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Copa earnings down in 2010

14-Feb-2011
Copa Airlines CEO, Pedro Heilbron
Copa Airlines CEO, Pedro Heilbron

Copa Holdings announced net income for the full year was down 11.9% to USD212.1 million in 2010, however, operating income for the year was up 8.3% to USD263 million, resulting in an operating margin of 18.6% compared with 19.4% in 2009.

Total consolidated operating revenue for the year jumped 12.6% to 1.4 billion as ASMs increased 10.5% to 10.9 billion. Yield dropped 1.1% to 15.9 cents as RASM rose 1.9% to 12.9 cents. For the year consolidated load factor was up 2.2 points to 76.9% on a 10.5% increase in capacity. Ancillary revenues – cargo, mail and other – rose 12.6% for the year to 76.2 million and, for the quarter, jumped 19.7% to USD 32 million, largely on increases in cargo, according to CEO Pedro Heilbron.

Total operating expenses rose 11.5% to USD1.1 billion, although full-year CASM was almost flat at a 0.9% increase to 10.5 cents. Ex fuel and special charges taken in 2009, CASM rose 1.2% to 7.2 cents.

The increase in passengers drove commissions up 10.5% in the fourth quarter to USD14.6 million on a higher passenger revenue base, said the company, which added this was partially offset by lower average commission rates. Copa also reported high maintenance costs in the quarter, increasing 10.5% to USD19.5 million on increased capacity and unexpected major overhaul events.

Mr Heilbron reported that Copa was having no problem recruiting pilots and flight attendants, noting that Panama enjoys a good standard of living and the training pipeline is full. In addition, to the airport improvements completed, it also plans to accelerate technology investments this year. Fourth quarter GDP growth, he reported, was 9%. This year it is expected to be 7% on top of the 6% posted in 2010.

CFO Victor Vial reported the company has shifted its guidance on higher revenue projects and distribution costs as well as aircraft rental costs and maintenance. In addition, it is also adjusting with the build-up to 2012.

Consolidated capacity growth is expected to be 20% resulting from the full-year effect of capacity added last year and the introduction of 10 B737-800 aircraft this year, which are not replacing older aircraft as is happening with US and Canadian carriers. Load factors are expected to come in below 2010 levels on the capacity expansion. From that, unit revenues are expected to decline about 4%, largely resulting from increased length of haul and capacity increases.

Unit costs ex fuel are expected to be 6.7 cents, well below 2010 levels, according to Mr Vial, who projected an operating margin in the range of 18-20% for 2011.

For the fourth quarter, Copa Holdings, which includes Copa and Copa Airlines Colombia, reported net income of USD92.8 million, up from USD70.4 million in 4Q-2009. Ex special items, Copa’s adjusted net income rose 23.7% to USD81.2 million. Operating income for the quarter came in at USD89 million, up 24%, while adjusted operating income which excludes USD4.8 million in 2009 special fleet charge, increased 16.2% to USD89 million in the quarter. Operating margin bested even Allegiant by a wide margin at 21.7%.

Total revenues jumped 19.7% to USD410.6 million in the quarter as yield rose only slightly (0.7%) to 16.5 cents. RASM was flat quarter over quarter at 13.7 cents. However, on a length-of-haul basis, yield and RASM increased 3.2% and 2.6%, respectively.

Fourth quarter consolidated passenger traffic jumped 18.6% on a 19.6% increase in capacity resulting in a slight load factor drop of 0.5% to 78.8%.

Total consolidated operating expenses in the quarter increased 18.6% to USD321.6 million. Operating expenses excluding a USD4.8 million special fleet charge in 4Q2009 increased 20.7%. Operating cost per available seat mile (CASM) declined 0.8% to 10.8 cents in the fourth quarter but ex fuel and the fleet charges declined 2.6% to 7.4 cents in the quarter.

Cash, short and long-term investments ended 2010 at USD408.8 million, representing 29% of the last 12 months' revenues.

Copa Airlines

Copa Airlines operating revenue for the quarter increased 19.3% to USD335.4 million which, Mr Vial reported resulted from 18.1% jump in passenger revenue which came in at USD311.4 million.

Copa Airlines ASMs rose 10.9% to 9.2 billion for the year and was up 0.7% to 2.4 billion for the quarter. Load factor was up 1.9 points to 77.9% for the year but down 0.2 points in the quarter to 80.1%. Yield was flat in the year at 15.6 cents but dropped 0.1% for the quarter to 15.6 cents. However, length-of-haul-adjusted yields increased 2.9%. RASM for the carrier rose 3% to 12.7 cents for the year and 0.7% to 13.5% for the quarter.

CASM increased 0.9% to 9.8 cents for the year and dropped 0.6% to 10.1 for the quarter. Finally, CASM ex fuel and special charges dropped 0.1% in the year to 6.7 cents and dropped 4.8% in the quarter to 6.8 cents.

Copa Colombia

Analysts tried to get a better read on future plans for the Colombian subsidiary, but executives punted, saying planning is based on Copa Holdings and is getting harder to do individually for the two subsidiaries because it is targetted at making them more complementary.

Mr Heilbron noted international operations accounted for 40% of its operations and designed to feed hubs. Domestic yields, he said, were up 19% in the quarter and up 20% on a quarter-to-quarter basis. He indicated it remains to be seen whether that will continue in 2011. However, he noted the takeover of Aires by LAN is bringing more rational pricing into the market.

“We now have rational competitors compared to what Aires was doing with fares,” he told analysts. “Aires essentially went out of business and were saved by the bell by LAN. They have pulled out of markets and taken capacity out of Panama but that was in small markets served by turboprops. Most of its international flying was with the 737 to Fort Lauderdale and New York.”

Its strategy is to grow within Star Alliance, rather than follow Alaska and JetBlue in serving many partners. To that end it hopes to complete the Star integration by April 2012 and, in the meantime, is cutting codesharing and frequent flyer deals with various Star partners, including Avianca/TACA which is strong in Colombia.

Analysts asked whether the capacity moves by Avianca/TACA had any material impact on Copa. The answer was no, as executives believed most moves involved small turboprops in secondary markets.

During the quarter, Copa Airlines Colombia generated operating revenue of USD83.2 million, up 26% from a year ago on a 26.5% growth in passenger revenue. Its Colombia operation flew an 9.2% increase in ASMs to 1.7 billion as load factor dropped 3.6 points to 71.1% for the year. For the quarter, the operation flew 500 million ASMs, up 25.1% as load factor dropped 2.3 points for the quarter to 72.7%. Yield declined 6.3% to 19.4 cents for the year and was up 3.4% to 20.9 cents in the quarter on increased capacity allocated to international fights and higher yields in the domestic market. RASM was down 0.3% for the year at 15.1 cents and for the quarter it was up 0.7% to 16.6 cents.

Operating expenses for Copa Colombia increased 24.3% to USD79.4 million in the quarter. Full-year CASM rose 4.6% for the year to 15.3 cents, while dropping in the quarter by 0.6% to 15.9 cents. Ex fuel and special charges, CASM rose 10.9% to 11.3 cents and 6.9% to 11.7 cents in the year and the quarter, respectively.


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