Avianca & Copa: hubs and permanent cost cuts are key to recovery


Latin American operators Avianca and Copa have taken different approaches to managing their businesses during the COVID-19 crisis. Avianca has been forced into Chapter 11, and Copa has used its sound financial foundation to build up a solid level of liquidity. 

But both airlines are adopting a renewed focus on costs that is driven by a belief that airline cost structures need to change permanently in a post-pandemic world. Those operators stress that a leaner cost structure will be more imperative than ever whenever the industry approaches a sense of normality. 

Avianca and Copa also believe that their respective hubs in Bogotá and Panama City will serve as a competitive advantage for each airline, and competition between the two airports to become major connecting points in Latin America could intensify. 


  • Avianca and Copa take different paths to build up liquidity. 
  • Both airlines believe there need to be permanent changes to structural costs in a post-pandemic environment. 
  • Each operator also believes in the strength of the largest hubs, as Latin America starts to reopen. 

Avianca and Copa take different approaches to building up liquidity 

Avianca was in the midst of a business restructuring before the COVID-19 pandemic dried up demand, and airspace in its major markets was closed off for months. With a looming bond payment in May-2020 and its operations shut down, the airline was forced into Chapter 11. 

Approximately six months into its bankruptcy reorganization, Avianca has secured USD2 billion in debtor in possession financing and has restarted operations. Data from CAPA and OAG show that for the week of 30-Nov-2020, Avianca serves 63 destinations – 25 in Colombia, 23 in Latin America, three in Europe and 12 in North America

The company is still working to determine how much smaller it will be in terms of routes, aircraft and employees. The reduction could be between 30% and 40%, but no firm decision has been made. 

See related report: CAPA Live: Avianca makes tough choices for long term success

Copa was also grounded for five months, and restarted fights in August. By YE2020 it is planning to deploy 40% of its 2019 capacity and relaunch service to 50 markets. Pre-crisis, the airline served 80 destinations. 

Before the crisis Copa was in sound financial shape, ending 2019 with a total debt to EBITDA of 1.90, and cash and short term investments of USD851 million. 

During the pandemic, Copa has joined airlines worldwide in shoring up its cash cushion, and the airline ended the third quarter with USD1.3 billion in liquidity. 

Avianca and Copa believe structural cost change is key in a post-pandemic world 

Despite taking different paths in building liquidity, Avianca and Copa have the same philosophies about future costs. 

Speaking at a recent CAPA Live conference, Avianca CEO Anko van der Werff stated that most airlines are focused on a few key issues, including structurally lowering their costs and making those costs much more flexible in order to withstand other events that could occur.

“There could be a SARS three…a COVID-23. Anything can happen in the next few years”, Mr van der Werff said. 

Copa has already done a lot of work to lower its fixed costs, and company executives recently stated that once the airline regains 80% of its pre-COVID capacity, its unit costs excluding fuel would fall to 2019 levels – approximately USD6 cents. 

Cowen & Co analyst Helane Becker recently said that Copa “can be successful flying fewer ASMs [available seat miles] than pre-pandemic, i.e., if they were to fly the same number of ASMs and passengers in 2019 at the current, lower cost structure, they would see a higher margin”. 

 Copa CEO Pedro Heilbron recently explained that Copa is unsure about “how long it is going to take us to get back to 2019 levels, but we want to make sure that we can be as successful as before, which means that we need a lower fixed cost base. We will be able to accomplish that. And I think we're there already”.

Bogotá and Panama City Tocumen will remain key Latin America transit points 

Avianca and Copa both believe their hubs in Bogotá and Panama City Tocumen International airport will be key assets as the airlines position themselves for a recovery in demand. 

Tocumen has been a pillar of Copa’s strategy for decades, serving as a major connecting point for traffic flows between North and South America and from South and Central America to the Caribbean

And even as some hubs in the US are less attractive for passengers looking to avoid connections when travelling during the pandemic, Copa believes that as Latin America recovers it is likely that fewer intra-Latin American markets will be able to sustain direct service.

“Pretty much every market will be reduced for the next few years, so there’s a number of markets that will fall below that minimum level for direct point-to-point [service]”, he said. “As a result, there will be some opportunities for Tocumen to have even more value.” 

In addition to Avianca filing for Chapter 11, the Latin full service airlines Aeromexico and LATAM Airlines Group are also restructuring in bankruptcy protection, and overall it is tough to determine just how the competitive landscape will evolve in Latin America

Mr Heilbron stated that between Aeromexico and Avianca, Copa’s hub at Tocumen and Avianca’s hub in Bogotá had the most overlap before the COVID-19 crisis. But he said that the number of destinations served from Panama City Tocumen, where Copa was the leading carrier by a wide margin, were close to twice those from Bogotá, adding, “so we had that advantage”. 

But Avianca believes its largest hub at Bogotá El Dorado International airport has a “very privileged position”, Mr van der Werff said at the recent Routes Reconnected conference, noting that Bogotá sits very high up in the Southern Cone of the Americas. 

He remarked that there is almost “nothing you can’t do with narrowbodies from Bogotá”.

Avianca’s CEO also stated that one big advantage the company has over Copa is that “Copa doesn’t have a home market.” With the exception of a couple of domestic routes, Copa’s pre-pandemic network was all international, connecting passengers on routes through Panama City Tocumen that in many cases were thin and ideal for connections. 

Avianca is adjusting its network to cater to the visiting friends and relatives (VFR) and leisure passenger segments, since those customer groups are leading the return in traffic.

The airline is taking a cautious approach in building services to Europe back up, which means it will focus on its domestic markets and international routes within Latin America and to North America and the Caribbean, which are markets that Copa will focus on as well. 

Dynamics in Latin America will change when the pandemic recovery starts 

Avianca and Copa are joining airlines worldwide in navigating uncharted territory. They are attempting to manage their businesses during an unprecedented level of uncertainty, and the only certain element they are banking on is a permanently reduced cost structure. 

Those airlines are also doubling down on their hubs to remain competitive during the industry’s recovery, and afterwards, and the competitive dynamics in Latin America will be interesting to watch during the short to medium term. 

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