Copa Airlines margins compressed by continued economic deterioration in Latin America

Copa Airlines has revised its 2016 capacity targets downwards to 2% growth, which is half of the expansion the airline recorded in 2015. The cuts are against a backdrop of the IMF forecasting a 0.5% contraction in Latin America's economy in 2016, which is deeper than the 0.3% decrease in 2015.

Given the effects of Latin America's deteriorating economy on market demand, Copa has cut its margin forecast for 2016. The company is warning that operating margins for 2Q2016 could fall to the low single digits, which is a significant drop from Copa's historical highs.

The company admits that it has little visibility beyond 2Q2016, but believes that unit revenues in 2H2016 will be slightly lower than the year prior. Although conditions remain historically weak, there is some easing of currency depreciation and capacity cuts by other airlines, but it remains to be seen when the benefits of those changing dynamics will materialise.