Panama-based Copa Holdings posted a second-quarter 2018 net profit of $49.9 million, down 15% from $58.6 million in 2Q 2017. The results reflect the combined effects of rising fuel costs, weakened currencies in Brazil and Argentina, and a 90-day halt on all Copa flights to Caracas, Venezuela, the company stated.

Copa is the parent of Copa Airlines and Copa Airlines Colombia. It also operates Wingo-branded ultra-LCC flights out of Colombia.

The company reported $634.1 million in revenue for the quarter, up 10.5 year-over-year (YOY) on capacity growth of 11.2%. Expenses, however, were up 16.6% to $577.1 million, including a 47.1% YOY rise in fuel costs related to rising prices and increased capacity. CASM increased 4.8% YOY, leading to a 0.7% slide in PRASM compared to 2Q 2017. Passenger yields came in 2.2% below last year.

Copa’s operating income for the quarter came to $57.1 million, down 27.3% YOY; the company’s 2Q operating margin was 9%, down 4.7 points from a year ago.

“The second-quarter performance was affected by the weakness in some of the currencies in the region as well as the increase in the price of jet fuel … as well as the cancellation of [Copa] flights to Venezuela during most of the quarter,” Copa CFO Jose Montero said in a call with analysts Aug. 9. “However, we continue to deliver industry-leading unit costs and we continue to pursue cost-savings initiatives.”

Nonetheless, the company adjusted its full-year 2018 guidance, lowering capacity growth by one point to approximately 8%, and lowering its expected operating margin by three points to 14%-16%.

“Bookings continue to come in relatively strong in most of our network,” Copa CEO Pedro Heilbron said. “However, yield softness, particularly in Brazil and Argentina, is preventing us from achieving the unit revenue growth needed to offset the additional fuel expense. As such, we are updating our guidance for the year to reflect lower unit revenues and higher fuel expenses.”

During the second quarter, Brazil and Argentina experienced 15% and 43% currency devaluation, respectively.

“We’re also moderating our capacity growth by being even more aggressive in our low season cancellations and making capacity adjustments in some of the most affected markets,” Heilbron said.

Copa’s consolidated fleet grew to 101 aircraft during the quarter, with the delivery of its last Boeing 737-800 in April. The company expects to receive its first 737 MAX 9 in August, with four more MAX 9s scheduled to be delivered by the end of the year.

The cancellation of Copa flights to Venezuela stemmed from a diplomatic squabble sparked in March when the Panamanian government-imposed sanctions on several Venezuelan government officials. In retaliation, on April 6, Venezuela halted all Copa flights to Caracas, resulting in the cancellation of 900 flights over a 90-day period. About half were eventually reinstated, Heilbron said.

During the Aug. 9 call, Heilbron confirmed Copa is actively participating in discussions with Chicago-based United Airlines and [Colombian carrier] Avianca about the possibility of forming a joint business agreement that will cover the three airlines’ combined networks between the US and Latin America. “If and when we complete an agreement, we will provide much more detail,” Heilbron said.” “Until then, we don’t expect to share any more information.”

Mark Nensel