Domestic Colombian yields show dramatic improvement: Copa

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Copa Airlines Colombia has seen a dramatic improvement in yields since LAN's acquisition of Colombian low-cost carrier Aires three months ago.

LAN unveiled plans to acquire Aires in October and in November completed the $12 million deal. Since launching a low-fare operation in early 2009 Aires has overtaken Copa Colombia as the second largest domestic carrier after Avianca but its growth was driven primarily by stimulating the market through a significant reduction in fares.

Fares in Colombia began dropping in 2009 and dropped further in the second and third quarters of 2010. But fares have since returned to a more reasonable level, driven by LAN's decision to increase the fares at its new Aires unit.

"What we saw in the fourth quarter was a nice increase in domestic yields - it was probably in the range of 20% or so on a quarter-over-quarter basis," Copa Holdings CFO Victor Vial told analysts today.

"We have seen a change of stance from Aires as a result of the transaction which took place with LAN," Vial explains. "We have seen more rational behaviour with respect to pricing and capacity. We hope it won't go back to the days of the fare environment we saw in the second and third quarters of last year when it was irrational."

Adds Copa Holdings CEO Pedro Heilbron: "We now have rational competitors in Colombia. What Aires was doing was just crazy. They basically went out of business. They were saved at the bell [by LAN]. We don't expect to see that kind of behaviour this year, in 2011."

In the fourth quarter of 2010, Copa Colombia's break-even load factor was 63.3%, compared to a much higher 76% in the third quarter of 2010 and 69.7% in the fourth quarter of 2009. The profitability of the Copa Colombia unit also has been improving as result of a new strategy which focuses less on the domestic market and more on the higher yielding and less competitive international market.

ATI previously reported that Copa Holdings plans to continue to direct capacity growth in Colombia this year to international routes. The company expects half of Copa Colombia's capacity will be international by the end of this year, compared to about 40% currently.

A new partnership with Avianca is also expected to improve Copa Colombia's position and outlook. Avianca-TACA and Copa are both now in the process of joining Star Alliance. While Copa expects to not formally enter Star until April 2012, it recently unveiled plans to start codesharing with Avianca-TACA starting later this year.

Heilbron told analysts the new codesharing and frequent-flier tie-up "should be in place sometime around April of this year". He says Copa decided to pursue a partnership with Avianca-TACA one year ahead of both groups joining Star because "one of the airlines that brings more value to us is Avianca-TACA, giving their strength in the Colombia market, where we have an important presence also".