TAM DAY - Strategy
Transcript of TAM DAY - Strategy
TAM DAY 2007 “Unlocking
Value”
Strategy
Overview
Marco Bologna
November 12, 2007
22“Unlocking value”“Unlocking value”
2007 has
been
a year
of
many
challenges...
Macro Economy
Airline Industry
Airlines Brazil
TAM
High volatility (e.g. subprime crisis)
Fuel prices
Scarcity of aircraft, seats, etc due to overall growth in the sector
Conclusion of the “Varig” questionmarkChanges in the governing structure of theindustryCollapse of BRA
Impact of infrastructure on operations
Accident
33“Unlocking value”“Unlocking value”
...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
44“Unlocking value”“Unlocking value”
We
have
not
only
continued
to be
the
leading domestic
carrier...
14.4
20.3
42.4
20.7
8.5
14.5
40.3
30.6
13.5
38.9
11.7
34.6
12.2
33.6
19.4
33.0
8.8
31.1
22.3
35.8
25.5
25.9
41.3
10.3
34.0
47.8
39.2
48.8
2000 2001 2002 2003 2004 2005 2006 Jan-Oct2007
0
20
40
60
80
100%
Domestic Market Share (RPKs)
TAMGOLVARIGVASPTRANSBRASILBRAOther
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...but
have
become
the
leading
Brazilian
carrier
in the international
market...
75.0
7.4
82.1
13.9
87.4
12.5
87.9
12.0
85.4
14.5
77.0
18.4
50.4
7.3
37.3
6.2
12.5
14.7
66.6
2000 2001 2002 2003 2004 2005 2006 Jan-Oct2007
0
20
40
60
80
100%
Domestic Market Share (RPKs)
TAMGOLVARIGVASPTRANSBRASILOther
66“Unlocking value”“Unlocking value”
...and
the
only
Brazilian
carrier
with
consistent international
deployment
and
growth...
ParisMiamiNew YorkLondonMilanFrankfurt¹Madrid²Buenos Aires
Santiago Montevideo Caracas
TAM's Weekly Frequencies
2121147777
49
777
Since
03/199903/199811/200510/200603/200711/200712/200703/2001
12/200411/200709/2007
Competitors
Air France (17)AA
(28)
AA (7), Delta (7), Continental (7) and
JAL (7)British Airways (7) and Varig
(7)
Alitalia (7)Lufthansa (7) and Varig (7)Iberia (14)Aerolineas (56), GOL (49), BA (4),
Lufthansa (7), LAN (7)GOL (14), LAN (5) and SwissPluna and GOL (14)Varig (7)
¹
As of
November
30²
As of
December
21
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…with a dedicated focus to intra-regional flights in South America through TAM Mercosur
Buenos Aires Santiago
Assuncion1
Montevideo Ciudad del EsteSta Cruz dl Sierra
Cochabamba
Cordoba
Weekly Frequencies
377
56
7
35
7
7
7
Since
09/199609/1996
09/1996
09/1996
09/1996
09/1996
09/1996
03/2007
1 Includes
21 frequencies
to São Paulo
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We
are strengthening
our
product
in the
international market
through
fleet
and
network...
Increased widebody fleet plan for the next 10 years, substitutingolder 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 ageComplete phase-out of F100 (impact on intra South American routes)
Expansion of network through additional destinations andfrequencies
New full code share agreements at each major country
Focus on South American coverage – integration of TAM Mercosul activities
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...as well
as retrofitting
our
entire
network
in 2008
180º flat beds with shell
In seat power
AVOD controls for in-flightentertainment
New colour schemeFirst ClassFirst Class
BusinessBusiness
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We have changed from only a high end premium customer focus to serving the full spectrum
TAM
Premium / Business
Commodity / Leisure
Reg
iona
lInternational
First classFirst class
Business class
Business class
Economy class
Economy class
Commercial
agreements
with
regional
carriers
Commercial
agreements
with
regional
carriers
TAM’s OriginTAM’s Origin
TAM up
to 1998TAM up
to 1998
1111“Unlocking value”“Unlocking value”
As Brazil
becomes
“stable”, the
leisure
segment will
become
increasingly
more important
Leis
ure
Bus
ines
s
2000 2001 2002 2003 2004 2005 2006 2007E
17.9
26.6 27.025.2
28.2
35.4
39.843.5
0
10
20
30
40
50
Domestic Market Passenger Mix (RPK M)
CAGR
11%
21%
Travelling
is one
of
the
top
“desire”
items
for consumption
* TAM Estimates
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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
1313“Unlocking value”“Unlocking value”
...increasing capillarity of sales through our new methods of payments... Launched new methods of payment in May 2007
Payment at lottery storesApproximately 9,000 stores in Brazil
Already functioning as bank correspondent
Billing slipsAutomatic debit Financing for passengers via direct consumer credit with the main retail banks
Focus
on
leisure/lower
income
segments
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...optimizing
the
utilization
of
our
aircraft
on
off
peak hours
* Average
day
in past
month
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2350
55
60
65
70
75
80%
Domestic load factor per hour
Off
Peak Off
Peak Off
PeakPeakPeak
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We
continue to deliver
more efficient
processes in order
to focus
on
what
the
customer
wants
Become preferred airline
carrier
Become preferred airline
carrier
Focus on customer needs
Focus on customer needs
Translate into actions
Translate into actions
Efficient Delivery Efficient Delivery
To be
efficient means
not
only
reduce
costs
but also increase
the
proportional benefits
To be
efficient means
not
only
reduce
costs
but also increase
the
proportional benefits
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We continue to be committed to a high level of corporate governance and transparency
Info
rmat
ion Free-float
Board 100%
tag-
alon
g
Investors
BR GAAP and US GAAP simultaneous, in Portuguese and English, with high level of disclosed information
CVM and SEC simultaneous
At least 4 local analyst meetings and 4 investor/analyst visits abroad per year
Professional Board
3 members of the family
5 independent members
Audit Committee
Certified Sarbanes-Oxley in May 2007
Two classes maintained due to regulatory reasons
Same conditions concerning the sale of the company for both classes of shares
54% Free Float
1% ADTV
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On the top level of the company, we have new members in our team…
CEOMarco Antonio Bologna
CEOMarco Antonio Bologna
CommercialWagner Ferreira
CommercialWagner Ferreira
CFOLibano Barroso
CFOLibano Barroso
TechnicalRuy Amparo
TechnicalRuy Amparo
OperationsDavid Barioni
OperationsDavid Barioni
HRGuilherme Cavalieri
HRGuilherme Cavalieri
Network PlanningPaulo Castello Branco
Network PlanningPaulo Castello Branco
TAM MercosurAlberto Fajermann
TAM MercosurAlberto Fajermann
Optimal mix between non-airline expertise and airline experience (over 120 years of accumulated airline experience)
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...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 stationsCommercial, 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
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We are beginning to evaluate new potential business units in the company
TAM Linhas AéreasTAM Linhas Aéreas
MRO(São Carlos)
MRO(São Carlos)
Loyalty Program
Loyalty Program HandlingHandlingCargoCargo
Already structured as a business unit with focus in maximizing assets
None or little focus on selling services to third-parties Not structured as business units
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●
To be differentiated in the service of air transportation through the “spirit of serving”
Finally, we reviewed our vision and mission statement in order to better reflect our aspirations and values
●
To achieve unchallenged domestic leadership
●
To be the most competitive, solid and profitable airline in Latin America
●
To work with the “Commitment to Service”, making people happier
●
To be people’s preferred airline company, with happiness, creativity, respect and responsibility
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We have gone through waves of development…
Turnaround process (2002 -2003)
Overcapacity
Loss of founder
High costs
Low operational efficiency
Surviving
Assets optimization (2004 – 2007)
Increase in domestic load factor
Better aircraft utilization
Access to financial markets (equity and debt)
Compliance with SOX
IOSA certificate
Growing Profitability
2222“Unlocking value”“Unlocking value”
…but we have seen new and compelling horizons…
All companies compete in the same market…
Exploiting demand…
Making the value-cost trade-off…
Aligning the whole system of the company’s activities with either differentiation or low cost
Blue
Ocean
StrategyBlue
Ocean
Strategy
Red Ocean is where...
Company creates an uncontested marketplace…
…Creating and capturing new demand…
Breaking the value-cost trade-off…
Aligning the whole system in pursuit of differentiation and low cost
Blue Ocean is where...
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…resulting in a new third wave
Unlocking Value
Opportunities for value generation (future)
New passenger segmentation
Cargo
Loyalty Program
Maintenance
Turnaround process (2002 -2003)
Overcapacity
Loss of founder
High costs
Low operational efficiency
Surviving
Assets optimization (2004 – 2007)
Increase in domestic load factor
Better aircraft utilization
Access to financial markets (equity and debt)
Compliance with SOX
IOSA certificate
Growing Profitability
2424“Unlocking value”“Unlocking value”
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
2525“Unlocking value”“Unlocking value”
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
2626“Unlocking value”“Unlocking value”
This
is how
we
have
been
describing
our
strategy
Low Operating
Costs
Low Operating
Costs
UndisputableBetter ServiceUndisputableBetter Service
CompetitivePrices
CompetitivePrices
Sustainable Strategyto Maintain Market
Leadershipand Profitability
2727“Unlocking value”“Unlocking value”
TAM: the
best
fitting
product
for the
customer
(and stakeholders) based
on
efficienct
delivery
Low Operating
Costs
Low Operating
Costs
UndisputableBetter ServiceUndisputableBetter Service
CompetitivePrices
CompetitivePrices
Sustainable Strategyto Maintain Market
Leadershipand Profitability