Panama's Copa Airlines expects the completion of a terminal expansion project next year at its hub airport will give the carrier a competitive advantage over other fast growing Latin American carriers.
Copa CEO Pedro Heilbron says the expanded terminal at Panama City's Tocumen International airport is slated to open next May, giving Copa access to 12 additional gates. Copa believes the additional gates will help cement Tocumen's position as the leading hub for the Americas and its position as the largest carrier in terms of intra-Latin America connections.
Heilbron says competitor hub airports in Latin America currently have less than 10 jet bridges. He says having a total of 34 jet bridges at Toucmen "will place us years ahead of the competition in terms of airport facilities" and gives Copa a competitive advantage because its rivals "face growth constraints going forward as a result of significant airport infrastructure limitations".
Copa particularly sees infrastructure challenges in Bogota, where Avianca-TACA is aiming to expand its now rather limited international-to-international connection traffic.
"We already have a big advantage with respect to the capacity at the Tocumen airport, our hub, with 22 gates, which is going up to 34 gates by next year. That compares to nine gates at El Dorado in Bogota, which is actually being expanded to 14 or 15 gates in the next three years. And by then we'll probably have more than 34 gates," Copa CFO Victor Vial explained during a 12 August conference call with analysts discuss the company's second quarter earnings. "We got a huge advantage in terms of infrastructure."
Heilbron pointed out to analysts that Bogota's El Dorado Airport is particularly facing a capacity constraint given that at least two new Colombian carriers are now aiming to enter the market, which has already seen a dramatic increase in capacity following the launch last year of a low-cost operation by Aires.
"We have a very, very strong hub in Panama with the infrastructure to keep on growing. That's non-existent in Colombia - there's no infrastructure. I guess they [the new carriers] are going to have to share capacity with the incumbent airline," Heilbron says.
Heilbron is bullish Copa will quickly take advantage of its larger hub airport as Latin America's economy continues to grow rapidly, outpacing most other regions during the current economic downturn. He points out that Latin America's GDP is now forecasted to increase between 4% and 5% in 2010, including 5% to 6% growth in Panama.
"The economic prospects for Panama and the region are very favourable and there are plenty of growth opportunities ahead which we are eager to take advantage of," Heilbron says.
To take advantage of this economic growth Copa Holdings will increase capacity by "almost 16%" in the second half of this year. Heilbron says the delivery of several new aircraft next year "will result in even higher growth in 2011".
Copa Holdings ended the second quarter with 60 aircraft, including 45 at its Panama-based Copa unit - a mix of Boeing 737-700s, 737-800s and Embraer 190s - and 15 E-190s at Colombian subsidiary Aero Republica. Heilbron says Copa Holdings plans to take three more 737-800s between now and the end of the year.
Heilbron believes Copa's superior hub will also allow the carrier to continue posting industry-leading profits. Copa has just adjusted downwards its financial forecast for this year and now expects to end 2010 with an operating profit margin of about 20%. Heilbron points out despite the revision the carrier remains one of the world's most profitable and that an operating profit margin of "above 19% will again be without a doubt one of the highest in the industry and significantly above our peers".
The revision to Copa's 2010 profit forecast was driven mainly by lower profitability in Venezuela and Colombia. In Venezuela, the devaluation of the local currency early this year has led to decreased demand and lower yields.
Vial says fares in Venezuela were down 6% to 8% in the second quarter and are expected to be down by a similar amount in the second half. Heilbron points out that Venezuela remains a relatively strong market with healthy yields although "it may not be our best [market] as before".
In Colombia, intense domestic competition drove a 17% decrease in yields in the second quarter at Copa's Aero Republica unit. Heilbron expects the difficult yield environment, which resulted in a second quarter break-even load factor of 83% at Aero Republica compared to an actual load factor of 67%, to continue in Colombia. Copa has built continued weakness in Colombia in its revised forecast but overall expects higher profits in the second half compared to the first half.
"We feel pretty confident that we will deliver decent yields during the back half of year," Vial says. "We should see a pretty good second half of the year."
Source: Air Transport Intelligence news
