TAM Airlines records net profit in Q1, 2011

LONDON, England – TAM Airlines obtained net income of R$ 128.8 million in the first quarter of the year and reverted the losses of R$ 71 million recorded for the same period in 2010. The operational profit (EBIT) increased by 43.6% to R$ 110.2 million in comparison with the first quarter of 2010. The gross operational income increased by 17.1% to R$ 3.2 billion in the same period. However, passenger invoicing on domestic and international flights rose 7.2% to R$ 2.4 billion. The total number of paying passengers was 9.3 million, an 11.9% increase. The company operated an average of 881 daily flights in the period.

“The good performance of TAM Airlines in the first quarter reflects the positive impact of the foundation built for this new period of Brazilian aviation growth. We now have 29,110 people committed to delivering a high quality service”, says TAM S.A. president, Marco Antonio Bologna, remembering that staff numbers are 3.3% higher than in December 2010. “We should point out that our membership to the Star Alliance completed one year in May; the consolidation of Multiplus Fidelidade, which works with networks of customer loyalty programs, as a publicly-held company; the development of the TAM Vacations franchise model; and the increase in new customers at TAM MRO, our business unit that undertakes aircraft maintenance and review services.”

TAM Airlines President, Líbano Barroso, explains that the good operational and financial results reflect the efforts by the company to reduce operational costs as well as the measures taken to increase the quality service delivered to passengers.

“Among the new measures focusing on our customers’ convenience and comfort we should mention our innovative partnerships with Pássaro Marron and Princesa do Agreste, interstate bus companies in the Southeast and Northeast regions of Brazil respectively, which sees us selling bus tickets combined with air tickets. Another important initiative is the opening of 17 new TAM Vacations stores in Brazil this year within the franchise model, which was implemented by our tourism operator, enlarging the network from the current 90 to 200 franchise units by the end of this year”, adds Barroso.

Domestic Brazilian Market

The income from domestic operations, including Pantanal (the regional aviation company held by TAM holding), saw passenger numbers increase by 8.2% in the first quarter of 2011 to 1.5 billion in comparison with the same period in 2010. The number of paying passengers increased 11.5% to 7.9 million. The demand (RPK) had 14.8% growth and together with the 12.9% offer increase (ASK), the load factor increased by 1.2 p.p. to 70.4%. The average price paid by passengers for each kilometre flown (yield) reduced by 5.7%, to 18.2 cents of real.

The first quarter of 2011 had a high percentage of passengers flying on vacation, especially during the Brazilian Carnival holiday period, which this year fell in March, which delayed the return of the business traveller. The result was an increase in the load factor, but the dilution of the yield as customers travelling on vacation usually pay lower fares or uses TAM Fidelidade (Frequent Flyer Program) tickets.

“The numbers show the success of the implemented strategy to offer accessibly priced flights to a greater number of the Brazilian population,” Barroso points out. “Last 25 April, the return from the Holy Week holidays, 136,000 passengers flew in our aircraft. A record for passengers transported in one day.” According to Infraero data (the company responsible for Brazil’s Airport Infrastructure), TAM maintained 83.8% punctuality and 98.7% regularity on domestic flights on the same date.

Another highlight of the first quarter was the signing on 29 March of a Term Sheet, with no binding effect, with TRIP Linhas Aéreas in order to identify the opportunities to strengthen and expand the business through the development of a strategic alliance complementing an already existing codeshare agreement between the companies. According to the provisions of the Term Sheet, TAM may acquire a minority shareholding at the end of the negotiations in TRIP corporate capital, representing 31% the total corporate capital, that is 25% of the voting capital and the balance in preferred stocks.

In view of such an agreement, TAM intends to capture market growth and have a more significant exposure on the routes from and to medium density cities in Brazil. TAM and TRIP’s current flights are mostly complementary. The improvement on the connections may generate a higher flow of passengers for the two companies.

TAM’s International Market

The income from passengers on international flights saw a 5.6% growth in the first quarter of 2011 to R$ 861.6 million over 2010. The number of paying passengers in the quarter increased 14.2% to 1.4 million. TAM recorded a high and consistent demand in the international market, which was stimulated by the strengthening of the Brazilian currency (the Real) in the first quarter, a period that coincided with passengers flying on vacation, and this resulted in high load factors.

The demand (RPK) had 16.3% growth and together with the 11.9% offer increase (ASK) the load factor increased by 3 p.p. to 79.6%. The yield was reduced by 9.2% to 14.8 cents of real. In US dollar terms, the reduction was 1.8% to 8.9 cents of the dollar.

TAM Cargo and Multiplus Fidelidade income

The income from TAM’s cargo unit was R$ 255.1 million, a slight reduction of 0.3% in comparison with the first quarter of 2010. The domestic operations recorded 1.9% growth to R$ 117.7 million while international showed a 2.1% reduction to R$ 137.4 million, influenced by the 7.5% average appreciation of the Real in respect to the dollar in the period. TAM Cargo offered the market two new products: a prepaid service that allows the acquisition by the customer of exclusive packaging, and the request of the order shipment at a fixed price of R$ 22.90.

The group’s other operational income saw a 126.1% increase to R$ 542.8 million in annual comparison, mainly related to the 456.6% increase in Multiplus S.A.’s income to R$ 227 million in the first quarter.

Fuel hedge

TAM saw R$ 55.8 million in net gains in the first quarter from fuel hedge positions, related to the increase in the international price of a barrel of oil from US$ 91.4 to US$ 106.7 between the fourth quarter of 2010 and first quarter of 2011. TAM’s policy for fuel hedge set forth a 20% minimum coverage of the consumption estimated for the next 12 months. The company currently has 25% coverage of the consumption in place for the next 12 months at the average price of US$ 87 per barrel.

Exchange rate

Another positive impact came from the net exchange gains of R$ 151.2 million from the exchange rate devaluation, from R$ 1.67 to the US dollar at the end of 2010 to R$ 1.63. Such gains come mainly from the financial leasing of aircraft.

Fuel expenses were R$ 1.1 billion in the first quarter of 2011, a 33% increase mainly from the 12.5% increase in the average price, and reflecting the 19.7% increase of the average price of a barrel of oil in the international market in annual comparison. The contribution also came from a 12.3% growth in the consumed volume caused by an 11.9% increase in the number of flight hours and a 1.9 p.p. in the aircraft load factor that increased the transported weight. The impact of the increase of the fuel expenses was partially offset by the Real’s appreciation against dollar of 7.5% in the period and the 2.1% increase on the flights average stage.