Copa Holdings - Q3 2023
November 16, 2023
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings third 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 need to press star one one on your touchtone phone. As a reminder, this call, this webcast is being recorded on November 16th, 2023. Now, I will turn the conference call over to Daniel Tapia, Director of Investor Relations. Sir, you may begin.
Daniel Tapia (Director of Investor Relations)
Thank you, Abby, and welcome everyone to our third quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings, and Jose Montero, our CFO. First, Pedro will start by going over our third 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, 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.
Pedro Heilbron (Chairman and CEO)
Thank you, Daniel. Good morning to all, and thanks for participating in our third 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. As you can see in our third quarter earnings release, once again, Copa reported strong financial results for the quarter. We were able to deliver industry-leading operating margins while continuing to grow our capacity by double digits year-over-year. The third quarter results were driven by a robust demand environment in the region and our focus on delivering low ex-fuel unit costs. Now, I'll summarize the main highlights for Q3.
Passenger traffic grew 13.3% compared to the same period in 2022, outpacing our capacity growth of 12.1%. As a result, load factor for the quarter increased 0.9 percentage points compared to Q3 2022 to 87.8%. Passenger yield came in at $0.134, resulting in unit revenues or RASM of $0.122. Unit cost decreased by 11.2% compared to Q3 2022, mainly driven by a lower jet fuel price per gallon and lower sales and distribution costs. Excluding fuel, unit cost or CASM ex came in at $0.058, a 2% decrease compared to Q3 2022. Our operating margin came in at 23.6%, 5.9 percentage points higher than in the third quarter of 2022.
On the operational front, Copa Airlines delivered an on-time performance of 89.4% and a completion factor of 99.8%. Once again, among the best in the world. With regards to our network, in the last two quarters, we have started service to Austin and Baltimore in the U.S. and Manta in Ecuador, and more recently, in October, we started flying to Barquisimeto in Venezuela. With these additions, we now serve 81 destinations in 32 countries in North, Central, South America, and the Caribbean. As we continue strengthening and solidifying our position as the most complete and convenient connecting hub in Latin America. With regards to our fleet, during the third quarter, we took delivery of two 737 MAX 9s, ending the quarter with a total of 103 aircraft. Turning now to Wingo.
In the third quarter, Wingo continued its network expansion with the start of 3 new routes: from Bogotá to Caracas, Venezuela, a Panama domestic flight from Panama City to David, and one seasonal route from Cali to Aruba. Additionally, in October, Wingo started service from Medellín to Cartagena and announced one additional domestic route in December from Medellín to Santa Marta. With these additions, Wingo expects to end the year operating 37 routes with service to 23 cities in 11 countries. Now, turning to our current expectations, we continue to see a robust demand environment in the region, and as you can see in our earnings release published yesterday, we expect strong financial results for full year 2023.
Preliminary, in 2024, we plan to continue growing our capacity in the low double-digit range and further reduce our unit cost. As always, José will provide more details regarding the 2023 and 2024 outlook. To summarize, we've delivered strong third quarter results while growing capacity 12% year-over-year. We continue to see a robust demand environment in the region. We achieved low ex-fuel unit costs during the quarter, and we continue to deliver on our cost execution strategy. We continue growing and strengthening our network, the most complete and convenient hub for travel in the Americas. As always, our team continues to deliver world-leading operational results. Lastly, we remain as confident as ever in our business model.
We continue to deliver low unit costs, high margins, and a great product for our passengers, including the best connecting network in Latin America, making us the best-positioned airline in our region to consistently deliver industry-leading results. Now I'll turn it over to José, who will go over our financial results in more detail.
José Montero (CFO)
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 third quarter results. We reported a net profit for the quarter of $187.4 million, or $4.72 per share. Excluding special items, our adjusted net profit came in at $174.4 million or $4.39 per share. Third quarter special items are comprised of a net gain of $12.2 million related to the company's convertible notes, which we retired during the quarter, and an $800,000 unrealized mark-to-market gain related to changes in the value of financial investments.
We reported a quarterly operating profit of $205 million and an operating margin of 23.6%. Capacity came in at 7.1 billion available seat miles, or 12.1% higher than in Q3 2022. Our load factor came in at 87.8% for the quarter, a 0.9 percentage point increase compared to the same period in 2022, while we achieved passenger yields of $0.134. As a result, unit revenues came in at $0.122. Mainly driven by lower jet fuel prices, unit costs, or CASM, decreased to $9.3, or 11.2% lower than our CASM in Q3 2022. Finally, we continue with our initiatives for maintaining our costs low.
For the quarter, our CASM, excluding fuel, came in at $0.058, a 2.1% decrease versus Q3 2022, mainly driven by lower sales and distribution costs due to the higher penetration of both direct sales and the lower-cost travel agency channels, which were launched by Copa Airlines in September 2022. I'm going to spend some time now discussing our balance sheet and liquidity. As of the end of the third quarter, we had assets of close to $5 billion. As to cash, short, and long-term investments, we ended the quarter with over $1.2 billion, which represents 34% of our last twelve months' revenues.
In terms of debt, we ended the quarter with $1.7 billion in debt and lease liabilities and came in with an adjusted net debt to EBITDA ratio of 0.4x. Our debt now is comprised solely of aircraft-related debt, and I'm pleased to report that our average cost of debt is currently in the range of 3.4%. As we've previously announced, in the month of September, we completed the redemption of the 4.5% convertible senior notes due in 2025.
To summarize the transaction, holders of $349 million aggregate principal amount converted their notes in accordance with the terms of the indenture, while holders of outstanding notes in the aggregate principal amount of $1 million redeemed at a price equal to 100% of the principal amount of each note called for your attention. This was paid in cash, plus accrued and unpaid interest. As a result, the transaction generated a total cash payment of $350 million, in addition to approximately 3.7 million shares. Turning now to our fleet. During the third quarter, we received two Boeing 737 MAX 9s, to end the quarter with a total of 103 aircraft. In November, we received two additional 737 MAX 9s to bring our total fleet to 105 aircraft.
With these additions, our total fleet is now comprised of 68 737-800s, 28 737 MAX 9s, and 9 737-700s. These figures include one 737-800 freighter and the 9 737-800s operated by Wingo. Two-thirds of our fleet continues to be comprised of owned aircraft, and one-third of our aircraft are under operating leases. During the remainder of 2023, we expect to receive 1 additional aircraft, a Boeing 737 MAX 9, to end the year with a total fleet of 106 aircraft. As for our 2024 fleet plan, preliminarily, next year, we expect to receive 15 737 MAX aircraft, including 3 737 MAX 9s and 12 737 MAX 8s. We've published an updated fleet plan of our...
In our investor relations website, and we have already secured local financing for 10 out of the 15 deliveries in 2024. Turning now to the return of value to our shareholders. In October, we finalized the execution of our existing share repurchase program, and as published in our earnings release yesterday, our board of directors approved a new share repurchase program of $200 million. Additionally, I'm pleased to announce that our board has ratified the fourth dividend payment of the year of $0.82 per share, to be paid on December 15th to all shareholders of record as of November 30th. As to our outlook, we can provide the following guidance update for full year 2023. We expect to increase our capacity in ASMs versus 2022 by approximately 13%, and we expect to deliver an operating margin within the range of 23%.
We're basing our outlook on the following assumptions: load factor of approximately 87%, unit revenues within the range of $0.124, CASMx fuel to be in the range of $0.06, and we're expecting an all-in fuel price of $3.02 per gallon. In anticipation of 2024, we are projecting a year-over-year capacity increase between 12%-14%. Additionally, we anticipate our CASMx fuel to be in the range of $0.059, aligning with our goal to achieve a CASMx fuel of $0.058 by 2025. This outlook reflects our continuous commitment to operational excellence. Thank you. And with that, we'll open the call for some questions.
Operator (participant)
Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for our first question. Our first question comes from Savi Syth with Raymond James. Your line is open.
Savi Syth (Managing Director and Senior Equity Analyst)
Hey, good morning. If I might ask on the revenue front, you know, you took kind of the outlook up here for 2023, and it doesn't seem like the competitive capacity you've seen any pullback since your last update, and I don't think your capacity has even kind of come down. Just curious, you know, what you're seeing in the market that's driving that strength, and just any color on if there's any kind of regional differences or, and how you see that continuing.
Pedro Heilbron (Chairman and CEO)
Hi, Savi. It is Pedro. Demand is staying strong in spite of the additional capacity that's coming in from ourselves and especially from other airlines. I don't think there's a specific reason for that. I mean, the currencies have stayed strong also in Latin America, so that doesn't hurt. And the US economy is doing well also. So I think all those factors are contributing for demand to remain robust in spite of the capacity.
José Montero (CFO)
I would say, Savi, only that in general terms, and this applies throughout the network in all the different regions that we're at, it's in general, still very robust.
Savi Syth (Managing Director and Senior Equity Analyst)
That's helpful. And if I might ask, you know, after the convert is done and the share buybacks that you've done so far, where does the share count stand today?
Pedro Heilbron (Chairman and CEO)
We're at 42 million shares, around 42 million shares right now, Savi. Yeah.
Savi Syth (Managing Director and Senior Equity Analyst)
Okay, perfect. All right. Thank you.
Operator (participant)
One moment for our next question. Our next question comes from Duane Pfennigwerth, with Evercore ISI. Your line is open.
Jake Gunning (Senior Equity Research Associate)
Hey, good morning. This is Jake Gunning on for Duane. First question, on non-op, is that the new run rate for non-op, or were there any one-time benefits this quarter? And then could you just remind us what the actual interest expense through the PNL was, given that it was different from what the coupon rate would indicate from the convert?
José Montero (CFO)
Yeah, Jake, I would summarize that, taking aside the effect of the convert that we retired, and going forward, I would say that our finance cost line would probably go down by approximately $10 million per quarter. So I would say that's the way to model it. The remainder of the non-op lines, in general terms, are in line with just simply the debt levels that we have and the average cost of debt that I mentioned, that is about 3.4% right now, and the yields that we have in terms of our investments. I would say that's the big change going forward, I would say, is a reduction in the finance cost line, not associated with the coupon, but rather associated with the way that the accounting for the convert worked.
It was like a non-cash item that passed through the P&L, and it was around $10 million per quarter.
Jake Gunning (Senior Equity Research Associate)
Right. That makes sense. And then just to go a little bit deeper into 2024 capacity growth, could you just break out the components and the pacing of that? You know, seats, stage length, gauge, et cetera.
José Montero (CFO)
I would say, Jake, that the majority of the growth for next year is gonna be frequencies. The way that we have it broken down is about, call it about 70% of the capacity growth is gonna be in additional frequencies in the markets that we operate already. Then about, let's say, about 20%-25% is gonna be around full year effect of growth that we performed throughout 2023, that sort of lapse the year. And then the remainder is call it a new service that we're starting in 2024. That's kind of how we're placing it. So the vast majority of it is just frequencies into markets that we're already present in.
Jake Gunning (Senior Equity Research Associate)
Would the pacing of that be steady or?
José Montero (CFO)
In general terms, throughout the year, you say the cadence, you know, a little bit of, yeah, I would say it's in general terms, steady. I don't think there is a particular bumps, throughout the year, given the majority of it is, or a portion of it is full year effect. Yeah.
Pedro Heilbron (Chairman and CEO)
Yeah, and our aircraft deliveries, in any case, are spread throughout the year.
José Montero (CFO)
Yeah.
Pedro Heilbron (Chairman and CEO)
That's another reason.
Jake Gunning (Senior Equity Research Associate)
Okay. Thank you very much.
Pedro Heilbron (Chairman and CEO)
Thanks.
Operator (participant)
One moment for our next question. Our next question comes from Guilherme Mendes with JPMorgan. Your line is open.
Guilherme Mendes (Executive Director of Equity Research)
Good morning, Pedro, José, Daniel. Thanks for taking my question. Two questions as well. The first one is on the fleet plan. You guys mentioned about 15 deliveries next year on the MAXs. If you see any kind of bottlenecks come from Boeing or any risk on this 15 aircraft deliveries. I understand that you mentioned that 10% are already secure in terms of financing. So if there's any kind of risk for the additional five?
José Montero (CFO)
Yeah.
Guilherme Mendes (Executive Director of Equity Research)
And the second question... So sorry, go ahead.
José Montero (CFO)
No, no, go ahead. Go ahead with the second question, and we'll answer them. Yeah.
Guilherme Mendes (Executive Director of Equity Research)
Thanks. So the second question is regarding to the CASM ex view guidance for next year. Pretty impressed to see lower CASM ex view, and maybe if you comment on what are the main initiatives, thinking that if there's any kind of labor pressure or any other initiatives to sustain this higher efficiency. Thank you.
Pedro Heilbron (Chairman and CEO)
Yeah, Guilherme. So a few things. In terms of the aircraft deliveries, 11 of the 15 deliveries scheduled for next year are already financed with JOLCOs. So that's pretty much set. And in terms of delivery dates, this is the latest we have from Boeing. Some aircraft passed from 2023 to 2024. At least one aircraft passes from 2023 to 2024. That's why the number increased to 15. So the best information we have right now, and again, most of the financing is already in place.
José Montero (CFO)
Yeah, but there are... I mean, it's still uncertain, and, you know, Boeing and all aircraft manufacturers are facing supply chain issues, so we have our conversation going with them. But I... You know, for now, in terms of our guidance, we have to start by saying that it's a preliminary guidance that we issue for a year. We'll issue our formal guidance in February, but in general terms, it's in line with our expectations in terms of aircraft deliveries for 2024. And in terms of CASM for next year, I would say that the main areas of opportunities, first of all, is our continued work in our distribution. Our team has been doing a great job there with the Copa Connect project and our new distribution strategy.
Two, we are continuing with our fleet densification of our 737-800 fleet on the Copa Airlines side, so that will provide some CASM benefits. Third, you know, we continue working with our, you know, efficiencies in terms of overhead and some of the growth that the efficiencies that we get with the growth that we have for next year. And finally, you know what? We're on track to resolve the teething issues that we've had with the LEAP. So that, I think that's another one that you have to consider over the next several months as well.
Guilherme Mendes (Executive Director of Equity Research)
Okay, super clear. Thank you both.
Pedro Heilbron (Chairman and CEO)
Thank you.
Operator (participant)
One moment for our next question. Our next question comes from Michael Linenberg with Deutsche Bank. Your line is open.
Michael Linenberg (Managing Director and Senior Airline Analyst)
Hey, good morning, everyone. José, I want to go back to just on next year's 12%-14% frequency. It sounds like 5%-10% of the ASMs are going to be new service. Maybe more specifically, what is the plan with number of new dots on the map or number of new cities? You know, is this two or three or four cities? Is it going to be like what we saw this year, where you added, you know, I think it was what? You know, four new cities, maybe five new cities.
Pedro Heilbron (Chairman and CEO)
Yeah. Hi, Michael. I'll answer that one. So maybe we'll have-
Michael Linenberg (Managing Director and Senior Airline Analyst)
Okay.
Pedro Heilbron (Chairman and CEO)
- a little bit more... Maybe we'll have a little bit more information in February, and we'll make a few announcements. But right now, there's not much we can share. We're working on many possibilities.
Michael Linenberg (Managing Director and Senior Airline Analyst)
Mm-hmm.
Pedro Heilbron (Chairman and CEO)
It should be more than a few, but we don't want to give a target because we don't really know. It's kind of early, and we're still planning. We usually start new cities mid-year and at the end of the year, so we still have some months to go.
Michael Linenberg (Managing Director and Senior Airline Analyst)
Mm-hmm. Very good. Just, my second question, you know, Wingo is nine airplanes now, you know, more, more frequency or more routes, as we move through this year. Is the plan to keep Wingo at nine airplanes in 2024?
Pedro Heilbron (Chairman and CEO)
That is the plan. That's the plan as of right now, given the dynamics of the Colombian market and yes. So yeah, that's the plan right now.
Michael Linenberg (Managing Director and Senior Airline Analyst)
Okay.
Pedro Heilbron (Chairman and CEO)
Mm-hmm.
Michael Linenberg (Managing Director and Senior Airline Analyst)
Okay, great. And then just, my last question, you know, when I think about, you know, you have a significant cost of capital advantage in when I think about some of the other big debt deals that we've seen some of your competitors launch over the last 12-18 months. And so that 3%-3.4% cost of debt, that's low. As we think about the, you know, the, you know, the 10 or 11 airplanes that have already been, financed with JOLCOs?... How does that change that 3.4%? How should we think about your average financing-
José Montero (CFO)
Sure.
Michael Linenberg (Managing Director and Senior Airline Analyst)
-over your 20 quarter? Thanks, for taking my question.
José Montero (CFO)
Yeah, I'll give you a data point, Mike, and, you know, you could argue that the, you know, an incremental aircraft right now is in the range of around 5.5%.
Michael Linenberg (Managing Director and Senior Airline Analyst)
Mm-hmm.
José Montero (CFO)
So, or a little higher. But we. You know, by the way, we have 80% of our fleet is financed on their fixed rate, so the changes in interest rates have not affected us significantly. But given the current environment, our last set of aircraft would be on a variable rate, so we'll enjoy the benefit of if and when rates come down. But it's around in the 5% range, around 5.5%. Still very good.
Michael Linenberg (Managing Director and Senior Airline Analyst)
Still very good. Yeah, still very, very good. So, thanks. Thanks, everyone. Good quarter. Great quarter.
Pedro Heilbron (Chairman and CEO)
Thank you, Mike.
Operator (participant)
One moment for our next question. Our next question comes from Rogério Araújo with Bank of America. Your line is open.
Rogério Araújo (Director and Senior Analyst)
Hi, guys. Congratulations on the results, and thanks for taking the questions. I had two, one on RASM. I know you didn't provide any guidance for 2024, but can you give us, you know, what you see in the booking curve for next year? Can you give us an expected direction? Is it coming down versus 2023 because of extra capacity coming in, or it's still unknown at this moment?
José Montero (CFO)
Sure.
Rogério Araújo (Director and Senior Analyst)
The second question is regarding a mismatch between jet fuel price and oil in 3Q. It didn't happen only for Copa, but all the peers in the region. What is driving that? Is it sustainable going forward? Thank you.
José Montero (CFO)
Mm-hmm.
Pedro Heilbron (Chairman and CEO)
Okay, so I'll start with the first one, and yeah, we're not giving RASM guidance for 2024. Still early, and our visibility is always, like, three months or two months into the future. So what we're seeing so far, which would be early 2024, is that the revenue strength, staying robust, is following the same trend we've seen in Q3 and Q4. So even with the capacity that you mentioned, revenues are staying strong, so far.
José Montero (CFO)
Yeah, in terms of fuel, mismatch between jet and crude, it's, yeah, the crack of jet fuel spiked during the quarter, and it's in the range. It's a little bit over $40 right now per barrel, so it's at a historically, not historically high, but it is at a higher level than what it was on a regular basis. But you know what? We've learned to manage our fuel expense, and in terms of recapping or recouping some of this incremental expense in our unit revenues, and we've done that in the fourth quarter with our revised guidance. So it's, I think in the end, it's something that we know how to do.
Rogério Araújo (Director and Senior Analyst)
Sounds great. One follow-up on that last one. Is the fuel guidance, it includes the current curve?
José Montero (CFO)
Yes, yes, absolutely. It's a current jet curve as of, like, two days ago. Yeah, so we're there, and it's all in, it's our average fuel price all in. So it's $0.06 above the last guidance that we provided back in August.
Rogério Araújo (Director and Senior Analyst)
Sounds great. Thank you so much.
José Montero (CFO)
Mm-hmm.
Pedro Heilbron (Chairman and CEO)
Thank you.
Operator (participant)
One moment for our next question. Our next question comes from Stephen Trent with Citi. Your line is open.
Stephen Trent (Managing Director and Senior Equity Research Analyst)
Good morning, gentlemen, and thanks very much for taking the time. I definitely appreciate the color on 2024. As you think about that build-out, are you content with maintaining those 6 daily flight banks at Tocumen, or, you know, do you think you could make some possible adjustment to that with the 2024 growth?
Pedro Heilbron (Chairman and CEO)
Yeah, not in 2024. I mean, we could make adjustments in the future, but that's not the plan in 2024. We think we can still strengthen our six-bank structure. There are opportunities, there are gaps that we can fill and further strengthen our whole network. So that's the plan for now.
Stephen Trent (Managing Director and Senior Equity Research Analyst)
Perfect, Pedro. Appreciate that. As my follow-up, you know, looking at this, you know, a very good ex-fuel CASM color for 2024, you know, to what degree do you think some of that might be coming from, tilt towards more direct channel sales, for example?
José Montero (CFO)
Sure. No, absolutely. That's a big portion of our strategy, for you know, having our multiyear CASM target, you know, clearly sub-6. It's been, driven in large part, through our Copa Connect strategy, and it's been working out great, over the last, several months. So that's certainly a big portion of our continued trek towards, you know, $0.059 in 2024 and $0.058 in 2025.
Pedro Heilbron (Chairman and CEO)
Right. And also, Stephen, it's holding overhead, holding fixed costs tight, so we benefit from the growth in ASM. That's another way we're achieving our numbers.
José Montero (CFO)
Yeah, and look, we're talking about CASM. There's always headwinds of items that we might not control. You know, there might be, you know, whatever, airspace charge increases in different countries, et cetera, and that's the sort of thing, or inflationary pressures because of ARB, our suppliers. But we try to counter those with our own internal efficiencies and with projects such as Copa Connect or densification, et cetera. So we always have our guard up in terms of keeping our costs as low as they can be.
Stephen Trent (Managing Director and Senior Equity Research Analyst)
Okay, that's very, very helpful. Thanks very much, gents, and see you in a few weeks.
Pedro Heilbron (Chairman and CEO)
Thank you.
Operator (participant)
One moment for our next question. Our next question comes from Daniel McKenzie with Seaport Global. Your line is open.
Daniel McKenzie (Senior Analyst)
Oh, hey, good morning, guys. You know, I guess following up on that last question, going back to Copa Connect and the lower distribution costs, I wonder if you can just help us put some numbers around what that means exactly. You know, so what you're seeing on cost savings and, you know, specifically from this initiative, and how the change in the distribution strategy is, is helping you to drive more revenue. So, you know, maybe just related to that, you know, what % of the passengers coming to copa.com are actually purchasing a ticket with a- with an upsell feature, for example?
Pedro Heilbron (Chairman and CEO)
Okay, so let, let me start with a few general comments, and then I'll give Jose some time to see how much of the info you're asking we can gather, and gather quickly. But first thing I would say is that, that, as Jose mentioned, our direct distribution strategy, which we call Copa Connect, has been very successful. And, and to date, we are already over 70% direct sales, including the NDC channel for the agencies. So when we add our website, our other direct channels, and the agencies that connect through our NDC channel, we're over 70%. It used to be the other way around, a year-over a year ago when, when we first started. So, so that in itself is, is a significant change, and, and it surpassed our projections for this year.
Then by going direct, via—be it through the NDC channel or our website, we're able to offer more options to our passengers. We're able to work on the upsell, and a significant percent of the passengers that buy in the website and NDC for sure are upselling. I don't think we have with us right now the exact percentage, but it's important. And it's a valid question because, of course, our lower fares come with additional ancillaries, like seats and bags, but then upselling is also a very important revenue stream for us.
José Montero (CFO)
Yeah. Dan, I would say that in terms of cost, the channel shifting and, you know, the Copa Connect strategy, you could argue, is call it $0.001 of CASM has provided for us, for this year. And, and in terms of, you know, the value of ancillaries, you know, we've been... I don't know, we've, we've probably quadrupled, you know, the, the value of ancillaries since back in 2018. So it's in terms of revenue. So there is, of course, within that upsell of, of product, of folks that are buying, tickets through our channel. So yeah, it's, it's actually grown quite a bit, over the last... Since back in 2019, call it four times the, the, the level of where we were.
That's information that we shared back in our Investor Day, a couple of months ago. Yeah.
Daniel McKenzie (Senior Analyst)
Yeah, very good. And then, you know, second question here, you know, historically, Copa has targeted 18%-20% operating margins, and, you know, in light of this year's results, you know, I guess my next question is, is how investors should really think about steady-state margins? And, you know, are the initiatives in place today, you know, enough to help you, you know, punch above what you've done historically?
Pedro Heilbron (Chairman and CEO)
Well, now, now you're asking for 2024 guidance. In an indirect way. So, so, I think we have to wait until February for that.
José Montero (CFO)
Yeah.
Pedro Heilbron (Chairman and CEO)
But we have the wind on our back right now, and what that means for steady state in the future, it's gonna depend on how external factors change: fuel, capacity from competitors, et cetera, et cetera.
José Montero (CFO)
But we are really pleased with our operating margin guidance of 23% for the full year 2023. It's a pretty good result. I think it's certainly been a very, very good year so far. Yep.
Daniel McKenzie (Senior Analyst)
Hmm. Yeah, very good. It's an impressive year. Thanks so much, you guys.
Pedro Heilbron (Chairman and CEO)
Thank you, Dan.
Operator (participant)
One moment for our next question. Our next question comes from Bruno Amorim with Goldman Sachs. Your line is open.
Bruno Amorim (Research Analyst)
Thank you. Thank you for taking my question. I have a follow-up on this question on margins. I'm not asking for 2024 guidance, but just wanted to hear from you, you know, what were, in your view, the big changes that could eventually have led to those higher margins, so we can understand to what extent they are sustainable? I understand there are some cost efficiencies. Actual CASM is performing well with pre-pandemic levels. But if you look on a total CASM perspective, it is still higher versus 2019, right? Because jet fuel is much higher. So maybe the answer comes from the revenue side. And then on the revenue side, maybe one could argue there is less competition now, post-pandemic.
You know, is that the main change, or, or is there anything else that you believe could justify much higher unit revenues on a sustainable basis? Thank you very much.
Pedro Heilbron (Chairman and CEO)
So, Bruno, I'll say three things, three general concepts that are important coming out of the pandemic, and they all play in different directions. So the number one surprise out of the pandemic was that demand came back a lot quicker than what anyone expected, and it has remained strong overall in our region, in the Americas, and it is still robust to this day. So of course, demand has been a positive change. The other, I would say, surprise coming out of the pandemic, which works in a different direction, in the opposite direction, is how much growth there has been in aviation in our region. How much growth by the airline industry in general that also surprised us coming out.
So capacity came back quicker than what we would have expected, and it's actually above pre-pandemic levels. And then the third concept I wanna share, which is more Copa-specific, is that we worked really hard during the pandemic. Even while we were shut down for almost five months, we never stopped working on two things, and one was working on our costs, on the cost side, on doing all the investments and changes that were gonna make us more efficient going forward, including Copa Connect and a lot of technological enhancements. And same thing for revenues, which in a way, some are related to Copa Connect, others are not. So we've worked very hard in our revenue-related technology on the revenue team, and we are a much more efficient, competitive airline from the revenue side and from the cost side.
I would say those are three, three general concepts that have a lot to do with where we are today.
Bruno Amorim (Research Analyst)
Thank you. In terms of the competitive dynamics, you know, what, what can you comment?
Pedro Heilbron (Chairman and CEO)
Well, competitive is dynamic, it's growing, it's strong. It's now mostly LCCs or ULCCs in our region. Most of our competitors are ULCCs or LCCs, either because they were born that way or they converted to that model. So that in a way has made us become a lot more efficient, and that's a vision we had from before. So, we were not surprised. We were preparing for this from way back. And we're meeting the challenge. We have the tools, we have a strong network—the hub—we have the hub, we have the cost, and we're still working on additional efficiency. And we think there's room for all. I mean, we don't...
Our success is not dependent on the failure of others, especially if the market continues on a healthy pace. But we worry about ourselves, and we're just making Copa a better, more competitive airline. But yes, competition has grown, and right now, many of our competitors are growing actually at a faster rate than we are.
Bruno Amorim (Research Analyst)
Thank you. Have a good day.
Pedro Heilbron (Chairman and CEO)
Thank you, Bruno. Thank you, Bruno.
Operator (participant)
One moment for our next question. Our last question comes from Savi Syth with Raymond James. Your line is open.
Savi Syth (Managing Director and Senior Equity Analyst)
Hey, thanks for the follow-up. If I might, just curious if you can hone in on business demand. It seems like there's a slight pickup in other regions, and wondering if you're seeing that. And particularly in Panama, I'm wondering if the drought is having any impact or if the economy is still pretty strong.
Pedro Heilbron (Chairman and CEO)
Yeah. So, business demand has not changed much from the previous two quarters. It used to be above 30%. It's now in the 25% range, but it has been replaced by, I would say, I mean, by leisure, but also by-
Savi Syth (Managing Director and Senior Equity Analyst)
Leisure
Pedro Heilbron (Chairman and CEO)
... by the higher segment of leisure travelers, because we're doing better in business class revenues than what we were doing pre-pandemic and with less business demand. So in a way, it has been replaced. We're not missing it, even though, you know, we're happy to see it grow, and hopefully will grow at a faster pace in the future. The Panama Canal, of course, has been affected by the El Niño drought in the region, and it has restricted the transit of ships. But it's not having, I would say, a significant impact on the economy of Panama. The economy is still expected to be one of the fastest growing economies in Latin America, and in spite of the adjustments the Panama Canal needs to make because of El Niño.
But again, it's not having a drastic impact on our economy, and it's still a small, small percent of the revenues that are being affected. In a way-
Savi Syth (Managing Director and Senior Equity Analyst)
That's helpful.
Pedro Heilbron (Chairman and CEO)
The buzz in the news is probably exaggerating the problem.
Savi Syth (Managing Director and Senior Equity Analyst)
Makes sense. Thank you.
Pedro Heilbron (Chairman and CEO)
Thank you, Savvy.
José Montero (CFO)
Thank you, Savvy.
Operator (participant)
Thank you. That concludes the question and answer session. At this time, I would like to turn the call back to Pedro Heilbron for closing remarks.
Pedro Heilbron (Chairman and CEO)
Thank you. Thank you, operator. Thank you to all. This concludes our earnings call. As always, thank you for participating, and special thanks for your continued support to Copa Holdings. Hope you have a great day.
Operator (participant)
Ladies and gentlemen, thank you for your participation. That concludes the presentation. You may now disconnect and have a wonderful day.