Copa Holdings, S.A. (CPA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings' First Quarter Earnings Call. [Operator Instructions] As a reminder, this call is being webcast and recorded on August 6, 2026. Now, I will turn the conference call over to Daniel Tapia, Director of Investor Relations. Sir, you may begin.

Thank you, Alia, and welcome, everyone, to our second quarter earnings call. Joining me today are Mr. Pedro Heilbron, Executive Chairman and CEO of Copa Holdings; Mr. Robert Carey, Executive Vice President; and Mr. Peter Donkersloot, our CFO. Pedro will begin with an overview of the quarter. Robert will then discuss commercial performance and operational highlights. Peter will conclude with a review of our financial results and outlook. Immediately after, we will open the call for questions from analysts. As a reminder, Copa Holdings' financial reports have been prepared in accordance with International Financial Reporting Standards. In today's call, we will discuss certain non-IFRS financial measures. A reconciliation of these measures to comparable IFRS measures can be found in our earnings release, which is available on our website. 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 would like to turn the call over to our Chairman and CEO, Mr. Pedro Heilbron.

Thank you, Daniel. Good morning, and thank you all for joining us for our second quarter earnings call. Before we begin, I would like to recognize and thank our more than 9,000 coworkers. Thanks to their commitment, professionalism and disciplined execution. Our team continued to deliver strong financial results while maintaining exceptional operational reliability and outstanding service to our passengers. They are the foundation of Copa's success and have my admiration and appreciation. Our second quarter results demonstrate the resilience of our business model in a significantly higher fuel price environment and reinforce our ability to continue generating profitable growth through different market cycles. During the quarter, we delivered an operating profit of $91.7 million and an operating margin of 8.7%. These results were affected by an increase of 85% in the all-in fuel cost compared to Q2 '25, with approximately 40% of our bookings sold before the fuel cost increase. In the quarter, we grew capacity 16.5% measured in ASMs while maintaining solid load factors. Our capacity additions in 2026 after years in which aircraft delivery delays slowed our growth, allow us to further consolidate our Hub of the Americas advantage, especially in an environment of strong passenger demand across our network. Looking ahead, booking trends remain strong, which support our expectations for another year of high load factors and solid financial performance. As part of our continuous efforts to strengthen the Hub of the Americas, we recently set in place our transition from 6 to 8 connecting banks beginning in March 2027. This decision will improve connectivity throughout our network, provide greater travel options for our passengers, increase aircraft utilization, optimize the use of airport infrastructure and further strengthen Panama's position as the leading hub for intra-Americas travel. Combined with our structurally low unit cost, best-in-class operational reliability, strong balance sheet and the unique advantages of our Hub of the Americas, we remain confident in our ability to successfully execute our growth plans and continue delivering value to our shareholders. With that, I'll turn the call over to Robert, who will discuss the quarter's commercial and operational highlights.

Thank you, Pedro, and good morning, everyone. Before I start, I would also like to thank our coworkers across the organization for their continued dedication and outstanding execution throughout the quarter. I have now been here 2 years and Copa's culture is clearly one of our strengths. Let me begin by reviewing some of the quarter's key commercial and operational highlights. Operating revenues increased 25.7% year-over-year to $1.1 billion. Passenger yields increased 8.7% compared to Q2 2025. Unit revenue or RASM increased 7.9% to $0.116 while capacity measured in ASMs increased 16.5% year-over-year. Load factor was 86.7% compared to 87.3% in Q2 2025. Revenue performance for the quarter was partially impacted by the World Cup, which temporarily affected travel patterns during June. As a result, June load factors were 2.3 percentage points lower year-over-year, putting modest pressure on unit revenues. We estimate that the World Cup reduced second quarter RASM by approximately $0.001. Despite this headwind, we delivered another quarter of solid revenue performance and continue to see strong demand trends throughout our network going forward. Demonstrating the strong demand, we published our July traffic numbers this week, reporting a load factor of nearly 90% on a year-over-year capacity increase of 16%. Furthermore, this load factor, one of our highest ever, came in a higher yield environment. As you can see from our full year guidance, we are expecting these strong load factors to continue. On the operational side, we delivered industry-leading results. During the quarter, Copa Airlines delivered an on-time performance of 90.6% and a flight completion factor of 99.8%. These results position Copa Airlines among the very best airlines globally for operational reliability and represent a key differentiator of our passenger value proposition. Turning to the network. Recently, we announced the addition of Porlamar in Isla de Margarita, Venezuela, a popular leisure destination, which will start in November. With this addition, Copa will serve 88 destinations in 32 countries throughout the Americas, further strengthening the breadth and convenience of our network and reinforcing the leadership position of our Hub of the Americas. We also recently achieved an important milestone in enhancing our passenger experience with the launch of Starlink onboard internet. In July, Copa operated its first Starlink equipped flight, becoming the first airline in Latin America to offer high-speed Starlink connectivity. We expect the rollout of Starlink Wi-Fi across our fleet to be completed in the first half of 2027. Finally, on the fleet side, we took delivery of 4 Boeing 737-MAX 8 aircraft during the quarter, ending the period with a fleet of 131 aircraft. For the remainder of the year, we expect to receive 1 additional 737-MAX 8. As always, we maintained significant flexibility in our fleet plan through delivery options, slide rights, lease expirations and a substantial base of unencumbered aircraft, which allows us to adjust the pace of growth if market conditions warrant. To conclude, demand trends and booking patterns remain strong. With that, I will turn the call over to Peter, who will review our financial results and outlook in more detail.

Thank you, Robert, and good morning. I'd also like to start by recognizing our team's continued dedication to delivering industry-leading results. Their commitment remains essential to our strong operational and financial performance. In the second quarter, we reported an operating profit of $91.7 million, resulting in an operating margin of 8.7% compared to 21.7% in the second quarter of 2025. Net profit totaled $68.2 million or $1.67 per share and a net margin of 6.4%. Unit costs, excluding fuel or Ex-Fuel CASM remained flat year-over-year to $0.057, reflecting our continuous focus on cost discipline. Including fuel, CASM increased 26% to $0.106, a result of significantly higher fuel prices. During the quarter, average all-in jet fuel prices increased 85% year-over-year from $2.32 to $4.28 per gallon. Despite having approximately 40% of our second quarter bookings already sold before the increase in fuel prices. Strong demand and higher yields enables us to recover approximately 40% of the year-over-year increase in fuel expenses during the quarter. Our fuel recovery calculation compares the year-over-year increase in revenues attributable to higher RASM with the year-over-year increase in fuel expenses resulting from higher all-in fuel prices, both calculated using 2026 capacity levels. Turning to our balance sheet and liquidity. We ended the quarter with approximately $1.5 billion in cash, short-term and long-term investments, representing 39% of last 12 months revenue. Our balance sheet remains among the strongest in the airline industry and continues to be a key competitive advantage. Total debt, including lease liabilities, stood at approximately $2.7 billion at quarter end, all of it related to aircraft financing. Our average cost of debt is currently 3.7%. And we ended the quarter with a net debt-to-EBITDA ratio of 0.9x. Our financial strength continues to provide substantial flexibility as we continue to execute our long-term strategy. Turning now to shareholder returns. I'm pleased to announce that our Board of Directors ratified the company's third quarterly dividend payment of $1.71 per share. The dividend will be paid on September 15 to all shareholders of record as of August 31. Looking ahead, while fuel prices remain elevated and volatile relative to prior year levels, underlying demand trends across our network continue to be strong. Based on these demand strengths and current fuel cost projections, we are updating our full year outlook and now expect an operating margin for 2026 to be in the range of 17% to 19% with a capacity growth of between 14% to 15%. This outlook assumes approximately a load factor of 87%, a RASM of $0.12, Ex-Fuel CASM of $0.057 and an all-in fuel price per gallon of $3.60. To summarize, demand and revenue trends remain strong across our network. We are maintaining industry-leading cost discipline. Our balance sheet remains among the strongest in the industry. And our proven business model continues to position us well to navigate the current fuel environment while delivering profitable growth and long-term shareholder value. Thank you. And we'll now open the call for questions from the analysts.

[Operator Instructions] Our first question comes from the line of Savi Syth from Raymond James.

I was kind of curious, I think, Pedro, I think you mentioned that the second quarter was 40% booked heading into -- prior to all the kind of the fare increases. I was curious how much of the third quarter was booked prior to the fare increases? And as you kind of look out, how much of the third and the fourth quarter are in the books today?

Okay. So in Q3 was pre-war, of course, we had about 20%, a little bit below 20% booked for Q3 and of course, much less for Q4, almost nothing for Q4.

And today, Pedro, how much is booked?

I'll let Robert answer.

Yes. And then, Savi, your question was what is the outlook right now for Q3 -- what is the booking level for Q3 and Q4, correct?

That's correct.

Yes. Right now, we're about 75% booked for Q3 and about 25% sold for Q4.

Perfect. And if I might, just curious, I saw the sort of slight changes in the delivery schedule here for '26, '27. Any early thoughts on how you're thinking about deliveries in 2028 as I'm guessing some of those discussions are happening now?

Yes. We published up to 2027, if I'm not mistaken. And we're getting 12 aircraft in 2027. And as always, we have some flexibility. We're going to let go 2 700s that come up for their 20-year check. So we won't do those 20-year checks. We'll let 2-700s go. So net, it will be 10 aircraft joining Copa Holdings in 2027. We still have another 5 700s, which we can let go. We can park at any time, we can harvest the engine. So we also have that flexibility, but we are expecting a strong 2027. Of course, we're not guiding to 2027 yet. But we are very comfortable with the aircraft we're having delivered next year and we think we need them all. For 2028, the number -- again, we haven't shared that yet. It will be higher because it's like almost the end of the road for all the Boeing delays, delivery delays that we had in the last 4 years. However, we also have a number of lease expirations. We have 6 lease expirations plus the 5 700s. So we have like 11 aircraft that we could let go easily in 2028, depending on demand. And plus we have our unencumbered aircraft, which is over 40. So we have lots of flexibility. Again, we think we're going to need most of our 2028 deliveries. We'll share that information for the end of the year, but we have lots of flexibility.

Our next question comes from the line of Duane Pfennigwerth of Evercore ISI.

So as you think about the full year unit revenue guidance up 7-ish percent on 15% capacity growth, so low 20s revenue growth. Just wondering if you can give some color on the balance of the back half. Which -- do you expect a big variation between third quarter unit revenue growth and the fourth quarter? Or is your expectation that they would look pretty similar at this point?

I'll let Robert answer that question. But I'll say that I think the #1 thing that's very important is that we're seeing strong demand right now. And also that makes us very comfortable with our projections, of course, that as of today. And -- but I'll let Robert to share some of the specifics.

Yes. Duane, at this point, we're seeing plus 10% on RASM in H2. I would say it's fairly consistent across Q3, Q4. In terms of year-over-year variation, it's broadly similar between the 2. So I think nothing really of note in either quarter that varies.

Great. That's very clear. And then just on the trajectory of non-op net interest expense. Anything to call out in that trajectory into the back half of the year?

Duane, this is Peter. I would say that it's pretty stable the net interest expense that we're going to see across the year. Nothing to highlight more than as more -- we receive more aircraft. We have a little bit more financing cost. But it's embedded in our fleet plan and pretty much straightforward on how to calculate it.

Our next question comes from the line of Guilherme Mendes of JPMorgan.

I have 2. The first is on the capacity guidance. So the upward revision that we saw this quarter, if you can share some details on what is behind it? It's just a matter of receiving more aircraft before -- earlier than expected or anything else in terms of utilization maybe? And the second point is on the Starlink announcement. If you don't mind sharing some additional details on what is the expected CapEx or costs associated with implementing the Starlink? And if you intend to charge for it will be somehow a loyalty lever?

Yes. Thank you, Guilherme. In terms of the increased ASM guidance, if I heard correctly, I would say a few things. One, that we were conservative or careful with our original guidance, not being 100% sure on the Boeing delivery dates. As the year has gone through. And not only is Boeing delivering on time, but actually at least aircraft we got ahead -- one aircraft we got ahead by a month and a few other aircraft came in a few weeks before. So we've been able to deploy those aircraft much faster during the year, plus we have increased utilization. So we're also getting additional aircraft hours and ASM through utilization. So the combination of those factors allow us to increase our capacity guidance. And of course, the demand is there. We have strong demand. So we're really happy to be able to guide to higher ASM capacity. In terms of Starlink, I'll let Robert complement the answer. But the CapEx was done many months ago. It's already in the books and in the guidance. It's there. And I don't know if you want to share something else, Robert?

Yes. Guilherme, on the business model, first, I mean, we're excited to be the first airline in Latin America to be offering this. The business model, complimentary access is going to be there for business class passengers, all of our preferred member Gold, Platinum and presidential members as well as Starlink subscribers. And then other passengers are going to pay for the service. That's the business model we set up.

And on the CapEx, I'll just add that it was prepaid, as Pedro said. And it will just start depreciating and run through depreciation once the service is installed. For the cash purposes, it's already sitting on our PP&E.

Our next question comes from the line of Filipe Nielsen of Citi.

So I have one follow-up regarding the delivery schedule and this is related to CapEx. Just wondering how this changes your view on CapEx for the year? How are you expecting CapEx to behave considering that you're receiving aircraft earlier? And my second question is related to the fuel and capacity behavior. Like just wanted to hear a little bit about how is competition behaving to the fuel drops you're guiding to lower fuel in the back half of the year and everybody else is also guiding for that. Just wondering how is pricing and competition behaving in this environment?

Filipe, this is Peter. I'll address your first question regarding CapEx. And yes, we're seeing CapEx right now between $700 million and $750 million. So basically $50 million less than what we guided at the beginning of the year. And this is basically most of that is because there was -- we're expecting now one less delivery that moved a couple of weeks from December to January. So basically, that's what's guiding that difference. And then I'll let Robert talk about and Pedro talk about the competition part.

Yes. So I don't want to, of course, talk much about pricing and competition. This is a delicate subject. But so far, what we see is a lot of discipline triggered by the fuel prices, of course, that fuel prices come down. We'll see what happens. We are comfortable with our guidance. And I must say, I think it's important to mention that pre-war, pre the high fuel prices, average fares, at least in our region and network were actually below. Average yields were below 2019 and that's without taking into consideration inflation. So we're comfortable that the yields can be sustained as oil comes down, if not at 100%, but enough for a positive effect going forward. I don't know if Robert...

No, I think you covered it.