Copa Holdings, S.A. (CPA)

Copa Holdings, S.A. is a leading Latin American provider of airline passenger and cargo service, operating through its principal subsidiaries Compañía Panameña de Aviación, S.A. (Copa Airlines) and AeroRepública, S.A. The Company operates from its strategically located hub at Tocumen International Airport in Panama City, Panama, and its low-cost business model, Wingo, operates within Colombia and various cities in the region. The Latin American aviation market is characterized by three principal groups of travelers: strictly leisure, business, and travelers visiting friends and family. According to data from the International Air Transport Association (IATA), Latin America comprised approximately 9.8% of international worldwide passengers flown in 2024. The Central American aviation market is dominated by international traffic, with international revenue passenger kilometers (RPKs) concentrated between North America and Central America, representing 78.1% of international RPKs flown to and from Central America in 2024. Total RPKs flown on international flights to and from Central America increased 9.1%, and load factors on international flights to and from Central America were 85% on average. Panama serves as a hub for connecting passenger traffic between major markets in North, South, and Central America and the Caribbean, and passenger traffic to and from Panama is significantly influenced by economic growth in surrounding regions. Preliminary figures indicate that real GDP in 2025 increased by 4.0% in Panama and by 2.5% in Colombia, according to data from the International Monetary Fund (IMF).

Copa Holdings faces intense competition throughout its route network from a number of other airlines, including Avianca, American Airlines, Delta Air Lines, Spirit, JetBlue, Azul, Aeromexico, Gol, Volaris, Arajet, Jetsmart, and LATAM, among others. The Company believes its primary business strengths include its strategically located 'Hub of the Americas' at Tocumen International Airport, a focus on keeping operating costs low, a modern fleet consisting of Boeing 737-MAX and Boeing 737-Next Generation aircraft, a strong brand and reputation for quality service, and a management culture that fosters teamwork and continuous improvement. Copa Airlines' on-time performance, according to DOT standard methodology of arrivals within 14 minutes of scheduled arrival time, was 90.2% and its completion factor was 99.8% for the year ended December 31, 2025. In January 2026, for the eleventh year, the Company received recognition from The Cirium 2025 On Time Performance (OTP) Review as the most on-time airline in Latin America. The Company's operating CASM, excluding costs for fuel, was 5.76¢ in 2025.

Copa Holdings generates revenue primarily from passenger transportation, which represented 94.8% of total revenues for the year ended December 31, 2025. Revenue is recognized when control of the goods or services is transferred to the customer. Passenger revenue from tickets is recognized when transportation is provided or when the ticket expires unused. The Company also generates revenue from cargo and mail operations, which represented 3.2% of total revenues, and other operating activities, which represented 2.0% of total revenues. Other operating revenue includes revenue associated with the marketing component of the frequent flyer program, including mileage sales to co-branded credit card partners and other non-airline partners. The Company's customer segments include leisure travelers, business travelers, and travelers visiting friends and family. Copa Airlines has a strategic alliance with United Airlines that encompasses joint marketing strategies and code-sharing arrangements, and the Company has been a member of Star Alliance since June 2012.

Copa Airlines operates from its hub at Panama City's Tocumen International Airport, offering approximately 436 daily scheduled flights among 84 destinations in 32 countries in North, Central and South America and the Caribbean. The Company's fleet as of December 31, 2025 consists of 125 aircraft, including 76 Boeing 737-Next Generation aircraft, 32 Boeing 737 MAX 9 aircraft, 15 Boeing 737 MAX 8 aircraft, and two Boeing 737-800 BCF (Boeing Converted Freighter). The Boeing 737-800 aircraft have three different configurations: one with 16 business class seats with 38-inch pitch seats and a total of 160 seats, a second with 16 business class seats with 49-inch pitch seats and a total of 160 seats, and a third with 16 business class seats with 38-inch pitch seats and a total of 166 seats. The Boeing 737 MAX 9 aircraft feature two configurations: one with 16 full lie-flat seats in business class (Dreams) and a total of 166 seats, and another configuration with 12 full lie-flat seats in business class (Dreams) and a total of 174 seats. The Boeing 737 MAX 8 aircraft have 16 business class seats and a total of 166 seats. The Boeing 737-700 aircraft have 12 business class seats and a total of 126 seats. Within the Copa Holdings fleet, there are ten 737-800s dedicated to the operations of Wingo, equipped with 186 economy class seats. The Company's cargo operations consist principally of freight service, generating revenues of approximately $115.7 million in 2025, $100.5 million in 2024, and $97.1 million in 2023, representing 3.2%, 2.9%, and 2.8% respectively of Copa's operating revenues. In September 2025, the Company began operating its second freighter aircraft, a Boeing 737-800 BCF with a capacity of 21.7 tons per flight. The Company's ConnectMiles frequent flyer program allows members to earn miles through travel on Copa Airlines, Star Alliance partners, and by purchasing goods and services from non-airline partners and co-branded credit cards. As of December 31, 2025, the frequent flyer deferred revenue totaled $155.6 million, with $74.2 million classified as current and $81.4 million as non-current.

During 2025, the Company's capital expenditures were $922.2 million, which consisted of advance payments and reimbursements on aircraft purchase contracts and acquisition of property and equipment, corresponding mainly to 12 aircraft that arrived during 2025, compared to capital expenditures of $465.9 million in 2024 and $572.1 million in 2023. As of December 31, 2025, the Company had purchase contracts with Boeing involving 85 firm orders of Boeing 737 MAX aircraft, agreed to be delivered between 2026 and 2034. The aircraft under these contracts have an approximate value of $0.2 billion in 2026, $0.5 billion in 2027, $0.9 billion in 2028, $0.4 billion in 2029, and $2.7 billion thereafter, based on contractual obligations net of discounts and pre-delivery payments, including estimated amounts for contractual price escalation. In 2025, the Company repurchased 101,713 shares for $8.7 million under its share repurchase program. As of December 31, 2025, the Company had $103.5 million remaining to purchase shares under its share repurchase program. On February 11, 2026, the Board of Directors approved a 2026 quarterly dividend payment of $1.71 per share, maintaining last year's dividend payment. The Company also had proceeds from new borrowings of $552.2 million and payments on loans and borrowings of $254.6 million during 2025.

For the year ended December 31, 2025, Copa Holdings reported consolidated net profit of $671.6 million, compared to a net profit of $608.1 million in 2024. Consolidated operating profit was $819.0 million in 2025, compared to an operating profit of $753.0 million in 2024. The consolidated operating margin in 2025 was 22.6%, an increase of 0.8 percentage points versus 2024. Consolidated total revenue was $3.6 billion in 2025, a 5.0% increase over operating revenue of $3.4 billion in 2024, mainly due to a 9.9% increase in passenger traffic, offset by a decrease of 5.2% in passenger average fare. Passenger revenue totaled $3.4 billion in 2025, a 4.2% increase over passenger revenue of $3.3 billion in 2024. Cargo and mail revenue totaled $115.7 million in 2025, a 15.1% increase from $100.5 million in 2024. Other operating revenue totaled $70.9 million in 2025, a 35.4% increase from $52.3 million in 2024. Consolidated operating expenses totaled $2.8 billion in 2025, a 3.9% increase over $2.7 billion in 2024. Net cash flows provided by operating activities for the year ended December 31, 2025 were $1,150.4 million, an increase of $153.6 million compared to $996.8 million in 2024. Cash, cash equivalents, and short-term investments at December 31, 2025 increased by $138.9 million compared to December 31, 2024, to $1,338.2 million.

The Company has not provided explicit quantitative revenue, margin, or EPS guidance for the upcoming period in the filing.

The Company intends to continue expanding its service to new markets as well as increasing the frequency of flights to the markets it currently serves. Copa's business strategy is focused on adding new destinations across Latin America, the Caribbean and North America, and increasing frequencies to many of the destinations that Copa currently serves. The Company believes that demand for air travel in Latin America is likely to expand in the next decade, and it intends to use its increasing fleet capacity to meet this growing demand. Copa's Panama City hub allows it to consolidate traffic and provide non-stop or one-stop connecting service to over 5,000 city pairs. As of December 31, 2025, the Company had purchase contracts with Boeing entailing 85 firm orders and 20 options of Boeing 737 MAX aircraft, scheduled for delivery between 2026 and 2034. In 2026, the Company expects to take delivery of 8 additional Boeing 737 MAX 8 aircraft. The expected fleet size at the end of 2026 is 133 aircraft, growing to 144 in 2027, 155 in 2028, 161 in 2029, 162 in 2030, 166 in 2031, and 163 in 2032, assuming delivery of all aircraft for which the Company currently has firm orders and return of leased aircraft.

The Company seeks to reduce its cost per available seat mile without sacrificing services valued by its customers as it executes its growth plans. The goal is to maintain a modern fleet and to make effective use of resources through efficient aircraft utilization and employee productivity. The Company intends to reduce its distribution costs by increasing direct sales as well as improving efficiency through technology and automated processes. In September 2022, Copa Airlines implemented a channel differentiation strategy (Copa Connect) with the objective of shifting sales to more cost-efficient channels, adding a distribution surcharge to the fare for tickets purchased through the traditional travel agency GDS channel to offset the higher cost of this channel. The Company's operating CASM, excluding costs for fuel, was 5.76¢ in 2025.

The Company's fleet as of December 31, 2025 has an average age of approximately 10.2 years. The Company expects maintenance costs to increase as the fleet ages and warranties expire. The Company has invested in internal training and development initiatives, including the Academia Latinoamericana de Aviación Superior (ALAS), its pilot training academy established in collaboration with the Technological University of Panama, and the Academia de Técnicos Aeronáuticos (ATA), which provides technical training for aircraft maintenance personnel. The Company currently has three full flight motion simulators as well as other different levels of Flight Simulation Training Device (FSTD) at its training facility in Panama's City of Knowledge. In February 2024, the Company installed and certified a Boeing 737 MAX-9 Flight Training Device, level 5, built by Multi Pilot Solutions (MPS).

The Company's capital expenditures were $922.2 million in 2025, which consisted of advance payments and reimbursements on aircraft purchase contracts and acquisition of property and equipment, corresponding mainly to 12 aircraft that arrived during 2025. The Company expects to have substantial cash needs as it expands, including cash required to fund aircraft acquisitions or aircraft deposits as it adds to its fleet. The Company finances its aircraft through long-term debt and operating lease financings, and expects to finance future aircraft deliveries with a combination of similar debt arrangements and financing leases. As of December 31, 2025, the Company had $103.5 million remaining to purchase shares under its share repurchase program. On February 11, 2026, the Board of Directors approved a 2026 quarterly dividend payment of $1.71 per share, maintaining last year's dividend payment. The Company's dividend policy limits aggregate annual dividends to an amount equal to 40% of the prior year's annual consolidated adjusted net income, to be distributed in equal quarterly installments subject to board ratification each quarter, though the Board has approved dividends in excess of this policy level in recent periods.

The Company faces significant headwinds from the volatility of fuel costs, which represented approximately 33.3% of operating expenses in 2025, 35.2% in 2024, and 37.6% in 2023. As of December 31, 2025, the Company was not a party to any outstanding fuel hedge contracts and has adopted a strategy of remaining unhedged, while regularly reviewing its policies based on market conditions and other factors. For 2026, although the Company has not hedged any part of its anticipated fuel needs, it continues to evaluate various hedging strategies. A hypothetical 10% increase in the December 31, 2025 cost per gallon of fuel would result in an increase to aircraft fuel expense of approximately $88.9 million in 2026. The Company is also exposed to foreign exchange rate fluctuations, as approximately 67.5% of revenues and 84.2% of expenses were denominated in U.S. dollars in 2025. A significant part of revenue is denominated in foreign currencies, including the Brazilian real, Colombian peso, Mexican peso and Chilean peso, which represented 8.6%, 8.8%, 3.5% and 3.0% of revenue in 2025, respectively. The Company's performance is heavily dependent on economic and political conditions in the countries in which it does business, particularly in Panama, Colombia, Brazil, the United States, and Argentina. Political instability in Venezuela has led to service disruptions, including the suspension of flights between Panama and Venezuela in July 2024, resumption in May 2025, and subsequent suspension of service to Caracas in December 2025 due to operational and safety-related considerations. The Company also faces competitive pressure from low-cost carriers and point-to-point carriers that may bypass its hub in Panama.

The Company is subject to extensive regulation which may restrict its growth, operations, or increase its costs. This includes regulations from the Panamanian Civil Aviation Authority (AAC), the Colombian Civil Aviation Administration (UAEAC), the U.S. Federal Aviation Administration (FAA), and other foreign aviation regulators. The Company must comply with international bilateral air transport agreements and maintain its Panamanian operating license and international route rights, which require that Panamanian nationals exercise 'effective control' and maintain 'substantial ownership' of the Company. The Company is also subject to various environmental regulations, including the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which will require airline operators to offset CO2 emissions through payments to authorized carbon banks. Copa Airlines and AeroRepública will not be subject to the emissions offsetting requirements until 2027, because Panama and Colombia are not participating in the voluntary first phase of CORSIA. The Company faces risks related to the cost of financing its aircraft, as changes in interest rates and the associated risk premium may affect financing costs. If the interest rate average is 100 basis points more in 2026 than in 2025, the variable-rate debt interest expense would increase by approximately $9.1 million, and the estimated fair value of the fixed-rate debt would increase by approximately $36.1 million.

Management's message emphasizes the Company's goal to continue to grow profitably and enhance its position as a leader in Latin American aviation by providing a combination of superior customer service, convenient schedules and competitive fares, while maintaining competitive costs. The key elements of the business strategy include expanding the network by increasing frequencies and adding new destinations, continuing to focus on keeping costs low, and emphasizing superior service and value to customers. Management believes that demand for air travel in Latin America is likely to expand in the next decade, and the Company intends to use its increasing fleet capacity to meet this growing demand. The Company's strategy also includes focusing on expanding operations by increasing flight frequencies on its most profitable routes and initiating service to new destinations. Management emphasizes the importance of the Company's modern fleet, efficient operations, and the competitive cost of labor in the region. The Company's goal-oriented culture and incentive programs, including profit-sharing and employee recognition programs, are highlighted as contributing to a motivated work force focused on satisfying customers, achieving efficiencies, and growing profitability. The Company's management team has been successful at creating a culture based on teamwork and focused on continuous improvement, with each employee having individual or group objectives based on corporate goals that serve as a basis for measuring performance.

For the year ended December 31, 2025, total operating revenues were $3,617,822 thousand ¹, compared to $3,446,198 thousand ² in 2024 and $3,457,004 thousand ³ in 2023. Net profit was $671,648 thousand ⁴ in 2025, compared to $608,114 thousand ⁵ in 2024 and $514,097 thousand ⁶ in 2023. Diluted earnings per share were $16.28 ⁷ in 2025, compared to $14.55 ⁸ in 2024 and $12.78 ⁹ in 2023. Operating profit was $818,960 thousand ¹⁰ in 2025, compared to $752,951 thousand ¹¹ in 2024 and $807,228 thousand ¹² in 2023. The consolidated operating margin was 22.6% ¹³ in 2025, compared to 21.8% ¹⁴ in 2024 and 23.4% ¹⁵ in 2023. Finance cost totaled $98,393 thousand ¹⁶ in 2025, compared to $84,493 thousand ¹⁷ in 2024 and $158,216 thousand ¹⁸ in 2023. Income tax expense was $103,962 thousand ¹⁹ in 2025, compared to $97,674 thousand ²⁰ in 2024 and $97,005 thousand ²¹ in 2023. Cash, cash equivalents, and short-term investments at December 31, 2025 were $1,338,158 thousand ²² ($382,554 thousand ²³ in cash and cash equivalents plus $955,604 thousand ²⁴ in current investments), compared to $1,199,232 thousand ²⁵ at December 31, 2024 ($613,313 thousand ²⁶ in cash and cash equivalents plus $585,919 thousand ²⁷ in current investments). Total assets were $6,583,024 thousand ²⁸ as of December 31, 2025, compared to $5,742,286 thousand ²⁹ as of December 31, 2024. Total equity was $2,775,423 thousand ³⁰ as of December 31, 2025, compared to $2,372,743 thousand ³¹ as of December 31, 2024. Net cash flows provided by operating activities were $1,150,436 thousand ³² in 2025, compared to $996,849 thousand ³³ in 2024 and $1,044,786 thousand ³⁴ in 2023. Capital expenditures were $922.2 million ³⁵ in 2025, compared to $465.9 million ³⁶ in 2024 and $572.1 million ³⁷ in 2023. The Company's fuel expense was $932,251 thousand ³⁸ in 2025, compared to $949,309 thousand ³⁹ in 2024 and $995,862 thousand ⁴⁰ in 2023. Depreciation and amortization was $365,136 thousand ⁴¹ in 2025, compared to $330,710 thousand ⁴² in 2024 and $306,114 thousand ⁴³ in 2023. The average price per gallon of jet fuel into plane (excluding hedge) was $2.45 ⁴⁴ in 2025, compared to $2.66 ⁴⁵ in 2024 and $3.02 ⁴⁶ in 2023. Gallons consumed were 377.5 million ⁴⁷ in 2025, compared to 354.5 million ⁴⁸ in 2024 and 327.6 million ⁴⁹ in 2023. Available seat miles were 32,408 million ⁵⁰ in 2025, compared to 30,077 million ⁵¹ in 2024 and 27,700 million ⁵² in 2023. Load factor was 87.0% ⁵³ in 2025, compared to 86.3% ⁵⁴ in 2024 and 86.8% ⁵⁵ in 2023. Yield was 12.16 cents ⁵⁶ in 2025, compared to 12.68 cents ⁵⁷ in 2024 and 13.79 cents ⁵⁸ in 2023. The Company's operating CASM, excluding costs for fuel, was 5.76¢ ⁵⁹ in 2025.

The Company's performance is heavily dependent on economic and political conditions in the countries in which it does business, particularly in Panama, Colombia, Brazil, the United States, and Argentina, and a substantial portion of revenues are derived from discretionary and leisure travel, which are especially sensitive to economic downturns. Fuel costs constitute a significant portion of total operating expenses, representing approximately 33.3% of operating expenses in 2025, 35.2% in 2024, and 37.6% in 2023, and the Company has not hedged any of its fuel needs for 2026, exposing it to substantial volatility. The Company has significant fixed financing costs, with finance cost totaling $98.4 million for the year ended December 31, 2025, and as of that date approximately 53.7% of total indebtedness bore interest at fixed rates with the remainder determined with reference to SOFR. The Company has purchase contracts with Boeing involving 85 firm orders of Boeing 737 MAX aircraft with an approximate value of $0.2 billion in 2026, $0.5 billion in 2027, $0.9 billion in 2028, $0.4 billion in 2029, and $2.7 billion thereafter, requiring substantial capital from external sources and likely resulting in increased leverage and fixed financing costs. The Company faces intense competition from a number of other airlines, including Avianca, American Airlines, Delta Air Lines, and LATAM, and the low-cost carrier business model has gained acceptance in the Latin American aviation industry, with current LCCs including Volaris, Spirit, Azul, Gol, JetSmart, Sky, Arajet and Frontier adding pressure to fares and exploring new competitive routes overflying the Company's hub.