Copa Holdings reports net profit of $104.0 million, updates on the MAX, will early retire the E190

E190 fleet to be retired in 2021

Copa Holdings, S.A. has announced financial results for the third quarter of 2019 (3Q19).

The following financial information, unless otherwise indicated, is presented in accordance with International Financial Reporting Standards (IFRS). Unless otherwise stated, all comparisons with prior periods refer to the third quarter of 2018 (3Q18).

OPERATING AND FINANCIAL HIGHLIGHTS

  • ▪  Copa Holdings reported net profit of US$104.0 million for 3Q19 or earnings per share (EPS) of US$2.45, compared to net profit of US$57.6 million or earnings per share of US$1.36 in 3Q18.
  • ▪  Operating profit for 3Q19 came in at US$132.9 million, representing a 70.9% increase from an operating profit of US$77.8 million in 3Q18.
  • ▪  Total revenues for 3Q19 increased 5.3% to US$708.2 million. Yield per passenger mile increased 7.9% to 12.5 cents and revenue per available seat mile (RASM) increased 9.4% to 11.1 cents.
  • ▪  Operating cost per available seat mile (CASM) increased 0.5% to 9.0 cents in 3Q19. Excluding fuel costs, CASM increased 5.5% from 5.9 cents in 3Q18 to 6.2 cents in 3Q19, mainly due to the decrease in capacity related to the grounding of the Boeing MAX fleet.
  • ▪  Operating margin for 3Q19 came in at 18.8%, 7.2 percentage points higher than the 11.6% generated in 3Q18.
  • ▪  While capacity (measured in available seat miles, or ASMs) decreased by 3.7% in 3Q19 due to the grounding of the Boeing MAX fleet, consolidated passenger traffic (measured in revenue passenger miles, or RPMs) decreased by only 2.2%. As a result, consolidated load factor for the quarter increased 1.4 percentage points to 85.6%.
  • ▪  The sum of cash, short-term and long-term investments was US$885.5 million at the end of 3Q19, representing approximately 33% of the last twelve months’ revenues.
  • ▪  Despite the operational challenges presented by the grounding of its Boeing MAX fleet, Copa Airlines delivered an on-time performance of over 92% and a flight-completion factor of 99.8%, maintaining its position among the best in the industry.
  • ▪  Copa Holdings ended the quarter with a consolidated fleet of 103 aircraft – 68 Boeing 737-800s, 14 Boeing 737-700s, 15 Embraer 190s (top) and 6 Boeing MAX 9s.
  • ▪  The Company has not taken any aircraft deliveries since the world-wide grounding of the Boeing MAX fleet took effect in March 2019. According to its original growth plan for 2019, the Company should have received six additional Boeing MAX 9s during the first three quarters of the year and would have received one more in the fourth quarter to end the year with 13 Boeing MAX9 aircraft.Subsequent Events
  • ▪  Copa Holdings will pay its fourth quarterly dividend of $0.65 per share on December 13, to all Class A and Class B shareholders on record as of November 29, 2019.
  • ▪  As part of the world-wide grounding of the Boeing MAX fleet, the Company has removed all Boeing MAX operations from its schedule until mid-February 2020.
  • ▪  As part of its plan to increase efficiencies, the Company has decided to accelerate the exit of its E190 fleet (top) and is planning to sell the remaining 14 aircraft over the next 18 months, 3 years earlier than previously planned. This anticipated exit could result in a book loss in the range of US$90 million related to the sale of the aircraft and spare parts inventory.

Despite the operational and financial impact of the grounding of its Boeing MAX fleet, Copa Holdings delivered a great quarter, with strong financial results and outstanding operational metrics. Higher load factors and yields resulted in a significant unit revenue increase, which generated a 18.8% operating margin for the quarter, a 7.2 percentage point increase over 3Q18. In terms of operational results, the Company delivered a 92% on-time performance and 99.8% completion factor, placing it again among the best in the industry.

The Company ́s consolidated operating revenue increased 5.3% to US$708.2 million during the quarter, despite a 3.7% decrease in capacity compared to 3Q18.

Load factor came in at 85.6%, or 1.4 percentage points above 3Q18. Yields improved 7.9% to 12.5 cents. As a result, passenger revenues per ASM (PRASM) increased 9.7% to 10.7 cents in 3Q19.

Total operating expenses for 3Q19 decreased 3.2% to US$575.3 million, while operating expenses per ASM (CASM) increased 0.5% to 9.0 cents. Excluding fuel costs, CASM increased 5.5% to 6.2 cents, mainly due to the capacity reduction resulting from the grounding of the Boeing MAX fleet.

Aircraft fuel expense decreased by 12.6%, or US$25.5 million, compared to 3Q18 due to lower jet fuel prices and fewer gallons consumed given the lower capacity. The Company’s effective jet fuel price decreased 10.2%, from an average of US$2.40 per gallon in 3Q18 to an average of US$2.16 per gallon in 3Q19.

The Company recorded non-operating expense of US$16.6 million for 3Q19 compared to non-operating expense of US$8.9 million in 3Q18. The non-operating expense in 3Q19 was mostly comprised of a net interest expense of US$6.6 million and a US$9.6 million translation loss due to foreign currency fluctuations, primarily resulting from the significant devaluation of the Argentine Peso.

Copa Holdings closed the quarter with US$ 885.5 million in cash, short-term and long-term investments, representing approximately 33% of last twelve months ́ revenues.

Total debt at the end of 3Q19 amounted to US$1.10 billion compared to US$1.29 billion at the end of 2018, all of which is related to aircraft financing. At the end of the quarter, the Company’s lease liability- adjusted net debt to EBITDA ratio was 0.8 times.

The company has a very solid business model, which is based on operating the best and most convenient network for intra-Latin America travel from its Hub of the Americas® based in Panama’s advantageous geographic position, with the region’s lowest unit costs, best on-time performance, and a strong balance sheet. Going forward, the Company expects to continue strengthening its long-term competitive position by taking advantage of new growth opportunities and implementing initiatives to further strengthen its network and product, while continuing to reduce unit costs.

Top Copyright Photo: Copa Airlines Embraer ERJ 190-100 IGW HP-1556CMP (msn 19000016) SAL (Tony Storck). Image: 922298.

Copa Airlines aircraft slide show: