Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings First Quarter Earnings Call. As a reminder, this call is being webcast and recorded on May 16, 2024. Now I'll turn the conference over to Daniel Tapia, Director of Investor Relations. Sir, you may begin.

Thank you, Varun, and welcome, everyone, to our first quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings; and Jose Montero, our CFO. First, Pedro will start by going over our first quarter highlights, followed by Jose, who will discuss our financial results. Immediately after, we will open the call for questions from analysts. Copa Holdings' financial reports have been prepared in accordance with International Financial Reporting Standards. In today's call, we will discuss non-IFRS financial measures. A reconciliation of the non-IFRS to IFRS financial measures can be found in our earnings release, which has been posted on the company's website, copaair.com. 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'd like to turn the call over to our CEO, Mr. Pedro Heilbron.

Thank you, Daniel. Good morning to all, and thanks for participating in our first quarter earnings call. Before we begin, I would like to extend my sincere gratitude to all our coworkers for their commitment to the company. Their continuous efforts and dedication have kept Copa at the forefront of Latin American aviation. To them, as always, my highest regards and admiration. Once again, we're pleased to report strong financial results. Despite facing a significant headwind in January with a partial grounding of our 737 MAX 9 fleet, we were able to deliver once more industry-leading operating margins while growing capacity year-over-year. These results were driven by a continued robust demand environment in the region and our ability to maintain low ex-fuel unit costs. Among the main highlights for the quarter, passenger traffic grew 7.1% compared to the same period in 2023. Load factor for the quarter came in at 86%. Passenger yields came in at $0.14, 3.8% lower year-over-year, while unit revenue or RASM came in at $0.125, a 4.6% decrease compared to Q1 '23. Unit costs decreased by 6.9% compared to Q1 '23, mainly driven by lower fuel, aircraft maintenance, and distribution costs. Excluding fuel, unit cost or CASM ex came in at $0.061, a 2% decrease compared to Q1 2023. As a result, the operating margin for the quarter came in at 24.2%, 1.9 percentage points higher than in the first quarter of 2023. On the operational front, during the quarter, Copa's on-time performance was again recognized by Cerium as the highest of any airline in Latin America. In fact, Copa's Q1 on-time performance, averaging above 90%, was the highest of any carrier in the Americas and amongst the highest in the world. I would like to take this opportunity to recognize our more than 8,000 coworkers who day in and day out deliver a world-class travel experience to our customers. Their contributions are key to our success. Turning now to our network growth plan. As we mentioned in our previous call, we expect to start 3 new destinations next month: Raleigh Durham in the U.S., Anapolis in Brazil, and Tulum in Mexico. I'm glad to comment that early bookings are coming in at healthy levels, and we expect these routes to have a solid start. With these additions, we'll serve 85 destinations in 32 countries, solidifying our leadership position as the hub with the most international destinations in Latin America. Turning now to our expectations for the rest of the year. We continue to see a healthy demand environment in the region. And as you saw in our earnings release published yesterday, we are reaffirming our guidance for the year, which includes an operating margin within the range of 21% to 23%. Jose will provide more detail during his presentation. To summarize, we delivered industry-leading first quarter financial results. We continue to deliver on our cost execution strategy. We'll grow to 85 destinations by this summer, further strengthening our network, the most complete and convenient hub for intra-America travel. We continue to see a healthy demand environment in the region and expect to once again deliver strong operating margins in 2024. And as always, our team continues to deliver world-leading operational results. Finally, our business model is as solid and as relevant as ever. And our hub of the Americas in Panama is the best connecting hub in Latin America, making us the best-positioned airline in our region to consistently deliver. Now I'll turn it over to Jose, who will go over our financial results in more detail.

Thank you, Pedro. Good morning, everyone, and thanks for being with us today. I'd like to join Pedro in acknowledging our great team for all their efforts to deliver world-class service to our passengers. I will start by going over our first quarter results. We reported a net profit for the quarter of $176.1 million or $4.19 per share. These results include the negative impact of approximately $44 million due to the grounding of 21 of the company's Boeing 737 MAX 9 aircraft in January and exclude any compensation from Boeing related to the grounding. We reported a quarterly operating profit of $216 million and an operating margin of 24.2%. Capacity came in at $7.1 billion available seat miles, or 8% higher than in Q1 2023. Load factor came in at 86% for the quarter, a 0.7 percentage point decrease compared to the same period of 2023, while passenger yields decreased by 3.8% to $0.14. As a result, unit revenues came in at $0.125 or 4.6% lower than in the first quarter of 2023, mainly driven by lower jet fuel prices. Unit costs or CASM decreased to $0.095 or 6.9% lower year-over-year. And finally, our CASM, excluding fuel, came in at $0.061, a 2% decrease versus Q1 2023, mainly driven by lower aircraft maintenance and lower distribution costs as we continue deploying our Corporate Connect NDC strategy. Excluding the negative impact on cost and capacity of the partial grounding of our 737 MAX 9 fleet in January, the company would have reported an ex-fuel CASM of approximately $0.58 for the quarter. I'm going to spend some time now discussing our balance sheet and liquidity. As of the end of the first quarter, we had assets of close to $5.2 billion. As for cash, short- and long-term investments, we ended the quarter with over $1.1 billion, which represents 32% of our last 12 months' revenues. In terms of debt, we ended the quarter with $1.7 billion in debt and lease liabilities and had an adjusted net debt-to-EBITDA ratio of 0.5x. I'm pleased to report that our average cost of debt, which continues to be comprised solely of aircraft-related debt, is currently in the range of 3.5%, with around 70% of our debt being fixed. Turning now to our fleet. We ended the first quarter with a total fleet of 106 aircraft comprised of 68 737-800s, 29 737 MAX 9s, and 9 737-700s. These figures include one 737-800 freighter and the nine 737-800s operated by Wingo. During the first quarter, and as part of our ongoing fleet management initiatives, we purchased two of our leased Boeing 737-800 aircraft. With this transaction, we ended the quarter with 73% of our aircraft being owned and 27% operating leases. As for our current MAX delivery scale so far in May, we have received two additional 737 MAX 9s, and for the remainder of the year, we expect to receive seven additional aircraft: one additional 737 MAX 9 and six 737 MAX 8 to end the year with a total of 115 aircraft. We have already secured Jolco Financing for all these 2024 deliveries. In April, we signed a confidential agreement with Boeing related to the January grounding. Following IFRS accounting standards, we expect that the compensation amount will be amortized through the depreciation line in our income statement over the coming four years. Turning now to the return of value to our shareholders. I'm pleased to announce that the company will make its second dividend payment for the year of $1.61 per share on June 14 to all shareholders of record as of May 31. Additionally, during Q1, the company executed approximately $40 million of its share repurchase program. As for our outlook, we are reaffirming our full year operating margin range guidance of 21% to 23% and a capacity growth in the range of 10%. We are basing our outlook on the following assumptions: a load factor of approximately 87%, unit revenues in the range of $0.12, CASM excluding fuel to be in the range of $0.59, and we are expecting an all-in fuel price of $2.85 per gallon. Thank you. And with that, we'll open the call to some of your questions.

Our first question comes from the line of Savi Syth of Raymond James.

I was wondering if you could talk about the unit revenue that you're basing your guidance on. It's kind of ticked down here a little bit. Just wondering what drove that and how you're thinking about kind of the year-over-year RASM progression over the next few quarters.

Yes, Savi, I'll start first. First, I have to say that our RASM performance or our outlook of $0.12 is still very strong. It's at very high levels compared to other periods that we've been in. Additionally, it's early in the year, so our visibility for the second half of the year is still limited. There's still a lot of water to come down the bridge. In general terms, we are in a competitive environment, so we're aware of that. Additionally, we have seen an increase in direct sales, which has resulted in a slight reduction in yields related to the surcharge that we're not recovering on tickets sold indirectly. So, it's a little bit of that as well. I have to close by saying that our guidance for the year is still in the 21% to 23% range, which is very strong performance for the full year. I don't know, Pedro, do you want to add something there?

Yes. Also, we're lowering our unit cost ex guidance, which is also very important because that's something we control better and gives us better control over our margin performance.

Valid point. I guess on that, just a follow-up on that comment, Pedro. Is this a pull forward of what you were expecting and kind of reflected in that $0.058 target for 2025? Or are you thinking is your unit cost kind of coming in better than you were thinking?

I think that it's in line with what we guided for our multiyear target of reaching 5.8% by next year. So, we're on track for that. And we're very confident and comfortable with our 5.8 target for 2025.

Our next question comes from the line of Duane Pfennigwerth of Evercore.

Very strong results, especially considering the grounding. On unit cost, obviously, there's some noise in the first quarter. But maybe you can just help remind us what are kind of the factors driving improvement in unit cost beyond the first quarter, maybe like normalized unit cost reduction. Can you just remind us what the maybe 1, 2, 3 drivers of that are?

Yes, Duane, great question. I would say that the number one item that continues being a great contributor to our reduction in CASM is distribution. It continues to be a great story. And so it's been a great component of our cost execution over the last several quarters, and we expect that to continue being a very good contributor to our cost base. Number two, I would say that maintenance last year had a slight increase related to engine issues. That, as we expected, is being more under control this year and we're getting some benefits in our maintenance line associated with some of the lease transactions that we've performed by buying and extending some leases that have improved our return conditions. So that's another item that I think is noteworthy. Going forward, remember that we are in the process of densifying a portion of our 737-800 aircraft. We expect that to conclude sometime in 2025, and that will also be a contributor to our CASM going forward as well. Of course, now there are headwinds in certain of our cost lines as well. There are inflationary pressures and costs that are more difficult for us to control, such as airspace, user fees, and airport charges, etc., that affect our improvements and efficiencies. But in essence, we are very confident about our cost performance going forward, and our track record has been very good after the pandemic.

We also keep our overhead cost very tight under control. So as we grow capacity, there's also a benefit there.

And then I guess just conceptually, how do you approach full year guidance at this time in the year? As you said, there's a lot of the game left to play in the second half. But if we were just considering the results here in the March quarter, and the outlook that you see right now, all else equal, does that put upward pressure on that range or downward pressure on that range? Because I agree it's hard to raise 22% to 23% EBIT margins at this point in the year.

Yes. It's early in the year, as you said. We never roll the dice. We're always pretty conservative in our outlook. And of course, we work very hard for our results to be in the upper half of our projections, and that's what we're doing right now.

Our next question comes from the line of Rogério Araújo of Bank of America.

I have a couple here. The first one, we noticed some weakness in Latin America yields for the U.S. airline this quarter. That was kind of a mismatch on what Copa reported. If you could please clarify a little bit on the differences in addressable markets between U.S. airlines and Copa and any differences that you are noticing in this trend of demand in those different addressable markets would be great. And I can make the second question afterwards.

Right. Thanks, Rogério. I would say the major difference is that we're extremely strong in intra-Latin America. The U.S. to Latin America is important to us, but we're much stronger in intra-Latin America. Plus U.S. airlines are very strong in U.S. to leisure Caribbean and U.S. to leisure Mexico, and those are not huge markets for us. We hardly operate in those markets. So we have differences, and our markets remain quite strong, despite the downward adjustment in unit revenues that we've already communicated.

Okay, pretty clear. And my second question is regarding the two purchases of aircraft that Copa did this quarter. How many aircraft are owned by Copa right now and are unencumbered? And is there a trend here? Can this continue to happen? And what do you think will ultimately increase the EBITDA cash conversion for the company in the future, if that keeps rising? So that's why I'm interested about it. But anything you could share would be great.

Yes, Rogério, we bought two of our aircraft that were under operating leases during the quarter, and we are expecting to be selective or opportunistic in terms of deploying capital that way. We believe the 737 NG is a great asset to own. And so we've been in negotiations with different lessors to see if we can find a convenient deal. In terms of the number of aircraft that we have unencumbered, just to give you a sense, in my prepared remarks, I mentioned that around 73% of our total fleet of 106 aircraft are owned by the company. In terms of the aircraft that are fully unencumbered in our fleet, it's around almost 40 of our aircraft that are fully unencumbered. So yes, it's quite a strong position that we have in terms of our fleet.

Our next question comes from the line of Helane Becker of TD Cowen.

I appreciate that you guys are conservative, but one question I had was with respect to Boeing delivery delays. I guess from what you said, Jose, you're not really expecting too many because you're thinking of ending the year with 115 aircraft. Does that include the 2 you bought off lease?

No, the two that we bought off lease were already in the base. So these are 9 deliveries that we're getting new from Boeing, of which we've already received 2 MAX 9. So we took delivery of 1 MAX 9 yesterday, and we have another MAX 9 coming next week. For the remainder of the year, the latest carriers that we will receive are 6 737 MAX 8s to end the year with 115 aircraft.

Okay. That's helpful. And the other question I had was with respect to your demand. You're seeing an 87% load factor, which I think you're forecasting for the quarter and the year as well. How does the demand look for either Panama South or within Panama relative to 3 or 5 years ago, since it's so much higher than it was back in the last decade?

Yes. It's stronger than before, definitely. For example, tourism in Panama is growing at a very healthy double-digit rate, and that's helping the O&D Panama traffic. Our main market is the connectivity we provide through our hub of the Americas. Our bigger markets are connecting up and down, east and west, and most markets remain robust in general terms. Even though there's a lot of new capacity from us and from other airlines, we're still guiding to a very high load factor, which speaks to the strength of the market.

Our next question comes from the line of Alberto Valerio of UBS.

Congrats for the results, really strong. Two quick ones on our side. First, one on tax rate. We see a slight increase in tax rate this quarter. Should we consider this for the future? And if you could remind us what the methodology is in Panama? I note 5%. And for the connections, you guys don't have to pay an extra tax.

For your planning purposes, you could assume that our blended tax rate for the full year 2024 should be around 14%. That's the best way to model it financially. Sorry, can you repeat the second question? Was it related to our fuel price assumption?

Yes. The fuel price on the guidance, you noticed that quarter fuel drops. But on the guidance, you keep of $2.85, just wondering if you are being cautious or if you see a worsening scenario for the future, or if the fuel price keeps the way that it is at this moment, we should see further decreases and margins should keep it stable as you planned in the guidance?

We use the fuel price that we see in the forward curve, and we simply include it in our guidance. We don't necessarily take a view on fuel and where it's going to be. We don't want to predict fuel prices. Therefore, it is based on the outlook we saw when preparing our full year guidance. It will vary throughout the year, but that's the price we looked at in the curve. Of course, that includes the realized price during the first quarter.

Our next question comes from the line of Michael Linenberg of Deutsche Bank.

Jose, I want to go back to just on the maintenance line, and this is sort of a follow-up to Rogerio's question. When we look at this quarter, what was the benefit in, I guess, maybe millions of dollars, that you got when you decided to put the airplanes on balance sheet and take them off lease? And the way you answered this question, I got the sense that this will continue through the year, that maybe you're contemplating additional transactions through the year to take, whether it's 800s or whatever, off lease and put them on balance sheet?

Yes. The best way to model it from a CASM perspective is that we expect the maintenance CASM line to remain relatively stable throughout the year. There could be further transactions going forward related to leases as well. However, we have good conditions that create benefits in the maintenance line compared to last year. So, it's a mix of things. I would say that the lease transactions and lease extensions represent about half the benefit, and the other half is related to maintenance and engine-related items that impacted us last year but are under control this year.

Great. That's super helpful. And just my second question, when we look at your fleet plan in November of 2023 when you were sort of telling us what you were contemplating for the full year, this is obviously before the door plug. You were going to get 15 airplanes and then we went to 11 and now we're at 9. And I'm not even sure are we even going to get 9 based on what we're hearing from other carriers and news coming out of Boeing. Where was your gross CapEx? What was the gross CapEx plan for 2024 when it was 15 and now that we're at 9? Where are we now in, call it, I guess, hundreds of millions of dollars? What's the rough number?

Right now, our estimate for CapEx with this fleet plan, the gross capital is around $700 million. With the original fleet plan, it was in excess of $1 billion.

It's great. I'll rather hear your comments. But no, what I was going to add is that most of our growth in ASM this year will come from the full-year effect of our growth in 2023. So, even if some of our later deliveries get delayed into the following year, it won't have a significant effect on our projected ASM growth for 2024.

That's kind of the reason why the capacity guide stayed the same at 10%. We already assumed a set of delays on these deliveries as impactful to the year.

Our next question comes from the line of Pablo Monsivais.

Just two questions. One is related to Mike's and I want to make sure that I get the number of the CapEx guidance for 2024. I heard it was $700 million, but just want to make sure about that. And the second question is, I want to pick your brain on the competitive landscape. Some Latin American carriers are putting more capacity; other U.S. carriers are saying there's overcapacity. What are your thoughts on where the competitive environment is moving?

Yes. Our main competitors in the region, and I will name them, have been growing capacity at a pace that's probably 2x and at times, 3x our own. But coming out of the pandemic, we grew a lot faster than them. They have caught up in this past year, but I expect their growth to slow down year-over-year as they lap the previous growth. So far, our load factors remain high. I'm not sure about theirs, but ours remain high. The market has been able to absorb the capacity, and I'm hoping that capacity growth will be rational going forward. The airlines in our region are well-managed, and everybody wants to deliver strong financial results, which means they're typically rational with capacity. So far, the market has responded well.

Our next question comes from the line of Daniel McKenzie of Seaport Global.

Congrats on the stellar first quarter results. I've got a couple of questions here, really focused on sort of the longer-term investor perspective. The first one really just is on growth and revenue segmentation. With respect to growth, just how sustainable is it, and how are you thinking about the right growth rate longer term? Separately, I'm wondering if you could share what percent of the overall revenue is perhaps premium revenue? I know you don't break out corporate, and that's not the question here; it's just similar to how U.S. airlines are defining it from a segmentation perspective.

Okay, Dan, let me give it a shot. We are confident that we can sustain an ASM growth rate above what you're seeing right now, around 10%. We planned to grow more than 10%. We didn't get all the deliveries we expected, but we're fine with that. Next year, we should be growing at over 10%. You won't see us growing at 20% or 30%, but somewhere between the low teens to the mid-teens is likely over the next number of years, and we see good opportunities in terms of market demand and new destinations. We're confident that we can maintain a really healthy ASM growth for a number of years, medium to long term. We always remain flexible to adjust either way, so we can grow faster if the opportunity presents itself, but we are always cautious to cover the downside. That's important for our Board's mentality. In terms of revenue segmentation, leisure has become, after the pandemic, a high-quality segment. Today, our leisure revenue is around 40%, visiting friends and relatives is in the 35% range, and business is in the 25% to 20% range depending on the quarter. Leisure, in particular, is different than before. There is a segment of leisure that is a bit more higher fare.

That was terrific. And then going back to an earlier question. For those investors trying to understand the margin outperformance in the current cycle versus the last cycle, what are the top 3 factors behind that from your perspective? So the 21% to 23% margins today versus 18% to 20% historically. Is it as simple as pent-up demand, perhaps high-value leisure, or is it more structural in nature, given your cost structure? The question focuses on how longer-term investors should think about the business.

That's an interesting question and allows me to briefly discuss how we have evolved as a company. One of our values is continuous improvement, and we're always seeking better ways to operate. Compared to pre-pandemic, we have better unit costs and revenue management. We can sell basic fares without much included except for additional payments as passengers pay more. We've streamlined our network; there are still around 8 destinations we were flying before that we're not maintaining now, but we've added between 12 and 14 new destinations. We aim to have 85 destinations by next month, which is 5 more than in 2019. We are a better airline, more efficient, effective, and competitive. We also have to compete more; we couldn't just sit back and see what would happen. That's a reason for the margin performance we're achieving.

Our next question comes from the line of Guilherme Mendes of JPMorgan.

My first question is on capital allocation. We continue to see leverage coming down. How should we think about capital allocation going forward? If any excess capital should be distributed as dividends and buybacks? Is there an optimal level of leverage to consider for long-term growth and profitability going forward? The second question is on Colombia. I know it's relatively small for you, but if you could share how Wingo is performing and the competitive environment in Colombia following the exit of 2 airlines from the market last year.

In terms of capital allocation, our balance sheet is currently in a very strong leverage position. We have a lot of aircraft coming in, with substantial capital expenditures in the upcoming 1.5 years. Our fleet plan includes around 16 aircraft arriving next year, so considerable growth is being reinvested into the business for the foreseeable future. We have also been active in returning value to our shareholders; this year, the Board decided to almost double the dividend compared to last year, and our policy is to distribute value to our shareholders as the business continues to succeed.

In terms of Colombia, it remains a very competitive market. It experiences waves, but it is historically competitive. The capacity in domestic Colombia is currently around 20% higher than before when the two airlines that failed were operating, including one new entrant that started late last year, plus growth from incumbents. Wingo is performing well; they might be the best performing airline in Colombia. We're keeping capacity flat at Wingo; they operated 9 aircraft last year and are operating 9 aircraft this year. It's just a very difficult market, so we're keeping capacity under control and achieving healthy results.

And our last question comes from the line of Jay Singh of Citi.

It's Jay Singh dialing in for Stephen Trent. My first question is regarding the U.S. market. We see that inflationary pressures pushed CASM ex above 2019 levels, and this is likely to continue going forward. As for Copa, how are you executing on the cost side and realizing in terms of maintaining such a low CASM next year?

Yes, Jay. We are well aware that the U.S. has been experiencing a significant period of inflation over the past few years. We're seeing some of that in airport fees and handling fees in the U.S. However, in Latin America, the inflation has not been as prevalent. Therefore, we have not faced as much pressure compared to U.S. airlines. Along with that, we've been actively pursuing improved operations, seeking reductions in costs and efficiencies post-pandemic. Our overhead, fleet decisions, distribution strategy, maintenance, specification, and more have all contributed positively. While we see some inflation in the U.S., it is not at the same level as U.S. carriers.

And my second question is, how are you able to maintain the 10% capacity guidance in spite of the Boeing delivery delays?

Yes, the 10% growth rate assumes our current scenario for aircraft deliveries for the remainder of the year. A large part of our growth in 2024 is simply the full-year effect from the capacity we added throughout 2023. Therefore, any later-delivered aircraft don't have that much impact on our capacity guidance for 2024.

This concludes the question-and-answer session. I would now like to turn it back to Pedro Heilbron for closing remarks.

Thank you all. This concludes our first quarter 2024 earnings call. Thank you for participating. And as always, thank you for your continued support. I hope you have a great day.

Ladies and gentlemen, thank you for your participation. This does conclude the presentation. You may disconnect, and have a wonderful day.