We Study Billionaires - The Investor’s Podcast Network - TIP824: Copa Holdings (CPA): Is Buffett Right About Airline Stocks? w/ Daniel Mahncke & Shawn O’Malley

Episode Date: June 18, 2026

Daniel Mahncke and Shawn O'Malley take a deep dive into Copa Holdings — the Panama-based hub-and-spoke airline whose investment case now turns on two of the most debated questions in the stock today: whether Copa is a structural exception to the airline curse — protected by a geography no rival can copy and a cost base only a handful of carriers in the world can match — or whether even the best airline in the Americas eventually gets pulled into the same gravity that has destroyed value for nearly every other carrier. IN THIS EPISODE YOU’LL LEARN: (00:00:00) Intro (00:01:35) Why airlines are such a tough business to be in (00:03:55) What Buffett and other superinvestors think (00:16:47) Why Copa is different than other airlines (00:35:58) How being the best-in-class business can change the investors’ outcome (00:38:38) How Copa built its moat (01:01:14) How Copa can defend its moat (01:22:37) Valuation discussion of Copa (01:24:36) Whether Copa is valued attractively (01:27:30) Whether Shawn and Daniel add CPA to the Intrinsic Value Portfolio Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Mastermind Community⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Track ⁠The Intrinsic Value Portfolio⁠ Check out our previous Intrinsic Value breakdowns: ⁠⁠Transdigm⁠⁠, ⁠⁠Berkshire Hathaway⁠⁠, ⁠⁠FICO⁠⁠, ⁠⁠PayPal⁠⁠, ⁠⁠Uber⁠⁠, ⁠⁠Nike⁠⁠, ⁠⁠Amazon⁠⁠, ⁠⁠Airbnb⁠⁠, ⁠⁠Alphabet⁠⁠. Follow Shawn on ⁠⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠Linkedin⁠⁠⁠⁠⁠⁠⁠. Follow Daniel on ⁠⁠⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠Linkedin⁠⁠⁠⁠⁠⁠⁠⁠. Related ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠books⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ mentioned in the podcast. Ad-free episodes on our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Premium Feed⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. NEW TO THE SHOW? Get smarter about valuing businesses through ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Check out ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Investor’s Podcast Starter Packs⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Follow our official social media accounts: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Try our tool for picking stock winners and managing our portfolios: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Finance⁠⁠⁠⁠⁠⁠⁠⁠. Enjoy exclusive perks from our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠favorite Apps and Services⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn how to better start, manage, and grow your business with the ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠best business podcasts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. SPONSORS Support our free podcast by supporting our ⁠sponsors⁠:⁠ Plus500 Netsuite Vanta Shopify References to any third-party products, services, or advertisers do not constitute endorsements, and The Investor’s Podcast Network is not responsible for any claims made by them. Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Daniel, you've done it again. You got me looking at an industry that I don't want to look at. It's something Buffett would not approve. So you need to explain yourself, why are we looking at an airline today? You know, I'm the value guy. I got to do it because I know you won't.

And Buffett actually keeps buying airlines, so I feel pretty good with, you know, him having my bag. I just never fully understood why, though. It's so well documented that airlines are just historically bad businesses, and yet Buffett can't stop buying them. Well, not all of them are that bad, right? I mean, there are these airlines. Actually, in all of those industries, they are outliers that are best in class operators. And I do think I found one. So I thought, you know, I got to pitch it.

All right. Well, I'm intrigued. We're supposed to be talking about COPA today. So should we do it? Let's go. Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing, and uncovered many compelling investment opportunities. We focus on understanding businesses and intrinsic value, investing accordingly, and sharing everything we learn with you. This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. Now for your hosts, Sean O'Malley and Daniel Manka.

We pride ourselves on looking at such an insured. industry sooner or later on this show. But there are some industries that are just generally in our too hard pile to begin with. And I realize again and again that with healthcare companies, that those businesses just fall right into that bucket for me. And, you know, another industry I usually have on my blacklist is the airline industry. And I, you know, I'd say they have deservedly earned one of the worst reputations and all of value investing, right? I mean, decades of bankruptcies, brutal, brutal price competition, almost no pricing power. and truly enormous fixed costs.

But I'm sure you wouldn't have brought today's company as a pitch if you didn't think the economics were different for them. I wouldn't have, and you actually don't make my case easier today, but I do have a similar bias here. And I didn't think that I would have a pitch an airline here on the show. But again, I do love best in class businesses, and I like them even more when I can buy them at what I consider to be a cheap valuation. And since most investors don't like to look at the airline industry,

even the best businesses in that category tend to get punished from time to time. And those are always the interesting setups that I like to look for as a value university. You have good companies that are being sold off because of the industry that they operate in. So just to give listeners a quick idea of why they should keep listening and why Copa, the company we're discussing today, is different from other airline competitors. You have, in my view, the single most profitable airline of any real scale in the Americas, trading at roughly eight times earnings. And you know, you can compare that to the U.S. airlines like Delta, like United. Those usually trade multiples of, you know, 12, 13, 14s of the low

teens while operating at lower margins with much more volatility in earnings. And the important thing actually is that there are structural advantages to why COPA is more profitable than all these other airlines. So it's not just them having, you know, a good couple of years, but they actually have a value prop that, in my opinion, other airlines simply can compete with. And that's why I brought Copa today as an airline to pitch here on the show. That does sound promising. You're getting me excited. But before you keep selling me on Copa as a standalone company, how about we dig a bit more into the industry? Because it really is one that we haven't looked at on the show in the past very much. And so it deserves some extra attention. And I'm certainly no

expert. So when I say that the airline industry is bad, I'm mostly just looking at the historical track record of them destroying shareholder returns, which is something that Buffett has famously called out a number of times at the annual shareholder meetings. But when there are outliers like Copa, they certainly deserve a closer look so we can figure out whether they will win or whether the industry will win and suck them into their shareholder value destroying nature over time. Well, what do you say about just Buffett giving us an intro into, you know, the airline industry and why it's such a hard place to be in? I mean, Buffett's relationship with airlines, it is quite funny. He, you know, invests on them repeatedly.

Then he gets his hands burn repeatedly. And then he goes out again and buys airlines. So there's clearly something that he likes in the airline industry. And so, yeah, I would say we'd just listen to him renting on the industry in general. Here it is. The airline industry has this situation where they have a very, very, very low incremental costs per seat with enormous fixed costs. And the temptation to sell that last seat at a very low price is very high. And it's very, and sometimes it can be very difficult to distinguish.

between the last seat and other seats. So it's a labor-intensive, capital-intensive, largely commodity-type business. And it's been, as Bill Miller points out in that question, it's been, you know, a death trap for investors ever since Orville took off. I mean, as I've said, if there had been a capitalist, it's kiddie-alk, he should have shot down Arval and that is all a favor. But having neglected to do that, investors have poured money in to airline companies

and aircraft manufacturing companies now for 100 years plus with terrible results. And if it ever gets down to where there's one airline and there's no regulation, it will be a wonderful business. And then the question is whether, having gotten down now through a lot of bankruptcies to a relatively few that are doing high percentage of the seat miles,

whether it's a good business yet. I don't know the answer to, but I'm skeptical, Charlie? Well, the last time we were presented with a similar opportunity was when the railroads did exactly what Bill Miller suggests. The railroads got down and consolidated and got better control of their labor costs, and it turned into a wonderful business. And what did we do? We missed it.

and we stumbled in very late to the party, right? Right. So we've proven ourselves to be of slow learners in this field. And it's conceivable, isn't it, that Bill Miller is right in what he suggests? Which way do you bet? It goes into my too hard pile. Mine too. Barf and a manga say multiple interesting things in this short clip.

So the first one obviously is that they point out how capital intensive this industry actually is. And to make it a bit simpler, we often talk about operating leverage when you have a fixed cost base and low variable cost. Scale is an enormous benefit to you. So let's say you are a singer. And you book a venue to give a concert where the overall cost is $2,000. Now, for simplicity, let's say you sell a ticket for, I don't know, $1. Okay, wait a minute. Gosh, if any of our artists start selling tickets for $1 over a Universal Music Group, which is holding in our portfolio, we're going to have real problems as shareholders, Daniel.

Well, you know, that's fair. That's fair. But it's also, it makes the math easier. So let me go with $1 here just for the sake of the episode here. So to break even, you know, if the tickets are only $1,000, you would need to sell $2,000. But every sold ticket beyond that comes with a very high profit margin. So there are not a lot of variable costs for any one customer. after that. So the more people you can bring in, after you covered all the fixed costs, the more your margins improve, and that's basically operating leverage at scale and at work. So the best businesses in the world, and we've looked at a lot of them here on the show, they benefit massively from operating leverage. So think about our portfolio company, Adobe, for example, right? Most of the cost lies in developing the product suite once, and then selling one more unit or subscription in their case, and that just adds pretty much no additional cost. It wouldn't be right to talk about operating leverage and not bring up Uber.

I can't help myself, right? Because they're always my case study in operating leverage. Anybody who's ever met me at a shareholder meetup or something like that, I'm always hyping up Uber's operating leverage just because it's so incredible to me what they've been able to do, right? So, you know, their operating margins on that business have gone from negative 43% in 2020 to nearly 12% positive today. So everyone doing the math at home, that is a 55 percentage point swing in six years.

And so they do have some incremental insurance and driver compensation costs, but basically as they ramp up ride volumes, revenues can be spread across their overhead and software costs. They don't scale one to one with each new ride or delivery. And so anyways, it requires a tremendous amount of volume to get to a profitable scale. But Uber has now proven that they not only can operate profitably at scale, but they can continue to improve those margins each year. And so again, to me, that is like the epitome of operating leverage in a business that nobody thought had operating leverage.

And the same is probably true of airlines, right? You know, not so long ago, a lot of savvy investors would have argued that Uber could never generate a profit. But those naysayers dramatically underestimated the operating leverage hidden in this business model. So I wonder if that's going to be a theme today with Copa as we discuss their potential operating leverage as a business. Well, I think the airline industry is slightly older than right sharing. And I think it has proven over time that generally the industry itself is just not a good place to invest in. And part of that is that operating leverage works in both directions.

And with airlines, it's even worse because the upside is capped or the downside is quite big. So to give another example, let's assume you have an aircraft that has 100 seats. Now, as you can probably imagine, there are a lot of fixed costs involved in a flight. So the two major expenses are obviously fuel and labor, and those costs basically stay the same, whether your flight is fully booked or half empty. So let's say you need 80 people to break even on the 100-person flight. What the problem then is that every flight with lower capacity is loss-making,

but at the same time, you can't seat more than 100 people. So your operating average is also kept with relatively low upset. There's a maximum of 20 seeds where you can actually make a profit from. And you also have to offer those loss-making flights just to keep the business continuity intact. If a restaurant closed its doors on any slow afternoon, just because they weren't making profitable money during those hours, then people would come to not know when the business is open and would start to, you know, second guess the schedule and then they would stop going there. And it's the same thing with the airlines, right?

Like there's a reliability and a consistency that has to be there. No matter whether the business is turning a profit on those flights or not, because, you know, if they reduce their options or are canceling flights last minute, you are going to go to competitors. And so, you know, as I'm saying here, with that competition, that just makes it even harder to make a profit because all of the air. airlines compete on price, and therefore that pressures the margins even further. To stick with this example, the low on airline has to go on pricing to stay competitive, obviously also the more seats it needs to fill to still make a profit, right?

So more and more price competition would mean that eventually you don't need 80 customers should break even, but maybe 85 customers, right? This makes it even more likely that you will lose money on a flight, and it also caps your upside even further. And this is where another disadvantage comes into play in the video a minute ago that we saw of Buffett. Buffett basically mentioned the problem that airlines sell their last seat at basically any price. And this is a pretty important detail because that dynamic crushes essentially the price for every competitor. So when I booked my ticket to Maltar recently to visit one of our Mastermind members who actually also told me that I should cover this stock because it's interesting.

I didn't care which airline I booked the flight with, right? Like the only thing I looked for was getting the cheapest flight with the best connection. So I don't like having two stops, obviously. So, you know, direct flight or maybe one stop when I travel to Omaha, for example, but then the cheapest connection. So the first observation here is that flights are obviously a commodity. Like I don't care which brand it is. I just care about price and the direct flight in the best case.

Not a huge surprise there. And the second is that my ticket price alarm, which I actually said in this case, was going down as the travel date got closer. I think the biggest issue here, Daniel, is that you didn't include me on your trip to Malta. I guess, though, this price alarm going down as the date gets closer, though, that's sort of an interesting thing, right? And I guess this is, you mentioned it because of the operating leverage involved here, right? You know, once the threshold for breaking even on the flight is reached, airlines make basically a 100% pure profit on each additional seat sold. So they're thinking, if I can't sell it for $200, I'd rather sell it for $100 last minute than get no money at all.

Is that sort of the right way to think about it? Yes, that's basically the dynamic there. You know, when you, for example, book a hotel room and it's not sold for a single night, right? And you can still sell it tomorrow or the night after. But a seat on a flight, you can basically only make money with until, well, you know, the plane is in the air. So if it's not sold by then, the airline basically missed out on the high. highest margin part of the entire flight. So airlines are under this enormous pressure to fill that last seat at any price above

basically zero, although, you know, technically obviously they won. It's some money, but it's a significantly lower price than, you know, maybe three months ago when you booked. And that's only because of this marginal cost of carrying one more passenger being so low. So as you're describing this dynamic, I can't help but think of our experience with our hotel rooms in Omaha recently for the Burshire shareholder. meeting, right, in May. You know, we obviously booked our rooms for this year's event as soon as we possibly could, it's almost a year out, because usually that's how you would think that you

get the best prices. But, you know, this year, hotel rooms around Berkshire weekend, they had this similar problem to airline seats just because the demand was so much higher than any other time of the year, typically. But then at the same time, hotels during Berkshire Weekend and Omaha could historically be able to fill every single room. So that would be as if an airline had, you know, fully booked flight. Then they wouldn't make tickets cheaper over time, of course, because why would they do so? They have sort of the leverage to raise prices for last minute purchases. But this time, though, with Buffett not on stage and Greg Abel taking over a CEO, demand was lower than expected for attendance overall. And hotels ran into this airline problem.

If they didn't sell their hotel rooms for the Berkshire nights, then demand would be way down afterward. So they would rather just sell out all the rooms, even if the price is at a lower rate than it would have been in prior years. And so anyway, long story short, Daniel and I booked a motel for probably the price of a four-star hotel this year, while people who waited to do their bookings at the last minute got four-star hotels at probably the same price or a better price. Yeah, that was a tough one.

I got to say that. I mean, honestly, the room itself was not too shabby. But, you know, the lobby and maybe also the breakfast service wasn't exactly a four-star service. I got to say that. And actually, I saw the same thing happening with flights as well. I think I paid $1,100 from a flight to Omaha last year. And if I would have just waited six or seven months, I would have gotten a significantly cheaper price.

So this time you actually saw the same dynamic with the hotel rooms and then also the airplane tickets. Come on. Don't tell me that you don't think that two. day old stale muffins aren't the epitome of a great breakfast, right? How about we dig a bit deeper, though, into the fixed costs so that we're not spending too much time talking about muffins. And after that, we can get to some of the reasons why COPA doesn't face the same pressures and is able to earn profits while the competition is just getting hammered. Sure. I think that makes sense. So we talked about the cost again. The main ones of fuel and labor.

So for Copa, for example, jet fuel is about a quarter of revenue in costs. So it's a huge position and the price of it is basically set by global oil markets, which means that the airlines have no control over it. And if they are smart and or lucky, it kind of depends on who you ask, they can hedge against that with long-term contracts that basically enable them to buy fuel at a certain price for a period of time. Copa actually has a policy against doing that, against hatching. So they always buy it for the market price.

And we can talk about that later on. but that's basically how you can do it. And you know, you could certainly argue that, especially in a time like today where there's a bit more uncertainty about the pricing, it would be nice to hatch. But looking at the history and the track record of not hatching, to me it appears like they generally make a good choice there. Ryan, for example, has recently hatched its exposure to fluctuating prices, which is what hasn't been heard as much by the current Iran conflict.

So as you can see, there are two different approaches. I wouldn't say there's right or wrong. It's just, you know, whatever the culture of that company. Then beyond those costs, you have many tens of millions that you pay for the fleet of, you know, the aircraft, the crew, the gate, the maintenance, all that sort of stuff. And as you said, that's basically all happening regardless of how many tickets you actually sell for a flight. And you definitely got to take that flight. Because if I just, you know, go to the airport and they say, oh, we only sold 50 tickets and not. It's not making any sense for me anymore.

We cancel the flight. That's obviously terrible customer service. So one other thing that I have to say, and I promise after this, I'll give you. you the opportunity to tell us why Copa is different. But looking at the airline industry, you just don't have the normal, natural, healthy cleanup mechanism that happens with bankruptcies. With forests, it's important to have these targeted burns to get rid of a lot of the dead wood because otherwise it accumulates. And then when there is a fire, it's much, much worse. You get this massive wildfire. And that's like sort of what I'm imagining here. That's a metaphor

that people use for a lot of financial crises of these targeted burns to clear out the brush so that you have a healthier ecosystem overall. You don't have that with airlines, right? And, you know, Buffett and Munger mentioned how railroads became much better businesses to own after a number of consolidations and bankruptcies happened. And these bad operators were taken out of the picture. And when airlines go bankrupt, though, the airline is often saved. or restructured. And then it's just business as usual from there, right? I mean, we've just seen this happen with Spirit. And some other smaller airlines have been bailed out by the government after the fuel price increases brought them to the verge of bankruptcy. And you can see why this

happens. There's like a too big to fail dynamic here, right? Airlines are essential to the global economy. And actually, I know you know this story, Daniel. I found myself at the center of this problem when my airline to Denmark went bankrupt right before I was making a business trip to visit our colleague Stig. And let's just say that causes a lot of stress. The longer that operations are halted, the more people are impacted. And so it does become a compounding problem. So you can see why governments are so quick to want to step in and help out. You know, usually it's not an advantage to live in Germany if you work for TIP and you think in terms of traveling. Because most of the time it goes into the States and I have all the terrible travel stories, but, you know,

I'm visiting Stake next week and I'm fortunate enough to have a pretty short trip. So I'm just taking the train. You know, there's no stress with catching any planes or any airlines going bankrupt. But yes, basically what you described is a pretty vital part of the industry. And, you know, it's generally another one of these vicious cycles in the airline industry, right? Usually you benefit when a competitor goes bankrupt. But when an airline goes bankrupt, as you said, you know, its planes usually get sold cheaply to somebody else, you know, a competitor of yours, which, you know, once again fuels the pricing battle. All the airline just restructures its debt and, you know, sheds its obligations and comes back roaring out of, you know, Chapter 11 bankruptcy.

And then it's basically leaner than the competitors who actually paid their bills and were struggling to get through this phase or recession, for example. So the discipline that fixes other industries doesn't really work the same way with airlines. And then, you know, capital keeps getting destroyed and then, you know, capital keeps coming back for more. And this is basically what Buffett described in this video as his bottomless pit, which basically the airline industry is. We've actually seen what happens when an industry does go through that cleanup with the railroads business, as we mentioned, and as Buffett and Munger have talked about at length, right? Buffett went big on B&SF because railroads basically finished their bankruptcy phase

decades ago and consolidated down to a handful of players. And then you, you know, you shift to an oligopolistic industry structure and the economics. look very, very different, right? Those players got disciplined, the economics improved, thanks to scale. And so railroads used to be just as bad as airlines. Too many operators, brutal pricing, everyone going under, too much debt. And then they just got down to four or five disciplined operators working at scale without these kind of pesky, unprofitable operators on the margins, ruining their business. And the whole dynamic flipped. And somehow airlines just never got there. So that's really something I would be so curious to wrap my head around more.

Well, Bill Miller, who most of our audience is probably familiar with, actually bet on exactly that happening with airlines too. Repeatedly. He invested in airlines in, I think it was 2008 and 2013, calling, you know, an airline renaissance driven by industry consolidation, basically what we've seen with railroads. It played out to some extent, but certainly not on the scale of railroads and, you know, what Buffett has experienced there. So I mean, he continued investing in airlines again and again. Buffett did so as well. So I believe that some investors still hope for that to happen.

And you've actually seen somewhat of a shift toward that actually happening and playing out. But then COVID came along and also, you know, kind of reshaped the entire industry again. So it just keeps being a pretty volatile and just uncertain place to be in. Let's take a quick break and hear from today's sponsors. Curious about online trading, but haven't taken the first step yet. You're not alone. Plus 500 Futures is a great place to start. The futures markets are moving fast, and with plus 500, you can explore popular assets like oil, gold, S&P 500, Bitcoin, and more. From

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is here to help you automate your security and compliance and earn and prove trust. Get started today at vanta.com slash t-I-P. That's V-A-N-T-A dot com slash T-I-P. All right, back to the show. We were talking about this before the recording, but we have a tremendous amount of respect for Bill Miller. And he is actually a friend of the show and he's been on the podcast previously. So, you know, when he makes a statement like this with his investments, you know, it's something we pay attention to. And, you know, there does seem to be something about airlines that has attracted super investors repeatedly. And I think it's good that you bring it up now because up until now, we've probably thoroughly convinced our audience never to touch.

this sector, which is probably not the best way to start a pitch for a stock that is in this sector. So maybe we can turn things around. You know, if the industry is this structurally cursed, how does anyone make money? Because some companies, and especially COPA, clearly have as I'm sure you'll tell me here shortly. I will. I mean, I definitely have to say this is by far the hardest pitch I've ever done, right? The airline industry is just a tough one to convince people off, but I do think there are a few ways to make money. So the most powerful one, and we already touched on it with Ryanair, is just being the cheapest player. If everyone is selling an identical product and prices keep getting pushed down to the floor, the only player who survives

that floor, and actually is making money there, is the one with the lowest cost base. So Ryanair and Europe and perhaps Southwest, back in its prime at least, in the US. So these are the airlines that have consistently reinvented what is expected from an airline and saved costs wherever it's possible, right? And the second one, which I personally find even more interesting, is owning a network position that competitors just can't copy. So that could be an airport where, you know, these slots are constrained and you control most of them or, and this is actually the game that Copa plays, a geographic position where it doesn't make economic sense for arrival to even try to fly the same routes. We will get into that into detail later. But then there's also a third way

that you can make money and be profitable. And that is a restructured competitive field. So the reason, you know, these big U.S. airlines became investable for a period. And the reason, you know, Buffett of all people and then also Bill Miller got interested in them is because for a short period of time, this is what I said a minute ago. It looked like there will actually be mergers and, you know, consolidation in this industry. And then, as I said, there was kind of, you know, COVID coming in and making it a bit more difficult. But that's not what happened, right? I mean, at least not in the U.S.

Yeah, it did not. I mean, again, Berkshire bought, you know, the four big U.S. airlines. And then in the spring of 2020, again, COVID grounded the entire world. And, you know, Berkshire went out and so on its entire basket, obviously had a loss and, you know, basically said that the world has changed for airlines and probably for good. So even the most disciplined version of this industry, which it probably has been before COVID, got taken out of the woodshed by, you know, a single exogenous shock. So to be fair, I would say personally that many, many industries were hit. hit hard when COVID happened. Obviously, you know, airlines were certainly up there. But I mean,

pretty much all industries were not selling things and, you know, except for the e-commerce players, maybe. But it was a tough period for all of them. And we did see travel. We talked about it in our transom episode. We did see travel pick up quite significantly after COVID. So I didn't think there was, you know, lasting damage to the industry. Now, I don't think there was a single industry that was probably hit harder than the airlines during the pandemic, right? Like, it's, it's hard to imagine one, at least for me. But I do want to ask you about this other thing that I've always thought about when I fly. And it's these loyalty programs in that sort of stuff.

How does that factor in here? Right. I mean, did that change the airline industry for the better? Right. Whenever I fly, it's kind of amazing and also annoying to me all the things that I can book in addition to my seats. You're trying to sell me on like extra luggage, better Wi-Fi, priority boarding, which I've never really cared about.

economy plus, economy super plus, whatever that means, and then all these different miles programs, I just can't help but think, like, they wouldn't be doing this if it didn't have some sort of positive impact on the economics, right? Yeah, I think so. I actually thought about this just last time when I traveled back from Martin. There were all these different things that you could buy. And as you said, I don't know who pays for faster morning. I just don't seem to think that it makes any sense.

I mean, I was getting told that you can get your luggage in better positions. I don't know. Maybe that's true. I probably won't spend an extra dime on that. But yes, generally, these frequent flyer programs, the miles and especially the co-bernet credit cards, you know, that in partnership with these big banks not coming out more often, those actually make the airline industry slightly better. So, you know, it's basically the first thing that is introducing somewhat of, you know, a switching cost mode into this industry. And obviously, it's high margin, you know, it's relatively stable. and again, like, probably the only thing I can think of

that gives it somewhat of a switching cost mode. If I have a miles program with, you know, United, most of the time that I fly to, for example, Omaha or New York City, I would choose United so I can get some miles on my car. And I actually recently talked to a friend who told me that he pays for two vacations a year just with the miles that he earns from flying. So, I don't know, by now I'm flying so much that I'm thinking, I maybe should give more thought to optimizing my Mayets and loyalty programs than I currently do.

I should probably ask you, I mean, knowing how you trick the same, system with all your credit cards. You probably have some good tips for me on how I do the same with Miles, no? Daniel loves to tease me because I'm always looking for these like personal finance hacks and they've worked pretty well for me. I got to say. And it is funny that you mentioned it because I don't think I've ever actually paid for a trip with Miles though. And maybe it's just because I'm a value investor. But I love to know exactly how much I'm getting back. So I always opt for the cash back cards where it's like, you know, you get 2% back, right? You do. You, you know, spend $100, you're getting $2 back, right?

Very tangible. I can understand that. But whenever you have these miles programs, they have these crazy conversion rates. And I have no idea. They're like, you know, if you spend this amount of money, you get 50,000 miles or points. I'm like, what does that mean? It drives me crazy. And so I just get lost.

And I don't know. I want to know simply how much cash am I going to have in hand? What is this worth? And yeah, that's always been my approach to credit cards. But now I have a card that allows me to earn points on my mortgage payment and, you know, without any transaction fees. And so I might be redeeming those soon for a trip. You know, maybe I'll have to come out to Hamburg and use some miles to do it.

But to get back on track, I mean, let me take a shot at summarizing what we discussed up until now, right? We've covered a lot of ground. The airline industry has historically destroyed capital due to commoditization, perishable inventory, fixed cost, fuel costs, and cyclicality. And the handful of ways to beat that are really just to be the low-cost producer, own an uncopyable network position, operate in a very disciplined market structure, you'll milk out these loyalty programs, and then carry a balance sheet that is strong enough to outlast any of these cyclical crises that emerge.

And that's essentially why I'm pitching Copa today, because I do believe that COPA is just one of those things. It's actually all of them. I mean, they are the lowest cost network carrier in the Americas. They sit in a geographic position that I don't see anyone replicate, and they've got by far the strongest balance sheet in Latin American aviation, which is also where they were the one airline in that region that didn't go bankrupt during COVID. So I think you better understand why and how COPA is actually different. I guess it makes sense to take a look at its history. So it was founded back in 1947 as the national airline of Panama. For us, though, it starts to get more interesting about 40 years ago when Pedro Halbron

became the CEO of the company. And the remarkable part about that is that he is still CEO today 38 years later, which is pretty much unheard of in the industry. And while he's not a founder, a tenure this long, in my opinion at least, to some extent, makes up for that. No, I think that counts. I'm just trying to think here. do we have any companies in our portfolio with the CEO who's been at the company for longer than that?

It's such a rare thing to find. Yeah, maybe not anymore. I mean, last year, we could have still pointed to Berkshire, obviously, and we looked at some companies that came close. Like, you know, Mark Leonard at a consolation software, for example, but I don't have anyone in mind right now. Oh, it's true. Well, we do have Andy Florence of Co-Star, actually. He tops that, right? He's been the CEO for something like 40 years.

So I don't know how we could forget that. And when I think about the companies we've covered where the operating culture is really durable, like a Mark Leonard at Constellation Software for 30 plus years or a Buffett at Berkshire for 60 years or Bernard or no at LVMH since what the late 80s, and they all kind of have one thing in common, right? There's this one person who has been steering the strategy for decades and just refuse to change course, right? And very, very high conviction. And again, that was one of the things we liked about Co-Star and why we own it in our portfolio, even though it's a smaller position. And this is the consistency that you can get from that can really be enough to dominate some of the toughest industries. And you just don't get that

from a CEO who's coming in as an outside consultant or that's trying to hit a number for the next bonus cycle. Usually having these long tenured CEOs means that they own a meaningful chunk of equity. And so they have skin in the game and that goes hand in hand with how they run their business. There's a mindset. There's a principal agent dilemma that gets solved if you have a founder's CEO with significant skin in the game running the business truly on behalf of shareholders because they themselves are massive shareholders. And that is certainly also true for COPA, but since the structure is somewhat complex, I would suggest that we save that for later, just for now, they do own the entire management team,

it's a pretty significant chunk of the equity and the economic interest in the company. If we take another look at Copa's history for now, there was another big turning point because in 1998, Continental Airlines, which was this big U.S. carrier at the time took a minority stake in Copa, and that partnership basically gave Copa

the template for the hub and spoke model on which they then built their entire future. And that united relationship that everybody associates with Copa today, as I understand it. Where does that come from? Is that related to this original partnership they had with Continental? That was part of the United and Continental merger, which happened in 2010. So Copa's old Continental Alliance simply became a United Alliance.

And then in 2012, Copa formally joined the so-called Star Alliance, which is, you know, this global airline group being anchored by United. That's pretty important, actually, because, the Star Alliance membership of Unitedhood is actually a big part of why Panama works so well as a hub for travelers, especially coming out of the United States. So walk me through the actual business here. You mentioned that the core of Kopa is that it's a hub and spoke connector. And so what does that actually mean, right?

I mean, that's some real jargon there. Also, why is that a better position to be in compared to the more traditional business model for airlines? Yeah, so a hub and spoke model is basically a routing system where one central airport acts as the primary transfer point. So for example, Chicago is one of United Shops in the U.S. So whenever I fly to Omaha, I grow through Chicago. And for Coppa, the whole business is really about these connecting flights because they have a pretty

special spot in Panama. So Panama sits right at the narrowest point of the whole American continent. and basically the geographic center of the hemisphere where North America funnels down to meet South America and Copa's home airport, Tokuman, sits at the sea level, pretty much in the middle of that. So they fly something like 85 cities in over 30 different countries, north and south, and they route all of them through that one airport.

I definitely can see how that location then seems like an advantage compared to other airlines and hubs. but is that so much of an advantage that they have a structurally more profitable business? I mean, as you mentioned, all the big airlines have their hubs too, and there are these strategic advantages that come with them. That's true, but the location actually creates massive cost benefits for Copa. And I'm actually, I'm getting quite excited about this. I think I told you before that I just loved diving into the industry, and I didn't expect that

before I did it. So due to the positioning, Copa can use Boeing 737s, which are these small, cheap, and also the most efficient planes to reach essentially every single one of those 85 destinations from, I don't know, Buenos Aires in the deep south to Toronto in the far north without a payload penalty. Payload penalty. I have to say, I think we were both buzzing with excitement to do this call because it's something new for us. And if you've covered 70 plus businesses, you know, things can get repetitive. And one of the interesting things about our pitches, though, is there is always something new. that we learned and would have never otherwise thought about it.

And so I have absolutely no idea what a payload penalty is. And I figure you probably had no idea what that was until like maybe two weeks ago. But I can feel the excitement in you as you talk about, you know, how COBLA is shielded from the payload penalty. It's interesting. As you said, two weeks ago, I didn't know about it. But yeah, again, I told you before the call that I, you know, really enjoyed diving into the airline industry.

So I think it's just one of those things that we all know. as consumers. And many investors obviously know that's, you know, it's supposed to be this bad business. But a few people actually know the economics behind it and why it is the way it is. And I just love to learn those things, right? Like how do they work? I would say that you sort of understand how the world works one company at a time. I feel like that's what we're doing here. We can week out. But anyway, to answer your question of what a payload penalty is, basically, every plane has a maximum weight that it's allowed to take off at. And That weight has to cover, obviously, the plane itself, the fuel and everything paying,

which means, you know, passengers, bags, and cargo. So on a long route, you need so much fuel on board that there's less weight left over for the paying load. So, you know, cargo and even passengers, for example. So in practice, that means the airline carries less cargo in the belly, and on the very longest routes, they actually have to sell fewer tickets than the plane can physically hold. Because if they sold every seat and loaded all the fuel needed, the plane would literally be too heavy to take off. So the longer the route, the more revenue you're literally leaving

on the ground. And Copa's geographic basically sidestaps that whole problem because Panama is so central again, none of Copa's flights are actually ultra long haul. So there are all these medium length hops radiating out from the middle. So Copa gets to serve this continent spanning long haul looking network using these small, you know, cheap single-isle planes, the Boeing 737, whereas if a competitor tried to connect, say, North America and South America directly, they would need big, expensive white-body jets to do it just because they're not located in Panama. There's also this compounding thing going on, which honestly looks like a form of network effect when I look at it. So every new destination, Copa adds to the hop, doesn't just create one new route.

It actually creates a whole lot of new routes, right? Many and many of them. So if Copa adds, I don't know, Puerto Iguazua in Argentina, which is a destination they currently don't have, but I actually work on getting that onboarded. Then you can fly from dozens of different countries and starting points to Puerto Igozoa, not just one point. So it sounds obvious, I know, but that's a pretty big thing for the economics.

So Copa generates over 5,000 marketable city pairs out of those 85 destinations. That's what we're talking about here. Oh my gosh. You're really getting me excited here. I had no intention of being so excited about an airline stock heading into this. But no, you're getting me fired up. And I mean, the network effect here reminds me a little bit of COSAR, right?

Every new property added to COSAR's database makes the platform a little more valuable for existing customers. And so the value of the network compounds faster than the inputs, basically. And it's similar for COPA where each new destination COPA adds, it's not just one. new route, right? It adds a connection to every other city already in the network. And so, I don't know, it's pretty cool to see that dynamic in an airline, right? It's not really a mental model I would have been able to apply if we hadn't have studied a lot of the businesses that we have. And so with all that, how about we dig a bit deeper into the financials here? Because to be honest, I only have a vague idea of what the revenue breakdown of an airline should look like

and what the margins would actually be for the business. And that comes with some biases about having being told about what a terrible business airlines are. And I don't think that's entirely true with Copa. Well, the revenue is actually as simple as one would think. So the overwhelming majority, which is around 95% revenue, is from selling seats to passengers. Then only about 3% is cargo. And the last 2% or so is all the rest.

So, you know, that's where you find the loyalty program. for example. The great thing about cargo, and let's call them value-added services, so loyalty and all that sort of stuff, is that they are high margin. So when Copa flies a passenger 737 from one city to another, the belly of that aircraft has space in it, which is sold to ship freight. And since it comes at no additional cost, that's pretty high margin revenue, right? So Copa has also been leaning into cargo more deliberately lately. So they've added, you know, dedicated freighter aircraft. and cargo revenue has been growing quite nicely. I think we're talking about 20% year over year in recent quarters.

It's still obviously small in the overall picture. Again, it's only 3% of the total, but it's basically free optionality, right? It's not something that you just get by buying Copa. It's not something that you bet on. I think it's pretty similar. So Copa's loyalty program is called Connect Miles. And because Copa is part of this United Star Alliance,

those miles plug into the whole global alliance, which makes them way more useful as if it would just be, you know, this small Panamanian airline. So on its own, a frequent flyer program is maybe a nice loyalty tool, but the real money is, as I said before, in this co-branded credit card. And that's the deal where a bank issues a copa branded card, then customers spend on it, basically everywhere, and then the bank pays copper for the miles that those cardholders earn. But for both of these segments, the problem is that they're pretty tiny, right? I mean, even when the core business only grows mid single digits, you've got cargo growing at 20% plus.

It's going to take a long time before that actually starts impacting overall revenue. And so I can imagine that also that there's still a limit to how much growth is achievable here, right? Since you only have so much space on a plane, you're operating with a very finite resource. And I would think in a way that it's similar to with the loyalty program. Yep. That's completely right. I mean, you can't buy Copa thinking you will see some mixed shift that turns this, you know, into only high margin credit card business of which we own enough anyway. So you're still buying an airline at the end of the day. That's true.

So I know that some of our mastermind members have really wanted to see us cover Ryanair, which is also famous for being one of the few profitable airlines. And it's probably known as maybe being the most efficiently run airline out there. and they have a bit of a reputation for that efficiency. So that has led to them having a very interesting social media presence, where they joke a lot about the accommodations that they cut out for passengers. And it's become sort of a meme online. But how does Ryanair's efficiency and profitability profile compare to Copa? I imagine Copa can't beat them on the social media front.

but with the actual business, how does it compare, right? Is Copa similarly efficient or does it not need to be as extreme in cost cutting thanks to these competitive advantages that it already has in terms of the business positioning? So it can compete on the social media phone, probably the only company that can is, I don't know, dualingo, which is also quite good at it. But yeah, this was actually one of the more interesting things that I came across when I started looking at it. So airlines all report a metric called CASM, CASM, which stands for cost per available seat mile. Basically, what it costs the airline to fly one seed, one mile.

And there's a version of this called X Fuel Casm, which is the same number, but obviously with the fuel cost taken out. And that's the one that actually matters when you're comparing airlines. And as you can see, if you look at the numbers for COPA, they are better than 95% of airlines on that metric. So why strip out the fuel costs, though? Because that is a real cost, right? Like, why would you not want to account for that? It is a real cost, but every airline pays pretty much the same per gallon for fuel.

Because, you know, the price is set by the global oil market, as I said before, and none of them really controls it. So what that means is that fuel costs go up and down for the entire industry at the same time, depending on where oil is trading. So if COPA's total cost looks great in one year and then bad in the, the next that mostly just tells you about whether oil was cheap or expensive that year. So it doesn't really tell you anything about whether Copa is actually a better or worse run business.

So to figure out which airline has the better cost structure, you've got to look at everything except fuel. And that's essentially what X fuel chasm gives you. So Copa is currently at about 5.8 cents. And to put that into context, the only other airlines that I'm aware of that operate below six cents are right now, which you mentioned. and with air. And then I think they're also two pretty small Latin American airlines that also operate

sub six cents. And Copa has been at that level for years now. So, you know, the fuel spike, the max nine grounding, which, you know, was a time in 2024, where a lot of those planes, especially the Boeing ones, had to stay on ground. All of that. And even global wage inflation, all of that couldn't bring down the margins that Copa was earning and, you know, didn't spike their cost structure. So it's not just one lucky year.

it's actually something that they've built into the way their airline operates. And they've done that by only flying one family of aircraft is what it sounds right. The Boeing 737. And I imagine that saves a ton on cost because they only need one type of pilot training, one set of spare parts to use, one really overall maintenance procedure and so on. And so if you compare that to a United or an American, they've got Boeing, they've got air buses, they've got regional jets, they've got wide-body jets, and they have to maintain all of that in parallel.

So you just imagine how complicated and expensive the maintenance and the servicing and all of those different variables come in, and COPA just really doesn't have to deal with that. It's certainly complex. We also remember who's a pilot, and I don't want to say anything about the airline just because I don't know if we were allowed to,

but he told me when I told them that I will cover an airline, that he just does not understand how they can make it happen that planes actually go up in the sky, and come down on schedule all the time because he says there's so many things that go wrong all the time that him just sitting in the airplane, he has no idea how all of that works out,

which normally if he's on the ground every single day is not the most encouraging thing that he could have said. But another advantage Copa has that Ryanair, for example, doesn't have, and especially over the US carriers, is labor costs. So Panamanian wages

are obviously lower than US or EU wages. And in 2025, Copa's wage bill was about 14% of revenues. And a big US airline would usually spend about 25% of revenue on those wages. And since most of Copa's customers aren't Panamanian, but just connecting through Panama on their way somewhere else, Copa is actually benefiting because they are collecting international ticket prices,

which tend to be higher, from a global customer base while paying Panamanian wages to its crew. That's another global advantage for them. And then there's the so-called completion factor, which I honestly hadn't even thought much about before I started researching all of this. The completion factor basically shows you how many flights actually go into the sky and make it to the ground, save, of course. That's what it says. Let's take a quick break and hear from today's sponsors.

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You won't let that go, although you now also have the Denmark experience, right? It's just for context for the audience. Last year when we traveled to Omaha, I was canceled on, I think it was three flights initially and eventually had to spend an extra night in Frankfurt and was canceled even on my next flight, the next day for which I woke up at 5 a.m. in the morning, only to start flying six hours later. But yeah, you know, that... It was brutal. It was brutal. And I think

I also mentioned it here on the podcast like six times by now, which should show you the PTSD I got from this experience. So, yeah, unfortunately, you know, I've got plenty of personal experience with that. But it's not just annoying for the passenger. It actually costs the airline a whole lot of money. So from what I read,

a single cancellation can cost the airline something like $25,000 to $60,000. Once you add up, you know, the crew, you've already paid, the rebate, the re-booking, hotels, as for example me, the surrender passenger in this case, all of that. And, you know, the plane never took off, so you made zero revenue on it, obviously. And on top of that, you spend a bunch of money cleaning up the mess. So in this industry, the most profitable carrier is actually just the one that consistently brings

its planes into the air and obviously self-down again. So Copa is one of the best in the world at this. They are at a completion rate of about 99.8%. So out of every 1,000 flights scheduled only to don't happen. Ryan has also in a similar range. I think the big US legacy carriers tend to be at around 97 to 98%. And then you might think, well, okay, 99.8% compared to 97%, what's the big deal? But because airlines run so many flights, that gap is actually huge in practice.

So if a carrier of COPA size ran at 97% instead of 99.8%, that sounds like 20,000. 8,000 extra cancellations every single year. So at 40 grand a pop, you're talking about a billion dollars in extra costs just from cancellations. So this thing that sounds like a small operational detail is actually one of the biggest cost differences in the entire business. Sort of scary to think about how quickly all of these profits can just evaporate. And at the same time, there's no reason to believe that rate should go down in Copa's case. You know, from everything you're telling me, it almost sounds like too good to be true, considering we're still looking at an airline after all. But, you know, for me, it's all about figuring out the moat today,

which is kind of cliche, but it is an important thing to think about. We know that the barriers to entry in the airline business are actually low, even though you might initially ask yourself, you know, why? Because it's such a capital intensive industry, you would think that the barriers to entry would be very high, right? I wouldn't know where to begin. We're starting an airline business tomorrow, but I have heard that it's actually comparatively easy to get financing for an airline compared to other projects of similar sizes. And why is that? Well, banks like to lend when there are high-quality physical assets to lend against that are backing up the value of the loans. And so in this case, you couldn't really have higher quality collateral to lend

against, then new aircraft, right? These are very valuable assets that have long lifetime uses. And so the depreciation is relatively slow, at least compared to, you know, you buy a car and then you drive it off the lot. And the old joke is that it loses half its value. And, you know, as Buffett once said, there are a lot of people who want to be involved in the airline industry. And that's why it keeps attracting capital. And so let's go ahead and jump to some comments that Buffett has made on that. And people love doing it. It's exciting to people. And you can sell the idea. I've had probably a dozen proposals over the last 25 or 30 years from people that want to get into the airline business one way or that. And the number of them have. It's sexy for some reason. I mean,

You know, if you go to the office of some Mr. Big CEO and say, I want to talk to you about this new airplane, you get in the door. You know, I mean, if you want to talk to them about hauling coal or something, it's a little different. So it is a business that attracts people. And you can go out and raise money for a new airline. So when I look at a map, I see Costa Rica and perhaps Nicaragua that could have a similar geographical advantage over all. other airlines. And so my question is, is that a threat that could challenge Copa's business model and their competitive advantages if somebody goes to one of these other geographies and just copies their playbook? Actually, the first thing that I did was also just opening a map and see, okay,

well, very naively, what other places could copy that business model just because they're close to Panama? And I would generally say it's very tough to do. And also, the geography is really only one part of the mode. I wouldn't call it a flywheel, exactly, but they are. a couple of things that work together to create the mode that I see for Copa. So one of them is the geography, but only because it lets Copa fly the 737 and reach the whole hemisphere. So everything we already talked about, the bigger piece of the mode, in my opinion, is actually the first mover and the scale advantages they already have as the region's biggest hub.

So a connecting hub is obviously only worth anything once it's already big, right? So it's a kind of, you know, chicken and egg problem. You need a lot of travelers to create a dense system, but you need a dense system to attract a lot of travelers. So if you actually wanted to challenge Copa today, you would have to stand up something like 80 destinations and all the frequencies between them more or less at once and just burn cash for years without any profits to show for it. So just to get the starting line where the network effect would eventually kick in. You know, it does remind me of the dynamic between Uber and Lyft, where generally speaking, they can both charge the same rate for a ride. Yet for Uber, that ride will add profitably to their bottom line, whereas for Lyft, it adds

to their losses, which seems like it doesn't make sense. But the reason it happens is because Uber has reached a scale that Lyft hasn't. So the way the costs are spread out is more advantageous, basically, for Uber. But I don't want to drag us back into a discussion of operating. leverage. But anyways, my conclusion from what you're describing is basically that this is a classic network effects trap where it's very, very hard to compete with a dominant competitor once they have an existing position in the market. That's certainly how the dynamic seems to be. And, you know, it's also proven just by the trackwood out of the financials, right? They look fantastic

for the last 20, 30 years. So it very apparently seems to be impossible to copy what they have. The second barrier, which is also really hard to disrupt, is pricing. As we said, Copa has a sub-6 cent cost base, you know, based on chasm, what we talked about earlier, this probably most important metric in the industry. So it would be almost impossible for competitor to actually run it more efficiently, which means you would be burning even more money trying to catch out because Copa can just bleed the competition out and undercut their prices the whole way. Obviously, the downside there is that if companies should come in and be ready to burn a lot of

over a couple of years, it would still result in a margin drag for many years for Copa. So even if Copa survives and the competitor goes bankrupt, eventually, there will be a series of years with margin pressure. And as we talked about before, bankruptcies don't happen in the airline industry as naturally as they do in other industries. Taxes and currents are also a big advantage. Panama doesn't tax foreign source income, which is basically all of Copa's income, because their passengers are mostly flying between two other countries. And so Panama also uses the US dollar.

So there's no currency risk and no capital controls that you have to worry about. And that is a big difference maker when you're talking about an emerging market region of the world. No tax on foreign income sounds like I might need to look at some house prices in Panama. I'm just kidding. It's certainly true. It's an advantage, you know, that most competitors can obviously not compete with. And as you said, you know, before that, we always try to balance out our exposure to these emerging markets. So if you are in a market that is really uses US dollars and it's kind of packed to that system, it obviously helps a lot from, you know, an investor standpoint. And then last but not least, this is also a business built on trust in relationships. So, you know,

flat routes are basically always negotiated government to government and generally require the airline to be nationally owned and controlled. So Panama has spent only decades building all of these relationships. And I just don't see Costa Rica or pretty much anyone else in the region to replicate that anytime soon. Actually, you also see that Costa Rica is going in another direction. So they are growing. Their air capacity faster than Panama is right now, but mostly focus on tourism. So, you know, people fly to Costa Rica for vacation, not to pass through it, which is the case for Panama. And I guess for many other Latin American countries, the political instability and the fact that many of them are already sanctioned in some way, shape, or form makes it almost impossible

for them to step up and take Panama's role in being central to air travel from north to South America. That's how it looks. I mean, the one country I thought might have a shot is actually Puerto Rico, but uses the U.S. legal system and the U.S. dollar, but you don't have to pay U.S. wages. So, you know, a very similar profile to Panama, although it's a bit of a detour to, you know, get there compared to Panama and apparently American Airlines tried running a San Juan hub before and ended up shutting it down after a couple of years. So probably I think the biggest competitive

risk is just ultra low cost carriers, getting longer range airplanes and then start flying the most important routes point to point, basically skipping the hub entirely. So yeah, I think that's kind of a risk that I could think about. But then you again, running into the problem that I described before where you got to fly these longer routes and then you basically have to leave. people on the ground because otherwise your fuel is not enough to take the entire route. So this is just by nature way less efficient than what Copa is doing. So it's not only about a competitor doing what Copa does better. It's more about the whole hop and spoke model becoming less relevant.

Again, I don't think it's realistic anytime soon, but that's somewhat of a risk that I could see potentially in the future. And so it actually reminds me of something Ryanair CEO, Michael O'Leary, said in an interview that you shared with me earlier. And he basically said he will never be beaten at his own game, which is delivering the cheapest flights. But one day, he will be disrupted by a company that invents, beaming people from one place to another. He's obviously being facetious. But long-haul flights without a stop in Panama is not really beaming.

But you get the point. Copa is unlikely to be beaten at its own game. But who says the game can't be reinvented? I think that's a great way to look at it. And Michael O'Leary interviews, they're just always fun to watch. That's why I send that interview to you. And we often talk about borrowing CEOs on this show, but he's definitely not one of them. And at the same time, he also doesn't give me this sketchy feeling that I often get when

CEOs are a bit more outgoing, maybe a bit too confident. But, yeah, I mean, the fact that copas yield, which is basically the average revenue an airline generates per paying passenger per mile flown, has been dropping over the last couple of years, does suggest that there's at least some more competitive pressure starting to show up. Perhaps it's a good time then to zoom in more on the risks. Yep, we should do it. And we already talked about the industry. So I felt like a lot of the risks were covered by just COPPA operating in an industry

that we kind of rented on for 30 minutes. But I would say the biggest one by a long way is fuel. We talked about this before, but fuel is a huge cost that airlines basically can control. So for Copa, Jet fuel is again, around a quarter of revenue. And the interesting thing is that Copa actually doesn't hatch its fuel, which is something that many other airlines do, right now again, being one of them. Maybe you can just quickly explain for the audience

what hedging fuel actually means, and then why Copa doesn't do it. Hatching basically means buying financial contracts that lock in or cap what you will pay for fuel in the future. So you're essentially buying an insurance against the fuel. price going up. And COPA has chosen, as a matter of policy, to just pay the spot market price for fuel, whatever that happens to be. And while hedging, somewhat sounds like a no-brainer on paper, it can actually be quite costly because imagine, you know, fuel prices drop a lot, but you've got a

contract that forces you to keep buying it at the old higher price. Your first instinct might be, well, you know, you probably have chosen a price where you still earn a pretty good margin, so you should survive that. But the problem is, because all the other airlines can now buy fuel cheaper, they can just undercut you on ticket pricing. So hedging has also some form of cost that comes from it. And many airlines have lost a lot of money over the years by hatching their exposure to fuel price. So again, there is no right or wrong answer about this.

It's one of those tricky things about the airline business. And just to put some meth behind it, copper burns something like 380 million gallons of jet fuel a year. So if the jet fuel price moves by just $1 a gallon, that's roughly $380 million straight through operating profit up or down. And COPPA's total operating profit is in the range of $800-something million. So a $1 move in the fuel price swings something like half of this company's entire operating income.

Well, just to emphasize again, the potential downsides of hedging is that, you know, imagine COVID, right? They're probably in 2019 thinking, oh, man, if we can hedge oil prices so that we're paying, you know, an average of $60 per barrel in 2020, that's great. We've secured profitable economics for us. And then, well, guess what? Futures prices for oil went negative in 2020. And so you're sitting there thinking that you get this great rate that you're locked into

and then all of a sudden prices could drop dramatically. And it's just kind of like getting a mortgage, except if you don't necessarily have the option to refinance. You know, you're locking into a commitment on a rate. And then if rates fall, you're kind of like, oh, well, I'm stuck. And so for somebody who has no familiarity with jet fuel prices, which I know are a derivative of the cost of oil, but I don't know if they're more volatile and, you know, exactly what the correlation is. And so I guess my question for you is, is a $1 swing in a barrel of jet fuel? Is that a lot? I mean, does that happen frequently? it doesn't sound crazy to me, but if that happens every few months, not hedging that seems

like economic suicide to me. Yeah, no, a $1 swing is quite extreme. So just for perspective, from 2005 to 2021, the price was always between $2 and $2.50 for the jet fuel. So then I think it spiked in April to $5 because of everything that happened in the world and is now coming down to the 350s, apparently. So something like that. being a $1 swing usually happens only once every decade or so, right? And you actually talked about how COVID was obviously a huge thing for everybody who did hedge the fuel costs. And Copa is one of the very few companies in the industry that didn't go bankrupt.

And obviously part of that is because they didn't sit on a contract where they had to buy fuel 80% higher than, you know, currently trades. They could just basically pull as much fuel as I wanted to put into the inventory and then obviously have a pretty good business for the next couple. of years. Although obviously, you also have a lot of uncertainty, especially out of COVID. Now, looking back at it, it always seems easy and you would have just bought as much fuel as you could because you know how it ends up going after two or three years. Back then, there were a whole lot of people. I still remember that. The thought flying will not go back to where it has been for the next

10 or 20 years. So it turned out differently, but you know, nobody knows. Another risk worth talking about is the Boeing relationship. So as I said, Copa has a big order book of 737 max aircrafts. stretching out over the next several years, which is a multi-billion dollar commitment. And on one hand, those new planes are good for them because, you know, obviously, they're more fuel efficient than what they are replacing and they help hold that famous cost line down. On the other hand, though, it is a huge capital commitment, right? And Boeing's recent, let's say, track record on actually delivering an aircraft on time has been pretty shaky.

So they have had to revise delivery targets more than just once. So, Copa is partly dependent on a supplier that, I would say, cautiously, hasn't exactly been reliable, both for its growth plan and also for a fleet renewal. We already saw with the 2024 max nine grounding what it looks like when a Boeing problem basically becomes Copa's problem overnight. So I also heard there was something going on in Venezuela for Copa's operations at some point. What is that all about? Yeah, so on Venezuela, there was a flight.

suspension that started in July 24 since the Venezuelan government. It felt that countries like Panama, or for example, also the Dominican Republic, interfered with their politics. And after that ban was lifted, there were more suspensions last

year, obviously, after the US declared the airspace and no-fly zone. So without going into all the details, this is an emerging market play, and there can and most likely always will be surprises, I guess. So Copa has played down, obviously, the Venezuela exposure over the years

and it's been written down and also dearest. So this is more of a known contained problem than something that's going to surprise anyone now investing into the company. But still, Venezuela and Colombia together are still around 12% of COPAS capacity. So any

volatility there obviously is a factor for you as an investor. And then the other big risk that comes from this is concentration risk, which is really just the flip side of the bull case. So Copa's biggest strength, having this one perfect hub at the perfect position, is also its single biggest point of failure because the entire company basically depends on that one airport,

in one city, in one country. And anything that disrupts Tokuman or any kind of unfavorable shift in, let's say, the Panamanian government policy, could change the way that the business works, right? So there's no diversification to fall back on. So in a way, the mode and the concentration risk are kind of the same fact just looked at from two different sides. I think we just recently had a call in our mass of my community about Universal. And we talked about, you know, that basically many of the things that you looked at positively for the company could also be from, you know, another angle, be looked at as a more negative point. So for example, signing just, you know, the biggest artists.

And you would say, you know, that's a positive thing because if Taylor Swift assigned with Universal, a lot of these smaller artists, also want to be in that ecosystem where somebody else could say, well, who cares about where Taylor's Roof assigned? The fact of the matter is that that deal is most likely not profitable for Universal. So they're always like two sides of the same story. Yeah, absolutely. You know, I have to say, though, it is remarkable how COPA handled all of these things in the past. And I think it certainly speaks to management and the company's operational excellence. And it does seem like Copa was able to get out of the rat race that the average airline is consumed by it. I mean, looking at the returns on capital and equity as well as the margins

and growth, it's not a tech stock, but I would not have guessed that this was an airline. And they have been doing that for such a long time. I mean, if this was, you know, a five-year track record, I would have discounted its value and said, you know, let's wait a couple of years and we'll see it behave like pretty much every other airline eventually. But Copa is. doing is for, you know, many decades now. So this model clearly works. Well, talking about the management team, how about we dig deeper into that and also the capital allocation and culture and all of those sort of things. And so you mentioned that the CEO, Pedro Helbron, has been the CEO for 38 years in a row, which is incredible.

That would be, you know, an incredible achievement at any company, but it's even more impressive, at least in my books, if it does happen at an airline, right? I don't know if there's a similar culture of firing coaches in basketball or American football, but in European football, it's relatively common for a coach who we let go of after only a year or two, if even, especially if, you know, he works at a struggling club. And I think it's somewhat similar in business. So surviving in an airline for 38 years is kind of like surviving one of the most demanding and struggling clubs as a coach for decades. So interestingly, and that's some unnecessary football trivia, but clubs that keep their coaches for a very long time tend to do better. And I do believe that it's the same in business.

I believe that Heilbrun's tenure is pretty much the explanation for most of the things we now admire for this business. So you know, there's extreme consistency on keeping the cost low, the refusal to ever give up on the time crown, so the completion factor of the flights. And also the decision to, as we said, survive COVID intact, whether than they're just restructure, and also maybe as the last point, was this expansion into markets like Europe or Asia just for growth sake? Actually, I think he once joked on an earnings call that there's a loaded gun that should be used if they ever decide to go into the European market. That could have come from Michael O'Leary too, right? It could have 100%. I don't know. I think there seems to be something about airline CEOs.

They have a lot of personality. Because you have to have a sense of humor to decide to go into that business. That must be it. That must be it. But jokes aside, if you're a coper shareholder, you must really trust this guy because he's not only the CEO, but since mid-2025, he's also the chairman of the board. So he controls a good portion of the voting shares of the stock, too. So basically, if you buy copper, you have to trust him. Okay.

So that implies that there's a dual share structure. Is that right? Yeah, exactly. So the shares that trade on the New York Stock Exchange, the ones that you know, U.I could actually buy, those are so-called Class A shares. But the voting control runs through a separate class of super voting Class B shares. And all of those are held by a Panamanian entity called CIA and CIASA, in turn, is controlled by a small group of Panamanian family. So that's the Mota family, the Hydeblon family, the family of the CEO, and the RAS families, plus some other allied shareholders. And those families are basically connected with Panamanian banking, insurance,

and also some other businesses that Copa deals with. So it's somewhat of a different dynamic than what we're used to from a Western company, for example. So what I like, I would say, is that they're all pretty aligned with shareholders through their large insider stakes. They also make most of their money through dividends, so their pay itself is pretty small. I think the combined cash bonus, including stock grants, for the entire management team, is less than $10 million. So they make their money when, you know, either the stock is going up or when the dividends stays high. Going over to capital allocation, how has management done on that front, in your view? Since Copa operates in an industry that is prone to bankruptcies, I personally pay a lot of attention

to the balance sheet first, and the copass looks pretty good. I mean, It's adjusted net debt to EBITDA is about 0.6 to 0.7 times. And to put that into perspective, most airlines are considered healthy when they sit around two to three times net debt to EBITA. And interest is also relatively low. So I think it's about 4% on the interest that they have to pay. And considering the billion dollars of cash on the balance sheet, and the interest coverage ratio is about nine, which means nothing more than there's plenty of cash to service that

and the interest. That's right. And besides, though, keeping some cash for rainy days, where is Copa investing its money? The first priority is certainly reinvesting into the fleet. Second, I would say, is then dividend, which I don't expect to change, given that this is how the management team makes most of its money. And then if there's cash left over, they also occasionally buy back shares. So the fleet, you know, just cost them a lot of money recently. We just talked about the order book with Boeing. So they've got this, you know, a 737 max order. that we mentioned, which is about $900 million in order volume, and it has to be paid over the next two and a half years. So that's also why free cash flow has seen a sharp drop this year, and operating cash flow is still at, you know, all-time high. So there's no structural change to how the business works, even though, obviously, if you just look at some cash flow metrics, it doesn't look as good anymore as it looked half a year ago. And do they plan to keep paying,

the dividend considering this big investment in the new fleet? I'm pretty sure they will, yes. Again, like even through COVID, they still kept the dividend and they were paying it throughout all of the other things we discussed, the max grounding and all of that sort of stuff. It's just an incentive, right? If you make most of your money with the dividend, if you're the management team, obviously you're a hugely incentivized to keep that dividend alive and make sure that all of the decisions that you make in regards to investments in spending money do not threaten the dividend. I think that covers the whole business now.

And so we've talked about the industry, the moat, the risks. the management and capital allocation. And so that means it's time to go to everybody's favorite question. And that is, what is this business worth? What is the intrinsic value? And do we actually want to buy an airline for our intrinsic value portfolio that we, you know, manage through this show? I got to say, I thought it might be hard to value an airline, which is basically part of why investing in airlines is so difficult. But COPUS financials are so stable that it doesn't even feel like you value in an airline. In my base case, is basically business as usual, which is, you know, a good thing to say.

One of you can say with confidence that you underwrite the past financials, that's a pretty good thing to say. And that's actually what I expect for Copa. So I have revenue growing at about 7%, which is the medium growth rate of the last decade. And I keep margins more or less stable to potentially lower in the next two years because of what we currently see with the fuel prices. But I do expect that they would go back in the three years following that over, you know, my estimated five-year time horizon.

So I don't expect a mix shift towards more revenue from the loyalty program or the cargo. Maybe that happens and it's more meaningful than I anticipate. But I doubt that it will have a measurable impact on the business, at least in the next five years. And then I have the dividend payout ratio at 40%, which is also in line with where it's historically been. And then I use a discount rate of 10%, you know, slightly higher than the 8% we usually use because we're talking about an airline and emerging markets. So, you know, you want to take the safe route. and then I apply a margin of safety discount of about 20%. Yeah, I mean, that 10% discount makes sense

because you're accounting for the different risks that come with operating in Latin America versus investing in a large cap U.S. equity where, you know, there is also still risk, but probably less so in terms of the sort of exogenous factors that you can't control. And all of that is obviously also a huge part or influence on the multiple rate.

Like when I initially say that this company is trading at eight times earnings, it seems like it's incredibly cheap. But compared to what other airlines trade at, especially in the emerging markets, it's actually pretty much in line with what I would also expect going forward. So I have a multiple of nine, which I believe is fair for such a high-quality company. And if you have all of these assumptions,

I get an expected return of about 15%, including the 5% dividend yield that we currently see. Okay, that's pretty good. That's pretty good. So what about the Bull and Bear case? How do those factor on? I did do both of them, and you can find them in the model, which, by the way, you can always find our models and our portfolio in our free investing newsletter.

That's also where you can find updates in all of the portfolio holding. So we do not only talk about our portfolio, we also share it. And I'm just saying that because I'm constantly getting asked why we won't share the portfolio that we're always talking about in the episodes. We do share it, of course. and again, it's in the intrinsic value newsletter, but I will also include a link to the Google Sheets in the show notes of this episode,

so you can find every single position that we own in the portfolio, you can find our performance, and you can also find our watch lists, so all the companies that we covered on the show that haven't yet made it into the portfolio. But getting back to the valuation, I don't think it's necessary to walk through the bull and the bear case here on this show in detail.

Ultimately, I adjusted the growth rates and the margins in both cases. The way to lose money on Copa, if you just want to summarize it, is if net margins drop into the low teens range, and at that point, the stock is only worth something in the $60 to $80 range. How could that happen? Well, either because the strategy of not hatching fuel costs turns out to be wrong in this environment, or if all of the stuff that we discussed today suddenly stops working, which I consider to be highly unlikely.

So I get the feeling, though, that you came away with a pretty positive feeling from your research about Copa. I did, yes. I mean, you know, that doesn't mean that I will recommend adding COPA at these prices to our portfolio. I think I just need a bit of a bigger margin of safety on this. And I know I'm somewhat, you know, using an excuse here to not add the first airline to our portfolio. But I don't know, there's still so much uncertainty about fuel costs right now. We have all of this geopolitical tension that certainly has a huge impact on the price. And again, Copa does not hatch it. With Ryanair, for example, they already have a hatch in place. So you know that at least for the next six months. They won't have a problem with costs. And I don't criticize Copa for doing that because,

you know, they've done that for 20, 30, 40 years. And it has always worked out in significantly more difficult times than today. But for me personally, looking at this situation and also the fact that the stock, again, has run up to a P of like eight. I do think I would like a bit more of a margin of safety. And I personally think that at about $100 per share, this would be a highly interesting opportunity. To be clear, never thought I would say this. But I could, I could actually see myself investing in an airline with Copa. But I would probably want to do it in the next crisis, right? The next time there was a big fear of global war, pandemic or a financial crisis. I mean, Copa would actually probably be on my list to buy based on how they've survived past

crises. And, you know, if you bought the stock during any of those past tips, if you just look at the chart, you can see that you would have done incredibly well to say nothing of the compounding benefit of this very appealing dividend at nearly a five percent. yield and current prices. And, you know, that would only increase if the stock goes down further. And so for an airline to average, a 14% total return Kager over a decade, 14% a year, I mean, that's really surprising. And it challenges my prior assumptions about the industry, honestly, or at least what can be possible in this industry despite all the bad things you hear. And with all that said, when I look at the company's P.E. multiple, though, and more than eight

times earnings or nine times earnings, while that does sound relatively cheap to the other companies we've covered, where sometimes are 30, 40 times earnings, the multiple here is not historically cheap for COPA. So if you look back over the last 10 or 15 years, an 8x multiple is about exactly in line with the median valuation for the stock. And while I think the stock market can be distorted in the short term, for a mature business, I see a lot of value actually in looking at the median valuation over a decade-plus period. I find that to be pretty informative of what a fair valuation, fair multiple to pay for businesses. Over a decade, the market on average is probably more right about valuing the stock than it is wrong. And so I do think the stock at the moment

is priced fairly, but also I think it's priced attractively at current levels. And then simultaneously, for me to overcome my own biases against airlines, and this is really just a personal issue, and the fragility of their business model, especially with unhedged fuel costs, I just think I would need to feel like I was getting an absolutely bargain price. So if it was trading at five times earnings, for example, I would probably be all over this thing. But for now, though, and I truly mean this, I would love to keep it on top of our watch list and revisit it, perhaps, down the road. I couldn't have wished for more than, you know, turning one of the most bearish investors on airlines into someone who could actually see themselves owning Copa in our portfolio. And I agree. I think especially

for such an industry, there will be a chance to buy this company at five times earnings again. And when that's the case, we've done the work and, you know, we're willing to invest in it. So I'm pretty happy with how this turned out. Not only did I learn a ton about the industry that I didn't look at prior. Also, I found a pretty good company. So with that, let me close it for today. with a quote. I actually wanted to use one by Ryanair CEO Michael O'Leary. But I'm not kidding. I couldn't find one which didn't use the F word or insulted in entire country's people. So let's go with one by former Delta Airline CEO, Colin Woolman, who said running an airline is like having a baby, fun to conceive, but held to deliver. What a line. I guess it's true that all of these airline

CEOs have a very special sense of comedy. But on that note, It's been a son of fun, Daniel. I enjoyed the pitch. You've opened my eyes to the airline industry. Maybe some of the listeners still the same way. We'll see you all again next time. Thanks for listening to TIP. Follow the Investors podcast on your favorite podcast app and visit the Investorspodcast.com for show notes and educational resources. This podcast is for informational and entertainment purposes only and does not provide financial, investment, tax, or legal advice. The content is impersonal and is not consider your objectives, financial situation or needs. Investing involves risk,

including possible loss of principle, and past performance is not a guarantee of future results. Listeners should do their own research and consult a qualified professional before making any financial decisions. Nothing on this show is a recommendation or solicitation to buy or sell any security or other financial product. Hosts, guests, and the Investors' Podcast Network may hold positions in securities discussed and may change those positions at any time without notice. References to any third-party products, services or advertisers do not constitute endorsement. and the Investors Podcast Network is not responsible for any claims made by them. Copyright by the Investors Podcast Network.

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