Q3 2020 Copa Holdings SA Earnings Call
Ladies and gentlemen, thank you for standing by well.
Welcome to Copa Holdings third quarter earnings call.
During the presentation, all participants will be on listen only mode.
Afterwards, we will conduct a question and answer session.
At that time, if you have a question you might have to press Star then one on your telephone keypad.
As a reminder, this call is being webcast on recorded on November 19 2020.
Now I would try to accomplish over two well pad well director of Investor Relations. Sir you may begin.
Thank you Sarah on welcome everyone to our third quarter earnings call.
During analyst day on <unk>.
So you have got the holdings on older than debt or fearful [laughter] herb.
Ruth bark like illegal or the actions the company has taken to mitigate Brent Gordon.
Well were 19 pricing on the restart of our operation funnel.
On a by Jose who will discuss our financial results.
Early on through open up the goal for of course on from on on it.
Good day, holding financial reports have been prepared in accordance with international financial reporting standard.
For baseball, we will discuss non on your first financial measures.
A reconciliation from but nobody ever collaborative financial measures can be found in our earnings release, we sharpened focus on the company's what Frank Copa Dot Com.
Our discussion today will also contain forward looking statements.
During the day to historical from that reflects the Companys current beliefs expectations on or in per insurance regarding future events on result.
These forward looking statements involve risks and uncertainties that could cause actual results to differ materially on are based on assumptions subject to change.
Many of these on these calls me on I don't know reports filed with the FCC.
Now I'd like to turn the call over to our CEO and her favorite on <unk>.
[laughter]. Thank you Robert.
Good morning tool and thanks for participating in our third quarter earnings call.
On moved to all of you on your families are doing well on staying safe.
Before we begin I'd like to sunk although coworkers for their commitment.
The company and recognize their continuous efforts on many sacrifices during this difficult time.
True then I saw we my on most respect and admiration.
That's expected.
Given government restrictions in the region related to a call. This 19 and then we were.
Not able to provide service for the from 45 day, so good quarter.
On August 14, after five months overt pretty north operation.
Copa what's allowed by the government of Panama storage operations with restrictions on the number of flights on the entry into on them up and then citizen and non resi yet.
We began with a twice a week corporation, serving a destinations.
Then.
The company has been gradually spooling up its net worth would start restarting destinations on.
I didn't frequency separately on the.
Speaking of restriction on air travel demand has permitted.
We ended the quarter with service to 15 destination.
Although September only amounting to three per cent of pre crisis capacity.
The gradual restart of flights a day.
Allowed us to become even more per session.
No more complex operating procedure on intact biosafety political.
On to demonstrate our readiness to operate safely and reliably.
On October 11.
On a million governments restriction among citizens non resi and a number of flights were lifted which that's expected.
Pockets its effect on our ability to continue book building up the net book.
Ending the non with Shcherbitsky 30 day nation.
Good for sensing told from 15% of idiots and compared to October 2019.
We project to end the year, having restarted serviced from more than 50 destinations.
On brand to operating December approximately 40% on 2019 capacity.
In August and September was the restrictions on any volume kind of metric we're still in place.
Factor to approximately 60%.
In October.
After the adult men committed restrictions were lifted we.
We saw a healthier load approaching 70% for the entire month.
Based on the slowing traffic over the past three months on.
On the bookings were receiving from the near future we.
We believe demand will be able to sustain our current capacity factor for the remainder of 20 Triton.
In terms of financial results.
We told you 1.5 per cent for vulnerable pre crisis capacity.
This was a very challenging third quarter.
We recorded a net loss, excluding special items on the hundred and $21.6 million.
Making this our second quarterly loss on an underlying basis in 20 years would.
With the other being the second quarter of this year.
However.
But you're exercising great cost discipline on it.
Better than expected sales.
On recent performance in the quarter.
We were able to keep our cash balance function will be lower our original expectations to about $36 million per month.
Despite the encouraging progress from the vaccine development efforts.
We continue on preparing for what we believe will be a challenging 2021.
That's a region could still be subject to new inspection waves.
With the possibility of further trello restriction on a weakened demand environment.
Specialty while we wait for the vaccines to become widely available.
That being the case.
We have taken many steps to strengthen the company on.
Moving pain, one of the strongest financial positions in the industry.
That's up to date.
We have adjusted the size of the company to better match, our future care custody.
On continue working on cost reduction efforts on.
We believe.
Keeping a competitive cost structure on a strong financial position will keep us among the best returning to promote a head once this crisis and silver.
We have delivered the first four embraer aircraft from the new owner and expect to have delivered the entire fleet by June 2021.
We signed a letter of intent to fill the first food borne 77 700.
On continue actually actively marketing the remaining 12 aircraft.
You have a flattening free comprises all new requirements and return on average tick borne seven to seven Max nine aircraft conservatism.
On a long enough to offer a more competitive from no longer segments.
Well from an advanced discussions with Boeing on expect to reach a settlement agreement soon.
Regarding our expiring leases, we have agreed to extend some of our leases on a power by the hour basis.
Chad even more flexibility for free plan.
Chase the market recovers faster than expected.
On in terms of liquidity.
We obtained new credit facilities for an aggregate amount of $155 million.
Bringing our total committed undrawn credit facility to $305 million and.
On total available liquidity to $1.3 billion per at the end of the reported.
Last from me.
I'd like to read three that we have a proven and very strong business model, which is based on operating the debt and most convenient net work for intra Latin America travel from our help on the America never.
Leveraging panamax advantageous geographic decision was.
With the recent from low with unit cost free full service carrier debt.
Best on time performance on strongest balance sheet.
Going forward the company expects that its top of the America will be on even more valuable source of strategic advantage.
It's likely that fewer intra Latin America markets, we will be able to sustain direct points on surgery. So we believe that hopefully be America will be the best position from service markets.
Now I'll turn it over to Paul said total go over our financial results in more detail.
Thank you Pedro good morning, everyone I hope that you on your families our cities and doing well.
Thanks for being with us today.
Like a joint venture with acknowledging our Greek Copa team for all their efforts and great piece fairy during these very challenging times.
Spread on mentioned, we restarted scheduled commercial service in mid August and ask slowly been splitting up capacity ever since.
For the third quarter as the contribution from these operations still very modest as we only operating about 1.5% of the capacity compared to the same period last year.
Nonetheless, we finally started seeing again.
Put a lot of effort into rebuilding our hub and look for.
It wasn't having more substantial provisions in the fourth quarter.
Looking at third quarter results, we reported a net loss of $118.1 million or a loss of $2 from 78 cents per share.
Moving special items, mainly due to realized $3.6 million or mark to market gain related to the convertible notes would have reported a net loss of $121.6 million or a loss of $2.86 per share.
Our cash consumption for the second quarter came in at $36 million per month.
This excludes $22 million net proceeds mainly related to tax pretty reimbursements as was the share one embraer 190 aircraft.
It also excludes a 50 million dollar payment we made on a short term credit line.
This cash consumption is significantly lower than our prior estimates as we delivered more savings than planned and generate a higher proceeds from sales and lower cash refunds than we originally expected.
In terms of capacity for the remainder of the year, we expect to continue scaling up our operations.
Or came in at approximately 15% of on Fourtwenty 19 capacity and we expect November and December total push 30% and 40% respectively year over year.
Assuming this gradual screw up of operations, we should be able to keep our cash consumption to about $25 million per month for the fourth quarter of a year.
Figure assumes that are leased aircraft on debt commitments are paid in full and we stay currency and all of our obligations on not including the proceeds from aircraft sales.
The improvement in our cash consumption estimates for the remainder of the year. It's a function of our sharp focus on debt reduction of our cost base as well as improving sales figures, which are on pace with the projected school operations.
I'm going to spend some time now discussing our balance sheet on liquidity.
As of the end of the third quarter FX total $3.9 billion owner's equity was almost $1.5 billion.
Debt plus our lease liabilities total $1.5 billion on.
Lease liability adjusted net debt to EBITDA ratio came in at 2.6 times.
We closed the quarter with approximately $1.2 billion from debt.
As I mentioned before during the quarter, we paid $15 million on for short term credit facilities. Currently all of our committed credit facilities remain on drawn.
Extra cash short and long term investments, we closed the quarter $1 billion.
During the quarter, we took many steps to further strengthen our liquidity position.
As previously reported in the month of July from close a secured revolving credit facility for initial aggregate amount of $105 million and in the month of August we establish a view on secured committed facility for $50 million, which remains on July.
Excluding these and other previously established facilities. The company ended the quarter with an aggregate amount of $305 million in on utilize committed credit facilities.
Which added to our cash equates to more than $1.3 billion in total available liquidity.
During the quarter, we finalized the sales and delivery of the first to 14 number 190 aircraft.
As of today, we have delivered three additional MBR gross and expect to have delivered the entire free by June Twentytwenty one.
This month, we also signed on or like the sales to voice on entry seven seven hundreds, which we expect to deliver during the month of January of Twentytwenty one.
Aside from the one nine years and 377 hundred fleets, which are classified in our balance sheet as assets held for sale. We ended the quarter with 74.
On the 837, eight hundreds and six next life.
And then one from December we expect to receive two Max nine aircraft to end the year with the seat of 76 aircraft.
Including these figures are 16 cents three cents 16 cents returned 800 rich we remain in temporary storage.
Let me close by 30 day once its most challenging situation passes we believe corpus hold the Americas will remain so that's going to come from travel in the region.
With a proven to showcase and even more efficient business model with lower costs and the best female industry.
Thank you and with that well from the costs from questions.
Thank you as a reminder to ask a question you would need to press Star then one on your telephone to withdraw your question. Please press the pound key.
Our first question comes from the line of Duane Pfennigwerth with Evercore ISI. Your line is now open.
Hi, guys how are you.
Hi, Greg.
Can you can you talk.
What percentage of your markets are open now.
Not necessarily that the markets that you are flying because that could be a subset of that but what percentage of your markets are.
Are you technically able to fly to.
And then you know generally speaking.
What are the what are the entry requirements. You know for example, you have to present with a with a negative cash or whatever.
What are the entry requirements and can you highlight any any recent changes so just to give us a sense for.
The number of markets that are reopening in and what sort of entry requirements are in place.
Okay, Duane it's Pedro so one of the challenges, we're all facing and when I say, we on I mean like aviation worldwide is.
That concludes are all over that in turn.
And so in terms of other there and crew requirements.
Okay. So in terms of open market I would say most of them are open.
One way or another multi are on a 100% opened or orders that are restricting the number of flights there are allowing more restricting slots for example, Colombia restricting the number of flights per hour.
There are only so many available.
Yeah, I know other countries are still restricting the inquiry on nationals on rescue then there are true for.
Moving on to them or visitors.
Some countries are requesting a PCR negative cash flow within 72 hours.
The orders have recently reported that restriction like Costa Rica, and Colombia. So.
On over the place again, what I would say in summary, most most on free for open.
And then.
Totally appreciate it's it's early days here, but is there any.
Relative trends you could highlight markets, where maybe you've been surprised at the level of demand recovery in a positive way versus you know vs markets that remain very restrictive and thanks for taking the questions.
Yes, it's hard to tell there once on your market open or it's not on your market once an open market reopened.
It's always a pent up demand.
That needs to be satisfied it's usually vs card traffic sales people needing to get back per visit families or personal reasons in general.
So I would say no no big surprise there they were starting to see a need for traffic picking up a little like from South America to the Caribbean, obviously, its a fraction of what it used to be but it's starting to pick up a little on older business traffic is the weakest.
Right now and we also starting from C.A.
Companies and on a company that need to get their executive back into year visiting their markets and total and so there's a little bit of that starting it but it's mostly vs for steel.
Thank you.
Thank you Glenn.
Thank you. Our next question comes from the line of Alejandro Zone Mokoena with Credit Suisse. Your line is now open.
Yeah, no pivotal phase Oneb. Thank you for Nicole. Thank you for taking my questions I mean on the cash we're on a management during the second quarter, you reported monthly cash burn.
77 million use alerts.
For this third quarter, we saw on monthly cash from the 36 million so weve.
Ask mr. can be proven so I'm curious on what's behind this and if you can be Greece or.
We're what additional initiatives.
Are you deploying to really reduce improvement thank you.
Yes on annual basis will say.
There's I would say three components to truly improvements that we saw on our and our consumption of cash.
For the third quarter the from.
First one interest force costs, we've been very focused since the onset of the crisis.
[music].
Reducing our cost to be great interest expense and negotiating all other contracts that we had.
We have also.
Frankly reduce the size of the company to match the size of the new reality that we expected and this was done through offering packages for.
Subset of our employees and and offering also while on voluntary on think lease for four.
Employees as well, but.
But in essence, we looked at every single cost base and I think that we've been able to accelerate some of we proved that we initially expected where they had been seeing in the second quarter into the third quarter and beyond.
The second one is AR, we've seen I think a reduced number of cash free funds, where we expect it and that's I think it's a function of a policy that we set in place for flexing more flexible the traveled to meet for customers and that has resulted I think it on.
And there are significant reduction in our LTL.
Hello.
Refund reduction.
And finally, we are seeing a and.
Better than expected sales coming in during the quarter on that seem to those those are the three main sort of levers for for our improvements and also our improvement going from fourth quarter as well.
Okay. Thank you very clear on if I may.
Second question on it.
And just can you can you give a quick update on the.
Since you gave some color on the mounted last Investor day.
Yeah, It's Pedro here, if you know with the pandemic.
Oh investment, we're pretty much gross and on that Oh, providing essential nature.
We'll go for projects that we have to pick up again, and we're starting to talk about those projects.
That was put in free.
And we haven't really done much we went into a low.
Lowering capex and saving saving a free cash.
But but is on on of course of course.
Of course load factors are down on the madness week or so so we wouldn't have the same.
The thing necessity to rush into into higher density planes, but but I think that will happen eventually and what would pick it up again, but but that was delayed.
Okay. Thank you very much.
Good on them.
Thank you. Our next question comes from the line of Savi Syth with Raymond James Your line is now open.
Hey, good morning, everyone. This is actually Matt on for Savi.
Appreciate the color you from Butler with expectations on for acute demand slowing up with capacity, but could you maybe provide a longer term look I know we've got a lot of.
No actually news out recently as well, but what are some of the potential capacity recovery pass that you're considering for 2021.
Yes, So you know it's it's.
It's one of the most difficult it's things right now it's a talking on long term.
Because the booking curve has shortened on.
And we are navigating a unchartered waters, it's on you but.
But there are of course very encouraging news with the vaccines are coming out. So it seems like there is a bright light at the end of the tunnel.
On there will be a point hopefully soon when it's going to be a lot easier to predict future demand. However for before December for the end of this year and the month of December where we are talking now about 40%.
Hey, ascend vs versus 2019.
While on the previous call we were talking of a range between 30 and 40%. So were in the upper side of that range and net that's a good sign and that's on an EPS.
I mentioned our book.
It's true toward that data you send levels total our booking makes us believe that we can sustain those I guess then.
With a decent load factor on we think that from then on we hope from debt on to build a worry attempt Roger on these as good man on dollars. So.
But you know January will be on little bit better than December in terms of various then and not on non but a little bit better do you won't be on January bookings are not strong enough to know under so much uncertainty out there was as I wrote on everything else.
That is true its very difficult for us to say anything you know.
Ill be on January.
Let's say that you could argue that it's going to be.
Hey, Ben.
Range from time that pedal just mentioned somewhere in the low fortys, a pretty cool with capacity.
I would say that the other component on that just simply.
Gross to maintain our flexibility and I think that were being working quite a bit in terms of flexibility on will have income.
21, but it's still premature as you can.
I would imagine it too.
Say anything related to the full year of 2021.
Hey, certainly anybody's guess, but I appreciate the color Nonetheless.
And from my second question, if I'm looking at your fleet plan seems like with the two additional Max is coming in December.
And five remaining but not yet delivered it seems like you can get back to just about 95% or 2019 capacity in 2021. If he wanted to so can you provide a little bit more detail around your expectations around the eight hundreds I know you said you had some of them on a per by our agreement.
Could you maybe talk about.
Redelivery expectations or just some more color on the duration of those power by other agreements or how many that pertains to.
Yeah, and there's there's been a a lot.
Some negotiations on we've been making over the last couple of months and with some of our leased airplanes.
The he was a lot of flexibility because he has that flexibility kicks right away, it's where we extend that some of the expiring leases that we ask for in the 2021 range.
And actually on the next two years, we have about 11 leased or things that are going out.
And so we can gain some flexibility with would be inspired by the arguments that were doing having said that in terms of.
Number of aircraft that you expect for next year at the end of the year.
It will be in the mid Eightys and in terms of total number of aircraft and so as I mentioned in I think on my prepared remarks, there's a portion of them are going to be in storage. So I think theres going to be a range of possibilities in terms of the available number of aircraft that we happen and the network for next year depends.
On on how that ultimately a behaves.
I mean, we just to add to that we.
We have a we have a sizable order for Max aircraft.
And I'm sure we can work with Boeing and moved on need to two.
And change the new every day I mean, there will be.
Production issues, but but we think we have enough flexibility with the least Dirk revenue starting on uses that can be renewed the power by the hour disorder Krupp on how.
Our March how we're how we're how we're Max order, where we can adjust capacity as needed and it could be upwards or downwards depends on depending on how the market behaves. So that's I think that that's one thing we've been able to manage very well.
Certainly well thank you all very much.
Thanks, Rob.
Thank you. Our next question comes from the line of Helane Becker with Cowen. Your line is now open.
Thanks, very much on freighter hi, everybody on thank you very much for the time I'm not sure.
You can talk about this but is there a specific sticking point with respect to the negotiations with Boeing or is it just taking a long time, because it's hard to get back and forth.
Yeah, there's no no sticking points on and.
Yeah, I mean, it's just the way it's happened it's not net and may be neither neither side has been in that.
In in that Big Rush, nothing like we needed it.
I need to survive and you know we want to.
Reported right deal knowing when to your gains were going to be back in service. So that's the big thing. So so no interest do weights work, which is.
A yeah I don't think I have much to add.
Okay, well, that's a fair response actually on and then I was just wondering if you could talk about what you need to do to return the Max to service now that the U.S. Hefei approved yet can you just maybe update us on what how so.
And now.
Yes, we have as you know we have six maxit.
In Panama grounded in Panama, and then there were seven debt were built but not delivered those per somewhere in Seattle.
We expect to be flying.
At least two of our six Max is by the end of this year.
That's our expectation right now on.
And there's a theory a total of let's say.
Technical matters like <unk>.
Upgrading the new software.
Ill bloating and yourself on that you know it only takes a few hours it.
We have to retrain pilots because they haven't come on to your thing for a while how wherever I should say that the new training requirements are basically the same that we were doing before the aircraft was grounded Copa what's always had always go on more than low the minimum required we've had the Mexican the nadir.
We're doing the simulator session. So.
So the new requirements are basically thing were doing before that that's not a problem, but we have to put the time, it's true that training program again.
Then on maintenance wise, it's going to take a look like.
About two weeks per aircraft to bring them up to the right. The right a maintenance level, which includes doing a few ask flights.
The lights without passengers a few pets likely they'll passenger to make sure all the thoughts are out you know what.
On a flight went on her thing has been rounded for nearly two years.
On doesn't know what they're built for there's a lot of maintenance work, even though we've been true serving them following a boring boring his recommendation.
And other one thing I'll ask their lane as Wellington.
In Panama City, each on 40 of course falls.
What the F.A.S. as they should so from a regulatory standpoint, that's something that that facilitates social other process. Once that this has been lifted by the if I ask.
Okay. Thanks, Suzanne I really appreciate that thanks, Pedro free or.
Response on have a nice day guys.
Thank you for that I get from Q1.
Thank you. Our next question comes from the line of Hunter Keay with Wolfe Research. Your line is now open.
Hey, good morning, everybody.
Thanks for getting me on so on costs.
You showed an impressive amount of variability as you've been cutting capacity.
How do you think about those coming back as you as you slowly on capacity back I mean, I'm trying to think about the balance here between what's been sort of deferred and what's truly variable in nature, and then thinking about maybe incremental efficiencies that you can drive from some operating leverage it's really ultimately just a question about when we can start talking about that.
Sub six and CASM number again, so any color on that would be okay hunter yet so it's pedro the allstar.
Good well said little bit of time, but first thing I should say that we haven't disappeared and you call and that's that's very important on the costs were showing our our complete a cost for the non core for the quarter nothing is going to come back to bite us later on and no lease.
No nothing we're paying for everything we.
We have renegotiated.
Okay.
On a bunch of fixed costs.
Total number of contract.
We have brought down our fixed cost Doug Wilson mentioned, it before and.
And then of course, there are the variable costs are down because of volume. So we expect that idiots and a come back our unit costs sportswear running true.
On our our plan on the way we have approached this crisis is that you know one day.
When everything it's over.
We're not sure what's going to be our sights on how long it take us to.
We'll get back to 29, p. level, but we want to make sure that we can be successful on before even before we get back to 100%, which means that we need a lower fixed cost base to be able to accomplish that and I think I think we're there already yeah.
A hunter we side.
The way that I'm seeing it is had when we are back to [noise].
80% of free quote capacity I think it will be back.
Some of that we had.
Backing last year, so I think that we have.
On significant levels of efficiencies.
It's in this exercise on we've been making over the last several months and so where we are I think in a good place right now in terms of of course, that's not going to come in.
Wow.
Our skill at a relatively low level, but once the sentara again back to around that level, some 80% of people with other schools will be achieving.
Our total debt.
Around six CASM.
Ex fuel to that we were embarked on before.
Well thank you.
And then you mentioned a little bit of Green shoots on corporate travel obviously, it's very early but I don't think you mentioned previously that about a third of your volume was corporate travel before is that true or is it a sort of your volume and then the second sort of component of that question is when will you know how your corporates are thinking about their 2021.
<unk> spend or is that a January conversations are you having those conversations now because I would imagine there should be some degree of visibility on how your corporate structured corporate stuff should spool throughout the day so.
So let's start with the second part so we have started to have conversations but.
Our corporate accounts don't really know.
One other troubled times will be for for next years and but in most cases.
People want to get back on Dear it might not be true the same degree EPS before but pretty much everyone wants to get back in the year I'm going to get you know good bye.
True true doing to regular business and I think that also price to people are being looked at home for so many months I'd want to.
Broad on travel for leisure or per visiting friends and family. So it but in terms of our true I would trust because we would zone in the recent past it.
We've ended up and I would tell you there.
The authorities third leisure and interest or a bit from is not just the core but the business corporate as much motorbike business in general in Latin America, not everything not everything business means that its core but is there other smaller companies that don't have corporate accounts, but if it's a thirtyj.
Thank you.
[noise]. Thank you. Our next question comes from the line of well, Jerry Oh Wow, Joe What do you vs. Your line is now open.
Yeah, Hey, guys. Thanks, a lot for other parts and they have a couple of questions here. The first one is it too early to map also per day. When that is left by competitors that are shrinking capacity some of crop as markets and kept the mask on marketing colombey have become more relevant in the future.
Sure. So we saw already like a decade ago.
On on the domestic market was let's pretty irrelevant to the company and this has reduced overtime and to your broad ringel, so could there be an opportunity and any other potential parts on that is left by the market. That's the first question. Thank you.
Right. So in the B, it's too early to tell and every day every year and then it's pulling up in at a different pace for different reasons, including restrictions.
Restrictions in their home markets et cetera. So it's very very hard to tell right now which opportunities are going to be left open in the future, but we do believe that.
On a number of markets.
I will.
We'll not be large enough to sustain the rig point to point service acted whats the case before it goes I mean pretty much every market will be reduced for the next few years. So there's a number of market are going to fall below that minimum on level for direct from two point. So it so there will be some opportunity.
For the talk to have even more more value of goods early to know.
In terms of Colombia domestic on the wing goal I think we will remain remain opportunistic that's a very competitive market. So we don't see when we're just going wild earn on trying to grow with ER.
Good day aggressive net testing, we will remain opportunistic and on and careful in how much we grow on where we grow it but when will they did get a fifth third drilling recently and we have we have extra trains that we don't really need right now so they got to fit claim and they.
We'll get a big trained by the end of the year for the in a few months. So then so actually in a month or so so they have extra capacity, but they will deploy that capacity again, if they mentioned before.
With a lot of care, where it make sense on even either your TV station, it's down for a while we're fine with that.
Okay. Yeah. Thank you very low tier so so my second question is on connectivity.
So how the lower number of flight back.
Back to this the <unk> the connectivity the connection time for the best figures there.
Their index is there like Katie.
Are you on mapping out the connection time day average connection on time with passengers now versus before and also there was an increase in the meat in the maximum.
Number of hours that a passenger can wait in Panama from six to 12 hours, how how does this change did.
The demand so was this a huge of restriction before when it was settled that at six hours. So true could speak about about that connectivity with low overcapacity would be great as well. Thank you.
Yeah, well the minimum hours to connect that looks listed so that restriction is not there.
Any longer so we're back to whatever we had before and we've put on so little up.
Up to now that that the priority has been just providing connections were were flying.
Not worrying about how long that kind of activity is on and there's so much lack of service in multiple other market that passenger passengers will you know they wait as long as you don't have to its needed.
As it needed to make their flight support whatsoever.
A short connections are not our priority right now until we build back to.
To something like what we had before.
Very clear thanks, so much.
Thank you ever gate on.
Thank you.
Next question comes from the line of Bert Shubin, What's Stifel. Your line is now open.
Good morning.
Sure on your prepared remarks that you think you will come out ahead. After the pandemic what do you see as the single greatest opportunity that Copa has in a post vaccine world.
So what we meant by by coming ahead, I would summarize it in <unk>.
Into two aspects or something.
First is what what Jose mentioned, a few minutes ago about lowering our fixed costs to a point, where we could be.
Successful on before would much low worry a thin which means that as we increase they sent to a level more similar to 2019, we will do better than 2019. So so so that's number one when we what we mean by coming out ahead, so for a better cost structure.
And number two is the value all the other the GAAP off top of the America advantage.
In a in a marketplace, where a lot of market will not be able to sustain on our markets won't be able to sustain a direct from two point service overhaul will be even more valuable so as they go through the two things that were looking at.
Okay. Yeah. That's helpful. Thank you I.
I know this is a smaller part of your business, but have you seen any opportunity on the cargo market just as capacity has been.
Significantly curtailed across both south and Central America, or do you sort of expect that to just come back like it was last year.
We we in most of our cargo is baby baby cargo on it we don't feel free to freighter, although we might do at about eight are chartered here and there, but we do not operate a freighter aircraft it.
So for the opportunity on the cargo market right now are limited.
Thanks for the time.
Thank you Bert.
Thank you. Our next question comes from the line of Dan Mckenzie with Seaport Global Securities. Your line is now open.
Oh, Hey, Thanks, Good morning, guys I'm going back to the commentary of a challenging 2021 because of the region could be subject to further travel restrictions.
The is that concern tied to the timing of the rollout in vaccines and in key end markets. I'm wondering what you can share here and you know just related this going back to kind of your thoughts on corporate travel I know accounts cant share, what they're doing or what they're going to do right now and I I know people want to get back in the air but I'm just one.
And you know what you can share about your starting assumptions as you think about planning for for 2021, you know maybe your best estimate of what it could look like.
Yes, I think I think that I think if it's correct to think that we're being very careful and conservative in our assumptions.
Excluding on really no on their fuel with other there did vaccine news are very encouraging but we're we're unsure of how long it's going to take for the back seat to be widely available, especially in our region. So we moved that to happen mid 2021 or towards the end of 2021, it's really hard.
Two pill on in the meantime, anything can happen like we've seen in the U.S. and in Europe, we've seen the second wave spending and the effect that it had on air traffic in the U.S. on your flow. So we're being careful on we're being conservative as we usually are I would say that that that's kind of what you're seeing in.
The numbers where share on keeping factor there with the open I think that again to your thing or is this flexibility then.
It's critical for 2021.
Understood.
And I guess just related to via far traffic you know what can you share about the people that are willing to travel right. Now. So you know kind of their their profile or demographic or these you know price primarily millennials are just don't care about the virus and.
And I guess, you know kind of where I'm going with the question is I'm. Just wondering you know do we get to a place where demand plateaus at say 50 per cent you know until vaccines are rolled out or is the thought as you think about 2021, you know that the on the recovery in this this goes back to your response to a prior question on that it could just increase.
On them at a steady cash.
<unk> per steady rate each month sequentially as we move forward.
You know were 20 from one it.
Good thinking I wouldn't even call it a projection, but in our opinion from one thinking.
We're assuming that there is a couple you for that I could vaccines are widely available that there will be a couple we just don't know at what level, we're going to hit desktop total, but we are we are expecting and we're planning for that we've seen that in other parts of the world.
People want to travel and actually on the price on a on a on a positive way by what people tell me what steel that's just a percentage.
On towards that goal that's the big question on that way again will be from hurtful.
Okay understood. Thanks for the time guys.
Thank you.
Thank you. Our next question comes from the line of Mike Linenberg with Deutsche Bank. Your line is now open.
Hey, good morning, everyone on Pedro Jose hate.
Hey, two questions here. So you know as you indicated in the release you hit 38 destinations in November and I think Jose I heard you say 50 by yearend.
Free toes and I think you were at 80 destinations and the reason on that sort of bringing this up is that you know you made this decision a year ago to get out of here hundred Seaters on your 124 seater. So if your small shell is about a 160 seats or so plus or minus a few.
When we look at you know when that decision was made I suspect that you probably thought that maybe a few of the cities would lose service given the size of the gauge or maybe at least frequency maybe it wouldn't make economic sense.
Right now on the impact that that has had on demand.
Does that.
Let you as an organization to maybe reconsider operating a smaller aircraft maybe a 737 dash seven Max for example, I realize that that goes against the grain of what you want to do something unit cost perspective, but it would think that you know by getting out of these smaller shelves that you're going to preclude you from.
Self from serving.
No more than just a few of the 80 cities that you serve free coven thoughts on that.
Yeah. So my first thing I'll say is that.
We're very happy with the way we have simplified the fleet.
[laughter] quickly we've been how quickly we've been able to do that.
Happy I mean, LTV on where our our freight operations team is even happier maintenance being delighted.
And our costs are going to also be better would that would have to fight fleet on a on a larger gauge so for our unit cost. So happy also on the financing is also on the finest insult to everybody's happy Okay.
You will say there will be strong from motor market there.
Dan on paper it could could stauffer.
Our cash it's one well, we're pretty pandemic plan or or or our current plan or whatever when I caught it is that we.
We can adjust frequency on me.
Needed in some from other markets, but also usually our smart small markets, where we do on cert. We've got many frequencies are mostly leisure and leisure can be simulated wood pricing on on larger larger gauge aircraft can allow us to offer much better price.
That's much much much lower cost. So we think we will think adjusting frequency on.
On pricing for leisure.
We can make the cut the capacity work and actually the financial should work better also all.
All right now that makes sense and then just my second question on the power by the hour agreements that you entered into you've been very good or you've been a bit of a stand out when it comes to you know meeting your liabilities, making your payments not deferring aircraft rent up until this point any call that at least on.
Then on these power by the hour deals were ones that were initiated by the lessees, who were coming from a point, where you know on.
You know they are in negotiation lever interest was somewhat weak and and they needed some assistance I get the sense from the conversations or what went on here is that this was from a point of strength, where the less source came to you and realize that they didn't want to have all these 737 eight hundreds coming back.
And so as as a company you are able to extract something very attractive cash from an aircraft ownership perspective is that the right interpretation here.
Well, Mike I would say that he was a net neutral discussion on we've been having discussions with our less source for the last several months.
On the one thing is that I think it was a win win a industry said Daddy don't get an airplane dropped very difficult moment for them and and at the same time, we win by factor we get immediate benefits from this negotiation that we made so like I say that it's a it was a win win for free.
All in all on and on my Pedro here.
Our net stores were probably.
Bullish on field that that.
Know much better on having bookings park with no price discounting Opa continue taking good care of the frame on probably bullish on the things that maybe the recovery.
In their minds will come sooner on those hours are going to be thrown on paid for total so it's a win win Jose mentioned him.
That's great can I just one quick squeeze on just one more on just the Boeing negotiation and this is just you know from a modeling perspective, as we think about your cash out over the next year or so.
Some carriers has in their discussions with Boeing we've seen somewhere you know the net result has been a future benefit as it relates to ownership cost for others. We've seen them receive you know one or multiple payments you know what they.
Called vendor support or vendor payments in return.
Is there anything that you can tell us that you know at least from you know from a cash modeling perspective, what we should anticipate with respect to the agreement with Boeing.
Yeah, Mike I'm, not going to get into the details of the nature of the negotiations because or have a confidential nature. Okay. One thing is that.
It is not included in our cash.
Flow projections that we shared with the market and our expectation for for cash consumption do not include any any assumptions of flow of anything related to volume and we've been very very keen on making sure that we.
Project, our cash consumption a in a very straight away and so we would not adding sort of these extraordinary items into it.
Very helpful. Thanks, Jose Thanks Pedro.
Thank you Mike.
Thank you. Our last question comes from the line of Stephen Trent with Citi. Your line is now open.
Thank you very much guys I appreciate the time.
Just had one or two.
Quick follow ups, if I may when we think about Copa us.
Passenger flow overlap.
You know what the likes of I've Yocke, our aeromexico, you know sort of what sort of overlap did you guys have on a you know a free.
Free pandemic basis, you know just thinking about your trunk route exposure.
I think.
Sure.
Would would that Bianca we have the most overlap the bullet on hub on the Panama hub comes in most overlap versus older.
But but destination sort of Panama were.
Gross to twice.
The number that Doug Arthur.
Our cert it from bullet that so we had that that advantage, but those are the true that the two from that overlap in those.
Great appreciate that Pedro and just one really quick follow up on I know, it's early days and I know there are a whole bunch of moving parts here, but when you think about you know longer term opportunities.
You know how are you thinking any differently.
With respect to potential M&A or with respect to you know down the line setting up that joint business agreement with United Airlines, just sort of wanted to you know take your temperature on those opportunities if I may.
Yeah, I mean, the drilling business agreement.
It was never filed but but no. It's true up possibility of course it hasn't been ended either but if we know of young kids in a chapter 11 process so that.
That's kind of throws everything overboard on and.
Is that true not necessarily start from scratch, but but we take those conversations when they have other.
When do you understand your future better when the chapter 11 proceedings or more of that and so we expect to continue those conversations at some point, but hard to tell what's going to happen right now.
Understandable appreciate that Pedro and I'll help you guys all stay safe and healthy.
Thank you Kevin Thank you Rick Rick on.
Thank you. This concludes today's question and answer session I would now turn the call back to Pedro help on for closing remarks.
Okay. Thank you all it did come from through earnings call. Thank you for being with other thank you for your continued support.
Yeah, we don't talk again however.
That's a much better end of the year than what we have experienced in the last few months.
On half of course on rig day, and a great weekend. So hope to see you soon thank you.
Ladies and gentlemen, thank you for your participation that concludes the presentation. You may now disconnect everyone have a wonderful day.
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