TAP Air Portugal Focused on 'Tactical,' Profitable Growth With Sale Pending

TAP Air Portugal is hitting its profitability marks, with management laser focused on making the state-owned airline an attractive takeover target.

The Lisbon-based Star Alliance carrier nearly doubled its operating profit to €266 million ($282 million) in the third quarter, TAP reported Tuesday. Its operating margin excluding special items was 22%. Revenue increased nearly 13% to €1.26 billion.

TAP's profit numbers are impressive for the carrier, which suffered deep losses in 2020 and 2021. Those losses forced Portugal to nationalize TAP, which was previously owned by a consortium that included Azul Chairman and JetBlue Airways founder David Neeleman, as part of its aid package.

That nationalization and turnaround, based on all accounts, has been successful. TAP is now a takeover target for the big three European airline groups — Air France-KLM, International Airlines Group, and Lufthansa Group — particularly for the proximity of its Lisbon hub to Latin America. The Portuguese government initially plans to sell 51% of TAP.

That pending deal has the airline focused on one thing, and one thing only: Profitability.

"We're very focused," TAP Senior Director of Strategy, Network & Partnerships Henri-Charles Ozarovsky said at the Routes World conference in Istanbul earlier in October. "Our goal is to be consistently profitable."

Asked about the airline's growth plans next year, Ozarovsky said they would be "tactical." For example, adding frequencies on key routes to the Americas to cater to Europe-Latin America and U.S.-Southern Europe traffic flows. Capacity, measured by available seat kilometers, will increase in the "single digits" compared to this year, he said.

Capacity was up 9% year-over-year in the September quarter, according to TAP. Capacity stood at roughly 95% of pre-pandemic levels at the end of the period.

Passenger unit revenues, a key measure of how much an airline earns per paid passenger kilometer flown, increased 8.2% year-over-year; unit costs excluding fuel rose 7.6%. The former was up 33% and the latter 8% compared to 2019.

TAP's growth in Lisbon is also limited by the availability of slots, Ozarovsky noted. TAP was forced to divest slots in Lisbon to EasyJet as a condition in the Covid aid package it received from the Portuguese government.

Ozarovsky did not comment on the pending sale of TAP, which is being run by Portugal's finance ministry.

TAP operated 98 aircraft, including 12 Airbus A321LRs and 19 Airbus A330neos, at the end of September. The former has allowed TAP to profitably serve more smaller markets in the Americas, as well as larger ones during the historically off-peak winter period.

The airline has outstanding orders for 26 Airbus planes, including 24 A320neo-family aircraft and two A330-900s, according to Airbus' orders and deliveries data for September.