Copa Holdings, S.A. (CPA)

In April of 2005 the company purchased Aero Republica which is Columbia’s second largest carrier. Since that time, CPA has been working hard to restore the small carrier to profitability and is well on its way to transitioning the aircraft fleet from MD 80’s to more efficient E190’s. While the transition requires upfront capital, the savings over the life of the firm should more than make up for the hassle now. As a business unit, Aero Republica is expected to continue to post a loss for the first half of 2008, but will swing to profitability in the second half. In fact, the profits gained during the second half will likely be enough for Aero Republica to post full year gains instead of losses.

One of the major factors working in Copa’s favor is the thriving economy in Panama. Forecasts place Panama as the fastest growing economy in Latin America. As local citizens gain discretionary income to travel, and business men and women find it necessary to travel to the region, traffic should continue to expand. The company recently added Port of Spain, Trinidad & Tobago as their 41st destination and continues to increase the percentage of international flights. Since international destinations bring in stronger margins, this expansion should have a healthy effect on the overall firm.

Copa has a young fuel efficient fleet of aircraft serving the rapidly growing Latin America market. Less competition than U.S. carriers allows them to grow profitably. Copa has managed to stay nicely profitable while other airlines are losing money due to higher fuel costs. Any fuel price relief will significantly boost bottom line. PE of 10 discounts any future growth.