Copa Holdings Expects 11% Decline in Q1 Revenues, Shares Fall

Copa Holdings, S.A. CPA provided an update on expectations pertaining to its first-quarter 2020 performance. The carrier expects total revenues of approximately $595.5 million for the quarter, indicating a decline of 11.4% year over year. Additionally, operating profit is projected at around $98.7 million, with an operating margin of roughly 16.6%.The implications of the coronavirus impact in the SEC filing update dragged shares of the company 17.6% down at the close of Monday’s trading session.

Coronavirus-Led Downturn

Copa Holdings did not see much of an impact of the global health peril on its operations until March. In fact, the carrier operated flights at its usual capacity during the first two months of 2020, before seeing an unprecedented drop in demand in March. Revenue passenger miles (traffic or demand) fell 43.4% year over year and available seat miles (capacity) plunged 35.7% in the month. With traffic declining more than the contraction in capacity, load factor (percentage of seats filled by passengers) fell 990 basis points to 73.4% in the month.

The airline is perhaps more affected by the pandemic than its Latin American counterparts such as Gol Linhas Aereas Inteligentes S.A. GOL, LATAM Airlines Group LTM and Azul S.A. AZUL owing to its extensive international operations. With rampant travel restrictions imposed in almost all regions that the company operates in, the carrier suspended all commercial operations starting Mar 22 without any plans of resumption until Jun 1. This has obviously affected the carrier’s revenue generation to a massive extent.

With the virus concerns continuing unabated and demand recovery (dependant on a number of factors including lifting of travel restrictions) anticipated to be slow, Copa Holdings anticipates its financial results to be more affected in the second and ensuing quarters this year. In the wake of a substantial drop in demand, the carrier reduced its June capacity to 12%.

The company’s coronavirus-related plight is well reflected in its price performance since March. Shares of the company have plunged more than 50% since the month against the industry’s 43.5% decline.

Price Performance Since March



Liquidity Seems to be at Stake

Amid this deep crisis, the company is trying hard to preserve cash by reducing capital expenses and suspending dividends (starting from the second quarter through the remainder of 2020). Further, to strengthen its cash position, the company drew $145 million in March from unsecured lines of credit as well as formed incremental committed lines of credit for $150 million (currently undrawn) this month. As of Mar 31, 2020, the airline had approximately $1.13 billion in cash, cash equivalents, short-term and long-term investments.

This Zacks Rank #3 (Hold) company has also waived change fees for tickets issued prior to Jun 30, 2020. Customers choosing to retain their ticket value will be able to rebooka future flight any time until Dec 31, 2021, without a change fee. In this situation, no cash refund will be made, which will help the company preserve cash. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

However, the company has given a heads up that despite these efforts to save cash, it might not have enough liquidity to run its business or take advantage from any future recovery in demand.

Assuming that “operating capacity would be at 0% and proceeds from the sale of tickets would also be $0 between the months of April and December of 2020,” the company expects its average monthly cash burn to be around $85 million during the period.

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