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TAM Airlines registered a net profit of R$ 60.3 million in the second quarter of 2011 and turned around losses of R$ 174.8 million for the same period in 2010. The operational profit (EBIT) was R$ 15.6 million with a 0.5% margin, compared to the R$ 1.4 million EBIT and 0.1% margin recorded for the second quarter of last year. The gross operational revenue grew 16.5% to R$ 3.2 billion year-on-year, where R$ 2.3 billion corresponded to the income with passengers increasing by 8.2%.
The highlight of the 18.2% expansion is the R$ 865.4 million invoiced from its passengers on international flights. TAM also registered growth of 5.1 percentage points in load factor, reaching 81.4% in the quarter. In June, TAM registered its record international load factors for that month of 79.6%. In domestic operations the R$ 1.5 billion invoiced was 3.1% higher in the quarter in respect to the same period in 2010. The number reflects a growth of 8 percentage points for a domestic load factor of 69.2%.
There was a daily average of 911 flights in the second quarter, which is 13% higher than the same three months of 2010. TAM transported 9.6 million paying passengers over the period, an increase of 24.7% on annual comparison. The airline recorded 73.9% load factors in both the domestic and international markets, which is 6.8 percentage points higher than that recorded in the second quarter of last year. Such growth is significant for this time of the year, as April, May and June have historically seen lower demand.
The growth in load factors and the number of paying passengers transported offset the 7.8% reduction on the general yield (the average price paid by passengers per flown kilometer) in the second quarter. The yield in international operations in reais decreased 2.4% but grew 9.6% in US dollars. The reduction was 21% in the domestic market. Such reductions reflect the success of the company’s retail campaign, which was launched in August 2010 and tries to persuade price-sensitive passengers to fly outside the peak hours. The results show an increase in load factors between April and June on flights from 10:00 am to 4:00 pm and from 9:00 pm to 7:00 am. In the second quarter last year, the average load factor decreased 7 percentage points in off-peak hours. In the same period of this year, the decrease was only 4 percentage points. Moreover, the first semester had several promotional offers.
It should also be highlighted that the second quarter of 2011 saw strong growth of 92.4% from other operational revenues of R$ 540.9 million. The growth mainly came from the 285% increase in revenue of R$ 265.9 million from Multiplus Fidelidade.
“The aditional revenue reflects the success of TAM’s strategy to diversify its business. Our goal is to build a multiple business group related to aviation in order to diversify our income stream,” explains Marco Antonio Bologna, president of TAM S.A.
Operational expenses increased 16.4% in the second quarter, mostly due to fuel costs which increased 28.1% as a result of the increase in the price of the WTI (West Texas Intermediate) oil barrel price, the higher average price paid per liter, the increase in load factor, and the flown aircraft hours. Such increases were partially offset by taxes credits of R$ 143 million.
For the next 12 months, TAM has hedged 30% of its estimated fuel consumption, at an average strike of US$ 94 per barrel. The hedge percentage is 18% between July 2012 and June 2013, on the forecasted consumption and an average cost of US$ 99 per barrel. The protection is adjusted to the economic scenario and the company’s consumption, according to the long-term policy set out by the company.
Excluding fuel expenses, TAM saw a 3.5% reduction in its costs for the available seat per kilometer (CASK).
“We are maintaining the growth estimates for 2011, thanks to our efforts to reduce the fixed costs and the continuous improvement of the company’s performance. The results from the second quarter show that besides the challenges we have ahead, TAM is on the right path to continue to offer a high quality service, at competitive prices, and easy access to air travel,” adds Libano Barroso, president of TAM Airlines.
The company took delivery of two Airbus A330, one A321 and one A319 between April and June. The fleet numbers are expected to reach 156 aircraft by the end of the year, increasing the seats on offer as forecast, and maintaining the service quality according to TAM’s policy for operating modern aircraft. Last June the company ended the operations that used the ATR-42.
According to estimates for 2011, TAM will maintain the growth expectancy on seat offer of between 10% and 13%, and load factor rates of between 73% and 75%.
“In line with the plan that we announced at the end of last year, our offer will increase below demand. However, the balance will be maintained between the market’s needs and business sustainability”, Barroso analyzes.
With five new international frequencies announced up until now, TAM surpased the estimate of two new international destinations or frequencies in the year. TAM is currently getting ready to launch a new service between Sao Paulo and Mexico City in the second semester.
“Last month, we celebrated the 35th anniversary of the founding of TAM. In the period, the regional company has become a global company, flying to 45 destinations in Brazil and 18 internationally. It is also a member of Star Alliance,” Marco Antonio Bologna highlighted.
According to Bologna, the company remains committed to the creation of LATAM, the result of the merger of LAN and TAM. The agreement depends on the approval by the relevant country authorities where the companies do business, as well as the minority stockholders. The non-binding memorandum of understanding was signed one year ago. In January 2011, the definitive binding agreement was signed to formalize the merger intent with LAN, that should result in one of the ten largest airline groups in the world.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
