Copa Holdings, S.a. · NYSE:CPA

Copa — Investor Day (September 2016)

66 slides from Copa's investor day presentation, Sep 23, 2016

  1. Slide 1: Copa Holdings Investor Day 2016

    COPA HOLDINGS, S.A. Investor Day 2016 Sep 23, 2016

  2. Slide 2: Safe Harbor Statement

    Safe Harbor Statement Statements in this presentation that are not reported financial results or other historical information are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current plans, estim

  3. Slide 3: Agenda

    Agenda Business and Strategic Overview 1 Financial Overview 2 Operations Overview 3 Commercial Overview 4 Q&A Session 5 Lunch 6 3

  4. Slide 4: Business and Strategic Overview

    Business and Strategic Overview PEDRO HEILBRON CHIEF EXECUTIVE OFFICER 4

  5. Slide 5: Business Model - Fundamental Strengths

    Business Model - 4 Fundamental Strengths Best Geographic Location Markets that Need a Hub 9% 5% 0-20 PPDEW 9% 21-50 PPDEW 51-100 PPDEW 77% >100 PPDEW PPDEW: Pax per day each way Right Infrastructure World Class Product On-Time Performance 95.0% 90.4% 90.3% 90.6% 89.2% 89.4% 89.1% 90.0% 85.0% 80.0% 7

  6. Slide 6: Best Geographic Location

    Best Geographic Location ……………………………… ……………… ………………………… ……………… 6

  7. Slide 7: Markets that Need a Hub

    Markets that Need a Hub  Network focused on underserved, thin markets Markets - 2009 – Opened 3 new destinations in 2016 8% 6% 0-20 PPDEW  25+ potential underserved new destinations 14% 21-50 PPDEW that could complement our network 51-100 PPDEW 71% >100 PPDEW  Most Latin American International O&

  8. Slide 8: Right Infrastructure – Hub of the Americas

    Right Infrastructure – Hub of the Americas  More jetbridges and international North America destinations than competing hubs 8 Cities 2 Countries  Copa represents >80% of Tocumen Airport passenger operations  South terminal expansion accommodates long-term growth needs 54  Duty free stores are a

  9. Slide 9: World Class Product

    World Class Product  World Class Service On-Time Performance – Skytrax World Airline Awards 2016 winner of: 95.0% 90.4% 90.3% 90.6% 89.2% 89.4% 89.1% – Best Airline in region 90.0% – Best Staff in region 85.0% – Best Regional Airline in region 80.0% – World Travel Awards’ 2015 Leading Airline for M

  10. Slide 10: Panama & Latin American Outlook

    Panama & Latin American Outlook 10

  11. Slide 11: Latin America: Softer Regional Economy

    Latin America: Softer Regional Economy Latin America GDP Growth 4.5% 4.5% 3.5% 2.9% 2.7% 2.5% 1.3% 1.5% 1.5% 0.5% -0.1% -0.5% -0.5% 2011 2012 2013 2014 2015 2016F 2017F  Latin America economic growth lowest since financial crisis  Latin American economies expected to contract further in 2016  Eco

  12. Slide 12: Latin America: Recovering Currencies

    Latin America: Recovering Currencies 12 Source: Bloomberg.

  13. Slide 13: Panama: Fastest Growing Economy in Latam

    Panama: Fastest Growing Economy in Latam  Regional business and logistics hub Panama GDP Growth – Largest container ports in Latin America 10.9% 10.5% 8.2%  Strong public and private sector investment 6.2% 6.4% 5.8% 6.1% – Panama Canal Expansion (completed Jun 2016) – Metro Transportation System (

  14. Slide 14: Looking Beyond 2016

    Looking Beyond 2016 Conectados todo es posible ————————————<—é; . CopaAirlines

  15. Slide 15: Order Book Supports Growth Strategy

    Order Book Supports Growth Strategy  Aircraft orders to fund future growth – All Boeing narrow body aircraft – 4 737 NGs & 71 737- MAX  Deliveries between 2017–2025 – First MAX deliveries in 2018 – 31 Lease expirations and 15 owned aircraft of more than 20 years  First airline in region with Boei

  16. Slide 16: Emerging Stronger from a down-cycle

    Emerging Stronger from a down-cycle  Proactive and Dynamic capacity deployment – Less patient with underperforming markets – More aggressive seasonal schedule adjustments  Managing the business effectively – Implemented Costs Savings Plan – Maintaining Operational Excellence – Maximizing Revenue t

  17. Slide 17: Path to Higher Margins

    Path to Higher Margins @ $1.80 17

  18. Slide 18: Financial Overview

    Financial Overview JOSÉ MONTERO CHIEF FINANCIAL OFFICER 18

  19. Slide 19: Profitability – Solid Track Record

    Profitability – Solid Track Record OPERATING MARGIN 25.0% Ex-Fuel Hedge Ex-Fuel Ex-Fuel Losses Hedge Hedge 20.0% 19.1% Losses Losses 16.1% 17.0% 15.0% 10.0% 21.0% 19.8% 17.9% 19.3% 15.1% 11.8% 12.2% 5.0% 0.0% 2011 2012 2013 2014 2015 1H 15 1H16 2011 2012 2013 2014 2015 1H15 1H16 RASM 13.7 13.58 13.8

  20. Slide 20: Full Year Guidance

    Full Year Guidance 2016 Financial Outlook Guidance Capacity - YOY ASM Growth ´+/-2% Average Load Factor ´+/-79% RASM (cents) 9.8 CASM Ex-fuel (cents) +/- 6.4 Operating Margin 11-13%  Assumes 2016 jet fuel price (all-in, net of hedges) of $1.75  Realized Fuel Hedge loss for the year estimated at US

  21. Slide 21: Cost Savings Initiatives

    Cost Savings Initiatives Impact (MM USD) Area Initiatives 2016-2018 Fuel Management APU, Flight Plans, GSI, SET, etc. 18 Suppliers GDS, Admin, etc. 13 Maintenance MRO, In-House Checks, etc. 6 On-Board Service Efficiencies, Supplies, etc. 3 Others Airports, Contracts, etc. 10 Total Recurring Savings

  22. Slide 22: Fleet Plan

    Fleet Plan Aircraft Type 2014 2015 2016 2017 2018 Capacity: 94 pax Range: 2,200nm Type: EMB-190 26 23 21 20 19 Capacity: 124 pax Range: 3,000nm Type: 737-700 18 14 14 14 14 Capacity: 154/160 pax Range: 3,000nm Type: 737-800 54 63 64 66 68 Capacity: 173 pax* Range: 3,390nm Type: MAX-9 0 0 0 0 5 98 10

  23. Slide 23: Fleet Plan Flexibility

    Fleet Plan Flexibility 185 CAGR: 7% 175 165 155 Year End Fleet Count 145 Flexibility 135 Lease Expirations, Slide Rights, 125 & Potential Aircraft Retirements 115 105 CAGR: 2% 95 85 2016 2017 2018 2019 2020 2021 2022 2023 2024 Conservative Fleet Growth Aggressive Fleet Growth 23 Updated: September 2

  24. Slide 24: B737-MAX will have better performance

    B737-MAX will have better performance  More capacity/seats  Increased Operating Range  Improved performance out of restrictive missions 24

  25. Slide 25: B737-MAX fleet will deliver cost advantages

    B737-MAX fleet will deliver cost advantages MAX MAX 25 Preliminary Configuration.

  26. Slide 26: CAPEX Forecast

    CAPEX Forecast CAPEX & CASH CAPEX ESTIMATES 375 300 220 US$ Millions 170 125 125 125 23 2015 2016F 2017F 2018F CAPEX CASH CAPEX Aircraft Owned/Leased: 6/3 1/0 2/0 5/2† *Leased aircraft are the product of sale-leasebacks. 26 **2016-2018 – assumes all aircraft financed at 100% LTV. †Owned/Leased fleet

  27. Slide 27: Solid Balance Sheet: Liquidity

    Solid Balance Sheet: Liquidity CASH AND CASH EQUIVALENTS (Excluding Venezuela Cash) 762 692 676 683 559 US$ Millions 517 2011 2012 2013 2014 2015 2Q2016 % LTM Revenues 28% 25% 27% 25% 30% 36% 27 Source: Company Financial Statements.

  28. Slide 28: Debt Profile

    Debt Profile Financing Source  100% of debt is asset based 18% 41%  Competitive cost of debt 41% ― ~2.6% blended cost of debt EXIM JOLCO Comm ― 40% of debt is US Exim based ― 34% of debt is from the Japanese Market (JOLCO) Fixed vs Variable Rate  ~ 60% of total debt fixed 41% 59%  Have secured 2

  29. Slide 29: Solid Balance Sheet: Low Leverage

    Solid Balance Sheet: Low Leverage Adjusted Net Debt/EBITDAR (Excluding Venezuela) $1,800 Adj Net Debt (MMs) Adj Net Debt to Ebitdar 5.0 10x $1,600 4.5 9x $1,400 4.0 8x $1,473 $1,353 3.5 7x $1,200 6.2 $1,226 5.9 $1,154 3.0 6x $1,000 $1,010 2.5 5x $800 $909 2.0 4x $600 1.5 3x 2.8 $400 1.0 2x 1.4 $200

  30. Slide 30: Returning Value to Shareholders

    Returning Value to Shareholders  Dividend Policy: Board approved change in policy to 40% payout of Adjusted Net Income  Paying quarterly dividend of $0.51 as of Mar 2016  Share Repurchase: Board approved a $250M share buyback program  Executed over half of the program by year end 2015 EARNINGS &

  31. Slide 31: Operations Overview

    Operations Overview DAN GUNN SVP OPERATIONS 31

  32. Slide 32: Operations Overview

    Operations Overview  2015: Another great operational year ― World-class operational metrics ― Continued focus on service and efficiency initiatives ― Continued expansion of Panama hub ― Further enhancements in maintenance capabilities ― Recognized leader in on-time performance ― Leaders in service

  33. Slide 33: Operational Excellence – On Time

    Operational Excellence – On Time Copa Airlines’ OTP is among the best in the industry On-Time Arrival Performance (1) 90.4% 90.6% 90.3% 89.2% 89.4% 89.1% 2011 2012 2013 2014 2015 2016 1. Measure: DOT Reporting Standard: within 15 minutes of Scheduled Arrival. 33 2. 2016 figures are YTD August.

  34. Slide 34: Operational Excellence – Schedule Reliability

    Operational Excellence – Schedule Reliability Copa Airlines’ completion factor is among the best in the industry Completion Factor 99.5% 99.7% 99.7% 99.8% 99.7% 99.9% 2011 2012 2013 2014 2015 2016 34 1. 2016 figures are YTD August.

  35. Slide 35: Operational Excellence – Fleet Reliability

    Operational Excellence – Fleet Reliability Copa Airlines has world class maintenance dispatch performance Fleet Maintenance Dispatch Performance 99.5% 99.6% 99.7% 99.7% 99.7% 99.7% 2011 2012 2013 2014 2015 2016 35 1. 2016 figures are YTD August.

  36. Slide 36: Efficiency Initiatives

    Efficiency Initiatives Copa Airlines is a leader in the implementation of initiatives to improve efficiency  90% of our 737-800NG fleet has split scimitar winglets - Incremental savings of 1.5%  Winglets, split scimitars and GE’s Tech Insertion program have improved fuel efficiency by 7.5% since f

  37. Slide 37: Right Infrastructure – South Terminal Expansion

    Right Infrastructure – South Terminal Expansion  Construction 62% complete (est. 2Q18)  Construction was slowed to make significant design improvements  Improvements to passenger connectivity between terminals  Eliminated tropical garden to expand Customs, Immigration and passenger circulation a

  38. Slide 38: South Terminal

    South Terminal CopaAijirlines ZA

  39. Slide 39: MRO System Replacement

    MRO System Replacement  We are implementing MXI Maintenix MRO software for 2017  Unifies and replaces two systems simplifying training, control and processes  Improved functionality and reporting capabilities  Will allow Copa to optimize maintenance program fully for our operation  Simplifies i

  40. Slide 40: Maintenance Capabilities expansion

    Maintenance Capabilities expansion  We continue to in-source more heavy maintenance work  57% of C checks done in house in 2016  Continue to add supporting shops to drive efficiencies  We plan to add a second heavy check line in 2018 - Hangar expansion in design phase  Investment of $14M over n

  41. Slide 41: Hangar Expansion

    Hangar Expansion a . a CopadAirlines |

  42. Slide 42: 2015: Recognized OTP Leaders

    2015: Recognized OTP Leaders  Flight Stats recognized Copa as the most on-time Latin Major Carrier for the 3rd year in a row  Copa Airlines Named Most On-Time Airline in Latin America by OAG, No. 2 Worldwide 42

  43. Slide 43: Leaders in Service and Quality

    Leaders in Service and Quality  Skytrax World Airline Awards 2016 winner of Best Airline, Best Staff and Best Regional Airline in region  Recognized by GE CFM International for operational excellence leading the Americas in CFM56 In-Flight Engine Shut-Down rate in the past five years  World Trave

  44. Slide 44: Commercial & Planning Overview

    Commercial & Planning Overview DENNIS CARY SVP COMMERCIAL & PLANNING 44

  45. Slide 45: Commercial & Planning Overview

    Commercial & Planning Overview  Combine prudent growth with healthy RASM and profitability  Adapt to changing market conditions  Defensible business model and ideal hub dynamics  Leverage United/Star and other tactical partnerships  Manage future capacity to meet demand using fleet plan flexibi

  46. Slide 46: First half reflects challenging environment

    First half reflects challenging environment Indicators 1H-16 Var vs. 15 ASMs (MM) 10,901 1.0% RPMs (MM) 8,484 5.4% Load Factor 77.8 3.2 Yield (In U.S Cents) 11.91 -15.1% RASM (In U.S Cents) 9.65 -11.1% Passenger Revenue (MM) $1,010.63 -10.6% Focus: Adapt to different demand environments to maximize

  47. Slide 47: Strong capacity discipline in 2016

    Strong capacity discipline in 2016 2016 ASM Growth 5.2% 1% -7.5% 1% 2.3% +/-2% 2015 New FYE Gauge New Destination Cancellations/ 2016 Frequencies Reductions 47 2016 Data – Real JAN-AUG / Forecast SEP-DEC

  48. Slide 48: Managing capacity based on market dynamics

    Managing capacity based on market dynamics  Copa grew rapidly and sustained strong profitability during 2010-2014  In response to the economic and currency pressures of the past two years, Copa has ramped down capacity faster than competitors ¨Boom Years¨ ¨Slow-Down Years¨ ASM 2010-2014 2015 2016

  49. Slide 49: Recent Market Activity

    Recent Market Activity 2015 2016 NEW FREQUENCIES NEW DESTINATIONS NEW FREQUENCIES NEW DESTINATIONS Havana New Orleans San Francisco Rosario Guayaquil San Francisco Sao Paulo Holguin Quito Belize New York* Chiclayo Maracaibo Santiago* CANCELLATIONS Villahermosa Caracas Miami* Villahermosa Puebla Davi

  50. Slide 50: 2016 Revenue Outlook

    2016 Revenue Outlook  First Half revenue metrics lower than 2015 driven by soft yield environment  Tactical capacity adjustments that meet demand in different markets  Economies and currencies stabilizing  Copa pushing load factors higher to offset some of the yield weakness  Continued focus on

  51. Slide 51: ConnectMiles Development on Track

    ConnectMiles Development on Track  ConnectMiles has grown rapidly since inception 15 months ago  Regaining control of our most loyal customers – Conversion from Mileage Plus to ConnectMiles  Developing profitable partnerships 2014 – 2016 Segments on Copa Airlines Exceeded 1Q 2014 Levels (with 74%

  52. Slide 52: Copa and United: An Enduring Alliance

    Copa and United: An Enduring Alliance  Copa and United have renewed their Alliance Agreement for another 5 years  Extensive and expanding code sharing  Anti Trust Immunity  Technology cooperation  Informal best practice sharing 53

  53. Slide 53: Strengthening Star Alliance Presence in PTY

    Strengthening Star Alliance Presence in PTY  Star Alliance partners increasing presence in Panama  Lufthansa started Frankfurt-Panama, 5 times per week in March 2016  Turkish Airlines started Istanbul- Panama, 3 times per week in May 2016 (via BOG westbound)  Increasing opportunities for interli

  54. Slide 54: Ancillary Revenue Opportunities

    Pursue ancillary opportunities consistent with Copa brand Fare Lock Bag Revenue Premium Economy ConnectMiles Lounges Upgrades Travel Cars Hotels Revenue Potential Insurance 55

  55. Slide 55: New Copa.com adapts to all devices

    New Copa.com adapts to all devices Old Copa.com Old Mobile Site  Released in July  Mobile friendly design  Accessible for customers New Copa.com (Responsive & Adaptive) with disabilities (DOT requirement)  ~ 20% faster page loads  ~15% visits increase 57

  56. Slide 56: New Copa apps well received by customers

    New Copa apps well received by customers  iOS release: May  Android release: June  First Android version  106K+ updates and 46K+ downloads for iOS  Rating  26K+ downloads for Android  Rating  Q2 2017 release will include bookings capability among other enhancements and new features 58

  57. Slide 57: Strengthening the Commercial Team

    Strengthening the Commercial Team Dennis Cary Chris Amenechi Sr. Vice President, Vice President , Revenue Management Commercial and Planning • 20+ Years CO/UA and Porter • 20+ Years AA, UA and Consulting • RM, Distribution, Merchandising • RM, Sales, Marketing, Loyalty Christophe Didier Tim Manoles

  58. Slide 58: Gabriel Varela, Sr. Director Planning

    GABRIEL VARELA SR. DIRECTOR PLANNING 60

  59. Slide 59: Current State of Colombia Network

    Current State of Colombia Network  Copa Colombia’s Domestic & Non-Panama International (Off-Hub) network is: – Point-to-Point – Low Yield & Mostly Leisure (San Andrés, Punta Cana, Havana, Cancún…)  Current Business model is not well geared for this… – Low seat density with 2-class configuration (m

  60. Slide 60: Proposed Plan

    Proposed Plan  Kicked-off project to better serve these markets by tweaking model – Set of initiatives to lower costs and increase profits – Market and frequencies may be adjusted but capacity will be similar 63

  61. Slide 61: Scope

    Scope  Initiatives and changes will be for Domestic and Off-hub network – Flights To Panama hub will remain unchanged – 33.7% of ASMs of Copa Colombia and 2.7% of ASMs of Copa Holdings – 4 aircraft worth of flying out of a total operation of 13 aircraft at Copa Colombia  Next Steps: – Finalize pro

  62. Slide 62: Julio Toro, VP Technology

    JULIO TORO VP TECHNOLOGY Conectados todo es posible ——————————<“<O—é‘—:;Ff . CopaAirlines

  63. Slide 63: Passenger Service System

    Passenger Service System Short Term roadmap  Suspend SabreSonic CSS implementation project for the next 18 months  Enhance current HPE platform to implement ancillary products, revised fare families, and others  Avoid the risk and effort of a disruptive migration Scope  Capabilities for ancillar

  64. Slide 64: Conclusion

    Conclusion PEDRO HEILBRON CHIEF EXECUTIVE OFFICER 67

  65. Slide 65: Strategic Focus for 2016 and Beyond

    Strategic Focus for 2016 and Beyond  Continue strengthening our network and connectivity  Take advantage of future growth opportunities while maintaining flexibility  Maximize value through ConnectMiles and other commercial opportunities  Use technology to improve customer experience and tap int

  66. Slide 66: Q&A Session

    Copa Holdings S.A. – Investor Day Q&A SESSION

Copa Holdings — Investor Day (September 2016) on 6ix