Airline Insight: Copa Airlines

Each day this year, The Blue Swan Daily uses the extensive insights available to CAPA – Centre for Aviation members to deliver a data snapshot on the world’s largest airlines and airports. Today, we feature Copa Airlines (IATA:CM; ICAO:CMP), a carrier that has overcome having a small home market in Panama City to develop a major hub operation linking the Americas.

Copa Airlines has been one of the fastest growing and most profitable airline groups in the Americas over the last two decades. The group has had a double digit operating profit margin every year since its 2005 initial public offering. The group also grew ASKs at a double digit or near double digit clip every year until 2015, when it slowed its growth rate significantly due to challenging economic conditions in Latin America.

NETWORK: According to flight schedules from OAG for the week commencing 15-Jan-2018, Copa Airlines serves 74 destinations, dominated by an international operation that spreads throughout the Americas from Canada in the north down to Argentina, Chile and Uruguay in the south and all knitted together through its Tocumen International Airport hub in Panama City. The airline’s international flights account for 98.8% of its total network with a link to David’s Enrique Mailk Airport its sole domestic route. The International operation currently spreads to 72 destinations across 29 countries with United States of America (13 destinations), Colombia (eight destinations) and Brazil (seven destinations) its largest markets in terms of routes. Copa Airlines’ largest base is at Tocumen International Airport in Panama City which accounts for almost half (48.5%) of its system seats. Its largest foreign markets are Juan Santamaría International Airport, the primary airport serving San José, the capital of Costa Rica (3.8%) with Cancun International (2.2% share) and Havana’s Jose Marti International (2.0% share) airports follow behind.

FLEET: The Boeing 737 has been the mainstay of the Copa Airlines operation, providing flexibility to support its network out of Panama City. This is currently based around the 737-800, albeit it does also operate a small number of 737-700s as well as Embraer E190 regional jets, which serve thinner markets. According to the CAPA Fleet Database its ‘In service’ fleet currently comprises 85 aircraft, including seven 737-700s, 66 737-800s and 12 E190s. Its future orderbook includes its last remaining 737-800 commitments and 65 737MAX aircraft for modernisation, including both the MAX-9 and MAX-10 variants. A CAPA report from Jul-2017 says these aircraft will be “a game changer” for Copa as it will enable it to increase seat density and reduce fuel burn, driving a reduction in its already low unit costs. “The delivery of 15 737 MAX 9s in 2H2018 and 2019 will provide an initial opportunity for the airline group to upgauge flights now operated with smaller 737-800s. Copa will pursue further upgauging early next decade as it takes delivery of at least 15 737 MAX 10s,” says CAPA. They will also help bring down the average age of the Copa fleet, which currently stands at 7.2 years.

CAPACITY: During the first part of this decade, Copa Airlines upgauged some of its fleet from the 737-700 to 737-800, driving additional growth through the arrival of additional ‘Next-Generation’ aircraft. In mid-2015, Copa stopped expanding its fleet, slowing down deliveries of 737-800s and focussing on replacements rather than growth. This is clear in its system capacity that has been stagnant since the middle of the decade. After growing +3.4% to beyond 16 million seats in 2015 it subsequently grew just +1.6% in 2016. It slipped -1.1% last year.

TRAFFIC: A slowing of its capacity growth since 2015 has helped Copa Airlines boost its yield performance. According to data from the airline, it has shown improved monthly year over year low factors since Oct-2014. This has seen it exceed the 80% milestone every month this year except Mar-2017, a still credible 79.5% performance. Its load factors peaked in Jul-2017 at 87.6%, up +1.5% percentage points on the same month in 2016.

OBSERVATIONS: Copa Airlines has taken a prudent approach to its mainline activities and is well placed to further boost its activities now the Latin American market is starting to show some signs of recovery after a challenging two years. “Currencies have stabilised and, overall, the economies are projected to expand, after two years of negative GDP growth,” Copa Holdings CEO Pedro Heilbron said in an interview with CAPA prior to the start of the IATA AGM in Jun-2017. Copa obviously still faces challenges, but seems to have weathered the worst part of the storm while maintaining its profit streak, and with the reduction in unit costs that will be generated by the new 737 MAX fleet, the group should be able to maintain profitability even if yields continue to decline.

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