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TAM Airlines

Brazilian TAM registers R$ 977 million operating profit

Mar 10, 2011

São Paulo, Brazil - TAM Airlines recorded an operating profit of R$ 977 million in 2010, an increase of 365.5% compared to 2009, equivalent to an operating margin of 8.6%. Operational revenue was R$ 11.8 billion, a 16.4% increase on 2009. Net income was R$ 637.4 million in 2010, a reduction of 48.9% in respect to the 2009 results – in 2009 the net income had the positive impact on accounting gains, without cash involved, as a result of fuel hedge operations and the valuation of the Brazilian currency, the Real, in respect of the US dollar.

“In addition to the good performance in the economic, financial and operational fields, the company had great results in facing up to and overcoming the challenges of 2010. Thanks to the efforts of our 28,000 employees, the basis for a new period of growth has been built,” affirms TAM S.A. holding president, Marco Antonio Bologna.

Among the highlights of the past year was the intention, announced in August with LAN, for the merger of the two holdings in to one holding entity, LATAM Airlines Group, which is expected to generate approximately US$ 400 million in annual synergies. After the binding agreements were signed for the merger, and approved by the Administrative Councils of both companies in January this year, the transaction is subject to the approval of the regulatory entities in Brazil and Chile, and other countries where LAN has subsiduaries, as well as the agreement of the non-controlling stockholders by their adhesion to the stock offer.

In May 2010 TAM joined the Star Alliance, the largest global alliance in commercial aviation that now comprises 27 of the world’s leading airlines. Between them the Star Alliance carriers serve more than 1,100 destinations in 181 countries.

“The integration of TAM Fidelidade with the other frequent flyer programs of the member companies of the Star Alliance is one of the benefits to our customers”, Bologna points out.

Last year, Multiplus Fidelidade – created in June 2009 as a business unit, and becoming an independent company in the October of that year – opened its capital and since February 2010 its shares have been listed and traded on the BM&FBOVESPA (the São Paulo Stock Exchange.), the first such company to have its stocks negotiated on the Brazilian Exchange. The company now has approximately 150 business partners, of which 14 are related and the others are by accumulation. Multiplus invoicing was R$ 1.1 billion in 2010, with profits of R$ 118.4 million.

TAM underwent some important organizational changes during the last year, changes designed to meet its commitment to improve governance and create a large multiple business corporation connect to aviation. In March 2010 the appointment of Marco Antonio Bologna was announced to chair TAM S.A. holding, making him responsible for the development of new corporate business for the TAM companies and their institutional relationship. Líbano Barroso continued as chairman of TAM Airlines where he manages the passenger and cargo operations that comprise TAM Airlines, Pantanal Linhas Aéreas and TAM Viagens. He also holds the office of Investor Relationship Director of TAM S.A. In May 2010 Eduardo Gouveia was appointed as Chairman of Multiplus S/A.

Revenue from passengers and cargo

In 2010 TAM transported 34.5 million paying passengers, a 13.6% increase on the previous year, of which 29.3 million flew on domestic Brazilian flights (a 13.5% increase on 2009) and 5.2 million flew on TAM’s international services (14.4% increase). Passenger revenue increased 12.3% year on to R$ 9.2 billion, highlighted by the 22.4% growth in international revenue to R$ 3.3 billion while domestic revenue increased 7.4% to R$ 5.9 billion. Cargo revenue (TAM Cargo) increased 18.8% to R$ 1.1 billion, a 23% increase on international operations to R$ 601.9 million and a 14.3% increase in domestic transactions to R$ 510.8 million.

The average price paid by customers for each kilometre flown (yield) in the domestic Brazilian market fell 8.4% to 19.8 cents (R$), a result of two main factors. Firstly, the high number of customers using the TAM Fidelidade Program and flying with redeemed tickets, and secondly the increase in passengers flying on leisure and purchasing their tickets in advance for flights in off-peak hours for which they paid lower prices.

Líbano Barroso explains that the impact of yield reduction on passengers’ revenue in the domestic Brazilian market was offset by a 2.1 percentage point increase in the average load factor in 2010, rising to 67.5%, and the increase in the number of passengers travelling for leisure. “This is a result of the success of our retail project launched in August which anticipated the change in the passenger profile, passengers who migrated from bus to air transportation, especially for trips over 800 kilometres”, Barroso says.

“We believe that most of the growth in the Brazilian civil aviation sector for the coming years will come from Brazilians from the emerging classes who will be flying for the first time", adds Barroso. In order to appeal to these new passengers, TAM has developed three initiatives: communication (a publicity campaign starring the popular Brazilian singer Ivete Sangalo and other actions); sales channels (where the partnership with the Casas Bahia stores was an extremely important example); payment terms (TAM is the Brazilian airline that offers the largest number of payment options, and includes initiatives such as paying in 12 instalments on the Itaú bank card or the Casas Bahia store card). The new campaign was launched with the strap line of "Você vai. E vai de TAM" ["You Go. And Go With TAM"].

The growth in international passenger revenue benefited from the valuation of the Brazilian real in respect to the US dollar, which helped drive the strong demand by Brazilians to travel abroad, while inbound traffic to Brazil was helped by the recovery in the global economy. As a result TAM had record load factors on its international flights of 79% in 2010. As the result, the international yield increased 20.1% in US dollar terms to 8.6 cents (US$) and 5.8% in Brazilian currency to 15.1 cents (R$). The adjusted revenue by seat-kilometre (RASK) in domestic and international operations of the company during the last year has increased 5.1% to 15.9 cents (R$).

TAM staff numbers increased 16.1% to 28,193 by the end of 2010. “The increase in staff numbers is mainly due to reinforcing the ground teams at the airports as well as cabin crew, the aim being to ensure the continuity of the high quality of our services and our permanent goal to satisfy our customers”, clarifies Líbano Barroso, TAM Airlines CEO.

The results in 2010 were affected by accountancy changes implemented on the company’s balance sheet in the last quarter of 2010, regarding the acknowledgement of the re-evaluation of flight equipment (aircrafts, engines and components) that changed the overall accounting value of such assets. A positive impact in the results came from the Superior Court of Justice in September with the exemption for the company to pay the “Additional Tariff”. Excluding these extraordinary gains, the company’s operating profit in 2010 was R$ 572.3 million, an 172.7% increase on the same period in 2009, with a 5% operating margin and 2.9 percentage points growth in the same comparison. The adjusted net income was reduced by 84.1% to R$197.9 million.

The positive generation of cash represented by EBIT (Earnings Before Interest and Taxes) allowed TAM to end 2010 with approximately R$ 2.4 billion cash in hand.

Fourth Quarter of 2010

TAM’s EBIT for the fourth quarter of 2010 was R$ 218.2 million with 6.8% margin, reflecting a 130.8% growth in the operating profit and a 3 percentage points increase on the margin in respect to the same period of 2009. Operational revenue increased 29.1% to R$ 3.3 billion in the same period. The net income in the last quarter of 2010 was R$ 150.6 million, a 7.9% increase.

TAM transported a total of 9,338,000 passengers between October and December 2010, a 12,2% increase over the same period in 2009, of which 7,967,000 were on domestic Brazilian flights (11,9% increase) and 1,370,000 on international flights (13,9% increase). TAM operated a daily average of 861 flights in the last quarter, an 8.8% increase when compared to the same period in 2009.

Passenger revenue increased 16.5% to R$ 2.4 billion by annual comparison, highlighted by the 30.2% growth in international revenue to R$ 833.2 million, while the domestic revenue increased 10.3% to R$ 1.6 billion. TAM Cargo revenue increased 7.6% to R$ 295.8 million with R$ 139.8 million from domestic operations (11.5% increase) and R$ 156 million from international transactions (4.3% increase).

The domestic yield in the last quarter reduced by 5.8% to 19.2 cents (R$) while the international yield increased 11.8% to 14.5 cents (R$). The revenue related to seat-kilometre (RASK) grew 13.4% to 16.9 cents (R$) of which there was a 4.4% reduction on domestic Brazilian flights, to 12.7 cents (R$), while there was an 18.2% increase on international flights to 11.6 cents (R$).


TAM introduced 19 aircraft to its fleet in 2010, at the end of the year the fleet numbered 151 aircraft made up of 139 Airbus models (26 A319, 86 A320, 7 A321, 18 A330 and 2 A340), seven from Boeing (4 B777-300ER and 3 B767-300) and five ATR-42, used by Pantanal. This represents an historical landmark in Brazilian aviation as no other Brazilian airline has ever had a passenger aircraft fleet of such size. The estimate is to end 2011 with 156 aircraft in operation.

With the order of 34 new aircraft – 32 Airbus A320 family and two Boeings 777-300ER – announced on 28 February 2010, TAM will invest, based on list price, US$ 3.2 billion as part of the fleet renewal program designed to meet the market growth expected over the next 20 years. TAM’s estimate is to have 182 aircraft operational by the end of 2015.

Brazilian TAM registers R$ 977 million operating profit
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