Ladies and gentlemen, thank you for standing by. Welcome to Copa Holdings First Quarter Earnings Call. During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this call is being webcast and recorded on May 8, 2025. Now I'll turn the conference call over to Daniel Tapia, Director of Investor Relations. Sir, you may begin.

Thank you, Marvin, and welcome, everyone, to our first quarter earnings call. Joining me today are Pedro Heilbron, CEO of Copa Holdings; and Peter Donkersloot, our CFO. First, Pedro will start by going over our first quarter highlights, followed by Peter, 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 the 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, corpaair.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. First, I would like to extend my sincere gratitude to all our coworkers for their commitment to the company. Their dedication and hard work have been instrumental in keeping Copa at the forefront of Latin American aviation. To them, as always, my highest regards and admiration. As you could see in our earnings release, we're pleased to report a strong start for the year, delivering solid first quarter financial results. Our 23.8% operating margin in Q1 is a testament to the resilience of the company's business model as we navigate a lower year-over-year passenger yield environment. Our ongoing focus on maintaining lower fuel unit costs, leading on-time performance and a passenger-friendly product, as well as continuing to expand our hub of the Americas in Panama, remains key to consistently achieving industry-leading margins and financial results. Among the main highlights for the quarter, capacity increased by 9.5% year-over-year. Adjusted for the MAX-9 grounding in Q1 2024, capacity would have increased by 4.6% for the quarter. Passenger traffic grew by 10.1% compared to Q1 2024. As a result, load factor for the quarter increased by 0.4 percentage points to 86.4%. Unit revenues, or RASM, came in at $11.05, an 8.1% decrease compared to Q1 2024, mainly driven by a 9.1% decrease in passenger yields. Continuing the trend of the second half of 2024, passenger yields were affected by additional industry capacity in the region and a weaker currency environment in certain Latin American countries. Unit costs, excluding fuel, or CASMx, came in at $5.08 in the quarter, representing a 4.3% decrease compared to Q1 2024. This improvement was primarily driven by lower sales and distribution expenses, a reduction in passenger servicing costs related to the MAX-9 grounding in the first quarter of 2024 and continued discipline in managing headcount and overhead to fully benefit from the airline's growth. As mentioned before, operating margin for the quarter came in at 23.8%. On the operational front, Copa Airlines delivered an on-time performance of 90.8% and a completion factor of 99.9%, once again positioning ourselves among the best in the industry. With regards to our network, we recently announced service to three new cities: San Diego, California, starting in June; and Salta and Tucuman in Argentina starting in September. As we continue strengthening our position as the most complete and convenient connecting hub for travel in the Americas. Turning over to Wingo, during the quarter, Wingo added one new domestic Colombia route between the cities of Bucaramanga and Santa Marta. As mentioned in the previous call, Wingo will receive an additional 737-800s from Copa during the second half of this year to end the year with a fleet of ten 737-800s. With regards to our expectations for the year, we’re increasing our 2025 operating margin guidance to a range of 21% to 23%, mainly driven by a lower fuel cost outlook and steady passenger demand. While there are still many months before the end of the year, we feel confident that our robust business model, based on our hub of the Americas in Panama, low unit cost, diversified network and passenger-friendly product makes us the best positioned airline in our region to consistently deliver industry-leading results. Now I will pass it over to Peter, who will go over our financial results in more detail.

Thank you, Pedro. Good morning to all, and thanks for joining our call today. First of all, I’d like to join Pedro in recognizing our team for their dedication to the airline and our passengers. For the quarter, we reported a net profit of $176.8 million or $4.28 per share, representing a net margin of 19.7%. Operating profit for the quarter came in at $213.8 million, and we reported an operating margin of 23.8%. In terms of our balance sheet, we ended the quarter with over $1.3 billion in cash, short- and long-term investments, which represents 39% of the company’s last 12-month revenues. I’d like to highlight that this figure excludes over $600 million in predelivery deposits for new aircraft. We have also 39 unencumbered aircraft in our fleet. In terms of debt, we ended the quarter with $1.9 billion in debt and lease liabilities and an adjusted net debt-to-EBITDA ratio of 0.5 times. I would like to highlight that our average cost of debt, which is entirely related to aircraft financing, remains highly competitive at an average rate of 3.5% with approximately 65% of this debt at lower fixed rates. I’d like to emphasize that our robust liquidity and strong balance sheet remain key strengths of the company. Turning now to our fleet. During the quarter, we exercised options for six additional Boeing 737 MAX-8 aircraft to be delivered in 2028. With these confirmed options, our outstanding order book increased to a total of 57 aircraft. We plan to retire one of our nine Boeing 737-700s during the second half of the year and we now expect to end 2025 with a total of 125 aircraft. During 2026, we expect to receive six Boeing 737 MAX-8 and preliminarily end the year with a total fleet of 131 aircraft. Turning now to the return of value to our shareholders. I'm pleased to announce that the company will make its second dividend payment of the year of $1.61 per share on June 13 to all shareholders as of May 30. As to our 2025 outlook, we are increasing our operating margin guidance for the year to a range of 21% to 23%. We expect to grow year-over-year ASM capacity within the range of 7% to 8%. We're basing our outlook on the following assumptions: load factor of approximately 86.5%, unit revenues of approximately $0.112, CASM-ex fuel of approximately $5.8, and we are expecting an all-in fuel price of $2.40 per gallon. Of course, we remain mindful of the uncertain economic environment. But as of now, we see healthy passenger booking trends. But if this were to change, we are confident that we are in the best position to continue delivering industry-leading results. Thank you, and we will now open the call to questions from the analysts.

Thank you. We will now begin the question-and-answer session. Our first question comes from Savi Syth of Raymond James. Your line is now open.

Hey, good morning, everyone. I think, Peter, you mentioned that the demand environment is still healthy. And then clearly, the headlines have changed quite a bit. I'm just curious what if you've seen any kind of change in either U.S. point-of-sale strength or kind of any regional differences since the last earnings call? Or if it's just consistent with what you've been seeing before?

Hi Savi, it's Pedro here. We haven't seen any material change in the last few weeks, let's say. So we're still seeing steady demand but as we know, we only have visibility two to three months in the future. So what's coming in the second half of the year is hard to tell at this point.

Makes sense. And then if I might follow up on that line. You mentioned Pedro, the competitor – the capacity in the region stepping up. I wonder if you can kind of talk a little bit about if you're seeing any changes on that front or what – if there is any certain regions where you're seeing more pressure?

Yes. No, we have not seen any changes lately again. Industry capacity, if we think over the next two quarters, which is where we have more visibility, overall industry capacity in our network, in our region for the second quarter is growing in the neighborhood of 6% and then a little bit higher, close to 10% in the third quarter. That’s what we’re seeing right now but that is an average. There are some competitors or maybe a single competitor that’s growing 2 or 3 times this pace, in this region and others that are flat, so it averages out to the numbers I just shared.

Understood. Thank you, Pedro.

Thank you. Our next question comes from Duane Pfennigwerth of Evercore ISI. Your line is now open.

Hi guys, good morning.

Good morning.

Just with respect to the distribution cost savings, can you remind us, sorry, of the baseball analogy, what inning you’re in that? Is there additional cost to save? And are there other cost initiatives that can contribute incrementally from here?

Yes. Duane, I’ll let Peter answer. But with Panamanians, you can use the baseball analogy. No problem.

So thank you for the question. I would say our distribution costs, we’re still seeing some full year effect of what we saw during the later part of the year. So we’re going to see some of that during the first quarter and on the first half of the year and more to come on savings on our distribution strategy, and that it will flatten out. But we’re still looking for additional initiatives, and we believe there is more. We are now at 85% direct or via NDC. So we feel that that’s a good place to be, and we expect that to be steady for the coming quarters.

And I would add that we recently added Expedia to our NDC channel. So that’s another positive development in the right direction.

Okay, great. And then just with respect to the fleet plan, the six deliveries that you called out, next year. Can you just remind us where are you on your utilization relative to potential? And how do we think just big picture about the range of outcomes on growth into 2026? Thank you.

Yes. In terms of utilization, we’re always around the 12 hours on average, and that’s where we were in the first quarter. We’re about 12 hours of utilization. And that should not change much with the future deliveries. Actually, we strive for that number or in that range. And we’re expecting 13 aircraft this year. Most are going to come, we haven’t received any aircraft yet or you know that none in the first quarter and the first month, we should get in this month of May, we should get two in this month of May, then the third one should come in July. And then the rest are mostly towards the end of the year. So we won’t see most of that growth impact this year. We’ll see it in 2026 for sure. I don’t think we’ve shared a 2026 ASM growth numbers yet, right? But you can do your numbers. I mean most of the aircraft come towards the end of the year.

Okay. Thank you.

Thank you. Our next question comes from Guilherme Mendes of JPMorgan. Your line is now open.

Hi, Pedro, Peter, Daniel, good morning. Thanks for taking my question. First one is a follow-up to the first question in terms of demand. If you could break it down between leisure VFR and corporate, how each of the segments have been performing? And the second point on the RASM performance, you also mentioned we have been seeing that FX and competition has been impacting it, but can you try to better understand the breakdown between the two of them and the two effects, which was it's put more pressure on RASM? Thank you.

Yes. It's – okay. So I'll give you the breakdown, then if Peter needs to add anything. So business is around 20% right now and Q1. And then leisure is about 45%, I believe. Yes, it's 20% business, 45% leisure. Then the difference, of course, VFR in terms of the breakdown. In terms of our routes, well, I'll give you like an overview, a quick overview. So South America is doing fine with the exception of Brazil where we still have some yield weakness because of the currency situation. Load factors are healthy in Brazil, better than last year, but yields are still down in Brazil. The rest of South America is okay. North America and the Caribbean is okay also, demand yields are fine. Where we see a little bit more weakness mostly due to competitive capacity is in Mexico and Central America.

Thank you. Our next question comes from the line of Stephen Trent of Citi. Your line is now open.

Good morning, gentlemen, and thanks very much for taking my question. Actually, first, just a quick follow-up on what Guilherme was asking. I appreciate the color on business versus leisure in VFR. Any high-level view on how that may have changed versus a year ago, considering now, for example, that there is no feed from the Venezuelan market? Or is Venezuela just too small to move the needle? Thank you.

Right. It hasn't changed much. It hasn't really changed much. And actually, the Venezuela feed would have fit well with this breakdown. So no, we haven't seen any material changes.

Great. Thank you, Pedro. Appreciate that. And just another question as well when we think about the flow on the cash from investing side. I guess for the quarter itself, I appreciate the color that you mentioned that most of the planes haven't come in yet, but the 1Q cash from investing was basically sort of financial transactions from you guys? We just wanted to make sure.

Yes. Most of it was financial investments and we did pay PDPs of around $150 million during the quarter. The rest of it was mostly a cash investment.

Okay, super. Thanks very much.

Thank you, Steve.

Thank you. Our next question comes from Jens Spiess of Morgan Stanley. Your line is now open.

Hello. Thank you for taking my questions, and congrats on the strong results. Just want to ask a hypothetical question. In case that you do see a bit more weakness across markets, how much flexibility do you have to potentially reduce capacity or not grow to the same extent?

Yes, okay. So I’ll say a few things there. Number one, we do have a lot of flexibility. We have 39 unencumbered aircraft, including the 737-700. Nine of them were actually going to part out of one in the second half of the year because we have enough 737 MAX eight deliveries, and we actually will make money parting out of that aircraft. We don’t need the extra capacity, and the engines and other components are extremely valuable right now. So it can be a good business to part out of an aircraft if the capacity is not needed. We will save on the 20-year check. So we have nine 700 that we could park, use the engines, use components. We have another 39 unencumbered aircraft. So that gives us a lot of flexibility in terms of what we do with our fleet. But I think as important to that is that we have a very diversified network and we have a number of markets of routes where we actually could use more capacity. So if we see slow – a slowdown in certain markets, probably not going to be everywhere, and we can shift capacity around. One of the advantages we have is, we have a single 737 fleet and our aircraft can serve any of our routes. So we can move aircraft around in case one region slows down more than others. So we feel pretty comfortable. And I think we have demonstrated in the past that we can be flexible. We can adjust and continue delivering strong results under different environments.

Perfect. Yes, I think you’re already proving that. So, yes, congrats. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Rogerio Araujo of Bank of America. Your line is now open.

Hello, Pedro, Peter. Congratulations on the results. I have a couple here. First one, you are guiding $2.4 of fuel per gallon. But we estimate the current oil price curve would point to a little bit 10% lower than that. Does it make sense? And if so, would there be about 2 percentage points of incremental margin if oil remains as it is? That’s the first one. Thank you.

Thank you. So when we built our guidance, we took a curve – we used a recent curve. And as you know, fuel is very volatile. So it can go up or down, and we don’t adjust our estimates daily. We feel comfortable right now with our fuel and RASM that we publish on the guidance. And we feel that that should go very well with our guidance on margins at this moment. And that’s what we see. Of course, everything can change tomorrow. But right now, with the current information we have, we feel comfortable with that combination of RASM and fuel.

And I will add, of course, if fuel stays where it is today and RASM stays where it is today, yes, margins would be better, but that’s not in our guidance.

Okay. Fair enough. Thank you. And the second one is on dividends. We estimate now a payout range of 36% for the year, including the announced dividends. Is there further room for incremental payments or share repurchasing?

So we pay dividends based on last year's earnings. So right now, we're paying a dividend around – where our policy is paying 40% of last year's net income. And right now, we decided to maintain the dividend flat. So we're more or less at 44% of last year's net income.

And then in terms of the buyback, we do have a plan that has been approved by the Board. It's a $200 million plan, we bought $87 million last year. So we still have $113 million left of that plan. And we will gradually do some buyback within what's approved by the Board, which it's an amount we're comfortable with.

Okay, perfect. Very clear. Thank you so much.

Thanks.

Thank you. Our next question comes from Michael Linenberg of Deutsche Bank. Your line is now open.

Hey good morning. Pedro, Peter and Daniel. I want to go back to just your assumptions for 2025. I thought it was interesting that even though we're going to see greater than a 10% cut in fuel, that's the new assumption, that the RASM change, it's only a modest deterioration. And I know that you called out yield pressures as being an issue in the March quarter. You talked about competitive capacity and FX pressuring yields. Pedro, in the past, when we would see energy prices move up, when they were a function of an improving global economy. For the most part, you would always be able to pass on, call it, 100% of that fuel price increase into the fare structure. And now we're seeing it in reverse, but it looks like that you're actually holding the line on pricing. And I'm curious what gives you the confidence? And maybe the fact that you are growing very slowly this year, you're only going to grow about 6% in the back half of the year. Is that giving you the cushion and the ability to really maintain pricing firm despite the fact that things may be actually slowing down? Just thoughts on that.

Yes. I'll say a few things. First, that it's still early in the year, it's early in May. We have a lot of runway ahead of us to cover. So we're not getting ahead of ourselves. Our RASM guidance is based on what we can see right now for the next two months to three months is where we see some weakness. We have lowered our RASM, but not significantly, as you said. But it's the visibility we have today, a fuel in our curve is not as low as what it is today. Rogerio mentioned that. But that is what we saw kind of two weeks ago, a little bit more. So we're not like every day adjusting our guidance and our outlook because of the volatility in fuel. So if we think of where's our fuel guidance and we think of our bookings right now two months to three months in the future. Our RASM is in – our RASM takes that into account. And there's still other developments that can happen in the year, for example, well, we're growing not that fast, which is a point you raised, which is very true. So we're not actually dealing with overcapacity. We're actually tight in capacity. We wish we had a few more planes, but that's not our reality right now. And then Brazil could strengthen who knows and one day, Venezuela could come back. And so it's early in the year, we're not getting ahead of ourselves.

Okay, great. Thanks for that, Pedro. And just one quick follow-up. You did call out weakness in Mexico. And I'm curious, I know on the Volaris call, they did talk about the new agreement that they had with you. And I don't know if you can give us some details on it. Maybe it's just a code share. But I guess that agreement, in theory, should help mitigate some of the weakness that you're seeing in Mexico, right? If you're able to code share to many of Volaris' markets from, I guess, what do you serve four gateways in Mexico?

Four, yes, correct. Yes. Monterrey, Guadalajara, Mexico City and Cancun, our four gateways in Mexico. And yes, our weakness in Mexico comes mostly from competitive capacity because we're not in the Mexico U.S. market. We're in the Mexico to Latin America and Caribbean market, which is very different and is not affected in the same way. But there is more capacity in that market, and that's why we've seen some weakness. Although load factors are quite okay still. Yes the Volaris agreement is very positive. We'll get feed – Mexico is the second largest market in Latin America after Brazil and it has many, many large cities that we're not going to be flying to, but connecting through the Volaris network, especially out of places like the city of Mexico and Guadalajara is going to be a very positive development, no doubt.

Okay. Great. Great numbers this quarter.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Alberto Valerio of UBS. Your line is now open.

Good afternoon from Brazil. Pedro and Peter, thank you for taking my question. A follow-up on the previous questions about capacity. We see with the tariffs, some uncertainty on American carriers about receiving aircraft this year. Can this benefit Copa? Also, China, if they do not receive the Boeing 737 MAX that they're expecting to receive? Can Copa anticipate some deliveries for this year or the beginning of next year? Thank you and congrats for the call for the results.

Thank you, Alberto. We're not seeing that right now. Our deliveries are going to be what we have communicated. We don't really see an opportunity to advance. We would love to do so. But – and what the information we get from Boeing is that our deliveries are not really going to change; at least they're not going to be earlier. I mean, they might be earlier by a few weeks or something if Boeing has a little bit more available capacity, but nothing significant. Those are not the signals we're getting.

Okay. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Thomas Fitzgerald of TD Cowen. Your line is now open.

Hi, thanks so much for the time. Quick one on other operating revenue. You called it an increase in ConnectMiles from non-air partners. Would you just mind elaborating on – was that like one partner in particular? Or what were some of the drivers behind that?

Yes. So we – our ConnectMiles program has matured and it has been growing at a decent rate. It's not necessarily were one air partner in particular. It has been a non-air partner. It has been growing with different partners across the region and open up in different countries. So we see that it's been growing steady, and we're happy to see that growth continue.

And it's mainly bank – of course, bank partners, which we are opening up relationships in new countries.

Okay. That's really helpful. And then just another quick one on the fleet. Just with the options in 2028, I know it's far off and fluid, but just any sense of how we should think about the size of the fleet in 2027 and 2028, just as people kind of start looking out beyond 2026? Thanks again for the time.

Yes. Yes, we have 57 737 MAX pending delivery. This year we're supposed to get 13 and then the following year in 2026, the number is six. So you can deduct those from the 57, and the others are going to come mostly in the following four years – actually all in the following four years.

Thank you. One moment for our next question. And our last question comes from the line of Daniel McKenzie of Seaport Global. Your line is now open.

Hey. Thanks for squeezing me in, guys. A couple of questions here. Going back to Savi's question, a follow-up on the U.S. Can you remind us of how it's performed historically, say, under a garden variety downturn, so stable, more volatile? And I think what's new, by the way, today is just a deeper relationship to Star, which I think is contributing to some premium revenue as well as investments in Latin America from other countries that are driving some growth in the region. So just trying to get a sense of puts and takes on U.S. demand and how that could potentially be offset elsewhere?

Yes. We're optimistic or cautiously optimistic. We never get too excited about anything. But sometimes when the U.S. slows down, it becomes better and more affordable to fly shorter distances to other parts of the world versus going to Europe or Asia. So that's one way we could see demand less affected than what one would expect. Also, the currencies in Latin America strengthened. We show more in, let's say, in South America, than in North America, although it's not as in balance as before, it's much more balanced. But then so if the currency strengthened in South America and the economies are doing well, then we can get more traffic going south to north. So we're very diversified in the type of our market and the type of our traffic, the countries we serve and very spread out also in a way. So in the past, we've been able to adjust capacity and the market has – demand has adjusted in the market by itself also has rebalanced. So we feel we're in a good position. And also, I should add that we have industry-leading low costs, which also allow us to be very competitive under any circumstance.

And then the second question here. And to the extent that you can comment on Star premium revenue as well. But the second question here on the schedules data, I am seeing some growth to some vacation destinations or at least it looks like that. So just a couple of questions on that. Can you remind us if Copa has a vacation package? And if so, how that's contributing to the financials? And how would you think about the opportunity of that product in the future?

Yes, we don't really have – I mean we have – within our commercial department, we have a team that looks after our, let's say, vacation wholesalers and we have good relationships with a group of wholesalers in South America mainly, but in other countries in the U.S. also. But we don't have a specific vacation focus. We do deal with the wholesalers, and we're very active. And yes. So nothing that I could highlight.

Okay. Thanks so much for the time, you guys.

Thank you, Dan.

Thank you. I'm showing no further questions at this time. I'll now turn it back to Pedro Heilbron for closing remarks.

Yes, thank you. Thanks operator. So thank you all. This concludes our earnings call. Thank you for being with us, and thanks for your continued support, as always. Have a great day. Thank you.

Ladies and gentlemen, thank you for your participation. That concludes the presentation. You may disconnect, and have a wonderful day.