How Copa’s Central Panama Location Will Help It Bounce Back

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Even though Copa Airlines just linked its first back-to-back quarterly losses in history, the Panamanian carrier is confident that it will bounce back stronger from the COVID-19 pandemic. It will do it by using its hub, Tocumen International Airport, as a stronghold for connecting America. Let’s investigate further.

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Copa Airlines will use Tocumen Airport as a boost for its connectivity. Photo: Getty Images

The Hub of the Americas will live up to its name

Tocumen International Airport serves Panama City. But, more than that, it serves as a connecting point between North and South America. It is known, from a marketing point of view, as the Hub of the Americas.

Copa Airlines has proudly served from Tocumen, becoming a powerhouse in Latin American connectivity. Before the COVID-19 pandemic, Copa flew to more than 80 destinations in every country of America. In contrast, it only had one domestic route.

This internationalization could be seen as something hampering due to the drop in demand. But, for Copa Airlines, it will be a strength in the near future.

Pedro Heilbron, Copa Airlines CEO, said,

“In a post-covid-19 environment, some Latin American markets won’t be able to sustain direct point-to-point services. In that sense, the Hub of the Americas will be more valuable.”

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He added that while it is too early to tell which opportunities Copa will have in the future, every market will reduce its size during the next three years.

In this sense, Copa Airlines will also seize the gap left by its three main regional competitors, LATAM, Avianca, and Aeromexico. These three carriers used their hubs (Sao Paulo and Santiago for LATAM; Bogotá and San Salvador for Avianca, and Mexico City for Aeromexico) as connecting points for its traffic. The three airlines are in Chapter 11 reorganizations and will shrink the size of its operations, closing routes, and reducing frequencies.

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Copa Airlines is reducing the size of its fleet. Photo: Getty Images

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Lowering costs

Copa Airlines has a goal in mind: to become profitable again even if it doesn’t recover its pre-pandemic traffic levels. While it sounds odd, Copa Airlines claims that it has settled the foundations to achieve it.

First of all, it has lowered its monthly cash consumption from US$77 million in the second quarter to US$36 million in the third quarter. At the end of the year, it expects to burn US$25 million monthly.

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Copa has done it by focusing on reducing costs by negotiating contracts. It has also shrunk the size of the Company to match the size of the new reality. Additionally, it has reduced the number of cash refunds and seen an increase in sales during the fourth quarter. This has allowed Copa to predict that it will end the year with a 40% capacity, compared to 2019.

But maybe the most critical aspect is that Copa hasn’t deferred costs. “Nothing will come back to bite us later,” said Pedro Heilbron. Instead, it has brought down fixed and variable costs. Heilbron added,

“We expect that the Available Seats Per Mile will come back, and our unit costs will improve. We’re not sure what’s going to be our sight and how long it will take us to get back to 2019 levels. But we want to make sure that we can be as successful as before, even before we get back to 100%, which means that we need lower fixed costs. And I think we’re there already.”

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In the third quarter, Copa reported a net loss of US$118.1 million. Photo: Getty Images.

Copa Airlines third-quarter results in a nutshell

So, how did Copa Airline fare during the third quarter of 2020? Here are the highlights.

  • Copa reported a net loss of US$118.1 million.
  • Revenue per passenger carried drop 98.9% during the third quarter.
  • The load factor of Copa’s flights was 59.7%. For the final quarter, it has already improved to 70%.
  • As of November 15, the Company has restarted services to 38 destinations. But, by September, Copa only had a 3% capacity of its pre-COVID levels.
  • Copa completed the delivery of the first three EMB-190 aircraft out of 14 sold to a third party.
  • Additionally, it is looking to sell its Boeing 737-700 fleet. Copa signed a Letter of Intent for the sale of two planes of this model. It will deliver them in January 2021.
  • Copa ended the third quarter with US$1.3 billion of available liquidity. It consists of US$1.0 billion in cash and US$305 million of undrawn credit facilities.

What do you think of Copa Airlines’ financial performance? Let us know in the comments.

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