Copa Holdings, S.A. (CPA +13.03%) continues to be a star in the airline industry, riding a wave of growth in Latin America. The company is growing revenue and earnings at double-digit rates and has even more aircraft entering the fleet later this year.
Here's a look at the key highlights from the first-quarter 2018 earnings report.
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Copa Holdings, S.A. results: The raw numbers
| Metric | Q1 2018 | Q1 2017 | Year-Over-Year Change |
|---|---|---|---|
| Sales | $715.0 million | $615.3 million | 16.2% |
| Net income | $136.5 million | $101.0 million | 35.1% |
| Diluted EPS | $3.22 | $2.38 | 35% |
Data source: Copa Holdings, S.A. Q1 2018 earnings release.
What happened with Copa Holdings, S.A. this quarter?
Airlines have a lot of factors affecting both revenue and costs, so sometimes revenue and net income don't tell the whole story. Copa Holdings breaks these factors down in its earnings report, and I've gathered the important operating highlights below.
- Revenue passenger miles (RPMs) were up 10.4% to 5.22 billion on an 8.4% increase in available seat miles (ASMs) to 6.3 billion. As a result, load factor increased 150 basis points to 83%.
- On the pricing side, revenue per average seat mile was up 7.2% to 11.4 cents and cost per average seat mile excluding fuel was only up 1.1% to 6.3 cents.
- Fuel costs did rise 17.6% to $2.16 per gallon and the number of gallons consumed jumped 8% to 80.1 million due to the larger number of flights. The price of oil has been rising in recent months, so this is a cost we can expect will increase in the future.
- Maybe most impressively, the average aircraft utilization per day was up from 11.3 hours a year ago to 12 hours. The more hours a company can use an aircraft per day, the more revenue they can generate from their most expensive piece of equipment.
You can see that every major operating metric is improving for Copa Holdings and that's why we see the growth in revenue and earnings above. Also of note:
- Long-term debt did increase slightly from $876.1 million a year ago to $889 million. Cash and investments were $1 billion.
- Copa Holdings will pay a dividend of $0.87 per share on June 15 to all shareholders of record on May 31, 2018.
What management had to say
Copa Holdings continues to expand its fleet, which should keep the company growing. Management said in the earnings release that it added one Boeing 737-800 in April to bring the fleet to 101 aircraft. CEO Pedro Heilbron said the fleet will continue to expand throughout 2018: "In the second half of the year, we expect to receive five Boeing 737 MAX 9s, to end the year with a consolidated fleet of 106 aircraft. We're looking forward to the arrival of our first MAX 9 in August, which will deliver both revenue opportunities and cost efficiencies."
If operating costs are going to come down even further as new aircraft enter the fleet, we could see even better margins in the long term for Copa Holdings.
Looking forward
There continues to be strong demand for air travel in Latin America, and that's ultimately what's driving Copa Holdings' results higher. But there are some headwinds, particularly in Venezuela, which has had political unrest recently. That's going to hurt demand, and caused management to say the company would likely be at the low end of operating margin of 17% to 19%.
Fuel prices are also rising, which can increase costs in the long term. But the operating costs that Copa Holdings can control are remaining steady, and that's what investors should be concerned about. As long as the company is an operational leader, I see clear skies ahead.
