Copa Holdings faces 7.6% share drop as quarterly earnings decline

Copa Holdings, S.A. (NYSE: CPA), the prominent Latin American airline group, saw its shares tumble by 7.6% during after-hours trading following the release of its third-quarter 2024 earnings report. The company reported a significant year-on-year decline in net profit, coupled with a dip in key operational metrics, sparking concerns among investors.

Declining profits and margins

For the third quarter ending September 30, 2024, Copa Holdings recorded a net profit of $146 million, a 22.1% drop compared to $187.4 million in the same period last year. Adjusted earnings per share also fell to $3.50, representing a 25.8% decline from the $4.72 reported in Q3 2023. The airline’s operating profit also contracted by 15.3% to $173.7 million, with the operating margin decreasing from 23.6% to 20.3%.

The decrease in profitability was attributed to weaker revenue per available seat mile (RASM), which fell by 10.1% year-on-year. Passenger yields, another key metric, also declined by 8.7%. Despite a 9.5% increase in consolidated capacity (measured by available seat miles), the load factor—a measure of the percentage of available seating capacity that is actually filled—dropped to 86.2%, down from 87.8% a year ago.

Pressures on revenue and operational costs

Copa Holdings’ total revenue for the quarter reached $854.7 million, a modest decline of 1.5% from $867.7 million in Q3 2023. Passenger revenue, which constitutes the bulk of the company’s income, decreased by 1.8%. Despite the challenges, Copa maintained a relatively low operating cost per available seat mile (CASM) excluding fuel, which fell by 1.6% to 5.7 cents.

However, operational cost pressures remained significant. Fuel expenses were down 5.3% due to lower global fuel prices, yet wage-related costs increased by 8.7%. The airline also faced higher maintenance and airport handling costs, further impacting its bottom line.

Strong liquidity but long-term challenges

Despite the earnings setback, Copa Holdings ended the quarter with a solid liquidity position. It reported cash and investments of $1.3 billion, representing 36% of its last twelve months’ revenues. The company also maintained a favorable adjusted net debt-to-EBITDA ratio of 0.6x. This financial stability enables the airline to manage near-term operational and financial challenges, including its planned dividend payout of $1.61 per share in December 2024.

However, the broader macroeconomic landscape remains a concern. Slowing global demand and competitive pressures in the Latin American market could further hinder Copa’s recovery. Declining passenger yields underscore the challenges of sustaining profitability in a post-pandemic era of heightened competition and fluctuating fuel prices.

Outlook and market reaction

In a conference call following the earnings release, Copa Holdings executives reaffirmed their commitment to operational efficiency and capacity optimization. They highlighted fleet modernization efforts, including the addition of a Boeing 737 MAX 8 aircraft during the quarter, as a long-term growth driver.

Still, the market’s immediate reaction reflected investor skepticism. Analysts suggest that while Copa’s operational fundamentals remain solid, the declining profitability raises questions about its ability to navigate market pressures in the medium term.

Copa Holdings faces a critical juncture as it seeks to balance operational growth with financial sustainability. While its strong liquidity and disciplined cost management provide a cushion, the drop in passenger yields and weakening profit margins demand strategic adjustments. The airline’s next earnings report will likely serve as a litmus test for its resilience amid challenging market conditions.