Corporate Governance & Sustainability Annual Reports
TAP will have as its focus Airport Transport service and similar activities, constantly aiming for return for its investors and leadership in the niche market in which it operates.
Interview with Fernando Pinto, Chairman of the Executive Board of Directors
TAP obtained its best result ever in 2010, having broken the record for number of passengers transported – more than 9 million – and also achieved an occupancy rate of flights of 74.5%, 6% more than in the previous year. Is this assessment quite positive?
These figures point towards a correct stratagem of TAP in terms of the maintenance of a growth strategy, in a year in which the European economies were slowing down and Portugal was showing signs of some weakness. Nevertheless, we focused on new destinations (Marrakesh and Algiers) and increased the offer on some routes, in line with a policy of continuity always within a growth perspective. Any way, we always sought to grow cautiously, so as to achieve a better use of the seats on offer, also competing better on price, to deal with an increasingly difficult market. The strategy proved to be correct, which is demonstrated by these good results. I would like to mention that the activity in 2010 was positive not only in terms of TAP, S.A., the majority of Group companies contributed positively. I must emphasise that, with these results, TAP, S.A. returned to a positive net income position and that is very important, and so much more so in a year in which it is preparing for a privatisation process.
The occupancy rate of 74.5% is already in line with the average of AEA airlines. Is there room for further improvement?
We are already very close to the limit that the Portuguese market and the Lisbon hub allow to be achieved. Other companies in Europe manage to achieve occupancy rates close to 80 percent, but are present in markets of a different size, with similar occupancy rates for both outward and return journeys. Ours are not that balanced, there is that difference. Some improvement is possible, although not as much as we would like. We maintain the idea that this year it will be possible to continue to grow without increasing the fleet, rather through its better use and a better use of space.
Fuel costs were responsible for an invoice of 523 million euros, 45% more than in 2009. Nonetheless, the results were quite frankly better …
Precisely because we managed to achieve a better use of the seats on offer. We had the possibility of, with the same offer, have a higher quantity of passengers on our planes, and that also enabled us to have a more diluted fuel consumption per passenger. We also invested in the substitution of old aircraft for new, more efficient ones. The six new A320 brought about an efficiency gain of eight percent and we maintained our Fuel Conservation programme, which has brought us excellent results and has been fundamental. On the whole, in spite of the increase in the fuel invoice, we have registered efficiency gains, through a better planning of routes and of our offer.
Other factors contributed to 2010 almost being a “black year”, such as the cloud of volcanic ashes that led to the greatest commercial aviation blockade in Europe since World War II. How did TAP deal with and manage to overcome this factor?
It was extremely stressful. At the start of the problem, the cloud had no direct influence on the air space of Portugal, only Central Europe. But since the majority of our traffic is connection traffic, our flights were not fed and could also not distribute our passengers that came from long-haul flights to final destinations. In a second “wave”, the cloud was already over Portugal and we suffered greater losses and added difficulties. That whole situation caused enormous losses, almost one thousand flights were cancelled, but we managed very well the communication and relations with our passengers. We resorted to modern and current channels, used Facebook and other social networks to talk to customers. It was a worrying time, in which air transport companies lost hundreds of millions of euros, but I would say that at TAP we handled things quite well in terms of customer relations. I recall that, in 2010, there were also other disruptions to operations, such as strikes of Spanish and French air traffic controllers, snow storms in Europe and then in the United States … In spite of all that, TAP managed to overcome all of these setbacks. These situations led to huge losses but, thanks to the good image we were able to ensure, we managed to recover.
As you mentioned, TAP managed to find new channels to communicate with customers. In situations such as that of the volcano, there is always a rupture in traditional channels. What is your opinion on this process and what was your involvement?
It all took place very quickly. Facebook initially emerged as a promotional channel, but we conquered many “fans” quickly and initiated with them a very swift and effective communication process. At present, we have more than 140 thousand fans on Facebook, the communication is very different, within the Company a new process has been set up to enable a quick response to any request, it is a process that has brought greater agility to the Company and greater proximity to customers. TAP, even at an international level, was a pioneer in the use of the social networks, it is something extremely important for us, we are a younger Company.
Within the scope of new technologies, I must also point out that, in 2010, TAP suffered a major transformation process with the adoption of a new system of reservations with many new features, which uses a common platform with STAR Alliance, thus boosting sales and enhancing its ease-of-use.
Condé Nast Traveler distinguished TAP as the best airline company in the world in 2010 and the World Travel Award for the “Best Airline Company in the World for South America” was awarded again to TAP. Do these awards still mean anything?
They’re very important, that is what we pursue all the time, having satisfied customers that choose TAP as their favourite airline. The customers also end up being partners of the Company and we need to go even further, we need to be among the best companies in the world in service quality, to stand out. Only that way can we continue to have an important participation in an increasingly competitive market.
Now turning to TAP Group, Maintenance and Engineering Brazil (TAP M&E Brazil) has not yet achieved, in 2010, the desired equilibrium, in spite of some positive data, such as the obtainment of the qualification of the Authorised Services Centre from Embraer. Is there something still amiss with TAP M&E Brazil?
We have always pointed out that TAP M&E Brazil is a long-term strategic investment and we have always been very careful about the expected results. 2010 was a year of many changes for the company, it was not only the important recognition by Embraer, but an entire adaptation process, with emphasis on the adoption of a series of standard procedures followed by TAP M&E Portugal and a whole revolution in structural terms. We continued with the cost reduction programme and worked intensively in terms of guaranteeing the quality of the services provided, seeking to thus consolidate a solid customer base, so that customers will stay with the company for many years. That was the main investment, which has been made and will continue, and that will make the company viable. I have no doubts that the results of 2011 will be much better and in 2012 even better, it is a process of growth and maturity, the company is getting better and better. The result does not show it yet, it also registers extraordinary losses, but it will reach an operational equilibrium. Today, we are already very proud of the quality of the service that the company provides, in the fulfilment of deadlines, customer satisfaction … It is an enormous investment and we can never forget that the main reason for it to be done has to do with our growth limitations here in Lisbon. Without TAP M&E Brazil, we would be rejecting new customers. Today, we bring customers of greater added value to TAP Portugal, with higher margins, and we take some TAP services to Brazil, due to the advantages in terms of cost. We can boost those synergies even better.
And what about Groundforce?
Groundforce has improved immensely, initially in the quality of the service provided and in the baggage area, in which TAP has finally achieved the European average in terms of general network (in the competition between hubs, we are above average). In terms of punctuality, TAP is today better than the European average. We are on the right track. In terms of efficiency and costs, 2010 brought better operating results. The closure of the Faro stopover, which took place at the end of the year, was only reflected entirely in terms of costs in 2010. The balance that that measure brings to the company’s accounts shall only take effect in 2011. We have prepared the sales process of Groundforce, which we are obliged to do, and the factors that I have mentioned add value to the company as a whole.
What is your opinion of the market in 2010?
There was stability in the Portuguese market. The competition is increasingly more aggressive, but that is good and forces us to improve, provided there are clear and transparent rules, which is not always the case.
You said recently that TAP was at the right moment to be privatised. Was the year 2010 decisive for that?
If you analyse things from an historical perspective, the Company has been improving at every level, the Lisbon stopover has become a reality and has shown itself to be extremely competitive, serving Europe, South America and Africa. TAP occupies an extremely important position in the South Atlantic and Africa. We are the largest transporter from Europe to Brazil and also very important for Africa. That makes our positioning in terms of Europe highly strategic. Whoever wants to ally themselves with TAP will be doing so with one of the most important market players in these enormous “niches”. It is also important to point out that TAP is well organised and is already one of the most efficient companies in Europe, in accordance with several indicators. TAP is one of the four most efficient network companies in Europe. All of that makes TAP very desirable.
What message would you like to leave the various stakeholders?
Our customers are our reason for existence and are already more than 9 million. I would like to thank them for the preference and confidence placed in us. We have worked very hard to continue to improve the quality of the service and I have to thank the employees for their dedication and permanent quest for perfectionism. Finally, the entire Company has sought to add value to the shareholder, to whom I wish to express my thanks for all the support they have provided. And a special thanks to the General and Supervisory Board of TAP, in the person of its Chairman, Professor Pinto Barbosa, who has contributed and helped us a lot to improve.