Earnings Call Transcript - CPA Q4 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to Copa Holdings Fourth Quarter Earnings Call. As a reminder, this call is being webcast and recorded on February 11, 2020. I will now turn the conference call over to Raul Pascual, Director of Investor Relations. Sir, you may begin.

Raul Pascual, Director of Investor Relations

Thank you, Celine, and welcome, everyone, to our fourth 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 the actions the company has taken to mitigate the impacts of the COVID-19 pandemic; followed by Jose, who will discuss our fourth quarter and full year financial results. Immediately after, we'll open up 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, copa.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 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.

Pedro Heilbron, CEO

Thank you, Raul. Good morning to all, and thanks for participating in our fourth quarter and full year earnings call. I hope that all of you and your families are doing well and staying safe. Before we begin, I'd like to thank all coworkers for their commitment to the company and recognize their continuous efforts and many sacrifices during these difficult times. To them, as always, my utmost respect and admiration. It goes without saying that 2020 was the most challenging year the industry has ever faced. And while we all hope 2021 will be better, we know it's going to be a long and twisting road to recovery. During the year, we undertook several actions to strengthen the company and mitigate the impact from the COVID-19 pandemic, including tapping into new liquidity sources, raising more than $650 million via a convertible bond issuance and several secured and unsecured committed credit facilities, recognizing the severity of this crisis early on and aggressively canceling or deferring all capital expenditures that were deemed nonessential. And immediately began a series of cost reduction initiatives, including contract renegotiations with suppliers, and a thorough evaluation of our entire cost structure; adjusting the company's size to better match future capacity over the next few years, while retaining the flexibility to accelerate or slow down our capacity redeployment plans if needed; simplifying our fleet by retiring 14 Embraer-190s and 14 737-700s, which will eventually lead to significant improvements in unit costs; implementing robust biosafety protocols and a simplified onboard product offering to ensure the safety of our passengers and crew members; providing flexibility to our customers by waiving change penalties and offering credits for future travel, which led to most passengers keeping their tickets despite the prolonged stoppage of our operations. And to this day, we continue implementing new initiatives to mitigate the impact from the pandemic, strengthen the company, and facilitate safe and efficient travel experiences for our passengers. For instance, earlier this month, IATA announced a coordinated effort with the government of Panama and Copa to trial the new IATA Travel Pass, a mobile app to help passengers securely manage their travels in compliance with the COVID testing and/or vaccine requirements of their destinations. Panama is the first country to agree to participate in the trial and Copa, the first airline to do so in the Americas. We believe initiatives like this one are essential to the recovery of international air travel. Turning now to our fourth quarter results. As per the plan communicated in our last earnings call, after virtually no operations in more than 5 months, we successfully restarted the hub in the fourth quarter, increasing capacity to 15% in October, 28% in November, and 39% in December as compared to the same months in 2019, and ended the year having restarted service to 51 destinations. A combination of pent-up demand and holiday season VFR travel resulted in a healthy 75% load factor for the quarter. We were encouraged by the demand patterns we saw, and we're hopeful for these trends to continue into the first quarter of 2021. As you've heard from other industry reports, this is not the case. COVID cases started spiking throughout the world during December. A new, more aggressive COVID variant has led to additional international travel restrictions and a deteriorating demand environment. As a matter of fact, yesterday, we released our January 2021 traffic figures, reporting load factors of 63% compared to 75% reported for December 2020. Jose will provide our current outlook for the first quarter, which includes a revised capacity plan, our latest revenue assumptions, and an update in the cash consumption figures. Finally, I'd like to reiterate that we have a proven and very strong business model, which is based on operating the best and most convenient network for intra-Latin America travel from our Hub of the Americas; leveraging Panama's advantageous geographic position with the region's lowest unit cost for a full-service carrier, best on-time performance, and strongest balance sheet. Going forward, the company expects that its Hub of the Americas will be an even more valuable source of strategic advantage. It's likely that fewer intra-Latin America markets will be able to sustain direct point-to-point service, so we believe the Hub of the Americas will be best positioned to serve this market. Now I'll turn it over to Jose, who will go over our financial results in more detail.

Jose Montero, CFO

Thank you, Pedro. Good morning, everyone. I hope that you and your families are safe and doing well. Thanks for being with us today. I'd like to join Pedro in acknowledging our great Copa team for all their efforts and great spirit during these very challenging times. I'll start by going over our full year results. Due to airtime restrictions related to the COVID-19 pandemic and the shutdown of operations in the last week of March and until the middle of August, our full year came in more than 7% below 2019. We reported a net loss of $598.6 million for 2020 or $14.08 per share. Adjusting for special items, we would have reported a net loss of $259.5 million or $6.11 per share. Special items for the full year included a $191.2 million impairment charge of the 737-700 fleet, a realized mark-to-market loss of $98.7 million related to the company's convertible notes, and a $49.1 million loss on the sale of the Embraer-190 assets. On an operating basis, we reported a full year loss of $460.9 million, $220.6 million when adjusted for special items. Turning now to the fourth quarter. Our capacity came in at $1.7 billion available seat miles, which amounts to about 27% of the capacity operated during the fourth quarter of 2019. We reported a net loss of $168.8 million or $3.97 per share. Excluding special items, we would have reported a net loss of $85.2 million or $2 per share. Special items for the quarter are comprised mainly by an unrealized mark-to-market loss of $80.1 million related to the company's convertible notes and a $4.4 million impairment charge on the 737-700 fleet. In terms of operating results, we reported a $95.1 million loss for the quarter or $91.5 million when excluding special items. Our cash consumption for the fourth quarter came in better-than-expected at an average of $6 million per month, in part benefiting from the positive effect of the ramp-up in sales as a result of establishing operations as well as the settlement of a lower level of payables for variable expenses, given the small operational base in the third quarter. Our expenses for the quarter reflect some of the savings initiatives we implemented throughout 2020. However, a set of our expenses from the quarter will show up as part of our Q1 2021 cash outflows given the ramp-up in capacity during the latter part of the fourth quarter. I'm going to spend some time now discussing our balance sheet and liquidity. As of the end of the fourth quarter, our cash, short and long-term investments ended at $1 billion. We also ended the year with an aggregate amount of $305 million in unutilized committed credit facilities, which added to our cash and equated to more than $1.3 billion of total available liquidity. We expect to continue working on strengthening our liquidity during 2021. In fact, since the beginning of the year, we have added new credit commitments in the amount of $40 million, bringing our total undrawn committed credit facility to $345 million. As to our debt, we ended the year with $1.4 billion of debt and lease liability. Turning now to our fleet. According to the fleet plan we laid out in the last earnings call, during the fourth quarter, we finalized the sale of delivery of 5 Embraer-190s. And as of today, we have delivered 7 out of the 14 aircraft we agreed to sell to the third party. We expect to have delivered the entire Embraer-190 fleet by June 2021. We're pleased to report that we started operations on the MAX fleet in December, and also took delivery of 1 new MAX 9 during the month. The 737 MAX 9 shows very unique service and performance in our network. We ended the year with 75 aircraft, 68 737-800s and 7 MAX 9s. Included in these figures are 17 737-800s, which will remain in temporary storage until the demand trends call for additional mid capacity. During the fourth quarter, we also renegotiated a subset of our aircraft leases during 2021 with the power by the hour service agreements. As of now, in 2021, we expect to return 1 737-800 aircraft. So far in 2021, we expect to maximize our fleet and expect to receive 10 more before the end of the first quarter. We're pleased to inform you that we have received the final commitment from the Export-Import Bank of the United States with a guaranteed margin of $327.9 million in financing support. It is important to highlight that these 7 MAX 9s are already manufactured. We're taking delivery of them as part of the financing agreements. I can also report that during the first quarter, we signed a compensation agreement with Boeing related to the MAX aircraft. Turning now to our expectations for 2021, as Pedro mentioned, we are still very uncertain about the ensuing demand and operating environment. As such, we will not be providing full year guidance. However, based on preliminary January results, the industry-wide slowdown of international demand that we are experiencing, we can provide the following outlook for the first quarter of 2021 compared to the first quarter of 2019. We expect capacity to be 40% of Q1 2019 levels at about $2.6 billion or $0.08, and revenues to be in the range of 25% to 30% of Q1 2019 levels at about $XXX million. Given these operating conditions, we expect our cash consumption for the first quarter to be in the range of $40 million to $45 million per month. This cash consumption is a result mainly of lower sales expectations for the quarter, which was a cost impact of our expanded operations and the working capital changes I mentioned earlier related to the ramp-up of capacity that we executed during the fourth quarter of 2020. Given the recent demand trends, we will ratably perform some adjustment capacity for the second quarter, possibly through the remainder of the year. Despite the projected increase in cash consumption, we expect to improve the company's liquidity position during the first quarter, the result of the new credit facilities, as I mentioned, as well as cash inflows, including the payment and reimbursements, funds from financing related to aircraft deliveries, proceeds from aircraft sales and ROI. Let me close by saying that once this most challenging situation passes, we believe Copa's Hub of the Americas will remain the best connecting port for travel in the region with a privileged location and even more efficient business model with lower costs and the best in the industry. Thank you. And with that, we'll open the call to some questions.

Operator, Operator

We have our first question coming from the line of Hunter Keay with Wolf Research.

Hunter Keay, Analyst

Pedro, can you give us an update on the current state of travel restrictions in Panama? What changed recently? And what's your expectation for the outlook going forward?

Pedro Heilbron, CEO

Okay. Thank you, Hunter. Panama has not changed for more than a few months now. Panama is requiring either a negative PCR or antigen test within 48 hours of travel or travelers can have the test done or they can take the test at the airport upon arrival. So traveling to Panama is not really a problem right now.

Jose Montero, CFO

And to complement that, Hunter, connecting to Panama, there's no testing required.

Hunter Keay, Analyst

I'm having a bit of trouble hearing you, Jose. I missed a lot of your prepared remarks. Could you let us know if you mentioned anything about your delivery schedule and what you're expecting from Boeing this year? Also, what do you have planned for next year, especially since the settlement was reached?

Jose Montero, CFO

Yes. Sorry, Hunter, and we're trying to do some social distancing here with different microphones. So that's the reason. For this year, in our current fleet plan, we have a delivery of 8 airplanes, 8 MAXs throughout 2021. And when you add to that the airplane that we received in December, that's a total of 9 MAXs to be delivered between December 2020 and full year 2021. And for 2022, we also published a revised fleet plan that has 5 MAXs arriving in 2022.

Operator, Operator

We have our next question coming from the line of Helane Becker with Cowen.

Helane Becker, Analyst

I just have two questions. One is about the MAX. Have you received any feedback from your customers regarding their acceptance of that aircraft? Has there been any pushback or any comments you've heard?

Pedro Heilbron, CEO

Helane, no. No negative comments. No passengers refusing to fly the airplane. It's been like just any other aircraft in our fleet. No issues whatsoever. Even in the few occasions where we've had technical delays, no issues different than a normal flight with a normal 800 NG which is, of course, good news.

Helane Becker, Analyst

Okay, that's very helpful. In terms of financing the aircraft, Jose, for the eight coming this year and the five next year, have they already been pre-financed? Hunter, I couldn't hear you well. Is that what you were discussing regarding the EXIM financing?

Jose Montero, CFO

Yes. Sorry, Helane. And again, I apologize to all those on the call. The EXIM financing that we have received is for the first 7 airplanes. So all our planes that are going to be delivered during Q1 of 2021 have already been settled. The airplanes coming in, in the latter part of the year, the remaining aircraft that are coming this year are going to be in the latter part of 2021. And there's preliminary commitment as well for those, but those are probably going to be concluded or finalized during the middle part of this year.

Operator, Operator

We have our next question coming from the line of Diego Gaxiola with Crédit Suisse.

Diego Gaxiola, Analyst

So my first one is on the 4Q '20 cash burn rate. Why was it so low compared to 3Q '20? And then again, why do you expect the first quarter of '21 to be even higher than the third quarter of 2020?

Jose Montero, CFO

Yes, Diego. This is Jose. There are a couple of points to address. First, in the fourth quarter, we experienced a significant increase in sales. The main reason for the cash burn performance in that quarter was this sales increase, which outpaced the variable cash outflows we had. The improvement in the fourth quarter can be attributed primarily to sales. Additionally, some expenses accrued in the fourth quarter will be settled in the first quarter, contributing to our $40 million to $45 million estimate for Q1. This estimate includes around $10 million tied to fourth-quarter activities. When we adjust for working capital differences for Q4 or Q1 2021, the cash burn is projected to be in the mid-30s, specifically in the $30 million to $35 million range. We are providing guidance on the cash burn we expect in the first quarter. Another significant factor for Q1 is the noticeable slowdown in sales that began in mid-December and continued into January. This slowdown also explains the difference in our cash consumption estimate for Q1 compared to Q4 of 2020.

Diego Gaxiola, Analyst

Okay. Yes, that's very helpful. If I may, just a quick follow-up. Talking about the maintenance expense, how do we really think about it in the coming quarters? The 4Q '20 was impacted by some sort of one-time with aircraft coming out of long-term storage or if there is a more stabilized level. Or how can we think about it?

Jose Montero, CFO

Yes. There were some one-time expenses in the fourth quarter related to taking the airplanes out of storage. So there's a portion of it that shows up in our expense line, but it wasn't significant in general terms. There's also in our maintenance line in the fourth quarter some accruals that we did related to airplane lease returns, that was a bigger driver. That again, also was more of a one-time type of effect as well.

Operator, Operator

We have our next question coming from the line of Savi Syth with Raymond James.

Savi Syth, Analyst

I was curious what your 2021 and 2022 gross and net CapEx plans were based on what your delivery plans are. And then also, beyond 2022, do you have flexibility in the deliveries? Or is that fixed now?

Jose Montero, CFO

Yes, Savi, I can. Pedro, would you like to begin?

Pedro Heilbron, CEO

We are beginning with growth, and then we can discuss capital expenditures. We are guiding towards 40% capacity in the first quarter compared to 2019. It's quite challenging to predict how the rest of the year will unfold. We can use that figure as a baseline, and based on demand fluctuations, we will adjust accordingly. For February and March, we will be making downward adjustments due to slower sales as mentioned by Jose. Looking ahead to the second half of the year, it remains uncertain. If vaccination efforts are successful across the continent, then growth may accelerate. We have the flexibility to respond to these changes; we have aircraft in storage that can be reintroduced to operations quickly. Over the next few years, we have a mix of new aircraft deliveries and lease expirations that we can manage. Therefore, we believe we have the necessary flexibility for 2021 and 2022 and will adapt based on demand, which is dynamic and difficult to forecast in the medium to long term.

Jose Montero, CFO

Savi, so in terms of CapEx, the total figure that we're looking at for 2021, it's around $460 million. And of that, I'd say, cash, which is related mostly to airplane maintenance is around $60 million. And in '22, you can assume that it's around $300 million, of which call it, again, say, $60 million related to airplane maintenance, and those will be cash CapEx.

Savi Syth, Analyst

That's helpful. I'd like to follow up on a previous question. I'm curious if, as you observed demand recovering before the increase in COVID rates, there were any regions where you noticed stronger performance or greater weakness. Additionally, as a way to guide our expectations with rising vaccination levels, do you have any insights into what we might experience regionally?

Pedro Heilbron, CEO

Not really. The larger markets can handle higher capacity, and there will always be more demand. What we’ve observed so far is an increase in VFR travel. It’s also important to note that there was significant pent-up demand in November and December, primarily for VFR travel, as people wanted to return home and visit family. Additionally, there is leisure demand from major southern markets to tourist spots in the Caribbean and North America. While we don’t operate in the U.S. to Mexico market, we are aware that it is more active than others. However, the majority of the demand is still mainly VFR.

Operator, Operator

We have our next question coming from the line of Rogério Araújo with UBS.

Rogério Araújo, Analyst

I have a few quick questions. First, regarding the restrictions set by the U.S., the tests are now mandatory, but they also mentioned a quarantine. Is that currently in effect, or will there soon be a mandatory 7-day quarantine? Do you anticipate this will affect your demand? If so, by how much? That’s my first question.

Pedro Heilbron, CEO

Okay. So the only restriction right now is that a flight to the U.S. is the required PCR test, the negative test. The quarantine restriction, I understand it's just a possibility that has not been decided on so far. So that is not in effect right now, and there's no certainty that it will be at any point in time. The PCR test, we don't see it as having an effect on travel. The tests are things that are widely available right now for passengers. So in any of our markets, those tests are required in most of our markets right now. And we don't see that as the impediment for travel, and same with the U.S. In terms of what effect the quarantine would have, hard to tell. And that would have an effect for sure, but it's hard for us to gauge how significant it will be.

Rogério Araújo, Analyst

Okay, very clear. A couple of quick questions as well. First, you mentioned how many MAX aircraft you will receive. Including the aircraft returns, what is your expected seat capacity for the end of this year compared to pre-COVID levels? Additionally, regarding January RPM, it significantly fell below our capacity. Is Copa focusing on yields, which could explain the drop in load factor, or was there a notable demand issue despite some stimulation from varying ticket prices?

Pedro Heilbron, CEO

Capacity will depend on demand as previously mentioned. For January, we were in the 40% range, which is what we're expecting for the first quarter. However, based on current demand trends, we may need to adjust this downward. Looking at the rest of the year, capacity will again rely on demand, which is challenging to forecast beyond a few months, and even that isn't straightforward. While theoretically, we could grow up to 80% in ASM compared to 2019 this year, we recognize that's unrealistic. Next year might allow for even higher growth, but that too isn't practical. We're likely looking at a 40% to maybe 50% growth range, but this will depend on demand and our flexibility in adjusting. Regarding January, we're not focusing primarily on yields. To summarize quickly, our sales peaked in November, revenues peaked in December, and capacity in ASMs peaked in January. In November, we were unaware that January sales would slow and that we would have excess capacity. Implementing capacity changes takes time; we can't make adjustments overnight. We're currently reassessing the situation, adapting to new realities daily, and must remain agile to adjust capacity based on demand. Short-term bookings have become increasingly significant, as any shortfall in expected bookings will prompt us to reevaluate our capacity.

Operator, Operator

We have our next question coming from the line of Pablo Monsivais with Barclays.

Pablo Monsivais, Analyst

I have a quick question. We understand that capacity might be nearing pre-COVID levels by 2021. However, how do you anticipate unit revenues performing this year? Considering that business travelers are expected to remain subdued and that international restrictions may continue for at least the next couple of months, how are you managing the increase in capacity alongside the expected increase in unit revenue? It would be helpful to have more insights on this.

Jose Montero, CFO

Well, the reality is that we are, as Pedro mentioned in the last answer, is that we are really focusing right now. The main path that we're harnessing is making sure that our capacity is flexible enough and aligned to the revenues that we're seeing in the market. And again, what we're seeing right now is that the entire market in the region has had a slowdown for the first part of the first quarter. And so we're making the adjustments in capacity in a light way. So it's making us have to be much more, I want to say, active in our deployment of capacity in the shorter term. And that's something that we're implementing now. And so the revenue gap that we're seeing for the first quarter is still pretty significant. We're talking about revenues in the mid-20s to 30% of 2019 levels, which is a very significant reduction versus where we were at the beginning. So we're still seeing, again, quite a bit of a gap versus normality. But again, the important thing is the adjustment of capacity to that, and that's what we're doing.

Pablo Monsivais, Analyst

Of course. And I have another quick one on the cost side. Do you have any other measures that you are considering right now to adjust to this new demand environment that we have to think about? Or probably you already undertook everything on the cost side that you were able to do, and right now, it's just that additional cost of flying. How should we also follow the cost line for 2021, assuming that demand remains weak?

Jose Montero, CFO

We entered the crisis with the lowest costs compared to our competitors in the region. Last year, we implemented several measures such as renegotiating contracts with most suppliers and cutting IT, maintenance, and labor expenses. We will continue this approach throughout 2021. Our primary focus now is on managing capacity deployment. We need to ensure that we don't operate more available seat miles than the market demands. As for additional cost measures, we are currently in a strong position and don’t need to take drastic actions that could be detrimental in the long term. We are fortunate to have a solid balance sheet and a low-cost structure. Unless we see a slower-than-expected recovery, we have other more aggressive options available if needed. However, we must also consider that we aim to be sustainable in the long run and ready for recovery. It's all about finding the right balance, which is what we are doing.

Operator, Operator

We have our next question coming from the line of Mike Linenberg with Deutsche Bank.

Michael Linenberg, Analyst

I have a question for Jose and possibly Pedro. It feels like a different time when we were projecting that CASM excluding certain costs would be less than $0.06 in 2021. I understand there is a lot of uncertainty as we look toward the end of 2021. However, I’m curious about the longer-term view. Given the current circumstances, changes in the fleet, and the challenges with the MAX, is it still realistic to achieve a CASM excluding certain costs below $0.06 by 2023? Would that be considered aggressive? Also, can we expect to return to full capacity by 2023, if not before? I know this is a long-term question, but I hope you're still aiming for that sub $0.06 target once we navigate through the pandemic.

Jose Montero, CFO

That's a very good and important question. You're right to consider the recovery of our capacity rather than focusing solely on a specific timeframe or year. We need to evaluate our capacity recovery in relation to our CASM levels. We believe we can reach our target of sub-$0.06 CASM by the time we achieve around 80% of pre-COVID capacity, which highlights the efficiency improvements we've made. Another important point is that if we consider a mid-teen revenue dilution, we could achieve cash breakeven at about 70% of pre-COVID capacity. This helps illustrate our medium-term outlook and recovery strategy. We are definitely committed to returning to that target of $0.06 fixed CASM in the medium term.

Michael Linenberg, Analyst

That's great.

Pedro Heilbron, CEO

And I would add, I think you mentioned when you asked when we could get back to those ASM levels. I don't think anybody knows. So we're not going to try to get that. But adding to what Jose just said, if we were at 100% tomorrow, we would be sub-$0.06 tomorrow.

Michael Linenberg, Analyst

Interesting. That's helpful. And just one quick one here, Pedro, and this is sort of a follow-up to Hunter's question on restrictions. I know you've addressed Panama's restrictions. I'm curious how your loads fared after the U.S. stepped up its restrictions, the mandatory negative COVID test within 72 hours of arrival, that was January 26. I'm curious how that hit your loads? And I know during the quarter, I believe, did Argentina announce that carriers had to cut back their service by 30% to 60%? So if there's any chance you can just run through a couple of the examples because it does seem like there was an increase in restrictions in other countries, not necessarily Panama, but countries that you serve. And like in Argentina, I think, even today, you still run on some days 2 flights a day, and most other carriers don't even serve that route. I'm curious about some of the additional restrictions? And maybe even how you've seen loads or demand change within hours of those restrictions being announced?

Pedro Heilbron, CEO

Thank you, Mike. After Hunter's question, since you only mentioned Panama, I only addressed that, hoping to keep it brief. You're right that the restrictions vary widely. The testing requirement for the U.S. hasn't really impacted travel noticeably, as tests are now easily accessible. Most countries still require them, so that's not the main issue. Over the past month and a half, several changes have affected our sales directly. Our flights to Venezuela were canceled for almost a month due to COVID. In Havana, our daily flights dropped from two to three weekly, and now it's down to two weekly flights for over a month. Uruguay only permitted residents and nationals who booked ahead of the restriction, preventing new sales for more than a month. Some countries have introduced new quarantine measures. The list goes on, but collectively, these changes have significantly impacted us, and many of those restrictions are still active now.

Operator, Operator

We have our next question coming from the line of Duane Pfennigwerth with Evercore ISI.

Duane Pfennigwerth, Analyst

Sorry if you covered this, but what were the main drivers of your cash burn improvement relative to the guidance? It was far better than what you guided to. Was it at all Boeing settlement related or aircraft sale related? And if not, can you comment on if those contributed?

Jose Montero, CFO

Jose, I hope you’re doing well. First, I want to clarify how we define cash burn. We calculate cash burn by excluding any extraordinary items, like the ones you mentioned. The figure we provided is based solely on our operating cash flows, including our debt commitments and the cash outflows related to servicing our debt. Aircraft sales and other extraordinary items are not included in these figures, which is crucial because we take this measure very seriously. I believe this approach helps us maintain a strong grasp of our business. Regarding our fourth quarter performance, we experienced significant improvement due to increased sales. We started the quarter at a very low level, but we ramped up capacity, and sales exceeded our expectations, peaking in November, which contributed to the improvement. Additionally, some expenses accrued during the fourth quarter will be settled in cash in the first quarter, resulting in a $10 million adjustment that corresponds to the fourth quarter. To summarize, our cash burn figure, detailed in the appendix of our earnings release, is calculated in a clear and fair manner. Furthermore, while we are expecting cash burn in the range of $40 million to $45 million for the first quarter, this does not include certain extraordinary financing-related measures. Thus, we anticipate an increase in our liquidity at the end of the first quarter that is not reflected in our cash burn guidance.

Duane Pfennigwerth, Analyst

What factors would contribute to the increase in liquidity that is not reflected in the cash burn guidance?

Jose Montero, CFO

Oh, there are several items to consider. For example, the financing of aircraft we have, including the reception of aircraft. We have some deposits with Boeing that will be financed upon delivery through the export-import financing we established. There are aircraft sales happening during the quarter, which also contributes to our liquidity. Additionally, we have increased some of the available credit facilities. All of these factors build our liquidity, but they are not part of the cash consumption figure we published.

Duane Pfennigwerth, Analyst

That's great detail. And then maybe just a macro question. As we contemplate massive fiscal stimulus here in the U.S., how are you thinking about the dollar versus local currencies in Latin America over the balance of 2021? I know historically, you'd sort of be unwilling to speak to currencies or make a bet in that regard. But how are you thinking about just the relative pacing of fiscal stimulus and the potential for local currency appreciation as recovery takes hold?

Jose Montero, CFO

The situation in the region with the currencies remains quite volatile. Generally, during the fourth quarter, many of the major currencies in Latin America appreciated, which is beneficial for us. However, it's challenging to predict their future movements. While stronger currencies in the region should boost demand, I believe they are still secondary to the overall governmental restrictions and demand trends that exist. At this stage, accurately forecasting where the currencies might end up is difficult.

Operator, Operator

We have our next question coming from the line of Dan McKenzie with Seaport Global.

Daniel McKenzie, Analyst

Following up on a prior question, I am curious about the level of openness in Panama and other countries towards the idea of a COVID travel passport as a means to reopen the region. What willingness do governments have to consider this? Are they looking into it? Additionally, if they are, is the necessary technology available at airports to implement it?

Pedro Heilbron, CEO

Yes. It's interesting that there are at least four initiatives that are quite advanced in terms of developing a travel pass or a health pass, which we believe will be essential for reopening and expanding international travel. Recently, we announced that Panama and Copa will participate in the trial of the new IATA Travel Pass, which is set to begin in March. Panama is fully committed to being part of the IATA Travel Pass initiative, and this may also involve other travel or health passes that are in development. We hope that all parties will communicate effectively with each other. We are actively engaged with IATA and have also been in discussions with others, and Panama is on board with these efforts.

Daniel McKenzie, Analyst

Which are the other three countries, Pedro?

Pedro Heilbron, CEO

I'm sorry, I meant to say initiatives rather than countries. There is a common health pass being developed, and IBM, Accenture, and IATA are among the four entities I know that are working on health or travel passes with similar goals.

Daniel McKenzie, Analyst

I see. Are any of the countries willing to talk about that at this point in addition to Panama?

Pedro Heilbron, CEO

Well, I've heard of other airlines around the world. In Asia and the Middle East, for sure, that are working with their government. I think the Emirates, Singapore and probably a few more are working with IATA and their national carriers to also pilot the IATA Travel Pass. And I believe the same thing is happening with the common pass and some of the other initiatives that I mentioned.

Operator, Operator

We have our next question coming from the line of Stephen Trent with Citi.

Stephen Trent, Analyst

First off, I was just curious on the IATA Travel Pass. I'm very intrigued. Is Copa actually going to have to fork up any investment in that? Or will this be something covered through Panama and the governmental levels?

Pedro Heilbron, CEO

No. We're not investing in the tool. Neither is Panama. It is something that IATA is doing on its own, and we just agreed to be part of a trial and we're one of the first countries and airlines that participating in it. But what kind of cost distribution there's going to be in the future, we don't really know. I'm sure that the different travel and health passes are being developed. We have to cover their costs one way or another. I'm not sure that has been determined right now. And we're not involved in that process.

Stephen Trent, Analyst

Okay, Pedro, I appreciate that. And just on a longer-term question, if I may. When Copa thinks about the sort of broader initiative to get carbon emissions in 2050 down to half of 2005 levels or what have you, how is Copa thinking broadly about that carbon capture program? Certainly, the MAX is going to help. Your U.S. partners talked about some investment or collaboration with electric planes and what have you. I'd just love to get your thoughts higher level, how you're thinking about that longer-term.

Pedro Heilbron, CEO

Yes. We are closely monitoring the CORSIA initiative. Although Panama does not currently meet the threshold for immediate implementation, we are actively reporting our carbon emissions annually and considering what initiatives we need to have in place in preparation for future requirements in our country and the industry at large. I am also involved with IATA's Board of Governors and Chair Committee, and this is a common topic of discussion. However, I cannot share a specific plan at this moment, aside from our ongoing reporting and discussions about potential options. While we have a modern fleet, including MAXs and 737-800 NGs, and we are implementing fuel-saving initiatives and using solar power at some of our airport facilities, these measures do not significantly offset the carbon emissions from our regular operations. We recognize that there is more work to be done in the future.

Stephen Trent, Analyst

Well, really appreciate the color, Pedro. And hope you guys and your families are all okay.

Jose Montero, CFO

Thank you.

Pedro Heilbron, CEO

Thank you, Stephen.

Operator, Operator

We have our next question coming from the line of Guilherme Mendes with JPMorgan.

Guilherme Mendes, Analyst

Actually, it's two questions. The first one is a follow-up on the track to recovery. So you guys mentioned that VFR has been recovering faster than the other segments. So just help me think on how should we be thinking yields about going forward? Meaning that probably corporate travels will take longer to recover. So how should this reflect on yields in the second half of 2021? And the second question is regarding the agreement with Boeing. I know the terms are confidential, but if you could just give some colors in terms of if most of the agreement is on a cash component basis or it's more related to maybe the agreements of the future receivables of MAX. That will be very useful.

Jose Montero, CFO

Yes. Thank you, Guilherme. First, I want to emphasize that we are not providing full year guidance. Instead, I will discuss our outlook for the shorter term. In the short term, we are experiencing significant declines in our yields across the network, with a year-over-year decrease of over 20%. This trend is quite evident at the moment, but there remains considerable variability for the rest of the year, making it too early to predict where we might end up. I don’t see any particular region behaving differently; they all seem to be in a similar yield range. Regarding the Boeing agreement, it is confidential, so I will not comment further on that.

Operator, Operator

There are no further questions at this time. I will now turn the call back over to Pedro Heilbron.

Pedro Heilbron, CEO

Okay. Thank you. I just want to conclude by saying that we think we're in a very good position in our region and in general terms. We were very proactive in 2020, taking some difficult, but necessary actions to bring down our cost structure, to adjust our fleet. We feel our hub is the best positioned in the region for what will, for a while, be a reduced market. And we also have the right fleet standardized with the 737-800 NGs and the MAX 9s. So we know times are still a little bit difficult. But there's a shining light at the end of the tunnel with the vaccination efforts, which are going to gain speed in the coming months, months, and weeks for sure. So anyway, thanks for your support, and we'll keep moving in the right direction. This concludes our earnings call, and have a great day. We'll see you in the next one.

Operator, Operator

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