Earnings Call Transcript - CPA Q4 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Copa Holdings Fourth Quarter Earnings Call. During the presentation, all participants will be on a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this call is webcast and recorded on February 10, 2022. Now we'll turn the conference over to Daniel Tapia of Investor Relations. Sir, you may begin.

Daniel Tapia, Investor Relations

Thank you, Chris and welcome everyone to our fourth quarter and full year 2021 earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings; and José Montero, our CFO. First, Pedro will start by going over our fourth quarter and full year highlights, followed by José 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 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 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.

Pedro Heilbron, CEO

Thank you, Daniel. Good morning to all and thanks for participating in our fourth quarter earnings call. Before we begin, I'd like to thank all our coworkers for their commitment to the company and recognize their continuous efforts and dedication to keep Copa at the forefront of Latin American aviation. Today we're glad to report strong financial results for the fourth quarter of 2021. During the quarter, international air travel demand in Latin America continued to recover, which allowed us to end the fourth quarter with 83% of Q4 2019 ASMs. Compared to the third quarter of 2021, unit revenues improved 11.2% with solid gains in both load factor and yield, while increasing capacity 16%. Adjusted unit costs excluding fuel came in at $0.061 for the quarter, a 2.4% reduction when compared to Q3 of 2021. For the quarter, we reported an adjusted operating profit of $115 million and an adjusted operating margin of 20.1%, an improvement of almost nine percentage points quarter-over-quarter and our best results since the beginning of the pandemic. José will provide further details on our fourth quarter financials. Now turning to the main highlights for full year 2021. Excluding special items, we would have reported a net profit of $2.7 million and an operating profit of $85.6 million with an operating margin of 5.8%. Overall, a strong result when compared to what we expected at the beginning of the year. We finalized the sale and delivery of our Embraer-190 and now operate an all-Boeing 737 fleet. We restarted 737 MAX 9 operations and received seven additional aircraft during the year to end 2021 with a total of 14 MAX 9. The additional aircraft also equipped with our Dreams business class cabin would allow us to provide world-class comfort to our business class passengers in more markets. In December, we launched our first new destination since the beginning of the pandemic by starting service to Armenia and Cúcuta in Colombia and Atlanta in the US. With these additions, we ended the year providing service to 68 destinations in North, Central, South America, and the Caribbean, strengthening our position as the most complete and convenient hub in Latin America. And Copa Holdings was recently recognized by Cirium for the eighth consecutive year, as the most on-time airline in Latin America during 2021. In fact, Copa's on-time performance was again the highest of any airline in all of the Americas. I'd like to take this opportunity to recognize our more than 6,000 Copa and Wingo employees for everything they do day in and day out to deliver a world-class travel experience to our passengers. Turning now to Wingo. It continued its regional expansion during the year, adding four new routes from Panama City to San José, Costa Rica; from Bogota to Lima; from Cali to Cancun; and from Medellín to Punta Cana. To summarize, in Q4 2021, we delivered our strongest quarterly financial results since the beginning of the pandemic. We were able to reach 83% of our pre-pandemic capacity in the fourth quarter. Our team continues to deliver world-leading operational results with Copa being recognized as the most on-time airline in the Americas. We delivered lower unit costs compared to pre-pandemic levels on less capacity. And we're strategically focused on restarting destinations and adding markets, strengthening our position as the most complete and convenient hub in Latin America. Overall, the recovery in demand and rebuilding of our network in 2021 was quite encouraging. Now, as I'm sure you're aware, 2022 is off to a much more challenging start. The Omicron variant is impacting both international travel demand in the region and the number of crews we have available to fly. Due to a reduced number of available pilots and flight attendants, we canceled approximately 1,000 flights during the month of January and February, which is 4% of our Q1 schedule. Fortunately, we do not expect any crew availability cancellations for March. We're seeing, however, an industry slowdown in bookings for Q1 travel that will cause our load factors and unit revenues to come in lower than the fourth quarter of 2021. José will share our Q1 guidance during his presentation. I'd like to reiterate, that we have a proven and 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 low unit cost, best on-time performance, and strongest balance sheet. And we expect that going forward, our Hub of the Americas will be an even more valuable source of strategic advantage.

José Montero, CFO

Thank you, Pedro. Good morning, everyone. Thanks for being with us today. I'd like to join Pedro in acknowledging our great team for all their efforts and their great spirit during these many months of the pandemic. I will start by going over our fourth quarter results. Capacity came in at 5.1 billion available seat miles, which amounts to 83% of the capacity that we operated during the fourth quarter of 2019. Load factor came in at an average of 83.5% for the quarter, a 4.2 percentage point increase compared to Q3, while operating 16% more ASMs. We reported a net profit of $114.4 million or $2.69 per share. Excluding special items, we would have reported a net profit of $84.1 million or $1.98 per share. Special items for the quarter are mainly comprised of an unrealized mark-to-market loss of $8.9 million related to the company's convertible notes issued in 2020 and a reversal of $39.2 million related to the company's provision for the return of leased aircraft. We reported a quarterly operating profit of $155 million. Excluding the reversal of $39.2 million, we would have reported an adjusted operating profit of $115.8 million for the quarter. Our reported operating margin was 27%. Excluding these special items, we would have reported an operating margin of 20.1%. Unit costs, excluding fuel, were better than in the third quarter, coming in at $0.061 per ASM, driven by our continued focus on reducing expenses, as well as a quarter-over-quarter capacity growth of 16%. Our yields for the quarter came in at $0.127, an increase of 5.8% compared to the third quarter, while operating more ASMs. I'd like to highlight that our cargo revenues for the quarter also came in higher quarter-over-quarter and over 60% above our cargo revenues for Q4, 2019, driven by an improved cargo demand environment in the region. Turning to cash. During the fourth quarter, we had a cash buildup of approximately $84 million, driven mainly by increased sales during the period, as well as by our continued focusing our costs. As a reminder, for our cash build measure, we exclude all extraordinary proceeds from asset sales, but include CapEx, a payment of debt principal and interest, as well as the payment of our leases. Now I'd like to go over our full-year 2021 financial highlights. Our reported net income came in at $39.9 million. Excluding special items, we would have reported an adjusted net income of $2.7 million or adjusted earnings per share of $0.06. Special items for the year included $22.8 million unrealized mark-to-market loss related to the company's convertible notes, passenger revenue adjustment of $20.8 million corresponding to unredeemed coupons from 2019 and 2020 sales and a reversal of $39.2 million in the company's provision for the return of leased aircraft. Reported operating profits came in at $145.7 million. Excluding the special items, we would have reported an operating profit of $85.6 million and a 5.8% operating margin. Finally, for the full year, we had a cash buildup of $133 million. I'm going to spend some time now discussing our balance sheet and liquidity. So at the end of 2021, we had assets of close to $4.2 billion and our cash short to long-term investments ended at $1.2 billion. We also ended the quarter with an aggregate amount of $295 million in unutilized committed credit facilities, which brought our total liquidity to more than $1.5 billion. In terms of debt, we ended the quarter with $1.6 billion in debt and lease liabilities, similar levels to the ones reported for the end of the third quarter. And our adjusted net debt-to-EBITDA ratio came in at 1.05 times. Turning now to our fleet. During the fourth quarter, we received one 737 MAX 9 and decided to keep three 737-700s, previously considered as assets held for sale. During the quarter, we also completed the conversion of one of our 737-800s into a freighter. We ended the year with 91 aircraft; 68 737-800s, 14 737 MAX 9s and nine 737-700s. These figures include three 737-700s which are currently in temporary storage and the 737-800 freighter. In Q1 of this year, we have received one 737 MAX 9 and expect to receive one additional MAX 9 aircraft to end the quarter with 16 MAX 9s and a total fleet of 93 aircraft. To our outlook. Based on the current state of the demand environment, air travel restrictions and the impact of the Omicron variant, we can provide the following guidance for the first quarter of 2022. We expect capacity to be approximately 88% of Q1 2019 levels or about 5.7 billion ASMs and we expect our operating margin to be in the range of 3% to 6%. We're basing our Q1 2022 outlook on the following assumptions: revenues of approximately 82% of Q1 2019 levels or approximately $550 million, CASM ex-fuel of approximately $0.06 and an all-in fuel price of $2.79 per gallon, an increase of approximately 15% compared to the average fuel price in the fourth quarter of 2021. Given the recent volatility in the environment, we believe it is premature to give complete full year guidance. However, preliminarily we expect our full year 2022 capacity to be approximately 93% of 2019 ASMs and our CASM ex-fuel to be in the range of $0.059. Thank you. And with that, we'll open the call for some questions.

Operator, Operator

Thank you. Our first question comes from Savi Syth of Raymond James. Your line is open.

Savi Syth, Analyst

Hey. Good morning everyone. Just on 1Q outlook. Given Easter is not until mid-April and kind of January, I believe this is a seasonally strong this month than 1Q. Is it fair to say that you have fairly good visibility into the quarter? Or are there some of those assumptions incorrect or perhaps the booking behaviour is so different today that maybe kind of March kind of matters a lot more to the quarter than it has historically?

Pedro Heilbron, CEO

Hi Savi, it's Pedro here. So yes, I mean, our booking patterns are very different from what we were used to in normal times pre-pandemic. But what we've seen so far, meaning in the last two weeks, is bookings coming back to a "normal level", or normal meaning what we were seeing pre-Omicron. But again, that's just a few weeks, and what we've learned from this pandemic is that things change from one day to the other.

José Montero, CFO

Yeah. And we did see an impact from Omicron, Savi during the month of January and early sort of bookings early in February. So there is an impact there, but that's included within the guidance that we just issued.

Savi Syth, Analyst

Makes sense. If I may inquire about the MAX fleet, when do you anticipate including the MAX 10s in your fleet? Additionally, could you clarify if the first 13 MAX 9s were initially meant to be configured for 166 seats and then later for 174? Are you now receiving the 174-seat configuration to gain a bit more capacity?

Pedro Heilbron, CEO

Yes, you're correct. The last two MAX 9s, if I'm not mistaken, have come with the 174 configuration. And so will the rest of the MAX 9s we still have to receive. We will decide in the future. We haven't made that decision yet. It's the ones that are under a 166 configuration will also change to 174, which takes very little effort, but that decision has not been made yet. In terms of the MAX 10s...

José Montero, CFO

Yeah, I think that the MAX 10s are not yet in the pipeline for this year and next. So there's still some time left until we start to receive them. And again, I want to highlight also, Savi, that we have a lot of flexibility in terms of the subtypes that we have within the order. So we can switch them from 10s into other of the subtypes as well. So there's still quite a bit of flexibility related there. And it will happen, yet removed from 2022 by a couple of years.

Savi Syth, Analyst

Thanks guys. Thank you.

Operator, Operator

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

Stephen Trent, Analyst

Good morning, gentlemen, and many thanks for taking my question. Kind of two very quick ones for you. The first am I correct in thinking that you guys are probably not under significant pressure in terms of your pilot pipeline? Just thinking about the more significant dislocation among the Latin Airlines versus the U.S. and considering maybe there's some pilots out there looking for work? Just sort of wanted a high level understanding of how you guys are seeing your pilot supply.

Pedro Heilbron, CEO

We are currently in a good position in the short term. We still have pilots who took voluntary leave during the pandemic that we can bring back. We have activated all pilots who were on furlough, but we still have voluntary leaves that we can utilize. Additionally, we have a promising pipeline from our Flight Academy, and by the end of the year, we expect to have about 100 pilots available for integration into the airline. Therefore, we believe we are well-prepared not just in the short term but also in the medium term and beyond.

Stephen Trent, Analyst

Okay. Great color, Pedro. I definitely appreciate that, and just one other quick one for me. I was intrigued by what you guys mentioned about converting one of your 737-800s into a freighter. Is this something that you might consider doing with either 737-800s, or do you kind of see it as a one-off that should kind of be a near to medium term thing as the pandemic winds down?

Pedro Heilbron, CEO

We made the decision while our aircraft were not in operation, and cargo demand was very high globally and in our region. Looking back, it was the right choice. We anticipate that this aircraft will generate better profits on a per-plane basis compared to our previous passenger aircraft or less profitable models. We feel good about this decision and also have the option for a second conversion in the next few years. These planes are our oldest non-Boeing 737-800s. Additionally, we have been chartering a regional freighter aircraft for some time. Many of the flying hours will be replacements. This new freighter is a more efficient 737-800 that will take the place of a less efficient 727 freighter we have been using for regional operations, and we'll be adding more flying hours to it. Overall, we're pleased with the decision. While this doesn't turn us into a major freighter carrier, it offers a niche opportunity that fits well with our overall business.

Stephen Trent, Analyst

Okay. I appreciate the figures. Thank you. I'll let someone else ask the question.

Pedro Heilbron, CEO

Thank you, Steve.

Operator, Operator

Thank you. And next we have Alejandro Zamacona of Credit Suisse. Your line is open.

Alejandro Zamacona, Analyst

Thank you. Hi Pedro, José. Thank you for the call. A quick question on the Sub-6 brand. So, back in the Investor Day in 2019, you guided CASM to below $0.06 for 2021 onwards. And it seems that you are getting close to the target. And I'm wondering how the current number would look like if COVID-19 hadn't existed?

José Montero, CFO

I missed the last part of your question, Alejandro. So, you asked how does the number look like in?

Alejandro Zamacona, Analyst

Yes. So the CASM, the current CASM ex-fuel, how do you think that would look like without COVID effects?

José Montero, CFO

In terms of our CASM reduction, the main factor has been our fleet movements. We've shifted away from using the 193, which was part of our initial strategy to achieve a Sub-6 CASM. We're ahead of schedule because our 2019 plan anticipated a larger Copa, meaning many of the advantages from company size were expected to influence the CASM figure. We're now achieving a Sub-6 CASM with a smaller Copa, specifically at 93% of pre-COVID capacity. While some overhead reductions have been made, they are marginal and may not significantly impact the CASM, which might end up just above 6. However, we've effectively accelerated our fleet changes, renegotiated contracts, and improved our operational strategies, contributing to our faster progress toward the Sub-6 target.

Alejandro Zamacona, Analyst

All right. Got it. Thank you. And then on the unitary revenue, I mean the guidance for the first quarter 2022 shows some implicit reduction relative to the fourth quarter of 2021. So would you say that it's fully explained by Omicron? And how can we think about yields for the remaining year?

José Montero, CFO

Yes. Yes, I'll start by talking about Q1. And indeed it is related to Omicron in terms of the revenue figures. I would say that it is solely related to Omicron. There are two components to Omicron. One is deal cancellations that we had, which reduced our revenue figures. It might not necessarily affect as much on a P&L basis because it's resulting in cancellations. And then the portion of it is just a pure sort of softening during the month of January and February related to how we're seeing demand. So that's on the top line. But I think when you match this to profitability for Q1 and what our guidance is for Q1, the range that we have for an operating margin, there is also the impact of fuel in there, which has fuel that is 15% higher on a cost basis compared to what we had in Q4. So that's another component of it. I would say, kind of be constructing a little bit sort of the operating margin between Q4 and Q1 that about two-thirds of the reduction in margin that we're seeing quarter-over-quarter is related to the Omicron sort of RASM impact and about one-third related to fuel. As for the rest of the year, I think it's too early to make an assessment for the rest of the year.

Alejandro Zamacona, Analyst

Thank you, perfect.

Operator, Operator

Thank you. Your line is open.

Unidentified Analyst, Analyst

Hello, good morning.

Pedro Heilbron, CEO

Good morning.

Unidentified Analyst, Analyst

How much would it cost to add WiFi onto your planes? And what sort of cost benefit analysis have you done there, particularly, as you consider Wi-Fi seats that you're putting on board? Thanks.

Pedro Heilbron, CEO

Okay. So I don't have a figure for Wi-Fi right now on my mind. I cannot really share that. It is something that we always look at. I mean it's been a trend in certain parts of the industry or the world. So we don't ignore it. But we have not yet seen a compelling case for it. But again, we stay very much on top of it. So when time comes, we'll be ready to make the right decision hopefully.

Unidentified Analyst, Analyst

Okay. And on the P&L, I can understand why the passenger servicing costs are half of what they were pre-COVID with no business travelers and the like. But why are your distribution costs pretty much all the way back to pre-COVID levels? I feel like those two things should sort of trend together, particularly with the lack of business travel and more direct bookings. Is there an opportunity to do better there and sort of why those two costs have diverged? I'd be curious about that. Thanks.

José Montero, CFO

Yes, there are a few points to address. Firstly, our onboard costs have decreased due to decisions we've made regarding our onboard product, which are not primarily influenced by business travel but rather by COVID-related considerations. We also pay close attention to customer feedback. Regarding sales and distribution, this line fluctuates with sales; in Q4, you may observe an increase in sales moving forward. That’s likely the reason for the change in the distribution line.

Unidentified Analyst, Analyst

Thank you very much.

Operator, Operator

Thank you. Up next we have Helane Becker of Cowen. Your line is open.

Helane Becker, Analyst

Thanks very much. Hi, guys. Thanks for the time. Just a couple of questions. One, how are you thinking about reinstating the dividend?

José Montero, CFO

Well, I would say Helane, that for the time being it is still not something I think it's too early to say how or when that's going to be reinstated.

Pedro Heilbron, CEO

We have a policy that states 40% of the previous year's adjusted profits will be used. This applies to 40% of the adjusted profit from 2020 and 2021, which wouldn't make much sense to implement right now. However, I'm quite optimistic that if we experience a typical year in 2022, as we anticipate, that policy would naturally come back into effect.

Helane Becker, Analyst

Okay. That's helpful. Thanks, Pedro. My other question is about aircraft deliveries this year. I'm a bit confused. You mentioned that one MAX 9 was received in January and another is expected in the first quarter. How many will be delivered in the second through fourth quarters?

José Montero, CFO

Yes. So in total there will be eight MAX deliveries in the year, including the one that will come in January. So there will be seven more.

Helane Becker, Analyst

Okay. And are those going to be leased or owned or financed?

José Montero, CFO

Yes. The first four deliveries, which include the December airplanes, will be owned and financed. We're currently starting the process for the remaining aircraft from 2022, exploring options such as sale leasebacks or financing. Those aircraft are expected to arrive later in the year.

Helane Becker, Analyst

Okay. That's really helpful. And then if I could just squeeze one more in. The reversal is in the maintenance line, right?

José Montero, CFO

Yes. That's the reason why you see the maintenance line with a credit balance this quarter.

Helane Becker, Analyst

Right. That's what I was thinking, but I just wanted to be sure. Thank you. Thanks. All right. Thank you guys. Have a nice rest of your day.

José Montero, CFO

Yes, we actually took a very good guy out of our underlying results to true them up.

Helane Becker, Analyst

Yes. Okay. All right. I just want to make sure I got that right. Thank you.

Operator, Operator

Thank you. And next we have Pablo Monsivais of Barclays. Your line is open.

Pablo Monsivais, Analyst

Hi. Good morning and thanks for taking my question. I have a fairly simple question here. Can you please share with us some details on which countries are showing the strongest demand dynamics and which ones are still a work in progress?

Pedro Heilbron, CEO

Yes. I would say that it's balanced. It's hard to say that one country in particular. I mean, there could be a few exceptions here and there and it usually has to do more with restrictions. There are a few countries that still have travel restrictions. Even though in most cases any significant restriction has been lifted. But I would not say that there is one significant destination or country that we should highlight.

José Montero, CFO

It's very well spread out. The demand trends seem to be uniform in general.

Pedro Heilbron, CEO

And the bigger markets in our region including the US are open and are behaving in similar ways; the US and Brazil. Other countries in South America, Colombia, they're all open and Mexico the same. It's always been open. And so we're seeing traffic flowing among those countries. I mean, not in the same levels as before and there's a shift more towards leisure less business. But I could not say that one is really much different from the other.

Pablo Monsivais, Analyst

Okay. Thank you very much.

Operator, Operator

Thank you. Next we have Mike Linenberg of Deutsche Bank. Your line is open.

Mike Linenberg, Analyst

Good morning everyone. Before we move on to questions, Pedro, when you mentioned a 727 for your freighter operation, I realized I haven't heard an airline executive talk about a 727 on a call in a long time. Hopefully, when you transition the business to the 800, we won't be seeing the 727 much longer, perhaps this will be its final flight.

Pedro Heilbron, CEO

Luckily, when I mentioned those three numbers, I was talking about a freighter and not a...

Mike Linenberg, Analyst

That's right. Anyway, Pedro, I want to revisit something from previous periods since you became a public company. One thing that has stood out to me is your ability to incorporate higher fuel prices into your fare structure. Historically, you've done well in this regard, and I even remember you mentioning that you were able to pass on 100% of those costs. I understand there is a lag, which might be three to five months, and I wonder if that’s influenced by the fact that 99% of your service is international. This means you benefit from fuel surcharges. Additionally, you operate in many countries where economies perform better when commodity prices rise, which is evident currently. For instance, the Brazilian stock market has shown significant gains. So, do you believe that your business environment and competition allow you to recapture 100% of the increased costs? Regarding your guidance for a 3% to 6% operating margin in the March quarter, what assumptions are you making? Do you expect to recapture 50% or maybe 75% of the fuel price increases? Can you provide any specific percentage? I understand this is a detailed question, but it is crucial for your P&L in the March quarter and your outlook for the year.

Pedro Heilbron, CEO

Right. So staying in the 727 all-timers category, the 100% recapture comment was actually in 2007 or 2008, if I'm not mistaken, which was the last time fuel prices skyrocketed. The reason we’re not expecting or relying on recapturing the increase in fuel prices is due to all the uncertainty related to the virus, how we’re bringing back capacity, and how competition has become less predictable. The traffic flows are leaning more towards leisure than business. Consequently, it's also more challenging to change prices quickly in some markets. The overall business environment is very different right now. I know conditions will stabilize and things will normalize as the year progresses, but we don’t want to make any assumptions or promises at this time. Our PRM team, as always, will strive to recapture as much as possible, hopefully all of it. However, I believe it will take longer than before.

José Montero, CFO

No. I would just add that the air component there is currencies in the region. The currency environment in Latin America is still not as predictable as it would have been in other times. So that's another component of this right in terms of purchasing power. I have to second what Pedro mentioned in terms of our pricing and revenue management practice which is world-class and they're excellent at what they do and they capture as much as they can from every ASM that we sell. So it's very important. And then the other thing that has changed or that we are really focusing on is our own controllable costs. And so, our CASM ex today is much lower than where it was back in 2007. And that's another big component of our ultimate profitability that we're striving for.

Mike Linenberg, Analyst

Great. Just one quick follow-up. Given the current situation, it’s much more discretionary compared to corporate. Have you noticed any signs of improvement on the corporate side over the past couple of quarters? Are your surveys, whether informal or formal, indicating any uptick there, or has it remained consistent? Any insights on that would be helpful since it’s relevant to that aspect of your business. Thank you.

Pedro Heilbron, CEO

I'll let José look for more specific information, but we haven't seen much change from the last few quarters. We're still doing something like 40% leisure, 40% VFR and 20% business. It used to be 1/3 each before the pandemic. But also, there are other favorable trends; we have better load factors in business class for whatever reason, including probably the pandemic being a reason that we're selling better business class than before. So that's a positive trend.

José Montero, CFO

Business travel is currently about half of what it was prior to the pandemic.

Mike Linenberg, Analyst

Yes. No that's helpful. So it sounds like maybe you're getting some premium leisure, premium VFR that's sitting up front which is what we're hearing and seeing in the US. It sounds like there's a little bit of that?

José Montero, CFO

A little bit of that happening here.

Pedro Heilbron, CEO

Thank you. Next, we have Rogerio Araujo of UBS. Your line is open.

Rogerio Araujo, Analyst

Hi. Congratulations on the strong quarter. So first I would like to address your expectations for yields when the market normalizes. What I mean is when all the grounded aircraft are back to fly and international demand normalizes, do you expect yields to be above 2019 levels? And by how much? I know it's a very difficult question especially regarding timing. But I think only some kind of best guess here would be very appreciated. And I will do my second question later. Thank you.

José Montero, CFO

First of all, it's too early to determine where things will ultimately end up. For 2022, we are maintaining our revenue guidance for the first quarter. However, we are preparing for any yield environment that may arise, whether due to increased competition or other cost situations. Our Sub-6 CASM excluding certain factors is stronger than it was pre-pandemic, and that's how we plan to compete. Additionally, we believe that our network and hub in Panama is the best strategy for serving passengers in our region.

Rogerio Araujo, Analyst

Okay. Sounds good. And what about capacity deployment in the region? Because we saw Copa's market share in the major countries doubling. Basically, do you expect a lot of capacity to be still deployed in the upcoming quarters? And when should this movement end? When should we be more confident that you are going to likely increase with demand normalizing? So any color on capacity deployment and how much aircraft is still grounded from competitors would be great. Thank you.

Pedro Heilbron, CEO

Right. So I would say that capacity market share has been a little bit all over the place in Latin America. Some of them have deployed capacity faster than others. There are some that are above pre-pandemic capacity and others are still behind. We are like in the middle. We're very close. And by the second half of this year, we will be at pre-pandemic capacity. So again some are above. Some of the US carriers, even some carriers in our region are above. Some of the main airlines that went through the Chapter 11 process are a little bit behind. And all of that alters the market share numbers too. So again I think we stayed like in the middle. We're following our course. We are focusing on our network on what makes sense to us on bringing back the capacity that we know we can fly profitably. We expect as mentioned to be sometime in the second half of the year to be above 2019 levels.

Rogerio Araujo, Analyst

Thanks so Pedro. Have a great year ahead.

Pedro Heilbron, CEO

Thank you.

Operator, Operator

Thank you. Last question comes from Dan McKenzie of Seaport Global. Your line is open.

Dan McKenzie, Analyst

Hi. Thanks. Good morning, guys. A few questions here. José, I am seeing a bigger expansion by Wingo in the current quarter. My question is to what extent Wingo is going to aid or help the overall system cost story going forward? So if we were to dissect or separate out the two cost stories. Is it that Wingo's CASM ex is sub-5 just given the higher utilization model and then that helps to drive the Sub-6 CASM ex-story at the system level, or is the cost story really being driven as much on the Copa side just given the cost restructuring you've done there?

Pedro Heilbron, CEO

It's both. I would say that we don't disclose the individual performance of the two units, but both airlines are improving in terms of costs. None are currently below five, at least not yet, but that could change in the future, and it is a good goal. We are operating more available seat miles than before the pandemic. One unit is slightly less, while the other is slightly more, meaning a higher percentage of the total. They are contributing a bit more to the overall Copa Holdings results. However, the improvement is coming from both units.

José Montero, CFO

Yes. Both airlines are doing much better in terms of cost than pre-pandemic.

Dan McKenzie, Analyst

Yes. Very good. And the second question that I have really is just kind of putting a finer point on some of the prior questions. And that is I wonder if you can just provide some perspective on the percent of overall flying say ballpark to the top five countries. The reason I'm asking is at least when I dug into the schedules it looks like flying in the first quarter is a bit more concentrated than it normally would be. So it looks like you're clearly making some deliberate network decisions here just to leverage traffic in the near term.

José Montero, CFO

We are actively seizing opportunities as they arise, and our performance has improved compared to the second quarter of last year, when there was significant traffic heading to the US for vaccine-related travel. Currently, the leisure travel sector is showing considerable activity, and this appears to be more balanced than last year. Additionally, some countries that were previously closed, particularly in South America, have now reopened. As a result, we have increased our capacity in those markets.

Dan McKenzie, Analyst

Okay. Can I just squeeze one last one here? I always am asking questions on pent-up demand to all the airlines. And I'm just wondering if you can speak to the Copa website searches that you're seeing for travel in March and this summer. I guess that would be winter in South America, actually compared to 2019. So, looking at searches, not bookings. I'm just wondering if you can kind of give us some perspective of what the appetite for travel is as we look ahead.

Pedro Heilbron, CEO

We don't have that information at the moment, and I realize that you have a knack for asking the one question we're unprepared for. I'll provide a very general answer for now, but we will follow up with you later. What we find encouraging is the growing interest in travel across the region, particularly for leisure trips, not just to Copa markets but also to Europe and ski destinations in the US, as well as Caribbean locations. Overall, we don't observe any hesitation among people wanting to travel abroad. There seems to be a strong desire to explore and experience new things. Therefore, we feel quite optimistic about the remainder of the year, even though corporate demand is difficult to forecast at this time for various reasons. In general, people are eager to travel.

José Montero, CFO

If something like you had a plan in January couldn't occur because of Omicron, we're seeing people still commuting on Easter weekend and that sort of things. So, it's not like people are somehow canceling; it's just simply they're postponing their travel.

Pedro Heilbron, CEO

And that's a good point also, because the booking curve has shortened. So for all the reasons we know with the virus and travel restrictions and the like, there's more people making their travel plans a lot closer to their traveling dates.

Dan McKenzie, Analyst

Very good. Thanks so much, you guys. Great quarter and look forward to hearing again in another three months here.

José Montero, CFO

Thank you, Dan.

Pedro Heilbron, CEO

Thank you.

Operator, Operator

Thank you. That ends our Q&A session. I will now hand the call back over to Pedro Heilbron for closing remarks.

Pedro Heilbron, CEO

Thank you, and thank you, operator. So thank you all. This concludes our Q4 and 2021 earnings call. Thank you for being with us, and thanks for your continued support. Have a great day, and we'll see you in the next one. Thank you again.

Operator, Operator

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