TAM S.A. (TAM) has recently signed a reciprocal frequent flyer program agreement with Continental Airlines (CAL), member of Star Alliance.
Based on the agreement, the members of the TAM Fidelidade program will have the right to earn and redeem miles on flights operated by Continental Airlines and vice-versa.
In order to become one of the members of Star Alliance, Tam continuously kept giving effort to get associated with other members by expanding its international operations.
During 2009, the company entered into a codeshare and integration agreement with British Airline BMI and Swiss Airline and a regional agreement with Uruguay Airline Pluna. Tam partnered with Air Canada and Austrian for loyalty programs and later in the year formed a codeshare agreement with Air China. All the above airlines were members of Star Alliance.
Becoming a member of Star Alliance can help increase passenger traffic as the company will get allied to various airlines in multiple countries. Increase in passenger traffic will in turn boost top-line results.
Tam will also benefit from the decline in oil prices, which will help decrease operating cost of the company.
We are looking at 2010 as a modestly profitable year for the airline industry compared to 2009. Looking at the key earnings drivers, capacity is under tight control and growing very modestly. We believe that demand will recover, although not in a big way, but certainly better than a very weak 2009. Based on better balance between supply and demand, we also expect fares to go up.
However, we believe that the industry will take years to recover the losses incurred in 2008 and 2009. Thus, we reiterate our Neutral recommendation on the stock.
Read the full analyst report on “TAM”
Read the full analyst report on “CAL”
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