.7 GOL TAM 0 2000 2001 2002 2003 2004 2005 2006 Jan-Oct 2007 4 “Unlocking value” “Unlocking value” 4
  11. 11. ...but have become the leading Brazilian carrier in the international market... Domestic Market Share (RPKs) 100% 6.2 12.5 80 14.7 50.4 60 77.0 85.4 87.4 87.9 82.1 75.0 7.3 40 66.6 Other TRANSBRASIL 20 VASP 37.3 VARIG 18.4 GOL 14.5 13.9 12.5 12.0 7.4 TAM 0 2000 2001 2002 2003 2004 2005 2006 Jan-Oct 2007 5 “Unlocking value” “Unlocking value” 5
  12. 12. ...and the only Brazilian carrier with consistent international deployment and growth... TAM's Weekly Since Competitors Frequencies Paris 21 03/1999 Air France (17) Miami 21 03/1998 AA (28) New York 14 11/2005 AA (7), Delta (7), Continental (7) and JAL (7) London 7 10/2006 British Airways (7) and Varig (7) Milan 7 03/2007 Alitalia (7) Frankfurt¹ 7 11/2007 Lufthansa (7) and Varig (7) Madrid² 7 12/2007 Iberia (14) Buenos Aires 49 03/2001 Aerolineas (56), GOL (49), BA (4), Lufthansa (7), LAN (7) Santiago 7 12/2004 GOL (14), LAN (5) and Swiss Montevideo 7 11/2007 Pluna and GOL (14) Caracas 7 09/2007 Varig (7) ¹ As of November 30 6 “Unlocking value” “Unlocking value” 6 ² As of December 21
  13. 13. …with a dedicated focus to intra-regional flights in South America through TAM Mercosur Weekly Since Frequencies Buenos Aires 37 09/1996 Santiago 7 09/1996 Assuncion1 56 09/1996 Montevideo 7 09/1996 Ciudad del 35 09/1996 Este Sta Cruz dl 7 09/1996 Sierra Cochabamba 7 09/1996 Cordoba 7 03/2007 1 Includes 21 frequencies to São Paulo 7 “Unlocking value” “Unlocking value” 7
  14. 14. We are strengthening our product in the international market through fleet and network... 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 fleet average age 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 Focus on South American coverage – integration of TAM Mercosul activities 8 “Unlocking value” “Unlocking value” 8
  15. 15. ...as well as retrofitting our entire network in 2008 180º flat beds with shell In seat power AVOD controls for in-flight entertainment First Class New colour scheme Business 9 “Unlocking value” “Unlocking value” 9
  16. 16. We have changed from only a high end premium customer focus to serving the full spectrum TAM Premium / Business TAM’s Origin First class First class TAM up to 1998 International Business Commercial Business Commercial Regional class class agreements agreements with with regional regional Economy Economy carriers carriers class class Commodity / Leisure 10 “Unlocking value” “Unlocking value” 10
  17. 17. As Brazil becomes “stable”, the leisure segment will become increasingly more important Domestic Market Passenger Mix (RPK M) CAGR 50 43.5 39.8 Leisure 40 35.4 21% 30 28.2 27.0 26.6 25.2 20 Business 17.9 11% 10 0 2000 2001 2002 2003 2004 2005 2006 2007E Travelling is one of the top “desire” items for consumption 11 * TAM Estimates “Unlocking value” “Unlocking value” 11
  18. 18. 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 12 “Unlocking value” “Unlocking value” 12
  19. 19. ...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 13 “Unlocking value” “Unlocking value” 13
  20. 20. ...optimizing the utilization of our aircraft on off peak hours Domestic load factor per hour 80% Off Peak Peak Off Peak Peak Off Peak 75 70 65 60 55 50 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 * Average day in past month 14 “Unlocking value” “Unlocking value” 14
  21. 21. We continue to deliver more efficient processes in order to focus on what the customer wants Become Become preferred airline preferred airline carrier carrier To be efficient means not only reduce costs but Focus on Focus on Efficient Efficient also increase the customer needs customer needs Delivery Delivery proportional benefits Translate into Translate into actions actions 15 “Unlocking value” “Unlocking value” 15
  22. 22. We continue to be committed to a high level of corporate governance and transparency 54% Free Float BR GAAP and US GAAP simultaneous, in Portuguese and 1% ADTV English, with high level of disclosed information Fr n ee io CVM and SEC simultaneous at -f lo rm At least 4 local analyst meetings at fo and 4 investor/analyst visits In abroad per year Investors Professional Board Two classes maintained due to regulatory reasons Bo 3 members of the family g- 0% g ar on Same conditions d 5 independent members t a 10 al concerning the sale of the company for both classes Audit Committee of shares Certified Sarbanes-Oxley in May 2007 16 “Unlocking value” “Unlocking value” 16
  23. 23. On the top level of the company, we have new members in our team… CEO Marco Antonio Bologna Marco Antonio Bologna Commercial CFO Technical Operations Wagner Ferreira Libano Barroso Ruy Amparo David Barioni Wagner Ferreira Libano Barroso Ruy Amparo David Barioni HR Network Planning TAM Mercosur Guilherme Cavalieri Paulo Castello Branco Alberto Fajermann Guilherme Cavalieri Paulo Castello Branco Alberto Fajermann Optimal mix between non-airline expertise and airline experience (over 120 years of accumulated airline experience) 17 “Unlocking value” “Unlocking value” 17
  24. 24. ...but also streamlining the structure of the company Spans & layers revision in Nov 2006 effectively implemented in 2007 20% of the directors and 10% of the managers dismissed Insourcing of the national stations Commercial, check-in and handling activities Headcount increase of ~5,500 employees Decrease in commercial costs Standardization of human resources and governance policies Better compliance Transfer of employees from the scheduling to the airports to improve communication flow and responsiveness to network last minute modifications 18 “Unlocking value” “Unlocking value” 18
  25. 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 19 “Unlocking value” “Unlocking value” 19
  26. 26. Finally, we reviewed our vision and mission statement in order to better reflect our aspirations and values To be differentiated in the ● To work with the service of air transportation ● “Commitment to Service”, through the “spirit of serving” making people happier To achieve unchallenged ● domestic leadership To be people’s preferred ● airline company, with happiness, creativity, respect To be the most competitive, ● and responsibility solid and profitable airline in Latin America 20 “Unlocking value” “Unlocking value” 20
  27. 27. We have gone through waves of development… Growing Surviving Profitability Assets optimization Turnaround (2004 – 2007) process (2002 -2003) Increase in domestic load factor Overcapacity Better aircraft Loss of founder utilization High costs Access to financial markets (equity and Low operational debt) efficiency Compliance with SOX IOSA certificate 21 “Unlocking value” “Unlocking value” 21
  28. 28. …but we have seen new and compelling horizons… Blue Ocean Strategy Red Ocean Blue Ocean is where... is where... All companies compete in the same Company creates an uncontested market… marketplace… Exploiting demand… …Creating and capturing new demand… Making the value-cost trade-off… Breaking the value-cost trade-off… Aligning the whole system of the company’s activities with either Aligning the whole system in pursuit differentiation or low cost of differentiation and low cost 22 “Unlocking value” “Unlocking value” 22
  29. 29. …resulting in a new third wave Growing Unlocking Surviving Profitability Value Assets optimization Turnaround Opportunities for (2004 – 2007) process value generation (2002 -2003) (future) Increase in domestic load factor Overcapacity New passenger Better aircraft segmentation Loss of founder utilization Cargo High costs Access to financial markets (equity and Loyalty Program Low operational debt) efficiency Maintenance Compliance with SOX IOSA certificate 23 “Unlocking value” “Unlocking value” 23
  30. 30. So why “unlocking value”? (1/2) The “assets optimization” wave will continue to generate less and less value In the past 5 years, TAM has reestablished its ability to grow profitably The company has transitioned into a professionally run company Cost consciousness has been established and continues to be permeated as part of the ongoing culture in the company There is a new wave of growth which can be better exploited In our core business Becoming both domestic and international leader has led the company to a broader definition of its original focus 24 “Unlocking value” “Unlocking value” 24
  31. 31. So why “unlocking value”? (2/2) There are hidden assets in the company which can be used as adjacencies to our core business which will add to the company’s efficiency and value Going back to our fundamental values but with a modern and fresh outlook will re-guide our focus on customer needs 25 “Unlocking value” “Unlocking value” 25
  32. 32. This is how we have been describing our strategy Undisputable Better Service Sustainable Strategy to Maintain Market Leadership Low and Profitability Competitive Operating Prices Costs 26 “Unlocking value” “Unlocking value” 26
  33. 33. TAM: the best fitting product for the customer (and stakeholders) based on efficienct delivery Undisputable Better Service Sustainable Strategy to Maintain Market Leadership Low and Profitability Competitive Operating Prices Costs 27 “Unlocking value” “Unlocking value” 27
  34. 34. TAM DAY 2007 “Unlocking Value” Financial Overview Libano Barroso November 12, 2007
  35. 35. 2007 has been highlighted by external events… Demand Demand RASK/CASK (R$ Cents) evasion due BR GAAP evasion due Aggressive pricing to changes to changes 25 environment and in regulatory in regulatory operational environment environment inefficiencies in the and accident and accident domestic market 20 RASK CASK 15 2005 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 Spread 1.5 2.4 2.8 3.7 2.3 0.8 0.3 0.5 EBIT Margin 7.5% 11.9% 13.0% 16.8% 11.9% 4.8% 1.7% 2.8% 2 “Unlocking value” “Unlocking value” 2
  36. 36. …reduction of yields during the first months and reduction of load factor in the 3Q… Yield scheduled domestic Domestic load factor R$ Cents 35 80% Reduction in Reduction in Aggressive Aggressive domestic domestic competitive 75 30 competitive demand demand scenario scenario 70 25 TAM TAM 65 20 Recuperation Recuperation of yields of yields 60 15 2005 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 2005 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 3 “Unlocking value” “Unlocking value” 3
  37. 37. …impacted our financial metrics Accum. Accum. BR GAAP 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 2007 2007 5,865 Net revenues 3,429 3,591 4,520 5,649 7,345 906 EBITDAR 475 775 1,040 1,140 1,817 15.4% % EBITDAR 13.9% 21.6% 23.0% 20.2% 24.7% 178 EBIT (236) (33) 295 426 996 3.0% % EBIT -6.9% -0.9% 6.5% 7.5% 13.6% 79 Net Income (606) 174 341 187 556 1.4% % Net Income -17.7% 4.8% 7.6% 3.3% 7.6% 4 “Unlocking value” “Unlocking value” 4
  38. 38. However, we remain among the most competitive airlines worldwide US GAAP EBITDAR (Accum 2007 up to last available data) 40% 36.9% 30.6% 29.5% 30 25.9% 20 16.2% 15.3% 14.9% 14.7% 10 5.5% EBITDAR Margin 0 easyJet GOL TAM JetBlue Southwest Virgin Blue COPA Air Asia Ryanair 5 “Unlocking value” “Unlocking value” 5
  39. 39. Balance sheet has remained practically stable R$ million - BRGAAP 2007* 2006 2005 2004 Cash 2,471 2,453 995 297 Short-Term Debt 799 363 216 204 Long-Term Debt 1,465 895 425 399 Total Debt 2,265 1,258 641 603 Shareholder's Equity 1,514 1,449 760 191 Capitalization 2,980 2,344 1,185 590 6,011 5,032 4,389 4,557 Aircraft and flight equip. leases Total Debt Adjusted 8,275 6,290 5,030 5,160 Total Capitalization Adjusted 8,990 7,376 5,574 5,147 Debt / Capitalization 76% 54% 54% 102% Adj. Debt / Adj. Capitalization 92% 85% 90% 100% Net Adj. Debt / Adj. Capitalization 65% 52% 72% 94% 6 * as of 3Q07 “Unlocking value” “Unlocking value” 6
  40. 40. We expect increased revenues from targeting different customer bases… We are broadening our customer bases from business segment and limited international destinations to… …a larger international coverage and leisure passengers (including TAM Viagens) 7 “Unlocking value” “Unlocking value” 7
  41. 41. …aided by our new alliance partners Adding new destinations, Adding new destinations, increasing volume in domestic increasing volume in domestic feeding and distributing flights; feeding and distributing flights; Optimizing and improving Optimizing and improving Best fitting network in South America; network in South America; product increasing Offering comprehensive choice Offering comprehensive choice revenues of destinations in USA - direct of destinations in USA - direct to Chicago and Washington; to Chicago and Washington; Facilitating connection to other Facilitating connection to other cities in Europe, Asia, Middle cities in Europe, Asia, Middle East and Africa East and Africa 8 “Unlocking value” “Unlocking value” 8
  42. 42. Developing new potential business units in the company will also provide an added source of value TAM Linhas Aéreas MRO Loyalty Cargo Handling (São Carlos) Program Already structured None or little focus on selling as a business unit services to third-parties with focus in Not structured as business units maximizing assets 9 “Unlocking value” “Unlocking value” 9
  43. 43. We have strengthened our cash position substantially with new issuances Issuances (USD million) 300 1,260 Raising funds in liquid equity and 330 debt markets 240 Building long term curves secured 105 and unsecured – 50 46 189 bonds and local debentures IPO IFC Debentures Bonds June, Dec, Sep, April, Second 2006 Total 2005 2005 2007 BNDES Offer PDP Last Nov, March, March, Two 2005 2006 2007 Years 10 “Unlocking value” “Unlocking value” 10
  44. 44. We have installed an efficient cash management structure… Funds In local currency CDB Defined mandate Fixed income papers and bylaws Pre Post Itaú – Fiduciary Overnight agent Debentures Variable income papers “Risk Office” – In foreign currency quality and audit Fixed income funds CDB assurance Exclusive investment funds Spitfire II 11 “Unlocking value” “Unlocking value” 11
  45. 45. …with clear future capital expenditure needs Required investments for the future are limited Maintain policy to contract only operating leases Solid balance sheet has facilitated financing for PDPs (pre delivery payments) and spare parts acquisition Future capital expenditure will address the need for: Extra hangars to support the increase in our fleet and support potential MRO business Initial provisioning of spare parts for new aircraft New headquarters Overall TAM should invest Approximately USD 60 million for on-going activities ~USD 240 million in the next 10 years in specific projects 12 “Unlocking value” “Unlocking value” 12
  46. 46. We are managing potential risks… Hedging FX Approximately 30% of cash exposure 12 months in a rolling basis Due to the present scenario we currently are not hedging FX Sensitivity: 10% appreciation of real against dollar represents ~ R$ 100 million increase in yearly operating result (in BR GAAP) Hedging Fuel From 30% - 80% of the projected Fuel Hedging Position fuel consumption in a minimum of 3 3Q08 25% and a maximum of 24 months 2Q08 37% Sensitivity: US$ 5 increase in WTI 1Q08 37% price corresponds to ~ R$ 300 million in extra yearly fuel expenses 4Q07 29% 13 “Unlocking value” “Unlocking value” 13
  47. 47. …also through our own operations Approximately Approximately Revenues 50% of our 50% of our (Passenger + Cargo) costs costs 100% (including (including 21% 33% 34% fuel) are 34% fuel) are 80 exposed to exposed to foreign foreign 60 currencies currencies 40 79% 67% 66% 66% 20 International Domestic 0 3Q06 1Q07 2Q07 3Q07 Dollar 2.174 2.050 1.926 1.839 exchange rate Revenues originated in the international operations are expected to reach 45% - 50% in the next 12 months 14 “Unlocking value” “Unlocking value” 14
  48. 48. 31 years of tradition in serving passenger conveyed to the finance market… Level 2 BOVESPA According to the Brazilian Airline Code, Article 181 – airline companies have a maximum limit of 20% on the foreign voting capital 100% tag-along Best disclosure practices US GAAP; BR GAAP; English and Portuguese simultaneous Compliance with SOX 1 year before deadline 15 “Unlocking value” “Unlocking value” 15
  49. 49. … pursuing best corporate governance Enforce appropriate controls and monitor financial statements 3 independent members from the Board of Directors Audit Monthly meetings Define strategies for the development of our employees 3 members of Board of Directors Compensation Monthly meetings Elaborate overall strategy 5 members of the Board of Directors Strategic Monthly meetings Validate strategies to manage business risks Risk 8 executives of the company + “Risk Office” Monthly meetings Management Monitor execution of cost reduction program 5 executives of the company + external consultants Cost Monthly meetings 16 “Unlocking value” “Unlocking value” 16
  50. 50. We continue with our 2007 guidance, disclosed Dec 2006, demonstrating our commitment to investors… Guidance 2007 Accum. 07 Market demand growth from 10% to 15% (in 10.6%* Market RPK terms) 48.8%* Average domestic market share above 50% Average domestic load factor at approximately 70.0% 70% 12.8 Aircraft utilization per day (block hour) higher than 13 hours TAM Reduction of 7% in total CASK ex-fuel in BR 8.5% GAAP yoy Opportunity in the international market Third frequency to Paris Since January • Inauguration of two new international long Milan since • March haul frequencies * Jan – Oct Accumulated 17 “Unlocking value” “Unlocking value” 17
  51. 51. …and have a positive outlook for 2008 Guidance 2008 Domestic market demand growth from 8% to 12% (in RPK terms) Market Maintain the leadership in both domestic and international markets ASK growth of Domestic 14% International 40% TAM 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 18 “Unlocking value” “Unlocking value” 18
  52. 52. We have aligned management with the correct incentives Variable “Successor” Stock option incentives based program program for top on KPIs, reaching management up to 80% of total compensation Main KPIs: Prepare organization to Long term incentive for face challenges and driving correct “trade- EBIT support future growth offs” CASK Increasing +1 level of the Passenger and employee company in 2007 satisfaction 19 “Unlocking value” “Unlocking value” 19
  53. 53. TAM: the best fitting product for the customer (and stakeholders) based on evolving efficiencies Undisputable Better Service Sustainable Strategy to Maintain Market Leadership Low and Profitability Competitive Operating Prices Costs 20 “Unlocking value” “Unlocking value” 20
  54. 54. TAM DAY 2007 “Unlocking Value” Operations Outlook David Barioni November 12, 2007
  55. 55. One of the main pillars of our best fitting product is efficient delivery, and becomes a reinforcing cycle Prioritize efforts and Execute to deliver what investments where it is expected at the y n t the D e nt makes a bigger difference lowest cost possible ds cl liv rea ie ee a er lly t re n wh wh ne all at ed cli us o th s Efficient e c en Fo Delivery Monitor results Are we delivering what we had intended to deliver? Are there additional opportunities for improving the final product and reducing cost? 2 “Unlocking value” “Unlocking value” 2
  56. 56. We intend to continue reducing costs aggressively, without deviating from our product fit Fleet, network and Fleet, network and Distribution expenses Overhead Distribution expenses Overhead operations operations Increase of aircraft size Implementation of Continued outsourcing of (addition of 11% aircraft = agreement with ABAV, non-core activities 16% seats) transferring commissions on Continued revision of spans domestic sales in Brazil Increased stage length & layers (new longhaul flights and Increase of direct sales Implementation of additional overhub) through the call center and methods of payments internet (focus on off peak Fleet standardization for lowering transaction costs sales) domestic fleet Implementation of new New methods of Alliances providing network processes and systems in payment optimization backoffice, eliminating Fare bundle strategy manual work New CCOA procedures Implementaton of eTAM Enhanced sourcing strategy Decreased use of fuel portal for offline bases through improved flight (reduction of GDS fees) procedures Improved crew management Increased automization at airports 3 “Unlocking value” “Unlocking value” 3
  57. 57. Initiative focus Fleet,, network and Fleet network and Fleet, Distribution expenses Overhead Distribution expenses Overhead operations operations Increase of aircraft size Implementation of Continued outsourcing of Increase of aircraft size Implementation of Continued outsourcing of ((addition of 11% aircraft = agreement with ABAV, non--core activities addition of 11% aircraft = agreement with ABAV, non core activities 16% seats)) transferring commissions on 16% seats transferring commissions on Continued revision of spans Continued revision of spans domestic sales in Brazil domestic sales in Brazil Increased stage length & layers Increased stage length & layers (new longhaul flights and Increase of direct sales (new longhaul flights and Increase of direct sales Implementation of additional Implementation of additional overhub)) through the call center and overhub through the call center and methods of payments methods of payments internet ((focus on off peak internet focus on off peak Fleet standardization for lowering transaction costs Fleet standardization for lowering transaction costs sales)) sales domestic fleet domestic fleet Implementation of new Implementation of new New methods of New methods of Alliances providing network processes and systems in Alliances providing network processes and systems in payment payment optimization backoffice,, eliminating optimization backoffice eliminating Fare bundle strategy manual work Fare bundle strategy manual work New CCOA procedures Implementaton of eTAM Enhanced sourcing strategy Implementaton of eTAM Enhanced sourcing strategy Decreased use of fuel Decreased use of fuel portal for offline bases portal for offline bases through improved flight through improved flight ((reduction of GDS fees)) reduction of GDS fees procedures procedures Improved crew Improved crew management management Increased automization at Increased automization at airports airports 4 “Unlocking value” “Unlocking value” 4
  58. 58. Since December 06, we have implemented the “CCOA” (Air Operations Control Center)… CCOA Chief Pilot Scheduling Maintenance Coordination Airport DOV Goal is to maintain schedule “operational”, minimizing the final impact of unplanned events to customers and company 5 “Unlocking value” “Unlocking value” 5
  59. 59. …and is monitoring the “day-to-day” implementation of the network with faster responses Physically “pooling together” areas which have direct contact with the day-to-day activities has provided a faster response time to non-planned issues Definition of objectives and standards of operations have given the CCOA more “autonomy” in decision making, also speeding up responses Focus on safety and on-time performance, with no cancellations with efficient use of aircraft 6 “Unlocking value” “Unlocking value” 6
  60. 60. As well as faster responses, there are other adjacent benefits Concentrates knowledge on real time basis of network status Enhanced ability to supply airport and passengers with necessary information Enhanced ability to measure over time repeated errors or bottlenecks in “delivering” network therefore better visibility to “work out” hidden problems Creates better teamwork Mutual understanding of issues and focused actions on solving them (no discording action plans) Decreases cost of operations Anticipation of problems allows for alternative solutions, decreasing high costs in “fixing” the network 7 “Unlocking value” “Unlocking value” 7
  61. 61. Initiative focus Fleet,, network and Fleet network and Fleet, Distribution expenses Overhead Distribution expenses Overhead operations operations Increase of aircraft size Implementation of Continued outsourcing of Increase of aircraft size Implementation of Continued outsourcing of ((addition of 11% aircraft = agreement with ABAV, non--core activities addition of 11% aircraft = agreement with ABAV, non core activities 16% seats)) transferring commissions on 16% seats transferring commissions on Continued revision of spans Continued revision of spans domestic sales in Brazil domestic sales in Brazil Increased stage length & layers Increased stage length & layers (new longhaul flights and Increase of direct sales (new longhaul flights and Increase of direct sales Implementation of additional Implementation of additional overhub)) through the call center and overhub through the call center and methods of payments methods of payments internet ((focus on off peak internet focus on off peak Fleet standardization for lowering transaction costs Fleet standardization for lowering transaction costs sales)) sales domestic fleet domestic fleet Implementation of new Implementation of new New methods of New methods of Alliances providing network processes and systems in Alliances providing network processes and systems in payment payment optimization backoffice,, eliminating optimization backoffice eliminating Fare bundle strategy manual work Fare bundle strategy manual work New CCOA procedures New CCOA procedures Implementaton of eTAM Enhanced sourcing strategy Implementaton of eTAM Enhanced sourcing strategy Decreased use of fuel Decreased use of fuel portal for offline bases portal for offline bases through improved flight through improved flight ((reduction of GDS fees)) reduction of GDS fees procedures procedures Improved crew management Increased automization at Increased automization at airports airports 8 “Unlocking value” “Unlocking value” 8
  62. 62. We have increased crew flight hours to 74 hours/pilot Flight hours/pilot/month Legal limit ~76 Legal limit ~76 hours/month hours/month 100 ~1,500 pilots and co- pilots at September 2007 74 80 Improvement in crew 23% 60 pairing has increasing 60 total usage in 800 hours/day 40 Reformating simulator 20 training has gained 4 hours/day 0 Before Nov 07 After Nov 07 9 “Unlocking value” “Unlocking value” 9
  63. 63. Additional operational measures for improved crew management and procedures Change in flight procedures Breaks vs. thrust reversers Altitude of flights Change in scheduling procedures Trade of day off Allocation of crew members in home bases Deferral of training expenses New software for scheduling 10 “Unlocking value” “Unlocking value” 10
  64. 64. Initiative focus Fleet,, network and Fleet network and Fleet, Distribution expenses Overhead Distribution expenses Overhead operations operations Increase of aircraft size Implementation of Continued outsourcing of Increase of aircraft size Implementation of Continued outsourcing of ((addition of 11% aircraft = agreement with ABAV, non--core activities addition of 11% aircraft = agreement with ABAV, non core activities 16% seats)) transferring commissions on 16% seats transferring commissions on Continued revision of spans Continued revision of spans domestic sales in Brazil domestic sales in Brazil Increased stage length & layers Increased stage length & layers (new longhaul flights and Increase of direct sales (new longhaul flights and Increase of direct sales Implementation of additional Implementation of additional overhub)) through the call center and overhub through the call center and methods of payments methods of payments internet ((focus on off peak internet focus on off peak Fleet standardization for lowering transaction costs Fleet standardization for lowering transaction costs sales)) sales domestic fleet domestic fleet Implementation of new Implementation of new New methods of New methods of Alliances providing network processes and systems in Alliances providing network processes and systems in payment payment optimization backoffice,, eliminating optimization backoffice eliminating Fare bundle strategy manual work Fare bundle strategy manual work New CCOA procedures New CCOA procedures Implementaton of eTAM Enhanced sourcing strategy Implementaton of eTAM Enhanced sourcing strategy Decreased use of fuel Decreased use of fuel portal for offline bases portal for offline bases through improved flight through improved flight ((reduction of GDS fees)) reduction of GDS fees procedures procedures Improved crew Improved crew management management Increased automization at airports 11 “Unlocking value” “Unlocking value” 11
  65. 65. We have increased self check-in usage in 2007 in over 300%… % Total Check-In (10 major airports) 10 major airports in Brazil 1.0 New focus for attendants: 0.8 KPIs based on no. of totem check-ins 73% 0.6 95% Inclusion of daily follow- up in morning meetings 0.4 Development of 6% 0.2 confirmation engine 21% speeding up boarding 5% pass printing 0.0 Counter Apr 06 Oct 07 ID no., TAM Fidelidade Counter check in no., e-tkt no. etc Web check in Totem self check in 12 “Unlocking value” “Unlocking value” 12
  66. 66. …reducing queue waiting time In 18 months, demand has grown ~10%, while self check-in over 300% Reduction of ~ 20% queue waiting time In 2007, with the new localization of totems in front of the counters, we implemented luggage counters Split between only check-in, only luggage, and check-in/luggage Luggage counter takes 1/4 less time than normal check-in 13 “Unlocking value” “Unlocking value” 13
  67. 67. We plan to increase usage through a series of initiatives Expansion and renewal of totems Repositioning airport totems in certain airports Technological update to totem/web check-in services Serve non-TAM e-tkts (interline partners) Allow modifications in booking Allow use for all destinations Optimized lay out to ensure luggage customers quickness for dispatch Increase publicity to loyalty card customers 14 “Unlocking value” “Unlocking value” 14
  68. 68. Initiative focus Fleet,, network and Fleet network and Fleet, Distribution expenses Overhead Distribution expenses Overhead operations operations Increase of aircraft size Continued outsourcing of Implementation of Increase of aircraft size Continued outsourcing of ((addition of 11% aircraft = non--core activities agreement with ABAV, addition of 11% aircraft = non core activities 16% seats)) transferring commissions on 16% seats Continued revision of spans Continued revision of spans domestic sales in Brazil Increased stage length & layers Increased stage length & layers (new longhaul flights and Increase of direct sales (new longhaul flights and Increase of direct sales Implementation of additional Implementation of additional overhub)) through the call center and overhub through the call center and methods of payments methods of payments internet ((focus on off peak internet focus on off peak Fleet standardization for lowering transaction costs Fleet standardization for lowering transaction costs sales)) sales domestic fleet domestic fleet Implementation of new Implementation of new New methods of New methods of Alliances providing network processes and systems in Alliances providing network processes and systems in payment payment optimization backoffice,, eliminating optimization backoffice eliminating Fare bundle strategy manual work Fare bundle strategy manual work New CCOA procedures New CCOA procedures Implementaton of eTAM Enhanced sourcing strategy Implementaton of eTAM Enhanced sourcing strategy Decreased use of fuel Decreased use of fuel portal for offline bases portal for offline bases through improved flight through improved flight ((reduction of GDS fees)) reduction of GDS fees procedures procedures Improved crew Improved crew management management Increased automization at Increased automization at airports airports 15 “Unlocking value” “Unlocking value” 15
  69. 69. We signed an agreement with ABAV in October changing the structure of commissions Changes with agreement, valid as of January: Before After Included in ticket value Specified in the ticket value Travel agent compensation Paid directly by TAM Paid directly by the passenger 6-7% of ticket value 10% of ticket value or R$ 30 Applicable (whichever is greater) All channels Agencies linked to ABAV, TAM’s point of sales (stores and TAM Viagens, outsourced agencies and call center) – excluding electronic sales Expected benefits for TAM: no more commissions paid in the domestic market (reduction in commercial costs), fiscal benefits, increase in direct sales through website 16 “Unlocking value” “Unlocking value” 16
  70. 70. Initiative focus Fleet,, network and Fleet network and Fleet, Distribution expenses Overhead Distribution expenses Overhead operations operations Increase of aircraft size Implementation of Continued outsourcing of Increase of aircraft size Implementation of Continued outsourcing of ((addition of 11% aircraft = agreement with ABAV, non--core activities addition of 11% aircraft = agreement with ABAV, non core activities 16% seats)) transferring commissions on 16% seats transferring commissions on Continued revision of spans Continued revision of spans domestic sales in Brazil domestic sales in Increased stage length & layers Increased stage length & layers (new longhaul flights and Increase of direct sales (new longhaul flights and Increase of direct sales Implementation of additional Implementation of additional overhub)) through the call center and overhub through the call center and methods of payments methods of payments internet ((focus on off peak internet focus on off peak Fleet standardization for lowering transaction costs Fleet standardization for lowering transaction costs sales)) sales domestic fleet domestic fleet Implementation of new Implementation of new New methods of New methods of Alliances providing network processes and systems in Alliances providing network processes and systems in payment payment optimization backoffice,, eliminating optimization backoffice eliminating Fare bundle strategy manual work Fare bundle strategy manual work New CCOA procedures New CCOA procedures Implementaton of eTAM Enhanced sourcing strategy Implementaton of eTAM Decreased use of fuel Decreased use of fuel portal for offline bases portal for offline bases through improved flight through improved flight ((reduction of GDS fees)) reduction of GDS fees procedures procedures Improved crew Improved crew management management Increased automization at Increased automization at airports airports 17 “Unlocking value” “Unlocking value” 17
  71. 71. This year, we have initiated a revision of all our contracts and purchasing needs… Initial focus on all non-aircraft related contracts Implementation of unified sourcing policy Centralization of purchasing activity/strategy, regardless of type of contract Creation of special sourcing know-how for ample negotiations Focus on reducing cost while maintaining or enhancing quality Implementation of continuous monitoring process in order to control “inflation” in following years 18 “Unlocking value” “Unlocking value” 18
  72. 72. …with reduction of ongoing costs of up to 30% in each category of spend (1/2) Example 1: Health Insurance (-5%) Preparation Result Study on main value levers, Remained with current provider including different plan structures +1 doctor for first aid office Increase in volume due to Upgrade of entry level, offering internalization of stations higher reimbursement rates and Increased tenure of contract access to better labs and hopitals RFP sent to various players, Regional coverage including current provider at the Inclusion of hiring medical time evaluation Return on claim % 19 “Unlocking value” “Unlocking value” 19
  73. 73. …with reduction of ongoing costs of up to 30% in each category of spend (1/2) Example 2: Tires (-30%) Preparation Result Centralization of data for Centralized purchasing (vs preparation of negotiation decentralized at stations) Purchase agreement for long term Guarantees based on useful life of (vs. spot purchasing) tires Definition and standardization of Delivery directly at given stations quality levels and exchange/ (though centralized purchasing) reusage levels Aggregated services in analysing Aggregated services for volume costs, life, wear, etc guarantee 20 “Unlocking value” “Unlocking value” 20
  74. 74. With all our initiatives, we expect CASK ex-fuel in 2008 to decrease 7%, while delivering a better product Guidance 2008 Domestic market demand growth from 8% to 12% (in RPK terms) Domestic market demand growth from 8% to 12% (in RPK terms) Market Maintain the leadership in both domestic and international markets Maintain the leadership in both domestic and international markets ASK growth of ASK growth of Domestic 14% Domestic 14% International 40% International 40% TAM Average load factor at approximately 70% overall 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 Three additional international destinations or frequencies in 2008 21 “Unlocking value” “Unlocking value” 21
  75. 75. TAM: the best fitting product for the customer (stakeholders) based on efficienct delivery Undisputable Better Service Sustainable Strategy to Maintain Market Leadership Low and Profitability Competitive Operating Prices Costs 22 “Unlocking value” “Unlocking value” 22
  76. 76. TAM DAY 2007 “Unlocking Value” MRO (Maintenance repair and overhaul) Ruy Amparo November 12, 2007
  77. 77. TAM has its own maintenance center since 2001 and has invested R$ 60 million up to December 2006 2001/2002 – Acquisition, construction, environment licenses and DAC (ANAC) certifications 2003/2004 – Nationalization of services 2005 – Increase in services selling 2006 – EASA qualification for A319/A320 and development of qualification for third part 2007 – Increase in qualification for components and planning for introducing Boeing B777-300 2010 – Construction of a new hangar for B777-300 and A350 2 “Unlocking value” “Unlocking value” 2
  78. 78. We are organized to provide a full range of services… Line Maintenance External Shops Check A Components Consumables Engine and Component Repair Maintenance TAM External Engineering Supply & Logistics Suppliers Inventory Components CTM Mgmt Consumables MCC Supply São Carlos REPARO ROTABLES Components Consumables Consumables Rotable Repair Check C / D HEAVY In-house Shops MAINTENANCE MRO SÃO CARLOS CENTER 3 “Unlocking value” “Unlocking value” 3
  79. 79. …and well positioned to capture new opportunities Employees are trained to provide several services Aribus aircraft (first check D in A330 in Americas) and F100 Line maintenance, checks C and D Components: hard-time, on-condition e condition monitoring Certifying for Boeing We have the necessary certifications to support credibility EASA IOSA ISO14001 in implementation Our facilities accommodate increase in services Hangars for at least 3 narrow body aircraft simultaneously Painting shop Large area in the surroundings – allowing 24h tests Galvanoplastic installations 4 “Unlocking value” “Unlocking value” 4
  80. 80. Future market for MRO is promising Fleet size will grow in the coming years but MRO facilities Air Transport Fleet Forecast may not increase proportionally Main manufactures with record 30,000 orders in the last two years Main markets continue with CAGR CAGR strong demand for aircraft 4.3% 4.3% More demand for outsourced 20,000 services Airlines seeking lower unit costs Global consolidation taking 10,000 place 0 2006 2016 Source: AeroStrategy 5 “Unlocking value” “Unlocking value” 5
  81. 81. Our focus is to leverage the MRO potential Sales force and marketing structure dedicated Comprehensive solution – technological condominium( Goodrich ) Profit from the local labor cost advantage Aggressiveness in selling heavy maintenance to charter operators Establish long term contracts for line maintenance with international carriers 6 “Unlocking value” “Unlocking value” 6
  82. 82. TAM DAY 2007 “Unlocking Value” Cargo Klaus Kuhnast November 12, 2007
  83. 83. Our cargo operation is already structured as a business unit Founded in 1996 Serves 45 airports and over 3.900 cities in Brazil and abroad No dedicated aircraft – utilizes belly space from the operating fleet from TAM More than 350 vehicles for ground distribution 2 “Unlocking value” “Unlocking value” 2
  84. 84. We have different products for different customer segments TAM Next Flight TAM Next Day Conventional TAM Cargo Door to door Door to door Maximum weight Conventional per package: transportation of Maximum weight Maximum weight usually 100kg international per package: per package: cargo, mainly usually 100kg usually 100kg Pick up and developed for delivery in Pick up and Pick up in importations and business days deliveries 365 business days exportations day per year Expected to Delivery in the delivery in until The order is next business 72 business boarded in the day hours next flight Delivery in 2 hours after the cargo is authorized by the responsible entity 3 “Unlocking value” “Unlocking value” 3
  85. 85. Cargo revenues will grow stronger with the international expansion Cargo Revenues (R$M) CAGR 800 736 600 22% 389 487 407 400 165 307 130 239 237 123 61 200 83 13% 347 322 277 Intl 184 176 156 Domestic 0 2002 2003 2004 2005 2006 2007* Intl ASK - -19% 46% 34% 35% 65% 12% growth Dom ASK - -18% 9% 33% 24% 18% 29% growth * Jan-Sep data annualized 4 “Unlocking value” “Unlocking value” 4
  86. 86. Our wide body fleet is increasing aggressively... Substitution of the F100 by the A320 family Substitution of the F100 by the A320 family will increase domestic capacity for cargo will increase domestic capacity for cargo Total Fleet Increase in the wide body fleet is a huge Increase in the wide body fleet is a huge opportunity for cargo opportunity for cargo 147 150 141 8 136 4 128 4 123 24 4 24 22 4 110 20 106 18 3 3 100 14 10 115 113 110 80 104 50 101 87 13 6 0 3Q07 2007 2008 2009 2010 2011 2012 5 “Unlocking value” “Unlocking value” 5
  87. 87. ...offering more space for cargo operations Number of Capacity in Volume pallets metric tonnes Airbus A330 6 + bulk 2,228 cubic feet 10 65 cubic meters Airbus A340 8 3,544 cubic feet 16 100 cubic meters Boeing 777- 10 + bulk 5,454 cubic feet 24 300ER 122 cubic meters MD-11 7 12 - 19 2,118 cubic feet 60 cubic meters 6 “Unlocking value” “Unlocking value” 6

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