Latin America and Strong Dollar Hit Copa Holdings, S.A. Earnings

The weakening economy in Latin America and a strong dollar are taking their toll on Copa Holdings, S.A. (CPA -2.48%) in 2015, and Thursday's third-quarter results continued to show how much pressure it's been under. There's no telling when the Latin American economy will turn around, but for now, investors can take some solace in the fact that this remains a profitable airline with a consistent dividend even in the toughest of conditions.  

Copa Holdings results: The raw numbers

Data source: Company earnings release.

What happened with Copa Holdings this quarter?
Operationally, many of the highlights for Copa Holdings weren't as negative as the top- and bottom-line figures may suggest. The biggest takeaway from the quarter is that volume remained strong while pricing continued to be weak.

• Revenue passengers carried rose 2.6% from a year ago to 1.99 million and revenue passenger miles rose 1.8% to 4.12 billion.
• Load factor, or the percentage of seat miles that were used by customers, was down only slightly from a year ago at 76.3% and up 2.9% sequentially.
• Fuel costs per gallon dropped 30.8% from a year ago to $2.16.
• Revenue per available seat mile fell 19.1% to 9.7 cents.
• Results were negatively affected by a $26.8 million unrealized loss on fuel hedges. This offsets a $23.4 million gain on the same fuel hedges in the second quarter.
• During the quarter, Copa Airlines also took delivery of two Boeing 737-800 aircraft, helping drive available miles higher in the quarter.

What management had to say
Long term, management is still bullish on Copa's performance, authorizing a $100 million share repurchase program. It also highlighted the company's best-in-class performance of 89.8% on-time performance and 99.8% flight-completion factor.

The economic and currency trends that have led to lower prices and weak translation for U.S. investors are largely out of management's hands, but they are macro factors that must be watched because they will continue to pressure performance.

Looking forward
Copa Holdings has remained profitable despite a rough economy and challenging currency translation, but the downturn could be protracted in Latin America. And it's worth watching Venezuelan currency policy, since 39% of the company's cash is stuck in the country under the thumb of government currency controls.

One good sign is that economic weakness hasn't had much of a detrimental impact on the dividend, which was $0.84 per share for the fourth-quarter payment, the same as it has been all year. But that's nearly identical to the $0.85 in adjusted earnings per share, a ratio investors should keep an eye on in the coming quarters.