Panama’s Copa Airlines Turns Profit as Recovery Takes Hold

Photo credit:  Copa Airlines

Leisure and visiting friends and relatives (VFR) traffic is fueling Copa‘s recovery, so much so that the carrier decided to hold onto six Boeing 737-700s it had planned to sell and to return to a six-bank structure at its hub at Tocumen.

But, like many of its competitors in the region, the recovery has been uneven. Certain markets it serves, like Mexico, the U.S., Brazil, and some Caribbean islands, have eased restrictions, resulting in a corresponding spike in demand. But some of Copa’s important markets, like Argentina and Chile, have retained restrictions, or, in the face of the Delta variant of the coronavirus, made them even stricter. Still, CEO Pedro Heilbron believes the rate of vaccinations will increase and restrictions will ease.

Now, however, leisure travel comprises half of Copa’s traffic. VFR accounts for another third. Business demand is about 20 percent of its pre-pandemic level, although Heilbron said small- and medium-sized businesses in the region are returning to the road. Like many airlines in the U.S. and Europe, Copa expects larger corporate clients to return to travel more gradually.

Before the pandemic, Copa’s traffic was equally split among business, leisure, and VFR. Heilbron expects the carrier to drift back toward that mix as the world emerges from the pandemic. It will not alter its product or route structure significantly to cater to leisure or VFR passengers at the expense of business travelers.

The carrier saw an uptick in demand for travel to the U.S. in April when vaccines were first widely available. This “vaccine tourism” has subsided as the shots have become more widespread in Central and South America, Heilbron said.

When travel begins to return, Copa is not worried about the competition, even as carriers like Volaris surge from strength to strength. Heilbron noted that 70 percent of the markets Copa serves are too small to sustain point-to-point service, putting Copa in a position of strength with its strong connecting hub at Tocumen. Ths hub serves as a “formidable competitive moat,” Raymond James analysts Savanthi Syth wrote in a note.

Furthermore, he does not think some of the region’s legacy carrier, some of which — Aeromexico and Latam — are operating under Chapter 11 Bankruptcy Protection, will pose a threat. “There are a number of our main competitors restructuring under Chapter 11, but we expect them to come out of Chapter 11 with a network that won’t be much different than what they had before,” Heilbron said.

Copa is in the midst of a fleet transformation. The last three of its Embraer E-190s were sold during the quarter. The carrier sold six Boeing 737-700s but decided to keep another six that it had originally planned to sell. Copa will take delivery of two more 737-9s by the end of the year, and expects to have 89 aircraft — 68 -800s and 13 -9s — in its fleet by then, down from 102 last year. The year-end fleet projection includes the six operated by Wingo, Copa’s Colombian subsidiary.

Copa can shift its fleet up or down depending on demand. It is in talks with Boeing to accelerate deliveries of some -9s, although the company did not say how many. It can extend leases of some of its -800 fleet if it needs the lift before the -9s are delivered, or it can return them if demand does not recover as expected. Copa has no immediate plans to add -10s for high-capacity routes, nor does it plan to add widebodies, Heilbron said.

In the second quarter, Copa flew 48 percent of its 2019 second-quarter capacity, but that is up from 39 percent of 2019 capacity in the first quarter. Copa expects to fly 70 percent of its 2019 capacity in the third quarter, Heilbron said.

Copa reported a second-quarter profit of $28 million. Excluding special items, it reported a loss of $16 million. Revenues were $304 million, down 53 percent from the same period in 2019, but up 64 percent from the first quarter of this year. Cargo revenues were $17 million, a 1.4 percent increase from 2019.