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Aruba, August 24, 2015 - Weak economies in Latin America continue to drag down the results for Panama’s Copa Airlines, reflected in a 10.4ppt drop in its 2Q2015 operating margin to 9.1%. The airline’s results were worse than expected, driven by a particularly challenging Jun-2015. 
Central American poster airlines Copa has been battling difficult dynamics in Venezuela and Brazil for roughly a year, and during 2Q2015 some challenges emerged in its Colombian markets. The airline is taking steps to adjust its network to lessen its exposure to those regions, but they still comprise a sizeable portion of Copa’s operations. 
Copa does foresee some slight sequential improvement in its yield performance from 2Q2015 to 3Q2015, but third quarter yields are still expected to decline in the double digits. The company has issued a second downward revision to its unit revenue and operating margin guidance for CY2015, and it seems some of the obstacles Copa has faced throughout the last year are lingering into 2016.
Tough conditions in Colombia, Venezuela and Brazil drag down Copa's results
The slide in Copa’s operating margin was driven by a 20% decline in top line revenues in 2Q2015 to USD538.4 million. The second quarter is typically a weaker time period for Copa, but unit revenue and yields were much weaker than normal, with unit revenue falling 24.4% and yields 20.4%. The degradation is driven by weak economies in Brazil and Venezuela, and to a lesser degree Colombia. 
Copa recently calculated that passengers originating in those three regions represented approximately 40% of its O&D revenues during 2Q2015, down from 50% the year prior. Breaking down the decline by region, Copa estimated that Venezuela represented roughly 20% of its revenue weakness, Brazil accounted for 20% to 25% and Colombia represented 20%.  
Copa opts to shrink capacity to Brazil as the BRL remains weak against the USD
After 1Q2015 Copa executives stated they expected 2Q2015 to be a low point for Brazil after conditions started deteriorating in Mar-2015. At that time the airline stated plans to trim capacity on its Brazilian routes by 4% in 2H2015. The weakness is driven by Brazil’s soft economy and currency devaluation. The BRL is down roughly 24% against the USD so far in 2015. At the end of 1Q2015 Copa estimated that Brazil represented about 20% of its ASMs during the quarter. 
During 2Q2015 Brazil represented roughly 19% of Copa’s ASMs, and company CEO Pedro Heilbron recently estimated that number should fall to 16% during 3Q2015. He highlighted that Copa reduced capacity in the Brazilian market by 18% by Jun-2015 compared with Jul-2015. Data from CAPA and OAG for the week of 17-Aug-2015 to 23-Aug-2015 show that Brazil is Copa’s fourth largest international market measured by seat deployment. Its one-way seats on offer to Brazil as of 11-Aug-2015 had fallen from roughly 11,658 to 10,630.
Venezuela continues to be a complex and challenging market for Copa
Copa has been suffering from various challenges in Venezuela for roughly a year. At the end of 2Q2015 the company still had USD452 million frozen by Venezuela as the country’s economy remains in shambles. During 2H2014 Copa cut its seat capacity to Venezuela by roughly half, but has reinstated some of that service. Data from CAPA and OAG for the week of 11-Aug-2015 show that Copa’s approximate one-way seats between Panama and Venezuela have increased from 3,052 to 5,492 year-on-year. Copa offers service from Panama City Tocumen to Caracas and Valencia. The company’s one-way seats from Colombia to Venezuela have fallen to 808 from 868. Copa Colombia operates service between Bogota and Caracas.