Turning An Air Taxi Into A Limousine

For TAM, coddling its business passengers is paying off big

TAM airline's boarding area in Sao Paulo's municipal airport could be mistaken for the lobby of a five-star hotel. A tuxedo-clad pianist plays classical music while bleary-eyed business travelers, awaiting the 7:13 a.m. flight to Brasilia, load up on free coffee and cookies. A red carpet leads to the waiting Fokker F-100. For such amenities, and the convenience of being able to return that same evening to the centrally located airport, passengers pay at least 10% more than on rival airlines. "Our whole rationale is based on the business traveler," says Rolim Amaro, TAM's founder and CEO.

Amaro's emphasis on service has shaken up what had been a complacent Brazilian airline industry. And there are more fireworks to come. The gregarious Amaro, a former Amazon bush pilot and air-taxi operator, is now setting a fast pace on a regional basis as local and international carriers scramble to join forces. A reservation code-sharing agreement between TAM and American Airlines Inc. takes effect in February. With 10 Airbus A330-200s that it is buying, TAM plans to start flights to Miami late this year and to Europe, probably Paris, in 1999. It is already flying to seven South American cities through its 1996 purchase of the controlling stake in a Paraguayan airline.

TAM has the financial clout for such new ventures because it has been the most consistent moneymaker among Brazilian airlines over the past four years. Profits soared from $4 million in 1993 to an estimated $40 million last year on sales of $650 million. Despite two fatal accidents, the number of passengers flying TAM rose to 5 million, up 20% over 1996. But stepped-up efforts by other Brazilian carriers to woo business travelers have forced TAM to back down from its policy of not offering discount fares. The rising competition and expansion costs dropped TAM's profit margin from 12% in 1996 to 6% last year. Still, there's room for more growth. Between secondary cities such as Rosario, Argentina, and Curitiba, Brazil, the potential is "tremendous," says consultant Robert C. Booth of Miami-based Aviation Management Services. "And no one is better positioned than TAM."

Amaro, now 55, started the airline as an air-taxi company in 1968 with backing from two Brazilian agricultural tycoons. He's still known to TAM's 3,000 employees as Comandante Rolim, a nickname from the Portuguese term for chief pilot. He bought out his partners when he made TAM a commercial airline in 1976, and today he owns 96% of its voting shares. Flying business executives to the interior of Sao Paulo state taught Amaro how to serve travelers' needs and deal with the public. "Because it was often a businessman traveling alone to resolve a problem, I would accompany him the whole day," says Amaro. "You learn the importance of human contact."

LOYALTY FACTOR. That understanding helped Amaro retain public confidence after the October, 1996, crash of a TAM Fokker F-100 in Sao Paulo, which killed 99 people. Brazilian air force investigators blamed mechanical and electrical problems and pilot error. Last July, an explosion aboard another Fokker jet hurled a passenger to his death. But Amaro won praise for meeting with victims' families quickly after the first accident and making himself accessible to the media. A year after the crash, TAM's monthly passenger traffic had increased by nearly 75%.

Such customer loyalty is crucial, because competitors are working hard to narrow TAM's 50% market share on Brazilian regional routes. Rivals are also forming international alliances with U.S. carriers United, Delta, and Continental to compete for lucrative U.S.-Latin American traffic.

Looking ahead, Amaro aims to broaden TAM's shareholder base. Four U.S. pension funds hold 25% of nonvoting shares, and 6% of TAM's stock is publicly traded in Brazil. Amaro aims to increase that and hopes to list TAM on the New York Stock Exchange within three years. Whether TAM can become a global airline remains to be seen. But in the hot South American market, it is already flying ahead of the pack.

Before it's here, it's on the Bloomberg Terminal.