TAM DAY 2007
“Unlocking Value”
Strategy Overview

  Marco Bologna
 November 12, 2007
2007 has been a year of many challenges...



                              High volatility (e.g. subprime crisis)
       ...
...and, as in the past 31 years, TAM has shown its
ability to grow and adapt

  Our purpose today...

     We will be disc...
We have not only continued to be the leading
domestic carrier...
Domestic Market Share (RPKs)

    100%
                  ...
...but have become the leading Brazilian carrier in the
international market...
Domestic Market Share (RPKs)

    100%    ...
...and the only Brazilian carrier with consistent
international deployment and growth...
             TAM's Weekly
       ...
…with a dedicated focus to intra-regional flights in
South America through TAM Mercosur
                 Weekly
          ...
We are strengthening our product in the international
market through fleet and network...
  Increased widebody fleet plan ...
...as well as retrofitting our entire network in 2008

                                    180º flat beds with shell

    ...
We have changed from only a high end premium
customer focus to serving the full spectrum

                                ...
As Brazil becomes “stable”, the leisure segment
will become increasingly more important
Domestic Market Passenger Mix (RPK...
We will be expanding our fare bundle strategy for the
domestic market in 2008...

  Addition of extra features in the segm...
...increasing capillarity of sales through our new
methods of payments...
Launched new methods of payment in May 2007
    ...
...optimizing the utilization of our aircraft on off peak
hours

Domestic load factor per hour

         80%            Of...
We continue to deliver more efficient processes in
order to focus on what the customer wants
                          Bec...
We continue to be committed to a high level of
corporate governance and transparency
                                     ...
On the top level of the company, we have new
members in our team…
                                            CEO
        ...
...but also streamlining the structure of the company

Spans & layers revision in Nov 2006 effectively implemented in 2007...
We are beginning to evaluate new potential business
units in the company

                        TAM Linhas Aéreas


    ...
Finally, we reviewed our vision and mission statement
in order to better reflect our aspirations and values

     To be di...
We have gone through waves of development…




                            Growing
      Surviving
                       ...
…but we have seen new and compelling
horizons…
                           Blue Ocean Strategy




Red Ocean               ...
…resulting in a new third wave




                            Growing                   Unlocking
      Surviving
       ...
So why “unlocking value”?                                        (1/2)

  The “assets optimization” wave will continue to ...
So why “unlocking value”?                              (2/2)

  There are hidden assets in the company which can be used a...
This is how we have been describing our strategy



                                Undisputable
                         ...
TAM: the best fitting product for the customer (and
stakeholders) based on efficienct delivery



                        ...
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TAM DAY - Strategy

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TAM DAY - Strategy

  1. 1. TAM DAY 2007 “Unlocking Value” Strategy Overview Marco Bologna November 12, 2007
  2. 2. 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
  3. 3. ...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
  4. 4. 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
  5. 5. ...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
  6. 6. ...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
  7. 7. …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
  8. 8. 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
  9. 9. ...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
  10. 10. 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
  11. 11. 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
  12. 12. 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
  13. 13. ...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
  14. 14. ...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
  15. 15. 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
  16. 16. 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
  17. 17. 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
  18. 18. ...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
  19. 19. 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
  20. 20. 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
  21. 21. 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
  22. 22. …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
  23. 23. …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
  24. 24. 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
  25. 25. 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
  26. 26. 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
  27. 27. 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

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