Download - TAM DAY - Operations
TAM DAY 2007“Unlocking Value”Unlocking Value
Operations Outlook
David Barioni
November 12, 2007November 12, 2007
One of the main pillars of our best fitting product is efficient delivery and becomes a reinforcing cycleefficient delivery, and becomes a reinforcing cycle
Prioriti e efforts and E ec te to deli er hatPrioritize efforts andinvestments where itmakes a bigger difference
Execute to deliver whatis expected at thelowest cost possible
Efficient Delivery
Monitor resultsresults
Are we delivering what we had intended to deliver?
Are there additional opportunities for improving the
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Are there additional opportunities for improving the final product and reducing cost?
We intend to continue reducing costs aggressively, without deviating from our product fitwithout deviating from our product fit
Fleet, network and operations
Fleet, network and operations Distribution expensesDistribution expenses OverheadOverheadpp
Increase of aircraft size (addition of 11% aircraft = 16% seats)
I d t l th
Implementation of agreement with ABAV, transferring commissions on domestic sales in Brazil
Continued outsourcing of non-core activities
Continued revision of spans & lIncreased stage length
(new longhaul flights and overhub)
Fleet standardization for
Increase of direct sales through the call center and internet (focus on off peak sales)
& layers
Implementation of additional methods of payments lowering transaction costsFleet standardization for
domestic fleet
Alliances providing network optimization
sales)
New methods of payment
F b dl t t
lowering transaction costs
Implementation of new processes and systems in backoffice, eliminating
l kNew CCOA procedures
Decreased use of fuel through improved flight
Fare bundle strategy
Implementaton of eTAM portal for offline bases (reduction of GDS fees)
manual work
Enhanced sourcing strategy
procedures
Improved crew management
(reduction of GDS fees)
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Increased automization at airports
Initiative focus
Fleet, network and Fleet, network and Fleet, network and operationsoperationsoperations
Fleet, network and Fleet, network and Fleet, network and operationsoperationsoperations Distribution expensesDistribution expensesDistribution expensesDistribution expensesDistribution expensesDistribution expenses OverheadOverheadOverheadOverheadOverheadOverheadpppppp
Increase of aircraft size Increase of aircraft size Increase of aircraft size (addition of 11% aircraft = (addition of 11% aircraft = (addition of 11% aircraft = 16% seats)16% seats)16% seats)
I d t l thI d t l thI d t l th
Implementation of Implementation of Implementation of agreement with ABAV, agreement with ABAV, agreement with ABAV, transferring commissions on transferring commissions on transferring commissions on domestic sales in Brazildomestic sales in Brazildomestic sales in Brazil
Continued outsourcing of Continued outsourcing of Continued outsourcing of nonnonnon---core activitiescore activitiescore activities
Continued revision of spans Continued revision of spans Continued revision of spans & l& l& lIncreased stage length Increased stage length Increased stage length
(new longhaul flights and (new longhaul flights and (new longhaul flights and overhub)overhub)overhub)
Fleet standardization forFleet standardization forFleet standardization for
Increase of direct sales Increase of direct sales Increase of direct sales through the call center and through the call center and through the call center and internet (focus on off peak internet (focus on off peak internet (focus on off peak sales)sales)sales)
& layers& layers& layers
Implementation of additional Implementation of additional Implementation of additional methods of payments methods of payments methods of payments lowering transaction costslowering transaction costslowering transaction costsFleet standardization for Fleet standardization for Fleet standardization for
domestic fleetdomestic fleetdomestic fleet
Alliances providing network Alliances providing network Alliances providing network optimizationoptimizationoptimization
sales)sales)sales)
New methods of New methods of New methods of paymentpaymentpayment
F b dl t tF b dl t tF b dl t t
lowering transaction costs lowering transaction costs lowering transaction costs
Implementation of new Implementation of new Implementation of new processes and systems in processes and systems in processes and systems in backoffice, eliminating backoffice, eliminating backoffice, eliminating
l kl kl kNew CCOA procedures
Decreased use of fuel Decreased use of fuel Decreased use of fuel through improved flight through improved flight through improved flight
Fare bundle strategyFare bundle strategyFare bundle strategy
Implementaton of eTAM Implementaton of eTAM Implementaton of eTAM portal for offline bases portal for offline bases portal for offline bases (reduction of GDS fees)(reduction of GDS fees)(reduction of GDS fees)
manual workmanual workmanual work
Enhanced sourcing strategyEnhanced sourcing strategyEnhanced sourcing strategy
proceduresproceduresprocedures
Improved crew Improved crew Improved crew management management management
(reduction of GDS fees)(reduction of GDS fees)(reduction of GDS fees)
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Increased automization at Increased automization at Increased automization at airportsairportsairports
Since December 06, we have implemented the “CCOA” (Air Operations Control Center)CCOA (Air Operations Control Center)…
CCOACCOA Chief PilotChief Pilot
SchedulingScheduling AirportAirportMaintenanceMaintenance DOVDOVCoordinationCoordination
Goal is to maintain schedule “operational”, minimizing the final impact of unplanned events to customers and company
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…and is monitoring the “day-to-day” implementation of the network with faster responsesof the network with faster responses
Physically “pooling together” areas which have direct contactPhysically 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 givenDefinition 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
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As well as faster responses, there are other adjacent benefitsbenefits
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 problemsp
Creates better teamwork
M t l d t di f i d f d ti l iMutual understanding of issues and focused actions on solving them (no discording action plans)
Decreases cost of operationsDecreases cost of operations
Anticipation of problems allows for alternative solutions, decreasing high costs in “fixing” the network
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high costs in fixing the network
Initiative focus
Fleet, network and Fleet, network and Fleet, network and operationsoperationsoperations
Fleet, network and Fleet, network and Fleet, network and operationsoperationsoperations Distribution expensesDistribution expensesDistribution expensesDistribution expensesDistribution expensesDistribution expenses OverheadOverheadOverheadOverheadOverheadOverheadpppppp
Implementation of Implementation of Implementation of agreement with ABAV, agreement with ABAV, agreement with ABAV, transferring commissions on transferring commissions on transferring commissions on domestic sales in Brazildomestic sales in Brazildomestic sales in Brazil
Continued outsourcing of Continued outsourcing of Continued outsourcing of nonnonnon---core activitiescore activitiescore activities
Continued revision of spans Continued revision of spans Continued revision of spans & l& l& l
Increase of aircraft size Increase of aircraft size Increase of aircraft size (addition of 11% aircraft = (addition of 11% aircraft = (addition of 11% aircraft = 16% seats)16% seats)16% seats)
I d t l thI d t l thI d t l thIncrease of direct sales Increase of direct sales Increase of direct sales through the call center and through the call center and through the call center and internet (focus on off peak internet (focus on off peak internet (focus on off peak sales)sales)sales)
& layers& layers& layers
Implementation of additional Implementation of additional Implementation of additional methods of payments methods of payments methods of payments lowering transaction costslowering transaction costslowering transaction costs
Increased stage length Increased stage length Increased stage length (new longhaul flights and (new longhaul flights and (new longhaul flights and overhub)overhub)overhub)
Fleet standardization forFleet standardization forFleet standardization for sales)sales)sales)
New methods of New methods of New methods of paymentpaymentpayment
F b dl t tF b dl t tF b dl t t
lowering transaction costs lowering transaction costs lowering transaction costs
Implementation of new Implementation of new Implementation of new processes and systems in processes and systems in processes and systems in backoffice, eliminating backoffice, eliminating backoffice, eliminating
l kl kl k
Fleet standardization for Fleet standardization for Fleet standardization for domestic fleetdomestic fleetdomestic fleet
Alliances providing network Alliances providing network Alliances providing network optimizationoptimizationoptimization
Fare bundle strategyFare bundle strategyFare bundle strategy
Implementaton of eTAM Implementaton of eTAM Implementaton of eTAM portal for offline bases portal for offline bases portal for offline bases (reduction of GDS fees)(reduction of GDS fees)(reduction of GDS fees)
manual workmanual workmanual work
Enhanced sourcing strategyEnhanced sourcing strategyEnhanced sourcing strategyNew CCOA proceduresNew CCOA proceduresNew CCOA procedures
Decreased use of fuel Decreased use of fuel Decreased use of fuel through improved flight through improved flight through improved flight (reduction of GDS fees)(reduction of GDS fees)(reduction of GDS fees)proceduresproceduresprocedures
Improved crew management
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Increased automization at Increased automization at Increased automization at airportsairportsairports
We have increased crew flight hours to 74 hours/pilot
Flight hours/pilot/monthLegal limit 76
~1,500 pilots and co-il S b 2007
100
Legal limit ~76 hours/month
pilots at September 2007
Improvement in crew i i h i i60
7480
23%pairing has increasing total usage in 800 hours/day
60
40
60
y
Reformating simulator training has gained 4
20g g
hours/dayBefore Nov 07 After Nov 07
0
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Additional operational measures for improved crew management and proceduresmanagement and procedures
Change in flight proceduresBreaks vs. thrust reversersAltitude of flights
Change in scheduling proceduresg g pTrade of day offAllocation of crew members in home bases
Deferral of training expensesDeferral of training expenses
New software for scheduling
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New software for scheduling
Initiative focus
Fleet, network and Fleet, network and Fleet, network and operationsoperationsoperations
Fleet, network and Fleet, network and Fleet, network and operationsoperationsoperations Distribution expensesDistribution expensesDistribution expensesDistribution expensesDistribution expensesDistribution expenses OverheadOverheadOverheadOverheadOverheadOverheadpppppp
Implementation of Implementation of Implementation of agreement with ABAV, agreement with ABAV, agreement with ABAV, transferring commissions on transferring commissions on transferring commissions on domestic sales in Brazildomestic sales in Brazildomestic sales in Brazil
Continued outsourcing of Continued outsourcing of Continued outsourcing of nonnonnon---core activitiescore activitiescore activities
Continued revision of spans Continued revision of spans Continued revision of spans & l& l& l
Increase of aircraft size Increase of aircraft size Increase of aircraft size (addition of 11% aircraft = (addition of 11% aircraft = (addition of 11% aircraft = 16% seats)16% seats)16% seats)
I d t l thI d t l thI d t l thIncrease of direct sales Increase of direct sales Increase of direct sales through the call center and through the call center and through the call center and internet (focus on off peak internet (focus on off peak internet (focus on off peak sales)sales)sales)
& layers& layers& layers
Implementation of additional Implementation of additional Implementation of additional methods of payments methods of payments methods of payments lowering transaction costslowering transaction costslowering transaction costs
Increased stage length Increased stage length Increased stage length (new longhaul flights and (new longhaul flights and (new longhaul flights and overhub)overhub)overhub)
Fleet standardization forFleet standardization forFleet standardization for sales)sales)sales)
New methods of New methods of New methods of paymentpaymentpayment
F b dl t tF b dl t tF b dl t t
lowering transaction costs lowering transaction costs lowering transaction costs
Implementation of new Implementation of new Implementation of new processes and systems in processes and systems in processes and systems in backoffice, eliminating backoffice, eliminating backoffice, eliminating
l kl kl k
Fleet standardization for Fleet standardization for Fleet standardization for domestic fleetdomestic fleetdomestic fleet
Alliances providing network Alliances providing network Alliances providing network optimizationoptimizationoptimization
Fare bundle strategyFare bundle strategyFare bundle strategy
Implementaton of eTAM Implementaton of eTAM Implementaton of eTAM portal for offline bases portal for offline bases portal for offline bases (reduction of GDS fees)(reduction of GDS fees)(reduction of GDS fees)
manual workmanual workmanual work
Enhanced sourcing strategyEnhanced sourcing strategyEnhanced sourcing strategyNew CCOA proceduresNew CCOA proceduresNew CCOA procedures
Decreased use of fuel Decreased use of fuel Decreased use of fuel through improved flight through improved flight through improved flight (reduction of GDS fees)(reduction of GDS fees)(reduction of GDS fees)proceduresproceduresprocedures
Improved crew Improved crew Improved crew management management management
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Increased automization at airports
We have increased self check-in usage in 2007 in over 300%over 300%…
% Total Check-In(10 major airports)
0 8
1.0 10 major airports in Brazil
New focus for attendants:
9 %
73%0.6
0.8
KPIs based on no. of totem check-ins
95%
0.4
Inclusion of daily follow-up in morning meetings
D l t f
5%
6%
21%
0.2Development of confirmation engine speeding up boarding
5%Apr 06
0.0 Counter
Web check in
Counter check in
Oct 07 pass printingID no., TAM Fidelidade no e tkt no etc
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Totem self check inWeb check in no., e-tkt no. etc
…reducing queue waiting time
In 18 months, demand has grown ~10%, while self check-in , g ,over 300%
Reduction of ~ 20% queue waiting timeq g
In 2007, with the new localization of totems in front of the counters we implemented luggage counterscounters, 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
1313“Unlocking value”“Unlocking value”
We plan to increase usage through a series of initiativesinitiatives
Expansion and renewal of totemsp
Repositioning airport totems in certain airports
T h l i l d t t t t / b h k i iTechnological update to totem/web check-in servicesServe non-TAM e-tkts (interline partners)All difi ti i b kiAllow modifications in bookingAllow use for all destinations
Optimized lay out to ensure luggage customers quickness for dispatch
Increase publicity to loyalty card customers
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Initiative focus
Fleet, network and Fleet, network and Fleet, network and operationsoperationsoperations
Fleet, network and Fleet, network and Fleet, network and operationsoperationsoperations Distribution expensesDistribution expensesDistribution expensesDistribution expensesDistribution expensesDistribution expenses OverheadOverheadOverheadOverheadOverheadOverheadpppppp
Continued outsourcing of Continued outsourcing of Continued outsourcing of nonnonnon---core activitiescore activitiescore activities
Continued revision of spans Continued revision of spans Continued revision of spans & l& l& l
Increase of aircraft size Increase of aircraft size Increase of aircraft size (addition of 11% aircraft = (addition of 11% aircraft = (addition of 11% aircraft = 16% seats)16% seats)16% seats)
I d t l thI d t l thI d t l th
Implementation of agreement with ABAV, transferring commissions on domestic sales in Brazil
& layers& layers& layers
Implementation of additional Implementation of additional Implementation of additional methods of payments methods of payments methods of payments lowering transaction costslowering transaction costslowering transaction costs
Increased stage length Increased stage length Increased stage length (new longhaul flights and (new longhaul flights and (new longhaul flights and overhub)overhub)overhub)
Fleet standardization forFleet standardization forFleet standardization for
Increase of direct sales Increase of direct sales Increase of direct sales through the call center and through the call center and through the call center and internet (focus on off peak internet (focus on off peak internet (focus on off peak sales)sales)sales) lowering transaction costs lowering transaction costs lowering transaction costs
Implementation of new Implementation of new Implementation of new processes and systems in processes and systems in processes and systems in backoffice, eliminating backoffice, eliminating backoffice, eliminating
l kl kl k
Fleet standardization for Fleet standardization for Fleet standardization for domestic fleetdomestic fleetdomestic fleet
Alliances providing network Alliances providing network Alliances providing network optimizationoptimizationoptimization
sales)sales)sales)
New methods of New methods of New methods of paymentpaymentpayment
F b dl t tF b dl t tF b dl t t manual workmanual workmanual work
Enhanced sourcing strategyEnhanced sourcing strategyEnhanced sourcing strategyNew CCOA proceduresNew CCOA proceduresNew CCOA procedures
Decreased use of fuel Decreased use of fuel Decreased use of fuel through improved flight through improved flight through improved flight
Fare bundle strategyFare bundle strategyFare bundle strategy
Implementaton of eTAM Implementaton of eTAM Implementaton of eTAM portal for offline bases portal for offline bases portal for offline bases (reduction of GDS fees)(reduction of GDS fees)(reduction of GDS fees)
proceduresproceduresprocedures
Improved crew Improved crew Improved crew management management management
(reduction of GDS fees)(reduction of GDS fees)(reduction of GDS fees)
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Increased automization at Increased automization at Increased automization at airportsairportsairports
We signed an agreement with ABAV in October changing the structure of commissionschanging the structure of commissionsChanges with agreement, valid as of January:
Travel agent compensation Included in ticket valuePaid directly by TAM
Specified in the ticket valuePaid directly by the
Before After
Applicable
Paid directly by TAM6-7% of ticket value
Paid directly by the passenger10% of ticket value or R$ 30(whichever is greater)
All channels(whichever is greater)
Agencies linked to ABAV, TAM’s point of sales (storesTAM s point of sales (stores and TAM Viagens, outsourced agencies and call center) – excluding electronic
Expected benefits for TAM: no more commissions paid in the domestic market
sales
1616“Unlocking value”“Unlocking value”
(reduction in commercial costs), fiscal benefits, increase in direct sales through website
Initiative focus
Fleet, network and Fleet, network and Fleet, network and operationsoperationsoperations
Fleet, network and Fleet, network and Fleet, network and operationsoperationsoperations Distribution expensesDistribution expensesDistribution expensesDistribution expensesDistribution expensesDistribution expenses OverheadOverheadOverheadOverheadOverheadOverheadpppppp
Increase of aircraft size Increase of aircraft size Increase of aircraft size (addition of 11% aircraft = (addition of 11% aircraft = (addition of 11% aircraft = 16% seats)16% seats)16% seats)
I d t l thI d t l thI d t l th
Implementation of Implementation of Implementation of agreement with ABAV, agreement with ABAV, agreement with ABAV, transferring commissions on transferring commissions on transferring commissions on domestic sales indomestic sales indomestic sales in Brazil
Continued outsourcing of Continued outsourcing of Continued outsourcing of nonnonnon---core activitiescore activitiescore activities
Continued revision of spans Continued revision of spans Continued revision of spans & l& l& lIncreased stage length Increased stage length Increased stage length
(new longhaul flights and (new longhaul flights and (new longhaul flights and overhub)overhub)overhub)
Fleet standardization forFleet standardization forFleet standardization for
Increase of direct sales Increase of direct sales Increase of direct sales through the call center and through the call center and through the call center and internet (focus on off peak internet (focus on off peak internet (focus on off peak sales)sales)sales)
& layers& layers& layers
Implementation of additional Implementation of additional Implementation of additional methods of payments methods of payments methods of payments lowering transaction costslowering transaction costslowering transaction costsFleet standardization for Fleet standardization for Fleet standardization for
domestic fleetdomestic fleetdomestic fleet
Alliances providing network Alliances providing network Alliances providing network optimizationoptimizationoptimization
sales)sales)sales)
New methods of New methods of New methods of paymentpaymentpayment
F b dl t tF b dl t tF b dl t t
lowering transaction costs lowering transaction costs lowering transaction costs
Implementation of new Implementation of new Implementation of new processes and systems in processes and systems in processes and systems in backoffice, eliminating backoffice, eliminating backoffice, eliminating
l kl kl kNew CCOA proceduresNew CCOA proceduresNew CCOA procedures
Decreased use of fuel Decreased use of fuel Decreased use of fuel through improved flight through improved flight through improved flight
Fare bundle strategyFare bundle strategyFare bundle strategy
Implementaton of eTAM Implementaton of eTAM Implementaton of eTAM portal for offline bases portal for offline bases portal for offline bases (reduction of GDS fees)(reduction of GDS fees)(reduction of GDS fees)
manual workmanual workmanual work
Enhanced sourcing strategy
proceduresproceduresprocedures
Improved crew Improved crew Improved crew management management management
(reduction of GDS fees)(reduction of GDS fees)(reduction of GDS fees)
1717“Unlocking value”“Unlocking value”
Increased automization at Increased automization at Increased automization at airportsairportsairports
This year, we have initiated a revision of all our contracts and purchasing needscontracts and purchasing needs…
Initial focus on all non-aircraft related contractsInitial 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 qualityg g g q y
Implementation of continuous monitoring process in order to control “inflation” in following yearscontrol inflation in following years
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…with reduction of ongoing costs of up to 30% in each category of spend (1/2)each category of spend (1/2)
Example 1: Health Insurance (-5%)Example 1: Health Insurance (-5%)
St d i l lPreparationPreparation ResultResult
R i d ith t idStudy on main value levers, including different plan structures
Increase in volume due to
Remained with current provider
+1 doctor for first aid officeIncrease in volume due to internalization of stations
Increased tenure of contract
Upgrade of entry level, offering higher reimbursement rates and access to better labs and hopitals
RFP sent to various players, including current provider at the
p
Regional coverage
Inclusion of hiring medicaltime Inclusion of hiring medical evaluation
Return on claim %
1919“Unlocking value”“Unlocking value”
…with reduction of ongoing costs of up to 30% in each category of spend (1/2)each category of spend (1/2)
Example 2: Tires (-30%)Example 2: Tires (-30%)
C t li ti f d t fPreparationPreparation ResultResult
C t li d h i (Centralization of data for preparation of negotiation
Purchase agreement for long term
Centralized purchasing (vs decentralized at stations)
Guarantees based on useful life ofPurchase agreement for long term (vs. spot purchasing)
Definition and standardization of
Guarantees based on useful life of tires
Delivery directly at given stations quality levels and exchange/ reusage levels
y y g(though centralized purchasing)
Aggregated services in analysing Aggregated services for volume guarantee
costs, life, wear, etc
2020“Unlocking value”“Unlocking value”
With all our initiatives, we expect CASK ex-fuel in 2008 to decrease 7% while delivering a better productto decrease 7%, while delivering a better product
Guidance 2008Guidance 2008
Domestic market demand growth from 8% to 12% (in RPK terms)Domestic market demand growth from 8% to 12% (in RPK terms)Domestic market demand growth from 8% to 12% (in RPK terms)MarketMarket
Maintain the leadership in both domestic and international marketsMaintain the leadership in both domestic and international marketsMaintain the leadership in both domestic and international markets
ASK growth ofASK growth ofASK growth ofASK growth of ASK growth of ASK growth of
Domestic 14%Domestic 14%Domestic 14%
International 40%International 40%International 40%International 40%International 40%International 40%
Average load factor at approximately 70% overall Average load factor at approximately 70% overall Average load factor at approximately 70% overall
R d ti f 7% i t t l CASK f l i BR GAAP
TAMTAM
Reduction of 7% in total CASK ex-fuel in BR GAAP yoy
Three additional international destinations or frequencies in 2008Three additional international destinations or frequencies in 2008Three additional international destinations or frequencies in 2008
2121“Unlocking value”“Unlocking value”
TAM: the best fitting product for the customer (stakeholders) based on efficienct delivery(stakeholders) based on efficienct delivery
UndisputableB tt S iUndisputableB tt S iBetter ServiceBetter Service
Sustainable Strategy
Low Operating
Low Operating Competitive
P iCompetitive
P i
Sustainable Strategyto Maintain Market
Leadershipand ProfitabilityOpe at g
CostsOpe at g
Costs PricesPrices
2222“Unlocking value”“Unlocking value”