Copa Holdings, S.A. (NYSE:CPA) Q4 2023 Earnings Call Transcript
Copa Holdings, S.A. (NYSE:CPA) Q4 2023 Earnings Call Transcript February 8, 2024
Copa Holdings, S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Copa Holdings Fourth Quarter Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. [Operator Instructions]. As a reminder, this call is being webcast and recorded on February 8, 2024. I will now turn the conference over to Daniel Tapia, Director of Investor Relations. Sir, you may begin.
Daniel Tapia: Thank you, Lisa, and welcome, everyone, to our fourth quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings; and José Montero, our CFO. First, Pedro will start by going over our fourth quarter highlights, followed by José, who will discuss our financial results. Immediately after, we will open the call for questions from analysts. Copa Holdings financial reports have been prepared in accordance with International Financial Reporting Standards. In today's call, we will discuss non-IFRS financial measures. A reconciliation of the non-IFRS to IFRS financial measures can be found in our earnings release, which has been posted on the company's website, copaair.com. Our discussion today will also contain forward-looking statements, not limited to historical facts that reflect the company's current beliefs, expectations and/or intentions regarding future events and results.
These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions subject to change. Many of these are discussed in our Annual Report filed with the SEC. Now, I'd like to turn the call over to our CEO, Mr. Pedro Heilbron.
Pedro Heilbron: Thank you, Daniel. Good morning to all and thanks for participating in our fourth quarter earnings call. 2023 was a very strong year for Copa as we reported solid financial results. I would like to extend my sincere gratitude to all of our co-workers for their commitment to the company and our passengers. As always, they have my deepest respect and admiration. Thanks to a continued healthy demand environment in the region and our consistent execution in keeping ex-fuel unit costs low and increasing revenues. We were able to deliver industry-leading financial results for the quarter and the year. Summarizing the main highlights for Q4, passenger traffic grew 11.1% compared to the same period in 2022, in line with our capacity growth of 11%.
As a result, the load factor for the quarter increased by 0.1 percentage points compared to Q4 2022 to 86.7%. Passenger yield came in at $0.14, resulting in unit revenues or RASM of $0.127. Unit costs decreased by 6.3% compared to Q4 2022, mainly driven by a lower jet fuel price and lower sales and distribution cost. Excluding fuel, unit cost or CASM-Ex came in at $0.06, a 1.6% decrease compared to Q4 2022. And our operating margin for the quarter came in at an industry-leading 23.9%. Now, turning to our main highlights for the full-year 2023. Passenger traffic increased 15.7% compared to 2022 while our capacity grew by 13.4%. As a result, our load factor for the year increased 1.8 percentage points to 86.8%. Unit revenues or RASM increased 3% year-over-year to $0.125, driven by a 1.6% increase in passenger yields and the 1.8 point increase in load factor mentioned before.
CASM-Ex fuel came in at $0.06, 0.3% below 2022, and operating margin for the year came in at 23.5%. With regards to our network, in 2023, we started serving four new destinations, Austin and Baltimore in the U.S., Manta in Ecuador and Barquisimeto in Venezuela. With these additions, we now serve 81 destinations in 32 countries in North Central South America and the Caribbean, as we continue strengthening and solidifying our procession as the most complete and convenient connecting hub in Latin America. We're able to significantly increase passenger sales through both our copa.com and direct channels and our new lower cost NBC travel agency channel, and are glad to share that as of today, more than 75% of our total sales are sold via these channels, considerably lowering our distribution cost and reducing our dependency on the traditional GDS channels.
To put it in perspective, prior to the launch of our new distribution strategy in September 2022, the percentage of sales through our direct channels was only around 40%. On the operational front, Copa was recently recognized by Cirium for the 9th time as the most on time airline in Latin America in 2023. In fact, according to Cirium, Copa's on time performance of 89.5% was once again the highest of any carrier in the Americas and amongst the highest in the world. Additionally, last year Copa Airlines received multiple recognitions such as from SkyTrax for the eight consecutive year as the Best Airline in Central America and the Caribbean, from APEX, which qualified Copa as a Five Star Major Airline, and from Condé Nast traveler, which included us as part of the top 15 major airline major international airlines in the readers' choice award for 2023.
Turning now to Wingo. During 2023, Wingo focused more on its capacity to domestic markets with the start of six new routes in Colombia from Bogota to Barranquilla, Pereira and Bucaramanga from Medellin to Cartagena, Santa Marta and in Panama from Panama City to David. Internationally, Wingo launched two new routes during the year, from Bogota to Caracas, Venezuela and a seasonal route from Cali to Aruba. With these additions, Wingo currently operates 37 routes with service to 23 cities in 11 countries. Now I'll go over our expectations for 2024. As you already know, the grounding of 21 of our 737 MAX 9 following the airworthiness directive issued by the FAA impacted our operations from January 6 to January 29. This unexpected disruption forced us to cancel around 20% of our daily flight schedule, which represented more than 1,700 flights.
I'm glad to share that. Thanks to our team's hard work, commitment and dedication, we were able to take care of our passengers in the best possible way and once approved by the FAA, promptly returned to operations the grounded planes in a safe and reliable manner. Boeing has been and continues to be an important partner for Copa and we remain committed to our relationship in the long-term. Nonetheless, we hold them accountable for the grounding and its impact on our passengers and our financials, for which we expect to be fairly compensated. Aside from the impact of the grounding on our Q1 2024 financial and operational results, it seems that this year's 737 MAX deliveries are likely to be further delayed, reducing our estimated capacity growth for the year to approximately 10% from our original expectation of between 12% to 14%.
Going forward, we continue to see a healthy demand environment in the region as we again expect to deliver strong financial results in 2024. Continuing with our network growth plans, this week, we announced three new destinations that will start to operate this summer, Raleigh-Durham in the U.S., Florianópolis in Brazil and Tulum in Mexico, with these additions; we will reach 81 destinations in 32 countries, as we continue to solidify our leadership position as the hub with the most international destinations in Latin America. We believe our business model is as solid and as relevant as ever and our hub of the Americas in Panama is the best connecting hub in Latin America, making us the best position airline in our region to consistently deliver industry-leading results.
To summarize, we delivered industry-leading first quarter and full-year financial results while continuing to grow capacity. We continue to deliver on our cost execution strategy. We continue growing and strengthening our network the most complete and convenient hub for travel in the Americas. We also continue to see a healthy demand environment in the region and expect to once again deliver strong operating margins in 2024. And as always, our team continues to deliver world leading operational results. Now I'll turn it over to José who will go over our financial results in more detail.
José Montero: Thank you, Pedro. Good morning, everyone. Thanks for being with us today. I'd like to join Pedro in acknowledging our great team for all their efforts while handling the MAX 9 grounding in the best way possible, and of course, for keeping our passengers and our co-workers safe. Their commitment is key to our success as a company. I will start by going over the main highlights for the full-year 2023. Our load factor increased year-over-year by 1.8 percentage points to 86.8%. Unit revenues improved by 3% versus 2022 to $0.125, mainly driven by a 16% reduction in the average price of jet fuel, our unit cost came in at $0.096, a 7.1% reduction versus 2022. While our ex-fuel unit costs came in at $0.06 or 0.3% lower year-over-year.
As a result, our operating margin for the year was 8.3 percentage points higher than in 2022 at 23.5%. Reported net income for the full-year 2023 came in at $518.2 million, which translates to earnings per share of $12.89, excluding special items namely a $156.9 million net charge related mostly to the settlement of the company's convertible notes, which we closed during the third quarter. Adjusted net income came in at $675.1 million, or adjusted earnings per share of $16.79. Now, turning to our fourth quarter results, we reported a net profit for the quarter of $191.8 million, or $4.55 per share. Excluding special items, our adjusted net profit came in at $188.4 million, or $4.47 per share. The fourth quarter special item consisted of a $3.4 million unrealized mark-to-market gain related to changes in the value of financial investments.
We reported a quarterly operating profit of $218.9 million and an operating margin of 23.9%. Capacity came in at 7.2 billion available seat miles, or 11% higher than in Q4 2022. Our load factor came in at 86.7% for the quarter, a 0.1 percentage point increase compared to the same period in 2022, driven by a 7.1% decrease in yields year-over-year, unit revenues came in 7.3% lower versus Q4 2022 at $0.127, mainly driven by lower jet fuel prices, unit costs, or CASM decreased to $0.097, or 6.3% lower year-over-year. And finally, our CASM excluding fuel came in at $0.06, 1.6% decrease versus Q4 2022, mainly driven by lower sales and distribution costs due to a higher penetration of both direct sales and the lower cost NBC travel agency channels.
I'm going to spend some time now discussing our balance sheet and liquidity. As of the end of the fourth quarter, we had assets with close to $5.2 billion. As to cash, short and long-term investments, we ended the quarter with over $1.2 billion, which represents 34% of our last 12 months revenues. And in terms of debt, we ended the quarter with $1.7 billion in debt and lease liabilities and came in with an adjusted net debt to EBITDA ratio of 0.5x. I'm pleased to report that our average cost of debt, which continues to be comprised solely of aircraft-related debt is currently in the range of 3.5%, with around 70% of our debt being fixed. Turning now to our fleet, during the fourth quarter, we received three Boeing 737 MAX 9s. With these additions, our total fleet is now comprised of 68, 737-800s; 29, 797 MAX 9s; and 9, 737-700s.
These figures include one 737-800 freighter and the nine 737-800s operated by Wingo. As for our 2024 fleet plan, as Pedro mentioned in his remarks, deliveries will likely be further delayed in the year. Therefore, we are embedding in our capacity guidance a preliminary figure of 11 aircraft deliveries for the year 2024. Our current fleet plan calls for receiving three 737 MAX 9s and eight 737 MAX 8s to end the year with a total of 117 aircraft. We have already secured JOLCO financing for nine out of these 11 expected deliveries in 2024. Turning now to the return of value to our shareholders. I'm pleased to announce that our Board of Directors has approved a dividend payment in 2024 of $1.61 per share per quarter to be paid in the months of March, June, September, and December, subject to Board ratification each quarter.
I'd like to highlight that the 2024 dividend payment represents a significant increment year-over-year versus the dividend paid during 2023. The first quarterly payment will be made on March 15 to all shareholders of record as of February 29. As to our outlook, we can provide the following guidance for the full-year 2024. We expect to increase our capacity in ASMs by approximately 10% year-over-year and we expect to deliver an operating margin within the range of --.
Operator: Yes. You're back into the call.
José Montero: All right. Thank you. And so for some reason we got dropped out, so you can tell this is live. And so I will start again with our outlook part and as part of my prepared remarks. So I'm going to -- I was talking about our outlook for the year 2024 and I was saying that we expect to increase our capacity in ASMs by approximately 10% year-over-year and we expect to deliver an operating margin within the range of 21% to 23%. We are basing our outlook for the year 2024 on the following assumptions. Load factor within the range of 86% to 87%, unit revenues within a range of $0.122, CASM-Ex fuel to be in the range of $0.06, and we are expecting an all in fuel price of $2.85 per gallon. Our 2024 full-year guidance includes a financial impact from the grounding of 21 of COPPUS MAX 9 aircraft, which took place between January 6 and January 29.
Additionally, it accounts for a current estimate of the full-year capacity impact due to the MAX 9 grounding coupled with anticipated further aircraft delivery delays throughout the year. It's important to note that our preliminary capacity guidance of approximately 10% is subject to adjustments, pending changes in the aircraft delivery schedule for the remainder of 2024. Thank you. And with that, we're open the call for questions, if we're still here, hopefully.
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