Panama Airlines vs. US Airlines: A Case Study Comparing Copa Airlines to Southwest Airlines

Kirk Gore kirkgoremail@yahoo.com

ABSTRACT:

Panama currently has 3 operating airlines with Copa Airlines being its flagship carrier. The other airlines include Air Panama and DHL Aero Express. In this paper, a close examination of the Panama airline industry will be conducted. The paper will mainly focus on Copa Airlines, as it is Panama’s largest airline and the only international one. I will personally be traveling to Panama to get a firsthand experience with Copa Airlines. I will additionally use online research to back my case study. The case study in particular will examine the intricacies of Copa Airlines and the Panama airline industry and compare them to the Southwest Airlines and the American airline industry. This report is going to mainly focus on the positioning strategy of both Copa and Southwest. Since I am a graduate student obtaining my Masters of Business Administration, I feel that this case study will contribute not only to my personal knowledge of the airline industry but also offer valuable insight to the business community as a whole.

INTRODUCTION:

By definition, an airline is “an air transportation system including its equipment, routes, operating personnel, and management” (Marriam-Webster). In the United States, the airline industry is particularly important because it not only makes inter-state transportation much faster and more efficient, but also because it connects the United States with the rest of the business world. In the United States, the airline industry is very competitive and frankly unattractive for new entrants. This is because most US airlines operate at very low margins. All airlines have huge fixed costs like planes for example, and since there are so many airlines and consumers are very price sensitive, pricing is very competitive. As of 2010, the US airline industry employed approximately 377,000 people (Numbers of US-based airline employees…).

As mentioned earlier, airline pricing strategy is a very complicated and important part of any given airline’s success. In America, three main trends among airlines have emerged: Differentiation, low-cost, and focus strategies. A firm employs a differentiation strategy when it offers uniquely higher quality products or services for a higher price and subsequent margins. In the Airline industry, American Airlines, Delta, and United Airlines follow the differentiation strategy. These airlines generally offer more flying options, routes, nicer planes, and other amenities that differentiate themselves from other airlines. They also charge higher prices however. A firm employs a focus strategy when it focuses on a niche, or specialty market.

Southwest Airlines employs the focus strategy by focusing on relative short and direct routes that are also very popular. Lastly, low cost firms focus only on cutting costs so that they offer their products at lower prices therefore hopefully gaining more sales. American West Airlines currently use the low cost strategy (Identifying strategic groups…). For the purpose of this report, Southwest Airlines will be focused on since it is the US’s largest airline.

Like the American airline industry, the Panama airline industry is also extremely important to the economy. Again, not only does the industry expedite local travel but it also connects Panama with the rest of the world. However, the airline industry in Panama is very different from the US industry. Panama only currently has 3 operating airlines, with one only transporting cargo so the competition is much less fierce. Recent negotiations seem to suggest that the two remaining passenger-destination airlines, Copa Airlines and Air Panama may even begin a no-compete clause in the regional market by designated specific areas for each respective airline to operate in (Conectarán Isla Colón…). In light of this, I believe it will be valuable to examine what makes Copa Airlines successful and compare it to what makes its US competitor, Southwest Airlines successful.

The focus of this report is to compare Copa Airlines with Southwest Airlines. More specifically, this report compares the positioning strategy in both airlines. Copa and Southwest are the most successful airlines in their respective countries and this paper aims to explain the cause of success. In Figure 1, basic differences such as number of destinations offered, countries operated in, and airplane fleet are examined.

Figure 1

Figure 2 compares net income in US dollars between the two airlines. It is interesting to observe that while Southwest Airlines seems to have very slow growth at an average of 0.20% a year; Copa Airlines is in a period of rapid growth, averaging almost 25% growth in net income a year. This is especially impressive given the previously mentioned strategic difficulties of the airline industry as a whole.

Figure 2

INFORMATION/DATA COLLECTION APPROACH

For this research paper, the data collection will be divided into two parts: internet search and Panamanian interview. The internet search will use the Google web browser as a search engine. Topics of search will include both historical and financial information for both Copa Airlines and Southwest Airlines. The main keywords used in the internet research can be found in Table 1. Most of the sources used from the internet are news articles.

Table 1

KeywordsCopa Airlines

Southwest AirlinesPanamanian Airline History

American Airlines Strategic PositioningSouthwest Airlines Strategy

Copa Airlines Field of CoverageSouthwest Airlines Field of Coverage

For the interview portion of the research, I traveled to the Copa Airlines corporate headquarters in Panama City to interview Joseph Mohan, the VP of Commercial & Planning. I used my iPhone to both take pictures and video record the interview. Table 2 shows the list of questions that were presented to Mr. Mohan.

Table 2

1. How would you describe the positioning of Copa Airlines?List of Interview Questions

2. How does Copa's strategy compare to competing Airlines?3. How much does Copa plan to expand in the future?

4. What is Copa's current 5 year plan?

Figure 3 shows the interview instrument used to conduct the on-site Panamanian research.

Figure 3

Figure 4 and Figure 5 show Joseph Mohan during his interview.

Figure 4

Figure 5

CASE STUDY

Although Copa Airlines flies planes internationally and therefore has many corporate locations worldwide, their headquarters is in Panama. Figure 4 shows the Copa Airlines headquarters in Panama (Google Maps.)

Figure 4

It is located in the city of Panama City. Copa Airlines is a steadily growing company, employing a little over 7,900 employees as of 2012 (Copa Airlines Strengthens Position.) Copa Airlines is publically traded company. The purpose of the firm is to provide reliable air transportation both in Panama and in surrounding countries. Copa Airlines is the official air carrier of Panama which is interesting considering how many prior airline companies have failed.

Based on the interview with Joseph Mohsen, Copa Airlines finds success in two main ways. First of all and most importantly is their positioning in the Central American airline industry. To achieve a competitive advantage, Copa essentially operates in what is known as a niche market. A niche market is essentially a “focused, targetable portion of a market” (Niche Market). The specific portion of airline consumers that Copa targets is people who need specialized connecting flights between North, Central, and South American cities. Copa also charges premium prices for their services. Copa’s prices will often be higher than competing US airlines for similar flights. Very few if any airlines offer connecting flights to smaller airports which is one reason why Copa is able to offer them at very high prices. According to Joseph Mohsen, other reasons include a relatively young fleet, amenities, and friendly staff (Joseph Mohen).

The headquarters for Southwest Airlines is located at 2702 Love Field Drive Dallas, TX 75235. Figure 5 shows the Southwest Airlines headquarters. Southwest Airlines employs more than 37,000 people throughout the company.

Figure 5

Southwest is also traded publicly on the New York Stock Exchange. The purpose of Southwest is similar to Copa Airlines in that it aims to provide reliable air transportation to major cities in the United States.

Similar to Copa Airlines, Southwest Airlines also enjoys success due to its positioning in the US market. Unlike other airlines, Southwest Airlines is focuses on only providing flights with a high-traffic demand. This allows them to cut out shorter, annoying connecting flights and offer direct flights between cities. This cuts costs, time, and the chances for unexpected problems such as layovers and total trip time (Southwest Airlines…). Southwest also takes the opposite approach to Copa in that they price their flights very low. This works very well for them because in the North American airline market, unlike the Central American airline market, there are many airlines providing very similar routes. In a saturated market like this one, a low cost strategy often works very well at maximizing revenue.

RESULTS/RESULTS IMPACT

Similarities

Although Southwest Airlines and Copa Airlines are based in different countries and have different main goals, they both do share certain similarities. First of all, both Southwest Airlines and Copa Airlines have roughly the same number of total destinations. Table 3 illustrates the similarities between the two airlines. The similarities between Copa, while few, are very

important. First of all, even though the two airlines do a very different amount of business each year, the number of destinations visited is very similar. To me this is interesting because while the number of countries visited is very similar, Southwest manages to double Copa’s yearly revenue. Secondly, even though Copa and Southwest have different strategies and different amounts of business, they are each the top performer in their country. This warrants further investigation into the specific strategies that they each follow to achieve success in different conditions. Finally, I believe that the lack of similarities between Copa and Southwest is very interesting and important because it shows that these are two businesses that are run very differently.

Table 3

Similarities between Copa and SouthwestCriteria Copa (Panama) Southwest (US)

Destinations 64 97Top performer in country? Yes Yes

Differences

The first main difference between Southwest Airlines and Copa Airlines is the sheer size of operation. Southwest Airlines employs 37.000 employs and operates a fleet of 550 aircrafts while Copa Airlines employs about 8,000 employees and operates a fleet of 79 aircrafts. While the number of destinations is somewhat close, Southwest Airlines currently produces about twice the net income of Copa Airlines. Table 4 illustrates some of the main differences between the airlines. From a business standpoint, these results are important because they validate the effectiveness of planning and executing strategic positioning theories. Even though Copa and Southwest use completely different positioning strategies, they both enjoy great success in their respective countries in an intensely competitive and difficult industry.

Table 4

Criteria Copa (Panama) Southwest (US)Revenue per Year $450,000,000 $250,000,000Countries Serviced 29 1

Airplane Fleet 79 550Pricing Strategy High Cost (High Quality) Low Cost (Low Price)

Destination Strategy Highly Specialized High Traffic Areas OnlyNumber of Employees 8,000 37,000

Differences between Copa and Southwest

SUMMARY

In summation, this research paper aims to identify and compare the similarities and differences between the positioning strategies of Copa Airlines in Panama, and Southwest Airlines in the United States. To collect the data, a combination of online research and an in-person Panamanian interview was used. The results from the research indicate that while both airlines are the most successful in their respective countries, the strategies used by each airline are very different. Copa Airlines utilizes a high cost, differentiation strategy in which they offer highly specialized connecting flights between North, Central, and South American countries while Southwest Airlines utilizes a low cost strategy by focusing only on high traffic cities to reduce their costs which are translated into lower prices for the consumer. While each of these strategies are very different, they each work for their respective firm. I believe that this research offers benefit for the business community because it offers practical, real life applications of positioning strategies and how they are successfully implemented in an industry environment. Additionally, I thoroughly enjoyed my experience in Panama. I believe that the experience of traveling to Panama to interview Copa in person exponentially increased my understanding of the business and the culture.

Works Cited

“Google Maps.” www.maps.google.com

“Numbers of US-based airline employees continue to shrink.” http://www.eturbonews.com/16615/numbers-us-based-airline-employees-

continue-shrink

http://www.merriam-webster.com/dictionary/airline

“Identifying strategic groups in the U.S. airline industry: an application of the Porter model.http://findarticles.com/p/articles/mi_hb6647/is_n2_v35/ai_n28667010/pg_3/?

tag=content ;col1

“Scheduled Passengers Carried.” http://www.iata.org/ps/publications/Pages/wats-passenger-carried.aspx

“Conectarán Isla Colón con Latinoaméricahttp://www.prensa.com/impreso/economia/conectaran-isla-colon-con-latinoamerica/58040

“Can’t Call Southwest a Discount Airline These Days.”

http://online.wsj.com/article/SB10001424052702304563104576359371667910458.html

“Southwest Airlines Fact Sheet.” http://www.southwest.com/html/about-southwest/history/fact-sheet.html

“Niche Market.” http://sbinfocanada.about.com/cs/marketing/g/nichemarket.htm

Southwest Airlines (Product Positioning Strategy)

http://yousigma.com/benchmarking/southwestsproductpositioningstrategy.html

Joseph Mohen. Personal Interview. June 2012. Panama City, Panama.

“Copa Airlines Strengthens Position.”

http://www.prnewswire.com/news-releases/copa-airlines-strengthens-position-in-the-americas-announces-service-to-four-new-destinations-138072318.html