Business Strategies: COPA Airlines vs. Southwest Airlines- A Case Study

Casey Miceli

ABSTRACT

Over the past three years, Panama’s economy has grown more than six percent and is expected to grow even more over the next year. Panama’s economy is focused on banking, commerce, and tourism, especially the Panama Canal ("panama-property-management.com," 2007). This report will discuss Copa Airlines in Panama and make a comparison with the U.S. based company, Southwest Airlines. Copa Airlines is the main airline that flies out of Tocumen International Airport. The company’s designations include North, Central and South America, and the Caribbean (“Copa Airlines,” 2012). Information will be collected in two ways. Before traveling to Panama, background research will be conducted on the company. Background information will be obtained with the use of Internet searches. While in the country of Panama, data and information will be collected from visiting the business and interviewing management. Copa Airlines is currently the leading Latin American airline company of passenger and cargo series. Southwest Airlines is the largest provider of domestic passenger air travel and the third largest airline company in the United States. The focus of this report to relate the business strategies of Copa Airlines with the Texan based company, Southwest Airlines. Business strategies will be the topic of focus in this report. Copa Airlines and Southwest Airlines will be compared on the topic. The comparison will show the different business styles in each country. The similar strategies are the cost, management, expansion, and quality. The different strategies are the planes, service, and the hubs. The results explain the demand and business of the airline industry. Other airlines industries in Panama and the United States can also benefit from the results.

INTRODUCTION

There are several terms that pertain to the airline industry. A commercial airline is an airline that transports people from destination to destination. A direct flight is a flight that stops at another airport, but the passengers do not leave the plane before leaving again. A non-stop flight is a flight that does not stop at another airport before the plane reaches its final destination. A hub is the major airport the airline uses for a majority of their flight operations and has numerous gates for their airplanes. A port at the airport is where the aircraft pulls in to pick up and unload passengers. A layover is an expended amount of time in between flights before changing airplanes (about.com, 2012). Figure 1 shows the drivers in the airline industry. There needs to be travel demand, economic growth, global trade, and value of service. The service provided by the airlines is made up of many factors. Fuel costs, safety, and strategies are the major underlying factors of service.

Figure 1: Drivers of Air Travel (Boeing, 2011)

The United States business economy is the world's largest national economy. The business economy maintains a very high level of output. Consumers and producers make most of the decisions that affect the business economy. The government is also very influential in the United States business environment. The United States has a per capita GDP of $48,100. The number of workers in the economy helps to determine the health of the United States business environment (“Economy of the United States,” 2012). The percentage of employers hiring more workers is currently starting to slowly rise. In March 2012, the employment rate was 19 percent. The employment percentage is expected to continue to increase over the next couple months. The increases are expected to grow at a very slow pace (Tatum survey of, 2012). The poverty percentage of the United States is 15.1 percent. According to the Gini index, the distribution of family income is 45. The country currently has an inflation rate of 4 percent (“The world factbook," 2012).

The airline industry in the United States consists of 20 major airline companies. The major competitors are Delta Air Lines, American Airlines, Southwest, US Airways, JetBlue, Alaska Air Group, and AirTran. The United States airline industry is highly competitive. Airport landing slots are limited and are in high demand among competitors. The pricing of airline tickets in the industry is also very competitive among companies. The current airline trend is to match the lowest airfare by a competitor company, even if it causes the company to lose money on the ticket. The major cost of the industry is fuel cost. Fuel costs are the largest or the second largest cost category for airline companies (Standard and Poor's, 2011).

The country of Panama has a free market economy. The majority of revenue for the country comes from agriculture, banking, commerce, and tourism. The major exports of Panama are sugar, coffee, clothing, and bananas. The GDP of the country is about $40.32 billion and the GDP growth is expected to be 3.2 percent. Panama has debt of 49.5 percent of the GDP. The country has a labor force of about 1.4 million people. There is a shortage of skilled labor, but a surplus of unskilled labor (“Economy of Panama,” 2012). The unemployment rate is less than 3 percent. Although the economy is growing in Panama, the wealth is not shared by all citizens. The country has a poverty rate of about 30 percent. Panama has the second worst income distribution in Latin America. According to the Gini index, the distribution of family income is 45 (“The world factbook," 2012).

In the airline industry, Latin America comprises about 4.6% of worldwide passengers flown in 2011. A large percentage were passengers flying to the United States. Panama is a hub for flight destinations of North America, South America, the Caribbean, and Central America. The major airline of Panama is located in Panama City. Copa Airlines has a hub at Tocumen International Airport. The airline company competitors in the Latin America are TACA-Avianca, American Airlines, LAN Airlines, and Avianca. Competition is also very prevalent in this market as well. Airlines compete over ticket pricing, flight times, and frequent flyer programs (Standard and Poor's, 2011). In figure 2, the prediction of air travel across the world is illustrated. Currently Europe and North America make up more than 50% of all air travel.

Figure 2: Air Travel Becoming More Diverse Geographically ("rogerpielkejr.blogspot.com,")

The focus of this report is “Business Strategies: Copa Airlines vs. Southwest Airlines- A Case Study. More specifically, this report compares the operating strategy differences of the airline industry. The comparison is based on the companies Copa Airlines and Southwest Airlines.

INFORMATION/DATA COLLECTION APPROACHS

In collecting information for this report, there were two parts used to obtain the information. The first part was the Internet search and second part was interviews in Panama. The Internet search approach was used to gather background information about Copa Airlines and research the business in the United States for Southwest Airlines, Inc. The interviews in Panama were used to gather additional information about Copa Airlines. Both parts of the data collection were used in the findings of the report.

The first part of the information collection was the Internet search. This approach was used before and after traveling to Panama. The keywords used in research are listed in Table 2. The common keywords were Copa Holdings, Southwest Airlines, Inc, and business strategy. Google was used as the search engine for the Internet data collection. To obtain information about Panama and the United States economy, the CIA database was used. Background on the companies in comparison was obtained from several sources. A brief background on Copa Holdings and Southwest Airlines was found in the Standard and Poor's report. The majority of information gathered about Copa Holdings was from the website http://investor.shareholder.com. Most of the information collected about Southwest Airlines was from their website,

www.southwest.com. The data collected was information the companies put on the Internet to inform their customers about the company. During the Internet search, I also obtained an interview with Marco Ocando, the director of Marketing at Copa Holdings. The interview discussed the topic of Copa’s keys to success.

Table 1. Databases: Name, URL Location and Information Obtained

Website/Database / URL / Information
COPA Airlines / http://investor.shareholder.com / Company Data
Southwest Airlines / www.southwest.com / Company Data
CIA / https://www.cia.gov / Country Data
Standard and Poor's / www.netadvantage.standardandpoors.com/. / Company Profile
Simpliflying / http://simpliflying.com / Online Interview

Table 2. Keywords Used for the Internet Search

Key Words
Panama Economy
United States Business Environment
COPA Holdings
Southwest Airlines, Inc
Business Strategy
Management

The second part of the data collection was an interview approach in Panama. With the interview approach, questions are asked to obtain the data. The main goal of conducting the interviews was to communicate with management of Copa Airlines while in Panama. The information to be collected related to the business strategies used by Copa Airlines. Business strategies are long-term plans of action that will achieve a particular goal or objective. Business strategies are also referred to management’s game plan or road map for the business (Stewart, 2008).

The type of interview approach used was a face-to-face interview. In all interviews, the questions are asked by the interviewer to obtain information from the interviewee. Face-to-face interviews enable the interviewer to gather information, clarify responses and obtain any follow-up information (“University of Wisconsin”). To identify the business strategies for the companies to maintain a successful business, group interviews were conducted with the management at Copa Airlines. Responses to the questions contributed to the final analysis of the report findings. During the interview, the interview instrument used was an iphone. The iphone was used to record the presentation of the interviewee and take pictures of the interview process. Figure 3 shows a picture of the interview instrument. Table 3 provides the question asked to collect the information from the interviewee.

Figure 3. Picture of interview instrument (krazit, 2012)

Table 3. Question used During Interview

Questions
1.  What are Copa Holdings differentiations strategies?

Figure 4. Picture of Interviewee at Copa Airlines

Joseph Mohan represented Copa Airlines during the interview. Mohan is the Vice President of Planning and Communications at Copa Airlines. He is originally from the United States of America. While in the United States, Mohan attended the University of Florida. He moved to Panama in the year 2000 to work with Copa Airlines. Figure 4 is a picture of Joseph Mohan and Figure 5 is a picture of Joseph Mohan and his audience during the presentation at Copa Airlines.

Figure 5. Picture of Presentation at Copa Airlines

CASE STUDY

Copa Holdings

Panama is the southernmost country of Central America. It connects North and South America. The Caribbean is to the north and the Pacific Ocean is to the south. Panama City is the capital of Panama and the location of the Tocumen International Airport (“Wikipedia," 2012). The star on figure 6 indicates the location of Panama City in Panama.

Figure 6. Location of COPA Airlines (“Panama," 2008)

The home port for COPA Airlines is Tocumen International Airport. The airport is the regional hub for many commercial and cargo airlines. The star on Figure 3 indicates the location of Panama City in Panama. The areas surrounding the Airport have become important industrial areas (Georgia Tech Panama Logistics Innovation and Research Center, 2012). Figure 7 shows a map of the Tocumen International Airport and all the ports available for airplanes. The headquarters building for Copa Airlines is located in Panama City, Panama. Figure 8 shows a picture of the building.

Figure 7. Tocumen International Airport (Copaair, 2008)

Figure 8. Picture of Copa Airlines Headquarters

Copa Holdings was started in 1947 with the help of Panamanian investors and Pan American World Airways. Copa Holdings is currently the leading Latin American airline company of passenger and cargo series. The company has an average of 280 fights per day. The flights travel to 63 destinations that are in 29 countries. Each flight travels from the company’s hub in Panama City. Copa Holdings uses two different aircraft. The aircraft are the Boeing 737-Next Generation aircraft and the Embraer 190 aircraft. Altogether the company has a fleet of 71 aircraft. Copa Holdings went public on the NYSE in 2005. They offered 14,000,000 non-voting shares (Copa Airlines, 2012). The company has a debt to equity ratio of 73. The stock is currently valued at $76.58 per share (Yahoo! finance," 2011).

Copa Holdings stands apart from other airline companies in Panama. Copa is the airline with the lowest number of complaints from passengers. The average complaints for the industry are 43 complaints per every 100,000 passengers. Copa Holdings was below the average with 8 complaints. Also, Copa has one of the youngest fleets of aircraft in the airline industry. This allows the company to have on-time performance above 90 percent (“Copa airlines," 2012). Another factor that makes Copa unique is the company’s large presence at the main airport in Panama. Copa Holdings accounts for 81 percent of the capacity at Tocumen International Airport (CAPA Centre for Aviation, 2012). Figure 9 shows the percentage of capacity for each airline at Tocumen International Airport. This gives the company a geographic advantage.

Figure 9. Airlines at Tocumen International Airport (CAPA Centre for Aviation, 2012)

Southwest Airlines, Inc

The Southwest Airlines headquarters are located on the grounds of Dallas Love Field in Dallas, Texas. The address is P.O. Box 36611, 2702 Love Field Drive, Dallas, TX 75235. Southwest plans to expand their headquarters after the growth in the company with the acquisition of AirTran Airways ("Southwest", 2011).

Figure 10. Location of Southwest Airlines Headquarters (Google Maps, 2012)

Figure 11. Southwest Airlines Headquarters (Airliners.net)

Southwest Airlines started as Air Southwest Company in 1967 to provide airline services for Texas. Southwest Airlines is a passenger airline that provides transportation in the United States. Southwest Airlines has several characteristics that set them apart from other airline companies. Southwest has an average passenger fare of $142.31 one-way. They have an average flight trip length of approximately 969 miles. Southwest’s Boeing 737 planes fly out of seventy-two cities in the United States (Southwest Airlines, 2011). Southwest Airlines has completed four major acquisitions throughout the lifetime of the company. The acquisitions include: Muse Air, Morris Air, ATA Airlines, and AirTran Airways. Southwest Airlines has received much recognition for many aspects of their business. Southwest become a public company in 1971. They offered 650,000 shares (“Southwest airlines frequently," 2012). The company has a debt to equity ratio of 46. The stock is currently valued at $9.23 per share (Yahoo! finance," 2011).