Transportes Aereos Meridionais (TAM) of Brazil, which has seen profitability fall at home following a fare war and recession, was to launch its first international flights on 28 December with a daily Sao Paulo-Miami service. "It's much easier to tap a lake with fish than an empty lake," says Rolim Amaro, president of the TAM group.
TAM is hoping that the service, which the company hopes to extend to two daily flights early in 1999, will make up for a drop in profitability of around 25% at home following a price war. Rolim, a former pilot whose once small air taxi service has grown into an airline with 22% of Brazil's domestic market, also fears that a recession caused by government fiscal reforms will further erode domestic profits. But with recent pushes into Latin America by several US majors, including Delta Air Lines and Continental Airlines, TAM is likely to meet with tough international competition.
TAM says internal flights remain full. Sales increased by 35% in 1998 over 1997, but as result of price wars, profits are likely to be smaller than 1997's 31.9 million Real ($38 million) on a net revenues of 530 million Real. The price war, begun when Brazil's Department of Civil Aviation announced partial deregulation at the end of last year, has resulted in discounts of up to 60% on some routes.
Rolim says TAM will continue to market itself as a quality airline with competitive fares on the Miami route, where it will compete with several other Brazilian and US carriers. The airline has expanded dramatically by mainly targeting business travellers and advertising itself as an airline that cares about its customers. Gimmicks to back this up include a red carpet across the tarmac at Sao Paulo's Congonhas airport, string quartets playing in the waiting room and, occasionally, the appearance of Rolim himself at the gate to welcome passengers aboard.
When TAM joined in and appeared to escalate the fare war earlier this year, analysts wondered whether the airline would change its image to a no-frills carrier. But TAM insists the airline is offering the same quality but at lower prices.
TAM intends to continue with its expansion. The airline was due to take delivery of a third Airbus A330-200 in January and planning to start its Sao Paulo-Paris service in April. It will operate a code-share operation with American Airlines on the Miami route and is near to finalising a similar agreement with Air France, says a spokesman.
Source: Airline Business