Copa Holdings, S.A. Q1 FY2026 earnings call

• Operational Performance & Reliability: COPA delivered industry-leading operational reliability in Q1 2026, with a 91.6% on-time performance rate and 99.7% flight completion factor, placing the airline among the top performers globally. The company credited its more than 9,000 employees for strong execution and cost discipline amid volatile jet fuel prices, allowing the firm to enter the high fuel price environment from a position of strength. Management reaffirmed the strength and resilience of the company's business model, which has supported consistent industry-leading profitability through past market disruptions.
• Network Expansion: The company resumed service to two Venezuelan cities (Valencia and Barquisimeto), with service to a third (Barcelona) scheduled for June 2026. This expansion will bring COPA's total served cities in Venezuela to five, growing its overall network to 87 destinations across 32 countries and strengthening its position as the most complete connecting hub for travel in the Americas.
• Fleet Strategy & Long-Term Growth: COPA took delivery of two Boeing 737 MAX 8 aircraft during Q1, and received two additional MAX 8 aircraft in Q2 to date, bringing the current fleet total to 129 aircraft. In April 2026, the company announced a new order for 40 firm Boeing 737 MAX aircraft plus 20 options, with deliveries scheduled between 2030 and 2034, coinciding with the completion of its existing order book in 2029. This order reinforces the company's long-term growth strategy, while management notes the firm retains significant fleet flexibility via options, lease expirations, and unencumbered aircraft to adjust growth plans if market conditions change.
• Shareholder Return: The Board of Directors approved a second quarterly dividend of $1.71 per share, payable June 15 to shareholders of record as of May 29. During Q1, COPA repurchased $45 million of outstanding shares, representing approximately 1% of total issued shares.
• Market Environment: Management highlighted that the current demand environment across the Americas is broadly strong, supporting yield increases to offset higher fuel costs. COPA's core competitive advantages – favorable geographic positioning, structurally low unit costs, strong balance sheet and liquidity, and a passenger-focused superior product – position the firm well to navigate the current high fuel price environment and deliver strong industry-leading results for full-year 2026.

COPA Holdings operates as a single airline business segment for this reporting period. In Q1 2026, the company achieved: operating profit of $258 million with an operating margin of 24.6% (up 0.8 percentage points year-over-year); a record net profit of $212 million, or $5.16 per share, representing a 20.5% year-over-year increase in earnings per share; a net margin of 20.2% (up 0.5 percentage points year-over-year). Capacity (measured in ASMs) increased 14% year-over-year, while passenger traffic (RPMs) increased 15% year-over-year, bringing load factor up 0.8 percentage points to 87.2%. Passenger yield increased 1.6% year-over-year, RASM reached 11.8 cents (up 2.7% year-over-year from Q1 2025). Total CASM increased 1.6% year-over-year to 8.9 cents, driven by higher jet fuel prices; CASM excluding fuel declined 1% year-over-year to 5.8 cents. All-in jet fuel prices increased 7.5% year-over-year to $2.73 per gallon, with elevated prices in late March creating a $20 million year-over-year negative impact on Q1 results. The company ended the quarter with a fleet of 129 aircraft, and a strong balance sheet with $1.5 billion in cash and investments (excluding $700 million in aircraft pre-delivery deposits), total debt of $2.4 billion (including lease liabilities), and an adjusted net debt to EBITDA ratio of 0.7x.

• Second Quarter 2026: Capacity is expected to grow approximately 16% year-over-year (measured in ASMs). Operating margin is projected in the range of 8% to 12%. All-in jet fuel prices are expected to increase 80% to 90% year-over-year, with only approximately 50% of this increase expected to be recovered via higher revenues due to advanced booking levels already in place when fuel prices rose.
• Full-Year 2026: Capacity growth is maintained at the previously guided range of 11% to 13%. Load factor is expected to be approximately 87%, and CASM excluding fuel is projected to be approximately 5.7 cents. Based on current fuel futures curves and assuming recent yield improvements are sustained, management expects to recover a substantial portion of increased annual fuel costs, reaching full 100% pass-through by the end of the year. Management will review full-year operating margin and RASM expectations once market conditions stabilize and visibility for the second half of 2026 improves.

• Volatility in global jet fuel prices represents the primary near-term risk, as sharp and unexpected price increases cannot be fully passed through to customers in near-term periods due to advanced ticket bookings, creating pressure on near-term margins.
• Uncertainty around future fuel price trajectories makes full-year profitability forecasting difficult, as fuel is the largest single operating expense for the airline and current prices are highly volatile.
• While management has not observed broad capacity pullbacks from regional competitors to date, continued high fuel prices could lead to unexpected competitive shifts in the Latin American market.
• Foreign exchange rate fluctuations in Latin American markets represent a continued source of uncertainty, though current currency strength has acted as a tailwind to demand.

Q: With 16% capacity growth guided for the seasonally weak second quarter, how much of the quarter was booked before recent fare increases, and which regional markets are seeing the strongest demand? / A: Management reports strong demand across all served regions, with no single market outperforming others. Approximately 40% of second quarter seats were already booked when recent fuel price increases and fare adjustments took effect, limiting the amount of the fuel cost increase that can be recovered in the quarter. Overall demand remains resilient despite industry-wide fare increases to offset higher fuel costs.

Q: How has the recent strength of Latin American local currencies impacted demand and yields, and how does the Q2 tailwind compare to Q1? / A: COPA prices all tickets in US dollars, and stronger local currencies increase purchasing power for customers in the region. Most major Latin American currencies are up double-digits against the US dollar year-over-year, and currencies have remained strong or gained slightly in recent months, providing a continued positive tailwind to demand into the second quarter. COPA benefits disproportionately from this strength because it generates a higher share of traffic to/from South America than in other directions.

Q: Can you share details on 2026 and 2027 capital expenditures for your new fleet order, and how flexible is your capacity growth plan amid high fuel prices? / A: Total 2026 capital expenditures are projected between $750 million to $800 million, with approximately $300 million of that being cash capital expenditures primarily for maintenance. COPA will take delivery of 7 to 8 aircraft in 2026, down from 13 deliveries in 2025. Management emphasizes the firm retains significant flexibility to adjust delivery schedules and capacity growth to match changing market conditions, as it has done in past downturns.

Q: In the current high fuel price environment, are you seeing competitors pull back capacity in the Latin American market, creating opportunities for COPA? / A: Outside of the exit of Spirit Airlines, which provides a small benefit on some one-stop routes, COPA has not observed any meaningful capacity pullbacks from other competitors serving the region to date. Management notes that pullbacks could occur in the future if fuel prices remain elevated, but no broad shifts have materialized so far.

Q: How are your cost-cutting initiatives trending, and what drivers are supporting the projected decline in ex-fuel CASM? / A: The two primary drivers of falling ex-fuel unit costs are capacity growth and fixed cost dilution, and ongoing optimization of sales and distribution strategies. Approximately 30% of ex-fuel expenses are fixed and do not grow proportionally with ASM capacity, so ongoing growth allows the firm to dilute these fixed costs across more capacity, lowering per-unit expenses.