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
Keywords
Copa Airlines
Southwest Airlines
Panamanian Airline History
American Airlines Strategic Positioning
Southwest Airlines Strategy
Copa Airlines Field of Coverage
Southwest 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
List of Interview Questions
1. How would you describe the positioning of Copa Airlines?
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 Southwest
Criteria
Copa (Panama)
Southwest (US)
Destinations
64
97
Top 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
Differences between Copa and Southwest
Criteria
Copa (Panama)
Southwest (US)
Revenue per Year
$450,000,000
$250,000,000
Countries Serviced
29
1
Airplane Fleet
79
550
Pricing Strategy
High Cost (High Quality)
Low Cost (Low Price)
Destination Strategy
Highly Specialized
High Traffic Areas Only
Number of Employees
8,000
37,000
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 inperson 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-employeescontinue-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-passengercarried.aspx
“Conectarán Isla Colón con Latinoamérica
http://www.prensa.com/impreso/economia/conectaran-isla-colon-conlatinoamerica/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/factsheet.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-theamericas-announces-service-to-four-new-destinations-138072318.html