IDEAS home Printed from https://ideas.repec.org/a/eee/jaitra/v84y2020ics0969699718301510.html
   My bibliography  Save this article

Evaluating drivers of profitability for airlines in Latin America: A case study of Copa Airlines

Author

Listed:
  • O'Connell, John F.
  • Avellana, Raquel Martinez
  • Warnock-Smith, David
  • Efthymiou, Marina

Abstract

Air Traffic demand in Latin America is expected to double over the next twenty years, yet airline profitability in the region remains highly problematic. The impediments challenging financial prosperity in the continent are numerous and have resulted in prolonged loss-making periods across most Latin American carriers. Breaking with this trend, Copa Airlines has been able to report double-digit net results for several years and recorded 56% of total profits earned by all Latin American carriers in 2016. This research has identified a number of Key Performance Indicators that have underpinned Copa Airlines' financial prosperity through a Product and Organisational Architecture (POA) framework analysis whose results were validated and elaborated upon by the CEO of Copa Airlines. Copa's sustained financial success was attributable to a number of factors. First, its geographical positioning has allowed it to engineer strong connectivity by coupling North and South America through its hub, which is reachable with narrowbodies to nearly all points in the Americas. Second, its low unit cost structure is akin to that of LCCs, operating a single aircraft type with high utilisation. Third, it has a uniquely low market concentration of competitors on its routes and capitalises on this by having a strong schedule with high frequencies together with outstanding punctuality. Fourth, it has a synergistic and fruitful cooperation with its hub airport at Tocumen. Finally it benefits from positive external factors such as a dollarized home economy with high GDP growth, exceptionally low unemployment and inflation rates ring-fenced with security. These pillars can be used as a reference for other Latin based airlines seeking to improve profitability.

Suggested Citation

  • O'Connell, John F. & Avellana, Raquel Martinez & Warnock-Smith, David & Efthymiou, Marina, 2020. "Evaluating drivers of profitability for airlines in Latin America: A case study of Copa Airlines," Journal of Air Transport Management, Elsevier, vol. 84(C).
  • Handle: RePEc:eee:jaitra:v:84:y:2020:i:c:s0969699718301510
    DOI: 10.1016/j.jairtraman.2019.101727
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0969699718301510
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jairtraman.2019.101727?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Wanke, Peter & Barros, C.P., 2016. "Efficiency in Latin American airlines: A two-stage approach combining Virtual Frontier Dynamic DEA and Simplex Regression," Journal of Air Transport Management, Elsevier, vol. 54(C), pages 93-103.
    2. de Wit, Jaap G. & Zuidberg, Joost, 2012. "The growth limits of the low cost carrier model," Journal of Air Transport Management, Elsevier, vol. 21(C), pages 17-23.
    3. Daft, Jost & Albers, Sascha, 2015. "An empirical analysis of airline business model convergence," Journal of Air Transport Management, Elsevier, vol. 46(C), pages 3-11.
    4. Mason, Keith J. & Morrison, William G., 2008. "Towards a means of consistently comparing airline business models with an application to the [`]low cost' airline sector," Research in Transportation Economics, Elsevier, vol. 24(1), pages 75-84.
    5. ., 2016. "Introduction and overview: the purposes and operations of the IMF," Chapters, in: The International Monetary Fund, chapter 1, pages 1-18, Edward Elgar Publishing.
    6. Meichsner, Nadine A. & O'Connell, John F. & Warnock-Smith, David, 2018. "The future for African air transport: Learning from Ethiopian Airlines," Journal of Transport Geography, Elsevier, vol. 71(C), pages 182-197.
    7. Corbo, Leonardo, 2017. "In search of business model configurations that work: Lessons from the hybridization of Air Berlin and JetBlue," Journal of Air Transport Management, Elsevier, vol. 64(PB), pages 139-150.
    8. O'Connell, John F. & Warnock-Smith, David, 2013. "An investigation into traveler preferences and acceptance levels of airline ancillary revenues," Journal of Air Transport Management, Elsevier, vol. 33(C), pages 12-21.
    9. Morrell, Peter, 2005. "Airlines within airlines: An analysis of US network airline responses to Low Cost Carriers," Journal of Air Transport Management, Elsevier, vol. 11(5), pages 303-312.
    10. Heinz, Stephan & O’Connell, John F., 2013. "Air transport in Africa: toward sustainable business models for African airlines," Journal of Transport Geography, Elsevier, vol. 31(C), pages 72-83.
    11. Pearson, James & O'Connell, John F. & Pitfield, David & Ryley, Tim, 2015. "The strategic capability of Asian network airlines to compete with low-cost carriers," Journal of Air Transport Management, Elsevier, vol. 47(C), pages 1-10.
    12. Dennis, Nigel, 2007. "End of the free lunch? The responses of traditional European airlines to the low-cost carrier threat," Journal of Air Transport Management, Elsevier, vol. 13(5), pages 311-321.
    13. Pearson, James & Merkert, Rico, 2014. "Airlines-within-airlines: A business model moving East," Journal of Air Transport Management, Elsevier, vol. 38(C), pages 21-26.
    14. Warnock-Smith, David & Potter, Andrew, 2005. "An exploratory study into airport choice factors for European low-cost airlines," Journal of Air Transport Management, Elsevier, vol. 11(6), pages 388-392.
    15. Warnock-Smith, David & O'Connell, John F. & Maleki, Mahnaz, 2017. "An analysis of ongoing trends in airline ancillary revenues," Journal of Air Transport Management, Elsevier, vol. 64(PA), pages 42-54.
    16. Gillen, David, 2011. "The evolution of airport ownership and governance," Journal of Air Transport Management, Elsevier, vol. 17(1), pages 3-13.
    17. Valcacer, Santiago & José de Moura, Heber & Lopes , David & Amorim , Vinicius, 2017. "Capital structure management differences in Latin American and US firms after 2008 crisis," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 22(42), pages 51-74.
    18. Lohmann, Gui & Koo, Tay T.R., 2013. "The airline business model spectrum," Journal of Air Transport Management, Elsevier, vol. 31(C), pages 7-9.
    19. Merkert, Rico & Hensher, David A., 2011. "The impact of strategic management and fleet planning on airline efficiency - A random effects Tobit model based on DEA efficiency scores," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(7), pages 686-695, August.
    20. Cooper, William W. & Gallegos, Armando & Granof, Michael H., 1995. "A Delphi study of goals and evaluation criteria of state and privately owned Latin American airlines," Socio-Economic Planning Sciences, Elsevier, vol. 29(4), pages 273-285, December.
    21. O’Connell, John F. & Williams, George, 2005. "Passengers’ perceptions of low cost airlines and full service carriers: A case study involving Ryanair, Aer Lingus, Air Asia and Malaysia Airlines," Journal of Air Transport Management, Elsevier, vol. 11(4), pages 259-272.
    22. Alderighi, Marco & Cento, Alessandro & Nijkamp, Peter & Rietveld, Piet, 2005. "Network competition—the coexistence of hub-and-spoke and point-to-point systems," Journal of Air Transport Management, Elsevier, vol. 11(5), pages 328-334.
    23. Zuidberg, Joost, 2014. "Identifying airline cost economies: An econometric analysis of the factors affecting aircraft operating costs," Journal of Air Transport Management, Elsevier, vol. 40(C), pages 86-95.
    24. Forsyth, Peter & Dwyer, Larry, 2010. "Exchange rate changes and the cost competitiveness of international airlines: The Aviation Trade Weighted Index," Research in Transportation Economics, Elsevier, vol. 26(1), pages 12-17.
    25. Lenartowicz, M. & Mason, K. & Foster, A., 2013. "Mergers and acquisitions in the EU low cost carrier market. A Product and Organisation Architecture (POA) approach to identify potential merger partners," Journal of Air Transport Management, Elsevier, vol. 33(C), pages 3-11.
    26. Gillen, David, 2005. "The Evolution of Networks with Changes in Industry Structure and Strategy: Connectivity, Hub-and-Spoke and Alliances," Research in Transportation Economics, Elsevier, vol. 13(1), pages 49-73, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Warnock-Smith, David & Christidis, Panayotis, 2021. "European Union-Latin America/Caribbean air transport connectivity and competitiveness in different air policy contexts," Journal of Transport Geography, Elsevier, vol. 92(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zuidberg, Joost, 2019. "Network geographies and financial performances in low-cost carrier versus network carrier competition: The case of Norwegian versus SAS," Journal of Transport Geography, Elsevier, vol. 79(C), pages 1-1.
    2. Magdalina, Ana & Bouzaima, Martin, 2021. "An empirical investigation of European airline business models: Classification and hybridisation," Journal of Air Transport Management, Elsevier, vol. 93(C).
    3. Cho, Woohyun & Min, Dong-Jun, 2018. "Longitudinal examination of passenger characteristics among airline types in the US," Journal of Air Transport Management, Elsevier, vol. 72(C), pages 11-19.
    4. Song, Woon-Kyung & Lee, Hyun Cheol, 2020. "An analysis of traveler need for and willingness to purchase airline dynamic packaging: A Korean case study," Journal of Air Transport Management, Elsevier, vol. 82(C).
    5. Wilken, Dieter & Berster, Peter & Gelhausen, Marc C., 2016. "Analysis of demand structures on intercontinental routes to and from Europe with a view to identifying potential for new low-cost services," Journal of Air Transport Management, Elsevier, vol. 56(PB), pages 79-90.
    6. Klophaus, Richard & Merkert, Rico & Lordan, Oriol, 2021. "Mesh network as a competitive advantage for European LCCs: An alternative topology to hub-and-spoke for selling online connections," Transport Policy, Elsevier, vol. 106(C), pages 196-204.
    7. Adiloğlu-Yalçınkaya, Leyla & Besler, Senem, 2021. "Institutional factors influencing business models: The case of Turkish Airlines," Journal of Air Transport Management, Elsevier, vol. 91(C).
    8. Urban, Marcia & Klemm, Martin & Ploetner, Kay Olaf & Hornung, Mirko, 2018. "Airline categorisation by applying the business model canvas and clustering algorithms," Journal of Air Transport Management, Elsevier, vol. 71(C), pages 175-192.
    9. Renan P. de Oliveira & Alessandro V. M. Oliveira & Gui Lohmann, 2021. "A Network-Design Analysis of Airline Business Model Adaptation in the Face of Competition and Consolidation," Transportation Science, INFORMS, vol. 55(2), pages 532-548, March.
    10. Albers, Sascha & Daft, Jost & Stabenow, Sebastian & Rundshagen, Volker, 2020. "The long-haul low-cost airline business model: A disruptive innovation perspective," Journal of Air Transport Management, Elsevier, vol. 89(C).
    11. Castillo-Manzano, José I. & López-Valpuesta, Lourdes & Pedregal, Diego J., 2012. "What role will hubs play in the LCC point-to-point connections era? The Spanish experience," Journal of Transport Geography, Elsevier, vol. 24(C), pages 262-270.
    12. Soyk, Christian & Ringbeck, Jürgen & Spinler, Stefan, 2017. "Long-haul low cost airlines: Characteristics of the business model and sustainability of its cost advantages," Transportation Research Part A: Policy and Practice, Elsevier, vol. 106(C), pages 215-234.
    13. Corbo, Leonardo, 2017. "In search of business model configurations that work: Lessons from the hybridization of Air Berlin and JetBlue," Journal of Air Transport Management, Elsevier, vol. 64(PB), pages 139-150.
    14. Alderighi, Marco & Nicolini, Marcella & Piga, Claudio A., 2019. "Is low-cost carriers’ revenue management a firm capability?," Journal of Air Transport Management, Elsevier, vol. 78(C), pages 15-22.
    15. Tanrıverdi, Gökhan & Bakır, Mahmut & Merkert, Rico, 2020. "What can we learn from the JATM literature for the future of aviation post Covid-19? - A bibliometric and visualization analysis," Journal of Air Transport Management, Elsevier, vol. 89(C).
    16. Moir, Loren & Lohmann, Gui, 2018. "A quantitative means of comparing competitive advantage among airlines with heterogeneous business models: Analysis of U.S. airlines," Journal of Air Transport Management, Elsevier, vol. 69(C), pages 72-82.
    17. Chiambaretto, Paul, 2021. "Air passengers’ willingness to pay for ancillary services on long-haul flights," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 147(C).
    18. Atallah, Stephanie & Hotle, Susan L. & Mumbower, Stacey, 2018. "The evolution of low-cost Carrier operational strategies pre- and post-recession," Journal of Air Transport Management, Elsevier, vol. 73(C), pages 87-94.
    19. Ferrer-Rosell, Berta & Coenders, GermÃ, 2017. "Airline type and tourist expenditure: Are full service and low cost carriers converging or diverging?," Journal of Air Transport Management, Elsevier, vol. 63(C), pages 119-125.
    20. Ko, Young Dae, 2019. "The airfare pricing and seat allocation problem in full-service carriers and subsidiary low-cost carriers," Journal of Air Transport Management, Elsevier, vol. 75(C), pages 92-102.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jaitra:v:84:y:2020:i:c:s0969699718301510. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.journals.elsevier.com/journal-of-air-transport-management/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/journal-of-air-transport-management/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.