ANALYSIS: Venezuela crisis hurts Copa

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The ongoing hold-up of airline revenues in Venezuela has continued to frustrate Panama's Copa Airlines, prompting the Star Alliance carrier to slash its operating margin guidance for 2014 and further cut capacity to the South American country.

The airline previously said it expects to cut capacity to Venezuela by about 40% in the three months following May, but says today that it estimates a 50% reduction in available seat miles (ASMs) with additional cuts effective from 1 August.

Capstats shows a noticeable decline in Copa's capacity to Venezuela beginning in May, followed by successive cuts every month until September before stabilising.

Copa serves three destinations in Venezuela: Caracas, Maracaibo and Valencia. Schedules in Innovata show significant year-on-year cuts in ASMs in August on routes serving the three cities, in the range of 34% to 45%. Flightmaps Analytics shows that Copa has ceased operations on its route between Caracas and Medellin from August, leaving the route unserved by any passenger carrier.

Of the remaining Venezuela-bound routes that Copa still flies on, the biggest reductions are on its flights to Caracas from Bogota and Panama City. The carrier plans to operate 31 flights in August between Bogota and Caracas, or half of the 62 flights it offered in August 2013, shows Innovata.

Copa's capacity to Venezuela, 2013 vs 2014

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Source: Capstats

Copa received $43.3 million in June from Venezuela, which corresponded to its repatriation requests from January and February 2013. The airline says it still has $528 million pending repatriation. Discussions with the Venezuelan government to repatriate these revenues are ongoing, but the airline's chief executive Pedro Heilbron cautions in an earnings call today that the situation is "dynamic" and the carrier has no certainty on when this could happen.

The cuts to Venezuela capacity will lead to yield softness in the second half of the year, forcing Copa to revise downwards its operating margin guidance for the full year to 18% to 20%, from 19% to 21% previously. Copa's executives say Venezuela sales were high-yield in nature, and an unexpected surge in Venezuela bookings in the last three quarters had boosted the airline's revenues.

Heilbron attributes the surge to consumer concerns that the Venezuelan bolivar would depreciate further, prompting travellers to purchase airfares for trips "six months into the future". With Copa cutting capacity to the country, Heilbron does not expect a similar trend in the second half of the year.

In the meantime, the carrier is taking steps to minimise its exposure to the Venezuelan bolivar. This involves stimulating sales in other currencies, and striking a balance in the amount of sales made in bolivares. "We have local expenses too so it's not like we have no use for bolivares," notes Heilbron, adding that he does not expect a significant increase in the amount of bolivares owed to Copa for the rest of the year as a result of the airline's measures.

Heilbron was quick to point out that despite the problems in Venezuela, demand in the market remains strong. "Load factors are high, yields are healthy. But we are not getting paid," he says. "It's not a problem with demand. We can triple capacity but there's the problem of not getting paid."

IATA estimates that Venezuela is still holding on to $4.1 billion in global airline revenues, and recently reiterated a call for the country's government to return these to the carriers.