We are maintaining our Neutral recommendation on
TAM S.A
. (
TAM
)
We are optimistic on the continued increase in the domestic
business travel in Latin America, especially Brazil, which is
currently one of the fastest-growing markets in the air traffic
industry.
Also, TAM's strategy of increasing the number of flights across
high-demand routes continues to augur well for the company. The
company's focus on establishing partnerships and code share
agreements with market leaders aim to avoid overcapacity while
expanding revenue. Moreover, the company's investment to enhance
economy travel coupled with ancillary products and options, such as
easy availability of credit for retail products, and ready
ticketing kiosks, are expected to be a major force behind the
revenue growth.
TAM focuses on continuous fleet development and renovation
program, which are a strategic process to increase flight
efficiency. Such renewal measures and tactical investments keep
company costs strictly under control. Similarly, superior load
factors have strengthened the company's positions compared to its
peers, such as
AMR Corporation
(
AAMRQ
) and
GOL Linhas A
(
GOL
).
Despite the company's efforts to expand its business segments
beyond domestic borders, the company has witnessed a fall in
customer demand in the international market based on sluggish GDP
worldwide. Moreover, the company is exposed to foreign currency
risk along with the perils of changes in interest rates; aircraft
lease payments and aircraft insurance, which may negatively affect
cash flow.
The insufficient airport capacity and inadequate air-traffic
control systems remain a concern as these may cause operating
disruptions and increase expenses for airline companies, including
TAM. Moreover, rising aviation fuel prices may hurt margins
in the coming quarters.
TAM S.A., operating through its subsidiaries TAM Linhas Aéreas
and TAM Mercosur, is a renowned air transportation services
provider, both in the domestic and international markets. The
company holds a Zacks #3 Rank, which translates into a short-term
(1-3 months) 'Hold' rating.
AMR CORP (AAMRQ): Free Stock Analysis Report
GOL LINHAS-ADR (GOL): Free Stock Analysis
Report
TAM SA-ADR (TAM): Free Stock Analysis Report
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