TAM S.A. (TAM)
Q2 2008 Earnings Call Transcript
August 14, 2008 10:30 a.m. ET

Executives

David Barioni Neto – Chief Executive Officer
Libano Barroso – Chief Financial Officer

Analysts

Duane Pfennigwerth - Raymond James
Nick Sebrell - Morgan Stanley
Michael Linenberg - Merrill Lynch
Steve Trent – Citigroup
Keith Wiseman - Calyon Securities
Erin Carp - Air Transport World Magazine
Jim

Presentation

Operator

Good morning ladies and gentlemen and thank you for waiting. At this time we would like to welcome everyone to TAM''s second quarter 2008 earnings conference call. We would like to inform you that this call and the slides are being broadcast on the Internet at the Company''s Investor Relations website, www.tam.com/ir, and that the presentation is available to download at the Presentations and Conference Call section. Also, this event is being recorded and our participants will be in a listen-only mode during the Company’s presentation. After the Company’s remarks are completed there will be a question-and-answer session. At that time further instructions will be given. Should any participant need assistance during the call, please dial “*0” to reach the operator.

Before proceeding let me mention that forward-looking statements are based on the beliefs and assumptions of TAM''s management and on information currently available to the Company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of TAM and could cause results to differ materially from those expressed in such forward-looking statements.

Now I''ll turn the conference over to Mr. David Barioni Neto, CEO. Mr. Barioni, you may begin your conference.

David Barioni Neto – Chief Executive Officer

Good morning. We would like to thank you all for your presence. Let''s begin the presentation of the second quarter 2008 results. Let''s turn to slide number three.

The domestic aviation market in Brazil has great growth potential, presenting double-digit growth in the past several years. In 2008, we have seen another growth spurt of 10% accumulated from January to July.

On slide number four, the international market among Brazilian carriers that fly international routes decreased 5% in 2007 but has been recovering after the second half of the year. In 2008, the average growth is 38%, mainly due to TAM''s international network''s strong will, the strength in the international market in 2006 and 2007 from the Brazilian side and balanced ratio compared to the international carriers that used to transport 58% of the passengers and now transport 70%. This new reality creates additional opportunity for Brazilian carriers in this market.

On slide number six, we can observe the sales of the bilateral agreement with the countries to which we operate regular flights. In all cases, there is growth opportunity for TAM. The United States is the most evident case in which from 126 weekly frequencies for each flight, 105 are operated by foreign carriers. And we, the only Brazilian companies flying on whole are operating 35 weekly frequencies. Remember that as of September 19, this number will increase to 42 because we will launch the new basic frequency between Rio de Janeiro and Miami.

On slide number seven, we are both domestic and international market leaders. According to ANAC''s figures released this week, our average market share for July is 51% in the domestic and 72.5% in the international.

The highlights of the second quarter of 2008 were the increase of three A320 and the re-delivery of four Fokker 100s, following our phase-out plan of the 100 fleet aircraft, standardization of our fleet at TAM Airlines, former no. of TAM Mercosur, which now operates solely aircraft above A320.

Regarding operational efficiency, our daily block hours per aircraft reached 12.7 hours in the second quarter of 2008. Considering only the operating fleet, excluding spares and aircraft maintenance, we posted a daily utilization of 13.6 hours per aircraft. Our total average load factor for the quarter was 70%.

In the seven first months of the year, we had the highest domestic owned-wallet index in the market, achieving 85% while the market average was 81%. We signed memorandums of understanding with Air Canada and Swiss Air to implement code share agreements with both companies.

On slide number nine, we renewed our SOX international certification. We continue strengthening our international network with the authorization to fly to Lima, Peru and several new flights to Buenos Aires from Brazilian capital, including Brasilia, our capital.