Copa Holdings, S.A. Q3 FY2025 earnings call

• CEO Pedro Heilbron thanked coworkers for their dedication, noting Copa delivered a strong quarter with 23.2% operating margin and 19% net margin, up from the prior year.
• Capacity in ASMs increased 5.8% YoY, load factor was 88% (up 1.8 percentage points), unit revenues (RASM) increased 1% to $0.111, and unit cost (CASM) decreased 2.7% to $0.085.
• Operational highlights included on-time performance of 89.7% and flight completion factor of 99.8%. New flights started to Salta and Tocumen in Argentina, with future additions to Los Cabos, Puerto Plata, etc.
• Fleet updates: Took delivery of five 737 MAX 8 aircraft, added a second Boeing 737-800 freighter, closed Q3 with 121 aircraft, expected to end 2025 with 124, and 2026 to have 132 aircraft.
• CFO Peter Donkersloot announced a fourth dividend payment of $1.61 per share on December 15, reaffirmed 2025 guidance with operating margin range 22%-23% and 8% capacity growth, and 2026 ASM growth 11%-13% with ex-fuel CASM 0.057-0.058.

Copa Holdings reported strong financial results for the third quarter. Net profit was $173 million (or $4.20 per share) compared to $146 million (or $3.50 per share) in Q3 2024, a year-over-year increase of 18.7% and 20.1% respectively. Operating income reached $212 million, with an industry-leading operating margin of 23.2%, up 2.9 percentage points year-over-year. CASM decreased 2.7% year-over-year to $0.085, driven by lower fuel costs and maintenance expenses. The company ended the quarter with $1.3 billion in cash, short-term and long-term investments, and total debt stood at $2.2 billion.

• Reaffirmed 2025 guidance with operating margin range narrowed to 22%-23% and full year capacity growth projected at approximately 8%, based on assumptions like load factor ~87%, RASM ~$0.112, ex-fuel CASM ~$0.058, and all-in fuel price $2.40 per gallon.
• For 2026, preliminary expects full year ASM capacity growth in the range between 11% to 13%, with an ex-fuel CASM in the range of $0.057 to $0.058.

• Fuel price volatility, as mentioned by Pedro Heilbron where jet fuel crack spread fluctuations could impact results.
• Competition in the Latin American region, which could affect margins and market share.
• Macroeconomic factors in Latin America, such as currency devaluations or economic instability, which could influence demand and yields.

Q: Could you talk a little bit about the timing and nature of the kind of co-branded credit card renewal that you noted in third quarter? And just about the opportunity that you see in loyalty in general?

A: Yes. We had a renewal of our Visa agreement during the third quarter. If we take that out, the loyalty program growth was over 30% year-over-year. The program is maturing with new non-air partners, and we expect it to continue growing.

Q: Michael Linenberg asked about the number of gates at Panama City and additional room for frequencies. How many defined banks are you at today and when might you start topping off?

A: We have 6 defined banks today. The airport is working on expansion with bids for T2 terminal and taxiway/runway work, so there will be room to add frequencies or banks in the next 3-4 years.

Q: Jake Gunning asked about preliminary thoughts on 2026 margins and earnings change from last quarter. Also, about share buybacks vs dividends.

A: Margins and earnings thoughts haven't changed much, with fuel price being the main wild card. On capital allocation, we prioritize reinvesting in the business, maintain dividend policy with $1.61 per share dividend, and have a share buyback program with $200 million approved, half executed.

Q: Filipe Nielsen asked about CASM Ex moving parts and 2026 expectations.

A: CASM Ex guidance is a range, with factors like lease extensions and engine exchange transactions. For 2026, we have cost initiatives to offset inflation and push CASM even lower.

Q: Daniel McKenzie asked about healthy demand backdrop in Latin America and durability of growth beyond 2026.

A: Demand remains healthy due to demographic factors and increasing travel by the traveling class. Growth beyond 2026 is expected to be around 7%-8% CAGR based on fleet plan with pending deliveries, leveraging hub strength and unit costs.

Q: Alberto Valerio asked about competition in regions and yield guidance.

A: We narrowed 2025 operating margin guidance to 22%-23%. Competition is addressed through product, unit costs, and network strength. IPOs of other companies are not a major concern as we focus on steady performance.

Q: Thomas Fitzgerald asked about incremental frequencies, new dots, and technology for better pricing.

A: Most growth goes to adding frequencies, with new markets maturing over time. There are opportunities in digital tools, merchandising, and user experience to improve ancillary revenues, with details to be shared at Investor Day.

Q: Guilherme Mendes asked about competitive regions and hedging policy.

A: Argentina and Brazil have specific competitive dynamics, with Brazil improving and Argentina seeing stabilized growth. We are not planning to change hedging policy as we've been successful without hedging fuel.

Q: Savanthi Syth asked about densification plan and credit card benefit.

A: We've done half of the planned densification (adding 6 more seats per plane), with another 25 planes to be densified in 2026. The credit card benefit has both one-time elements from Visa agreement renewal and ongoing growth in the loyalty program.

Q: Jens Spiess asked about conservatism in guidance and fourth quarter yields.

A: Our 2025 operating margin guidance is narrowed to 22%-23% (upper end of previous range). We don't guide quarterly yields, but our RASM guidance for the year is based on assumptions and we're comfortable with the outlook.