Copa Holdings - Q1 2023
May 11, 2023
Transcript
Speaker 11
Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings first quarter earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, you will have to press star one one on your telephone. As a reminder, this call is being webcast and recorded on May eleventh, 2023. Now I will turn the conference call over to Daniel Tapia, Director of Investor Relations. Sir, you may now begin.
Speaker 3
Thank you, Felicia, and welcome everyone to our first quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings, and Jose Montero, our CFO. Pedro will start by going over our first quarter highlights, followed by Jose, who will discuss our financial results. Immediately after, we will open the call for questions from analysts. Copa Holdings financial reports have been prepared in accordance with International Financial Reporting Standards. In today's call, we will discuss non-IFRS financial measures. A reconciliation of the non-IFRS to IFRS financial measures can be found in our earnings release, which has been posted on the company's website, copaair.com. Our discussion today will also contain forward-looking statements, not limited to historical facts, that reflect the company's current beliefs, expectations, and/or intentions regarding future events and results.
These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions subject to change. Many of these are discussed in our annual report filed with the SEC. Now, I'd like to turn the call over to our CEO, Mr. Pedro Heilbron.
Speaker 12
Thank you, Daniel. Good morning to all, and thanks for participating in our first quarter earnings call. Before we begin, I would like to extend my sincere gratitude to all our coworkers for their commitment to the company. Their continuous efforts and dedication have kept Copa at the forefront of Latin American aviation. To them, as always, my highest regards and admiration. Today, we're pleased to report strong results for the first quarter and a solid outlook for the year. Despite the continued high fuel prices in the quarter, we were able to deliver an operating margin of 22.3%. These results were mainly driven by a robust demand environment in the region, which led to an improved load factor as well as an increase in passenger yields during the quarter.
Among the main highlights for the quarter, passenger traffic grew 7.1% compared to the same period in 2019, outpacing our capacity growth of 2.8%. This resulted in an 86.8% load factor, a 3.5 percentage point increase compared to Q1, 2019. Passenger yields came in at $0.146 or 20% higher than the first quarter of 2019. While cargo revenue was 52% higher, resulting in unit revenues or RASM of $0.131, a 25.5% increase compared to the first quarter of 2019. On the cost side, our unit cost, excluding fuel, came in at $0.062 or 2.1% higher compared to Q1, 2019.
As a result, our operating margin came in at 22.3%, 5.5 percentage points higher than in the first quarter of 2019. On the operational front, Copa Airlines delivered an on-time performance of 92.2% and a completion factor of 99.9%. Once again, amongst the very best in the world. I would like to take this opportunity to express my recognition for more than 7,000 coworkers who day in and day out, deliver a world-class travel experience to our customers. Their contributions are key to our success. Turning now to our fleet, we received two 737 MAX 9 aircraft during the quarter, and we expect to receive 10 more MAX 9s during the remainder of the year to end 2023 with a total fleet of 109 aircraft.
With regards to our network, as we mentioned in our last call, we plan to start new service to the cities of Manta in Ecuador and Baltimore and Austin in the US starting this summer. With these additions, we will serve 80 destinations in 32 countries in North, Central, South America, and the Caribbean as we continue to strengthen and solidifying our position as the most complete and convenient hub in Latin America. Finally, with regards to Wingo. Wingo continues its regional expansion with the announcement of 3 new domestic Colombia routes from Bogotá to Barranquilla, Pereira, and Bucaramanga, and 1 international seasonal service from Cali in Colombia to Aruba. With these additions, Wingo will operate 34 routes with service to 21 cities in 10 countries.
Now, turning to our expectations for 2023. As you saw in our earnings release, we increased our operating margin guidance to a range of 22%-24%, mainly driven by the current solid demand environment in the region, as well as a lower fuel curve for the remainder of the year. As always, Jose will provide more detail regarding the full year's outlook. To summarize, we're off to a very good start in 2023 and expect to keep seeing a healthy demand environment throughout the year. We continue growing and strengthening our network, the most complete and convenient hub for intra-Latin America travel. As always, our team continues to deliver world-leading operational results while maintaining our cost low. Lastly, we're as confident as ever in our business model.
We continue to deliver solid margins and competitive unit costs while offering a great product for our passengers, making us the best-positioned airline in our region to consistently deliver industry-leading results. I'll turn it over to José, who will go over our financial results in more detail.
Speaker 8
Thank you, Pedro. Good morning, everyone. Thanks for being with us today. I'd like to join Pedro in acknowledging our great team for all their efforts to deliver a world-class service to our passengers. I will start by going over our first quarter results. We reported a net profit for the quarter of $121.5 million or $3.07 per share. Excluding special items, net profit came in at $157.8 million or $3.99 per share. First quarter special items are comprised of an unrealized mark-to-market loss of $37.9 million related to an appreciation in the value of the company's convertible notes, and a $1.7 million unrealized mark-to-market gain related to changes in the value of financial investments.
We reported a quarterly operating profit of $193.2 million and an operating margin of 22.3%. Capacity came in at 6.6 billion Available Seat Miles, or approximately 3% higher than in Q1 2019. Load factor came in at 86.8% for the quarter, a 3.5 percentage point increase compared to the same period in 2019. While passenger yields increased 20% to $0.146. As a result, unit revenues came in at $0.131 or 25.5% higher than in the first quarter of 2019. Driven by higher jet fuel prices, unit costs or CASM increased 17.2% versus Q1 2019 to $0.102.
Our CASM excluding fuel came in at $0.062, a 2.1% increase versus Q1 2019, mainly driven by additional engine maintenance costs, changes in supplemental rent provisions related to aircraft utilization, as well as additional leased engine costs, plus an increase in our sales and distribution costs as a function of higher sales during the period. I'm going to spend some time now discussing our balance sheet and liquidity. As of the end of Q1, we had assets of close to $4.9 billion, and in terms of cash, short and long-term investments, we ended the quarter with $1.2 billion, which represents 36% of our last twelve months revenues.
As to our debt, we ended the quarter with $1.7 billion in debt and lease liabilities and achieved a net debt to EBITDA ratio of 0.6 times. 80% of our aircraft debt is fixed, and I'm happy to report that our blended cost of aircraft debt for the quarter came in at an annualized rate of 3%. Turning now to our fleet, during the first quarter, we received 2 Boeing 737 MAX 9s to end the quarter with a total of 99 aircraft, compared to 102 aircraft in our fleet at the end of 2019. With these additions, our total fleet is now comprised of 68 737-800s, 22 737 MAX 9s, and 9 737-700s. These figures include 1 737-800 Freighter and the 9 737-800s operated by Wingo.
Two-thirds of our fleet continues to be comprised of owned aircraft. One-third of our aircraft are under operating leases. During the remainder of 2023, we expect to receive 10 additional aircraft, all Boeing 737 MAX 9s, to end the year with a total fleet of 109 aircraft. Finally, I'm pleased to inform you that this past month of March, our board of directors approved a quarterly dividend of $0.82 per share, subject to board ratification each quarter, which reinstates our dividend payout of 40% of prior years' adjusted net income. We made our first quarterly payment during the month of April. The second payment will be on June 15th to all shareholders of record as of May 31st. As to our outlook, based on the strength of the current demand environment, we can provide the following guidance for full year 2023.
We expect to increase our capacity in ASMs versus 2022 within a range of 12%-13%. We now expect an operating margin within the range of 22%-24%. We're basing our outlook on the following assumptions: load factor of approximately 85%, unit revenues within a range of $0.125, CASM ex-fuel to be in the range of $0.061, and finally, we're expecting an all-in fuel price of $2.85 per gallon. Thank you. With that, we'll open the call to some questions.
Speaker 12
Thank you. We will only take 2 questions per participant. One moment while we compile the Q&A roster.
Speaker 11
The first question comes from the line of Stephen Trent from Citi. Steven, please go ahead.
Speaker 15
Good morning, gentlemen, and thank you very much for taking my questions. I was wondering, kind of on a high-level basis, if you could discuss the opportunities related to, you know, the renewed strategic alliance with United Airlines from August 2021, and, you know, what you might be seeing in terms of the potential for a joint business agreement, maybe revisiting that down the line. Thank you very much.
Speaker 12
Yeah. Hi, Stephen. It's Pedro.
Speaker 15
Hey, Pedro.
Speaker 12
As you know, yeah, as you know, we have a very strong alliance with United that goes all the way back to the Continental days. On top of that, we're of course part of Star Alliance. So we feel that with our strong United relationship plus Star Alliance, we cover what's of most benefit to Copa in terms of where we fly, the regions where we fly, where we're active, and the airlines that we should be in an alliance with. We also have that letter of intent, or whatever it's called, with, between Avianca, United and Copa for a JBA, joint business agreement. I think that has not been implemented. The pandemic was in between, and honestly, I don't really know if that's gonna be implemented, or it will just be allowed to expire.
I think it probably has over a year for that decision to be made. Again, what I'm trying to say is that we have the alliances we need and that add the most value to Copa.
Speaker 15
Super, Pedro. I really appreciate that. Just my one follow-up. I believe you talked in the past about the LEAP engines driving kind of a one-time, relatively small-ish CASM ex headwind into this year. You know, any high-level view on whether that's gonna ease as we move through 2024?
Speaker 12
Yeah, I'll let Jose answer.
Speaker 8
Yeah, Stephen Trent. let me just say that, yeah, there's some, I would say short-term headwinds related to the LEAP engine. Most of the costs that we've seen so far this year are associated to short shop visits that some of the engines require as part of campaigns that are being performed in the worldwide fleet of the LEAP. We're seeing an improvement in the performance of the engine, and we are relatively advanced in the majority of these campaigns. Going forward, in the rest of 2023, we expect to have a lesser number of engines going into the shop or and/or with some of the fixes that are required.
That actually flows into our $0.061 CASM guidance that we have for the full year vis-à-vis the CASM ex guidance that we had issued back in February.
Speaker 15
Super helpful, gentlemen. Thank you for the time, and looking forward to seeing you on Tuesday.
Speaker 12
Thank you, Steven. Same here.
Speaker 11
One moment for the next question. The next question comes from the line of Savanthi Syth of Raymond James. Savi, please go ahead.
Speaker 14
Thank you. Good morning, everyone. I was curious, you're usually, you know, a fairly conservative team in forecasting and the kind of revenue outlook improvement is pretty meaningful. Just curious what trends you're seeing that kind of gives you confidence this early on to kind of take those numbers up?
Speaker 8
Yeah, Savi, hello. I'll start, and maybe, Pedro, you can jump in to complement. I would say that the first thing is that Q1 certainly had a very, very robust demand environment, so I think that's a portion of the increase that we had made to our unit revenue guidance. And then secondly, I would say that from our visibility that what we have for the coming months, specifically the second quarter, the demand environment continues to be relatively robust, so that's also embedded in there. Then, you know, we are cognizant that our visibility is limited for the remainder of the year, so I think that that's, there's some seasonality as well that we put into the guidance.
Of course, we're cognizant as well that there's a lot of capacity coming into the market. There's a lot of, you know, fuel is also, an item that we are paying close attention to and the movement in fuel. We're, I think, you know, we can say that we're confident in the 12.5%, but it's mostly related, I would say, to Q1 and to the visibility that we have into the first half of the year.
Speaker 12
The only thing I would add, Savi, is that our guidance, even though it has been improved, as you well mentioned, still puts us at a lower RASM for the second half of 2023 compared to the second half of 2022. That's because of the decreased fuel curve and the additional capacity coming into our market. We're still projecting lower RASM in the second half of the year.
Speaker 14
That's helpful.
Speaker 10
Along those lines for my second question, I wonder if you could talk a little bit about what you're seeing on the business demand standpoint. It seemed like it was a slow progress over the last few quarters. Have you seen any improvement there?
Speaker 12
There's still some improvement, but things have changed, at least in our part of the world since the pandemic. Leisure is our strongest segment now. It's not as much as half, but it's in the 40% of our split between leisure, VFR and business. Business has come up somewhat. It's like in the mid-20s, maybe a little bit less than that % in terms of that same split. Slight improvement in the last few quarters. Nothing very significant.
Speaker 10
That's perfect. Thank you.
Speaker 8
Thank you, Sally.
Speaker 11
One moment for our next question. The next question comes from the line of Guilherme Mendes from J.P. Morgan. Guilherme, please go ahead.
Speaker 5
Good morning, Pedro, Jose, Daniel. Thanks for taking my question and congrats on the pretty strong result. First question is the follow-up on the, on the assumptions behind the guidance. I think it's clear on the CASM front. But just wondering in terms of the capacity addition versus small reduction, just wonder if it's related to any potential bottlenecks on the supply side of the industry. And on the rest guidance thinking that probably it implies a stronger yields for the year despite of lower fuel cost as well. If you could please just further explain how you're seeing demand environment going forward.
Speaker 12
Right.
Speaker 5
the second question... sorry, go ahead.
Speaker 12
I'll start, I'll let Jose add. In terms of capacity, Copa itself is receiving 12 aircraft in the year, that's quite a bit some capacity. Our peers in Latin America are getting back to pre-pandemic levels, which was not the case in 2022, will be the case from now on the rest of 2023. All of that together, plus there are other airlines, especially ULCCs, which are growing faster than pre-pandemic. When we add all of that up, it's a considerable number of additional seats in our region. Demand is there, of course. We're confident on the demand, we're confident that there's enough demand, more capacity plus lower fuel, usually it tends to result in lower unit revenues.
Speaker 8
Yeah. Guilherme, in terms of the capacity, you know, movement that we made, in terms of our, of our full year guidance, it is, yeah, related to the latest forecast that we have in terms of aircraft deliveries for the year. That's, that's what we have in terms of our best knowledge, as of now in terms of new aircraft deliveries.
Speaker 5
Super clear. Thank you. The second question is in terms of the capital allocation, naturally the dividends already out. You have the buyback open as well, but thinking that leverage remains below 1 time net debt to EBITDA, if you see room for maybe an extraordinary payment or a more aggressive buyback.
Speaker 8
All right, Guilherme. We, you know, I have to say that we reinstituted our dividend. The board approved that back in March. It's 40% of our prior year's adjusted net income. So, you know, we're, I think, happy with that level. I would say that our buyback program, as you saw, continued to be active during this year, during the first part of the year. I think that there's a couple of important points to make. Number 1 is that we have a sizable number of investments coming in related to aircraft for growth of our business. So I think that part of this capital that we have is geared towards growth of Copa itself.
number 2, you know, we have the convert, and we also are have to wanna have a lot of flexibility in terms of the management of that, liability.
Speaker 5
Super clear. Thank you. Have a great day.
Speaker 8
Thank you.
Speaker 12
Thank you. You too.
Speaker 11
One moment for our next question. The next question comes from the line of Michael Linenberg from Deutsche Bank. Michael, please go ahead.
Speaker 10
Hey, good morning, everyone. That was great forecast. Couple here. One, the move to add additional domestic service in Colombia by Wingo, was that in response to the suspension of Viva and Ultra? Is it a tactical move? Is it a harbinger of maybe getting bigger in the domestic Colombia? Is there an opportunity for you to maybe get some of the slots that will potentially be released as a result of consolidation and rationalization in the Colombian market? That's my first question. Thank you.
Speaker 12
Okay. A few things there, Michael.
Speaker 10
Mm-hmm.
Speaker 12
One is that Wingo is not really a large player in domestic Colombia. Wingo's 9 plane, as we know, it's 9 Boeing 737-800. And this capacity shift has to do with something that's been developing over the last number of months, which is more strength in the domestic market than in some of the international routes that have seen a lot more capacity. So it's tactical, it's tactical, it's limited. Yes, the shutdown of certain airlines has a positive effect, but actually benefits much more the other airlines, the other incumbents in Colombia. Wingo, again, is not significant, and it never really competed that much head on with the airlines that are no longer flying. Not a huge impact.
Not a huge impact, there is a little bit better strength in the domestic, and that's why they reduce. What Wingo has done is reduce frequencies in some of the international markets that were not doing as well and redeploy them in the domestic market that is doing better. Again, tactical.
Speaker 10
Anything on the Bogota slots that potentially come available, are you in line to try to grab some of those for your use?
Speaker 12
Right. Although there are no plans to grow the Wingo fleet in an aggressive way, we are.
Speaker 10
Mm-hmm.
Speaker 12
We tend to be disciplined and
Speaker 10
Mm-hmm.
Speaker 12
Wingo will continue taking advantage of opportunities and not just, you know, taking a bunch of aircraft. Wingo will remain disciplined and opportunistic. The Bogota slots are very important because it was very difficult for Wingo to publish an advanced schedule and fly at the right times, at the peak times, when most passengers want to fly, because.
Speaker 10
Mm-hmm.
Speaker 12
Up to now, the slots in Bogota have been dominated by a single carrier. Hopefully, this is gonna change and make Bogota, which is like the only or one of the very few slot-restricted airports in our continent, it will make it more competitive and it will allow Wingo and others to offer service at the times passengers wanna fly. We see that as a positive development.
Speaker 10
Okay, great. This is just another sort of network question, Pedro. One of the things that we saw coming out of COVID is we saw a lot of the big global hubs initially only benefit from the recovery of local traffic. As things have started to turn on, we're seeing a lot more, you know, what we call Sixth Freedom traffic, Third and Fourth, you know, Freedom connections, which is something that you specialize in. When you look at the commentary out of, say, a Turkish or an Emirates or a Cathay Pacific, you're really starting to see that benefit. When I look at Copa and I look at capacity coming online by some of your competitors, where I think you really outshine the competition is all the connections that you fly in city pairs that nobody else serves.
I suspect that maybe that wasn't seeing as much service in the earlier part of the recovery period, and that's starting to turn on now. Those are markets that are uniquely served by Copa. Is that right? Is that something, a trend that you've been seeing in your markets or maybe your connecting markets turned on from day one?
Speaker 12
Well, you know, we've seen strength, throughout our markets and throughout our network.
Speaker 10
Mm-hmm.
Speaker 12
We're staying true to our vision and to our business model. Coming out of the pandemic, we went back to doing what we've always done in a very focused and disciplined way. That demand has kind of been there from the beginning.
Speaker 10
Mm-hmm.
Speaker 12
I would say. It's obviously stronger now and it continues to grow. It's holding up and there's more capacity from other airlines and from ourselves coming in, but the whole market has improved. Yes, I think you're right. We have something unique about our network and we hope to continue developing it.
Speaker 10
Okay. Well, great. Great, great results. Thanks for answering my questions.
Speaker 12
Thank you.
Speaker 11
One moment for the next question. The next question comes from the line of Bruno Amorim from GS. Bruno, please go ahead.
Speaker 1
Thank you for taking my question. You know, I'd like to hear from you, if possible, you know, what's your vision for the next few years in terms of competitive dynamics and, you know, the expected profitability for the business? Of course, adjusting for eventual activity in macro conditions which might happen. My point here being that, you know, if you look in the 2010 to 2014 cycle, margins were around 20%. I'm talking about EBIT margins. Between 2015 and 2019, margins hovering around 16%.
You know, if you were to guess, for the next few years, you know, are we more in the type of market that we saw between 2015 and 2019 or is it possible to sustain margins around 20% even though, you know, you're not growing as much like back in that cycle, 2010 to 2014 when the region was growing, but eventually after the pandemic you might see structurally less competition? You know, just trying to figure out what will be the new normal going forward, and it would be great to hear your thoughts around that. Thank you.
Speaker 12
Okay. We have provided guidance for 2023 only, not for the years after that. Not to speculate much about the future, but I should say that, you know, we spend a lot of time working on improving every aspect of the company. It's what we've always done. Make Copa more competitive as we go and as we grow. We see right now, what we can see now is a robust demand environment. We see a good future for our business model focused on one hub of the Americas in Panama. We see many opportunities to increase the connectivity and add new cities. We will continue working towards a cost competitive, on time, passenger-friendly, with an efficient and productive and motivated workforce.
That's what we do, that's what we will continue to do. It seems like the environment for such an airline to thrive in our part of the world is there, and it might be getting better. That's what we're working on. There's always competition, of course. Hopefully, there's room for the ones that have also a business model that makes sense for them, and that's realistic with the size of the market. As long as there's that balance, I think we'll be fine. In any case, we hope to always be in a position to do better than the others. That's our focus. But beyond 2023, I think we have to wait a few more earnings calls.
Speaker 8
Yeah. That's great, Pedro. Thank you. That's great perspective. Let me just a very quick follow-up. You know, after the capacity you expect to come back during the year, as you mentioned, you know, will you be in the same position in terms of overlaps and competition overall vis-à-vis the pre-pandemic scenario, more or less competition? You know, can you comment on the competitive landscape after this capacity that you expect to come back is in place?
Speaker 12
Well, I think, the competition is pretty public, so we probably kind of have the same information. Competition has changed. I would say it's not less than before. If anything, it's more. It's more dynamic, maybe more aggressive. It's changed in the sense that it's gone more towards the low cost side of the spectrum. In that sense, we are like one of the few remaining full service airlines in our part of the world. There's a space for that. There's a lot of competition and we compete with all, and we try to be as aggressive as anyone, especially since we've talked about a larger % of passengers now are leisure than pre-pandemic.
Speaker 8
Very clear. Thank you very much.
Speaker 12
Thank you, Bruno.
Speaker 11
Please hold for your next question. The next question comes from the line of Helane Becker of Cowen. Helane, please go ahead.
Speaker 6
Thanks so much, Operator. Hi, guys. Thank you for the time. You guys are coming up to New York next month and holding your investor day. When we think about things you can say, have you thought about the focus of that and what you can update us on? I don't wanna run ahead of it, but I'm kind of wondering what to look forward to.
Speaker 12
Well, hopefully a good meal and a good Q&A session. As you know, Helane, our story doesn't change much from year to year. We always stick to pretty much the same business model, which, as I was mentioning before, we try to always improve and make better, and hopefully we'll talk about that. About what are we working on, what are we focusing on, what we're making better, what's working, what might need changes, but never big surprises. We tend to have like a way of doing things, and as long as doesn't need to be changed, we just look to improve it. I would say expect more of the same.
Speaker 8
Yeah.
Speaker 12
Maybe. Well, Jose, go ahead.
Speaker 8
I'll just add. First of all, for certain things, Helane, we try to take one day at a time. We're, you know, preparing earnestly for the earnings call, maybe next week we'll start working on the details of the investor day. I would say a couple of things to add to what Pedro mentioned. Number one is that, you know, our last investor day was here in Panama back at the end of 2019 before the pandemic. We are cognizant that it's important for you to get face time with us. I think part of what we have in store is also getting face time with members of management that are beyond us two.
I think that that's also an important part of it, and just simply, provide an update on some of the initiatives that we had discussed back, 3 years ago. I think that's kind of what we have in mind.
Speaker 6
Well, it's kind of a lot. My follow-up question is something I think, José, that you talked about in terms of capital allocation with respect to share repurchase and the convert, which I think is callable. Did I interpret your answer correctly that either one of those is up for?
Speaker 16
Is fair game that you would buy back the convert if it made sense?
Speaker 8
I. Yeah. I don't wanna speculate. I don't wanna get into necessarily details of potential, you know, avenues that we might pursue. I would say that we, at this stage, wanna maintain flexibility in terms of the options that we have. I think that the balance sheet is very, very strong. We have a, you know, wanna keep alternatives open to minimize the cost for us in terms of the settlement of the convert. Yeah, we're also cognizant that the convert, it has a call option in there and, you know, all alternatives are on the table right now related to that.
Speaker 16
That's cool. That's really fair. Thank you.
Speaker 8
Thank you.
Speaker 16
Thanks, guys. See you soon.
Speaker 11
One moment for the next call or next question. The next question comes from the line of Daniel McKenzie of Seaport Global. Daniel, please go ahead.
Speaker 2
Oh, hey. Good morning, guys. Congratulations on the quarter and the outlook here. Just have a couple questions. The first really ties to revenue from premium seating. I'm really just trying to get a basic understanding on this part of the story. I guess first, you know, what % of the revenue is it today versus what it was in 2019? Then just related to that, how quickly is that growing?
Speaker 8
Yeah.
Speaker 12
Okay. Let me start and then I'll let Jose follow up. We don't share that specific information, but what I can say is that premium demand and premium yields are above pre-pandemic levels. Load factors are better, yields are better, and premium seating profitability is better than pre-pandemic.
Speaker 8
Yeah. Well, and also our paid load factor in business class, which we don't disclose, but we can say directionally that it is higher today than where it was back in 2019 as well. I think that's another data point that's important.
Speaker 2
Okay. Then, you know, I guess a second question here is just a question on the new distribution strategy that you've talked about in the past. What % of the revenue is booked on Copa's website today versus the GDSs, you know, and how does that compare to 2019? Then, you know, to what extent is that helping you to capture some additional revenue, say, from upsell opportunities or bundling? Then, you know, tied to that, how material are the cost savings that you're seeing from this new strategy?
Speaker 12
Okay. I'll start, if I leave anything out. Big picture, pre-pandemic, we could say that a third of our distribution was direct and two-thirds were indirect, so agencies and the like. Today we're very close to flipping those numbers.
Speaker 2
Mm.
Speaker 12
Two-thirds will be direct, including NDC connections, and 1/3 is gonna be traditional travel agency GDS bookings. We're about to flip the numbers, the ratios, as I just mentioned, and that of course comes with considerable savings, including that we're charging a surcharge for a traditional GDS bookings, which make up for any cost difference. I don't know if we are sharing yet any cost-saving numbers, but when we add the revenue impact, so the revenue impact, the re-
Speaker 8
Very positive. I think that so far this, first of all, we have to say that this started in Q3 of last year, so it is still an ongoing process that we have. It is from, let's say, a ROI perspective or a cash perspective, performing, I think as expected or maybe a little bit better. As Pedro mentioned, there's a portion of the benefit here that shows up actually in revenue because of the fact that we have a fee that we charge for sales that are not performed either on NDC channels or on our own direct channels. Now, going forward, our expectation is that the actual costs, pure costs of distribution should come down in the manner that our direct channel sales continue growing.
We have an expectation that will come over the next several quarters. Then that benefit actually, that channel shift benefit then is included in the guidance, that $0.061 guidance, at least for the end of this year. Again, this is, you know, that's that kind of a change of a model and so it'll be with us for many years to come.
Speaker 12
As important is the fact that now we have much better control of our distribution, and that's gonna allow us to do more things in the future that would lower costs and improve revenues, of course.
Speaker 2
Yeah. That's perfect. Thanks so much, you guys.
Speaker 8
Okay, Dan.
Speaker 12
Thank you.
Speaker 11
One moment for your next question. The next question comes from the line of Alberto Valerio of UBS. Alberto, please go ahead.
Speaker 0
Hi, Pedro, Jose. Thank you for taking my questions, and well done for the results. Sorry for being repetitive here, but it was amazing the guidance that you guys just provided to us for the year. I'm wondering here to find where was the difference between the guidance that you just provided in February, mid-February, from 2 months and a half later or 2 months later, the guidance that you guys are providing today. We have talked about the demand already, that's stronger. You said that also maybe higher exposure to the high income class, which is business travelers.
Is there anything else like, some exposure to regions or North America, South America, some different there or something different from the people, style of traveling?
Speaker 12
Yeah.
Speaker 0
information on that, it would help a lot, a lot.
Speaker 12
In a very simple way, and I'll let Jose if he needs to add anything and be or be more specific, in a very simple way, what Jose mentioned before, we have now visibility on the first half of the year and a lower fuel curve. Those two things are the main drivers to the improved operating margin guidance.
Speaker 8
Yeah. I would say that, you know, in terms of regional performance, I would say that most of our regions are performing very well ahead of what we had before. As Pedro mentioned, first half is performing well. When you look at the operating margin guidance, we cannot forget about fuel as well. When we provided our guidance back in February, fuel was a higher level than where it is today as well.
Speaker 0
Fantastic. We can say also that competition is less furious than it was in the past because when we see fuel drop in the past, we see yields come down, and according to the guidance that you guys provide, yields could be flat for the year, even with the fuel going double digits down.
Speaker 12
No, not necessarily. As I mentioned before, our RASM guidance implies a lower RASM for the second half of 2023 than the actual RASM we delivered for the second half of 2022, the year before. We are factoring in a lower than 2022 RASM, and that's the lower fuel curve and capacity from competitors. Again, having the better visibility for the first half of the year allowed us to adjust RASM upwards for the full year.
Speaker 0
Fantastic. Fantastic. My, my last one here on the working capital, it come a little bit above what we had estimated for the quarter. Just wondering whether it's something not recurring on this quarter on the working capital matters? Thank you again for also taking my question. Congrats on the result.
Speaker 8
Yeah. No, I would say, Alberto Valerio, that, you know, we had, from an ATL perspective, I think our. Even though ATL is actually down for the quarter, sales are still ahead. I think there's some items there related to, some refunds of tickets and, expired coupons, et cetera. I think there's also seasonality in there as well. That's, I think, the main drivers there.
Speaker 0
Fantastic. Obrigado.
Speaker 8
Thank you.
Speaker 12
Thank you.
Speaker 11
One moment for the next question. The next question comes from the line of Joao Andrade of Bank of America. Joa, please go ahead.
Speaker 13
Yeah. Hey, actually, this is Rogério Araújo. Thanks a lot for the opportunity, Pedro, Jose, and Daniel. I have one question. Last time we saw margins close to where Copa is delivering was prior to 2015. If I'm not mistaken, Venezuela was doing great at the time, was actually pushing that margin upward significantly. On an apples-to-apple, apples basis, is there a reason to believe that Copa is actually much more profitable now than at that time? Let me put in other words, this question. Any reason to believe that Copa's structural margins is higher now than before? If so, where does it mostly come from in your view? Thank you very much.
Speaker 12
Yeah. Thank you, Rogério. As I mentioned before, we always, we're always working towards being a more competitive airline, and we never bank on strong revenues because we know there are cycles in our industry. What we bank on is having competitive costs and being more efficient and more productive. We are a much more efficient and productive airline than back then in 2013, 2014. The bigger changes, well, we have a lower, we have a lower CASM-ex, and so we're more efficient in that sense. We've worked hard to improve our CASM-ex. We have better unit cost, which allows us to be more profitable even with lower yields. Part of that is also having a more effective, efficient fleet.
We have a single fleet, mostly 737-800 and MAX 9, which have better, much better operating costs than back then. We've done a number of things. It will probably be a long list to be more, more efficient. For example, we do our own C checks in-house. We didn't do that back then. The distribution strategy is yielding results, and there's probably a, you know, there is a list of other initiatives.
Speaker 17
Yeah.
Speaker 12
We have densified the fleet somewhat, and there's more to come. Yes, we're much more competitive and have better unit costs, are more efficient that what we were back then in 2011, 2012, 2013 when we had a similar margin, maybe revenues were stronger.
Speaker 17
Okay. pretty clear. Congratulations for the very strong results and, you know, all these.
Speaker 12
Thank you.
Speaker 17
cost reduction and efficiency in the past years. Thank you.
Speaker 12
Thank you, Rogério.
Speaker 11
Thank you very much, Rogério.
Speaker 9
One moment for your next question. The next question comes from the line of Josh Milberg of Morgan Stanley. Josh, please go ahead.
Speaker 7
Hey, Pedro, Jose, good to talk to you guys, and big congrats on the results. I had a couple follow-ups, and please forgive any repetitiveness on my side. One is you touched on the issue of your, you know, what your competitors are doing in terms of bringing back capacity. I was just hoping you could comment a little further on that issue, you know, how much it's been impacted by aircraft delivery delays. Also, just on the Avianca side, if you've been seeing any impact from, you know, that airline shift in strategy with respect to network or in any other sense? That's the first question. The second question is if you could comment a little bit further on your fleet plan and what it could mean for capacity growth in 2024?
I know you said before that it's sort of early days to be getting into next year, but I know that you have the 737-800s that are scheduled to come off lease. I think your plan shows you holding on to those.
Speaker 12
Right.
Speaker 7
Any color there would be great.
Speaker 12
Yeah. Thank you, Josh. I'll talk on fleet plan second. Well, I'll talk fleet plan first because we have a published 20-
Speaker 17
Four.
Speaker 12
Twenty-twenty-four.
Speaker 17
Yeah, yeah.
Speaker 12
We're getting 12 aircraft this year, we've published that we're getting 8 MAX 8 next year. It would have been more before, if not for Boeing delays. As we know, Boeing, Airbus, everyone has delays. The delays are between 3 and 4 months, in some cases could be even longer for next year. We have published 8. We hope to get more. Hopefully, we can get more than 8 once we get the latest information from Boeing. We also have a number of leases that come due, we will renew. We will try to renew as many as we need to, it all depends on how many deliveries we get from Boeing. It's kind of like a dance, the dance of the assets, of the aircraft assets.
we need to balance the lease expirations with the Boeing deliveries, with the demand forecast. Right now it all looks good, actually. we're hopefully that we'll get more aircraft and that demand will remain strong as it is right now. I don't know if you want to add anything to fleet, Jose.
Speaker 17
No. Yeah, I think that's very complete. In terms of 2024, as Pedro mentioned, we have right now our plan is published in our investor relations website, including the eight aircraft that Pedro mentioned for 2024.
Speaker 12
Right. In terms of competitors, not sure there's much more to say. I don't like to give them like free advertising or anything like that. You ask about Avianca, we of course, compete quite a bit against Avianca. We have always competed with Avianca, even though we're also together in Star Alliance and we have code sharing and frequent flyer reciprocity. I would say it's a friendly and healthy competition. They're still growing their hub. They're also flying nonstop. They've changed their model, so they went through a Chapter 11, so they are a strong competitor, no doubt. Does it show? Is it noticeable? Of course it is. We're also growing and competing, so there's a balance.
There's some sort of a balance there. As they grow and compete, so do we. In terms of the rest, well, they're pretty much back to pre-pandemic capacity as we are. Is LATAM and others that were smaller back then are probably above those levels. We're in a dynamic market with strong demand, and I think it's what would be expected in any case.
Speaker 17
Thank you, Josh.
Speaker 7
Okay. Thank you very much. Those were great responses. Have a nice day.
Speaker 12
Thank you.
Speaker 11
You too.
Speaker 9
Please hold for the next question.
Speaker 11
The next question comes from the line of Duane Pfennigwerth of Evercore ISI. Duane, please go ahead.
Speaker 4
Hey, good morning. This is Jacob Gunning on for Duane. Just to put a finer point on previous questions about geographic demand strength, on a previous call, you talked about point of sale for U.S. versus local. Could you talk about just how that's trending now?
Speaker 12
I don't know, I don't think it's changed much. We see strength in most of our regions and markets. Maybe South America is not as strong, relative speaking, as it was before. South America is not as strong, but it's still positive. That could change from one quarter to the other. U.S. point of sale remains pretty strong, even though, even though the currency, the U.S. dollar, has lost a little bit of value, still has a lot of strength. The economy, as we know in the U.S., is still strong, even though efforts are being made to slow it down. It's resilient. There's still strength in U.S. point of sale. I don't think anything has changed that much from our previous call.
Speaker 4
Okay. On capacity, just given demand strength, and the capacity constraints, where or how much more would you wanna grow without these constraints?
Speaker 12
Our fleet plan, I think it's a good reflection of our growth plans. We're getting 12 MAX 9s this year. Next year we have published 8 MAX 8s we'll be getting, but as I mentioned, if we could get more because we were supposed to get more, but due to delays, we're not getting them all in 2024, the ones we were expecting to get originally.
Speaker 8
Yeah.
Speaker 12
If we can get a few more, we will be very happy, and we're waiting to hear from Boeing. Maybe that would happen. That gives you an idea of our growth, which is in the double digit-
Speaker 8
Yeah.
Speaker 12
-range. Go ahead.
Speaker 8
No, I was just gonna say, Jake, that I think a good way to look at it, and this is just theoretical of course, but look at the preliminary full year guidance that we issued back in November. It had a 15% growth and so that was, you could argue that our regional expectation of what we wanted. Yeah.
Speaker 4
Okay, that makes sense. Thank you, and have a nice day.
Speaker 8
Thank you, Jake.
Speaker 12
Thank you.
Speaker 11
Thank you. I would now like to turn the call back over to Pedro Heilbron. Pedro, please go ahead.
Speaker 12
Yes, thank you very much. Thank you all. This concludes our earnings call for the first quarter of 2023. I'll take also this opportunity to announce that we'll have our investor day, as I think Helen mentioned. It's gonna be on June 22nd in New York City. You should be getting the invitations and any other details in the next couple of days. Hope to see you then next month and have a great day. Thank you as always for your support.
Speaker 11
Ladies and gentlemen, thank you for your participation. That concludes the presentation. You may disconnect and have a wonderful day.