Business environment

Economic

Exchange rates

Exchange rates are one of the most sensitive areas in the airline industry; all the international fares are based in US Dollars, in order to keep the operational costs such as handling, fuel and catering, covered. (Globalization theory)
When someone buys a ticket in Brazil for example, they will convert the price in USD to BRL. Lets say for example that the Brazilian Real BRL suffered a major devaluation against the USD and now 1 USD is equal to 5 BRL, the ticket prices would be too expensive for our Brazilian customers, leading into a decrease in demand (Supply and demand theory) and at the same hand the price of the aircrafts that are leased in Us Dollars would go up, causing a major havoc in the company's finances.

Seasonality / Weather issues

As every company in the Airline /Travel industry TAM Airlines suffers with seasonality and weather issues. The busiest period for the airline is July-Aug (Summer in Europe) and Dec-Feb (Summer in Brazil). As a good example of the supply and demand theory, prices tend to be higher during the high season, and the occupancy is always above 85%.
During the rest of the year the operational costs remain almost the same but the revenue falls drastically due to the reduced number of passengers using our services.
As the operational cost of a flight with 50 passengers or 350 passengers is almost the same, the airline need to seek alternatives to attract more customers during the low season period.
TAM Airlines has sought to balance the occupancy rate and the ratio between supply and demand that are beneficial for the business, but also to not impact the consumer market with prices too high.

Social

Major events and influences

The next World cup (2014) and the next Olympic games (2016) will be hosted in Brazil, and it will affect directly our company, once we are the country's biggest airline and leader in market share. These major events will increase the demand for our services, and