BRIAN HOMEWOOD RIO DE JANEIRO TAM has grown out of its regional status to become Brazil's second biggest airline. Its chief executive wants greater competition, although not an open skies deal with the USA.

Every weekday morning between 06.00 and 07.00, TAM president Rolim Amaro can be found on the tarmac at São Paulo's Congonhas Airport, where he personally greets his airline's passengers and wishes them a pleasant flight. It is a simple gesture, but one that has helped the charismatic Amaro turn the former air taxi company into Brazil's second biggest airline.

Only five years ago, TAM was classified by Brazil's military-controlled civil aviation authority (DAC) as a regional. It was barred from access to the international airports of Rio de Janeiro and São Paulo and was not permitted to fly non-stop between any state capitals, except on a couple of select routes.

Today, Amaro says TAM has a 23-24% share of the domestic market, placing it in front of arch-rival VASP, and with only traditionally dominant Varig left ahead of it. The company flies to Paris and Miami with new Airbus A330-200s bearing the slogan the "Magic Red Carpet", while Amaro has snapped up Paraguay's ailing national airline, turning it into a sister company and ending 39 years of losses.

Amaro, or Captain Rolim as he is generally known in Brazil, is determined not to let this spectacular progress be halted by the economic crisis that hit the country in January last year with the collapse of its currency, the Real.

The company is pressing ahead with its order for 43 Airbus aircraft, despite the rising costs and falling demand that accompanied the recession. The order, for 38 A319s and A320s and five A330-200s, was made only two months before the crisis struck. "I only buy when the others want to sell and I only sell when the others want to buy," says Amaro, explaining his decision to go ahead with the purchase.

The A319s and A320s will be used on TAM's domestic routes, where they will substitute for or complement 47 Fokker 100s and five Fokker 50s, depending on where the economy and the Brazilian aviation sector heads.

Amaro says changes in Brazil's aviation industry are as important, if not more so, as the country's economy itself. In particular, he wants the government to relax its controls over the industry - which remain stiff, despite being loosened at the start of 1998. This, he says, is the effective way to help Brazilian airlines survive, not mergers between companies, which has been suggested by VASP president Wagner Canhedo. Amaro dismisses that idea as "confusion".

Merger rumours

Widespread rumours about possible mergers in Brazil have variously speculated that Amaro could jump into bed with Transbrasil or Varig, or form a holding company with both plus VASP. Amaro says: "I think we are putting the cart in front of the oxen. All this is a consequence of us failing to examine the causes of the crisis in depth, emphasising its effects." Less government interference would be far more helpful than any merger, he argues.

"The government controls routes, timetables, fares, frequencies and equipment," says Amaro. In other words, TAM has to go to the DAC every time it wants to change any item on the list. "With so much state control, there is no competition. What we have instead is a franchise. What we are interested in is freedom. We know that this is the only chance for the Brazilian market," he says.

One of his biggest gripes is the government's control over air fares. The DAC brought in a partial relaxation in 1998, when it let airlines offer discounts of up to 65%, but Amaro says this was not enough. He wants all controls removed, especially the fares ceiling.

"At the moment, we cannot have any yield management," he says. "All I want is to be able to charge higher fares for those who travel at peak hours, as they are usually companies that can afford to pay, and lower fares at off-peak hours for leisure travellers. The government says it will not allow higher fares, to protect passengers, but in fact it is the passengers who are losing out."

Equally important, says Amaro, is to reduce "the Brazil cost". In other words, the local peculiarities which make Brazil one of the world's most expensive countries in which to operate.

A report compiled this year by the National Airlines' Association illustrates some of the burdens that are placed on TAM and its rivals, he says. The report calculates that Brazilian airlines pay more for fuel, aircraft insurance, employee welfare, landing fees and aircraft than their US or European counterparts. Amaro complains , for instance, that fuel taxes can reach 33%, so that a gallon in Brazil costs more than 1 Real (60ó), compared to only 40ó in the USA.

Another sore point is that Brazilian airlines pay 90% of each employee's salary again in taxes, compared to 47% in the USA. As for spare parts, the report says that, in addition to being heavily taxed, they can take up to six weeks to get through customs, due to "administrative bureaucracy, a shortage of personnel with the appropriate technical knowledge, plus frequent go-slows and strikes.

Due to these constant problems, Brazilian airlines are forced to invest in stocks, causing an unnecessary immobilisation of capital, which, over the years, has reached a total of $700 million."

Brazil's tax burden

Amaro says he has contacted Brazilian Congressmen and moves are afoot to introduce legislation that will remove some of these taxes. But he is not holding his breath. "It's a medium-term project, but at least the government is sensitive," he says.

The other bee in Amaro's bonnet concerns pressure by the USA for an open skies policy. US transport secretary Rodney Slater recently visited Brazil to urge the government to follow in the footsteps of Chile. Angry at the idea, Amaro accuses the USA of wanting Brazil to allow cabotage.

"There is no country in the world which does this," he says."There is nothing more restrictive to foreign companies than the American domestic market," he adds, citing the examples of British Airways and KLM, which were prohibited by the US Department of Transportation from buying sizeable stakes in US Airways and Northwest, respectively.

"The problem is that the US companies have become too big. In one afternoon at Chicago, United Airlines lands more aircraft than we have in the entire Brazilian fleet. American Airlines has more than 600 aircraft: the whole Brazilian fleet totals 220. The Americans want competition but only in other people's homes." Amaro would like the four Mercosur countries - Argentina, Brazil, Paraguay and Uruguay - to negotiate air accords as one, rather than as individual countries.

His anti-US rhetoric has not prevented Amaro from getting into bed with American, with which TAM has a codesharing agreement, as well as co-operation in loyalty schemes. The airline has a similar agreement with Air France, but Amaro will soon have to choose his partner because of their alliance conflicts.

"My heart is fluctuating between the two. I will decide by the end of next year," he says.

Although TAM now flies to France and the USA, it basically remains a domestic company. It started in February 1961 as TAM-Táxi Aéreo Marília in the provincial town of Marília, near São Paulo. Amaro was one of the original pilots and acquired a small share in 1971 when he became an executive.

TAM grew into a regional airline, starting a Fokker 27 service in 1980 and, 10 years later, introducing the Fokker 100. In between, it bought regional airline VOTEC and renamed it Brasil Central. The most drastic changes were to come in the 1990s, earning Amaro the reputation of being a leading marketing man in the country.

The former pilot captured the public's imagination with flamboyant marketing at a time when Varig, VASP and Transbrasil, the only airlines allowed to fly national routes, appeared to be relaxing. His innovations included the famous red carpet, over which passengers walked from the terminal to their aircraft, live music in the waiting room, champagne on boarding the aircraft and Amaro's habit of personally welcoming passengers on to early flights. Passengers were encouraged to air their views through the "Speak to the President" programme, which today receives an average of 8,000 telephone calls, faxes, e-mails and letters a month.

In 1993, TAM became the first Brazilian airline to introduce a frequent flier programme. "Fidelity", as it is known, has 700,000 users and claims to be the simplest and most generous programme in the country. For every 10 domestic return flights, a passenger earns a free return flight within Brazil.

"Our programme is for the passenger who wants to earn journeys instead of miles," he says, in a barb aimed at rival Varig.

Successful shuttle

TAM's policies were especially successful on the São Paulo-Rio de Janeiro air shuttle, where the airline broke the Varig-VASP-Transbrasil stronghold. On other routes, TAM craftily bypassed the rule banning it from flying non-stop between state capitals by introducing quick turnaround stops in nearby provincial towns. TAM honed these to a fine art, its aircraft often spending no more than 10min on the ground.

The airline kept growing and, in 1996, the DAC upgraded it to a "national" carrier, able to fly non-stop between state capitals. The company was renamed TAM Transportes Aéreos Meridionais and its aircraft were painted in the same livery as those of the original TAM.

In the same year, Amaro purchased ailing Paraguayan flag carrier LAPSA and renamed it TAM - Transportes Aéreos de Mercosur. Amaro's intentions were for the airline to grow, but he says TAM Mercosur will stay as it is, with three Fokker 100s serving the cities of Buenos Aires, Iquique (Chile), Montevideo, Santiago and São Paulo from Asunción.

"The problem is the country," says Amaro. "It's a pity. We have put an end to 39 years of losses, but, at the moment, it is not appropriate for us to invest any further because of the unstable economic and political conditions, particularly political. The tendency is to get better because it can't get any worse."

Domestic network

In Brazil, Amaro says he will concentrate on strengthening TAM's domestic network. At its heart is the "Super Shuttle" of high-frequency flights between Rio de Janeiro, São Paulo, Curitiba, Belo Horizonte and Brasilia. "For us to survive, we have to be the great competitor of Varig internally," he says.

Amaro will not expand TAM's international network at least until the end of next year. He says the routes are a lifeline for the company's loyalty programme and is furious at a suggestion by Varig president Fernando Pinto that TAM, Transbrasil and VASP should stop competing among themselves on international routes and that Varig should regain its old monopoly. "Such thinking is still in the last century," says Amaro. "A private monopoly is even worse than a public monopoly."

Amaro says that his own company's financial situation remains healthy, pointing out that the 900 million Real ($500 million) debts are due exclusively to investments in the fleet renewal. "Our net assets are positive and, in 1999, we grew 40% in terms of the number of passengers transported," he says.

Amaro is convinced that, out of four airlines operating in Brazil, only two or three will survive the current turbulence.

At the start of 1998, Brazilian carriers embarked on a fare-slashing war, which saw passenger numbers rise and revenue drop at the same time. TAM took an active part by instigating fare cuts on the normally profitable Rio de Janeiro-São Paulo shuttle. Although this led to a 58% increase in the number of passengers carried compared to 1997, the lower revenues resulted in a relatively disappointing consolidated operating profit last year of 24.86 million Real.

TAM also suffered from the country's economic crisis, which, following the devaluation in January last year, sent more shock waves through aviation. It recorded an operating loss of 105 million Real for the first quarter, although officials are quick to point out that the company turned down an offer from the local Securities and Exchange Commission to defer the losses caused by the currency devaluation.

Amaro says that TAM has got over that shock and is so confident for the future that it has boosted its domestic fleet with six more Fokker 100s this year.

"For all these reasons, we are fighting for the inauguration of a truly free, competitive and healthy market for Brazilian commercial aviation," he says. "Brazil deserves it."


Base: São Paulo Operations Started: 1976 Employees: 4,500 Fleet: 64 Main Types: Airbus A319, A320, A330, Fokker 100

Understanding the TAM group

Three airlines and an air taxi company share the acronym TAM and its colours. The original TAM is Táxi Aéreo Maríllia, set up in 1961. Today, this company owns 71.98% of the total capital in TAM - CIT Companhia de Investimentos em Transporte, the holding company made up of four airlines:

TAM - Transportes Aéreos Regionais

Founded in 1976. Operates most of the company's domestic flights in Brazil, principally those departing from São Paulo's short-haul airport, Congonhas.

TAM - Transportes Aéreos Meridionais.

Launched December 1996. Formerly Brasil Central and, before that, VOTEC. Operates non-stop long distance domestic routes from São Paulo's Guarulhos Airport, as well as international flights to Paris and Miami.

TAM Express

Purchased 1996. Formerly Helisul Linhas Aéreas. Curitiba-based, it feeds traffic to the bigger TAMs.

Interexpress Transportes Aéreos Regionais

Purchased in September 1998 Formerly Itapemirim Transportes Aéreos Regionais. Transports freight.

Outside the TAM holding

TAM Transportes Aéreos de Mercosur and ARPA, a domestic Paraguayan airline.

Source: Airline Business