Copa Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 10, 2023

There are 13 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings Second 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 is being webcast and recorded on August 10, 2023.

Operator

I will now turn the conference over to Daniel Tapia, Director of Investor Relations. Sir, you may go ahead.

Speaker 1

Thank you, James, and welcome everyone to our 2nd quarter earnings call. Joining us today are Pedro Herron, CEO of Copa Holdings and Jose Montero, our CFO. First, Pedro will start by going over our Q2 highlights, followed by Jose, who will discuss our financial results. Immediately after, we will open the call for questions from analysts. Copa Holdings' financial reports have been prepared in accordance with International Financial Reporting Standards.

Speaker 1

In today's call, we will discuss non IFRS financial measures. 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 listen only mode 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 listen only mode of communication and are based on assumptions subject to change. Many of these are discussed in our annual report filed with the SEC.

Speaker 1

Now I'd like to turn the call over to our CEO, Mr. Pedro Hedron.

Speaker 2

Thank you, Daniel. Good morning to all, and thanks for participating in our 2nd quarter earnings call. Before we begin, I would like to extend my sincere gratitude to all our coworkers for their commitment to the company. Their continuous efforts and dedication have at the forefront of Latin American Aviation. To them, as always, my highest regards and admiration.

Speaker 2

Today, we're pleased to report solid results for the Q2. Our unit revenues continue to benefit from a healthy demand environment in the region. While our unit costs came in lower year over year, mainly driven by a lower jet fuel price and our consistent focus on delivering low ex fuel unit costs. Among the main highlights for the quarter, passenger traffic grew 15.4% compared to the same period in 2022, outpacing our capacity growth of 13.6%. This resulted in a load factor of 86 Passenger yield came in at $0.133 or 2% higher than the Q2 of 2022, on, resulting in unit revenues or RASM of $0.12 a 2.7% increase compared to the Q2 of 2022.

Speaker 2

Our unit cost decreased 17%, mostly as a result of a 35.9% year over year drop in our effective jet fuel prices. On an ex fuel unit cost basis, we came in at $0.059 almost 1% lower compared to Q2 2022. As a result, our operating margin came in at 24.1%, of 18 percentage points higher than in the Q2 of 2022. On the operational front, Copa Airlines delivered an on time performance of 91.6 percent and a completion factor of 99.8 percent, once again, the highest in the Americas and one of the best in the world. Additionally, in July, Copa Airlines was recognized by Skytrax for the 8th consecutive year as the best airline in Central America and the Caribbean.

Speaker 2

This award and our leading operational numbers are a testament to our employees' continuous focus on our customer satisfaction. With regards to our network, we recently announced the start of a new service to Barquisimeto Venezuela in October of this year. With this addition, we will 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 hub in Latin America. Turning now to Wingo.

Speaker 2

In June, Wingo continued to optimize its network with the start of operations to 3 new domestic Colombia routes from Bogota to Barranquilla, Pereira and Bucanamanga. Additionally, in July, it started service from Bogota to Caracas, Venezuela and 1 seasonal route from Cali to Aruba. With these additions Wingo is currently operating 35 routes with service to 23 cities in 11 countries. Now turning to our current expectations for the remainder of the year. We continue to see a healthy demand environment in the region going forward.

Speaker 2

And although we're seeing a recent increase in jet fuel prices, we continue to expect strong financial results in 2023. As always, Jose will provide more detail regarding the full year's outlook. To summarize, We delivered solid second quarter results and we continue to see a healthy demand environment in the region. We continue growing and strengthening our network, the most complete and convenient hub for intra Latin America travel. Copa Airline was recognized once again by SkyTrak as the best airline in Central America and the Caribbean.

Speaker 2

And as always, our team continues to deliver world leading operational results, while maintaining our cost low. Lastly, we're as confident as ever in our business model. We continue to deliver solid margins and low unit costs, while offering a great product to our passengers, 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 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 a world class service to our passengers. I will start by going over our 2nd quarter results.

Speaker 3

We reported a net profit for the quarter of $17,500,000 or $0.44 per share. However, excluding special items, net profit came in at $154,500,000 or $3.92 per share. 2nd quarter special items are comprised of an unrealized mark to market loss of $137,500,000 related to the company's convertible notes and a $500,000 unrealized mark to market gain related to changes in the value of financial investments. We reported a quarterly operating profit of $194,700,000 and an operating margin of 24.1%. Capacity came in at 6,800,000,000 available seat miles, 13.6% higher than in Q2 2022.

Speaker 3

Our load factor came in at 86.1 percent for the quarter, a 1.3 percentage point increase compared to the same period in 2022, while passenger yields increased 2% to $0.133 As a result, unit revenues came in at $0.12 or 2.7% higher than in the Q2 of 2022. Mainly driven by lower jet fuel prices, unit costs or CASM decreased to $0.091 or 17% lower than our CASM in Q2 2022. And finally, our CASM excluding fuel came in at $0.059 a 0.8% decrease versus Q2 2022, mainly driven by lower sales and distribution costs due to a 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. So at the end of Q2, we had assets of close to $5,100,000,000 And in terms of cash, short and long term investments, We ended the quarter with over $1,300,000,000 which represents 39.6 percent of our last 12 months revenues.

Speaker 3

As to our debt, we ended the quarter with $1,800,000,000 in debt and lease liabilities. It came in with an adjusted net debt to EBITDA ratio of 0.5 times. I'd also like to take some time to discuss the settlement of our convertible notes. As we announced last month, the company has decided to redeem the 4.5% convertible senior notes during 2025 on September 18, 2023, in accordance with the terms established in the indenture governing the notes. The conversion rate has been established to be 20.1603 shares per each $1,000 This rate includes an additional 0.4751 shares related to the event being a make whole fundamental change.

Speaker 3

We decided to perform the settlement via the net share method, whereby we will settle in cash an amount equal to the principal amount of the notes and the remainder is to be settled via the issuance of the corresponding number of shares. Turning now to our fleet. During the Q2, we received 2 Boeing 737 MAX9s to end the quarter with a total of 101 aircraft. In July, we received an additional 7 37 MAX 9 to bring our total fleet to 102 aircraft. With these additions, our total fleet is now comprised of of 68seven 30seven-eight 100s, 25 7 37 MAX 9s and 9 730seven-seven 100s.

Speaker 3

These figures include 1730seven-eight 100 freighter and the 9730seven-eight 100s operated by Wingo. 2 thirds of our fleet continues to be comprised of owned aircraft and 1 third of our aircraft are under operating leases. During the remainder of 2023, we expect to receive 5 additional aircraft, all Boeing 737 MAX-9s to end the year with a total fleet of 107 as for our 2024 fleet plan, preliminarily next year we expect to receive 14 737 MAX Aircraft including 2 737 MAX 9s and 12 737 MAX 8s. We've published an updated fleet plan on our Investor Relations website. I'm also pleased to announce that our Board of Directors has ratified the 3rd dividend payment of the year of $0.82 per share to be paid on October 13 to all shareholders of record as of September 29.

Speaker 3

As to our outlook, we can provide the following guidance update for the full year 2023. We expect to increase our capacity in ASMs versus 2020 to within a range of 12% to 13%, and we expect an operating margin within the range of 22% to 24%. We're basing our outlook on the following assumptions. Load factor of approximately 86%, unit revenues within a range of $0.123 CASM ex fuel to be in the range of $0.06 and we're expecting an all in fuel price of $2.95 per gallon. Given this recent increase in jet fuel prices, we expect to be on the lower side of the 22% to 24% operating margin range.

Speaker 3

I'd also like to take this opportunity to assure you that we continue to be focused on our plan to further reduce our unit costs. Our objective is to attain a CASM ex fuel within a range of $0.58 by the year 2025. Thank you. And with that, we'll open the call to some questions.

Operator

Thank you. We will now conduct a question and answer session. Our first question comes from Savi Syth from Raymond James.

Speaker 4

Hey, good morning. Can I ask on the unit revenue, just Which was lowered? Are you seeing any kind of softness to drive that reduction? Or is kind of something else going on given that The Q2 came in pretty strong.

Speaker 3

Yes, Savi, how are you? The operating environment is still very robust. We had been seeing a drop in fuel prices throughout the Q2 and so there was some movement in our sort of forward looking unit revenues in the coming months. And the other item, I think that of note that we're monitoring closely is that there was an increase in competitive capacity year over year in the double digit range. So all those factors I think we're taking into account in terms of what the RASM was or is to guidance given the sudden movement of fuel.

Speaker 3

And it's still somewhat early for Q4, so we'll monitor it closely, but that's how kind of we're seeing it in the close

Speaker 2

And I should add, Savi, that bookings are still strong for the second half of the year or as far as we can see.

Speaker 5

Yes, yes.

Speaker 3

Still a very robust environment.

Speaker 4

That's super helpful. And if I might, on the 2024 fleet plan, it looks like even though you had some MAXs slipping, you've taken the MAX count up and just any early thoughts on how you're thinking about capacity growth into 2024, Especially given that your utilization in 2023 is quite strong.

Speaker 2

Right. So we're going to receive 14 aircraft next year. A few of those moved from this year, but doesn't make a big difference because moving from December to January doesn't really have on impact in capacity. So you can do the math in terms we're still not guiding for capacity growth in 2024, but I think it's not hard to figure it out given the 14 aircraft We're receiving next year. Most are going to be MAX 8, 2 are going to be MAX 9.

Speaker 2

And we see demand and we have opportunities for all of those airplanes to fly at Our current utilization, daily utilization numbers.

Speaker 3

Yes, plus a full year effect of the aircraft that are coming. We still have 5 aircraft left to be delivered this year. So those are planes most of it's their growth is going to show up actually in 2024 as well. So there's I think we're seeing still the environment the operating environment in a very positive way.

Speaker 2

Yes, in terms of capacity, there should be very healthy growth next year.

Speaker 4

Helpful. Thank you.

Operator

Our next question comes from Duane Pfennigwerth from Evercore ISI.

Speaker 5

Eye. Hey, thanks. Good morning. On the convert buyback, Can you just walk us through how your share count and interest expense are going to change following that buyback? And maybe talk about some of the reasoning behind why September makes sense to do that?

Speaker 3

Yes, Duane. I'll start and I'll actually start with the second part, which is The reasoning, first of all, since April, we've had the ability to call the convert. And I think that our calculus is that at this time, the economics of the deal worked out for us versus letting it mature. And then thirdly, I would say, the Board, when it made its decision, they simply I think they wanted to get the pandemic behind us and I think that also influenced the decision even though As I mentioned before, from an economic perspective, financial perspective, it made sense for us to execute the call at this time even with the May call Effective, etcetera. I would say that the in terms of the accounting wise, first of all, we're electing to settle it via the net share method whereby we'll pay the principal in cash, of $350,000,000 in cash and the remainder in shares that ultimately the valuation of that will depend on a of 40 day 40 trading day observation period that ends in the 2nd week in September.

Speaker 3

So that will ultimately determine what ultimately what the number issued of shares that we would have coming out at that time, on the day of the settlement. So that's still pending to be determined. And then finally, in terms of how it affects the interest expense, The interest expense will go down by 2 factors. Number 1, of course, the coupon goes away, the 4.5% coupon on the $350,000,000 But in addition to that, there is a portion, I would say maybe it's about a $7,000,000 per quarter figure that was a portion of our interest expense that was non cash that was that will basically go away during after the settlement. So that's basically the way that it will work out.

Speaker 5

That's really helpful. Is there any relationship between this step and what your dividend policy might look like into next year. Does this make it, I guess, more likely or less likely that you just continue Your dividend policy into 2024 based on a look back to 2023 earnings?

Speaker 3

No, I think our policy our dividend policy, as I just to restate it, is to distribute 40% of the prior year's adjusted net income. And I think that's we'll continue.

Speaker 2

Yes. So the conversion make no difference.

Operator

Our next question comes from Guillermo Mendez from JPMorgan.

Speaker 6

Good morning, Pedro, Jose, Daniel. Thanks for taking my question. I have 2. One, it's on the capacity and demand. So if you could split a little bit between leisure, VFR and corporate, how you're seeing demand.

Speaker 6

And I recall that on the last conference call, you mentioned about corporate still not fully picking up. So how have you seen that during the Q2? And what are the expectations for the 2nd part of the year? And the second question is sorry, Pedro, go ahead. And then I'll ask

Speaker 2

the second question. What's the second question?

Speaker 6

The question, it's regarding yield management. So So you discussed about the unit revenue. Just wanted to better understand how do you think about your ability to increase of prices according to fuel prices. So how fast could you do that, I mean, according to competition and market trends? Thank you.

Speaker 2

Yes. Okay. So first question, business traffic, corporate traffic has improved somewhat in the last number of months. So the trend is positive, but the numbers are still not much different to what we have shared in the recent past, where about 40% is leisure and 30% is VFR, The rest is a combination, it's business, but it's business and corporate. So some of the business we move in the region is not necessarily tied to corporate accounts.

Speaker 2

So that has I mean, it has improved somewhat, but not in a significant way. The breakdown is similar to what I just mentioned, in a way that well, you can see our results. So demand is strong and yields are healthy. So we're fine with the way traffic has developed. In terms of revenue management and pricing, So what we show and I'll let Jose back me up.

Speaker 2

But what we showed in 2022 was that we were able to cover The increase in jet fuel prices, but it didn't happen right away. It did not happen in the Q2 when jet fuel spiked up. It did happen in the second half of the year and this year we'll see.

Speaker 3

It's about a 2 to 3 month delay. Now of course our revenue management folks always Our pricing to the maximum market could bear, but usually it takes there's a little bit of a lag between fuel spikes and when RM catches up.

Speaker 6

That's very clear. Thank you, Pedro and Jose.

Operator

Our next question comes from Stephen Tratt from Citi.

Speaker 7

Good morning, gentlemen, and thanks very much for taking the time. Just two quick ones for me. The first, definitely appreciate the ex fuel CASM guidance out to 2025 and what you're seeing for this year. Any high level view to what extent Wingo could be maybe a higher weighting of the operations relative to 2022?

Speaker 2

We don't see that in the short term, maybe medium term, not sure. Wingo is still a small part of our capacity and revenues. Colombia has been a challenging market for all airlines operating in that country. So I think I don't think we're going to see a lot of growth from the Wingo segment.

Speaker 3

But we have flexibility too. I think part of Our plan internally is to have a lot of flexibility in terms of how we put out capacity in the 2 of branch, but yes, I think in general terms more of the growth is going to come from the airlines side.

Speaker 7

Appreciate that guys. And just one very quick second question, just a follow-up to D'Savi's question. When we think about the RASM and consider the amount of updating you're doing. Was there any stage length adjusted noise and a pivot for 2023, Razzam, just out of curiosity.

Speaker 3

I would say that there is Not that much. I mean, there was I mean, there's I would say a little bit actually, I would say it's a tad, but it's not significant, I would say, Stephen.

Speaker 7

Okay.

Speaker 2

And then what I would add just to the RASM questions that we received that 2022 is a tough comp because it spiked up, I mean, RASM, it was the trend Not 100% typical what we saw last year. And After the pandemic, not all demand patterns have been exactly the same as they were before. It's getting back to something more similar to what we're used to. But last year in a way was A transitional year in capacity and demand in the whole thing. So the comps are a little bit More difficult in that sense, but I think what's important is that our bookings are still quite strong.

Speaker 7

Okay. Very helpful. Thanks very much guys.

Speaker 3

Thanks a lot.

Operator

Our next question comes from Rogerio Ajuju from Bank of America.

Speaker 8

Hey, good morning, Pedro, Jose. Thanks for the opportunity. Congratulations for the results. A couple here. One is just a clarification.

Speaker 8

So did you say that the whole fuel that is packed in the past couple of weeks. It's not fully included in the guidance. So how far would you be from the current oil price curve? And also on that matter, what does your guidance implies If you consider the current oil price curve, will you still be in the range of 20% to 24%?

Speaker 2

That's the

Speaker 3

first question. No, no, Roger. Thank you. Yes, thank you for allowing me to clarify it. The fuel guidance that we have is essentially the curve today.

Speaker 3

What I tried to say is that the RASM, given that the fuel has increased so quickly, The RASM itself has not been able we have not been able to adjust the RASM from an RM perspective over the last couple of weeks. But the fuel as It is in that $2.95 is as we're seeing the full year all in price for us for the entire 20 with the latest curve that we have from earlier in the week.

Speaker 8

Sounds great. Very clear. And my second question, if you could give us some information on which regions are there. You see the strongest bookings, which are the weakest at this moment, maybe always strong as you say, but can you kind of differ a little bit which ones you are more excited about and which we're

Speaker 2

not No, like usual, there's always a region that might be Weaker and they take turns. It's not always the same, but across the board, it's very similar right now.

Speaker 8

All good. Thank you very much.

Speaker 3

Thank you, Rodrigo.

Operator

Our next question comes from Michael Linberg from Barclays.

Speaker 9

Yes. Hey, it's Mike from Deutsche Bank.

Speaker 3

From Deutsche Bank, of course.

Speaker 10

Not a problem.

Speaker 9

We know it's Mike That was news to me too. I'm like, wow, I mean, everyone around here looks like DB, but anyway, Eddie, I guess 2 here. I think You should

Speaker 2

have known, right?

Speaker 9

I'm always the last to find out about these things. So

Operator

anyway,

Speaker 9

The on your commentary, Pedro, just about around unit revenue, you talked about an increase in competitive capacities, something along the lines of double digit range. Are you maybe more specifically, is that capacity in and out of Panama City? Or is that what you're seeing In some of the markets where you participate in the connecting flows. Right.

Speaker 2

Yes. So first, what I'll say is that what has happened is that I would say the rest of our peers in Latin America have caught up to their pre pandemic capacity. It took them a little bit longer for different reasons, but everybody is caught up now. And no, this is not Panama capacity. There's really no significant change or no change at all maybe to OD Panama capacity.

Speaker 2

But As we know as you know, we play in the connecting field. And so this has to be just with other hubs and also direct non hub capacity in the region.

Speaker 9

Okay. And then just to kind of update us, when you look at your split today local versus Connect, are you sort of 40, 60, 45, 55. I always knew that it was pretty not evenly split, but where are you from a local versus connect basis today?

Speaker 2

Yes, we're more in the seventy-thirty range.

Speaker 3

Yes. 70 connecting 30 local.

Speaker 9

Okay. Okay. That's super helpful. And then just my last question, after the convert gets taken out, Your liquidity will come down. And the question is what like when you think about target liquidity, how should we think about it maybe as a percent of LTM revenue, maybe how that factors into your leverage ratio of 0.5.

Speaker 9

What metrics should we sort of think about in the longer term, both from a liquidity perspective, what's the appropriate amount post pandemic and where we should target from a leverage perspective. Thanks for taking my questions.

Speaker 3

Yes. Mike, I think, well, first of all, I think the leverage will essentially be The same after the settlement. And so I think we're comfortable in the sort of very strong position that we have. Mind you, we have a set of investments coming along, a lot of aircraft coming and there's demand capital. And so We have some commitments coming forward and that will be used for growth basically, right?

Speaker 3

And then we have our dividend policy, which is But in terms of total liquidity, we could end up in the year in around 1,000,000,000 So that's I think something where we're comfortable with that level for the size of the business and given all the of the commitments that we have going forward in terms of aircraft coming our way.

Speaker 9

Okay, very good. Thank you.

Speaker 2

Thank you, Mike.

Operator

Okay. Our next question comes from Pablo Monticeff from Barclays.

Speaker 11

Hi, Pedro and Jose. Thanks for taking my questions.

Speaker 3

I thought you were with okay. So Paolo from okay, from Barclays. Yes, yes. So they swapped the firms, Paolo, so all right.

Speaker 11

Barclays. Okay. Just a question on the comment that you just said about leisure partners being very strong. To what extent do you attribute this strength to local currencies appreciating over the first half. And can we just extrapolate that strong local currency to strong leisure or there are another fundamental changes in the patterns of demand?

Speaker 11

Thank you.

Speaker 3

Yes, Pablo, I would say I will start by saying that It's been an interesting mix in terms of our leisure travel dynamic. First of all, there was a lot of U. S. Origin. Historically, of course, we've been more anything bringing people from South America to the Caribbean and to North America.

Speaker 3

That sort of reversed a little bit after the pandemic with the strength of the U. S. Dollar and now you're seeing more Americans coming south. That with a recent sort of strength of the real and the Colombian peso, then you're seeing some of that flow reversing a little bit again. So there's now we're kind of in a flux sort of moment where there's a little bit of everything into into the mix of our leisure travelers, which is, I think, very, very good in terms of the sources that we have for demand.

Operator

Our next question comes from Helane Becker from TD Cohen.

Speaker 12

Thanks very much, operator. Hi, team. Hope all is well. So one question I have is in terms of connecting traffic and kind of a combination of traffic and freight. With the Mexican government Forcing airlines to move from one airport to another airport with cargo.

Speaker 12

I'm wondering if that Creates an opportunity for some of the other airlines that connect freight to shift their capacity from Mexico City to Panama City, where you would potentially be a beneficiary of that.

Speaker 2

Yes. We have not seen any signs of movement in that direction and it's not something that we've given a lot of thought to. Our freight capacity is also limited, limited to the belly of our cargo of our passenger aircraft, which is limited and our single 737 freighter. So We don't think we will see any benefit from that if it was to happen.

Speaker 12

Okay. That's very helpful. And then I just have One clarification, Jose, on the fleet plan. You think you said you were going to end this year with 107 aircraft? Or is it a 100 Yes.

Speaker 12

Right. Okay. And then next year, Based on the delivery schedule of 14, that means, what, 121 aircraft for next year?

Speaker 3

Yes, Helane, we still have a set of aircraft that are under lease that are some of them could be extended. So our plan right now is that there will be a leased airplane that will be returning. So Our expectation as of today is that we could end the year 2024 with 120 airplanes in total. So it will be 14 deliveries minus

Speaker 12

Got it. And but could there be any other lease returns?

Speaker 3

No. At this time, I think it could be just this one.

Speaker 12

Okay. All right. That's very helpful.

Speaker 2

And we could renew it also.

Speaker 3

Yes, yes. As I was saying, our view as of today is that, but it could Still, we're still relatively flexible in that. Yes.

Speaker 12

Okay. All right. Well, that's really helpful. Thank you.

Speaker 3

Thanks.

Operator

Our next question comes from Daniel McKenzie from Seaport Global.

Speaker 10

Hey, good morning. Thanks guys. Couple of questions on 2024. Following up on Wingo, I know you're not planning to grow it much, but how many aircraft are you planning for the entity next year? It looks like it's about 16% of the seats today.

Speaker 10

And my thought is that Wingo as a percent of the overall system could trend down as you grow the mainline.

Speaker 2

Well, they're operating 9 aircraft. Right now, at the end of the year, it will be 9 out of 107. And it's not that, that number could not grow next year. It could. We have flexibility, as Jose mentioned, but they could also stay at 9.

Speaker 2

It really depends on how the Colombian market develops and what are the opportunities there. But most of the growth will continue being from Copa Airlines. So yes, their share of the total will come down under that premise, which is what will most likely happen.

Speaker 10

Second question here, for those of us that don't know all the smaller markets in Latin America, I'm wondering if you could just elaborate a little bit on the growth next year. So just some high level thoughts on mix, growth in existing markets versus new markets, long haul versus short haul. Whatever you can share would be great.

Speaker 2

Yes. So it's going to be a combination. Well, it's going to be mostly new frequencies, additional frequencies to currently serve markets. And we should also keep in mind that in the last 2 years, we've started like 8 or 9 new routes in the region and some of those We'll get more capacity, again, plus the markets we've been operating from before. So a lot is going to be Most of it is going to be new frequencies plus the full year effect of what we started this year We'll also impact capacity growth next year.

Speaker 2

And we still believe we'll probably open a few, 2 between 24 new destinations. And there's still a lot of opportunities In the whole continent, in the Americas, and we're always evaluating new markets. We also have 9 from pre pandemic where we have not restarted service. So we also have that. So we will be restarting service To some of the cities that we still haven't gone back to from pre pandemic.

Speaker 2

So we have that, we have new destinations and mostly additional frequencies to currently serve markets. So lots of opportunities as we see it.

Speaker 10

Yes, good. It's terrific. Thanks, Pedro.

Speaker 7

Thanks.

Operator

And our final question comes from Duane Pfennelwerth from Evercore ISI.

Speaker 5

Hey, thanks for taking the follow-up. I appreciate it. I just wanted to ask you about Kind of this relationship between fuel prices and fares and what you see competitively. I mean, the timing may have been a little bit off here. But As I remember back in the day, you had a tremendous ability to offset higher fuel, and there was a fair bit of on fuel surcharge in the mechanism for your competitive fares.

Speaker 5

Could you just touch on remind us the fuel surcharge mechanism and if the same is true today relative to the past? Thanks.

Speaker 2

Yes. So we no longer do fuel surcharge of charges as such and we're not in a fuel environment or a fuel price environment like we were back In 2,007, if I can recall when fuel surcharges were necessary. But we have priced the fuel increases in the past successfully That goes in the fair, not in a fuel surcharge. That's what happened in 2022, especially during the second half of 22 and we'll see where fuel goes right now and then we'll try to price it in as much as we can. It depends on competitors also and what they do, of course, we're always very competitive.

Speaker 2

There's more capacity than there was in 2022. As I mentioned before, capacity is pretty much back to pre pandemic levels for all airlines. So that might play into all of this. So that's why in the guidance in the detail of the guidance Jose shared. We're not getting ahead of ourselves.

Speaker 2

And it's kind of how we see it right now, but we always try to do better, of course.

Speaker 5

Yes. Okay. Thanks for the thoughts.

Operator

Thank you, Duane. I'd like to turn the conference back to Pedro Hayabran for closing remarks. Only

Speaker 2

mode. Okay. Thank you. So thank you all. This concludes our 2nd quarter earnings call.

Speaker 2

Thanks for participating and as always, thanks for your continued support. Have a great day and we'll see you in the next one. Thank you.

Operator

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

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Key Takeaways

  • Copa reported Q2 unit revenues (RASM) of $0.12 (+2.7% Y/Y) and unit costs (CASM) of $0.091 (−17% Y/Y), driving a 24.1% operating margin.
  • Excluding special items, Copa’s Q2 net profit was $154.5 million (EPS $3.92), versus an IFRS net profit of $17.5 million reflecting a $137.5 million mark-to-market loss on convertible notes.
  • Operational performance remained industry-leading with a 91.6% on-time rate, 99.8% completion factor and Skytrax recognition as the best airline in Central America & the Caribbean for the eighth consecutive year.
  • Network and fleet continue to expand: new service to Barquisimeto, Venezuela and several Wingo routes, ending Q2 with 101 aircraft (107 by year-end) and targeting 120 aircraft in 2024.
  • 2023 guidance updated to +12–13% capacity vs. 2020, an operating margin of 22–24%, RASM ~$0.123, CASM ex-fuel ~$0.06, and an all-in fuel cost of $2.95/gal, with a long-term CASM ex-fuel target of $0.058 by 2025.
AI Generated. May Contain Errors.
Earnings Conference Call
Copa Q2 2023
00:00 / 00:00