TAM’s European Expansion

TAM already has the lion's share of the domestic market and across the international network, serving five European destinations from its major Brazilian hub in Sao Paulo (GRU). It has a seven-times weekly schedule to Frankfurt, London Heathrow, Madrid and Milan Malpensa and a 14-times weekly frequency to Paris Charles de Gaulle.

TAM takes the leading position in Brazil on the basis of seat capacity, in a market that is relatively small given the size of Brazil as a country. To put this into perspective, consolidating the entire Brazilian airline business would put capacity levels on a par with one US major carrier.

The table below illustrates the leading carriers in the Brazilian market for both domestic and international scheduled services.

Source: Flightbase, June 14-20, 2010

Why Extend Services to London and Frankfurt?

The Star Alliance perspective

In addition to its existing daily service from Rio de Janeiro to Paris CDG, TAM's new service (from Rio) into London Heathrow will compete head-on with British Airways' three-times weekly schedule. Over 96,000 O&D passengers flew between Rio de Janeiro (GIG) and London Heathrow from January 2009-2010, with BA taking a 36% market share (IATA BSP data (Airport IS). This data also shows that Iberia carried 17% of this traffic via Madrid, which TAM will hope to capture on its non-stop service.

Its existing service into Frankfurt has seen fewer passengers flying the route. IATA BSP data shows that there were 21,000 O&D passengers during the same time period (January 2009 -2010), however given TAM's accession into Star Alliance, Frankfurt airport can offer strong connectivity (as a hub for the Star Alliance partners).

Currently only two Star Alliance carriers serve Brazil: Lufthansa and TAP Portugal, with the German carrier being able to offer a significantly larger European network than its Portugal counterpart.

TAM's integration into Star Alliance will also involve reviving relationships that Varig left behind at London Heathrow and Frankfurt, but it will also be able to capture traffic from some of the largest markets in Europe that are unserved by a Brazilian airline.

Until now, Air France and Lufthansa have been able to fly without any Brazilian competition - Lufthansa does not even had to split codeshare revenues on the route with the incumbent Brazilian airline until TAM joins Star Alliance.

New Expansion Possibilities From Rio

The table below shows the top five unserved routes from Rio de Janeiro:

Source: IATA BSP (Airport IS)

TAM has been able to extend international routes from Rio to markets where it already has a presence and therefore has not incurred the costs associated with launching a new destination. Plus, by joining Star its passengers will gain access to many new international destinations through its alliance partners. It would seem logical that if TAM looks to add new international markets from Rio de Janeiro in 2011, it may well serve one of the top unserved markets, such as Orlando, which is only served from Sao Paulo on a weekly basis using A330 aircraft. While Orlando seems a natural destination from Rio, European points such as Rome or Amsterdam (as highlighted in the table) are less likely to be served as they are not Star Alliance hubs.

Within Europe, Milan could be an option. Although not a Star Alliance port, IATA BSP data shows a strong O&D market with over 27,000 passengers between Rio and Milan between January 2009 and 2010 and the carrier currently serves the market from Sao Paulo.