Copa takes a revenue hit as MAX jets with lie flat seats remain grounded

Panama’s Copa Holdings is one of many Boeing 737 MAX operators worldwide navigating the aircraft’s grounding, and has stated it assumes the aircraft won’t resume service until mid-Dec-2019. Its grounded aircraft feature a new business class with lie flat seats that are not generating revenue.

Similar to other MAX operators, Copa is battling cost and revenue headwinds due to the grounding after being forced to deploy less efficient aircraft on routes previously operated by the grounded aircraft.

Copa has six 737 MAX 9 aircraft grounded, and was originally supposed to take delivery three during 1H2019 and an additional four jets in 2H2019. Company executives recently explained that the MAX jets were operating on some of Copa’s longer haul routes such as San Francisco and Buenos Aires.

Now Copa is using other Boeing narrowbodies on those routes, and on certain days of the week and of the year, those aircraft incur weight penalties. Obviously the lie flat seats on Copa’s MAX jets fetch higher revenue, and the aircraft is higher gauge, making those aircraft more cost efficient. The three class 166 jets feature 16 lie flat seats, 24 in Economy Extra and 126 seats in economy class.

“…we’re taking a performance penalty, a business class carrying penalty, a number of seats penalty and a cost penalty in those markets”, Copa CEO Pedro Heilbron recently explained. “Obviously, the grounding of the MAX fleet is having a significant revenue and cost impact, which will become even more substantial in the second half of the year”.

TABLE – Copa Airlines currently has six Boeing 737 MAX 9 aircraft parked as it plans to replace its Next-Generation variants with MAX 9 and MAX 10 versionsSource: CAPA – Centre for Aviation Fleet Database

Copa’s unit cost excluding fuel grew +5.7% year-on-year in 2Q2019 to USD6.2 cents, and the company projects full year unit cost excluding fuel of USD6.3 cents. Although Copa would prefer a better cost performance, its unit costs are among the lowest of full service carriers worldwide.

It remains to be seen when the MAX will return to service, but Copa’s management offered some insight into how the company would incorporate the aircraft back into its fleet. Mr Heilbron remarked that Copa could get the six grounded aircraft operational within roughly a month.

The other aircraft awaiting delivery have to go through a post-delivery modification process to add certain elements such as entertainment systems. If the MAX is “ungrounded as scheduled, even with some room for delay that we have factored in mid-December forecast, we would expect to have the six flying by the end of the year”, Mr Heilbron said. But the other aircraft yet to be delivered would be incorporated more gradually.

If deliveries coincide with Copa’s high season in Dec-2019, Jan-2020 or Feb-2020, “we can fly all of them,” said Mr Heilbron. If deliveries occur during the low season, “we will make a gradual introduction,” he said.