Popular Stories

Why Being Grounded for Months Was the Best Pandemic Outcome for This Airline

Why Being Grounded for Months Was the Best Pandemic Outcome for This Airline

Panama’s national government demanded it, barring any airline from flying international flights.” data-reactid=”23″>For five months, Copa Airlines barely flew, operating a smattering of humanitarian and cargo flights. Panama’s national government demanded it, barring any airline from flying international flights.

Copa, which has just one domestic route, is back in business, but only in a small way. Thanks to Panama Government Executive Decree No. 300, Copa is launching limited flights to New York, San Jose, Costa Rica, Santo Domingo, Dominican Republic, and Quito and Guayaquil in Ecuador. Assuming it goes OK, the government should allow more flights next month.

Only Panamanian citizens will be able to get off in Panama City, but passengers can transfer at the airline’s hub at Tocumen International Airport to make connections between North and South America. (At least among the countries that are open; several South American countries have not opened their borders to all travelers.)

U.S. airlines have argued they must fly as much as the market allows, saying they need cash generated from fare sales to keep their businesses running. But what about Copa? If the airline has effectively not flown for five months, shouldn’t it be in dire financial straits?

posted a net loss of $386 million, or $114.6 million excluding special items, such as costs from permanently grounding certain fleet types.” data-reactid=”31″>Not exactly. Despite flying only 86 cargo and humanitarian operations in the second quarter, Copa actually did all right, compared to other airlines. The company, listed on the New York Stock Exchange, posted a net loss of $386 million, or $114.6 million excluding special items, such as costs from permanently grounding certain fleet types.

“Though clearly a brutal quarter, Copa was one of the few airlines to exceed our expectations both mathematically and otherwise,” Hunter Keay, an analyst at Wolfe Research, wrote in a report.

What’s the Secret?

Before the pandemic, Copa was arguably one of the world’s most boring airlines. It consistently made money — this past quarter marked its first loss in 20 years — but it preferred slow and steady over flashy.

Its CEO, Pedro Heilbron, has run the company since 1988, and he didn’t like to take unnecessary risks. As other airlines expanded fleets and route networks, Copa kept its simple strategy, flying only narrowbodies, only within the Americas. Heilbron understood his airline’s strength was its location, with Panama perfectly placed between North and South America to capture connecting passengers.

Consumers may have found better options between, say, Miami and Buenos Aires. But if they wanted to go from Orlando to Barranquilla, Colombia, Copa probably was their best choice.

told Skift Airline Weekly. “They’ve been more successful, probably, even than their North America counterparts on really connecting North and South America.”” data-reactid=”37″>“Panama has been our success story for so many years in the region,” Peter Cerda, regional vice president for the Americas at IATA, the global airline trade group, told Skift Airline Weekly. “They’ve been more successful, probably, even than their North America counterparts on really connecting North and South America.”

Copa has had some missteps, including a small low-cost Colombian airline called Wingo that has not yet been a success. But compared to other big Latin American airlines, it has been remarkably steady. During this crisis, Aeromexico, Avianca and Latam all have filed for bankruptcy protection, while Copa has relied on its balance sheet to raise new liquidity.

“Copa is a best in class airline and the company regularly capitalizes on weak competitors in a high growth but unpredictable part of the world,” Keay said.

Can It Last?

Copa will not be the same airline this winter as it was last year. It’ll be smaller – it is retiring Embraer E190 and Boeing 737-700 jets — and it will fly to fewer markets.

But it remains an investor darling, again on a relative basis. Investment analysts like the airline’s cost-control focus, which has strengthened during the pandemic. In his report, Keay noted Copa reduced fixed costs by 40 percent in the second quarter. “Copa is in control of a bad situation to the extent it can be expected,” Keay said.

In his report, Joe DeNardi, an analyst at Stifel, lauded the airline for burning only $77 million a month in the most recent quarter, not bad for a period of nearly no operations. “Based on the current burn rate, that gives Copa ~19 months of runway with essentially no revenue production,” he said.

The airline could recover some revenue sooner. It may be years before any network airline matches 2019 revenues, but Copa’s streamlined business model could hold up OK during the early part of a recovery.

Most airlines rely on three types of passenger segments — leisure, visiting friends and relatives, and business. Conventional wisdom suggests business travelers will be the last to return during the pandemic, since many employees are working from home and becoming more comfortable with video conference platforms. But airlines have noted some people in the leisure and visiting friends and relatives segments have already resumed flying. Most expect these two groupings will drive any early recovery.

Copa’s fortunes could further improve if more countries open borders. Several big countries, including Argentina, Colombia and Chile, effectively have banned many outsiders from entering.

“If you are in New York or in Canada and you want to go into Latin America, whichever countries are open, you can travel,” Cerda said. “That’s what Copa will do. It is not normal, but it is what we have available, so we certainly want to take advantage of it so we can try to begin slowly to begin increase capacity and connectivity throughout the region.”

Subscribe to Skift newsletters for essential news about the business of travel.” data-reactid=”55″>Subscribe to Skift newsletters for essential news about the business of travel.

View Article Origin Here

Related Articles

Back to top button