Copa Holdings - Earnings Call - Q4 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to Coba Holdings Fourth Quarter Earnings Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, this call is being webcast and recorded on 02/11/2020. I will now turn the conference call over to Raul Pasquale, Director of Investor Relations.

Sir, you may begin.

Speaker 1

Thank you, Celine, and welcome everyone to our fourth quarter earnings call. Joining us today are Pedro Hebron, CEO of Copa Holdings and Jose Montero, our CFO. First, Pedro will start by going over the actions the company has taken to mitigate the impact of the COVID-nineteen pandemic, followed by Jose, who will discuss our fourth quarter and full year financial results. Immediately after, we will open up 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, coba.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 Hebron.

Speaker 2

Thank you, Raul. Good morning to all, and thanks for participating in our fourth quarter and full year earnings call. I hope that all of you and your families are doing well and staying safe. Before we begin, I'd like to thank all our coworkers for their commitment to the company and recognize their continuous efforts and many sacrifices during these difficult times. To them, as always, my utmost respect and admirations.

It goes without saying that 2020 was the most challenging year the industry has ever faced. And while we all hope 2021 will be better, we know it's going to be a long and twisting road to recovery. During the year, we undertook several actions to strengthen the company and mitigate the impact from the COVID-nineteen pandemic, including tapping into new liquidity sources, raising more than $650,000,000 via a convertible bond issuance and several secured and unsecured committed credit facilities. Recognizing the severity of this crisis early on and aggressively canceling or deferring all capital expenditures that were deemed nonessential and immediately began a series of cost reduction initiatives, including contract renegotiations with suppliers and a thorough evaluation of our entire cost structure adjusting the company's size to better match future capacity over the next few years while retaining the flexibility to accelerate or slow down our capacity redeployment plans if needed. Simplifying our fleet by retiring 14 Embraer 190s and fourteen seven thirty seven-700s, which will eventually lead to significant improvements in unit costs implementing robust biosafety protocols and a simplified onboard product offering to ensure the safety of our passengers and crew members providing flexibility to our customers by waiving change penalties and offering credits for future travel, which led to most passengers keeping their ticket despite the prolonged stoppage of our operations.

And to this day, we continue implementing new initiatives to mitigate the impact from the pandemic, strengthen the company and facilitate a safe and efficient travel experience for our passengers. For instance, earlier this month, IATA announced a coordinated effort with the government of Panama and Copa to trial the new Ayara Travel Pass, a mobile app to help passengers securely manage their travels in compliance with the COVID testing and or vaccine requirements of their destinations. Panama is the first country to agree to participate in the trial, and Copa is the first airline to do so in The Americas. We believe initiatives like this one are essential to the recovery of international air travel. Turning now to our fourth quarter results.

As per the plan communicated in our last earnings call, after virtually no operations in more than five months, we successfully restarted the hub in the fourth quarter, increasing capacity to 15% in October, 28% in November, and 39% in December, as compared to the same month in 2019, and ended the year having restarted service to 51 destinations. A combination of pent up demand and holiday season VFR travel resulted in a healthy 75% load factor for the quarter. We were encouraged by the demand patterns we saw and we're hopeful for these trends to continue into the 2021. As you've heard from other industry reports, this is not the case. COVID cases started spiking throughout the world during December, and new more aggressive COVID variants have led to additional international travel restrictions and a deteriorating demand environment.

As a matter of fact, yesterday, we released our January 2021 traffic figures, reporting load factors of 63% compared to 75% reported for December 2020. Jose will provide our current outlook for the first quarter, which includes a revised capacity plan, our latest revenue assumptions and an update in the cash consumption figures. Finally, I'd like to reiterate that we have a proven and very strong business model, which is based on operating the best and most convenient network for intra Latin America travel from our hub of The Americas, leveraging Panama's advantageous geographic position with the region's lowest unit cost for a full service carrier, best on time performance and strongest balance sheet. Going forward, the company expects that its help of The Americas will be an even more valuable source of strategic advantage. It's likely that fewer intra Latin America markets will be able to sustain direct point to point service.

So we believe the help of The Americas will be the best positioned to serve this market. Now I'll turn it over to Jose, who will go over our financial results in more detail.

Speaker 3

Thank you, Pedro. Good morning, everyone. I hope that you and your families are safe and doing well. Thanks for being with us today. I'd like to join Pedro in acknowledging our great COPA team for all their efforts and great spirit during these very challenging times.

I'll start by going over our full year results. And until the March, capacity for the full year came in more than 7% below 2019. We reported a net loss of $598,600,000 for 2020 or $14.8 per share. Adjusting for special items, we would have reported a net loss of $259,500,000 or $6.11 per share. Special items for the full year include a $191,200,000 impairment charge on the seven thirty seven seven hundred fleet and a realized mark to market loss of $98,700,000 related to the company's convertible notes and a $49,100,000 loss in the sale of the Embraer 190 asset.

On an operating basis, we reported a full year loss of $460,900,000 $220,600,000 when adjusting for special items. Turning now to the fourth quarter. Our capacity came in at 1,700,000,000 available seat miles, which amounts to about 27% of the capacity operated during the 2019. We reported a net loss of $168,800,000 or $3.97 per share. Excluding special items, we have reported a net loss of $85,200,000 or $2 per share.

Special items for the quarter are comprised mainly by unrealized mark to market loss of $80,100,000 related to the company's convertible notes and a $4,400,000 impairment charge of the $7.30 seven-seven 100 fleet. In terms of operating results, we reported a $95,100,000 loss for the quarter or $91,500,000 when excluding special items. Our cash consumption for the fourth quarter came in better than expected at an average of $6,000,000 per month, in part benefiting from the positive effect of the ramp up in sales as a result of reestablishing operations and the settlement of a lower level of payables from variable expenses, given the small operational base in the third quarter. Our expenses for the quarter reflect some of the savings initiatives we implemented in Toronto IT training. However, a set of our expenses from the quarter will show up as part of our Q1 twenty twenty one cash outflows, given the ramp up in capacity during the latter part of the fourth quarter.

I'm going to spend some time now discussing our balance sheet and liquidity. As of the end of the fourth quarter, our cash, short and long term investments ended at $1,000,000,000 We also ended the year with an aggregate amount of $3.00 $5,000,000 in our utilized committed credit facilities, which added to our cash equated to more than $1,300,000,000 of total available liquidity. We expect to continue working on strengthening our liquidity during 2021. In fact, since the beginning of the year, we have added new credit commitments in the amount of $40,000,000 bringing our total undrawn committed credit facility to $345,000,000 As to our debt, we ended the year with $1,400,000,000 of debt and lease liability. Turning now to our fleet.

According to a fleet plan we laid out in the last earnings call during the fourth quarter, we finalized sale of delivery of five Embraer one ninety. And as of today, we seven out of the 14 aircraft we agreed to sell to the third party. Expect to have delivered the entire e one ninety fleet by June 2021. Pleased to report, we restarted the operations of our MAX fleet in December and also took delivery of one new MAX nine during the month. The seven three seven MAX nine builds a very unique service and performance unit in our network.

Ended the year with 75 aircraft, sixty eight seven thirty seven eight hundreds and seven MAX nine. Including these figures are seventeen seven thirty seven eight hundreds, which will remain in temporary storage until demand trends call for additional lift capacity. During the fourth quarter, we also renegotiated a subset of our aircraft leases, firing during 2021 under the Power by Hour agreement. As of now, during 2021, we expect to return one Lee seven thirty seven-eight hundred to its owner. So far in twenty twenty first Please to inform that we have received a final commitment from the Export Import Bank of the United States.

We're guaranteed $327,900,000 to finance these seven limits. It's important to highlight that these seven MAX 9s were already manufactured. We're taking delivery of them as part of our revised delivery agreement. I can also report that during the first quarter, we signed a compensation agreement with Boeing related to the MAX fleet ground. Turning now to our expectations for 2021.

As Pedro mentioned, we are still in a very uncertain and unpredictable demand and operating environment. As such, we will not be providing full year guidance. However, based on preliminary January results, the industry wide slowdown of international demand that we are experiencing can provide the following outlook for the 2021 compared to the 2019. We expect capacity to be 40% of q one twenty nineteen levels at about $2600000000.0.08, and revenues to be in the range of 25% to 30% of q one twenty nineteen levels at about $132,000,000 Given these operating conditions, we expect our cash consumption for the first quarter to be in the range of 40,000,000 to $45,000,000 per month. This cash consumption is a result mainly of lower sales expectations for the quarter as well as the cost impact of our expanded operations and the working capital changes I mentioned earlier related to the ramp up of capacity that we executed during the 2020.

Given the recent demand trends, we will undoubtedly perform some adjustments in capacity for the second quarter, possibly the remainder of the year. Despite the projected increase in cash consumption, we expect to improve the company's liquidity position during the first quarter. The result of the new credit facilities I mentioned as well as cash inflows, pre delivery payment reimbursements and funds from financing related to aircraft delivery, proceeds from aircraft sales and other items. Let me close by stating that once this most challenging situation passes, we believe Copas Health of the Americas will remain the best connecting point for travel in the region with a privileged location and even more efficient business model with lower cost and the best team in the industry. Thank you.

And with that, we'll open the call to some questions.

Speaker 0

We have our first question coming from the line of Hunter Keay with Wolfe Research. Your line is open.

Speaker 3

Pedro,

Speaker 4

can you give us an update on the current state of travel restrictions in Panama? What changed recently? And what's your expectation for the outlook

Speaker 2

Okay. Thank you, Hunter. Panama has not changed for more than a few months now. Panama is requiring either a negative PCR or antigen test within forty eight hours of travel, or travelers can have the test done or they can take the test at the airport upon arrival. So traveling to Panama is not really a problem right now.

Speaker 3

And to complement that, after connecting through Panama, there's no testing required.

Speaker 4

Okay. Good. Thanks, Jose. I'm having a little bit trouble hearing you, Jose. I missed a lot of your prepared remarks.

So if you could you sound kind of distant. Can you tell us if you said anything, I'm sorry if I missed it, on your delivery schedule, what you're expecting from Boeing this year, and possibly what you currently have planned for next year given the the settlement was reached?

Speaker 3

Yeah. Sorry, Hunter. And we're trying to do some social distancing here with the with different types of flights. So that's that's the reason. For this year, we, in in our current fleet plan, have a delivery of eight airplanes, eight MAXs throughout 2021.

And when you add to that the airplane that we received in December, that that's a total of nine, MAXs to be delivered between December 2020 and full year 2021.

Speaker 5

Okay.

Speaker 3

So and for 2022, we also published a revised fleet plan that has five MAXs arriving in 2022.

Speaker 6

Okay. Thanks, everybody.

Speaker 2

Mhmm.

Speaker 0

We have our next question coming from the line of Helene Becker with Cowen. Your line is open.

Speaker 7

Thanks very much operator. Hi gentlemen. Thanks for the time. I just have two questions. One is on the MAX, when have you had any comments from your customers about acceptance of that aircraft?

Has there been any pushback or have you heard anything about that?

Speaker 2

Hi, Helene. No, no negative comments. No passengers refusing to fly the airplane. It's been like just any other aircraft in our fleet. No issues what whatsoever.

Even in the few occasions where we've had technical delays, no no issues different than a normal flight with a normal 800 MG, which is, of course, good news.

Speaker 7

Okay. That's very helpful. Thank you. And then in terms of financing those aircraft today, on the the eight that are coming this year and the five next year, have they already been prefinanced? Like, Hunter, I couldn't hear you well.

Is is that what you were talking about on the ex I'm financing?

Speaker 3

Yeah. Sorry, Elaine. And, again, I apologize to all those on the call. The I was working off a separate mic. And so hopefully, the Q and A session is gonna be a little bit clearer.

The Ex I'm financing that we have received is for the first seven airplanes. We so all airplanes that are gonna be delivered during the 2021 have already been settled. The airplanes coming in, in the latter part of the year, the remaining aircraft that are coming this year are going be in the latter part of 2021. And those there's preliminary commitments as well for those, but those are probably gonna be completed or finalized during the middle part of this year.

Speaker 7

Okay. Thank you. Thanks very much.

Speaker 2

Thanks, Susan.

Speaker 0

We have our next question coming from the line of Diego Daxiola with Credit Suisse. Your line is open.

Speaker 3

Hi, good morning and thank you for taking my questions. So my first one is on the 4Q 'twenty cash burn rate. Why was it so low compared to 3Q 'twenty? And then again,

Speaker 8

why do you expect the 2020 to be even higher than the 2020?

Speaker 3

Yes. Diego, this is Jose here. There's a couple of points there. Number one, in the fourth quarter, there was a very important ramp up in sales. So the biggest driver of the performance that we saw in the cash burn for the fourth quarter was the ramp up in sales, actually moving ahead of the variable cash outflows that we had during the quarter.

So that's the biggest driver of the improvement in the fourth quarter is specifically sales. There's a portion of the expenses that were accrued during the fourth quarter that from a cash point are being settled in the first quarter. And so that's also a portion of the 40,000,000 to $45,000,000 estimate that we put for the first quarter is carrying portion of those cash outflows that very unique to the fourth quarter because of the fast ramp up and capacity that we had. That's about I want to say, of the 40,000,000 to $45,000,000 about $10,000,000 are related to Q4 activities. And so therefore, when you kind of equate everything q four or 2021, correct it for sort of working capital difference, it ends up being in the mid thirties, 30 to $35,000,000 range.

But again, we're providing the guidance with the sort of burn movement that we'll see during the first quarter. And then the other component of Q1 is that there has been which is more significantly, there has been a slowdown in the sales of that we've seen starting in the December and into the month of January of this year. So we're seeing that as well, and that's also what explains the difference in the cash consumption estimate that we're providing for Q1 versus 2020.

Speaker 8

Okay. Thank you. Yes, that's very helpful. If I if I may, just

Speaker 3

a quick follow-up. Talking about

Speaker 8

the maintenance expense, how can we think about it in the coming quarters? Did did 04/02/2020 was impacted by some sort

Speaker 3

of a onetime with the aircraft coming out of long term storage? Or

Speaker 8

is this a more stabilized level? Or how can we think about it?

Speaker 3

Yeah. There there was some onetime expenses in the fourth quarter related to to taking the airplanes out of storage. But so there's a portion of it that shows up in our expense line, but it wasn't significant in general terms. There's also in our maintenance line in the fourth quarter some accruals that we did related to airplane lease returns. That was a bigger driver.

That, again, also was more of a onetime type of effect as well.

Speaker 8

Okay. Thank you very much.

Speaker 0

We have our next question coming from the line of Savin Syth with Raymond James. Your line is open.

Speaker 9

Hello, everyone. What I was curious what your 2021 and 2022 gross and net CapEx plans were based on what your, you know, delivery plans are. And then also beyond 2022, do you have flexibility in the deliveries, or is that fixed now?

Speaker 3

Yes, Savi, I can or you want to start?

Speaker 2

I'll start with growth and then you can talk CapEx. So we spoke of I mean, we are guiding to 40% capacity in the first quarter as compared to 2019. For the rest of the year, it's really hard to tell. I mean, we could use that as a base and depending on how demand behaves, we're going to adjust upwards or downwards. And actually for February and March, we're going to be adjusting downwards due to the slowness in sales that Jose alluded to.

And the rest of the year, second half of the year, it's hard to tell right now. The vaccination efforts are successful throughout our continent, then maybe growth will be faster. And we have the flexibility. We have planes in storage, which we can bring back to the operating line fairly quickly. And in the next few years, we have a combination of new deliveries plus lease expirations that we can play with.

So we feel we have all the flexibility we need in 2021 and 2022, and we'll adjust according to demand, which again is changing and hard to predict at least in the short in medium to long term.

Speaker 3

Savi, so in terms of CapEx, the total figure that we're looking at for 2021 is around $460,000,000. And of that, I'd say cash, which is related mostly to airplane maintenance, is around $60,000,000. And and in '22, you can assume that it's around $300,000,000 of which, call it, again, same $60,000,000 related to to airplane maintenance and therefore being cash CapEx.

Speaker 9

That's helpful. And if I may follow-up on a previous question, was just wondering if there were as you saw the demand recover price, it's kind of the COVID rates increasing. Just were there any kind of regions where you saw kind of strength kind of more strength or or greater weakness? And just as a as a guide to how, you know, we what we might see as as we get vaccine levels higher? Mean, any insights into just kind of regionally what we might be in for?

Speaker 2

Not really. I mean, the larger markets can sustain higher capacity. There's always going to be more demand. And what we've seen so far is a shift to more VFR travel. And also, I should mention that there was a lot of pent up demand in November and December, and most of that was VFR travel.

People needed to get back home, go visit their relatives, etcetera. And there is leisure demand. I mean, there is leisure demand going from the big markets in the South to the tourist destinations in The Caribbean or North America. There's some of that. I mean, we don't participate in The U.

S. To Mexico market, for example, but we know that market is more active than others. But it's mostly VFR, however.

Speaker 9

That's helpful. Thank you.

Speaker 3

Thank you, Simon.

Speaker 0

We have our next question coming from the line of Rogelio Araujo with UBS. Your line is open.

Speaker 10

Thank you. Hi Jose. Hi Pedro. Thanks a lot for the call. So a few quick questions here on my side.

First on the restrictions imposed by The U. S, they are test mandatory now. But also they mentioned about quarantine. Is this in place or will there be soon a quarantine of seven days mandatory there? So do you expect this to impact your demand and by how much if that's the case?

That's my first one. Thank you.

Speaker 2

Okay. So the only restriction right now, it's flight to The U. S. Is the required PCR test, negative test. The quarantine restriction, I understand it's just a possibility that has not been decided on so far.

So that's it's not in effect right now and there's no certainty that it will be at any point in time. The PCR test, we don't see it as having an effect on travel. The tests are things that are widely available right now for passengers. So in any of our markets, I mean, those tests are required in most of our markets right now. And we don't see that as the impediment for travel.

Same with The U. S. In terms of what effect the quarantine would have, hard to tell. And that would have an effect for sure, but it's hard for us to guess how significant it will be.

Speaker 10

Okay, very clear. Thank you. A couple of quick ones as well. First on so you said how many MAX you're going to receive. So also including the aircraft returns, what is going to be your seat capacity expected for end of this year versus pre COVID levels.

And also the other one is regarding January RPM. It actually significantly came below what your capacity was. So is COPPA focusing on yields? That's why we see load factor dropping. Or was there a huge frustration on the demand even with some stimulation coming from the ticket fares?

Thank you.

Speaker 2

Right. Okay, Rodrigo. So capacity is going to depend on demand as we mentioned before. So for January, it was 40% in that range and it's kind of what we're guiding to for the first quarter. But the way demand is looking right now, we're going to probably adjust it downwards.

And for the rest of the year, it's going to depend on that, on demand, which is very hard to predict other than a few months out. And even then, it's not that easy. We have the fleet as mentioned before. On paper, we could go as high as 80% in terms of ASN versus 2019 in this year, but we know that's not realistic, that's not going to happen. And next year, we could go even higher, but again, that's not realistic.

It's going to be in that 40%, maybe 50% range, it depends again on demand, the flexibility we have. And in terms of what happened in January, no, it's not that we're going for yields. Mean, summarizing it very quickly, our sales peaked in November, our revenues peaked in December and our capacity in terms of ASMs peaked in January. So but in November, we didn't know that January that sales were going to slow down in December and that January we're going to be a little bit long on capacity. Because it takes at least a few months to deploy capacity and even to cut back, we don't we cannot do it overnight.

So we are adjusting now. It's a new reality we're all living and we learn every day and we always have to be on our toes adjusting capacity up or down depending on how we see demand. And also short term bookings are more significant relevant now than before. If they don't come in as expected, then we have to then think about capacity.

Speaker 10

Thanks so much.

Speaker 0

We have our next question coming from the line of Pablo Montesvaz with Barclays. Your line is open.

Speaker 5

Pablo Hi, good morning. Hi, everybody. Thanks for taking my question. I have a quick one. We know that perhaps capacity will be close to pre COVID levels by 2021.

But how do you think that unit revenues might perform this year? I mean, having in mind that business passengers should remain on the weaker side and international restrictions could remain in place at least in the next couple of months, how are you planning that capacity increase and unit revenue increase? It would be great to have more color on that. Thank you.

Speaker 3

RAMON Well, the reality is that we are, as Pedro mentioned in the last answer, is that we are really focusing right now, the main task that we're at hand is in making sure that our capacity is flexible enough and attuned to the revenues that we're seeing And again, what we're seeing right now is that the entire market in the region has had a slowdown for the first part of the first quarter. And so we're making the adjustments in capacity in a light way. So it's made us have to be much more, I want to say, active in our deployment capacity in the shorter term, and that's something that we're implementing now. And so the revenue gap that we're seeing for the first quarter is still pretty significant.

It is we're talking about revenues in the mid-20s to 30% of 2019 levels, which is a very significant reduction versus where we were at the beginning. So we're still seeing, again, quite a bit of a gap versus normality. But again, the important thing is the adjustment of capacity to that,

Speaker 2

and that's what we're doing.

Speaker 5

Of course. And I have another quick one on the cost side. Do you have any other measures that you are considering right now to adjust to this new demand environment that we have to think about? Or probably you already undertook everything on the cost side that you were able to do. And right now, it's just that additional cost of flying.

How should we also follow the cost line, for 2021, assuming that demand remains weak?

Speaker 3

So look, we, Pablo, we came in to the crisis with the lowest cost of our peers in the region. And during last year, we took quite a bit of measures, renegotiating contracts with most suppliers, reducing our IT expenditures, maintenance, labor, etcetera, right? So that's we did quite a bit of that and that will continue on during 2021 as well. As I mentioned in the first part of the question, our main effort right now is in capacity deployment management. Those are the next steps in making sure that our that we don't fly more ASMs that are needed in the market.

And in terms of additional cost measures, you know what, right now, we are in a position of strength, and we don't need to take drastic actions that could prove costly in the long run. So we have sort of the luxury of coming in with a strong balance sheet and with a low cost position unless we see that the recovery is taking longer than what we expected. So then we have another set of items that we could do that are more aggressive in nature. But we have to be mindful also that we are going to be here for a long time and that we want to be ready for the recovery as well. So it's a balance and that's what we've been doing.

Speaker 11

Perfect. Thank you.

Speaker 0

We have our next question coming from the line of Mike Linenberg with Deutsche Bank. Your line is open.

Speaker 12

Hey, good morning everyone. I guess this is a question probably to Jose and maybe even Pedro. It seems like kind of another error when we're guiding to CASM ex of sub-six cents in 2021. And I realize there's a lot of uncertainty as we look out through 2021. But I'm sure that you also have, you know, a focus on the longer term picture here.

And I'm just curious, given the events and the shifting in the fleet and the issues with the MAX, is a sub-six cent CASM ex, is that even achievable by, say, 2023? That being aggressive? And I guess implicit in that question is that are we back to full capacity by 2023 if not sooner? So I realize it's a longer term range question, but the hope here is that, you know, you're still focused on achieving that sub -six cent, you know, once we get through, you know, the pandemic.

Speaker 3

Yes, Mike, that's a very, very good and important question. And I think that you pointed out correctly in the sense that more than necessarily a timeframe or particular month or year, I think we have to think about it in terms of at what point in terms of our capacity recovery are we at that those CASM levels. And, of course, we think about that quite a bit, our our, you know, returning to sub six CASM targets. Mhmm. I'll answered I the question a couple of ways.

One, I think that we should be able to achieve our sort of pre pandemic CASM figures by the time that we are at about eighty percent of pre COVID capacity. So I I think that's which shows how, much we've become more efficient throughout this process. And then the other, I think, data point I think is important is that I I think when you look do do the numbers, if you're assuming a you know, there there are several moving pieces here. Right? So if you assume that, you know, revenue dilution is in the mid teens, we could be break cash breakeven by the moment that we're at about, you know, in the seventies of pre COVID capacity.

So that that's another, I think, good data point to to understand how we're seeing the business in the in the medium term and how our path to recovery is. But, absolutely, we we are focused on on on getting back into that track of getting to that sort of six sense of six CASM in the medium term. That's great.

Speaker 2

And I would add, you mentioned when you asked when we could be back to those ASM levels, and I don't think anybody knows. Mhmm. So we're gonna we're not gonna try to get that. But but adding to what Jose just said, if we were at a 100% tomorrow, we would be sub-six percent tomorrow.

Speaker 12

Interesting. That's helpful. Thanks. And just one quick one here, Pedro, and this is sort of a follow-up to Hunter's question on restrictions. I know you addressed Panama's restrictions.

I'm curious how your loads fared after The U. S. Stepped up its restrictions, the mandatory negative COVID test within seventy two hours of arrival. That was January 26. I'm curious how that hit your loads.

And I know during the quarter, I believe, Argentina announced that carriers had to cut back their service by 30% to 60%. So if there's any chance you can just run through a couple of the examples because it does seem like that there was an increase in restrictions in other countries, not necessarily Panama, but countries that you serve. And like in Argentina, I think even today, you still run on some days two flights a day and most other carriers don't even service. I'm curious about some of the additional restrictions and maybe even how you've seen loads or demand change within hours of those restrictions being announced. Thank you.

Speaker 2

Okay, thank you and no thank you Mike. Because after Hunter's question since he only mentioned Panama, I only answered Panama and I kind of crossed fingers that I could just stay there. And so so the so so you're right. Restrictions are all over the place. The the the testing requirement for The US has not really had an effect, at least not noticeable.

Okay. Because from what I said before, it's widely avail the tests are now widely available. So it's not an impediment for people to travel. And and most countries are requiring those tests any anyway. So that's not really the problem.

But I'll give you a few examples of what has happened in the last, let's say, and a half, which has had a direct impact on our sales, on our business. And I'll just give you a few examples. You're right. Argentina is restricting flights. We were not restricted only because we already had a diminished a a reduced schedule.

So we already had a very reduced schedule in Argentina, only a few flights a week, we could stay with that. But, for example, our Venezuela flight was canceled for nearly a month due to the COVID. Havana took us from like two dailies to three flights a week, which I think has been now reduced to two flights a week only. For like more than a month, Uruguay only allowed residents, nationals who had booked before the restrictions. So no new sales were allowed for like over a month in Uruguay.

Some countries some other countries imposed new quarantine restrictions. And it's a long list, but when you add it up, it had a a meaningful impact. And it's kind of part of what we're seeing right now because many of those restrictions remain in place as we speak.

Speaker 0

We have our next question coming from the line of with Evercore ISI. Your line is open.

Speaker 10

Hey, thank you.

Speaker 13

Sorry if you covered this, but what were the main drivers of your cash burn improvement relative to the guidance? It was far better than what you guided to. Was it at all Boeing settlement related or aircraft sale related? And if not, can you comment on if those contributed?

Speaker 3

Duane, are you Duane? This is Jose. I the first thing now to make sure that we define the way that we look at cash burn. We look at cash burn from excluding any sort of extraordinary items such as the ones that you mentioned. So the the figure that we publish is is purely our operating cash flows and and including sort of our our debt commitments, our outflows related to the service of our debt, and that's that.

But, you know, aircraft sales and other sort of extraordinary items are not included in in the figures. And that's very important because we're very I wanna say that we're very strict with the way that we look at this figure, and and I think that that's very good because it it keeps us very, very much on top of of of the business. Number two, that fourth quarter performance really saw an improvement because of the ramp up in sales that we saw. We were operating at a very low level at the beginning of the quarter, and we ramped up capacity. And sales were ahead of that.

I think as Pedro mentioned before, sales were peaking in November, and so therefore, we had quite a bit of a ramp up there. So that's what occurred. And the difference that we saw in terms of improvement was related mostly to the quick ramp up in sales that we saw. And the fact that there's also a minor component there of some of the expenses that were accrued during the fourth quarter actually are going to be settled in cash during the first quarter. So there's, like, a $10,000,000 switch there that should have come in in the fourth quarter or corresponds to the fourth quarter.

So so, again, to summarize and, again, you know, our cash burn figure, I think, in the in the appendix to our earnings release, there is a full reconciliation of the way that we calculate our cash burn. I think it's a very fair way and very correct way of doing it. Is right there. And number two, and the other item that is very important is that in the first quarter, however, even with the cash burn that we're reporting or forecasting or guiding to $40,000,000 $45,000,000 it does not include some of those extraordinary measures that occur in terms of financing or cash related to financing activities, etcetera. So there we will see an increase in our liquidity at the end of the first quarter that is not counted in the cash burn figure that we are guiding to.

Sorry.

Speaker 13

And what would drive that increase in liquidity that you're not that's not included in the cash burn guidance?

Speaker 3

Oh, well, there are several items there. For example, the financing of aircraft that we have with from the reception of aircraft, there's some deposits that we have at Boeing that when upon delivery, these deposits basically get financed with the exit financing that we have established. There's aircraft sales that we're performing during the quarter, etcetera. So that increased the liquidity. Of course, we also increased some of the available credit facilities that we have.

So all that builds up on the liquidity, but it's not counted within the cash consumption figure that we published.

Speaker 13

That's great detail. And thank you for that. And then maybe just a macro question. As we contemplate massive fiscal stimulus here in The U. S, how are you thinking about the dollar versus local currencies in Latin America over the balance of 2021?

I know historically, you'd sort of be unwilling to speak to currencies or make a bet in that regard. But how are you thinking about just the relative pacing of fiscal stimulus and the potential for local currency appreciation as recovery takes hold? Thanks for taking the questions.

Speaker 3

Well, it's still very it's very volatile situation in the region with the currencies. The currencies were the fourth quarter appreciated in general terms. Most of them, most of the big major currencies in Latin America appreciate it, which is actually helpful for us. But it is still it is very hard to sort of predict where where they will ultimately end up. So, again, strengthening currencies in the region should improve demand, but but still, it's, I think, secondary to the overall governmental restrictions and demand patterns that are out there.

And in any case, think at this stage, somewhat hard to predict where the currencies might end up.

Speaker 13

I appreciate the thoughts. It was worth a try.

Speaker 6

Thank you

Speaker 13

very much.

Speaker 3

Thanks a lot.

Speaker 0

We have our next question coming from the line of Dan McKenzie with Seaport Global. Your line is open.

Speaker 14

Hey thanks. Good morning guys. Following up on a prior question, I am wondering what level of openness Panama or other countries have to say this idea of a COVID travel passport as a way to open up the region. And so I guess what willingness is there by governments to consider it? Are they considering it?

Pardon me. And if they are, is the technology there at airports to adopt it?

Speaker 2

Yes. It's interesting that there are that I know of at least four initiatives that I think are are quite advanced in terms of of coming out with a travel pass or a health pass, which which in our opinion is gonna be very important to reopen and to grow international to air travel for sure. So Panama and we recently announced together with IATA and the authorities in Panama that Panama and Copa will be part of the trial test of the new IATA Travel Pass. This that's going to happen, I think, in the month of March, next month. Those trials are going to start.

So Panama is very much committed to being part of the IATA travel path. And I think that would also include the other travel passes that others or health passes that others are working on. So this is kind of an all inclusive thing, hopefully they will communicate with each other. So we're very much involved at this point with IATA. We've talked to some of the others also, and Panama is also on board.

Speaker 14

Which are the other three countries, Pedro?

Speaker 2

Well, no. No. I'm sorry. Not country, but initiatives. There's there's the common path.

IBM is working on something also in Accenture and plus IATA. So those are the at least the four there might be others, but those are the four entities that are that I know of that are working on health passes or travel passes with pretty much the objective.

Speaker 14

I see. Are any of the countries willing to talk about that at this point, you know, in addition to Panama?

Speaker 2

Well, I've heard of other airlines around the world in Asia and The Middle East for sure that are working with their governments. I think the Emirates, Singapore, and probably a few more are working with IATA and their national carriers to also pilot the the IATA travel path. And I and I believe same thing is happening with the common path and some of the other initiatives that I mentioned.

Speaker 14

I see. Okay. I guess I was kind of wondering about Latin America. You know, if I could a second question here. The lie flat seats on the MAX, and it seems like there's a lot of pent up revenue potential on those seats as demand normalizes.

And it seems like it could normalize at some point here. Maybe I don't if it's later this year or next year or how you're thinking about pace of the demand recovery. But I'm just as we kind of think about your ability to monetize that revenue, is it just as simple as longer haul international markets opening up? Or are there other steps that you could take to help drive revenue from that part of the aircraft?

Speaker 2

I would say that it's mostly business travel coming back. The aircraft will be deployed in our longer markets. That's already happening. And as we get more and more MAX 9s with the lie flat seats, we'll do more of that. So they're gonna be mostly serving those markets.

So it's about business travel coming back. But something interesting is that our aircraft as well, the MAX nine is a narrow body. We have 16 flat seats on board. We serve markets that that will not recover to the pre COVID capacity in probably quite a while. And I'm not talking just Copa, but airline flying nonstop, white bodies, the whole thing.

So it's not that we need the business markets to come all the way all the way, back to what it used to be. We can we will serve markets that are going to be underserved, it's our feeling, for a while. So we should be able to do well even before the business travel comes all the way back.

Speaker 14

That's perfect. Thanks for the time you guys.

Speaker 3

Thanks.

Speaker 0

Have our next question coming from the line of Stephen Trent with Citi. Your line is open.

Speaker 11

Steven Hi, good morning everybody and thanks for taking my question. First off, I was just curious on the I had a travel pass. I'm very intrigued. Is Copa actually going to have to fork up any investment in that? Or will this be something, you know, covered through Panama and, you know, governmental levels?

Speaker 2

No. We're not we're not investing in the tool, neither is Panama. It is something that IATA is doing on its own, and we just agreed to be part of a trial and be one of the first countries and airlines participating in it. But but what kind of of of cost distribution that's going to be in the future, we don't really know. I'm sure that the different travel and health factors that are being developed will have to cover its cost one way or another.

I'm not sure that has been determined right now. And we're not involved in that process.

Speaker 11

Okay, Pedro. I appreciate that. And just on a longer term question, if I may. When COBRA thinks about this sort of broader initiative to get carbon emissions in 2050 down to half of 2005 levels or what have you, how is COPPA thinking broadly about that carbon capture program? Certainly, the MAX is going to help.

Your U. S. Partners talked about some investment or collaboration with electric planes and what have you. I'd just love to get your thoughts, higher level, how you're thinking about that longer term.

Speaker 2

Yes. So we're, of course, following very closely the CORSIA initiative. And even though Panama doesn't fall under the threshold that forces an implementation in the near future, we're still very much involved in reporting our carbon emissions on a yearly basis and also very much involved in just thinking about what are the initiatives that we need to have in place to be ready for when this becomes more of a requirement in our countries and in the industry in general. As you know, I'm also part of the IATA's Board of Governors and Chair Committee, and it's a current and frequent topic of conversation. But I cannot tell you that we have a specific plan right now, more than just the reporting and the frequent conversations and evaluations of options.

We do not have a firm plan as we speak. Of course, with our modern fleet of MAXs and seven thirty seven-eight 100 NGs and our own company fuel saving initiatives and some other initiatives in the company like solar power at our some of our airport facilities. And we do all of that, but it does not compensate, obviously not even close the carbon emissions of our regular flying. So there's more to come there in the future.

Speaker 0

We have our next question coming from the line of Guillermo Mendez with JPMorgan. Your line is open.

Speaker 6

Hey guys. Good morning, good afternoon and thanks for taking my questions. Actually it's two questions. The first one is a follow-up on the traffic recovery. So you guys mentioned that VFR has been recovering faster than the other segments.

So just help me think on how should we be thinking about yields going forward and that probably corporate travels will take longer to recover. So how should this reflect on yields, things like fleet from the 2021? And the second question is regarding the agreement with Boeing. I know the terms are confidential, but if you could just give some colors in terms of its most agreement, it's on a cash component basis or it's more related to maybe, the agreements of the future receivables of MAX. That would be very useful.

Thank you, guys.

Speaker 3

Yes. Thank you, Yaron. I would say that the first of all, we're not issuing a full year guidance. So I'll cover this more anything what we have in the shorter term. In the shorter term, we're seeing still significant drops in our yields throughout the network in over the 20% range on a year over year basis.

And that's something we're seeing at least in the short term. And I think that the important component of that is that there's still a lot of variability into the rest of the year. And so it's too early to determine where that's gonna end up in the remainder of the year. And it's I would say, I don't I don't see any particular region being being different or or acting in a particular way. I think they're all in the same range.

That's in term of in terms of yields. And in terms of the Boeing agreement, it is a a confidential agreement, so I would leave it there.

Speaker 6

That's perfect. Thank you, guys. There

Speaker 0

are no further questions at this time. I will now turn the call back over to Pedro Haleworn.

Speaker 2

Okay. Thank you. I just want to conclude saying that we think we're in a very good position in our region and in general terms. We were very proactive in 2020, taking some difficult but necessary actions to bring down our cost structure, to adjust our fleet. We feel our hub is the best position in the region for what will, for a while, be a reduced market.

And we also have the right fleet, standardized with the seven thirty seven-eight 100 NGs and the MAX 9s. We know times are still a little bit difficult, but there's a shining light at the end of the tunnel with the vaccination efforts, which are going to gain speed in the coming months and weeks for sure. So, anyway, for your support. And we'll keep moving in the right direction. This concludes our earnings call, and have a great day.

We'll see you in the next one.

Speaker 0

Ladies and gentlemen, thank you for your participation. That concludes the presentation. You may now disconnect and have a wonderful day.