Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Joseph Putaturo

Pedro Heilbron - Chief Executive Officer and Director

Victor Vial - Chief Financial Officer

Analysts

Michael Linenberg - Deutsche Bank AG, Research Division

Duane Pfennigwerth - Evercore Partners Inc., Research Division

Eduardo Siffert Couto - Goldman Sachs Group Inc., Research Division

James D. Parker - Raymond James & Associates, Inc., Research Division

Hunter K. Keay - Wolfe Trahan & Co.

Helane R. Becker - Dahlman Rose & Company, LLC, Research Division

Alexandre van Amson - Santander, Equity Research

Stephen Trent - Citigroup Inc, Research Division

Copa Holdings SA (CPA) Q2 2012 Earnings Call August 9, 2012 11:00 AM ET

Operator

Welcome to the Copa Holdings Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being webcast and recorded August 9, 2012. Now, I will turn the conference call over to Joe Putaturo, Director of Investor Relations. Sir, you may begin.

Joseph Putaturo

Thank you very much, operator, and welcome, everyone to our second quarter earnings call. Joining us today are Pedro Heilbron, CEO of Copa Holdings; and Victor Vial, our Chief Financial Officer.

First, Pedro will start with our second quarter highlights followed by Victor, who will discuss our financial results. Immediately after, we'll open up the call for questions from analysts.

Copa Holdings second quarter financial results have been prepared in accordance with International Financial Reporting Standards. In today's call, we will discuss non-IFRS financial measures. A reconciliation of the non-IFRS to IFRS financial measures can be found in our first quarter earnings release, which has been posted on the company's website, copaair.com.

In addition, our discussion will contain forward-looking statements not limited to historical facts that reflect the company's current beliefs, expectations and/or intentions regarding future events and results. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially and are based on assumptions that are subject to change. Many of these risks and uncertainties are discussed in our annual report filed with the SEC.

Now, I'd like to turn the call over to our CEO, Pedro Heilbron.

Pedro Heilbron

Thank you, Joe. Good morning to all and thank you for participating in our second quarter earnings call. Last night, we reported our second quarter results and as always, I want to congratulate our team for another quarter of solid operational and financial results. Looking at our main second quarter highlight, consolidated capacity for the quarter grew almost 25%. Our operating revenues and passenger traffic increased more than 20%, led by our international traffic, which expanded a very strong 25% during what is seasonally our weakest quarter.

We saw slight year-over-year decrease in unit revenues as a result of lower load factors, which was partly offset by an increase in yields. This, along with an increase in our effective cost of jet fuel, led to an operating margin of 14%, which maintains our position among the most profitable airlines in the industry. During the quarter, we took delivery of 5 737-800 aircraft and returned 2 of our 737-700 leases to end the quarter with 80 aircraft.

In June, we continued our network expansion by adding 4 new destinations: Las Vegas, which is now our seventh city in the U.S., Recife, also our seventh city in Brazil; Liberia, serving the province of Guanacaste, our second destination in Costa Rica; and Curacao, our 15th Caribbean destination. More recently on July 14, we launched service to Iquitos, our second destination in Peru. With these new cities, our network now covers 64 destinations in 29 countries. By far, the most complete network for intra-Latin America travel.

In addition to launching these new destinations, we continued increasing daily frequencies in important markets. For instance in June, we increased Lima, Medellin and Miami from 4x to 5x daily service. Cancun increased to 4x daily and Guayaquil, Quito, San Juan and Cartagena went from 2 to 3 daily flights.

We also increased the daily service, several recently launched markets such as Asuncion, Brasília, Porto Alegre and Santa Cruz. Another important highlight for the quarter was our formal entry into the Star Alliance. Our team is proud and excited to be part of the largest and most prestigious global airline network. This strategic step will enhance our network's global reach while assuring world-class passenger service through access to the alliance's benefits. At the same time, corporate earnings integration into Star will bolster the alliance's presence in Latin America, one of the fastest growing aviation markets. I want to take this opportunity to again thank all of those who have contributed to this successful integration.

Looking forward, we expect good results in our seasonally stronger second half of the year as we continue to see a healthy revenue environment with good trends in book load factors and average shares across most of the network. As a result, for Q3 and Q4, we expect RASM improvement over this quarter, which along with a lower fuel cost forecast, should allow us to deliver our operating margin guidance for the year.

Despite some global economic uncertainty, Latin American economies with few exceptions are healthy and growing. On top of that, Panama's economy is doing very well. For the first quarter, we grew about 9% and it's expected to grow at similar levels for the full-year, supported by large capital investment projects including the expansion of the Panama Canal and the construction of a metro system.

These and other infrastructure outreach, as well as considerable private investment, are part of the wider plans to further develop Panama into the leading business and logistics hub in the region. Furthermore, the government has already started planning the next expansion of the Tocumen airport, which will involve an investment of between $350 million and $400 million and the addition of 20 mortgaged in its first phase. This expansion, which will be financed mainly through the concession of new Duty Free retail space, will ensure that our hub has the necessary infrastructure to accommodate our future needs.

As you know, during the last couple of years, we have taken the opportunity to accelerate our growth and consolidate the regional leadership of our network, which included more than 20% growth per year for the last 2 years and our transition from 4 to 6 connecting banks in June last year. As a result, we have built an unquestionable leadership in the intra-Latin America market, offering more convenience through more destinations and greater frequencies than other competing hubs while implementing many initiatives to strengthen our passenger experience.

I will also add that this above-average growth has not come at the expense of our unit revenues. Having set the base for our future growth, for 2013 and 2014, we expect to grow closer to historical levels, always maintaining flexibility to adjust capacity up or down if necessary. Additionally, our growth should be more focused towards increasing frequencies rather than adding destinations as we give some opportunity for the 14 new destinations in the last 12 months or so to mature.

So to summarize, the fundamentals of our business model are very strong. We continue to operate in growing and mostly underserved markets with an emerging middle class that can only be served efficiently through a hub. Our Panama Airport is better positioned to serve this market and with 34 gates and 2 runways, Tocumen also has infrastructure to accommodate our future growth. With far more intra-Latin America destinations and frequencies, our network continues to be the best option for travel in the region. We continue to implement the necessary initiatives to improve our passengers' experience while maintaining very competitive costs and most importantly, we have a very committed and dedicated team who, day in and day out, win the preference of our passengers through world-class operational performance and customer service.

With that said, we feel confident of the opportunities ahead and our ability to continue delivering industry-leading results. Thank you. Now, I'll turn it over to Victor will go over our second quarter results.

Victor Vial

Thanks, Pedro, and good morning, everyone. Thanks again for joining us. First, let me begin as usual by thanking all of our coworkers for their efforts and their unwavering commitment to running a world-class airline. We had another quarter of strong growth and solid results as we added 5 more aircraft to our fleet, expanded year-over-year capacity by 25%, increased year-over-year revenues by 20% and added 4 new destinations to our network and recently a fifth one to bring the network to a total of 64 destinations in 29 countries, and is still maintaining one of the highest operating margins in the industry.

In terms of financial results, we reported earnings for the quarter came in at $32 million or EPS of $0.72 compared to last year's net income of $41.3 million or EPS of $0.93. Excluding a fuel hedge mark-to-market loss of $26.6 million, underlying net income for the quarter came in at $58.6 million compared to last year's second quarter underlying net income of $56.6 million, which excludes a fuel hedge mark-to-market loss of $15.3 million. The respective traffic revenue that came out increased 20% year-over-year driving the load factor for the quarter to 73.5%, a 2.8 percentage point drop compared to last year's second quarter load factor.

On the other hand, yields increased 1% year-over-year and track length of haul adjusted yields increased almost 6% as our average length of haul increased close to 10% on a year-over-year basis. In terms of unit revenues, RASM decreased 3.3% year-over-year, however, on a length of haul adjusted basis, RASM actually increased more than 1%. It is worth mentioning that though the second quarter is typically a low season, last year's second quarter was very much an outlier with 41% year-over-year revenue growth and 23% year-over-year capacity growth. So we were indeed facing a tough year-over-year comp this quarter.

Operating revenues for the quarter came in at $515 million or a 21% year-over-year increase and 25% capacity growth, a solid revenue performance especially considering that during the course of the last 12 months or so, we've added 14 new destinations to our networks. On the expense side, second quarter operating expenses increased 26% year-over-year, while cost per available seat mile increased less than 1%. Regarding CASM ex fuel, we came in flat year-over-year at $0.069 as unit cost increases in maintenance and aircraft rentals were offset by other operating expenses.

With regards to maintenance expense, unit cost increased mostly as a result of provisions related to operating lease return conditions and with respect to aircraft rentals, unit costs increased as a result of 9 new operating leases that were added to our fleet during the course of the past year.

Moving on to operating earnings. Consolidated operating earnings for the quarter came in at $72.6 million for a 3% year-over-year decrease, which translates to an operating margin of 14.1%. We know last year's second quarter operating margin of 17.4% were well within historical second quarter operating margins.

In terms of nonoperating income and expense, second quarter results reflect a net nonoperating expense of approximately $36.8 million, consisting mainly of a net interest expense of $5.8 million and a $31 million loss in the other net line, of which $26.6 million relates to fuel hedge mark-to-market and $5.3 million to foreign exchange.

As far as fuel hedging is concerned, we currently have coverage with 30% of our projected volume for the year, using crude oil swaps at an average price of $88 a barrel, for next year, 23% at an average of $89, and for 2014 another 10% at an average price of $88 a barrel. With respect to our balance sheet, we continue to strengthen it as assets increased $227 million during the first 6 months of the year to reach $3.3 billion. Cash and cash equivalents have increased year-to-date by more than $100 million to a total of $718 million, which represents 35% of last 12 months' revenues. Owner's equity totaled approximately $1.4 billion and total debt amounted to $1.2 billion with the company's debt to equity ratio reaching a very solid 0.8x at the end of the quarter.

Regarding our fleet in addition to the 4 aircraft we received during the first quarter, we took delivery of an additional 5 new 737-800s and returned 2 leased 700s to end the quarter with a fleet of 80 aircraft, 36 737-800s, 18 700s and 26 Embraer-190s.

In terms of future deliveries, during the remainder of the year, there were 4 scheduled deliveries, 2 in the third quarter and 2 in the fourth quarter. In addition, in the fourth quarter, we will be returning a leased 737-800 to end the year with a fleet of 83 aircraft.

So to recap, demand for air travel in our region continues to expand and our hub continues to attract a growing number of passengers. We had another quarter of solid growth. Even in our low season, we command industry-leading margins and we continue to be well-positioned to achieve another year of strong earnings. In terms of our guidance for 2012, given our performance during the first half of the year and our outlook for air travel in the region, we're adjusting some of the elements of our guidance for the year as follows. We are maintaining our ASM year-over-year growth projection at approximately 23%, we're also keeping our full-year load factor guidance at 75%.

With regards to RASM, we're adjusting it slightly from $0.138 to approximately $0.136. We still expect CASM ex fuel to come in at plus or minus $0.067. With respect to fuel, we're now assuming for the year, an expected price per gallon including into plane and middle hedges of approximately $3.20 compared to our previous guidance of $3.40 per gallon. And with respect to our operating margin, we are maintaining our guidance in the range of between 18% to 20%.

Thank you. And with that, I'll turn it over to Pedro for closing remarks.

Pedro Heilbron

Thank you, Victor. Now, we'll open up the call for some questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Michael Linenberg from Deutsche Bank.

Michael Linenberg - Deutsche Bank AG, Research Division

A couple of questions here. When I look at your change in your RASM guidance versus your change in your fuel guidance, the fuel number's down a bit more from previously. How much of that change is a function of just anticipating a lower fuel surcharge since I know you do have the fuel surcharge in a lot of your fares.

Victor Vial

This is Victor. Obviously, when you look at the correlation of our fares, the fuel prices in the past, they have shown a very good correlation. So some of it has to do with that. With the fact that we're lowering our assumption vis-à-vis fuel prices for the year and some of it has to do simply with more visibility. We're now looking at the high season. We have better visibility with respect to the rest of the year. So simply, since we told you, we simply have better visibility but fuel, obviously, coming down helps justify the minor decrease in RASM guidance.

Michael Linenberg - Deutsche Bank AG, Research Division

Okay. Good. And then just my second question, Victor. Your cash position, I refer to it as a hoard of cash. You do have a lot of cash, you're at 35%. When you think about your CapEx requirements over the next few years I mean, what's the appropriate percentage on an LTM basis? What should it be and are there opportunities to maybe redeploy some of that cash back to shareholders? And I would say that that's in the context of you raising your dividend, that payout ratio several times since you've gone public. What can you tell us on that?

Victor Vial

If you look at our CapEx requirements for the next few years, you're going to have to be in the range of between $250 million to maybe $300 million per year. So we do have some important commitments looking forward. Obviously, they're related to our fleet plan for the most part. We also have investments in airport facilities and IT. As we mentioned, we did increase our dividend policy. Initially it was 10% of net income, it went up to 20% and now it's up to 30%. So we are returning some value to shareholders. And as we've mentioned, we also have to be mindful of the fact that at some point, we have to make future fleet decisions. If no news, it's not a surprise to anybody that there is a new aircraft out there, the Next and obviously us being an NG operator, that's something we're looking at. So having a healthy cash position, even the growth projections we have, the commitments we have in place right now and future decisions we have to make, it's a good thing, not a bad thing.

Operator

Our next question comes from Duane Pfennigwerth from Evercore Partners.

Duane Pfennigwerth - Evercore Partners Inc., Research Division

I just wondered on your ex fuel cost guidance, 23% growth this year. It looks like some of the sort of local currencies of markets you sell into are depreciating against USD, which seems like it would help your expense. That fuel is very conservative, I wonder if you could give us sort of any detail as to why your costs wouldn't decline this year.

Victor Vial

Right. This is Victor again. When you look at our ex fuel CASM guidance for the year, and then obviously, again we're having another year of phenomenal growth, 23% growth and last year it was 20%. So yes, you would expect perhaps the ex fuel CASM number to be lower. But I think you do have to take into account the fact that there is somewhat of a structural change in the P&L. In the sense that you're bringing more aircraft that are operating leases and that's why you have such a big jump in aircraft rental expense, which would be a bigger impact to ex fuel CASMs than if you were doing financial leases and the amount of expense was reflected in the depreciation line. So if you were to adjust for that, actually, for the year, instead of having a $0.067 ex fuel CASM guidance, you'll be looking more at $0.065 ex fuel CASM guidance. So that's part of the answer. The other part of the answer is, maintenance return provisions, return condition provisions, which we have spoken about in the past, which we have increased regarding fleet that we already had in place. Looking forward, we look from time to time, at the provisions to make sure that they're adequate. We did some adjustments to that, and also, we again, have more operating leases that would impact also return condition provisions in the P&L and that impacts your ex fuel CASM as well. So that's why you don't see it any lower than you would expect it.

Duane Pfennigwerth - Evercore Partners Inc., Research Division

And then just on the, I guess, your July load factor and then I look at the scheduling data, it looks like your capacity growth actually accelerates to the low 30% range in August and September. One, can you sort of verify that, that sounds correct, that we're going to be closer to 30% capacity growth here in the third quarter? And then any color you could put around the load factor decline in July would be appreciated.

Victor Vial

Yes. Well actually, when you look at [indiscernible] potential quarters, when you look at the third quarter, you can expect capacity on a quarter-over-quarter basis to be higher, somewhere in the range between 9% to 10%. So you're seeing more capacity in the third quarter. And then in the fourth quarter, you're going to see an additional 4% or so, 4% to 5%. So that should give you some color on how capacity is being deployed. And that's how we get to the 23% year-over-year growth. In terms of July, it's a 78% load factor in the context of 30% capacity growth in the International segment. So we're actually very pleased and encouraged by the numbers we're seeing and it's reflected in our guidance. That's why we're guiding towards a 75% load factor number at the end of the year. We're not surprised, we expected it and what we try to do here is build a hub for the long-term and not just for quarterly numbers or monthly traffic releases. And I think the guidance speaks for itself and we think we expect to end up at 18% to 20% operating margin.

Operator

[Operator Instructions] Our next question comes from Eduardo Couto from Goldman Sachs.

Eduardo Siffert Couto - Goldman Sachs Group Inc., Research Division

I have 2 questions, guys. First one regarding second half outlook in fuel. If you could tell us how is your fuel cost now versus the average, more like the average of the second quarter? Is it like 5% lower, 10% lower? Just to give us an idea of how much fuel prices can go down during the third quarter versus the second quarter? And the second question is on the capacity side. You're adding around 25%, 27% capacity, demand is growing 20%, so my question is why don't you guys decelerate a little bit the capacity additions to better match the demand? Those are the 2 questions.

Victor Vial

Okay. It's Victor again. I'll take the fuel question and I'll let Pedro take the capacity question. For the first half, fuel prices, the effective fuel price for us, which takes into account into planes and also the hedges we had in place came in close to $3.30 to $3.33 and what we're looking at, for the second half of the year, it's something in the neighborhood of $3.10, $3.12 and that is based on recent curves. The only caveat to that, Eduardo, is that as you know, everybody knows, fuel prices have been very volatile. So who knows where fuel prices are going to end up. What we're losing right now based on the curve that we saw a few days ago but that will probably change in the future, but I can tell you that we've been very effective at adjusting pricing in light of higher fuel prices. So if prices of fuel goes up, then we will adjust accordingly.

Pedro Heilbron

It's Pedro here, Eduardo. As we think capacity, we, as you well know, have grown over 20% in 2011 and again this year in 2012. And it's all related both due to the growing demand in Latin America, but also the fact that we have gone from a 4 bank hub to a 6 bank hub. So we've been strengthening some of the bank and went from 4 to 6, not something you can do overnight. You have to build up a frequency before you transition and then at least for 18 or 24 months after that. So likely, of course, the demand in most of the year was way above capacity expansion. I would not say that, that is normal, although we would see that every year. This year, demand has been more in line with capacity expansion and the second quarter was slightly below, but we're adding our flights that make sense, where service is needed and at the same time, again, as I mentioned, because strengthening the 6 banks we have now at Tocumen, which have given us tremendous leadership in terms of having the best hub and the most complete intra-Latin America networks. So we do manage capacity not to have overcapacity and going to market where our additional frequencies are not needed, but we're not looking to be exactly at the same point that demand is, because there are other strategic and hub related needs that makes sense for us to add those frequencies.

Eduardo Siffert Couto - Goldman Sachs Group Inc., Research Division

It make sense, Pedro. And for next year, can we expect capacity and demand to grow more or less in line or do you expect also a mismatch like we have seen this year?

Pedro Heilbron

Last year, we expect to go back to historical capacity growth levels like what we did before 2011, 2012. It should be a lot more aligned with demand. But again, I should say this year, we're not up that much. And so next year, we should be thinking in the lower teens in terms of capacity expansion.

Operator

Our next question comes from Jim Parker from Raymond James.

James D. Parker - Raymond James & Associates, Inc., Research Division

Just a question regarding if you're seeing any kind of softness in the system to the south and I'm referring to Brazil, where I think you maybe have about 11% of your revenue because airline traffic is pretty weak in Brazil. And then also, it appears that Avianca-Taca is really trying, I don't know how successful it is, but trying very hard to get flow traffic over Lima going south. Are you seeing any impact of that?

Pedro Heilbron

Okay. This is Pedro here. We have not seen any softness in our Brazil -- advanced bookings in our Brazil demand. And so, so far, Brazil is behaving as expected. In terms of our competitors, yes, they're building their hubs. They've been doing that for a while and they will always get their share depending on the market, depending on the connection they're offering, but it's not something that is irrational or that's impacting our business model or our plans going forward. But obviously, if you have a competitor flying over some of the same market, they're going to have their share. But Latin America, at the same time, has been growing so much and we're always adding unique destinations that we have our own very strong niche and we feel there's room for all of us. At the end of the day, when we think of strong intra-Latin America networks, we're down to 3 or 4 consolidated group of airlines. So it's a growing, large pipe that's being shared by not too many airline groups.

Operator

Our next question comes from Hunter Keay from Wolfe Trahan.

Hunter K. Keay - Wolfe Trahan & Co.

Pedro, can you give us the chance of the -- give us a sense I should say, of the changing political landscape down there? If you think it's changing and there's some articles recently about President Martinelli is sort of shifting a little bit, acting a little more maverick in some of the decisions he's been making. I have always thought of him as being pro-business. I know you said the government is obviously supportive of the expansion at Tocumen but can you -- do you think that there's any kind of evolving business or political risk to the business right now in Panama and maybe give me your thoughts on how the government views, an update maybe, on how the government views the airline industry's place in Panama?

Pedro Heilbron

Okay. As you know, I think the first thing I should say is that Panama always has a very active political side. It's like our national sports. We did not win any medals at the Olympics, but if there had been a political Olympics, we would've probably won a bunch of medals. Politics here but it does not affect the private sector. It's like a separate game that's always again, very active. The private sector is usually left alone. All of our governments, no matter from which party, our pro-business and has pretty much the same business or economic platform. And this has been going on for many years, more than 20 years. So the business sector in Panama is growing, it's strong. Our investment grade was recently upgraded by Standard & Poor's so we do not see -- we don't see any changes to the fundamentals of what makes Panama a strong and growing economy. For the first quarter, we grew 9% and the economy grew 9%. And for the year, it's expected to grow at similar levels. So again, in spite of the politics, Panama should continue growing and there are a lot of things happening here that lead us to think that way. And in terms of specifically aviation, this government recognizes the value of aviation to the business model of Panama as a leading logistics and investment hub for the region. So the South terminal, a new terminal, is going to add another 20 gates. It's going to take the airport from 34 to 54 gates. It's going to be put up for bid early this month. Actually I think in a week, it will be the day that it goes out to bid and it should be ready in 2.5 to 3 years. And again, when the country needs to negotiate route rights, our government, our President, it's first in line negotiating the route rights we need. So I think there's an alignment between the business direction of Panama and the thinking of the government and the business of aviation where we're obviously the main airline.

Victor Vial

Let me just add one thing to that. Just to emphasize what Pedro is saying, when you look at Panama's economy, in terms of contribution to gross domestic product, the GDP, there's the Canal and then there's Copa. We're right up there. We contribute -- aviation contributes 5% to 6% of GDP. So as Pedro said, we're an important part of the model of Panama to become key logistics center for the region and aviation is a big part of that.

Hunter K. Keay - Wolfe Trahan & Co.

Let's create a scenario here where your stock is flat for, let's say, a year. And despite the fact that you're paying out 25%, 30% a year of your earnings and dividends and you're growing your earnings on a steady basis, but your multiple just isn't expanding because right now, by many measures, for what you guys do, your multiple is still very, very low. In that scenario, do you think you'd be more inclined to take a business risk, like, say, pursuing like an unbundling strategy or something or would you be more inclined to say, payout -- to raise the payout ratio and the dividend? I mean, how would you think about sort of getting that next step in investor interest if your stock is stagnant for an extended period of time?

Pedro Heilbron

I don't know if we know -- if we can give you an answer today to that question, because we're focused, almost 100%, in running a solid business with good returns for our shareholders. And we think that over time, our stock should be priced accordingly, fairly. And we're not really comparing ourselves to others. We do our thing, we want to do it well, as best as we can. And again, just trust that the stock will reflect that. And if there's an opportunity to increase dividends in the future, I'm sure we will look at it.

Operator

Our next question comes from Helane Becker from Dahlman Rose.

Helane R. Becker - Dahlman Rose & Company, LLC, Research Division

Could you just talk a little bit about how some of the new routes are doing? Like Las Vegas, I think you just started service there a month or so ago and I think you're carrying a lot of traffic over Panama City from south of your market. So maybe could you talk a little bit about that?

Pedro Heilbron

Yes, all of the new markets, we have recently started sizing new markets and also performing according to expectations. We're actually happy with all 5 of them. Last year, we started 9 markets and I think the proof of how well they've done is that they mark -- actually I think all of the markets we started last year, like Porto Alegra and Brasilia in Brazil and others, most of them were started with 4 weekly frequencies and are already at daily flights with 7 weekly frequencies. So I think they performed better than expected, at least as expected. So I would say that all 14 markets that we've opened in little over 12 months are doing quite well.

Helane R. Becker - Dahlman Rose & Company, LLC, Research Division

Have you announced any new markets for the second half of the year?

Victor Vial

We have not and after opening 9 new markets last year and 5 this year, for the first, let's say -- for the next 18 months or so, we will open a smaller number of new markets. We're going to focus more on increased frequency and we will not be opening as many new markets. There will be few additional markets, but not as many as during the last 18 months.

Helane R. Becker - Dahlman Rose & Company, LLC, Research Division

And then for my last question, I think you guys are officially in Star now and I know that you said that you don't think you would see any change in the business because you already were getting the benefits from our culture agreements with the former Continental. Is that still true? Or was there any difference?

Victor Vial

I think that is a fair statement and I think what we said -- this is Victor, by the way, we expect an incremental benefit to be realized more next year, the new co-chairs start to kick in. So what they said was that this year, whatever we get will be marginal, it's not reflected in the guidance, so it will be grainy and any incremental benefit would expect to see next year. But you're right, we're already realizing United Airlines, which we made alliance in the past decade or so.

Helane R. Becker - Dahlman Rose & Company, LLC, Research Division

Right, right. Okay.

Operator

Our final question comes from Stephen Trent from Citi.

Alexandre van Amson - Santander, Equity Research

I just wanted to get your take on, I'm interested, it was intriguing you joined Star Alliance. You mentioned sort of large airline groups in the region. As you look at, let's say, medium-term capital deployment, you've got a big alliance partner based in Colombia, you co-chair with Ecuador and some other carriers like that. Do you think down the road that you consider another move like you did with Air Republica in 2005 or that seems largely off the cards?

Pedro Heilbron

I would say that we will always have other options open and we would always look at opportunities where there's a strategic partnership that can add value to our business model. I don't see anything happening in the near future. But again, we'll always be open to any possibility that makes sense for us.

Stephen Trent - Citigroup Inc, Research Division

And just one quick follow up if I may. To what extent if any are you seeing let's say rational or irrational behavior from VivaColombia, even though I know Colombia domestic is a much smaller piece of the pie than it was 2 years ago.

Pedro Heilbron

It's such a different business model. The ultra- low-cost model, we're following it. They're following that. It's hard for a more traditional carrier like us to say that it's irrational or rational. It's just very different, the way they price, I mean. But as you well said, Colombia domestic is less than 5% of total ASMs for Copa Holdings. So we're not too concerned with what goes on with VivaColombia and the domestic market of Colombia.

Stephen Trent - Citigroup Inc, Research Division

Okay. Great. That's it for me.

Operator

I'm showing no further questions. I will now turn the call back over to Pedro Heilbron for closing remarks.

Pedro Heilbron

Okay. Thank you, all. This concludes our second quarter earnings call. Thank you for being with us and thank you for your continued support. We will see you next time. Have a great day and a great weekend.

Operator

Ladies and gentlemen, thank you for participation. That concludes the presentation. You may disconnect and have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Copa Holdings SA Management Discusses Q2 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts