Bloomberg News

Tam First-Quarter Profit Falls on Weak Demand, Lower Yield

May 11, 2012

Tam SA (TAMM4), Brazil’s biggest airline by market share, posted a 22 percent drop in first-quarter net income, as domestic demand remained low, profitability fell and fuel costs increased.

Tam net income fell to 100.9 million reais ($51.3 million) in the first quarter from 128.8 million reais a year earlier, according to a regulatory filing. Earnings before interest, taxes, depreciation, amortization and rent costs, or Ebitdar, fell 22 percent to 298.2 million reais from a year earlier. The Ebitdar margin fell 3.3 percentage points to 9.2 percent.

“We anticipate weak results,” Banco Santander Brasil SA analysts Alexandre Amson and Bruno Amorim wrote in an Apr. 27 note to clients. “Weak domestic demand and an unfavorable macro scenario drove this poor performance,” wrote the analysts, who have a buy recommendation to Tam.

Demand measured by revenue per passenger per kilometer rose 1.7 percent in the quarter, while yield, or the profitability per passenger per kilometer, fell 0.8 percent and occupancy declined 2.3 percentage points to 68.1 percent. Fuel costs rose 19.8 percent, to 1.27 billion reais.

Tam cut its 2012 guidance for demand increase to “ensure profitability,” according to the statement. The airline now expects seat availability to remain stable or fall as much as 2 percent this year and domestic demand to grow between 7 percent and 9 percent.

Tam’s first-quarter report comes a day after Lan Airlines SA (LAN) began its share swap offer that will run through June 11 in Brazil and the U.S. The transaction will result in a combined company with market value of about $13 billion, making it the world’s biggest airline by market value, overtaking Air China Ltd. and Singapore Airlines Ltd. After the completion of the share swap, if the agreement requirements are met, Tam will be delisted, what could make today’s Tam’s last earnings report.

Tam shares rose 29 percent to 46.05 reais this year. Competitor Gol Linhas Aereas Inteligentes SA (GOLL4) fell 17 percent in the same period, while Brazil’s benchmark Bovespa index rose 4.7 percent.

To contact the reporter on this story: Jose Sergio Osse in Sao Paulo at;

To contact the editor responsible for this story: Helder Marinho at

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