TAM S.A. recorded an operating profit (EBIT) of R$ 553.3 million in the third quarter of 2011, the equivalent to an operating margin of 16.7%. Excluding a non-recurring accounting gain in the period, related to the recognition of tax credits to the value of R$ 426 million, the operating income was R$ 192 million, equivalent to a 5.8% margin. In the same months of 2010, excluding a non-recurring gain with the reversal of the provision of the taxes registered at the time, TAM had achieved positive operating result of R$ 275.8 million, with an operating margin of 9.5%.

As a result of the strong appreciation of the dollar against the real, the company's net income was down by R$ 620 million in the third quarter of this year, including the non-recurring gain. In the same period in 2010, including the extraordinary gain obtained at the time, net income was R$ 733 million.

The volatility of the dollar - the currency rose from R$ 1.56 per dollar at the end of the second quarter of this year to R$ 1.85 at the close of the third quarter - strongly impacted on the company's debts linked to the U.S. dollar. For comparison the impact to the financial results of TAM of an exchange rate variation of 10 cents is about R$ 400 million to more (if there is appreciation of the real) or less (when the Brazilian currency loses value).

"Despite the impact of exchange rate changes, our operating results in the third quarter were very solid. We recorded a significant increase in operating margin, the result of a consistent retail strategy, the fact that the market remains strong, and our commitment to being even more efficient," says Libano Barroso, TAM Airlines' President.

High Revenue
From July to September, TAM's net income increased by 13.3% to R$ 3.3 billion, compared to the same period last year. The company's gross operating revenue grew 14.8% to R$ 3.5 billion. The total number of paying passengers carried rose by 3.3% in the third quarter to 9.5 million in the quarter.

The growth of gross revenue in the third quarter is a result of the increase of 9.2% in gains in the operation of domestic and international passengers (R$ 2.6 million), of 6.5% with cargo transported (R$ 294.4 million), and a 57% increase from other revenues, including the results of Multiplus (the fidelity program company, subsidiary of TAM S.A.) - when compared to the same period last year. The latter group alone was responsible for generating R$ 580 million in the period, compared to a revenue of R$ 370 million in the same quarter of 2010.

“We are versatile and work in one of the most dynamic markets in the world, which helps to obtain good results, even in face of specific events such as currency fluctuations. Our strategy to become a multi-businesses group connected to aviation was correct. It leads our company to rational and diversified development all in accordance with the best growth opportunities in the sector,” says Marco Antonio Bologna, president of the holding TAM S.A.

International record
Despite the appreciation of the dollar against the real, TAM registered during the period the largest quarterly load factor in its history on international flights, 83.7%. The company’s international load factor, superior to the industry’s rate of 81.4%, is the result of the combination of 10% growth in demand (RPK) and 8.8% in the number of seats (ASK). Overall, TAM carried almost 1.5 million passengers on international flights in the third quarter this year - 7.2% more than the same period of 2010.

In the domestic market, the company reported a quarterly load factor of 67.3%, a result of the combination of 4.2% growth in passenger demand and 8.2% in the number of available seats. In the third quarter of 2011, there were around 7.9 million passengers on TAM's domestic flights, which correspond to a growth of 2.6% compared with the same period last year.

Efficiency and profitability
As a result of the strategy to increase profitability from the best balance between yield and load factor, TAM registered a unit revenue (RASK) of R$ 16.6, 4.2% higher than between July and September this year, compared to the same period in 2010. Even considering the adjusted data (without the recurring gain), TAM's overall RASK was 5.6% above the unit revenue for the third quarter of 2010. For international flights, the company's RASK grew 11.4% on an annual comparison.

The results also confirm the company's forecast regarding yield recovery, in comparison with the second quarter of 2011. In a scenario of the greater rationality of the market, and without harming the load factor on its flights, TAM registered domestic growth, when compared to the second quarter of 2011, of 6.6% in the average price paid per passenger per kilometre flown. In turn, the international yield, in U.S. dollars, grew 8.1% on the same basis of comparison.

Excluding non-recurring gains now and in 2010, the company recorded a 19.2% increase in operating expenses and 10% in unit costs (CASK) in the third quarter of 2011. These are mainly related to the 34% increase in fuel costs.

In comparison with last year, the third quarter of this year recorded a 23% increase in the average price per litre of fuel and 9.3% in volume consumed, in addition to a 5.8% growth in the number of hours flown, although partially offset by the increase of the average stage of 3.6%. Today, TAM's fuel costs account for 37.6% of its operating expenses.

Fleet Review
In August TAM reviewed its fleet plan adopted from 2012, with the aim of increasing the company's profitability and optimizing operations. Thus, the company will end next year with 159 airplanes, and not with the 163 as set in the previous fleet plan.

The company estimates growth in demand for 2012 will be lower than anticipated for this year - between 15% and 18%, according to 2011 guidances - due to the uncertainties regarding the global economy.

To achieve the desired profitability, the company will intensify its efforts to control costs and increase revenue. Among the measures adopted, the narrow body fleet (aircraft with just one corridor) will not be increased by four units next year, as originally planned.

In 2012, TAM will receive 13 new Airbus A320 family aircraft and return 13 currently in operation, renewing the domestic fleet by 10%, while maintaining the low average age of aircraft.

Even with the measures adopted, thanks to efficiency gains already achieved by the high utilization of aircraft, the number of the company’s available seats (ASK) will grow by 4% in 2012 compared to 2011.