Profit in second half shows strong improvement in operating margins, benefiting from investments made in recent months.

30 new aircraft, more then 900 employees contracted and 11 new routes mark a year of transformation, unprecedented in the sector worldwide.

A year of the greatest ever investment in the airline´s history, focused on the long-term vision, impacting on the year´s net profit.

Highlights of the results for the second half of 2019:

• Second half with net profit of EUR 14.1 million, compared with a loss of EUR 28 million in the same period of 2018.
• Number of passengers carried grew by 11% in the second half of the year, compared with 5% growth in the first half.
• Passenger revenue grows 9% in the second half, in contrast to zero growth in the first half.
• Cost per available seat kilometre (CASK) on a stage-length adjusted basis dropped 10% in the second half of the year, largely due to the entry into service of the new state-of-the-art aircraft that already account for 35% of the total hours flown in the half-year period.
• EBITDAR 2.6x higher in the second half of 2019 versus the same period of 2018, reaching EUR 372.7 million (versus EUR 143.1 million in 2018).
• EBITDAR margin grows 12 percentage points to 20% in the second half of 2019, a figure never before achieved in the Airline’s history.
• Operating margin moved from 0% in the second half of 2018 to 7.3% in the same period of 2019, achieving an operating profit of EUR 137.2 million.
• EUR 42 million improvement in net profit compared with the same period of the previous year.
• Bonds without a State guarantee issued in November, in a total amount of EUR 375 million, to dozens of international institutional investors. This issue strengthens TAP's financial sustainability and begins to reduce the debt with guarantees provided by the Portuguese State.Highlights of the 2019 annual results:
  
• Profit of EUR 14.1 million in the second half of 2019 mitigates annual loss of EUR 105.6 million.
• Passengers carried totalled more than 17 million, an 8% year-on-year increase, consolidating the growth trajectory of the last four years.
• TAP was the European company that most grew on the routes to North America, flying on 9 routes in 2019. In 2015, TAP had only three routes. TAP has more than doubled the weight of this market in its revenue.
• CASK fell 9% in the year as a whole as a result of investment in fleet renewal with more efficient aircraft, consolidating TAP’s position as the most cost-efficient company among its European counterparts.
• EBITDAR grew 2.3x compared with 2018, from EUR 211.4 million to EUR 477.3 million euros in 2019. The EBITDAR margin increased to a double digit figure, from 6.5% to 14.3%.
• Operating profit moved from a loss of EUR 44 million in 2018 to a profit of EUR 58.6 million in 2019, reflecting the consolidation of cost efficiency and revenue recovery in the second half of the year, generating an increase in operating profit of EUR 102.6 million.
• Consolidation of the turnaround of M&E Brasil implemented in 2018 allows a positive EBIDTAR to be achieved for the first time, of EUR 3.1 million in 2019, and without any transfer of monetary resources from Portugal to Brazil.
• TAP was Portugal’s largest investor in 2019. Investment of over EUR 1.5 billion, including the purchase of 30 new aircraft which enabled the renewal of 70% of the long-haul fleet.
• Two unsecured bond issues of EUR 575 million, subscribed by over 6 thousand Portuguese families and dozens of international institutional investors, reflecting the confidence of the investor community in the evident results of the implementation of TAP's strategic project.
• Strengthening of the balance sheet with the largest cash position in TAP's history, EUR 434 million.
• TAP heavily invests in punctuality, improving by 6 percentage points, and in operations regularity, which stands at 99.2% compared with 98.2% in 2018, representing around 1400 fewer cancelled flights than over the previous year.
• Customer satisfaction measured by NPS improves by approximately 45% in the year, with improvement in all assessed factors.
• CO2 emissions reduced by 170 thousand tonnes due to fleet renewal, with a 17% reduction in CO2 consumption (kg) per passenger compared with 2015.
• Investment in TAP's growth increases contributions and taxes to the State by 28%, from EUR 257 million per year to EUR 328 million, over the last four years (an increase of EUR 71 million per year).
  2019 was a year of unprecedented investment and transformation
  
  The total investment of TAP in 2019 was unprecedented way in the Airline's history, driving a transformation unparalleled in the worldwide air transportation industry last year, focusing on the long-term vision. The Airline received 30 new state-of-the-art aircraft, inaugurated 11 new routes and hired around 900 new workers in 2019. TAP Group is, as a whole, one of the largest employers in Portugal and in the period from 2015 to 2019 it created nearly two thousand new jobs, rising from 8,615 employees in 2015 to 10,617 in 2019, all highly qualified.  
  
  The Airline’s investment in growth increased the contributions and taxes to the Portuguese State by 28%, rising from EUR 257 million per year to EUR 328 million euros, over the last four years (an increase of EUR 71 million per year). TAP was the company that invested the most in Portugal in 2019, investing over EUR 1.5 billion. This investment included the purchase of 30 new aircraft, which enabled 70% of the long-haul fleet to be renewed in a single year. TAP ended 2019 with one of the youngest long-haul fleets in the world.

The process involving the management of the integration of 30 new aircraft and the exit of 18 old ones had a negative financial impact of EUR 55 million on the year's profit. However, fleet renewal was instrumental in improving efficiency (lower operating cost) and customer satisfaction in the second half of the year.

The NEO fleet has proven to be extremely efficient, with lower CO2 emissions, allowing the Airline to reduce CO2 emissions by approximately 170 thousand tons. A 17% reduction is recorded in the CO2 per passenger indicator compared with 2015, as well as a significant reduction in operating costs.

Customer satisfaction measured by the NPS (Net Promoter Score) improved approximately 45% in 2019, registering significant increases in all factors assessed (service on board, beverages, food, boarding, comfort, etc.). The heavy investment by the Airline in Customer satisfaction improved the NPS score, which has almost doubled from 22 points in 2015 to 38 points in 2019.

TAP also heavily invested in punctuality, which rose six percentage points, and in the regularity of operations, which stood at 99.2% in 2019, compared with 98.2% in 2018 (which represents around 1400 fewer flights cancelled than in the previous year). For example, the Airline now guarantees three reserve aircraft, at a cost of hundreds of thousands of euros per year, to quickly normalise any irregularity in operations. In addition, major investments have been made in IT, equipping TAP with the most advanced computer support systems.However, the lack of investment in Lisbon airport’s capacity and airspace congestion have had the opposite effect and have negatively impacted on the punctuality of TAP's operation by approximately nine percentage points. This has penalised TAP with a cost per passenger in terms of compensation for irregularities of more than double the Iberian benchmark. In 2019, TAP was penalised by between EUR 30 million and EUR 35 million as a result of the inefficient infrastructure.
TAP had the capacity to fund itself in the national and international capital markets over the past year, in the amount of EUR 575 million. The Airline maintained a very healthy cash position and extending the maturity of its debt. This is an unequivocal demonstration of confidence and credibility, from more than six thousand Portuguese families and dozens of major international and national investors, in the evidence provided by the results of the implementation of TAP's strategic project.

Also during 2019, the consolidation of the turnaround implemented in ME Brasil in 2018 allowed it to achieve a positive EBITDAR for the first ever time. This fact contributes EUR 3.1 million to the Group's accounts. There was no remittance of resources from TAP SGPS to the subsidiary ME Brasil in 2019. EUR 30 million was transferred to ME Brasil in 2018.


Strong recovery and growth in the second half

The second half was a period of strong growth and recovery for TAP, sustained mainly by the investment over the last 18 months. The number of passengers carried grew by 11% in the second half of the year, compared with 5% growth in the first half. Passenger revenue also grew by 9%, in contrast to the zero growth of the first half of the year. The cost of CASK fell 10% in the second half, primarily due to the entry into operation of the latest state-of-the-art aircraft that already account for 35% of the hours flown by TAP.

As a result, the Airline recorded a very significant increase in its EBITDAR in the second half of the year, which was EUR 372.7 million, more than double that of the same period of 2018, reflecting the higher cash generation capacity of the Airline and the sustainability of TAP's business model. The EBITDAR margin grew 12 percentage points to 20% in the second half of 2019, a value never before achieved in the Airline’s history.

The first half of 2019 recorded a negative impact from ticket revenues in the Brazilian market, with a decrease of EUR 43.1 million from the same period of the previous year, in line with the negative impact seen in the final quarter of 2018. This explains the decline in both operating and net results in the first half of 2019, as already reported.  

A progressive improvement occurred in the second half of 2019, which gained strength and consistency throughout the period. This allowed the second half to close with a strong expansion of margins and positive net profit. In the second half of the year, when considered in isolation, TAP recorded a net profit of EUR 14.1 million, compared with a loss of EUR 28 million in the same period of 2018.

In 2019, the Airline managed to reduce annual losses to EUR 105.6 million, strongly impacted by the investment made throughout the year, compared with EUR 118 million in 2018. The costs incurred in 2019 with the phase-in and phase-out of aircraft, totalling EUR 55 million, are to be highlighted.

Operating income went from a loss of EUR 44 million in 2018 to a profit of EUR 58.6 million in 2019, reflecting the consolidation of costs and recovery of revenues in the second half of the year, representing an increase in operating profit of EUR 102.6 million.

EBITDAR grew 2.3x compared with 2018, from EUR 211.4 million to EUR 477.3 million euros in 2019. The EBITDAR margin increased to double digits, from 6.5% to 14.3%.

The balance sheet was strengthened in 2019 with the largest cash position in TAP's history, amounting to EUR 434 million.


North America is already TAP's third largest market

TAP was the European Airline that grew most on the routes to North America in 2019, registering a 31% increase in the number of passengers carried. It carried a total of 1.04 million passengers, 247 thousand more than the previous year. It should be noted that the Airline grew in all markets in terms of passenger numbers, the highlight, however, is the successful expansion in North America.

In the last four years, the Airline has grown from three routes and 16 weekly flights in 2015 to 9 routes and 56 weekly flights in 2019. The seven new routes in the North American market allowed the passengers carried between 2015 and 2019 to increase 179%, in line with the number of seats that practically quadrupled in the last four years. The investment in this market continues. In 2020, the Airline plans to operate 11 routes and 82 weekly flights to North America.

Growth in this very competitive market was well planned and executed and today five of TAP's seven most profitable long-haul routes are in North America. The North American market has more than doubled its relative weight in TAP's total ticket revenues, between 2015 and 2019. It currently accounts for 14% of the Airline's total ticket revenues, and has risen from the ninth largest revenue-generating market in 2015 to third position in 2019.

The North American market offsets the volatility of the Brazilian market, which has shown signs of recovery in recent months. TAP operated a total of 77 flights to Brazil in 2015, rising to 85 in 2019. TAP remains the leading Airline in passenger air transportation between Brazil and Europe.

In its total destination network, the total capacity made available by TAP measured by ASK increased by 12%, while competitors on identical routes increased by 5%.

TAP carried more than 17 million passengers in 2019, an increase of 8% compared to the previous year, consolidating its growth trajectory.


National and international awards reinforce the confidence and preference of Clients, market analysts and investors in TAP

TAP won important national and international awards for its business achievements in 2019, such as the Issuer of the Year award at the Euronext Lisbon Awards, the European Debt Deal of the Year award from Airline Economics and the Best Economy Class among European companies and the sixth best worldwide, according to the readers of USA Today. These awards are unequivocal recognition of the work that has been done by the entire TAP team and attest to the sustainability of the transformation underway, reflecting the credibility achieved by the Airline in the national and international financial markets and the preference and confidence of our clients in TAP and in its future.