Shares of Copa Holdings, S.A. (CPA) have not had a good time on the bourses of late, declining in double-digits year to date. The disappointing price performance resulted in CPA underperforming its industry in the said time frame. Additionally, CPA’s price performance compares unfavorably with that of fellow U.S. airline operators United Airlines UAL and Alaska Air Group, Inc. ALK in the same time frame.

YTD Price Comparison

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Given the significant pullback in CPA’s shares currently, investors might be tempted to snap up the stock. But is this the right time to buy CPA? Let’s find out.

Factors Weighing on CPA Stock

Copa Holdings is currently mired in multiple headwinds, which, we believe, have led to its unimpressive price performance.

Escalating operating expenses are hurting Copa Holdings’ bottom line. In the first half of 2024, total operating expenses increased 3.8% year over year, owing to higher capacity. Expenses on wages, salaries and benefits rose 10% year over year in first-half 2024 due to an increase in operational staff to support current capacity and cost of living salary adjustments. High fuel costs (up 2.4% in first-half 2024) are pushing up operating costs as well.

The Cargo segment’s performance is disappointing. In 2023, cargo and mail revenues declined 4.6% year over year due to lower cargo volumes and yields. In first-half 2024, cargo and mail revenues fell 0.2% year over year due to lower cargo yields.

A decline in passenger yield is a concern as it results in reduced unit revenues. Passenger yield declined 6.3% year over year in first-half 2024, leading to a 6.1% reduction in total revenue per available seat miles (a measure of unit revenues). This decrease was due to a revision of the unredeemed ticket revenue provision for tickets sold so far in the current year.

Given the headwinds surrounding the stock, earnings estimates have been southbound, as shown below.

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Upbeat Air Travel Demand: A Major Tailwind

Upbeat air travel demand has been aiding Copa Holdings' revenues. As a reflection of this, in 2023, total operating revenues increased 16.7% year over year, driven by a 17.5% uptick in passenger revenues. With more people taking to the skies in the post-pandemic scenario, CPA's passenger revenues (which accounted for most of the top line) increased 2% in first-half 2024 despite low yield. Driven by high passenger traffic, management expects the current-year load factor (percentage of seats filled by passengers) to be 86.5%.