Copa Holdings, S.A. 2026 Q2 Earnings Call

Sir, you may begin. Thank you, Alia, welcome everyone to our second quarter earnings call.

Joining me today are Mr. Pedro Heilbron, Executive Chairman and CEO of Copa Holdings, Mr. Robert Carey, Executive Vice President, and Mr. Peter Donkersloot, our CFO. Pedro will begin with an overview of the quarter. Robert will discuss commercial performance and operational highlights. Peter will conclude with a review of our financial results and outlook. Immediately after, we will open the call for questions from analysts. As a reminder, Copa Holdings financial reports have been prepared in accordance with International Financial Reporting Standards. In today's call, we will discuss certain non-IFRS financial measures. A reconciliation of these measures to comparable IFRS measures can be found in our earnings release, which is available on our website.

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 would like to turn the call over to our Chairman and CEO, Mr. Pedro Heilbron.

Thank you, Daniel. Good morning, thank you all for joining us for our second quarter earnings call. Before we begin, I would like to recognize and thank our more than nine thousand coworkers. Thanks to their commitment, professionalism, and discipline execution, our team continues to deliver strong financial results while maintaining exceptional operational reliability and outstanding service to our passengers. They are the foundation of Copa success and have my admiration and appreciation. Our second quarter results demonstrate the resilience of our business model in a significantly higher fuel price environment and reinforce our ability to continue generating profitable growth through different market cycles. During the quarter, we delivered an operating profit of $91.7 million and an operating margin of 8.7%.

These results were affected by an increase of 85% in the all-in fuel cost compared to Q2 2025, with approximately 40% of our bookings sold before the fuel cost increase. In the quarter, we grew capacity 16.5%, measured in ASMs, while maintaining solid load factors. Our capacity additions in 2026, after years in which aircraft delivery delays slowed our growth, allow us to further consolidate our Hub of the Americas advantage, especially in an environment of strong passenger demand across our network. Looking ahead, booking trends remain strong, which support our expectations for another year of high load factors and solid financial performance. As part of our continuous efforts to strengthen the Hub of the Americas, we recently set in place our transition from six to eight connecting banks beginning in March 2027.

This decision will improve connectivity throughout our network, provide greater travel options for our passengers, increase aircraft utilization, optimize the use of airport infrastructure, and further strengthen Panama's position as the leading hub for Intra-Americas travel. Combined with our structurally low unit cost, best-in-class operational reliability, strong balance sheet, and the unique advantages of our Hub of the Americas, we remain confident in our ability to successfully execute our growth plans and continue delivering value to our shareholders. With that, I'll turn the call over to Robert, who will discuss the quarter's commercial and operational highlights.

Thank you, Pedro, and good morning, everyone. Before I start, I would also like to thank our coworkers across the organization for their continued dedication and outstanding execution throughout the quarter. I have now been here two years, and Copa's culture is clearly one of our strengths. Let me begin by reviewing some of the quarter's key commercial and operational highlights. Operating revenues increased 25.7% year-over-year to $1.1 billion. Passenger yields increased 8.7% compared to Q2 2025. Unit revenue or RASM increased 7.9% to $0.116, while capacity measured in ASMs increased 16.5% year-over-year. Load factor was 86.7% compared to 87.3% in Q2 2025.

Revenue performance for the quarter was partially impacted by the World Cup, which temporarily affected travel patterns during June. As a result, June load factors were 2.3 percentage points lower year-over-year, putting modest pressure on unit revenues. We estimate that the World Cup reduced second quarter RASM by approximately $0.001. Despite this headwind, we delivered another quarter of solid revenue performance and continue to see strong demand trends throughout our network going forward. Demonstrating this strong demand, we published our July traffic numbers this week, reporting a load factor of nearly 90% on a year-over-year capacity increase of 16%. Furthermore, this load factor, one of our highest ever, came in a higher yield environment. As you can see from our full year guidance, we are expecting these strong load factors to continue. On the operational side, we delivered industry-leading results.

During the quarter, Copa Airlines delivered an on-time performance of 90.6% and a flight completion factor of 99.8%. These results position Copa Airlines among the very best airlines globally for operational reliability and represent a key differentiator of our passenger value proposition. Turning to the network. Recently, we announced the addition of Porlamar in Isla Margarita, Venezuela, a popular leisure destination which will start in November. With this addition, Copa will serve 88 destinations in 32 countries throughout the Americas, further strengthening the breadth and convenience of our network and reinforcing the leadership position of our Hub of the Americas. We also recently achieved an important milestone in enhancing our passenger experience with the launch of Starlink onboard internet. In July, Copa operated its first Starlink-equipped flight, becoming the first airline in Latin America to offer high-speed Starlink connectivity.

We expect the rollout of Starlink Wi-Fi across our fleet to be completed in the first half of 2027. Finally, on the fleet side, we took delivery of four Boeing 737 MAX 8 aircraft during the quarter, ending the period with a fleet of 131 aircraft. For the remainder of the year, we expect to receive one additional 737 MAX 8. As always, we maintain significant flexibility in our fleet plan through delivery options, slide rights, lease expirations, and a substantial base of unencumbered aircraft, which allows us to adjust the pace of growth if market conditions warrant. To conclude, demand trends and booking patterns remain strong. With that, I will turn the call over to Peter, who will review our financial results and outlook in more detail.

Thank you, Robert, and good morning. I'll also like to start by recognizing our team's continued dedication to delivering industry-leading results. Their commitment remains essential to our strong operational and financial performance. In the second quarter, we reported an operating profit of $91.7 million, resulting in an operating margin of 8.7% compared to 21.7% in the second quarter of 2025. Net profit totaled $68.2 million, or $1.67 per share, and a net margin of 6.4%. Unit cost, excluding fuel or ex-fuel CASM, remained flat year-over-year to $0.057, reflecting our continuous focus on cost discipline. Including fuel, CASM increased 26% to $0.106, a result of significantly higher fuel prices. During the quarter, average all-in jet fuel prices increased 85% year-over-year from $2.32 to $4.28 per gallon.

Despite having approximately 40% of our second quarter bookings already sold before the increase in fuel prices, strong demand and higher yields enabled us to recover approximately 40% of the year-over-year increase in fuel expenses during the quarter. Our fuel recovery calculation compares the year-over-year increase in revenues attributable to higher RASM with the year-over-year increase in fuel expenses resulting from higher all-in fuel prices, both calculated using 2026 capacity levels. Turning to our balance sheet and liquidity, we ended the quarter with approximately $1.5 billion in cash, short-term, and long-term investments, representing 39% of last 12 months revenue. Our balance sheet remains among the strongest in the airline industry and continues to be a key competitive advantage. Total debt, including lease liabilities, stood at approximately $2.7 billion at quarter end, all of it related to aircraft financing.

Our average cost of debt is currently 3.7%. We ended the quarter with a net debt to EBITDA ratio of 0.9x. Our financial strength continues to provide substantial flexibility as we continue to execute our long-term strategy. Turning now to shareholder returns. I'm pleased to announce that our board of directors ratified the company's third quarterly dividend payment of $1.71 per share.