In the normal course of its operations, the Company is exposed to a variety of financial risks: market risk (especially cash flow, currency, commodity prices and interest rate risk), credit risks and liquidity risk.

In terms of equity, the Company’s objectives when managing equity are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal equity structure to reduce the cost of capital.

The Company has risks that are common in its industry, related to the price level of aircraft fuel, which can significantly affect its operations, financial position and liquidity.

In the past the Company has entered into financial derivative contracts in an effort to mitigate this risk, but with inconsistent results. The Company has not entered into new fuel hedge contracts, and has adopted a new strategy of remaining unhedged, while regularly reviewing its policies based on market conditions and others factors. As of December 31, 2023 and 2022, the Company did not have any outstanding fuel hedge contracts.

Fuel price risk is estimated as a hypothetical 10% increase in the December 31, 2023 cost per gallon of fuel. Based on projected 2023 fuel consumption, such an increase would result in an increase to aircraft fuel expense of approximately $89.1 million in 2024 (unaudited).

The Company’s listed and non-listed equity investments are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Company manages the equity price risk through diversification and by placing limits on individual and total equity instruments. Reports on the equity portfolio are submitted to the Company’s senior management on a regular basis. The Company’s Board of Directors reviews and approves all equity investment decisions. At the reporting date, the exposure on investments at fair value is $102.1 million (2022: 95.5 million).

Foreign exchange risk is originated when the Company performs transactions and maintains monetary assets and liabilities in currencies that are different from the functional currency of the Company. Assets and liabilities in foreign currency are translated using the exchange rates at the end of the period, except for non-monetary assets and liabilities that are translated at the equivalent cost of the U.S. dollar at the acquisition date and maintained at the historical rate. The results of foreign operations are translated using the average exchange rates that were in place during the period. Gains and losses deriving from exchange rates are included within “(Loss) Gain on foreign currency fluctuations” in the consolidated statement of profit or loss.

The majority of the Company’s obligations are denominated in U.S. dollars. Since Panama uses the U.S. dollar as legal tender, the majority of the Company’s operating expenses are also denominated in U.S. dollars, approximately 64.3% of revenues and 79.2% of expenses, for the year ended 2023.


	2023		2022
	%		%
U.S. dollars	64.3	%	63.3	%
Foreign currencies -
Colombian peso	10.0	%	12.1	%
Brazilian real	7.7	%	8.0	%
Argentinian peso	5.1	%	4.6	%
Chilean peso	3.1	%	3.2	%
Mexican peso	3.5	%	2.6	%
Other currencies	6.3	%	6.2	%
	100.0	%	100.0	%

Generally, the Company’s exposure to most of these foreign currencies, is limited to the period of up to two weeks between the completion of a sale and the conversion to U.S. dollar. The following chart summarizes the Company’s foreign currency risk exposure (assets and liabilities denominated in foreign currency) as of December 31:


	2023		2022
Assets
Cash and cash equivalents	$	15,858	$	13,546
Accounts receivable, net	108,767		48,900
Other assets	25,707		20,605
Total assets	$	150,332	$	83,051
Liabilities
Accounts payable	53,393		16,969
Taxes payable	38,157		38,303
Other liabilities	16,543		13,465
Total liabilities	$	108,093	$	68,737
Net position	$	42,239	$	14,314

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its financing activities, including deposits with banks and investments in financial instruments and from its accounts receivable. IFRS 9 requires the Company to recognize an allowance for ECLs for all financial assets not held at fair value through profit or loss.

To mitigate the credit risk arising from deposits in bank, the Company only conducts business with financial institutions that have an investment grade above BBB- from Standard & Poor’s and liquidity indicators aligning with or above the market average. For the investments in financial instruments, different from deposits in bank, the Company requires a grade above A- from Standard & Poor’s.

The Company has established a policy to perform an assessment, at the end of each quarterly reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by monitoring changes in credit risk ratings published by Standard & Poor’s.

As the financial instruments are considered to be low risk, the impairment provision is determined at 12-month ECLs using the general approach as prescribed by IFRS 9.

Regarding credit risk originating from commercial accounts receivable, the Company does not consider it significant since most of the accounts receivable can be easily converted into cash, usually in periods no longer than one month. The risk is managed by each business unit subject to the Company’s established policy, procedures and control relating to customer credit risk management. Specific credit limits and payment terms have been established according to periodic analysis of the client’s payment capacity.

A considerable amount of the Company’s tickets sales are processed through major credit cards, resulting in accounts receivable that are generally short-term and usually collected before revenue is recognized. The Company considers that the credit risk associated with these accounts receivable is controllable based on the industry’s trends and strong policies and procedures established and followed by the Company.

An impairment analysis is performed at each quarterly reporting date using a provision matrix to measure expected credit losses. Loss rates are calculated using a ‘roll rate’ method based on the probability of a receivable progressing through successive stages of delinquency to write-off. To measure the ECLs, trade receivables have been grouped based on shared credit risk characteristics and the day past due.

Loss rates are based on actual credit loss experience over the last 12 months and adjusted for forward-looking factors specific to the debtors and the economic environment over the expected life of the receivables.


	2023
		Days past due
	Total	Current	<30	30-60	60-90	>90
Expected credit loss rate		0.0%	8.8%	9.0%	24.4%	53.9%
Gross carrying amount	$162,544	$153,289	$2,487	$1,174	$258	$5,336
Expected credit loss	$3,297	$35	$218	$106	$63	$2,875


	2022
		Days past due
	Total	Current	<30	30-60	60-90	>90
Expected credit loss rate		0.0%	5.9%	13.1%	30.5%	57.3%
Gross carrying amount	$145,273	$127,412	$2,877	$2,134	$545	$12,305
Expected credit loss	$7,690	$28	$170	$279	$166	$7,047

The income and operating cash flows of the Company are substantially independent of changes in interest rates, because the Company does not have significant assets that generate interest except for surplus cash and cash equivalents and short and long-term investments.

Interest rate risk originates mainly from long-term debt related to aircraft financing. These long-term lease payments at variable interest rates expose the Company to cash flow risk. The Company mitigates this risk by entering into fixed rate financing agreements in at least half of its outstanding debt.

During 2023, the Company finish the process of implementing appropriate fall back clauses for its long term variable rate debt based of LIBOR and incorporated the new benchmark based on SOFR.

The Company’s earnings are affected by changes in interest rates primarily due to the impact of those changes on interest expenses from variable-rate debt instruments. As of December 31, 2023 we had $1,039.8 million of fixed-rated debt and $422.9 million of variable-rated debt. If the interest rate average is 100 basis points more in 2024 than 2023, the variable-rate debt interest expense would increase by approximately $4.2 million, and the estimated fair value of the fixed-rate debt would increase by approximately $16.1 million. These amounts are determined by considering the impact of the hypothetical interest rates on the variable-rate debt and marketable securities equivalent balances at December 31, 2023.

The Company’s policy requires having sufficient cash to fulfill its obligations. The Company maintains sufficient cash on hand and in banks or cash equivalents that are highly liquid. The Company also has credit lines in financial institutions that allow it to withstand potential cash shortages to fulfill its short-term commitments (see note 27).

The table below summarizes the Company’s financial liabilities according to their maturity date. The amounts in the table are the contractual undiscounted cash flows. Balances due within twelve months equal their carrying balances as the impact of discounting is not significant.


	Note	Carrying amount		Contractual cash flow		Less than twelve months		Between 1 and 4 years		More than 4 years
Non-derivative financial liabilities
Loans and borrowings	18	$	1,462,691	$	1,624,325	$	256,216	$	780,090	$	588,019
Lease liability	14	283,657		322,858		80,513		195,340		47,005
Account payable	19	182,303		182,303		182,303		—		—
Account payable to related parties	19	1,228		1,228		1,228		—		—
		$	1,929,879	$	2,130,714	$	520,260	$	975,430	$	635,024


	Note	Carrying amount		Contractual cash flow		Less than twelve months		Between 1 and 4 years		More than 4 years
Non-derivative financial liabilities
Loans and borrowings	18	$	1,444,303	$	1,538,467	$	167,759	$	920,846	$	449,862
Lease liability	14	238,373		341,847		106,076		195,253		40,518
Account payable	19	166,660		166,660		166,660		—		—
Account payable to related parties	19	1,004		1,004		1,004		—		—
		$	1,850,340	$	2,047,978	$	441,499	$	1,116,099	$	490,380

Set out below is a comparison, by class, of the carrying amounts and fair values of the Company’s financial instruments, other than those with carrying amounts that are reasonable approximations of fair values:


		Carrying amount		Fair Value
	Note	2023	2022	2023	2022
Financial assets
Long-term investments	9	258,934	202,056	260,534	201,061
Financial liabilities
Loans and borrowings	18	1,462,691	1,444,303	1,494,124	1,559,435

The fair value of the financial assets and liabilities is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The management assessed that the fair values of cash and short-term investments, accounts receivables, account payable and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

•Debt obligations, financial assets, and financial liabilities are estimated by discounting future cash flows using the Company’s current incremental borrowing for a similar liability.


	Fair value measurement as of reporting date
	2023		Quoted prices in active markets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Recurring fair value measurements
Assets
Investment fund	102,063		102,063		—		—
Total assets	$	102,063	$	102,063	$	—	$	—


	Fair value measurement as of reporting date
	2022		Quoted prices in active markets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Recurring fair value measurements
Assets
Investment fund	95,474		95,474		—		—
Total assets	$	95,474	$	95,474	$	—	$	—
Liabilities
Derivative financial instruments	251,150		—		251,150		—
Total liabilities	$	251,150	$	—	$	251,150	$	—

Derivative financial instruments are valued by the Company, using a Least Square Monte Carlo pricing method by modelling the different triggers under which the notes can be converted. The market data used to calibrate the model are historical volatility measures based on stock prices of the Company obtained from Bloomberg and a zero-coupon interest rate curve in US$ (US$ Libor 3m Swap curve).