Copa Holdings Executive Insights: Fueling the Future, Leasing

On Thursday, Copa Holdings SA Class A (NYSE:CPA) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with analysts and investors.

Fueling the Future

Daniel Spilberg – Barclays: My question is that historically the Company has been able to offset fuel pressures with field increases and also a smart capacity management. Now I think in your guidance you’re already at – you’re at 18% to 20% operating margin. You’re already factoring in cost per gallon of $33.4. So my question would be if fuel prices retrace to the previous level or even below how should we think about your yields that you’re marking?

Pedro Heilbron – CEO: So, if fuel goes to the previous guidance you mean?

Daniel Spilberg – Barclays: Yes, to the previous guidance or even below that level?

Pedro Heilbron – CEO: Our fuel guidance is not far off the curves, the way we see the curves right now even though it might be higher than the spot price today. So, it’s really hard for us to get a fuel goes back to the previous guidance or even below what will happen to yields and margins. Usually margins benefit from lower fuel and usually it would come down at a slower pace than fuel. So that’s what usually happens. But I don’t want to speculate because it’s too early.

Victor Vial – CFO: Let me just add to that, Daniel, if you look at our operating cost structure and you try to measure expense CVD in terms of operating expenses of movement in fuel prices for every $1 of movement of WTI, the impact on annual expense is roughly $7 million or so. So that could give you an idea of what the impact would be on the operating expense side of the equation, as fuel goes up or down moving forward. Then on the demand side, I would just add to (pair of settings) that right now we’re looking at very solid demand and very strong yields. So, if fuel prices do come down so much the better.


Helane Becker – Dahlman Rose & Company: Just on other revenues, I see they came down from the fourth quarter to the first quarter rate from 24 million to 19 million. Is that a timing thing or is there something else happening there?

Victor Vial – CFO: Most of that is cargo related and also what you’ll see I think it will fluctuate based on seasonality, so I wouldn’t consider that any leading indicator with respect to how you should expect cargo, mail and other to behave looking forward and also during the fourth quarter and the first quarter of the year. You will see some fluctuation in demand on the cargo side, but it is really season driven.

Helane Becker – Dahlman Rose & Company: Then just one clarification question, Victor, on financial leases being, I think, 30% now up from 25%. So, is that something we should consider going forward like a new ratio, because I sort of thought it might be less expensive to own your aircraft?

Pedro Heilbron – CEO: We have originally favored financial leases versus operating leases, but we do value having a good mix. As a result of when you have operating leases and you stagger the expiration dates of those operating leases you do get some flexibility in terms of pre-planning and capacity planning. If you look at the past couple of years we’ve been very heavy on the financial lease side, we’re trying to allocate more. Having said that, it’s not at level to 50-50 anytime soon, so you should expect to have a mix of at least two thirds financial leases and a third operating leases going forward for the next two years.