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Why Shares of Copa Holdings Are Down Today

By Lou Whiteman – Updated Apr 27, 2020 at 12:28PM

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The Panamanian airline is facing a long post-pandemic recovery.

What happened

Shares of Copa Holdings (CPA) fell more than 12% on Monday after the Central American airline reported preliminary first-quarter results. The first quarter wasn't as bad as some had feared, but Copa warned that conditions have gotten significantly worse for the airline and the industry since the quarter ended.

So what

In a regulatory filing Monday, Copa said it expects to report an operating profit of $98.7 million on revenue of $595.5 million, with revenue down 11.4% year over year. The airline said it has about $1.13 billion in cash on its balance sheet as of March 31 and intends to "postpone" payment of its dividend for the remainder of the year.

The results are likely to be far worse in the second quarter. Copa, like all airlines, has been hit hard by the COVID-19 pandemic, which has caused demand for air travel to plummet overnight. Copa's core markets have been hit particularly hard: On March 16, Panama suspended all international fights until at least May 22, and in Colombia, international travel is prohibited and domestic travel is restricted until at least May 30.

The airport tarmac with airplanes at the gates

Image source: Getty Images.

Copa also has substantial operations flying to the U.S., Brazil, and Costa Rica, three other countries that have all imposed restrictions on travel. Because almost all of Copa's flights are international, the airline is likely to be more severely affected than others.

In the filing, Copa wrote:

The outbreak, and measures taken to contain or mitigate it, have had dramatic adverse consequences for the global economy, including on consumer demand, operations, supply chains and financial markets. We and the broader air travel industry have suffered unprecedented reductions in demand, which has significantly affected our business, financial condition and operating results.

Copa has not operated a commercial flight since March 22, and right now, it anticipates that the earliest it will be able to resume service is June 1. But the airline only expects to burn through about $85 million per month, giving it ample cash on its balance sheet to survive in the meantime.

Copa intends to announce final first-quarter results on May 6.

Now what

The good news is, Copa appears to have the liquidity needed to absorb the hits in the current environment and fly through the turbulence. The bad news is, the airline clearly sees no quick recovery. Even if Copa's planes resume flying on June 1, it seems unlikely international travel will quickly rebound.

Copa is the best-run airline in its region, and in good times, it provides U.S. investors with valuable exposure to Latin American markets. But with the industry potentially facing a multiyear recovery, I'd advise investors interested in dabbling in airlines to stick with more diversified U.S. airlines instead.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Copa Holdings. The Motley Fool has a disclosure policy.

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