Copa Holdings (NYSE: CPA), the leading airline in the Latin American aviation market, has reported a robust third quarter with an operating margin of 20.3%, demonstrating resilience in a challenging market environment. The company's strategic focus on cost efficiencies and a strong hub in Panama has contributed to a net profit of $146 million, or $3.50 per share.
Key Takeaways
- Copa Holdings reported a net profit of $146 million, with an operating profit of $173.7 million.
- The company's operating margin stood at 20.3%, maintaining its industry lead.
- Passenger capacity increased by 9.5%, with traffic growth at 7.6%.
- Load factor was slightly lower than the previous year at 86.2%.
- Unit costs excluding fuel decreased by 1.6%.
- The airline ended the quarter with over $1.3 billion in cash and short-term investments.
- Copa Holdings is managing delays in aircraft deliveries and is expecting two new Boeing (NYSE:BA) 737 MAX 8 aircraft by the end of the year.
Company Outlook
- Copa Holdings is confident in maintaining its industry-leading margins.
- The company has outlined a preliminary capacity guidance of 7-9% growth for 2025.
- Management remains focused on maintaining a strong presence in key Latin American markets, such as Argentina.
Bearish Highlights
- Copa Holdings temporarily exited four markets due to delays in aircraft deliveries.
Bullish Highlights
- The company is focusing on cost efficiencies and strengthening its Panama hub.
- There are plans to receive 11 Boeing 737 MAX 8s in 2025, ending the year with a fleet of 123 aircraft.
- Copa Holdings is densifying its 737-800 fleet to increase the seat count from 160 to 166.
Misses
- The load factor saw a slight decrease compared to the previous year.
Q&A Highlights
- CEO Pedro Hedron emphasized the robustness and relevance of Copa Holdings' business model.
- CFO Jose Montero highlighted the company's efficiency and ability to sustain strong margins due to its low-cost base.
- Leadership changes include the retirement of CFO Jose Montero and the hiring of Robert Carre as the new Executive VP. The search for a new CFO is underway.
In summary, Copa Holdings continues to exhibit financial strength and strategic foresight amidst market challenges. With new aircraft on the horizon and a commitment to efficiency, the airline is poised to maintain its leading position in the Latin American aviation sector.
Full transcript - Copa Holdings SA (NYSE:CPA) Q3 2024:
Jonathan, Conference Call Moderator: 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 is being webcast and recorded on November 21, 2024.
Now, I will turn the conference call over to Daniel Tapia, Director of Investor Relations. Sir, you may begin.
Daniel Tapia, Director of Investor Relations, Copa Holdings: Thank you, Jonathan, and welcome everyone to our Q3 earnings call. Joining us today are Pedro Hedron, 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 analysts. 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. 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 reflect 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. Pedro Hedron.
Pedro Hedron, CEO, Copa Holdings: Thank you, Daniel. Good morning to all and thanks for participating in our Q3 earnings call. First, I would like to extend my sincere gratitude to all our co workers for their commitment to the company. Their dedication and hard work have been instrumental in keeping Copa at the forefront of Latin American Aviation. To them, as always, my highest regards and admiration.
We're pleased to once again report solid financial results for the quarter, delivering a strong and industry leading operating margin of 20.3%. These financial results are in part driven by our disciplined approach to executing our business strategy, including our permanent focus on cost efficiencies, which allow us to continue delivering industry leading operating margins even with the softer yield environment we have observed over the past 12 months. Going forward, our focus on our business strategy and commitment to reducing unit costs remain central to achieving strong financial results and are key to further strengthening Copa's competitive position in Latin America. Among the main highlights for Q3, capacity increased by 9.5% year over year. Passenger traffic grew 7.6% compared to the same period in 2023.
Unit cost excluding fuel or CASM ex came in at $0.057 a 1.6% decrease compared to Q3 2023, mainly driven by lower sales and distribution costs. Passenger yield came in at $0.122 8.7 percent lower year over year, mostly due to the last minute suspension of flights between Panama at the end of July, weaker currencies in certain countries in Latin America and additional industry capacity in the region. And load factor came in at 86.2%, 1.6 percentage points lower year over year. As a result, unit revenues or RASM came in at $0.11 a 10.1% decrease compared to Q3 2023. As mentioned before, we delivered an operating margin of 20.3%.
Excluding the impact of the Panama Venezuela flight suspensions, we estimate that we would have reported an operating margin of 21.2 percent for the quarter. On the operational front, Copa Airlines delivered an on time performance of 87.3% and a completion factor of 99.6 percent for the quarter, once again positioning ourselves among the best in the industry. Regarding our fleet plan, due to delays in Boeing's delivery schedule, the arrival of our last 2 aircraft for the year was postponed by a few months. Nonetheless, we still expect to receive 2 737 MAX 8 before year end, 1 at the end of this month and one in December. These two deliveries will bring our fleet to a total of 112 aircraft by the end of the year.
Regarding 2025 deliveries, Boeing has updated its delivery schedule to account for the recent delays and we now plan to receive 11 Boeing 737 MAX 8s next year to end the year with a fleet of 123 aircraft. This delivery schedule has production ramp up assumptions that will need to materialize, so actual aircraft deliveries could change. As you saw in our earnings release issued yesterday, we issued preliminary guidance for 2025, in which we expect to grow our capacity within a range of 7% to 9%. Jose will provide more details regarding our preliminary guidance for 2025. To summarize, we again delivered industry leading financial results for the Q3.
We continue to deliver on our cost execution, which remains key to the company's strategy going forward. We expect to grow capacity by high single digits in 2025 and plan to continue strengthening our hub of the Americas in Panama. And as always, our team continues to deliver world class operational results, while providing the consistent and reliable travel experience our passenger expect from us. Finally, we firmly believe that our business model remains as robust and relevant as ever and that our hub of the Americas in Panama is the best connecting hub 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.
Jose Montero, CFO, Copa Holdings: 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 Q3 results.
We reported a net profit for the quarter of $146,000,000 or $3.50 per share. We reported a quarterly operating profit of $173,700,000 and an operating margin of 20.3%. Capacity came in at 7,800,000,000 available seat miles or 9.5% higher than in Q3 2023. Load factor came in at 86.2 percent for the quarter, a 1.6 percentage point decrease compared to the same period in 2023 and our passenger yields decreased by 8.7 percent to $0.122 As a result, unit revenues came in at $0.11 or 10.1% lower than in the Q3 of 2023. Mainly driven by a lower fuel price, unit costs or CASM decreased to $0.087 or 6.2 percent lower year over year.
CASM excluding fuel came in at $0.057 a 1.6% decrease versus Q3 2023, mainly driven by lower sales and distribution costs as a result of higher penetration of both the direct sales and lower cost NDC trial agency channels, as well as our continued focus in maintaining the rest of our costs low. 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 $5,500,000,000 And as to cash short and long term investments, we ended the quarter with over 1 point $3,000,000,000 which represents 36 percent of our last 12 months revenues. And in terms of debt, we ended the quarter with $1,860,000,000 in debt and lease liabilities and came in with an adjusted net debt to EBITDA ratio of 0.6 times. I'm pleased to report that our average cost of debt, which continues to be comprised solely of aircraft related debt is currently in the range of 3.4% with around 65% of our debt being fixed.
Turning now to our fleet during the quarter, we received 1 Boeing 737 MAX 8 aircraft ending the 3rd quarter with a total fleet of 110 aircraft comprised of 68 730seven-800s, 32 730 7 MAX 9s, 9730 7700s and 1730 7 MAX 8. These figures include 1730seven-eight 100 freighter and the 9 730seven-800s operated by Wingo. With regards to the return of value to our shareholders, I'm pleased to announce that the company will make its 3rd dividend payment of the year of $1.61 per share on December 13 to all shareholders of record as of December 2. As to our outlook, we can provide the following guidance update for the full year 2024. We expect to increase our capacity in ASMs by approximately 9% year over year and we expect to deliver an operating margin within the range of 21% to 22%.
We're basing our outlook on the following assumptions. Load factor of approximately 86%, unit revenues within the range of $0.114 CASM ex fuel to be in the range of $0.58 and we're expecting an all in fuel price of $2.67 per gallon. In anticipation of 2025 based on the current and preliminary expectations of aircraft deliveries, we're projecting a year over year ASM growth of between 7% 9%. Additionally, we are projecting CASM ex fuel at approximately $0.058 As you might recall, this is in line with the CASM ex fuel target we shared with you back in our 2023 Investor Day. So in summary, we delivered great results for the 3rd quarter.
And we expect to deliver once again leading operating margins for the full year 2024 with low unit costs, which continue to strengthen our solid financial position while providing outstanding return of value to our shareholders. Thank you. And with that, we'll open the call for some questions.
Jonathan, Conference Call Moderator: Certainly. And our first question for today comes from the line of Savi Syth from Raymond (NS:RYMD) James. Your question please.
Savi Syth, Analyst, Raymond James: Hey, good morning. If I might on the revisions that you had for 2024, I was kind of curious if the unit revenue coming down a little bit there is related to kind of Venezuela flight suspensions taking longer or if you're seeing any other kind of weakness, softness in the market?
Pedro Hedron, CEO, Copa Holdings: Yes. This is Pedro here. So yes, in part of Venezuela, it took us a while to redeploy those aircraft. We were waiting for a restart date, which hasn't happened yet. So we kept the planes plus, plus it takes a while to start selling a flight and pull it up.
So we could not like redeploy those aircraft the following day. That's been happening mostly throughout November, some in the December high season. So I would say that probably the bigger quarter over quarter change.
Jose Montero, CFO, Copa Holdings: Yes. Well, in addition to that, Savi, we did highlight the Brazil currency or kind of the Brazil revenues coming in slightly below our expectations. So that's also driving the adjustment that we made.
Savi Syth, Analyst, Raymond James: Makes sense. And if I might just turn to your 2025 capacity view, kind of recognizing that that's preliminary. I think before you had wanted to grow low double digits and wondering, does demand still support low double digits and what's the risk that competitors backfill that? And obviously, what I'm trying to get here is, is supply tight enough where maybe you're changing lower capacity for higher yield here? Or is there a risk that your competitors could backfill that?
Pedro Hedron, CEO, Copa Holdings: Right. So our ASM guidance is directly related to Boeing deliveries. So that's what's driving that. And as a matter of fact, we're actually staying with 2730seven-seven 100s, which in our fleet plan 3 months ago, we're supposed to leave by 2025. So we're going to stay with those aircraft to make up for delayed Boeing delivery.
So that's driving our capacity. We have demand to grow a little bit faster than that. However, less capacity is always good for yield. So we're comfortable. We're fine.
We're growing between 7% and 9% next year. I think it's a good balance between keeping demand at strong healthy levels, demand and supply of course, and also further strengthening our hope in Panama.
Savi Syth, Analyst, Raymond James: That's what I thought. Thank you.
Jonathan, Conference Call Moderator: Thank you. And our next question comes from the line of Michael Linberg from Deutsche Bank (ETR:DBKGn). Your question please.
Michael Linberg, Analyst, Deutsche Bank: Hey, good morning everyone. I do have a couple here. I guess for starters, I know one of your competitors in Colombia did indicate that the market was starting to stabilize somewhat. And so I'm curious if you can just talk about the competitive situation there. Maybe you're seeing something similar or maybe not?
Pedro Hedron, CEO, Copa Holdings: Not sure what they meant by that. But we tend to grow with demand and our potential to capture the piece of that demand that belongs or corresponds to also. So we're very measured and pragmatic about how we grow and how we strengthen the hub. And that's why one of the reasons, not the only reason why we are able to return strong operating margins and strong operating results financial results over time. I cannot say that of every competitor.
Some have been growing maybe a little bit too fast. I won't mention names. But if that's stabilizing, it's probably good for the market and it should mean, I don't know, a better balance between demand and supply.
Michael Linberg, Analyst, Deutsche Bank: Okay. Okay. And then just a follow-up here. I thought it was interesting. Normally, once in a while, we'll see Copa pull out of a market, right?
The market isn't working and for a whole bunch of different reasons, it's kind of a one off. I thought it was interesting that I think and you can correct me if I'm wrong, but it looks like you're actually going to be pulling out of 2 markets. Maybe you've already pulled out of 2 Mexican markets. 1 is Tulum and the other is Santa Lucia, the alternative Mexico City airport. Is that a Mexican FX macro reason?
Is it I know Tulum, everybody rushed into the market at the same time and maybe that's an oversupply situation. What's behind those, Pedro?
Pedro Hedron, CEO, Copa Holdings: No, don't say that, Mike. No, we I'll tell you. We're temporarily only pulling out of 4 markets actually, the 2 you mentioned, but also Armenia in Colombia and Santiago El Caballeros in the Dominican Republic. So it's 4 markets we're pulling out temporarily. We should be back before the end of next year of 2025.
And the reason we're doing that is also tied to aircraft deliveries. So these are 4 markets that have an alternative airport around the corner.
Michael Linberg, Analyst, Deutsche Bank: I see.
Pedro Hedron, CEO, Copa Holdings: Less than 40 minutes or on average 40 minutes away, we have an alternative airport where we fly with many daily frequencies. These are all less than daily markets. So given the delays in aircraft deliveries, there are other markets that do not have the luxury of having like Pereira is 40 minutes from Armenia. In Mexico, the 2 airports are like 30 or 40 minutes apart. So we're going to deploy that capacity to other markets where we have strong demand and not enough aircraft.
Well, this other market can be served from the nearby airport and then we should be back by the end of next year, we get the deliveries we're expecting to
Michael Linberg, Analyst, Deutsche Bank: get. So Pedro, with the fact that you have to pull out of markets because you don't have airplanes and you're getting all these delayed deliveries, how should we think about potential compensation or how does it show up in maybe your CapEx this year and cash flow? And I don't know if Jose answers that because as I see it, not only you have a special relationship with Boeing. You are Boeing's beachhead in Latin America to the extent that I think the last deal that was signed, we had the President of the United States and the President of Colombia with you to sign that deal. So I would think that you'd be giving some getting some form of compensation and it's going to just show up and reduce CapEx.
Any color on that? Thanks for taking my questions.
Pedro Hedron, CEO, Copa Holdings: Thanks, Michael. I'll let Jose answer the question. But this particular move that we're talking about, we're doing it to strengthen our bottom line and to better serve our whole network. So there won't be a compensation for those specific actions in Porro Seguro in general with how that's working.
Jose Montero, CFO, Copa Holdings: Yes. Mike, and going back to your comment, yes, we're very happy and proud to have that signing ceremony. It was with the President of the U. S. And the President of the United States at that moment here in Panama City.
But the yes, there is of course some contractual relief associated with this situation. But it's our the nature of our contracts with Boeing is confidential. But yes, it would flow through CapEx to a lesser amount of CapEx going forward.
Michael Linberg, Analyst, Deutsche Bank: Okay. Thanks for taking my questions.
Jose Montero, CFO, Copa Holdings: Thank you, Mike. Thank you, Mike.
Jonathan, Conference Call Moderator: Thank you. And our next question comes from the line of Duane Pfennigwerth from Evercore ISI. Your question please.
Duane Pfennigwerth, Analyst, Evercore ISI: Hey, good morning. Thank you. So just on the guidance, you're going to generate 21%, 22% EBIT margins this year, which includes the impact of the MAX 9 grounding earlier in the year and then obviously the close in cuts that you had to make to Venezuela. So can you just remind us what do you think those two items cost you and just remind us of the sizing of those two impacts combined?
Jose Montero, CFO, Copa Holdings: Well, the Venezuela impact was probably, I would say, 0.5. And the For the full year. For the full year. And the impact of the Boeing grounding, I think we disclosed it to be in the
Pedro Hedron, CEO, Copa Holdings: order of about
Jose Montero, CFO, Copa Holdings: $40,000,000 when it occurred. So that's the full year impact of this. I think if you can do the math.
Duane Pfennigwerth, Analyst, Evercore ISI: Okay. That's great. And then go ahead. Sorry.
Pedro Hedron, CEO, Copa Holdings: Yes. No, yes, sorry Duane. No, what I was going to add is that there are so many moving parts in our industry that, yes, it's not like you know that it's not simple math.
Jose Montero, CFO, Copa Holdings: But yes, you have to argue that our 21% to 22% results for 2024 include those two aspects, yes, certainly.
Duane Pfennigwerth, Analyst, Evercore ISI: Yes. I mean, it does feel like as we think about next year, there's some periods that have some pretty easy compares, but we'll see. A minor question for you. On the interest expense, you called out $4,000,000 related to the adjustment of a discount rate for the calculation of leased aircraft that you're going to return. Is that a one timer here in the Q4?
Or is that something that will kind of stay in the interest expense on a go forward basis?
Jose Montero, CFO, Copa Holdings: It is a yearly periodic adjustment that gets performed related to where interest rates lie. It's just a very arcane IFRS requirement where you basically are truing up the return conditions in the balance sheet with the risk free rate basically that we have. So that liability that shows something the balance sheet shows the true value of it at the moment where the balance sheet was established. So therefore, it as on a let's say on a lowering interest rate environment that essentially you have to make an adjustment and to so in this case, it's a bad guy, let's say, when the interest come down, there is a higher charge related to that. So I mean, you could argue that it will kind
Michael Linberg, Analyst, Deutsche Bank: of from a modeling perspective, it will vary depending on where as interest
Jose Montero, CFO, Copa Holdings: rates fluctuate, it could vary depending on where as interest rates fluctuate, it could fluctuate as well.
Duane Pfennigwerth, Analyst, Evercore ISI: Okay. And then maybe just to sneak one last one in. A couple of the U. S. Carriers have been able to kind of look a little bit further out beyond the Q4 into early 2025.
The implied 4th quarter here, is that indicative of trends that you see into early Q1? And listen, understand you don't typically comment on 2 quarters out, but it just feels like the yield environment feels a little bit different in January, February than what we're seeing here in the Q4?
Jose Montero, CFO, Copa Holdings: I think Duane, again, as you just answered kind of the question in the sense that we don't provide a multi quarter guidance and we have an established guidance for the full year 2025. But I think on a, let's say, sequential basis, you could argue that the comps are sort of similar for Q1 versus what's going on in Q4 in terms of on the year over year comps, let's say.
Duane Pfennigwerth, Analyst, Evercore ISI: Okay. Appreciate the thoughts.
Pedro Hedron, CEO, Copa Holdings: Thank you, Duane. Thank you, Duane.
Jonathan, Conference Call Moderator: Thank you. And our next question comes from the line of Stephen Trent (NS:TREN) from Citi. Your question, please.
Stephen Trent, Analyst, Citi: Good morning, gentlemen, and thanks very much for taking my questions. The first one, I recall on the 2nd quarter that you guys had made an adjustment to a provision for unredeemed ticket revenue that had a little bit of a wiggle impact on the margins. And could you refresh my memory if there was any other adjustment this quarter or will you still have essentially the same policy on that provision as we move forward? Thank you.
Jose Montero, CFO, Copa Holdings: Yes. The last quarter we called out a kind of 0.5 percent impact. And the reason why we called it out was because it was a catch up. We just adjusted the factor that we used for unredeem during the Q2, and we decided to be conservative and do we did it in a way that it captured the entirety of our assumptions or estimates for 2024. So it was kind of like a catch up that occurred during Q2 and so there was no other item related to that in Q3.
Stephen Trent, Analyst, Citi: Great, great.
Jose Montero, CFO, Copa Holdings: Accounting entry related to the quarter, nothing beyond that. That's what I meant to say, Steve.
Stephen Trent, Analyst, Citi: No, that's very helpful. I appreciate that, Jose. And just one other quick one. When we think about all of the I mean, not just you, everybody, the supply chain challenges with the OEMs, Could you give us a little bit of your high level thinking long term, how you think about optimizing maybe your owned aircraft versus leased aircraft if you've the supply chain stuff has made you think differently about the long term planning? Thanks.
Pedro Hedron, CEO, Copa Holdings: Pedro here, Steve. Yes, that's a complicated matter because it's not like we have that many options. So we have bought some aircraft off lease. We're staying with some 700s we were expecting to return. And we have even bought spare engines ahead of time.
We're very, very proactive in securing parts in the marketplace even though we have contracts with OEMs that are supposed to cover us. So we've gone like beyond the call of duty to make sure that we have the stock. And we're even doing maintenance work even for engines that program work where we had to send the engines to the MROs in the past, we're doing that with the support of GE, we're doing that in our maintenance base in Panama also to speed up turnaround times and have more engines in stock. So we're doing a, I would say, a gigantic effort versus the easier times before. And we've been able to manage.
So we have not affected our operations for lack of parts or lack of engines and aircraft.
Jose Montero, CFO, Copa Holdings: And I would say that the moves that Pedro just alluded to, like the buying of leases and the extent or deciding to maintain the 2 737-700s, etcetera, just are a testament of the flexibility that we have in our fleet plan as well. So we've we continue executing on the flexibility that we have in our fleet plan.
Stephen Trent, Analyst, Citi: Really appreciate that, gentlemen. And Jose, I'm not sure if this is your last results call, but if it is, really deeply appreciate and I'll miss all our interactions.
Jose Montero, CFO, Copa Holdings: Thank you very much, Steven. You have brought it here to my eye here. So thanks a lot and thank you for the partnership. Thanks to you, sir.
Jonathan, Conference Call Moderator: Thank you. And our next question comes from the line of James Spence from Morgan Stanley (NYSE:MS). Your question please.
James Spence, Analyst, Morgan Stanley: Yes, hello. Thank you. I just want to ask on the Venezuela situation. You already mentioned about the impact for the full year. I just wanted to clarify, was it solely concentrated on the Q3?
Or is part of the impact also going to be seen in the Q4 of this year? And maybe also on like capital allocation, how are you thinking about it going forward? I mean, you have extremely solid balance sheet that maybe lower CapEx due to the delay. So are you maybe contemplating some buybacks seeing where the share price is currently trading at? I don't know.
Any thoughts on that would be very useful. Thank you.
Pedro Hedron, CEO, Copa Holdings: I'll answer the first question and let Jose take the more difficult second question. As always, Yes, there will be an impact on Venezuela in the Q4, which would be slightly above half of what was the impact in the Q3. And that's because we've had time to redeploy some of the aircraft and generate new bookings in other markets. So that's the difference. But it will still be a little bit over half of the 0.9 impact we saw in the Q3.
Jose Montero, CFO, Copa Holdings: Yes. Gents, in terms of capital allocation, the first thing that we have to say is that we have a very generous dividend policy, 40% of prior year's adjusted net income, which has a very strong dividend yield right now. So that's something that is of importance and a focus for our company. We do have a buyback program, a $200,000,000 approved buyback program, which we've executed about a quarter of it so far. But in terms of capital allocation, I would say that over the next year and a half to 2 years is going to be the majority of the bulk, let's say, of the order that we have with Boeing in terms of aircraft.
So actually for 2025, our expectation is that CapEx in total is going to be approaching $900,000,000 That cash CapEx is going to be about $350,000,000 So there is going to be some CapEx requirements during the year 2025 that we are sort of preparing for let's say right now.
James Spence, Analyst, Morgan Stanley: Okay, perfect. Very clear. Thank you.
Jonathan, Conference Call Moderator: Thank you. And our next question comes from the line of Alberto Valerio from UBS. Your question please.
Alberto Valerio, Analyst, UBS: Hi gentlemen. Thank you for taking my question. My first one is about the forward guidance, preliminary guidance to 2025. If you take the current oil curve or jet fuel curve and flat yields for next year, we will be reaching something close to 23% margins. My question is, would that margins be recurring and feasible for the future or something that changed from the past?
And my second one, if I may, about Argentina. You guys had a big presence in the country in the past. Are you looking to going back there after this change that we have seen in the economy? Thank you.
Pedro Hedron, CEO, Copa Holdings: So I'll start with the second one on Argentina. I'm not sure if I got the full question, but Argentina remains a strong market for us and we have good coverage. We fly to about 5 cities and we have a number of daily frequencies to Buenos Aires. And we're again, as I mentioned at the beginning, we try to deploy the capacity that makes sense for us. And we think that's what we have in Argentina and we're very happy with our flights to Argentina in spite of any other issues that they might be going through.
So that's working well in that market. In terms of the first question, I'll let Jose back me up. We are not issuing guidance for 2025, but I'll just say that we have shown in the past that we can consistently deliver industry leading margins or at least leading margins in our part of the world. And we're confident that we have the structure in place to continue delivering those results.
Jose Montero, CFO, Copa Holdings: And as Pedro mentioned, we'll provide our full year guidance in February. Yes. And the other aspect is that we are with our lowest or our lower unit cost base right now that we've been able to achieve over the last several years, we are simply able to deliver leading results and not be as dependent on the fluctuations in the market dynamics. So we're just simply fundamentally more efficient and able to sustain very, very good margins with our low cost base.
Jonathan, Conference Call Moderator: Thank you. And our next question comes from the line of Raju Aryushu from Bank of America. Your question please.
Alberto Valerio, Analyst, UBS: Hello, Pedro, Jose. Thanks for the opportunity. I have one follow-up on yields, if I may. First one, a confirmation. Is the guidance imply a full year of restrictions in flights to Venezuela?
And any expectations of operations resuming there? And the second part of the question is regarding the year over year comparison of yields. So all else being constant, if you could help us to think a little bit about how the comparable basis is in first half of twenty twenty four and second half. So we had currencies devaluating in the region, and we also had Venezuela stop operations at the end of July. So any other item that we should take into consideration?
And what is the expectation for this comparison basis of yields in 2024? Thank you.
Jose Montero, CFO, Copa Holdings: Yes. So the guidance that we have issued for full year 2024 includes the Venezuela impact for the moment or for the period that we have been affected, which is effective the end of July of this year. So that's what it's embedded in there. Remember that a portion of that capacity was not deployed immediately. So therefore, it had an impact and also the flow of the passengers on this.
And in terms of 2025, bringing forward the 2025 guidance, we haven't issued any revenue guidance for the year. It's just simply a preliminary capacity guidance and a CASM ex fuel guidance. So but the capacity guidance assumes that either Venezuela returns or that the flights or the aircraft or the capacity are deployed to other destinations within network. So it's from the standpoint of capacity and deployment, there is let's say, it's embedded in regardless of what occurs with the aircraft, it would be embedded within that capacity. And in terms of yields for the full year, I would say that for full year 2024 returning back to 2024, the yields in the second half of the year have also been affected by the currency fluctuations that you described, specifically in Brazil.
Actually, we highlight Brazil because there was a drop in the real during the latter part of the second quarter that influenced the sales and the revenues in the Q3. And that's also, as I discussed earlier in one of the earlier questions, part of the reason why the adjustment from $0.155 to $0.114 in the 4th quarter is also related to the Brazil the continued Brazil impact.
Alberto Valerio, Analyst, UBS: Okay, perfect. And if I may, a follow-up on Venezuela. Is there any kind of upside if operations resume there in terms of yields' strength?
Pedro Hedron, CEO, Copa Holdings: Yes, it's hard to know. It's an unpredictable situation. I'm confident that we will restart flights. We were flying to 5 cities over 40 flights per week. We will restart at some point and maybe not this year, hard to predict.
I would guess that in at some point in 2025, but saying if it's in the Q1 or the Q2, it's hard to tell right now.
Alberto Valerio, Analyst, UBS: Okay, fair enough. Thank you very much.
Michael Linberg, Analyst, Deutsche Bank: Thank you.
Jonathan, Conference Call Moderator: Thank you. And our next question comes from the line of Daniel Mackenzie from Seaport Global. Your question please.
Daniel Tapia, Director of Investor Relations, Copa Holdings0: Hi, thanks guys. A couple of questions here. Following up or circling back on the CapEx that jumps to $900,000,000 in 25. So for those investors that are investing a little longer term, how do we think about the drop down in 2026 and 2027? And then just related to that, I'm just wondering if there's an appetite to add more aircraft to Wingo.
Jose Montero, CFO, Copa Holdings: So in 2026, I would say it's similar. It's similar in size and of course it is all depending on what the delivery stream is from Boeing to us because our all our essentially all the CapEx is aircraft. So I would say preliminary that in 2026 it will be very similar to a 25 CapEx. And then 2027 probably a tad higher. I mean it depends on ultimately on the delivery stream is.
I would say for preliminary modeling perspective for 26 and 27, you could probably model it in a similar level.
Pedro Hedron, CEO, Copa Holdings: In terms of Wingo, as we get more deliveries next year, we'll give Wingo at least 1 aircraft, 1800 next year. It's in our fleet plan that we've published, if I'm not mistaken. And they could probably use a few more, but we're all tight aircraft right now. But they'll get at least 1 next year.
Daniel Tapia, Director of Investor Relations, Copa Holdings0: Yes, very good. Second question here, I'm wondering if you can unpack 2025 growth. So premium seat growth versus mainline seat growth and just given the questions on FX earlier, I'm just wondering how that's shaping your thoughts about where you want to grow. So more U. S.
Flying or perhaps more to smaller markets that are underserved? I'm just trying to get a sense of how the macro backdrop is shaping how you're thinking about the business and growth.
Jose Montero, CFO, Copa Holdings: Yes, Dan, a couple of things. I'll give you some color on the breakdown of the growth. First of all, the majority of the growth for next year is going to be in full year effect of service that we started during 2024. About 2 thirds of the growth is going to be full year effect. And then the remainder is probably going to be, I don't know, quarter of the remainder is going to be or 25% of growth is going to be frequencies to markets that we already serve.
And then a minor portion will be gauge. We're getting additional well, actually it's a full year effect of the 9s that we're getting towards the latter part of this year or I'm sorry, the year that we got earlier in the year. So full year effect of the last several MAX 9s, we have 32 9s that are basically in the remainder of the aircraft are just going to be 8s. So that's basically that. There's also the fact that we're adding seats into our 800s and densifying that's in our component of the growth for next year.
That will also help our CASM ex in 2025. So that's gauge. Gauge. So new destination is going to be a minor portion of the growth, just low single digit of the growth is going to be new destinations. Now in terms of where we put the growth, it's we have a lot of options and flexibility.
But I would say usually you have to start from a premise that the hub meets balance. So you're always going to balance out north of Panama versus south of Panama. So you always want to balance the group.
Pedro Hedron, CEO, Copa Holdings: And of course, profitability or potential profitability has a heavyweight on our decisions. Yes.
Daniel Tapia, Director of Investor Relations, Copa Holdings0: That's a given. Well, if I could squeeze one final one in here, and that's just given the growth, the capacity constraints at Toquaman Airport, how easy is it for other airlines to get access to gates? And do you have the gates that you need to execute on the growth?
Pedro Hedron, CEO, Copa Holdings: Yes. Tocumen is an open airport. It's not slot controlled. It's not gate controlled. And it does not there's nothing about Tocumen that stops anyone from coming in.
As we continue growing, the airport is already working on plans to expand its capacity, which will be needed in between 2 3 years from now. And there's a lot of low hanging fruits that they will implement, take advantage of to increase its capacity. So there are actually no restrictions. There might be some peak moments during the day where the airport might be tight in slots and gates, but that will be improved also.
Daniel Tapia, Director of Investor Relations, Copa Holdings0: Thanks for the time you guys. Appreciate it. Thank
Jonathan, Conference Call Moderator: you. And our final question for today is a follow-up from the line of Savi Syth from Raymond James. Your question please.
Savi Syth, Analyst, Raymond James: Hey, thanks for the follow-up. Just two quick ones. First, just on the unit cost guide for 2025, that's impressive given that you are slowing growth. It sounds like Jose, you mentioned densification is helping, but I think you're already expecting that. I was curious if you could talk about like what's helping you generate that good unit cost execution?
Jose Montero, CFO, Copa Holdings: Yes. Well, first of all, yes, we are facing like everybody else. There are inflationary pressures out there, airport fees, overflights, airspace costs, etcetera. Those are items that put pressure on our costs. Aside from the densification of the 800s that will be an ongoing project throughout 2025.
And just as a reminder, we're bringing the seat count on the 48 737-800s that Copa Airlines operates from an average of 160 to 166 seats, so adding an additional row. In addition to that, it's growth, 1st of all, the growth helps in the overall growth in capacity that we're guiding to. There is still a tapering off of the sales and distribution efforts and initiatives that we're pursuing. So there's a little bit of that. And maintenance also has some opportunities that we're pursuing for next year that should allow us to keep remind you that we achieved our $0.0508 CASM target a year early.
But I think we're hopefully keeping it for next year as well.
Savi Syth, Analyst, Raymond James: Appreciate that. And then maybe just final question on as you look to transition out, any update on the CFO search and any other kind of thoughts on the management makeup?
Jose Montero, CFO, Copa Holdings: So you were let me just simply say something. This is like my last question ever.
Pedro Hedron, CEO, Copa Holdings: So I thought for a second that I was going to get away without that question. Actually, we were like doing high fives here, but of course that was not going to happen.
Savi Syth, Analyst, Raymond James: Sorry about that.
Jose Montero, CFO, Copa Holdings: Okay,
Pedro Hedron, CEO, Copa Holdings: Savi. We're prepared. So well, and I'll take actually another more questions, but I'll take this opportunity to recognize Jose on his last earnings call. He's been with Copa over 30 years. He started in our operations control center, then was planning an alliances then for over 10 years.
He's done a great job as CFO of the company with a ton of accomplishments, most during really challenging years where we were able always to keep our operating margins in double digits with the exception of course like the heart of the pandemic 2020. But and a lot of work goes into those results, a lot of initiatives, cost initiatives, financing initiatives, etcetera. So Jose has done an outstanding job and he has now decided to retire. So he's earned the right and we are actively searching for his replacement internally and externally. We're not ready to announce anything yet, but we're actively working on that.
And we also have contingency plans if we were not ready by January 1. So there's nothing really new to announce right now in that regards. Yes, go ahead.
Stephen Trent, Analyst, Citi: No, thank you
Jose Montero, CFO, Copa Holdings: for that. But the reality is that there's a team here. It's not like it's not because of any particular person. So there's a team ongoing that does everything. And so I think that you have to have the confidence that no one is indispensable in this particular case.
And I think we have a very strong team behind in the financial areas and overall in management that will go forward. So that's actually part of the most important things that I think about all the time.
Pedro Hedron, CEO, Copa Holdings: Of course. So we're not dropping the ball at all. If we did, it will not look good on Jose. So that's not going to happen. We're not going to drop the ball.
We have a strong team. So that won't be a weak point. And then in terms of other management changes, we did bring in and we issued a press release. We created a new executive VP position. The person that's filling that position is already here and his name is Robert Carre.
He comes from Wizz Air. He was the President at Wizz Air. Before that, he was the CCO at ECjet. Before that, he was with Mackenzie for many years in the aviation sector, working a lot in Latin America. So I plan to share some of my workload with Robert.
It will allow me to not have to concentrate on so many things every single minute of the day. So he'll help me there and I'll be able to focus on many other things. So we're basically strengthening the company, strengthening the management team to be even stronger overall going forward.
Savi Syth, Analyst, Raymond James: And I can appreciate those are big shoes to fill, so taking some time makes sense. I appreciate the response.
Jose Montero, CFO, Copa Holdings: Thank you, Javier.
Jonathan, Conference Call Moderator: Thank you. This does conclude the question and answer session. I'd now like to hand the program back to Pedro for any further remarks.
Pedro Hedron, CEO, Copa Holdings: Okay. Thank you, sir. So thank you all again. Thanks for participating in this earnings call. Again, thanks to Jose for his great work at Copa.
This is his last call. I know he's going to miss them. We know that. So maybe he'll make a cameo in the next one. But seriously, thank you all, really.
Thank you for your questions. Thank you for your participation and your support as always. We'll keep on working really hard like we always do to continue delivering strong margin and industry leading results under any circumstance. So thank you and have a great day.
Jonathan, Conference Call Moderator: 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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