Copa Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 16, 2023

There are 12 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings Third Quarter Earnings Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, this call this webcast is being recorded on November 16, 2023.

Operator

Now, I will turn the conference call over to Daniel Tapia, Director of Investor Relations. Sir, you may begin.

Speaker 1

Thank you, Avi, and welcome everyone to our Q3 earnings call. Joining us today are Pedro Hebron, CEO of Copa Holdings and Jose Montero, our CFO. First, Pedro will start by going over our Q3 highlights, followed by Jose, who will discuss our financial results. Immediately after, we will open the call for questions from Copa Holdings' financial reports have been prepared in accordance with International Financial Reporting Standards. In today's call, we will discuss non IFRS financial measures.

Speaker 1

A reconciliation of the non IFRS to IFRS financial measures Can be found in our earnings release, which has been posted on the company's website, copaair.com. Our discussion today will also contain forward looking statements not limited to historical facts that reflects the company's current beliefs, expectations and or intentions regarding future events and results. These forward looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions subject to change. Many of these are discussed in our annual report filed with the SEC. Now, I'd like to turn the call over to our CEO, Mr.

Speaker 1

Pedro Herrero.

Speaker 2

Thank you, Daniel. Good morning to all and thanks for participating in our Q3 earnings call. Before we begin, I would like to extend my sincere gratitude to all our co workers for their commitment to the company. Their continuous efforts and dedication have kept Copa At the forefront of Latin American Aviation, to them as always, my highest regards and admiration. As you can see in our Q3 earnings release, once again, Copa reported strong financial results for the quarter.

Speaker 2

We were able to deliver industry leading operating margins, while continuing to grow our capacity by double digits year over year. The Q3 results were driven by robust demand environment in the region and our focus on delivering low ex fuel unit costs. Now I'll summarize the main highlights for Q3. Passenger traffic grew 13.3% Compared to the same period in 'twenty two, outpacing our capacity growth of 12.1%. As a result, Load factor for the quarter increased 0.9 percentage points compared to Q3 'twenty two to 87.8 percent.

Speaker 2

Passenger yield came in at $0.134 resulting in unit revenues or RASM of $0.242 Unit cost decreased by 11.2% compared to Q3 'twenty two, mainly driven by a lower jet fuel price per gallon And lower sales and distribution costs. Excluding fuel, unit costs or CASM ex Came in at $0.58 a 2% decrease compared to Q3 2022. And our operating margin came in at 23.6%, 5.9 percentage points higher than in the Q3 of 'twenty 2. On the operational front, Copart Airlines delivered an on time performance of 89.4% And a completion factor of 99.8%, once again, among the best in the world. With regards to our network, In the last two quarters, we have started service to Austin and Baltimore in the U.

Speaker 2

S. And Manta in Ecuador. And more recently in October, we started flying to Barquisimeto in Venezuela. With these additions, We now serve 81 destinations in 32 countries in North, Central, South America and the Caribbean. As we continue strengthening and solidifying our position as the most complete and convenient connecting hub in Latin America.

Speaker 2

With regards to our fleet, during the Q3, we took delivery of 2 7 37 MAX 9s, ending the quarter with a total of 103 aircraft. Turning now to Wingo. In the 3rd quarter, Wingo continued its network expansion with the start of 3 new routes from Bogota to Caracas, Venezuela, A Panama domestic flight from Panama City to David and one seasonal route from Cairi to Aruba. Additionally, in October, Wingo started service from Medellin to Cartagena and announced one additional domestic route in December From Medellin to Santa Marta. With these additions, Wingo expects to end the year operating 37 routes with service to 23 cities in 11 countries.

Speaker 2

Now turning to our current expectations, we continue to see a robust demand environment in the region. And as you can see in our earnings release published yesterday, we expect strong financial results for full year 'twenty three. And preliminary, in 2024, we plan to continue growing our capacity in the low double digit range and further reduce our unit costs. As always, Jose will provide more details regarding the 2023 and 2024 outlook. To summarize, we delivered strong 3rd quarter results, while growing capacity 12% year over year.

Speaker 2

We continue to see a robust demand environment in the region. We achieved low fuel unit costs during the quarter And we continue to deliver on our cost execution strategy. We continue growing and strengthening our network, The most complete and convenient hub for travel in the Americas. And as always, our team continues to deliver world leading operational results. Lastly, we remain as confident as ever in our business model.

Speaker 2

We continue to deliver low unit cost, high margins And a great product for our passengers, including the best connecting network in Latin America, making us the best positioned airline in our region to consistently Deliver industry leading results. Now, I'll turn it over to Jose, who will go over our financial results in more detail.

Speaker 3

Thank you, Pedro. Good morning, everyone. Thanks for being with us today. I'd like to join Pedro in acknowledging our great team For all their efforts to deliver world class service to our passengers, I will start by going over our 3rd quarter results. We reported a net profit for the quarter of $187,400,000 or $4.72 per share.

Speaker 3

Excluding special items, our adjusted net profit came in at $174,400,000 or $4.39 per share. 3rd quarter special items are comprised of a net gain of $12,200,000 related to the company's convertible notes, which we retired during the quarter And an $800,000 unrealized mark to market gain related to changes in the value of financial investments. We reported a quarterly operating profit of $205,000,000 and an operating margin of 23.6%. Capacity came in at 7,100,000,000 available seat miles or 12.1% higher than in Q3 2022. Our load factor came in at 87.8 percent for the quarter, a 0.9 percentage point increase compared to the same period in 2022, While we achieved passenger yields of $0.134 As a result, unit revenues came in at $0.122 Mainly driven by lower jet fuel prices, unit costs or CASM decreased to $0.093 or 11.2% lower than our CASM in Q3 2022.

Speaker 3

And finally, we continue with our initiatives for maintaining our costs low. For the quarter our CASM excluding fuel came in at $0.58 a 2.1% decrease versus Q3 2022, Mainly driven by lower sales and distribution costs due to the higher penetration of both direct sales and the lower cost travel agency channels, Which were launched by Copa Airlines in September of 2022. I'm going to spend some time now discussing our balance sheet and liquidity. As of the end of the Q3, we had assets of close to $5,000,000,000 As to cash short and long term investments, We ended the quarter with over $1,200,000,000 which represents 34% of our last 12 months revenues. And in terms of debt, we ended the quarter with $1,700,000,000 in debt and lease liabilities and came in with an adjusted net debt to EBITDA ratio 0.4 times.

Speaker 3

Our debt now is comprised solely of aircraft related debt and I'm pleased to report that our Average cost of debt is currently in the range of 3.4%. As we've previously announced in the month of September we completed The redemption of the 4.5 percent convertible senior notes during 2025. To summarize the transaction, Holders of $349,000,000 aggregate principal amount converted their notes in accordance with the terms of the inventor, While holders of outstanding notes in the aggregate principal amount of $1,000,000 redeemed at a price equal to 100% of the principal amount of each note Call for your attention. This was paid in cash, was accrued and unpaid interest. As a result, the transaction generated a total cash payment $350,000,000 in addition to approximately 3,700,000 shares.

Speaker 3

Turning now to our fleet, during the Q3, we received 2 Boeing 737 MAX9s to end the quarter with a total of 103 aircraft. In November, we received 2 additional 737 MAX-9s to bring our total fleet to 105 aircraft. With these additions, Our total fleet is now comprised of 68 730seven-800s, 28 730 7 MAX-9s and 9730seven-700s. These figures include 1730seven-eight 100 freighter and the 9730seven-eight 100s operated by Windho. 2 thirds of our fleet continues to be comprised of own aircraft and 1 third of our aircraft are under operating leases.

Speaker 3

During the remainder of 2023, we expect to receive 1 additional aircraft, a Boeing 737 MAX 9 to end the year with a total fleet of 106 aircraft. As for our 2024 fleet plan, preliminarily, next year we expect to receive 15 737 MAX aircraft, including 37 37 MAX 9s and 12 7 37 MAX 8s. We've published an updated fleet plan of our in our Investor Relations website And we have already secured JOCO financing for 10 out of the 15 deliveries in 2024. Turning now to a return of value to our shareholders. In October, we finalized the execution of our existing share repurchase program.

Speaker 3

And as published in our earnings release yesterday, our Board of Directors approved a new share repurchase program of $200,000,000 Additionally, I'm pleased to announce that our Board has ratified the 4th dividend payment of the year of $0.82 per share To be paid on December 15 to all shareholders of record as of November 30. As to our outlook, we can provide the following guidance update for full year 2023. We expect to increase our capacity in ASMs versus 2022 by Approximately 13% and we expect to deliver an operating margin within the range of 23%. We're basing our outlook on the following assumptions load factor of approximately 87%, unit revenues within the range of $0.124 CASM ex fuel to be in the range of $0.06 and we are expecting an oil and fuel price of $3.02 per gallon. In anticipation of 2024, we are projecting a year over year capacity increase between 12% 14%.

Speaker 3

Additionally, we anticipate our CASM ex fuel to be in the range of $0.059 aligning with our goal to achieve a CASM ex fuel of $0.58 by 2025. This outlook reflects our continuous commitment to our operational excellence. Thank you. And with that, We'll open the call for some questions.

Operator

Thank you. At this time, we will conduct the question and answer session. Our first question comes from Savi Syth with Raymond James. Your line is open.

Speaker 4

Hey, good morning. If I might ask on the revenue front, you took kind of the outlook up here For 2023 and it doesn't seem like the competitive capacity you've seen any pullback since your last And I don't think your capacity has even kind of come down. And just curious what you're seeing in the market that's driving that And just any color on if there is any kind of regional differences and how you see that continuing?

Speaker 2

Hi, Savi. This is Pedro. Demand is Staying strong in spite of the additional capacity that's coming in from ourselves and especially from other airlines. I don't think there's a specific reason for that. I mean, the currencies have stayed strong also in Latin America, so that doesn't hurt.

Speaker 2

And the U. S. Economy is doing well also. So I think all those factors are contributing For demand to remain robust in spite of the capacity.

Speaker 3

I would say, Savi, only that in general terms and this applies Throughout the network and all the different regions that we're at, it's in general still very robust.

Speaker 4

That's helpful. And if I might ask on the after the convert is done and the share buybacks that you've done so far, where does the share count stand today?

Speaker 3

We're at 42,000,000 shares around 42,000,000 shares right now, Saudi. Yes.

Speaker 4

Okay, perfect. All right, thank you.

Operator

One moment for our next question. Our next question comes from Duane Pfennigwerth with Evercore ISI. Your line is open.

Speaker 5

Hey, good morning. This is Jake Gunning on for Duane. First question on non op, is that the new run rate for non op? Or were there any one time benefits And then could you just remind us what the actual interest expense through the P and L was given that it was different from what the coupon rate would indicate

Speaker 3

Yes, Jake, I would summarize that taking aside the Effectively convert that we retired and going forward I would say that our finance cost line would probably go down by Approximately $10,000,000 per quarter. So I would say that's the way to model it. The remainder of the non op lines in general terms are in line with just simply the debt levels that we have and the average cost of debt that I Mentioned that it's about 3.4% right now and the yields that we have in terms of our investments. I would say that's the big change going forward, I would say is the A reduction in the finance cost line, not associated with the coupon, but rather associated with the way that the accounting for the convert work was like a non cash item that passed through the P and L and it was around $10,000,000 per quarter.

Speaker 5

Right. That makes sense. And then just to go a little bit deeper into 2024 capacity growth, could you just break out the components and the pacing of that, No seats, stage length, gauge, etcetera.

Speaker 3

I would say, Jake, that the Majority of the growth for next year is going to be frequencies. The way that we have it broken down is about, call it about 70% The capacity growth is going to be in addition to frequencies in the markets that we operate already. Then about, let's say, about 20%, 25% is going to be around full year effect of growth that we performed throughout 2023 that Sort of lapse the year. And then the remainder is, call it, new service that we're starting in 2024. That's kind of how we're So the vast majority of it is just frequencies into markets that we're already present in.

Speaker 5

And so with the pace in that, be steady or?

Speaker 3

In general terms throughout the year

Speaker 6

you say a cadence,

Speaker 3

a little bit of a yes, I would say

Speaker 2

it's in general terms steady. I don't There is a particular bumps throughout the year, given the majority of it is or a portion of it is full year effect. And Our aircraft deliveries in any case are spread throughout the year. So that's another reason.

Speaker 5

Okay. Thank you very much.

Operator

Our next question comes from Guillermo Mendez with JPMorgan. Your line is open.

Speaker 7

Good morning, Pedro, Jose, Daniel. Two questions as well. The first one is on the fleet plan. You guys mentioned about 15 deliveries next year on the MAXs. If you see any kind of bottlenecks come from Boeing or any risk on this 15 aircraft deliveries.

Speaker 7

I understand that you mentioned that 10 They're already secured in terms of financing. So if there's any kind of risk for this additional 5? And the second question So sorry, go ahead.

Speaker 3

No, no, go ahead with the second question, we'll answer them, yes.

Speaker 7

Thanks. So the second question is regarding to the CASMex fuel guidance for next year. Pretty impressed to see lower CASMex fuel. And maybe if you could comment on what are the main initiatives Thinking that there's any kind of labor pressure or any other initiatives to sustain this higher efficiency? Thank you.

Speaker 2

Yes, Jern, so a few things. In terms of the aircraft deliveries, 11 Of the 15 deliveries scheduled for next year are already financed with Jocos. So that's pretty much said. And in terms of delivery date, this is the latest we have from Boeing. Some aircraft pass from 1 aircraft at least passes from 2023 to 2024, that's why the number Increased to 15.

Speaker 2

So the best information we have right now and again, most of the financing is already in place.

Speaker 3

Yes. But there I mean, it's still uncertain and Boeing, all aircraft manufacturers are facing supply chain issues. So We have our conversation going with them. But I for now, in terms of our guidance, we have to by saying that it's a preliminary guidance that we issue for a year. We'll issue our formal guidance in February, but in general terms, it's in line with our expectations In terms of aircraft deliveries for 2024.

Speaker 3

And in terms of CASM for next year, I would say that the main areas of opportunities, first of all, is Continue working on our distribution. Our team has been doing a great job there with the Copa Connect project and our new distribution strategy. Number 2, we are continuing with our fleet densification of our 730seven-eight 100 fleet on the Copa Airlines side. So that will provide Some CASM benefits. 3rd, we continue working with our Efficiencies in terms of overhead and some of the growth that efficiencies that we get with the growth that we have for next year.

Speaker 3

And finally, you know what, we're on track to resolve the teething issues that we've had with the LEAP. So I think that's another one that you have to consider over the next several months as well.

Speaker 7

Okay. Super clear. Thank you both.

Speaker 2

Thank you.

Operator

One moment for our next question. Our next question comes from Michael Linenberg with Deutsche Bank. Your line is open.

Speaker 8

Hey, good morning, everyone. Jose, I want to go back to just on next year's 12% to 14% frequency. It sounds like 5% to 10% of the ASMs are going to be new service. Maybe more specifically, What is the plan with number of new dots on the map or number of new cities? Is this 2 or 3 or 4 cities?

Speaker 8

Is it going to be like what we saw this year where you added, I It was what, 4 new cities, maybe 5 new cities?

Speaker 2

Yes. Hi, Mike. I'll answer that one. So Maybe we'll have a little bit more information in February, and we'll make a few announcements. But right now, there's Not much we can share.

Speaker 2

We're working on many possibilities. And it should be more than a few, But we don't want to give a target because we don't really know. It's kind of early and we're still planning. We usually start new cities midyear and at the end of the year. So we still have some months to go.

Speaker 8

Very good. Just my second question, Wingo is 9 airplanes now, more frequency or more routes as we move through this year. Is the plan to keep Wingo at 9 airplanes in 2024?

Speaker 2

That is the plan as of right now, given the dynamics of the Colombian market And yes, so yes, that's the plan right now.

Speaker 8

Okay, great. And then Just my last question, when I think about, you have a significant cost of capital advantage D. J, when I think about some of the other big debt deals that we've seen some of your competitors launch over the last 12 to 18 months, and so that's 3.4% cost of debt, that's low. As we think about the 10 or 11 airplanes that have already been financed With Chilcos, does that change that 3.4 percent? How should we think about your average financing over to 2024?

Speaker 8

Thanks for taking my questions.

Speaker 3

Yes, I'll give you a data point, Mike, and you could argue that an incremental aircraft right now is in the range of around 5%, so a little higher, but we By the way, we have our 80% of our fleet is financed under fixed rate. So the changes in interest rates have But given the current environment, our last set of aircraft would be on variable rates. So we'll Enjoy the benefit of, if and when rates come down. So but it's around in the 5% range. Still very good.

Speaker 8

Still very good. Yes, still very, very good. So thanks. Thanks, everyone. Good quarter.

Speaker 8

Great quarter.

Speaker 2

Thank you, Mike.

Operator

One moment for our next question. Our next question comes from Rogerio Araujo with Bank of America. Your line is open.

Speaker 9

Hi, guys. Congratulations on the results and thanks for taking the questions. I had 2, One on RASM. I know you didn't provide any guidance for 2024, but can you give us the What you see in the booking curve for next year, can you give us an expected direction? Is it coming down Versus 2023 because of extra capacity coming in?

Speaker 9

Or it's still unknown at this moment? And the second question is regarding a mismatch between jet fuel price and oil In 30Q, it didn't happen only for Copa, but all the peers in the region. What is driving that? Is it sustainable Going forward. Thank you.

Speaker 2

Okay. So I'll start with the first one. And yes, we're not giving RASM guidance for 2024, still early. And our visibility is always like 3 months or 2 months into the future. So what we're seeing so far, which would be early 2024 Is that the revenue strength staying robust is following the same trend we've seen in Q3 and Q4.

Speaker 2

So even with the capacity that you mentioned, revenues are staying strong so far.

Speaker 3

Yes. In terms of fuel mismatch between jet and crude, it's yes, the Crack of jet fuel spiked during the quarter and it's in the range. It's a little bit over $40 right now per barrel. So it's That historically not historically high, but it is at a higher level than what it was on a regular basis. And but you know what, we've Learn to manage our fuel expense and in terms of recapping or recouping some of this incremental expense in our unit revenues and we've done that in the Q4 with our revised guidance.

Speaker 3

And so I think in the end, it's something that We know how to do.

Speaker 9

Sounds great. And one follow-up on that last one. Is the fuel guidance, it includes the current curve?

Speaker 3

Yes, yes, absolutely. It's a current jet curve as of Like 2 days ago. Yes. So we there it's all in, it's our average fuel price all in. So we see $0.06 above the last guidance that we provided by the August.

Speaker 9

Sounds great. Thank you so much.

Speaker 2

Thank you.

Operator

One moment for our next question. Our next question comes from Stephen Trent with Citi. Your line is open.

Speaker 10

Good morning, gentlemen, and thanks very much for taking the time. Definitely appreciate The color on 2024, as you think about that build out, are you Content with maintaining those 6 daily flight banks at Tokumen or do you think you could Make some possible adjustment to that with the 2024 growth.

Speaker 2

Yes, not in 2024. I mean, we could make adjustments in the future, but that's not the plan in 2024. We think we can still strengthen Our 6 bank structure, there are opportunities, there are gaps that we can fill and further strengthen our whole network. So that's the plan for now.

Speaker 10

Perfect, Pedro. Appreciate that. And as my follow-up, Looking at this very good ex fuel CASM color for 2024, To what degree do you think some of that might be coming from a tilt towards more direct channel sales, for example?

Speaker 3

Sure. No, absolutely. That's a big portion of our strategy for having our multiyear CASM target Clearly, sub-six, it's been driven in large part through our Copa Connect strategy. It's been working out great Over the last several months. So that's certainly a big portion of our continued Trek towards 5.9 in 2024 and 5.8 in 2025.

Speaker 2

Right. And also, Stephen, it's Holding overhead, holding fixed costs tight, so we benefit from the growth in ASM. That's another way we're achieving our numbers.

Speaker 3

Yes. And look, I mean, we're talking about CASM, there's always headwinds of Items that we might not control. There might be, whatever, airspace charge increases in different countries, etcetera, and that's This sort of thing or inflationary pressures because of A or B suppliers, but we try to counter those with our own internal efficiencies And with projects such as Cooper Connect, densification, etcetera. So we always have Our guard up in terms of keeping our costs as low as they can be.

Speaker 10

Okay. That's very, very helpful. Thanks very much, Gents and see you in a few weeks.

Speaker 2

Thank you.

Operator

One moment for our next question. Our next question comes from Daniel McKenzie with Seaport Global. Your line is open.

Speaker 11

Hey, good morning guys. I guess following up on that last question, going back to Copa Connect and the lower distribution costs, I I wonder if you can just help us put some numbers around what that means exactly. So what you're seeing on cost savings and specifically from this initiative And how the change in the distribution strategy is helping you to drive more revenue? So maybe just related to that, what percent of the passengers coming to copa.com are actually purchasing a ticket with an upsell feature, for example.

Speaker 2

Okay. So let me start With a few general comments, and then I'll give Jose some time to See how much of the info you're asking we can gather quickly. But first thing I would say is that, as Jose mentioned, Our direct distribution strategy, which we call Copa Connect has been very successful. And to date, We are already over 70% direct sales, including the NBC channel for the agencies. So when we add our website, our other direct channels and the agencies that connect through our NDC channel, We're over 70%.

Speaker 2

It used to be the other way around over a year ago when we first started. So that in itself It's a significant change and it surpassed our projections for this year. Then by going direct Be it through the NDC channel or our website, we're able to offer more options for our passengers. We're able to work on the upsell and a significant percent of the passengers that buy in the website and And we see for sure our upselling only we have with us right now the exact Percentage, but it's important and it's a valid question because of course our lowest fares come with additional ancillaries Like seats and bags, but then upselling, it's also a very important revenue stream for us.

Speaker 3

Yes. Dan, I would say that in terms of costs, the channel shifting and the Copa Connect strategy, GoodRU is call it $0.01 of CASM has provided for us for this year. And in terms of the value of ancillaries, we've been I don't know. We've probably quadrupled the value of ancillaries since back in 2018. So in terms of revenue, so there is, of course, within that upsell of product of Folks that are buying tickets through our channel.

Speaker 3

So yes, it's actually grown quite a bit over the last So back in 2019, call it 4 times the level of where we were. And that's information that we shared back in our Investor Day a couple of months ago.

Speaker 11

Yes, very good. And then second question here, historically Copa has targeted 18% to 20% operating margins. And In light of this year's results, I guess my next question is, is how investors should really think about steady state margins? And are the initiatives in place today Enough to help you punch above what you've done historically.

Speaker 2

Well, Now you're asking for 2024 guidance in an indirect way. So We have to wait until February for that. But we have the wind on our back right now. And What that means for steady state in the future, it's going to depend on how external factors change, Fuel capacity from competitors, etcetera, etcetera.

Speaker 3

We are really pleased with our operating margin guidance of 23% for the full year 2023. It's a pretty good Pretty good result. I think it's certainly it's been a very good year so far.

Speaker 11

Yes, very good. It's an impressive year. Thanks so much you guys.

Speaker 2

Thank you, Dan.

Operator

One moment for our next question. Our next question comes from Bruno Amorim with Goldman Sachs. Your line is open.

Speaker 6

Thank you. Thank you for taking my question. I have a follow-up on this question on margins. I'm not asking for 2024 guidance, but Just wanted to hear from you, what were in your view the big changes that could eventually have led to those higher margins, So we can understand to what extent they are sustainable. I understand there are some cost efficiencies, actually your CASM is performing well with pre pandemic levels.

Speaker 6

But if you look on a total CASM perspective, it is still higher versus 2019, right, because jet fuel It's much higher. So maybe the answer comes from the revenue side. And then on the revenue side, maybe one could argue there is less competition now post pandemic. Is that the demand change? Or is there anything else that you believe could justify much higher unit revenues on a sustainable basis?

Speaker 6

Thank you very much.

Speaker 2

So Bruno, I'll say 3 things, 3 general concepts that are important coming out of the pandemic. And they'll play in different directions. So the number one surprise out of the pandemic Was that demand came back a lot quicker than what anyone expected and it has remained strong Overall, in our region, in the Americas, and it is still robust to this day. So of course, demand Has been a positive change. The other, I would say surprise coming out of the pandemic, which works in a different direction, In the opposite direction, it's how much growth there has been in aviation in our region, how much growth by The airline industry in general, that also surprised us coming out.

Speaker 2

So capacity came back Quicker than what we would have expected and it's actually above pre pandemic levels. And then the third concept I want to share, which is more Copa specific is that we work really hard During the pandemic, even while we were shut down for almost 5 months, we never stopped working on 2 things And one was working on our costs on the cost side, on doing all the investments And changes that were going to make us more efficient going forward, including Copa Connect and a lot of technological enhancements And same thing for revenues, which in a way some are related to Copa Connect, others are not. So we've worked very hard in our Revenue related technology on the revenue team and we are a much more efficient, Competitive airline from the revenue side and from the cost side. So I would say those are 3 general concepts That have a lot to do with where we are today.

Speaker 6

Thank you. And in terms of the competitive dynamics, What kind of comments?

Speaker 2

Well, it's competitive, it's dynamic, it's growing, it's strong, It's now mostly LCCs or ULCCs in our region. Most of our competitors are ULCCs or LCCs, Either because they were born that way or they converted to that model. So that In a way has made us become a lot more efficient and that's the vision we had from before. So We were not surprised. We were preparing for this from way back and we're meeting the challenge.

Speaker 2

We have the tools. We have a strong network. We have the hub, we have the cost and we're still working on additional efficiency and We think there's room for all. I mean, we don't our success is not dependent on the failure of others, especially the market Continues on a healthy pace. So we worry about ourselves and we're just making Copa a better and more competitive airline.

Speaker 2

But yes, competition has grown and right now, many of our competitors are growing actually at a faster rate Then we are.

Speaker 6

Thank you. Have a good day.

Speaker 10

Thank you, Bruno.

Speaker 2

Thank you, Bruno.

Operator

One moment for our next question. Our last question comes from Savi Syth With Raymond James, your line is

Speaker 4

open. Hey, thanks for the follow-up. If I might, just curious if you can hone in on business Demand, it seems like there is a slight pickup in other regions. I'm wondering if you're seeing that. And particularly in Panama, I'm wondering if the drought is having any impact or the economy is still pretty strong?

Speaker 2

Yes. So business demand has not changed much From the previous two quarters, it used to be above 30%, it's now in the 25% A range, but it has been replaced by, I would say, I mean, by leisure, but also by Issued by the higher segment of leisure travelers because we're doing better in business class revenues than what we were doing pre pandemic And with less business demand, so in a way it has been replaced. We're not missing it, Even though we're happy to see it grow and hopefully will grow at a faster pace in the future. The Panama Canal, of course, has been affected by the El Nino drought in the region And it has restricted the transit of ships, but it's not having, I would say, a significant Impact on the economy of Panama, the economy is still expected to be one of the fastest growing economies In Latin America, in spite of the adjustments that Panama Canal needs to make because of El Nino, but again, it's not having A drastic impact on our economy, and it's still a small percent of the revenues are being affected. In a way, the news is probably exaggerating the problem.

Speaker 4

Makes sense. Thank you.

Speaker 3

Thank you, Savi. Thank you, Savi.

Operator

Thank you. That concludes the question and answer session. At this time, I would like turn the call back to Pedro Hilbron for closing remarks.

Speaker 2

Thank you. Thank you, operator. So thank you to all. This concludes our earnings call. As always, thank you for participating and special thanks for your continued support to Copa Holdings.

Speaker 2

So hope you have a great day.

Operator

Ladies and gentlemen, thank you for your participation. That concludes the presentation. You may now disconnect and have a wonderful day.

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Key Takeaways

  • Strong Q3 operating performance: Passenger traffic rose 13.3% vs. Q3 2022, outpacing capacity growth of 12.1% to lift load factor to 87.8%, while CASM ex-fuel fell 2.1% to $0.58 and operating margin reached 23.6% (up 5.9 ppts).
  • Robust profitability: Copa reported net income of $187.4 million ($4.72/share) and adjusted net income of $174.4 million ($4.39/share), with operating profit of $205 million and unit revenues (RASM) of $0.242.
  • Network and fleet expansion: The airline began service to Austin, Baltimore, Manta and Barquisimeto, growing to 81 destinations in 32 countries and ending Q3 with 103 aircraft (105 post-quarter) and 15 MAX deliveries slated for 2024.
  • Wingo’s route growth: The LCC launched six new routes this quarter and will operate 37 routes to 23 cities in 11 countries by year-end, supporting its low-cost network in Latin America.
  • Strong balance sheet & yield to shareholders: Copa exited Q3 with $1.2 billion in liquidity (34% of LTM revenues), a net debt/EBITDA of 0.4x, a new $200 million share buyback program, a $0.82/share dividend and a weighted average debt cost of 3.4%.
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Earnings Conference Call
Copa Q3 2023
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