Copa Holdings, S.A. (NYSE: CPA), today announced financial results for the third quarter of 2018 (3Q18). The terms "Copa Holdings" and "the Company" refer to the consolidated entity. The following financial information, unless otherwise indicated, is presented in accordance with International Financial Reporting Standards (IFRS). See the accompanying reconciliation of non-IFRS financial information to IFRS financial information included in the financial tables section of this earnings release. Unless otherwise stated, all comparisons with prior periods refer to the third quarter of 2017 (3Q17).
OPERATING AND FINANCIAL HIGHLIGHTS
Copa Holdings reported net income of US$57.7 million for 3Q18 or earnings per share (EPS) of US$1.36, as compared to net income of US$105.3 million or earnings per share of US$2.48 in 3Q17.
Operating income for 3Q18 came in at US$74.3 million, representing a 38.4% decrease over operating income of US$120.7 million in 3Q17, mainly as a result of a 4.3% increase in unit costs (CASM) due to higher fuel prices, and a 4.2% decrease in unit revenues (RASM) mostly due to weakness of the Brazilian and Argentinian currencies. Operating margin for 3Q18 came in at 11.0%, compared to an operating margin of 18.3% in 3Q17.
For 3Q18, consolidated passenger traffic grew 4.8% while consolidated capacity grew 6.6%. As a result, consolidated load factor for the quarter decreased 1.4 percentage points to 84.3%.
Total revenues for 3Q18 increased 2.1% to US$672.4 million. Yield per passenger mile decreased 3.3% to 11.6 cents and RASM came in at 10.1 cents, or 4.2% below 3Q17.
Operating cost per available seat mile (CASM) increased 4.3% from 8.6 cents in 3Q17 to 9.0 cents in 3Q18, driven by a 31.6% increase in the effective price of jet fuel. CASM excluding fuel costs decreased 5.5% from 6.3 cents in 3Q17 to 6.0 cents in 3Q18, mainly as a result of timing of expenses, fewer operational disruptions and cost reduction efforts.
Cash, short-term and long-term investments ended the quarter at US$915.8 million, representing 36.0% of the last twelve months' revenues.
Copa Holdings ended the quarter with a consolidated fleet of 102 aircraft – 1 Boeing 737 MAX9, 68 Boeing 737-800s, 14 Boeing 737-700s, and 19 Embraer-190s.
For 3Q18, Copa Airlines had an on-time performance of 88.3% and a flight-completion factor of 99.8%, maintaining its position among the best in the industry.
Subsequent Events
Copa Holdings will pay its fourth quarterly dividend of $0.87 per share on December 14, to all Class A and Class B shareholders on record as of November 30, 2018.
In October and November, Copa Airlines took delivery of its 2nd and 3rd Boeing 737 MAX 9 aircraft, bringing Copa Holdings' consolidated fleet to 104 aircraft.
As a result of the Company's continuing fleet optimization and efficiency efforts, in October the Company signed a letter of intent with Azorra Aviation for the sale of up to 6 Embraer-190 aircraft, 5 of which are expected to exit the fleet in 2019. In connection with the transaction an impairment of our entire Embraer-190 fleet and related spare parts will be caused. This impairment will generate a one-time non-cash loss of US$162.9 million, which will be recorded in the fourth quarter of 2018.
As part of its process to implement the new Lease accounting standard – IFRS 16 – the Company has determined that an error existed in its previously filed annual financial statements for the years ended December 31, 2017, 2016 and 2015 filed on form 20-F with the Securities and Exchange Commission (SEC). The error relates to the application of International Accounting Standard No. 16 related to componentization of required maintenance overhauls on our owned aircraft, which if properly applied, would have resulted in more quickly depreciating a portion of the owned aircraft, related to the first maintenance event for the airframe and certain components. The error in the application of this policy dates back to our initial adoption of IFRS in the year ended December 31, 2010, and the principal impact of the correction is to reduce Property and Equipment and Retained Earnings, as well as to increase depreciation for each of the three years ended December 31, 2017. The correction is non-cash. The estimated impact on the opening retained earnings as of January 1, 2015 is a reduction in equity of US$180 million, and for depreciation in each of the three years ended December 31, 2017 is an increase of US$15 million. The Company will file an amended Form 20F/A to reflect these adjustments.