Copa Airlines hosted an Investor Day at the New York Stock Exchange on June 22 where the company outlined its prospects for growth and margin expansion. Copa’s management team detailed the company’s growth levers, plans to remain cost competitive, and their thoughts about refining and enhancing their long-term core strengths. Investor TD Cowen, in a comprehensive report, said that the team came away “confident in the airline’s prospects for growth and margin expansion” and thought that “Copa looks to be reaping the benefits of the strategic initiatives management”.
Copa estimated that it can lower cost per available seat mile, excluding fuel and other items (CASMex) by 5% from 6.1 cents in 2023 to 5.8 in 2025. The drivers include aircraft densification (more passengers per plane and fewer departures per day), driving most sales through direct distribution channels, aircraft engine issues easing, and overhead efficiencies.
The company brought a lot of maintenance work in house, which has been estimated to save 14-30% compared to the cost of external maintenance and repair organisation (MRO) providers. Copa’s fuel expenses should see a benefit from the growing number of 737 MAX aircraft in its fleet. These are around 14% more efficient than the previous aircraft that are being replaced.
The company is also growing its ancillary product suite. Ancillary revenues were $50 million in 2019, $110 million in 2022, and are estimated to grow 45% in 2023 to $160 million, which are higher margin revenue streams.
Copa also has a co-branded credit card as part of its loyalty program. Active membership is up by 75% since 2019 and mileage sales are up 70% in the same period. Premium demand should be increased due to the lie-flat seats in the MAX aircraft.
Tocumen International Airport is an advantage for Copa as it is situated in a favourable geographic location in a commerce hub there over 170 multinationals base their regional HQ. It also offers a better climate which benefits Copa as it does not face limits on take-off weight during the summer months.
Copa has one of the lowest leverage ratios among airlines in Latin America with adjusted net debt to the earnings before interest, tax, depreciation, amortization, and exploration (EBITDAR) over the last twelve months (LTM) at 0.6x as of March 31, said TD Cowen. Some 80% of debt is fixed rate with an average cost of 3%. Copa continues to maintain a high cash buffer at 36% of LTM revenues as of the first quarter of 2023.
The company is committed to growing its dividend and has a policy to pay out 40% of prior year’s adjusted net income. The chairman of the firm is the top shareholder and owns 50% of the equity. Three other Panamanian families own 30% of the shares, providing the stock with a stable investor base dependent on the dividend.