santader jan 07
TRANSCRIPT
Santander Conference
January, 2007
2
We have delivered a strong 2006...
Average market share
Average load factor
Aircraft utilization per day (block hour)
CASK reduction yoy
New international flights
Guidance 2006 Sept06 YTD
Market demand growth (in RPK terms)
14.7%12%-15%
47%45%
72.9%69.5%
12.51above 12
2.1%5%
• Daily to NY• Flight to London
• Since May• Since October
TAM
Market
3
…and believe in a very positive 2007
Average domestic market share above 50%
Average domestic load factor at approximately 70%
Aircraft utilization per day (block hour) higher than 13 hours
Reduction of 7% in total CASK ex-fuel in BR GAAP yoyOpportunity in the international market
Third frequency to ParisInauguration of two new international long haul
frequencies
Market demand growth from 10% to 15% (in RPK terms)
TAM
Guidance 2007
Market
4
12Non-stop city links3
44264342Daily Roundtrips3
109129
124848+272Destinations3
7805.3767.299ASKs1
TAM VarigGOL
81%89%90%Operational efficiency4
TAM has the most extensive domestic network...
1 Based on 4Q06 ANAC numbers; 2 27 destinations served through operational agreements with OceanAir, Pantanal, Passaredo, Total, Trip3 Based on December, 2006 reported routes (HOTRANs)4 Based on 3Q06 ANAC numbers
5
...and is the leading Brazilian international carrier
Longhaul marketParis
2x per dayLondon
1x per dayNY
2x per dayMiami
3x per day
Latin American marketBuenos Aires
7x per daySantiago
2x per day Assuncion
8x per day Lima
1x per day Montevideo
1x per day Ciudad del Este
3x per day Sta Cruz dl Sierra
1x per day Cochabamba
1x per day
Note: Based on Dec 2006 network
6
The international market has huge potential for growth on the Brazilian side
53%
47%
54%
46%
72%
28%
2004 2005 20060
20
40
60
80
100%
% International traffic
Braziliancarriers
Intlcarriers
7
In 2007, we will be expanding both frequencies and destinations...
Domestic Market 2007 International Market 2007
~30% increase in ASKs At least an additional 3
destinations Strengthening of international
gateways for domestic market Guarulhos Galeão
Increasing of frequency on main domestic markets Brasília Congonhas Confins
Implementing overhub flights: new city-pairs
~60-70% increase in ASKs
Additional daily frequency to Paris beginning in January
New flight to Milan in 1S07
Additional longhaul frequency or destination to be disclosed
Strengthening of Latin American presence, both frequencies and destinations
8
...expanding the fleet and maintaining one of the youngest fleets in the world
TAM will be monofleet in the domestic market by 1S08
10
64
22
3
12
88
6
414
103
416
106
416
112
2006 2007 2008 2009 2010
96109
121 126 132
0
50
100
150
Total Fleet
F100A319/320A330MD11B777
AverageFleet Age 7 6 5 6 7
9
In order to take advantage of the opportunity in the international, we have closed a deal with Boeing
Firm contract for 4 B777-300ER + 4 options
Delivery for mid 2008
“Interim” contract for 3 MD-11sDelivery within the next 6 months
Same cost per seat as B777-300ERs
Choice for B777-300ER based on:More attractive cost per seat
Higher technological lifespan
Creation of a “mix” of aircraft size, allowing for more gradual capacity increase per destination
New credit line (EXIM)
10
19.2% 21.8%
30.7%34.9% 33.0%
35.8%
43.5%47.8%
27.2%
1998 1999 2000 2001 2002 2003 2004 2005 2006
Domestic Market Share (RPK’s)
Domestic Market Share (RPK’s) – 4Q06 Domestic Market Share (RPK’s) - Dez/06
Source: ANAC
GOL , 36.1%
TAM ; 51,1%
Others; 4,8%
BRA, 3.6%
Varig, 5.0%
TAM , 49.1%
GOL , 37.1%
Others; 4,8%
Varig, 4.7%
BRA, 3.9%
We attained domestic leadership in 2003 ...
11
0.1%3.8%
13.9% 12.5% 12.0%14.3%
18.8%
37.3%
7.9%
1998 1999 2000 2001 2002 2003 2004 2005 2006
International Market Share (RPK’s)
International Market Share (RPK’s) – 4Q06 International Market Share (RPK’s) - Dez/06
Source: ANAC
TAM 60.0%
Varig16.9%
GOL 13.2%
Others9.9% Varig
15.4%
TAM61,2%GOL
13.3%
Others10.8%
…and since July 2006, the leading Brazilian carrier in the international market
12
RASK
LoadFactor
Yield
2002 2003 2004 2005 Jan-Sep-06
13.8
18.120.8 20.3 20.8
10
20
30
40
Scheduled Domestic (Yield and RASK)R$ cents
40
50
60
70
80
Load Factor
Our RASK has been increasing while yields decreasing...
Coherent with our strategy to offer competitive prices
13
...maintaining a 10-15% price differential due to our product features
GOL
TAM
2001 2002 2003 2004 2005 2006 YTD15
20
25
30
35
Yield scheduled domesticR$ Cents
GAP 60% 30% 18% 13% 15% 10%
Note: GOL Yield Grossed up 1.05X in order to include taxes
14
In retrospect, TAM was in a strong competitive position at the end of the ’90s
0.8
1.0
1.2
1.4
1.6
0 1 2 3 4 5
TransbrasilTAM
VASP
Varig
Relative cost position
Network/Service/Brand
R$ 1.3B
High
Low
Low High
Note: for domestic market; Varig includes Rio Sul/Nordeste
Disadvantage
Advantage
AVERAGE 97/00
15
Increase in costs and loss of service awareness put TAM in a difficult position
Average 97-002002
0.8
1.0
1.2
1.4
1.6
0 1 2 3 4 5
Gol
Vasp
Vasp
TAM
TAM
Varig
Varig
Relative cost position
Network/Service/Brand
R$1,5B
High
Low
High Low
However, TAM became “squeezed” between Varig, the flagship carrier, and Gol, the new entrant
Note: for domestic market; Varig includes Rio Sul/Nordeste
16
0.8
1.0
1.2
1.4
1.6
0 1 2 3 4 5
OceanAirBRA
Varig
GolVasp
TAM
TAM
Gol
Varig
Varig
TAM
Relative cost position
Network/Service/Brand
Today, TAM is “out of the squeeze” with a superior product acknowledgement and financial position
Average 97-0020022006
New entrants/smaller players will be looking to
lower costs and serve the low end passengers
17
Our methodology for stage length adjustments on CASK show us a 10-12% gap to Gol today…
STEP 1
Separate Narrow from Wide Bodies
To compare “apples to apples”, TAM removes the results from wide bodies
Otherwise, we would be assuming that a widebody A330 would fly the shuttle service
STEP 2
Standardize Maintenance Costs
GOL has maintenance as a “provision” on their P&L (Phased Maintenance + Supplemental Lease)
TAM accounts for Maintenance only when incurred TAM substitutes for a provision
STEP 3
Adjustment for stage length
Only 2 lines require adjustments for stage length purposes: Fuel – the more take-offs, the higher the fuel
burn Maintenance – the more landings, the higher
wear of the aircraft
18
…which will reduce to 5% by December 2007
The 5% gap “translates” into our 7% reduction y-o-y ex-fuel
2002 2003 2004 2005 2006 YTD
20.4
15.5
19.1
15.4
20.1
16.7
18.6
16.3
18.2
15.8
12
14
16
18
20
22
CASK total (BR GAAP - R$ centavos)
TAMGOL
Gap to Gol 32% 24% 20% 14% 15%
Our domestic gap is 10-12%
YTD
19
Our cost targets are aggressive, but the roadmap is already laid out
Fleet and network Distribution costs Overhead
Increase of block hours to over 13 hours per day per aircraft in 2007
6 extra seats in the A319/320 fleet
Increase in direct sales through: Site improvement Fare bundles Call center
outsourcing New means of
payment Insourcing of
representatives Adjusting indirect sales
commissions to higher % on offpeak flights
Outsourcing of non-core activities
Redefinition of service standards
Review of spans&layers in the hierarquy
Implementation of new automated processes
Improved sourcing capabilities
20
We are innovating in the way we offer our product, servicing the client better at a lower cost
TAM has specific products designed for every part of the client
spectrum (from leisure to business)
21
Today, we are one of the most lucrative airlines in the world…
TAM, GOL and Virgin Blue with 2006 annualized; LTM September 30, 2006 for other airlines; USGAAP1 Assumes average period exchange rates.
TAM
GOL
Ryanair
Southwest
Virgin
West Jet
Jet Blue
Avg (ex-TAM)
EBITDAR (1)
(US$ MM)
801
510
819
1.587
389
343
267
652
OperatingIncome (1)
(US$ MM)
522
357
593
924
177
178
(9)
370
NetIncome (1)
(US$ MM)
389
289
495
528
113
79
(60)
241
EBITDARMargin (%)
24,5
30,2
33,0
18,0
20,9
23,4
12,3
23,0
OperatingMargin (%)
16,0
21,1
23,9
10,5
9,5
12,1
(4,0)
12,2
NetIncome
Margin (%)
11,9
17,1
19,9
6,0
6,1
5,4
(2,7)
8,6
22
In 4 years, we have become one of the best in the world, with more to come
● To be the most competitive, solid and profitable airline in Latin America
Source: Public Reports, December 31, 2005
Coherent business plan
Focused and capable management, delivering results
Quick response to market conditions