Q1 2021 Copa Holdings SA Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Copa Holdings first quarter earnings call.
On the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have any question you May Press Star then one on your Touchtone phone.
As a reminder, this call is being webcast and recorded on May six 2021 now.
Now I will turn the conference over to Raul Pascal Director of Investor Relations, Sir you may begin.
Thank you Tamika and welcome everyone to our first quarter earnings call.
Joining us today on favorable however, CEO of Copa Holdings and wholesale on data our CFO.
First Pedro will start by going over our first quarter highlights and the actions. The company has taken to mitigate the impact from the COVID-19 pandemic.
Unload by Jose, who will discuss our first quarter financial results in detail.
Immediately after we will open the call for questions from analysts.
Copa Holdings financial reports have been prepared in accordance with international financial reporting standard in today's call, we will discuss non <unk> financial measures.
A reconciliation of the non <unk> financial measures can.
Can be found in our earnings release, which has been posted on the company's website Copa on Dot com.
Our discussion today will also contain forward looking statements not limited to historical facts that reflect the company's current beliefs expectations and our intentions regarding future events on our results.
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 are discussed in our annual report filed with the SEC.
Now I'd like to turn the call over to our CEO, Mr. Pedro Hadrian.
Thank you Robert.
Good morning to all.
Thanks for participating in our first quarter earnings call.
Before we begin I'd.
I'd like to thank all of our coworkers for their commitment to the company and recognize their continuous efforts and dedication to keep Copa at the forefront of Latin American aviation.
That's all my utmost respect and admiration.
In our last earnings call in February we advised book deteriorating demand patterns and expressed concerns over what appeared to be nearing section waves across many car increasing our region.
Then we face two diverging themes in our network on.
The one hand.
In the U S Panama and the free.
Few other countries, we're seeing a downward trend in infection rates, which has led to fewer travel restrictions on an uptick in demand.
On the other hand.
All countries in Latin America continue to struggle with the virus, leaving many to ream coal third travel restrictions and or new health requirements.
Factoring demand for international travel and in many cases, leading to a reduction on our planned capacity.
However, we.
We're hopeful that as countries in our region continue taking the necessary actions to control. This health crisis, we should start seeing a more robust recovery fewer restrictions on improving traffic patterns.
Now I'll highlight some of our first quarter results.
In terms of capacity.
We reached 39%.
First quarter 2019 ASM.
Load factor improved from 63% in January 275 per cent in March leading to an average load factor of 69% for the quarter.
Our revenues increased by 17% over the previous quarter to $185 million as a result of additional capacity.
This additional capacity also allowed us to bring down our ex fuel CASM.
From 13 four cents in Q4 285 10.
We reported on an operating loss of $77 million in the quarter.
16% better than the adjusted operating loss of $95 million reported in the fourth quarter of 2020.
In terms of our liquidity position, we increased our cash balance to $1 2 billion on our total liquidity to over one $5 billion.
This was driven by extraordinary net proceeds from aircraft financing on asset sales.
On our cash consumption.
Excluding the previously mentioned proceeds, but including Capex and debt payment of all financial obligations was $23 million per month.
That was better than expected due to higher sales, mostly for travel in the second quarter.
In terms of our operations on the.
Despite the incremental complexity enforced by the value of safety protocols. We're pleased to report on on time performance of 95% for the quarter on.
Flight completion factor of 99, 3%.
Which is a true testament to our employees laser focused commitment to providing a world class products to our passengers.
So we're proud to be back connecting the Americas with the industry, leading operational standards, our passengers expect from us.
Subject to demand in air travel restrictions in the region in June we plan to return our flight network to a six connecting bank hub structure.
Which will enable us to operate more efficiently and to continue adding frequencies and destinations.
If our current plan holds.
We should be operating more than 60 destinations by the end of the second quarter compared to 80 before the pandemic.
Jose will provide a more detailed outlook for the second quarter, which will include specific capacity figures, our latest revenue assumptions and on update on our cash consumption projections.
Regarding our fleet, we will see a very busy quarter.
We received six previously built and stored 737, Max nine and.
And delivered four Embraer 190 day to their new owners.
As per our free trend, we expect to deliver the last four embraer aircraft in the second quarter.
And received two more 737, Max nine in the fourth quarter.
Which would have us ending the year with a fleet of 83 aircraft.
I'd like to reaffirm that we have a proven and strong business model, which is based on operating the best and most convenient network for intra Latin America travel from our hub on the Americas, leveraging Panama advantageous geographic position was the region's lowest unit cost for a full <unk>.
<unk> carrier best on time performance on strongest balance sheet.
Moving forward the company expects that its top of the Americas will be on even more valuable source of strategic advantage.
It's likely that fewer intra Latin America market, we'll be able to sustain direct point to point service. So we believe that hopefully the Americas will be the best position to serve this market.
I will turn it over to Jose who will go over our financial results in more detail.
Thank you Pedro good morning, everyone I Hope you and your families are safe and doing well, thanks for being with us today.
I'd like to join Pedro in acknowledging our great Copa team for all their efforts and great spirit. During these very challenging times.
I will start by going over our first quarter results.
Our capacity came in at $2 5 billion available seat miles, which amounts to about 39% of the capacity operated during the first quarter of 2019.
Low factor came in at an average of 69% for the quarter.
We reported a net loss of 110 $7 million or $2 60 per share.
Excluding special items, we would've reported a net loss of $95 1 million or $2 23 per share.
Special items for the quarter are comprised mainly of unrealized mark to market loss of $15 $7 million related to the company's convertible notes issued in 2020.
In terms of operating results, we reported a $77 $1 million loss for the quarter an improvement over the operating results for the fourth quarter of 2020.
And our cash consumption for the quarter came in better than expected on an average of $23 million per month.
During mostly by improving sales for travel during the second quarter.
A significant part of our focus as a company and our costs our unit costs, excluding fuel for the first quarter came in at $8.05 per ASM.
Continued operating more efficiently in terms of passenger servicing as well as in terms of our administrative and other overhead expenses.
And we are poised to achieve a sub six CASM ex fuel once we reach our pre COVID-19 capacity.
I'm going to spend some time now discussing our balance sheet and liquidity so.
So at the end of the first quarter, we had assets of close to $4 $1 billion and our cash short and long term investments and then at $1 2 billion.
We also ended the quarter with an aggregate amount of $345 million in Unutilized committed credit facilities, which added to our cash brought our total liquidity to more than $1 5 billion.
As to our debt, we ended the quarter with $1 $7 billion in debt and lease liabilities.
Increasing our debt balance compared to the end of 2020 is related to the financing of 700 737, Max nine aircraft received between December 2020 in March 2021.
As for our fleet plan during the first quarter, we received $6 700 percentage of Max nine aircraft.
We also finalized the sale on delivery of four Embraer 190, <unk> and as of today. We have delivered 10 out of the 14 aircraft. We agreed to sell to a third party and expect to have delivered the entirety of 190 fleet by June of 2021.
We ended the quarter with 81 aircrafts 66, 68, 700% on 813, Max Nines, including these figures are 16, 700%, many hundreds which will remaining temporary storage until demand trends Gulf where additional capacity we.
We expect to receive two more 700% on Max Nines during the fourth quarter of 2021 and expect to end the year with a total fleet of 83 aircraft.
Our outlook for the rest of 2021, we are still on a very unsure on unpredictable demand on operating environment and as such we will not be providing full year guidance. However.
However, based on preliminary results for the month of April and the current state of demand environment and air travel restrictions. We can provide the following outlook for the second quarter of 2021 as compared to the second quarter of 2019.
We expect capacity to be approximately 45% of Q2 2019 levels and about $2 9 billion.
17% increase quarter over quarter.
And revenues to be approximately 40% of Q2 2019 levels at about $260 million.
Given these operating conditions and assuming an all in fuel price of $1 95 per gallon, we expect our cash consumption for the second quarter to be in the range of $10 million to $15 million per month.
Let me close by stating that once this most challenging situation passes you believe Copa towards the Americas will remain as the best connecting point for travel in the region with a privileged location, an even more efficient business model with lower cost and the best team in the industry.
And with that we'll open the call to some questions.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Please limit your questions or comments to one.
Again, if you'd like to ask a question press star one of your telephone keypad.
We ask that you please limit your questions or comments to one please.
Please hold for your first question.
Your first question is from the line of Hunter Keay with Wolfe Research.
Hey, good morning, everyone. Thank you good morning.
<unk>.
I appreciate that youre not going to want to give full year guidance at this point, but the second quarter revenue guide was quite strong I thought relative I was expecting and particularly relative the first quarter. So can you help me frame out how you're thinking about that trajectory into the back half of the year. If these current trends continue and if it is not a revenue.
Commentary, maybe just help me think about sort of capacity as you're exiting 2021. Thank you.
So let me start.
And then I'll, let Jose.
Had some comments.
So I think that's where as we have mentioned in the past is really very very difficult to predict the future under the precedent conditions that were dealing with including travel restrictions by by many countries and shifting demand patterns and that's why we're only talking about Q2 on not the rest of the year, but we have.
Enough flexibility in our fleet to add capacity on short notice as we see demand coming in so so we would expect for the second.
Half of the year to maybe this growth trend that we're talking to between Q1 and Q2 two on accelerates somewhat.
Maybe maybe even as much as doubling the growth pace that we're seeing right now, but it's really hard to predict.
As we speak.
Yes, I think that a hunter.
Demand is increasing and as of today, but we have seen this before and you know there's still a level of uncertainty in terms of the behavior of the virus in the region. So things are still volatile as Pedro mentioned, but.
As of today for the second half, we could see a sort of the same trend that we're seeing sort of first second quarter.
Into the second half as well.
But that's again, we have to just really be mindful that it is the picture that we have today.
Okay.
Your next question is from the line of Stephen Trent with Citi.
City.
Yes, good morning, everybody and thanks for taking my question.
Just one or two quick ones for me.
I was intrigued Pedro you mentioned.
The kind of inability my money could you point to point.
Especially in that region, but.
What sort of competitive trends or opportunities are you seeing for wingo.
And then the second question. If you could just refresh my memory you guys were running has been running for jelly slight banks and youre going to six by the end of June if I heard that correctly.
Yeah.
Yes that is correct I'll start with the second question. So we've operated a sixth Bank Corp.
Are there any lessons since 2011.
We've been operating at fixed bank.
Obviously reduced all of that.
The pandemic started but we're going back in June by the end of June we'll be back at six banks or at least that's our intention which will give us a lot more flexibility.
In putting together a better network scheduling slightly on a more efficient and effective way. So it's not that that's going to drive our growth, but it will drive a better better scheduling better rotation.
Of aircrafts for the remaining of the year.
And then in terms of windmill.
So we will see.
Started pre pandemic with four 737 eight hundreds.
On is now operating six.
737, eight hundreds so they've actually increased capacity by about 50% percent since the pandemic started.
Have opened a few new domestic and international markets. So they are still affected by the pandemic Columbia of course, it still affected.
Even though domestic markets have recuperated, a little bit better on the international market, but wingo did see an opportunity to strengthen their.
Their network and they have done so.
Okay, Let me leave it there thanks very much guys.
Thank you.
Your next question is from the line of Pablo Masa bias with Barclays.
Hi, Thanks for taking my question gross hobbies is kind of.
Early to tell but can you please.
For like some color on debt to recover your community.
Nevertheless.
After COVID-19.
How should we expect yields to perform.
In light of lower corporate debt.
On perhaps with a weaker effects.
Higher oil prices, how are you going to have people from low margin to the margin that you have a pre COVID-19. Thank you.
Yes, Pablo this is Jose here, so I would say that in.
We have to take a basis on on.
Where do we think what's the path to sort of.
Bringing our revenues our unit revenues from the place where they are today into into a lower dilution.
And how we will match our capacity to sort of that revenue environment. So I think that if we assume debt.
In.
Medium term, our our unit revenue dilution is sort of in the mid teens.
We could reach.
On an operating P&L breakeven.
60% of our pre COVID-19 capacity.
And I think debt.
Taking that a further step if we were to assume.
A.
Unit revenues being.
They are pre COVID-19 levels.
Could reach our pre COVID-19 level of operating margins in the teens.
Much lower capacity that we had and then.
And then the pre COVID-19.
<unk> 19 levels and can be it maybe.
60% to 70% of our pre COVID-19 capacity assuming.
Zero revenue dilution, we will be achieving our pre COVID-19 sort of.
Mid teen operating margin loans.
I mean, just to give you some some.
The framework, where we are at on a force that's a function of all the efficiencies that we're working on in terms of our costs going forward.
And Pablo I'll add to that.
You asked for some color so so.
A lot of the work we've put in.
<unk> started to make the company more cost efficient is with the new reality.
You referred to.
Mine.
There's going to be less business traffic for a while yields were going to be affected but.
But if we can deliver lower cost, which accelerating tension then we'll be able to have the same success before we're even more.
On a yield on a revenue dilution or a yield dilution over pre pandemic.
Your next question is from the line of Duane <unk> with Evercore.
Good morning, this is actually ray on for Duane.
Look across the book.
As you look across your portfolio markets in light of travel restrictions on reopening.
Youre getting better and easier to predict and which are harder to plan as compared to the ones you commentary that you laid out earlier in your press release.
You mean in terms of market interest for restrictions.
Restrictions in markets, Yes, it's really hard.
I won't give country.
Yes.
Yeah Yeah.
So right now for example, there are very strict restrictions in places such as Argentina.
Venezuela.
Cuba, even some in Panama for South American travelers not flight restrictions.
And this other countries I mentioned.
Most of them on flights are actually restricted.
So.
So it's anyone's guess when those restrictions will be lifted they will be lifted of course, they will control. The virus things will get better. We know that was very difficult to know if thats going to happen in July and September or.
Or who knows and in many cases those sure.
The new restrictions that were not in place at the end of last year. So so on there.
No there could be other countries.
In posting new restrictions as things change, but I would say that is that directionally I think.
Even though there's like something like a third wave in many countries of the virus I think directionally, we're going into right direction in terms of vaccination rates in travel demand.
And getting things under control.
Thanks Linda.
Perfect.
Sure.
Appreciate you gave us the deliveries for the balance of the year, but could you also maybe give us some on the corresponding capex around that and also on the Capex and the levers for 'twenty two and.
Related.
What do you think the balance between lease and non would be.
Okay.
Yes right.
Capex for 2021, including the airplanes that we already taken delivery of so talking about full year.
Total capex is going to be around $415 million.
Yes.
Based on.
That is cash.
Yes.
Associated with the maintenance.
Yeah.
But at this time.
Okay.
Yeah.
And for next year.
Yes.
Okay.
Yes.
Great.
Total capex again, the pesos, including aircraft assets.
Type of Capex.
Yes.
So.
Alright.
Follow up on that.
Great.
Okay.
Okay.
Okay.
Okay.
Right.
Okay.
Absolutely.
Alright.
Okay.
Question from the line of Mike.
With Deutsche Bank.
Okay.
Okay, Hey, Joe Joe Bob.
Question, just a modeling question here.
Obviously.
Thanks.
I'm just curious what have you.
The allowance against deferred tax assets.
Right now.
The book tax rate.
Alright, okay.
Sure.
On a quarter.
Okay.
Per cent.
Yeah.
Fay.
Okay.
Okay.
Moving to the fourth quarter.
Yes.
Okay.
Okay.
Thank you.
Non U.
Yeah.
Yeah.
Okay.
For the simple haynesville.
So we.
We saw in the tax line this quarter.
Sure.
And on.
Sure.
Okay.
Craig.
Thanks.
Fortunately day care.
On the enterprise.
Yeah.
Usually.
The fourth quarter.
On that.
Okay.
Next question is from the line on.
<unk> Lindeman Jamie.
Hey, good morning.
And I just kind of curious.
So you can have.
Thanks, Pat on today.
How much.
On the balance sheet.
And what kind of net.
Okay.
And some of them on Asia.
Okay.
So on any change in coverage.
Correct.
Yes.
And on gasoline.
The growth that we saw.
Growth in net.
The quarter of about $5 million.
It's purely said most of that is cash.
On the majority of its category.
Minor portion associated with vouchers.
For future travel with the majority of it.
Cash.
I mean.
And.
Yes.
Significant recovery.
The back book.
Core business demand.
Some months ago.
But nothing significant yet this multi VFR and leisure.
Okay.
Okay.
Is the ATM, yes.
Okay.
I think it's less debt.
Yes.
Gross margin.
And 50%.
Yes.
The next question is from the line of Alejandro.
With credit Suisse.
Okay.
Thank you.
Just a question on in terms of the perfect scenario.
First on.
Good day.
They continue.
At this point on what.
The completion tool sales.
Perhaps.
But the recovery maybe.
Maybe moving.
By the way.
Spending on.
Ore body.
We have got.
Okay.
Thank you.
Yes.
I mean, both markets.
Our open book as I meant.
And before our <unk>.
Very restricted in terms of how many frequencies a.
And we can operate to markets such as Venezuela, Argentina.
Sheila.
I mentioned before.
Have restrictions that don't allow us to operating more than a few frequencies.
Per week, whereas before we would have had multiple frequencies.
And thats impacting demand.
They're also older older travel restrictions around the region.
In the markets that are open.
Like do you ex in the Caribbean for example, where we're seeing a stronger demand than non in the restricted market it would be expected.
Your next question comes from the line.
Your next question comes from the line of Joseph de Nardi with Stifel.
Hi, Thanks, good morning.
Pedro you mentioned in your prepared remarks that you think fewer markets, we'll be able to support point to point.
COVID-19 can you just elaborate on that kind of why do you think debt.
Well our hour yes.
Our hub.
<unk> has always distinguished itself by connecting a large number of small city pairs.
Over 70% of the city pairs, we connect have less than 20 passengers per day each way.
Post pandemic, we expect city pairs that Doug.
Have enough.
Traffic that don't fall, maybe within that 70%, but even some debt to debt prepayment had enough traffic.
For non stop service and I'm, not saying every city per I'm, just saying some additional city pairs will need a hub on them.
Panama, the best trade Cogs to serve those markets. So we think.
There will be additional opportunities to strengthen the hub of the Americas and it could be again city pairs that can only be served through Panama, whereas before they had non stop flights or city pairs that we would be able to sustain much less non stop capacities than pre pandemic.
On.
Of course that will change over time, but coming out of this crisis I think we hopefully America and Panama is going to be net even stronger position to serve those markets.
Okay. That's helpful and then Jose maybe just following up on Pablo's question can you remind us how youre thinking about kind of cost structure post COVID-19. I think you had previously said you could get back to pre COVID-19 CASM ex with 80% of pre COVID-19 capacity is that still how youre thinking about it and then just a clarification on the ending.
The year was 83 aircraft does that include stored are parked aircraft. Thank you.
Yes.
First question Joe is.
We think that will get sub six CASM by the time that we are back to pre COVID-19 capacity I think it will be back to our free.
COVID-19 CASM by agenda, where around 88%, yes, that's still very much.
And we're relatively confident about that target and where we've been making a lot of efforts in terms of contract renegotiations and savings in overhead and.
The fleet.
It moves that we've made total.
It's still very much in our radar and then.
On.
In terms of.
Yes.
AAV three aircraft at the end of the year.
Total <unk>, including the store price yes.
Yes, thank you that.
We'll be <unk> by the way.
Joe.
I mentioned in our in our script that we have right now 16 airplanes that are under long term storage.
There are included on of course in the 81 that we have right now by the end of the year will end up with 83 aircraft.
Will we expect right now to have seven under a long term storage by then including <unk> III. So we will activate.
Subset of those about 60 airplanes that we have right now.
Our last question comes from the line of <unk> Becker with Cowen.
And thanks, very much operator, hi, everybody and thank you very much for your time.
As you think about adding cities back to the network.
How will you think about adding them back will it be on focus.
GFR or leisure traffic cities first or how should we think about the shift in mix away from business travel and tomorrow leisure and.
VFR for now.
So yes, an interesting question because the cities we've added.
Our of course, our stronger.
The cities are stronger destination and dose in many cases include a significant.
Business travel component pre pandemic.
But we're adding.
Large fewer frequencies than before so strong business market value.
Panama Bogota for example.
We're serving a few times per day on.
<unk> makes it would have been seven or eight times. So so even though those are strong business market a frequency sort of weighed down because of that but we have opened all of those markets because they just as mentioned before happened to be stronger routes.
Overall.
Ones that were going to be opening gradually from here to the end of the year on into 2022.
It really has actually a high leisure and VFR component.
Just much motor markets than the others. So that's driving the decision more than the mix itself.
Okay. That's very helpful. Thank you.
And then the other question I had was.
As you're thinking about them.
Getting back to profitability.
How should we think about the return of capital plans because for a long time until the pandemic here.
Your dividend is an important component of that and obviously with the pandemic. That's just not the case right now so how should we think about return on capital.
In 2000, and let's say a year or year and half flow from now and maybe things are back to some level of.
The next normal.
Yeah. So on so we havent change.
Our dividend policy, we're just missing the profit part of it.
And even though even though.
One on Taco.
<unk> officially because we have to see how things are.
<unk> developed but I would expect debt once we.
The profit component the dividend policy will kick in and we have strong liquidity. We're in a strong overall position. So that's what I would say.
I expect going forward.
Okay. That's very helpful. Thanks, Pedro Thanks, Okay. Thank you your line.
Yes.
Yes.
Yes.
Yes.
There are no further questions.
Okay.
Okay. Thanks, Okay. Thank you. All this then concludes our earnings call. Thank you for being with US. Thank you for your continued support.
You know where to find us.
Please have a great day. Thank you.
Ladies and gentlemen, thank you for your participation that concludes the presentation you may disconnect and have a wonderful day.
Yeah.
Okay.
[music].