Copa Airlines: A Challenging Buy, But Business Travel Recovery May Help (NYSE: CPA)

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Copa Airlines reported its earnings on May 11. The Panamanian carrier reported results that were affected by a bump in COVID-19 cases, but remains upbeat about its future results. In this report, I will have a look at the results and the outlook for Copa Airlines.

Strong Results For Copa Airlines

Copa Airlines Q1 2022 Results

Copa Airlines Q1 2022 Results (Copa Airlines)

Copa Airlines booked first quarter revenues of $ 571.6 million. This was 85% of the Q1 2019 (pre-pandemic) revenues. Revenue was primarily lower due to 12.4% lower capacity and slightly lower revenue per available seat-miles, partially offset by higher cargo and mail revenues.

Fuel prices increased by 12.4% on 18.1% fewer gallons consumed, offset by a 37.4% increase in jet fuel prices. Lower gallons consumed were driven by lower block hours. Fleet simplifications and reductions drove down depreciation and amortization, as well as maintenance costs. The increase in expenses was primarily driven by higher fuel costs. Overall, Copa Holdings reported a net profit of $ 19.8 million and a $ 44.8 million operating profit reflecting lower capacity, reduced headcounts, fleet simplification and an increase in fuel costs. Compared to the 2019 figures, that is down 60 to 80 percent because Copa Airlines is still producing less revenue on cost levels that are in line with 2019.

Sequentially, there was a small dip in revenues due to Omicron, but Copa Airlines was not willing to provide any figure for the Omicron impact on revenues. Costs rose by 27% primarily due to increasing flight activity while fuel costs jumped, compromising for around 37% of the increase in fuel costs. So, sequentially, there was some headwind as increased flying did not translate into topline growth.

Copa Airlines Q1 2022 unit results

Copa Airlines Q1 2022 unit results (Copa Airlines)

It is also interesting to look at what happens on unit level sequentially as well as year-over-three (pre-pandemic). Year-over-three, passenger numbers are down around 12% and revenue per available seat-mile were still down 2.7% while cost per available seat-mile or CASM was up 7.5% and down -1.6% excluding fuel. So, fuel prices have driven up the CASM.

Sequentially, there was some headwind from a spike in Omicron infections. Thus, the 10% increase in capacity pressured the revenue per available seat-miles and pressured load factors. Cost per available seat-mile or CASM jumped 15.7%. Excluding special items, CASM increased by 4.2% and excluding fuel, the CASM decreased by 1.7%.

What should be kept in mind is that increasing capacity can drive down unit costs, but if demand is not there to fill the seats it will provide a unit-revenue headwind, which is what happened to Copa Airlines in the first quarter of the year .

Fuel Prices Pressure Margin Outlook

Copa Airlines Q2 2022 guidance

Copa Airlines Q2 2022 guidance (Copa Airlines)

Copa Airlines is refraining from providing a full year guidance, but it expects to operate 98% of its 2019 capacity and CASM to be 5.9 cents, which is the CASM excluding fuel. That would mean that measures taken to restructure the airline are expected to result in 3.2% lower unit costs, while operating 100% capacity and optimizing aircraft utilization could further drive down costs in the future.

Copa Airlines Boeing 737 MAX 9 airplane

Copa Airlines Boeing 737 MAX 9 (Copa Airlines)

Somewhat sobering is the Q2 2022 outlook. Demand is healthy enough to operate 96% of the capacity and with strong pent-up demand that should result in significantly higher revenues. However, increases in fuel prices will eat away half of the yield premium before it reaches the bottom line. The airline expects 3 to 5 percent margins and that is somewhat disappointing as it means that top line improvement is not going to translate towards solid margin expansion. These estimates are based on 86% load factor and jet fuel being at $ 4 per gallon. April traffic numbers showed 84.9% load factors while IATA’s fuel monitor shows $ 3.89 per gallon up down over 5% compared to last week but up over 5% compared to a month ago.


Copa Airlines’ results show that the airline has been able to drive down unit costs, excluding fuel. The airline has a couple of levers to further improve its earnings. These levers include capitalizing on business travel recovery which is just 50% recovered for Copa Airlines, capacity expansion and improving aircraft utilization.

However, what is also clearly visible in the outlooks is the challenging environment as fuel prices are on the rise. That already will result in margins being down from around 8% to 3 to 5 percent in the second quarter. Currently, there is a lot of optimism about profitability, as demand for air travel is so strong that it will outstrip the growth of the fuel bill for many airlines. However, if oil prices will continue rising, the current spike in air travel demand might not be sufficient for airlines to sustain solid margin levels. While I believe that Copa Airlines is a buy based on its ability to reduce CASM ex-Fuel to below levels seen in 2019, the high fuel price environment, inflation and temporary nature of pent-up demand do provide a challenging background for Copa Airlines to rebuild margins.

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