Copa Holdings, S.A.

Ladies and gentlemen, thank you for standing by. Welcome to COPA Holdings' first quarter earnings call. During 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 a question, you will have to press star 1-1 on your telephone. As a reminder, this call is being webcast and recorded on May 11, 2023. Now I will turn the conference call over to Daniel Tapia, Director of Investor Relations. Sir, you may now begin.

Thank you, Felicia, and welcome everyone to our first quarter earnings call. Joining us today are Pedro Helbron, CEO of Copa Holdings, and Jose Montero, our CFO. First, Pedro will start by going over our first quarter highlights, followed by Jose, who will discuss our financial results. Immediately after, we will open the call for questions from analysts. COPPA 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, coppaair.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 Hedron.

Thank you, Daniel. Good morning to all, and thanks for participating in our first quarter earnings call. Before we begin, I would like to extend my sincere gratitude to all our coworkers for their commitment to the company. Their continuous efforts and dedication have kept COPPA at the forefront of Latin American aviation. To them, as always, my highest regards and admiration. Today, we're pleased to report strong results for the first quarter and a solid outlook for the year. Despite the continued high fuel prices in the quarter, we were able to deliver an operating margin of 22.3%. These results were mainly driven by a robust demand environment in the region, which led to an improved load factor as well as an increase in passenger yields during the quarter. Among the main highlights for the quarter, passenger traffic grew 7.1% compared to the same period in 2019, outpacing our capacity growth of 2.8%. This resulted in an 86.8% load factor, a 3.5 percentage point increase compared to Q1 2019. Passenger yields came in at 14.6 cents or 20% higher than the first quarter of 2019, while cargo revenue was 52% higher, resulting in unit revenues or RASM of 13.1 cents a 25.5% increase compared to the first quarter of 2019. On the cost side, our unit cost excluding fuel came in at 6.2 cents or 2.1% higher compared to Q1 2019. As a result, our operating margin came in at 22.3%, 5.5 percentage points higher than in the first quarter of 2019. On the operational front, Cooper Airlines delivered an on-time performance of 92.2% and a completion factor of 99.9%, once again among the very best in the world. I would like to take this opportunity to express my recognition for more than 7,000 co-workers who day in and day out deliver a world-class travel experience to our customers. Their contributions are key to our success. Turning now to our fleet, we received two 737 MAX 9 aircraft during the quarter and we expect to receive 10 more MAX 9s during the remainder of the year to end 2023 with a total fleet of 109 aircraft. With regards to our network, as we mentioned in our last call, we plan to start new service to the cities of Manta in Ecuador and Baltimore and Austin in the U.S. starting this summer. With these additions, we will serve 80 destinations in 32 countries in North, Central, South America, and the Caribbean, as we continue strengthening and solidifying our position as the most complete and convenient hub in Latin America. Finally, with regards to Wingo, Wingo continues its regional expansion with the announcement of three new domestic Colombia routes from Bogota to Barranquilla, Pereira and Bucaramanga, and one international seasonal service from Cali in Colombia to Aruba. With these additions, Wingo will operate 34 routes with service to 21 cities in 10 countries. Now, turning to our expectations for 2023. As you saw in our earnings release, we increased our operating margin guidance to a range of 22 to 24%, mainly driven by the current solid demand environment in the region, as well as a lower fuel curve for the remainder of the year. As always, Jose will provide more detail regarding the full year's outlook. To summarize, we're off to a very good start in 2023 and expect to keep seeing a healthy demand environment throughout the year, we continue growing and strengthening our network, the most complete and convenient hub for intra-Latin America travel. And as always, our team continues to deliver world-leading operational results while maintaining our cost low. Lastly, we're as confident as ever in our business model. We continue to deliver solid margins and competitive unit costs while offering a great product for our passengers. making us the best positioned airline in our region to consistently deliver industry-leading results. Now I'll turn it over to José who will go over our financial results in more detail.

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 to deliver a world-class service to our passengers. I will start by going over our first quarter results. We reported a net profit for the quarter of $121.5 million, or $3.07 per share. Excluding special items, net profit came in at $157.8 million, or $3.99 per share. First quarter special items are comprised of an unrealized mark-to-market loss of $37.9 million related to an appreciation in the value of the company's convertible notes and a $1.7 million in unrealized mark-to-market gain related to changes in the value of financial investments. We reported a quarterly operating profit of $193.2 million and an operating margin of 22.3%. Capacity came in at 6.6 billion available seat miles, or approximately 3% higher than in Q1 2019. Load factor came in at 86.8% for the quarter. a 3.5 percentage point increase compared to the same period in 2019, while passenger yields increased 20% to 14.6 cents. As a result, unit revenues came in at 13.1 cents, or 25.5% higher than in the first quarter of 2019. Driven by higher jet fuel prices, unit costs, or CASM, increased 17.2% versus Q1 2019 to 10.2 cents. And our CASM excluding fuel came in at 6.2 cents, a 2.1% increase versus Q1 2019, mainly driven by additional engine maintenance costs, changes in supplemental rent provisions related to aircraft utilization, as well as additional leased engine costs, plus an increase in our sales and distribution costs as a function of higher sales during the period. I'm going to spend some time now discussing our balance sheet and liquidity. As of the end of Q1, we had assets of close to $4.9 billion, and in terms of cash, short, and long-term investments, we ended the quarter with $1.2 billion, which represents 36% of our last 12 months revenues. As to our debt, we ended the quarter with $1.7 billion in debt and lease liabilities, and achieved a net debt to a big debt ratio of 0.6 times. 80% of our aircraft debt is fixed, and I'm happy to report that our blended cost of aircraft debt for the quarter came in at an annualized rate of 3%. Turning now to our fleet, during the first quarter, we received two Boeing 737 MAX 9s to end the quarter with a total of 99 aircraft, compared to 102 aircraft in our fleet at the end of 2019. With these additions, our total fleet is now comprised of 68 737-800s, 22 737 MAX 9s and nine 737-700s. These figures include one 737-800 freighter and the nine 737-800s operated by Wingos. Two thirds of our fleet continues to be comprised of owned aircraft and one third of our aircraft are under operating leases. During the remainder of 2023, we expect to receive 10 additional aircraft, all Boeing 737 MAX 9s, to end the year with a total fleet of 109 aircraft. Finally, I'm pleased to inform you that this past month of March, our Board of Directors approved a quarterly dividend of 82 cents per share, subject to board ratification each quarter, which reinstates our dividend payout of 40% of prior year's adjusted net income. We made our first quarterly payment during the month of April, and the second payment would be on June 15th to all shareholders of record as of May 31st. As for our outlook, based on the strength of the current demand environment, we can provide the following guidance for full year 2023. We expect to increase our capacity in ASNs versus 2022 within a range of 12% to 13%. We now expect an operating margin within the range of 22% to 24%. We're basing our outlook on the following assumptions. Load factor of approximately 85%, unit revenues within a range of 12.5%, CASMX fuel to be in the range of 6.1 cents. And finally, we're expecting an all-in fuel price of $2.85 per gallon. Thank you. And with that, we'll open the call to some questions.

Thank you. We will only take two questions per participant. One moment while we compile the Q&A roster. The first question comes from the line of Steven Trent from Citi. Steven, please go ahead.

Good morning, gentlemen, and thank you very much for taking my questions. I was wondering kind of on a high-level basis if you could discuss the opportunities related to, you know, the renewed strategic alliance with United Airlines from August 2021 and, you know, what you might be seeing in terms of the potential for a joint business agreement. Maybe we're visiting that down the line. Thank you very much.

Yeah, hi, Steven. It's Pedro. Hey, Pedro. As you know, we have a very strong alliance with United that goes all the way back to the Continental days. And on top of that, we're, of course, part of Star Alliance. So we feel that with our strong United relationship plus Star Alliance, we cover what's of most benefit to COPPA in terms of where we fly, the regions where we fly, where we're active. and the earnings that we should be in an alliance with. We also have that letter of intent, or whatever it's called, between Avianca, United, and COPPA for a JBA, joint business agreement, and I think that has not been implemented. The pandemic was in between, and honestly, I don't really know if that's going to be implemented. or it would just be allowed to expire. I think it probably has over a year for that decision to be made. But, again, what I'm trying to say is that we have the alliances we need and that add the most value to COPPA.

Super, Pedro. I really appreciate that. And just my one follow-up. I believe you talked in the past about the LEAP engines driving kind of a one-time thing

uh relatively smallish chasm x headwind into this year and you know any high level view on whether that's going to ease as we uh move through uh 2024. answer yes even uh let me just say that that uh yeah there's some i would say short-term headwinds related to to the leap engine uh most of the costs that we've seen so far this year are associated to short shop visits that some of the engines require as part of campaigns that are being performed in the worldwide fleet of the LEAP. We're seeing an improvement in the performance of the engine and we are relatively advanced in the majority of these campaigns. And so going forward, in the rest of 2023, we expect to have a lesser number of engines going into the shop and or with some of the fixes that are required.

And so that actually flows into our 6.1 cent CASM guidance that we have for the full year, vis-a-vis the CASM-X guidance that we had issued back in February.

Super helpful, gentlemen. Thank you for the time and looking forward to seeing you on Tuesday. Thank you, Steve.

Same here.

One moment for the next question.

The next question comes from the line of Savi Saith of Raymond James. Savi, please go ahead.

Thank you. Good morning, everyone. I was curious, you're usually a fairly conservative team in forecasting and the kind of revenue outlook improvement is pretty meaningful. I'm just curious what trends you're seeing that kind of gives you confidence early on to kind of take those numbers up.

Yes, Abby. Hello. I'll start and maybe Pedro you can jump in to complement. I would say that the first thing is that Q1 certainly had a very, very robust demand environment. So I think that's a portion of the increase that we had made to our unit revenue guidance. And then secondly, I would say that from our visibility of what we have for the coming months, specifically the second quarter, the demand environment continues to be relatively robust. So that's also embedded in there. And then we are cognizant that our visibility is limited for the remainder of the year. So I think that there's some seasonality as well that we put into the guidance. And of course, we are cognizant as well that there's a lot of capacity coming into the market. There's a lot of, you know, fuel is also an item that we are paying close attention to and the movement in fuel. So we're, I think, we're, I think, You know, we can say that we're confident in the 12.5, but it's mostly related, I would say, to Q1 and to the disability that we have into the first half of the year.

And the only thing I would add, Xavi, is that our guidance, even though it has been improved, as you well mentioned, still puts us at a lower RASM for the second half of 2023 compared to the second half of 2022. And that's because of the decreased fuel curve and the additional capacity coming into our market. So we're still projecting lower RASM in the second half of the year.

That's helpful. And along those lines for my second question, I wonder if you could talk a little bit about what you're seeing on the business demand standpoint. It seemed like it was slow progress over the last few quarters. Have you seen any improvement there?

There's still some improvement, but Things have changed, at least in our part of the world, since the pandemic. So leisure is our strongest segment now. It's not as much as half, but it's in the 40% of our split between leisure, VFR, and business. And business has come up somewhat. It's like in the mid-20s, maybe a little bit less than that. percent in terms of that same split, but slight improvement in the last few quarters. Nothing very significant.

Perfect. Thank you.

Thank you, Xavi.

One moment for our next question.

The next question comes from the line of Guilherme Mendez from JP Morgan. Guilherme, please go ahead.

Good morning, Pedro, Jose, Daniel. Thanks for taking the question and congrats on the pretty strong results. First question is a follow-up on the assumptions behind the guidance. I think it's clear on the CAS in front. But just wondering in terms of the capacity addition, there was a small reduction. Just wondering if it's related to any potential bottlenecks on the supply side of the industry. And on the rest, guidance, thinking that Probably it implies a stronger yield for the year despite of lower fuel cost as well. So if you could please just explain how you're seeing demand environment going forward. And then the second question. Sorry, go ahead.

Yeah, I'll start and then I'll let Jose add. So in terms of capacity, well, COPA itself is receiving 12 aircraft in the year. So that's quite a bit of some capacity. And then our peers in Latin America are getting back to pre-pandemic levels, which was not the case in 2022, but will be the case from now on, the rest of 2023. So all of that together, plus there are other airlines, especially UOCCs, which are growing faster than pre-pandemic. So when we add all of that up, it's a considerable number of additional seats. in our region. Demand is there, of course, so we're confident on the demand and we're confident that there's enough demand, but more capacity plus lower fuel usually tends to result in lower unit revenues.

Yeah, Guillermo, in terms of the capacity movement that we made in terms of our of our full year guidance. It is, yeah, related to the latest forecast that we have in terms of aircraft deliveries for the year. So that's what we have in terms of our best knowledge as of now in terms of new aircraft deliveries.

Super clear. Thank you. And the second question is in terms of the capital allocation. And naturally, the dividend's already out. You have the buyback open as well. So thinking that leverage remains below one time net debt should be done if you see room for maybe an extraordinary payment or a more aggressive buyback.

All right, Guillermo. I have to say that we reinstituted our dividend. The board approved that back in March, and it's 40% of our prior years adjusted net income. And so we're, I think, happy with that level. I would say that our buyback program, as you saw, continued to be active during this year, during the first part of the year. And I think that there's a couple of important points to make. Number one is that we have a sizable number of investments coming in related to aircraft for growth of our business. So I think that part of this capital that we have is geared towards growth of COPPA itself. And number two, you know, we have to convert and we also have to want to have a lot of flexibility in terms of the management of that liability.

Super clear. Thank you. Have a great day. Thank you. Thank you. You too.

One moment for our next question. The next question comes from the line of Michael Lindenberg from Deutsche Bank. Michael, please go ahead.

Hey, good morning, everyone, and that was a great forecast. A couple here. One, the move to add additional domestic service in Colombia by Wingo, was that in response to the suspension of Viva and Ultra? Is it a tactical move? Is it a harbinger of maybe getting bigger in the domestic Columbia? And is there an opportunity for you to maybe get some of the slots that will potentially be released as a result of consolidation and rationalization in the Columbia market? That's my first question. Thank you.

Okay, so a few things there, Michael. One is that Wingo is not really a large player in domestic Colombia. We went with nine planes. As we know, it's nine 737-800s. And this capacity shift has to do with something that's been developing over the last number of months, which is more strength in the domestic market than in some of the international routes that have seen a lot more capacity. So it's tactical. It's tactical. It's limited. Yes, the shutdown of certain airlines has a positive effect, but actually it benefits much more the other airlines, the other incumbents in Colombia. Wingo, again, is not significant, and it never really competed that much head-on with the airlines. They're no longer flying, so not a huge impact, not a huge impact. But there is a little bit better strength in the domestic and that's why they reduce what Wingo has done is reduce frequencies in some of the international markets that we're not doing as well and redeploy them in the domestic market that is doing better. So again, tactical.

Anything on the Bogota slots that potentially come available? Are you in line to try to grab some of those for your use?

Right, so although there are no plans to grow the Wingo fleet in an aggressive way, we tend to be disciplined and Wingo will continue taking advantage of opportunities and not just taking a bunch of aircraft. So Wingo will remain disciplined and opportunistic. But the Bogota slots are very important because it was very difficult for Wingo, it is very difficult for Wingo to publish an advanced schedule and fly at the right times, at the peak times when most passengers want to fly because up to now the slots in Bogota have been dominated by a single carrier and so hopefully this is going to change and make Bogota, which is like the only or one of the very few slot-restricted airports in our continent, it will make it more competitive and it will allow Wingo and others to offer service at the times passengers want to fly. So we see that as a positive development. Okay, great.

And then this is just another sort of network question, Pedro. One of the things that we saw coming out of COVID is we saw a lot of the big global hubs initially only benefit from the recovery of local traffic. And I think as things have started to turn on, we're seeing a lot more, you know, what we call six freedom traffic, third and fourth, you know, freedom connections, which is something that you specialize in. And so when you look at the commentary out of, say, a Turkish or an Emirates or a Cathay Pacific, you're really starting to see that benefit. And I think when I look at COPA and I look at capacity coming online by some of your competitors, where I think you really outshine the competition. is all the connections that you fly in city pairs that nobody else serves. And I suspect that maybe that wasn't seeing as much service in the earlier part of the recovery period, and that's starting to turn on now. And those are markets that are uniquely served by COPA. Is that right? Is that a trend that you've been seeing in your markets, or maybe you're connecting markets turned on from day one?

Well, you know, we've seen strength throughout our markets and throughout our network. And we're staying true to our vision and to our business model. So coming out of the pandemic, we went back to doing what we've always done in a very focused and disciplined way. And that demand has kind of been there from the beginning, I would say. But it's obviously stronger now, and it continues to grow. It's holding up, and there's more capacity from other airlines and from ourselves coming in. But the whole market has improved. And, yes, I think you're right. We have something unique about our network, and we hope to continue developing it.

Okay. Well, great. Great, great results, and thanks for answering my questions. Thank you.

One moment for the next question. The next question comes from the line of Bruno Amorum from GS. Bruno, please go ahead.

Yes, thank you for taking my question. So, you know, I'd like to hear from you, if possible, you know, what's your vision for the next few years in terms of competitive dynamics and, you know, the expected profitability for the business? Of course, adjusting for eventual volatility in macro conditions, which might happen. My point here being that, you know, if you look in the 2010 to 2014 cycle, margins were around 20%. I'm talking about EBIT margins. Then between 2015 and 19, margins hovering around 15%. So, you know, if you work together for the next few years, you know, are we more in the type of market that we saw between 2016 and 19, or is it possible to sustain margins around 20% even though, you know, you're not growing as much as back at the cycle of 2014 when the region was growing, but eventually after the pandemic, you might see structurally less competition. You know, just trying to figure out what will be the new normal going forward, and it would be great to hear your thoughts around that. Thank you.

Okay, so we have provided guidance for 2023 three only, not for the years after that. And I would like not to speculate much about the future, but I should say that we spend a lot of time working on improving every aspect of the company, what we've always done, and make OPA more competitive as we go and as we grow. We see right now what we can see now is a robust demand environment. We see a good future for our business model focused on one hub of the Americas in Panama. And we see many opportunities to increase the connectivity and add new cities. And we will continue working towards a cost-competitive, on-time, passenger-friendly, with an efficient and productive and motivated workforce. So that's what we do. That's what we will continue to do. And it seems like the environment for such an airline to thrive in our part of the world is there, and it might be getting better. So that's what we're working on. There's always competition, of course. Hopefully there's room for the ones that have also a business model that makes sense for them and that's realistic with the size of the market. So as long as there's that balance, I think we'll be fine. And in any case, we hope to always be in a position to do better than the others. So that's our focus. But beyond 2023, I think we have to wait a few more earnings calls.

That's great, Peter. Thank you. That's great perspective. Just a very quick follow-up then. After the capacity to expect to come back during the year, as you mentioned, will you be in the same position in terms of overlaps and competition overall vis-a-vis the pre-pandemic scenario, more or less competition? Can you comment on the competitive landscape after this capacity that you expect to come back is in place?

Well, I think the competition is pretty public, so we probably kind of have the same information. But competition has changed. I would say it's not less than before. If anything, it's more. It's more dynamic, maybe more aggressive, but it's changed in the sense that it's gone more towards the low-cost side of the spectrum. And in that sense, we are like one of the few remaining full-service airlines in our part of the world. And there's space for that. But there's a lot of competition, and we compete with all. And we try to be as aggressive as anyone, especially since we've talked about a larger percent of passengers now are leisure than pre-pandemics.

Thank you very much.

Thank you, Bruno.

Please hold for your next question.

The next question comes from the line of Helaine Baker of Cohen. Helaine, please go ahead.

Thanks so much, Andrea. Hi, guys. Thank you for the time. So you guys are coming up to New York next month and holding your investor day. When we think about things you can say, have you thought about the focus of that and what you can update us on? I don't want to run ahead of it, but I'm kind of wondering what to look forward to.

Well, hopefully a good meal and a good Q&A session. But as you know, Helen, our story doesn't change much from year to year. We always stick to pretty much the same business model, which as I was mentioning before, we try to always improve and make better. And hopefully we'll talk about that, about what are we working on, what are we focusing on, what we're making better, what's working, what might need changes. But never big surprises. We tend to have like a way of doing things and as long as doesn't need to be changed. We just look to improve it. So I would say expect more of the same and maybe, maybe... Well, Jose, go ahead.

I'll just add, well, first of all, for certain things, Elaine, we try to take one day at a time. So we're preparing earnestly for the earnings call and then maybe next week we'll start working on the details of the investor day. But I would say a couple of things to add to what Pedro mentioned. Number one is that our last investor day was here in Panama back at the end of 2019 before the pandemic. So we are cognizant that it's important for you to get FaceTime with us. And I think part of what we have in store is also getting FaceTime with members of management that are beyond us too. So I think that that's also an important part of it and just simply provide an update on some of the initiatives that we had discussed back three years ago. So I think that's kind of what we have in mind.

That's kind of a lot. And then my follow-up question is something I think, Jose, that you talked about. terms of capital allocation with respect to share repurchase and the convert which i think is callable um did i interpret your answer correctly that either either one of those is is up is fair game that you would buy back the convert if it made sense right yeah i i don't want to speculate i don't want to get into necessarily details of of potential uh you know avenues that we might pursue

But I would say that we at this stage want to maintain flexibility in terms of the options that we have. So I think that the balance sheet is very, very strong. And we want to keep alternatives open to minimize the cost for us in terms of the settlement of the convert. And yeah, we're also cognizant that The Convert has a call option in there and all alternatives are on the table right now related to that.

That's cool. Thank you.

Thanks, guys. One moment for the next call or next question.

The next question comes from the line of Daniel McKenzie of Seaport Global. Daniel, please go ahead.

Oh, hey. Good morning, guys. Congratulations on the quarter and the outlook here. Just have a couple questions. The first really ties to revenue from premium seeding. And I'm really just trying to get a basic understanding on this part of the story. So I guess first, you know, what percent of the revenue is it today versus what it was in 2019? And then just related to that, how quickly is that growing?

Yeah.

Okay, so let me start and then I'll let Jose follow up. So then we don't share that specific information, but what I can say is that premium demand and premium yields are above pre-pandemic levels. So load factors are better, yields are better. and premium seeding profitability is better than pre-pandemic.

Yeah, well, and also our paid load factor in business class, which we don't disclose, but we can say directionally that it is higher today than where it was back in 2019 as well. So I think that's another data point that's important.

Okay. And then, you know, I guess the second question here is just a question on the new distribution strategy that you've talked about in the past. What percent of the revenue is booked on COPPA's website today versus the GDS's, you know, and how does that compare to 2019? And then, you know, to what extent is that helping you to capture some additional revenue saved from upsell opportunities or bundling and then, you know, tied to that, how material are the cost savings that you're seeing from this new strategy?

Okay, I'll start and if I leave anything out. So big, big, big picture. Pre-pandemic, we could say that a third of our distribution was direct and two-thirds were indirect, so agencies and the like. And today, we're very close to flipping those numbers, where two-thirds will be direct, including NDC connections, and one-third is going to be traditional travel agency GDS bookings. So we're about to flip the numbers, the ratios, as I just mentioned, and that, of course, comes with considerable savings, including that we're charging a surcharge for traditional GDS bookings, which make up for any cost difference. I don't know if we are sharing yet any cost-saving numbers, but when we add the revenue impact, so the revenue... It's very positive.

I mean, I think that so far... I mean, first of all, we have to say that this started in Q3 of last year, so it is still... an ongoing process that we have, but it is from, let's say, ROI perspective or cash perspective, performing, I think, as expected, maybe a little bit better. But as Pedro mentioned, there's a portion of the benefit here that shows up actually in revenue because of the fact that we have a fee that we charge for sales that are not performed either on MDC channels or on our own direct channels. Now, going forward, our expectation is that the actual costs, pure costs of distribution should come down in the manner that our direct channel sales continue growing. So, we have an expectation that that will come over the next several quarters. And that benefit, actually, that channel shift benefit, Dan, is included in the guidance, the 6.1 stand guidance, at least for the end of this year. But again, this is kind of a change of model, and so it will be with us for many years to come.

And as important is the fact that now we have much better control of our distribution, and that's going to allow us to do more things in the future that would lower costs. and improve revenues, of course.

Yeah, that's perfect. Thanks so much, you guys. See you then. Thank you.

One moment for your next question.

The next question comes from the line of Alberto Valerio of UBS. Alberto, please go ahead.

Hi, Pedro, Jose, thank you for taking my questions and well done for the results. Sorry for being repetitive here, but it was amazing the guidance that you guys just provided to us for the year. And I'm wondering here to find where was the difference between the guidance that you just provided in February, mid-February, for two months and a half later or two months later, the guidance that you guys are providing today. So we have talked about the demand already that's stronger. You said that also maybe high exposure to the high income class, which is business travelers. Is there anything else like some exposure to regions or North America, South America, some different data or something different from the people style of traveling, if you could give us some information on that, it would help a lot.

So in a very simple way, and I'll let Jose, if he needs to add anything or be more specific, in a very simple way, what Jose mentioned before, we have now visibility on the first half of the year and a lower fuel curve. So those two things are the main drivers to improve operating margin guidance?

Yeah, I would say that in terms of regional performance, I would say that most of our regions are performing very well ahead of what we had before. And as Pedro mentioned, the first half is performing well. And when you look at the operating margin guidance, we cannot forget about fuel as well. When we provided our guidance back in February, fuel was a higher level than where it is today as well.

We can say also that competition is less curious than it was in the past, because when we see fuel drop in the past, we see yields come down, and according to the guidance that you guys provide, yields could be flat for this year, even if you go in double digits down?

No, not necessarily. As I mentioned before, our RASM guidance for our RASM guidance implies a lower RASM for the second half of 2023 than the actual RASM we delivered for the second half of 2022, the year before. So we are factoring in a lower than 2022 RASM, and that's the lower fuel curve and capacity from competitors. But again, having the better visibility for the first half of the year allowed us to adjust Ratham upwards for the full year.

Fantastic, fantastic. And my last one here on the working capital, it came a little bit above what we had estimated for the quarter. Just wondering whether it's something not recurring on this quarter on the working capital matters. Thank you again, also. Thank you, my question. Congrats on the result.

I would say, Alberto, that we had, from an ATL perspective, I think even though ATL is actually down for the quarter, sales are still ahead. I think there's some items there related to some refunds of tickets and expired coupons, etc. But I think there's also seasonality in there as well.

So that's, I think, the main drivers there.

Fantástico. Obrigado. Thank you. Thank you.

One moment for the next question. The next question comes from the line of Joao Andrade of Bank of America. Joao, please go ahead.

Yeah, hey, actually, this is Rogério Araújo. Thanks a lot for the opportunity, Pedro, José, and Daniel,

I have one question. Last time we saw margins close to where Copa is delivering was prior to 2015. If I'm not mistaken, Venezuela was doing great at the time, was actually pushing that margin upward significantly. On an apples-to-apples basis, is there... a reason to believe that COPPA is actually much more profitable now than at that time. Let me put in other words this question, any reason to believe that COPPA's structural margin is higher now than before? If so, where does it mostly come from in our view? Thank you very much.

Yeah, thank you, Rogelio. As I mentioned before, we're always working towards being a more competitive airline. And we never bank on strong revenues because we know there are cycles in our industry. What we bank on is having competitive costs and being more efficient and more productive. And we are a much more efficient and productive airline than back then in 2013, 2014. The bigger changes, well, we have a lower CASMX And so we're more efficient in that sense. We've worked hard to improve our CAS-MX. So we have better unit cost, which allows us to be more profitable, even with lower yields. And part of that is also having a more effective, efficient fleet. We have a single fleet, mostly 737-800s and MAX-9s, which have much better operating costs than back then. And we've done a number of things. It will probably be a long list to be more efficient. But for example, we do our own sea checks in-house. We didn't do that back then. The distribution strategy is yielding results. And there's probably, you know, there is a list of other initiatives. We have densified the fleet somewhat and there's more to come. So yes, we're much more competitive and have better unit costs or more efficient than what we were back then in 2011, 2012, 2013, when we had similar margins, but maybe revenues were stronger.

OK, pretty clear. Congratulations for the very strong results and all these cost reduction and efficiency in the past years. Thank you.

Thank you, Rogero. Thank you very much, Rogero.

One moment for your next question. The next question comes from the line of Josh Milberg of Morgan Stanley. Josh, please go ahead.

Hey, Pedro, Jose, good to talk to you guys and big congrats on the results. I had a couple follow-ups and please forgive any repetitiveness on my side. One is you touched on the issue of what your competitors are doing in terms of bringing back capacity, but I was just hoping you could comment a little further on that issue, how much it's been impacted by aircraft delivery delays. And also, just on the Avianca side, if you've been seeing any impact from that airline shift in strategy with respect to network or in any other sense. That's the first question. And then the second question is if you could comment a little bit further on your fleet plan and what it could mean for capacity growth in 2024. I know you said before that it's sort of early days to be getting into next year, but I know that you have the 737-800s that are scheduled to come off lease. I think your plan shows you holding on to those.

Right. So any color there would be great. Yeah, yeah, thank you, Josh. So I'll talk Fleet Plan second, but we have, well, I'll talk Fleet Plan first, because we have published 2024. So we're getting 12 aircraft this year, and we've published that we're getting eight, max eight next year. But it would have been more before if not for Boeing delays. As we know, Boeing, Airbus, everyone has delays. So the delays are between three and four months. In some cases, could be even longer for next year. So we have published aid. We hope to get more. Hopefully, we can get more than aid once we get the latest information from Boeing. We also have a number of leases that come due. And we will try to renew as many as we need to. And it all depends on how many deliveries we get from Boeing. So it's kind of like the dance of the assets, of the aircraft assets. So we need to balance the lease expirations with the Boeing deliveries with the demand forecast. And right now, it all looks Good, actually. So we're hopefully that we'll get more aircraft and that demand will remain strong as it is right now. Juan, do you want to add anything to fleet, Jose? No.

Yeah, I think that's very complete. In terms of 2024, as Pedro mentioned, we have right now our plan is publishing our investor relations website, including the eight aircraft that Pedro mentioned for 2024.

Right. In terms of competitors, not sure if there's much more to say. I don't like to give them free advertising or anything like that. But you asked about Avianca. We, of course, compete quite a bit against Avianca. We have always competed with Avianca, even though we're also together in Star Alliance and we have code sharing and frequent flyer reciprocity. So I would say it's a friendly and healthy competition. They're still growing their hub. They're also flying nonstop. They've changed their model. So they went through Chapter 11. So they are a strong competitor, no doubt. And does it show? Is it noticeable? Of course it is. But we're also growing and competing. So there's a balance. There's some sort of a balance there. As they grow and compete, so do we. And in terms of the rest, Well, they're pretty much back to pre-pandemic capacity as we are, and so is LATAM and others that were smaller back then are probably above those levels. So we're in a dynamic market with strong demand, and I think it's what would be expected in any case.

Thank you, Josh.

Okay, thank you very much. Those were great responses. Have a nice day. Thank you, too.

Please hold for the next question. The next question comes from the line of Dwayne Finnickworth of Evercore ISI. Dwayne, please go ahead.

Hey, good morning. This is Jake Gunning on for Dwayne. So just to put a finer point on previous questions about geographic demand strength, On a previous call, you talked about point of sale for U.S. versus local. Could you talk about just how that's trending now?

I don't think it's changed much. We see strength in most of our regions and markets. Maybe South America is not as strong, relatively speaking, as it was before. So South America is not as strong, but still positive. But that could change from one quarter to the other. And U.S. point of sale remains pretty strong. Even though the currency, the U.S. dollar, has lost a little bit of value, it still has a lot of strength. And the economy, as we know in the U.S., is still strong, even though efforts are being made to slow it down. It's resilient. So there's still strength in U.S. point of sale. So I don't think anything has changed that much from our previous call.

Okay. And then on capacity, just given demand strength and the capacity constraints, where or how much more would you want to grow without these constraints?

So our fleet plan, I think, is a good reflection of our growth plan. We're getting 12 Mach 9s this year. Next year, we have published 8 Mach 8s we'll be getting. But as I mentioned, if we could get more, because we were supposed to get more, but due to delays, we're not getting them all in 2024, the ones we were expecting to get originally. So if we can get a few more, we'll be very happy, and we're waiting to hear from Boeing. Maybe that would happen. So that gives you an idea of our growth, which is in the double-digit range. Go ahead.

I was just going to say, Jake, that I think a good way to look at it, and this is just theoretical, of course, but look at the preliminary full-year guidance that we issued back in November. It had a 15%.

growth and and so that that was you could argue that our regional expectation of what we wanted so yeah okay that makes sense thank you and have a nice day thank you thank you thank you i would now like to turn the call back over to pedro um heilbron pedro please go ahead yes thank you very much and so thank you all

This concludes our earnings call for the first quarter of 2023. And so I'll take also this opportunity to announce that we'll have our investor day, as I think Helen mentioned. It's going to be on June 22nd in New York City. You should be getting the invitations and any other details in the next couple of days. So hope to see you then next month and have a great day. Thank you, as always, for your support.

Ladies and gentlemen, thank you for your participation. That concludes the presentation. You may disconnect and have a wonderful day. Thank you. you you Thank you. Thank you. Thank you.

Thank you. you you Thank you.

Ladies and gentlemen, thank you for standing by.

Welcome to COPA Holdings' first quarter earnings call. During 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 a question, you will have to press star 11 on your telephone. As a reminder, this call is being webcast and recorded on May 11, 2023. Now, I will turn the conference call over to Daniel Tapia, Director of Investor Relations. Sir, you may now begin.

Thank you, Felicia, and welcome everyone to our first quarter earnings call. Joining us today are Pedro Helbron, CEO of Copa Holdings, and Jose Montero, our CFO. First, Pedro will start by going over our first quarter highlights, followed by Jose, 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 Hedron.

Thank you, Daniel. Good morning to all, and thanks for participating in our first quarter earnings call. Before we begin, I would like to extend my sincere gratitude to all our coworkers for their commitment to the company. Their continuous efforts and dedication have kept COPPA at the forefront of Latin American aviation. To them, as always, my highest regards and admiration. were pleased to report strong results for the first quarter and a solid outlook for the year. Despite the continued high fuel prices in the quarter, we were able to deliver an operating margin of 22.3%. These results were mainly driven by a robust demand environment in the region, which led to an improved load factor as well as an increase in passenger yields during the quarter. Among the main highlights for the quarter, Passenger traffic grew 7.1% compared to the same period in 2019, outpacing our capacity growth of 2.8%. This resulted in an 86.8% load factor, a 3.5 percentage point increase compared to Q1 2019. Passenger yields came in at 14.6 cents or 20% higher than the first quarter of 2019, while cargo revenue was 52% higher, resulting in unit revenues or RASM of 13.1 cents, a 25.5% increase compared to the first quarter of 2019. On the cost side, our unit cost excluding fuel came in at 6.2 cents or 2.1% higher compared to Q1 2019. As a result, our operating margin came in at 22.3%, 5.5 percentage points higher than in the first quarter of 2019. On the operational front, Cooper Airlines delivered an on-time performance of 92.2% and a completion factor of 99.9%. once again among the very best in the world. I would like to take this opportunity to express my recognition for more than 7,000 co-workers who day in and day out deliver a world-class travel experience to our customers. Their contributions are key to our success. Turning now to our fleet, we received two 737 Mach 9 aircraft during the quarter. and we expect to receive 10 more Mach 9s during the remainder of the year to end 2023 with a total fleet of 109 aircraft. With regards to our network, as we mentioned in our last call, we plan to start new service to the cities of Manta in Ecuador and Baltimore and Austin in the U.S. starting this summer. With these additions, we will serve 80 destinations in 32 countries in North, Central, South America, and the Caribbean, as we continue strengthening and solidifying our position as the most complete and convenient hub in Latin America. Finally, with regards to Wingo, Wingo continues its regional expansion with the announcement of three new domestic Colombia routes from Bogota to Barranquilla, Pereira, and Bucaramanga, and one international seasonal service from Cali in Colombia to Aruba. With these additions, Wingo will operate 34 routes with service to 21 cities in 10 countries. Now, turning to our expectations for 2023. As you saw in our earnings release, we increased our operating margin guidance to a range of 22 to 24%, mainly driven by the current solid demand environment in the region as well as a lower fuel curve for the remainder of the year. As always, Jose will provide more detail regarding the full year's outlook. To summarize, we're off to a very good start in 2023 and expect to keep seeing a healthy demand environment throughout the year. We continue growing and strengthening our network, the most complete and convenient hub for intra-Latin America travel. And as always, Our team continues to deliver world-leading operational results while maintaining our cost low. Lastly, we're as confident as ever in our business model. We continue to deliver solid margins and competitive unit costs while offering a great product for our passengers, making us the best-positioned airline in our region to consistently deliver industry-leading results. Now I'll turn it over to Jose, who will go over our financial results in more detail.

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 to deliver a world-class service to our passengers. I will start by going over our first quarter results. We reported a net profit for the quarter of $121.5 million, or $3.07 per share. Excluding special items, net profit came in at $157.8 million, or $3.99 per share. First quarter special items are comprised of an unrealized mark-to-market loss of $37.9 million related to an appreciation in the value of the company's convertible notes and a $1.7 million in unrealized mark-to-market gain related to changes in the value of financial investments. We reported a quarterly operating profit of $193.2 million and an operating margin of 22.3%. Capacity came in at 6.6 billion available seat miles, or approximately 3% higher than in Q1 2019. Load factor came in at 86.8% for the quarter, a 3.5 percentage point increase compared to the same period in 2019, while passenger yields increased 20% to 14.6 cents. As a result, unit revenues came in at 13.1 cents, or 25.5% higher than in the first quarter of 2019. Driven by higher jet fuel prices, unit costs or CASM increased 17.2% versus Q1 2019 to 10.2 cents. And our CASM excluding fuel came in at 6.2 cents, a 2.1% increase versus Q1 2019, mainly driven by additional engine maintenance costs, changes in supplemental rent provisions related to aircraft utilization, as well as additional lease engine costs, plus an increase in our sales and distribution costs as a function of higher sales during the period. I'm going to spend some time now discussing our balance sheet and liquidity. As of the end of Q1, we had assets of close to $4.9 billion, and in terms of cash, short and long-term investment, We ended the quarter with $1.2 billion, which represents 36% of our last 12 months revenues. As to our debt, we ended the quarter with $1.7 billion in debt and lease liabilities and achieved a net debt to a big debt ratio of 0.6 times. 80% of our aircraft debt is fixed, and I'm happy to report that our blended cost of aircraft debt for the quarter came in at an annualized rate of 3%. Turning now to our fleet, during the first quarter, we received two Boeing 737 MAX 9s to end the quarter with a total of 99 aircraft, compared to 102 aircraft in our fleet at the end of 2019. With these additions, our total fleet is now comprised of 68 737-800s, 22 737 MAX 9s, and nine 737-700s. These figures include one 737-800 freighter and the nine 737-800s operated by Wingos. Two-thirds of our fleet continues to be comprised of owned aircraft, and one-third of our aircraft are under operating leases. During the remainder of 2023, we expect to receive 10 additional aircraft, all Boeing 737 MAX 9s, to end the year with a total fleet of 109 aircraft. Finally, I'm pleased to inform you that this past month of March, our Board of Directors approved a quarterly dividend of 82 cents per share subject to board ratification each quarter, which reinstates our dividend payout of 40% of prior year's adjusted net income. We made our first quarterly payment during the month of April, and the second payment would be on June 15th to all shareholders of record as of May 31st. As for our outlook, based on the strength of the current demand environment, we can provide the following guidance for full year 2023. We expect to increase our capacity in ASNs versus 2022 within a range of 12% to 13%. We now expect an operating margin within the range of 22% to 24%. We're basing our outlook on the following assumptions. Load factor of approximately 85%, unit revenues within a range of 12.5 cents, CASMX fuel to be in the range of 6.1 cents, and finally, we're expecting an all-in fuel price of $2.85 per gallon. Thank you, and with that, we'll open the call to some questions.

Thank you. We will only take two questions per participant. One moment while we compile the Q&A roster. The first question comes from the line of Steven Trent from Citi. Steven, please go ahead.

Good morning, gentlemen, and thank you very much for taking my questions. I was wondering kind of on a high level basis if you could discuss the opportunities related to, you know, the renewed strategic alliance with United Airlines from August 2021 and, you know, what you might be seeing in terms of the potential for a joint business agreement, maybe revisiting that down the line. Thank you very much.

Yeah. Hi, Steven. It's Pedro. As you know, we have a very strong alliance with United that goes all the way back to the continental days. And on top of that, we're, of course, part of Star Alliance. So we feel that with our strong United relationship plus Star Alliance, we cover what's of most benefit to COPPA in terms of where we fly, the regions where we fly, where we're active, and the airlines that we should be in an alliance with. We also have that letter of intent or whatever it's called between Avianca, United, and COPPA for a JBA, joint business agreement. And I think that has not been implemented. The pandemic was in between. And honestly, I don't really know if that's going to be implemented or it will just be allowed to expire. I think it probably has over a year. for that decision to be made. But, again, what I'm trying to say is that we have the alliances we need and that add the most value to COPPA.

Super, Pedro. I really appreciate that. And just my one follow-up. I believe you talked in the past about the LEAP engines driving kind of a one-time, relatively smallish, CASMX headwind into this year. And, you know, any high-level view on that? whether that's going to ease as we move through 2024?

Yeah, I'll let Jose answer.

Yeah, Stephen. Let me just say that, yeah, there's some, I would say, short-term headwinds related to the LEAP engine. Most of the costs that we've seen so far this year are associated to short shop visits that some of the engines require as part of campaigns that are being performed in the worldwide fleet of the LEAP. We're seeing an improvement in the performance of the engine and we are relatively advanced in the majority of these campaigns. And so going forward, in the rest of 2023, we expect to have a lesser number of engines going into the shop and some of the fixes that are required. And so that actually flows into our 6.1 cent CASM guidance that we have for the full year, vis-a-vis the CASM-X guidance that we had issued back in February.

Super helpful, gentlemen. Thank you for the time and looking forward to seeing you on Tuesday. Thank you, Steve.

Same here.

One moment for the next question.

The next question comes from the line of Savi Saith of Raymond James. Savi, please go ahead.

Thank you. Good morning, everyone. I was curious, you're usually a fairly conservative team in forecasting and the kind of revenue outlook improvement is pretty meaningful. I'm just curious what trends you're seeing that kind of gives you confidence early on to kind of take those numbers up.

Yes, Abby. Hello. I'll start and maybe, Pedro, you can jump in to complement. I would say that the first thing is that Q1 certainly had a very, very robust demand environment. So I think that that's a portion of the increase that we had made to our unit revenue guidance. And then secondly, I would say that from our visibility that what we have for the coming months, specifically a second quarter, the demand environment continues to be relatively robust. So that's also embedded in there. and then you know we we are cognizant that our visibility is limited for the remainder of the year so i think that that's uh there's a some seasonality as well that we put into the guidance and of course we are cognizant as well that there's a lot of capacity coming into the market there's a lot of uh you know fuel is also a an item that we are paying close attention to and the movement in fuel so we're i think we're i think You know, we can say that we're confident in the 12.5, but it's mostly related, I would say, to Q1 and to the disability that we have into the first half of the year.

And the only thing I would add, Xavi, is that our guidance, even though it has been improved, as you well mentioned, still puts us at a lower RASM for the second half of 2023 compared to the second half of 2022. And that's because of the decreased fuel curve and the additional capacity coming into our market. So we're still projecting lower RASM in the second half of the year.

That's helpful. And along those lines for my second question, I wonder if you could talk a little bit about what you're seeing on the business demand standpoint. It seemed like it was slow progress over the last few quarters. Have you seen any improvement there?

There's still some improvement, but Things have changed, at least in our part of the world, since the pandemic. So leisure is our strongest segment now. It's not as much as half, but it's in the 40% of our split between leisure, VFR, and business. And business has come up somewhat. It's like in the mid-20s, maybe a little bit less than that. percent in terms of that same split, but slight improvement in the last few quarters. Nothing very significant.

Perfect. Thank you.

Thank you, Xavi.

One moment for our next question.

The next question comes from the line of Guilherme Mendez from JP Morgan. Guilherme, please go ahead.

Good morning, Pedro, Jose, Daniel. Thanks for taking the question and congrats on the pretty strong results. First question is a follow-up on the assumptions behind the guidance. I think it's clear on the CASME front. But just wondering in terms of the capacity addition, there was a small reduction. Just wondering if it's related to any potential bottlenecks on the supply side of the industry. And on the RASP guidance, thinking that Probably it implies a stronger yield for the year despite of lower fuel cost as well. So if you could please just explain how you're seeing demand environment going forward. And then the second question. Sorry, go ahead.

Yeah, I'll start and then I'll let Jose add. So in terms of capacity, well, COPA itself is receiving 12 aircraft in the year. So that's quite a bit some capacity. And then our peers in Latin America are getting back to pre-pandemic levels, which was not the case in 2022, but will be the case from now on, the rest of 2023. So all of that together, plus there are other airlines, especially UOCCs, which are growing faster than pre-pandemic. So when we add all of that up, it's a considerable number of additional seats in our region. Demand is there, of course, so we're confident on the demand and we're confident that there's enough demand, but more capacity plus lower fuel usually tends to result in lower unit revenues.

capacity movement that we made in terms of our full year guidance. It is, yeah, related to the latest forecast that we have in terms of aircraft deliveries for the year. So that's what we have in terms of our best knowledge as of now in terms of new aircraft deliveries.

Super clear. Thank you. And the second question is in terms of the capital allocation. And naturally, the dividend's already out. You have the buyback open as well. So thinking that leverage remains below one time net debt to EBITDA, if you see room for maybe an extraordinary payment or a more aggressive buyback.

All right. I have to say that we reinstituted our Dividend the board approved that back in March and it's 40% of our Prior years at just a net income. And so, you know, we're I think happy I think with that level I would say that our buyback program as you saw continue to be active during this year during the first part of the year and I think that there's a couple of important points to make number one is that we have a sizeable number of investments coming in related to aircraft and for growth of our business. So I think that part of this capital that we have is geared towards growth of Copa itself. And number two, you know, we have to convert and we also have to want to have a lot of flexibility in terms of the management of that liability.

Super clear. Thank you. Have a great day. Thank you. Thank you. You too.

One moment for our next question. The next question comes from the line of Michael Lindenberg from Deutsche Bank. Michael, please go ahead.

Hey, good morning, everyone, and that was a great forecast. A couple here. Move to add additional domestic service in Columbia by Wingo. Was that in response to the suspension of Viva and Ultra? Is it a tactical move? Is it a harbinger of maybe getting bigger in the domestic Columbia? And is there an opportunity for you to maybe get some of the slots that will potentially be released as a result of consolidation and rationalization in the Colombian market? That's my first question. Thank you.

Okay, so a few things there, Michael. One is that Wingo is not really a large player in domestic Colombia. Wingo is nine planes. As we know, it's nine 737-800s. And this capacity shift has to do with something that's been developing over over the last number of months, which is more strength in the domestic market than in some of the international routes that have seen a lot more capacity. So it's tactical. It's tactical, it's limited. Yes, the shutdown of certain airlines has a positive effect, but actually it benefits much more the other airlines, the other incumbents, in Colombia. Wingo, again, is not significant, and it never really competed that much head-on with the airlines. They're no longer flying, so not a huge impact. But there is a little bit better strength in the domestic, and that's why they reduced – what Wingo has done is reduced frequencies in some of the international markets that were not doing as well, and redeployed them in the domestic market that is doing better. So again, tactical.

Anything on the Bogota slots that potentially come available? Are you in line to try to grab some of those for your use?

Right. So although there are no plans to grow the Wingo fleet in an aggressive way, we tend to be disciplined and Wingo will continue taking advantage of opportunities and not just, you know, taking a bunch of aircraft. So Wingo will remain disciplined and opportunistic. But the Bogota slots are very important because it was very difficult for Wingo, it is very difficult for Wingo to publish an advance schedule and fly at the right times, at the peak times when most passengers want to fly because up to now the slots in Bogota have been dominated by a single carrier And so hopefully this is going to change and make Bogota, which is like the only or one of the very few slot restricted airports in our continent, it will make it more competitive and it would allow Wingo and others to offer service at the times passengers want to fly. So we see that as a positive development. Okay, great.

And then this is just another sort of network question, Pedro. One of the things that we saw coming out of COVID is we saw a lot of the big global hubs initially only benefit from the recovery of local traffic. And I think as things have started to turn on, we're seeing a lot more what we call six freedom traffic, third and fourth freedom connections, which is something that you specialize in. And so when you look at the commentary out of, say, a Turkish or an Emirates or a Cathay Pacific, you're really starting to see that benefit. And I think when I look at Copa and I look at capacity coming online by some of your competitors, where I think you really outshine the competition is all the connections that you fly in city pairs that nobody else serves. And I suspect that maybe that wasn't seeing as much service in the earlier part of the recovery period. And that's starting to turn on now. And those are markets that are uniquely served by Copa. Is that, is that a, is that right? Is that, is that, something that is that something a trend that you've been seeing in your markets or maybe you're connecting markets turned on from day one?

Well, you know, we've seen strength throughout our market and throughout our network, and we're staying true to our to our vision and to our business model. So coming out of the pandemic, we went back to doing what we've always done in a very focused and disciplined way and that demand has kind of been there from the beginning i would say but it's obviously stronger now and it continues to grow it's holding up and there's more capacity from other airlines and from ourselves coming in but the whole market has improved and yes i think you're right we have something unique about our network, and we hope to continue developing it. Okay. Well, great.

Great, great results, and thanks for answering my questions. Thank you.

One moment for the next question. The next question comes from the line of Bruno Amorum from GS. Bruno, please go ahead.

yes thank you for taking my question so you know i'd like to hear from you if possible you know what's your vision for the next few years in terms of competitive dynamics and you know the expected profitability for the business of course adjusting for eventual volatility in macro conditions which might happen my point here being that you know if you look in the 2010 to 2014 cycle for margins were around 20%. I'm talking about EBIT margins. Then between 2015 and 2019, margins hovering around 16%. So, you know, if you work together for the next few years, you know, are we more in the type of market that we saw between 2016 and 2019? Or is it possible to sustain margins around 20% even though, you know, you're not growing as much as back at the cycle of 2014? when the region was growing. But eventually, after the pandemic, you might see certainly less competition. Just trying to figure out what will be the new normal going forward. And it would be great to hear your thoughts around that. Thank you.

OK. So we have provided guidance for 2023 only, not for the years after that. And I would like not to speculate much about the future, but I should say that we spend a lot of time working on improving every aspect of the company, what we've always done, and make OPA more competitive as we go and as we grow. We see right now what we can see now is a robust demand environment. We see a good future for our business model. focused on one hub of the Americas in Panama. And we see many opportunities to increase the connectivity and add new cities. And we will continue working towards a cost-competitive, on-time, passenger-friendly, with an efficient and productive and motivated workforce. So that's what we do. That's what we will continue to do. And it seems like the environment for such an airline to thrive in our part of the world is there, and it might be getting better. So that's what we're working on. There's always competition, of course. Hopefully there's room for the ones that have also a business model that makes sense for them and that's realistic with the size of the market. So as long as there's that balance, uh i think we'll be fine and and in any case we hope to always be in a position to do better than the others so uh that's our focus but beyond a 2023 i think we have to wait a few more earnings calls that's great thank you that's great perspective let me just a very quick follow-up then you know after the capacity to expect to come back during the year as you mentioned

you know, will you be in the same position in terms of overlaps and competition overall vis-a-vis the pre-pandemic scenario, more or less competition? You know, can you comment on the competitive landscape after this capacity that you expect to come back is in place?

Well, I think, I mean, the competition is pretty public, so we probably kind of have the same information. But competition has changed. I would say it's not less than before. If anything, it's more. It's more dynamic, maybe more aggressive, but it's changed in the sense that it's gone more towards the low-cost side of the spectrum. And in that sense, we are one of the few remaining full-service airlines in our part of the world. And there's space for that. But there's a lot of competition and we compete with all. And we try to be as aggressive as anyone, especially since we've talked about a larger percent of passengers now are leasher than pre-pandemic.

Thank you.

Thank you very much. Thank you, Bruno.

Please hold for your next question.

The next question comes from the line of Helaine Baker of Cohen. Helaine, please go ahead.

Thanks so much. Hi, guys. Thank you for the time. So you guys are coming up to New York next month and holding your Investor Day. When we think about things you can say, have you thought about the focus of that and what you can update us on? I don't want to run ahead of it, but I'm kind of wondering what to look forward to.

Well, hopefully a good meal and a good Q&A session. But as you know, Helen, our story doesn't change much from year to year. We always stick to pretty much the same business model, which, as I was mentioning before, we try to always improve and make better. And hopefully we'll talk about that. about what are we working on, what are we focusing on, what we're making better, what's working, what might need changes, but never big surprises. We tend to have like a way of doing things and as long as it doesn't need to be changed, we just look to improve it. So I would say expect More of the same and maybe, maybe. Well, Jose, go ahead.

I'll just add, well, first of all, for certain things, Elaine, we try to take one day at a time. So we're preparing earnestly for the earnings call and then maybe next week we'll start working on the details of the investor day. But I would say a couple of things to add to what Pedro mentioned. Number one is that our last investor day was, here in Panama back at the end of 2019 before the pandemic. So we are cognizant that it's important for you to get face time with us. And I think part of what we have in store is also getting face time with members of management that are beyond us too. So I think that that's also an important part of it. And just simply provide an update on some of the initiatives that we had discussed back three years ago. So I think that's kind of what we have in mind.

Well, it's kind of a lot. And then my follow-up question is something I think, Jose, that you talked about in terms of capital allocation with respect to share repurchase and the convert, which I think is callable. Did I interpret your answer correctly that either one of those is fair game that you would buy back the convert?

it made sense what yeah I I don't want to speculate I don't want to get into necessarily details of potential you know avenues that we might pursue but I would say that we at this stage want to maintain flexibility in terms of the options that we have so I think that the balance sheet is very very strong and and we have a you know want to keep alternatives open to minimize the cost for us in terms of the settlement of the convert. And yeah, we're also cognizant that the convert has a call option in there and all alternatives are on the table right now related to that.

That's cool. That's really cool. Thank you.

Thanks, guys. See you soon. One moment for the next call or next question.

The next question comes from the line of Daniel McKenzie of Seaport Global. Daniel, please go ahead.

Hey, good morning, guys. Congratulations on the quarter and the outlook here. Just have a couple questions. The first really ties to revenue from premium seeding. And I'm really just trying to get a basic understanding on this part of the story. So I guess first, you know, what percent of the revenue is it today versus what it was in 2019? And then just related to that, how quickly is that growing?

Yeah.

Okay, so let me start and then I'll let Jose follow up. So then we don't share that specific information, but what I can say is that premium demand and premium yields are above pre-pandemic levels. So load factors are better, yields are better. and premium seeding profitability is better than pre-pandemic.

Yeah, well, and also our paid load factor in business class, which we don't disclose, but we can say directionally that it is higher today than where it was back in 2019 as well. So I think that's another data point that's important.

Okay. And then, you know, I guess the second question here is just a question on the new distribution strategy that you've talked about in the past. What percent of the revenue is booked on COPPA's website today versus the GDS's, you know, and how does that compare to 2019? And then, you know, to what extent is that helping you to capture some additional revenue saved from upsell opportunities or bundling and then, you know, tied to that, how material are the cost savings that you're seeing from this new strategy?

Okay, I'll start and if I leave anything out. So big, big, big picture. Pre-pandemic, we could say that a third of our distribution was direct and two-thirds were indirect, so agencies and the like. And today, we're very close to flipping those numbers, where two-thirds will be direct, including NDC connections, and one-third is going to be traditional travel agency GDS bookings. So we're about to flip the numbers, the ratios, as I just mentioned, and that of course comes with considerable savings, including that we're charging a surcharge for traditional GDS bookings, which make up for any cost difference. I don't know if we are sharing yet any cost-saving numbers, but when we add the revenue impact, so the revenue... Very positive.

I mean, I think that so far, I mean, first of all, we have to say that this started in Q3 of last year, so it is still... an ongoing process that we have, but it is from, let's say, ROI perspective or cash perspective, performing, I think, as expected, maybe a little bit better. But as Pedro mentioned, there's a portion of the benefit here that shows up actually in revenue because of the fact that we have a fee that we charge for sales that are not performed either on MDC channels or on our own direct channels. Now, going forward, our expectation is that the actual costs, pure costs of distribution should come down in the manner that our direct channel sales continue growing. So, we have an expectation that that will come over the next several quarters. And that benefit, actually, that channel shift benefit, Dan, is included in the guidance, the 6.1 stand guidance, at least for the end of this year. But again, this is kind of a change of model, and so it will be with us for many years to come.

And as important is the fact that now we have much better control of our distribution, and that's going to allow us to do more things in the future that would lower costs. and improve revenues, of course.

Yeah, that's perfect. Thanks so much, you guys. See you then. Thank you.

One moment for your next question.

The next question comes from the line of Alberto Valerio of UBS. Alberto, please go ahead.

Hi, Pedro, Jose, thank you for taking my questions and well done for the results. Sorry for being repetitive here, but it was amazing the guidance that you guys just provided to us for the year. And I'm wondering here to find where was the difference between the guidance that you just provided in February, mid-February, from two months and a half later or two months later, the guidance that you guys are providing today. So we have talked about the demand already that's stronger. You said that also maybe high exposure to the high income class, which is business travelers. Is there anything else like some exposure to regions or North America, South America, some different data or something different from the people

So in a very simple way, and I'll let Jose if he needs to add anything or be more specific. In a very simple way, what Jose mentioned before, we have now visibility on the first half of the year and a lower fuel curve. So those two things are the main drivers to improve operating margin guidance?

Yeah, I would say that, you know, in terms of regional performance, I would say that most of our regions are performing very well ahead of what we had before. And as Pedro mentioned, the first half is performing well. And when you look at the operating margin guidance, we cannot forget about fuel as well. When we provided our guidance back in February, fuel was a higher level than where it is today as well.

Fantastic. We can say also that competition is less curious than it was in the past, because when we see fuel drop in the past, we see yields come down. And according to the guidance that you guys provide, yields could be flat for this year, even if you go in double digits down.

No, not necessarily. As I mentioned before, our RASM guidance for our RASM guidelines implies a lower RASM for the second half of 2023 than the actual RASM we delivered for the second half of 2022, the year before. So we are factoring in a lower than 2022 RASM and that's the lower fuel curve and capacity from competitors. But again, having the better visibility for the first half of the year allowed us to adjust Ratham upwards for the full year.

Fantastic, fantastic. And my last one here on the working capital, it came a little bit above what we had estimated for the quarter. Just wondering whether it's something not recurring on this quarter on the working capital matters. Thank you again, also. Thank you, my question. Congrats on the results.

I would say, Alberto, that we had, from an ATL perspective, I think even though ATL is actually down for the quarter, sales are still ahead. I think there's some items there related to some refunds of tickets and expired coupons, etc. But I think there's also seasonality in there as well.

So that's, I think, the main drivers there.

Thank you. Thank you.

One moment for the next question. The next question comes from the line of Joao Andrade of Bank of America. Joao, please go ahead.

Yeah, hey. Actually, this is Rogério Araújo. Thanks a lot for the opportunity, Pedro, Jose, and Daniel,

I have one question. Last time we saw margins close to where Copa is delivering was prior to 2015. If I'm not mistaken, Venezuela was doing great at the time, was actually pushing that margin upward significantly. On an apples-to-apples basis, is there... a reason to believe that COPPA is actually much more profitable now than at that time. Let me put, in other words, this question. Any reason to believe that COPPA's structural margin is higher now than before? If so, where does it mostly come from in our view? Thank you very much.

Yeah, thank you, Rogério. As I mentioned before, we're always working towards being a more competitive airline. And we never bank on strong revenues because we know there are cycles in our industry. What we bank on is having competitive costs and being more efficient and more productive. And we are a much more efficient and productive airline than back then in 2013, 2014. The bigger changes, well, we have a lower CASMX. And so we're more efficient in that sense. We've worked hard to improve our CASMX. So we have better unit cost, which allows us to be more profitable, even with lower yields. And part of that is also having a more effective, efficient fleet. We have a single fleet, mostly 737-800s and MAX-9s. which have much better operating costs than back then. And we've done a number of things. It will probably be a long list to be more efficient. But, for example, we do our own C-checks in-house. We didn't do that back then. The distribution strategy is yielding results. And there is a list of other initiatives. We have densified the fleet. some somewhat and there's more to come so so yes we're much more competitive and have better unit costs are more efficient that when we were what we were back then in 2011 2012 2013 when we had a similar margin but maybe revenues were stronger okay pretty clear congratulations for the very strong results and

you know, and all these cost protection and efficiency in the past years. Thank you.

Thank you, Rogero. Thank you very much, Rogero.

One moment for your next question. The next question comes from the line of Josh Milberg of Morgan Stanley. Josh, please go ahead.

Hey, Pedro, Jose, good to talk to you guys, and big congrats on the results. I had a couple of follow-ups, and please forgive any repetitiveness on my side. One is you touched on the issue of what your competitors are doing in terms of bringing back capacity, but I was just hoping you could comment a little further on that issue, how much it's been impacted by aircraft delivery delays. And also, just on the Avianca side, if you've been seeing any impact from that airline shift in strategy with respect to network or in any other sense. That's the first question. And then the second question is if you could comment a little bit further on your fleet plan and what it could mean for capacity growth in 2024. I know you said before that it's sort of early days to be getting into next year, but I know that you have the 737-800s that are scheduled to come off lease. I think your plan shows you holding on to those.

Right. So any color there would be great. Yeah, yeah. Thank you, Josh. So I'll talk when fleet plan second, but we have, well, I'll talk fleet plan first because we have a published 2024. Yeah, yeah. So we're getting 12 aircraft this year. And we've published that we're getting eight, max eight next year. But it would have been more before if not for Boeing delays. As we know, Boeing, Airbus, everyone has delays. So the delays are between three and four months. In some cases, it could be even longer for next year. So we have published eight. We hope to get more. Hopefully, we can get more than eight. once we get the latest information from Boeing. We also have a number of leases that come due, and we will try to renew as many as we need to, and it all depends on how many deliveries we get from Boeing, so it's kind of like a dance, the dance of the assets, of the aircraft assets. So we need to balance the lease expirations with the Boeing deliveries with the demand forecast. And right now it all looks good, actually. So we're hopefully that we'll get more aircraft and that demand will remain strong as it is right now. I don't know if you want to add anything to fleet, Jose?

No, yeah, I think that's very complete. In terms of 2024, as Pedro mentioned, we have right now our plan is published in our investor relations website, including the eight aircraft that Pedro mentioned for 2024.

Right. In terms of competitors, I'm not sure there's much more to say. I don't like to give them free advertising or anything like that. But you asked about Avianca. We, of course, compete quite a bit against Avianca. We have always competed with Avianca. even though we're also together in Star Alliance and we have co-sharing and frequent flyer reciprocity. So I would say it's a friendly and healthy competition. And they're still growing their hub. They're also flying nonstop. They've changed their model. So they went through a Chapter 11. So they are a strong competitor, no doubt. And that's it. Does it show? Is it noticeable? Of course it is. But we're also growing and competing. So there's a balance. There's some sort of a balance there. As they grow and compete, so do we. And in terms of the rest, well, they're pretty much back to pre-pandemic capacity as we are. And so is LATAM and others that were smaller back then. are probably above those levels. So we're in a dynamic market with strong demand, and I think it's what would be expected in any case. Thank you, Josh.

Okay, thank you very much. Those were great responses. Have a nice day. Thank you, too.

Please hold for the next question. The next question comes from the line of Dwayne Finnickworth of Evercore ISI. Dwayne, please go ahead.

Hey, good morning. This is Jake Gunning on for Dwayne. So just to put a finer point on previous questions about geographic demand strength, on a previous call you talked about point of sale for U.S. versus local. Could you talk about just how that's trending now?

I don't think it's changed much. We see strength in most of our regions and markets. Maybe South America is not as strong, relative speaking, as it was before. So South America is not as strong, but still positive. But that could change from one quarter to the other. And U.S. point of sale remains pretty strong, even though even though the currency, the U.S. dollar, has lost a little bit of value, still has a lot of strength. And the economy, as we know in the U.S., is still strong, even though efforts are being made to slow it down. It's resilient, so there's still strength in the U.S. point of sale. So I don't think anything has changed that much from our previous call.

Okay. And then on capacity, just given demand strength and the capacity constraints, where or how much more would you want to grow without these constraints?

So our fleet plan, I think, is a good reflection of our growth plan. We're getting 12 Mach 9s this year. Next year, we have published eight. max eight we'll be getting but as i mentioned if we could get more because we were supposed to get more uh but due to delays uh we're not getting them all in 2024 the ones we were expecting to get originally yeah so so we can get a few more it will be very happy and we're waiting to hear from boeing maybe that would happen so that gives you an idea of our growth which is in the double digit range go ahead oh i was just going to say jake that

I think a good way to look at it, and this is just theoretical, of course, but look at the preliminary four-year guidance that we issued back in November. It had a 15% growth, and so that was, you could argue, our original expectation of what we wanted. So, yeah.

Okay. That makes sense. Thank you, and have a nice day.

Thank you, Jake.

Thank you.

Thank you. I would now like to turn the call back over to Pedro Heilbron. Pedro, please go ahead.

Yes, thank you very much. And so thank you all. This concludes our earnings call for the first quarter of 2023. And so I'll take also this opportunity to announce that we'll have our investor day, as I think Helen mentioned. It's going to be on June 22nd in New York City. You should be getting the invitations and any other details in the next couple of days. So hope to see you then next month and have a great day. Thank you, as always, for your support.

Ladies and gentlemen, thank you for your participation. That concludes the presentation. You may disconnect and have a wonderful day.