As LATAM prepares to consciously uncouple from American, the discussion has centered around what American can do to shore up its already-solid Latin American network. In the vision I laid out recently, the least controversial piece was that American should use Gol (an airline that was unconsciously uncoupled from Delta as part of this) to feed its Brazilian network. That’s really a no-brainer. But my second suggestion of snagging Copa away from United was met with more resistance. Some of you asked for it, so here it is: the case for Copa making the switch.
I’ll set some boundaries here. I’m looking at this from a US <–> Latin America perspective. This is about how the partnership of American and Copa would be more beneficial than the current United and Copa agreement; it’s not looking at the airline overall. Let’s start with this from American’s perspective.
American’s Perspective
For American the loss of LATAM hurts only slightly from a network standpoint. American already serves nearly all of the destinations in South America that generate significant traffic. The few it doesn’t serve can either be added by American (likely with MAX or neo aircraft) or through very limited partnerships.
Sure, those who remain loyal to LATAM will be tougher to retain, but American has its own strong loyalty in South America that goes back decades. Fun fact: According to DB1B data, for the year ending March 31, 2019, nearly 60 percent of American’s passengers flying between the US and South America originated in South America.
On the one hand, this is about American filling in the corners where it needs help. Gol is great for that. Gol can aggregate the drips of traffic that want to go from small town Brazil up to the US and funnel those people on to American flights (or vice versa). Every little bit helps, and the volume should help to bolster additional American frequencies to the country.
While Copa can serve that same purpose in northern South America, it can do more than that for American. Think about this from the US perspective. To serve South America, American has its big hub in Miami with a secondary hub in Dallas/Fort Worth. Nearly everything has to funnel through those cities to reach South America.
This may work from bigger cities throughout the country that have frequent flights to Miami, but it doesn’t work as well beyond that.
Take Las Vegas, for example. Looking at a random date in the future, American’s options to go from Las Vegas to Lima are either an afternoon flight via DFW connecting to a redeye or the same thing via Miami with a very long layover. (There’s also a redeye to Miami followed by an 8+ hour layover, if that’s more your bag.) If you add Copa to the mix, then you can do a redeye to Panama City followed by an easy connection to Lima.
Adding a Panama City hub to a Miami and Dallas/Fort Worth operation gives better coverage with more frequencies at more times of day. In a joint venture, they could work to time flights better to not only allow better single connection options but double connects as well.
This assumes that Copa would keep most of its network intact and American and Copa would come together to open new routes. I’d expect an easy case to be made for American’s hubs in Phoenix, Charlotte, and Philadelphia. Opportunities abound to connect places like Austin, St Louis, and Nashville among others.
Would this dilute the Miami hub? Possibly to some extent. But the upside is there to be able to take more traffic with better coverage and frequencies on both sides.
That’s the easy argument. The hard part is convincing Copa.
A Harder Sell for Copa
Leaving United would be a huge turn of events for Copa. The airline was basically Continental Junior for many years. In the late 1990s, Continental owned 51 percent of Copa. Copa used the OnePass program and even painted its airplanes to look almost identical to those of Continental. Between 2005 and 2008, Continental sold everything off. Then United and Continental merged, but the relationship carried over. Copa even used the MileagePlus program as its own until 2015 when it launched its own program, ConnectMiles.
Copa is part of a pending joint venture application that would see the airline join forces with United and Avianca (and possibly Azul if the rumors are true). That is where I’d start the pitch.
United owns a good chunk of flailing Avianca, so it has incentives to try to fix that airline. Avianca is based in Bogota but also has hublets in Central America, remnants of the TACA empire that Avianca mostly destroyed. In other words, Avianca’s hubs surround Copa’s home in Panama City.
In a three-way arrangement, Copa feels like a third wheel by necessity. Or at the very least, it’s the second wheel that has to help prop up the mess of a third wheel. Historical ties between Copa and United (or its predecessor) may be strong, but the same could have been said for LATAM and American. Nothing is off the table, if the deal is right.
American’s strength in Latin America should help turbo-charge the Panama City hub beyond its already turbo-charged state. Copa would be the only partner in Latin America in the joint venture, and it could then deal with Avianca as a competitor instead of a messy organization that could bring Copa down with it. American’s strong loyalty base in Latin America would help Copa to grow from both ends, something that United alone can’t provide.
In the US, there would be some initial moves to shift capacity from United strongholds to American strongholds, but ultimately there would be more new growth opportunities as all the dots get connected.
I realize this is a controversial suggestion, and I’ve had lengthy discussions with others in the industry who disagree with me vehemently. I can see both sides of this debate, but in my mind, Copa is better off making the move. American would be too.
29 comments on “The Case for Copa Defecting to American”
Counterpoint: CM is the (more capable) FI or EI of the Americas: it doesn’t need alliances to make a great living skimming its competitors nonstops with one stops.
CM’s minuscule operating costs (helping their 30% margins) disadvantage them in a JV. Based on UA’s only flying EWR and IAH to PTY, it’s pretty hard for UA and CM to justify UA feed to PTY instead of CM.
Jon – But Copa is currently part of a JV application with United. So staying out of a joint venture doesn’t appear to be an option for the airline right now.
When you say that Copa would be the only JV partner in Latin America, I assume that you are not including GOL in the potential jv?
This really only works if AA and Copa have a full revenue share and/ or AA takes an equity stake in Copa. Otherwise all a simple codeshare would do is dilute AA revenue. All that hypothetical LAS-PTY-LIM itinerary does without full revenue share does is dilute traffic to AA. Overall I think this is an uphill battle. But tbd
Greg – Absolutely. This must be a joint venture or it doesn’t work. Gol, however, should be a straight codeshare.
CM’s fares via PTY are often far cheaper than nonstop service from the US to Latin America on other airlines or even connections over a legacy carrier network. CM doesn’t attract high value business travelers including via the premium cabins. Why would AA or any other legacy carrier want to share their higher value revenue in those markets w/ a carrier that focuses on volume and low price connecting passengers? Why would they want to carrier that siphons off the volume they need to support their hubs?
And from a pure geography standpoint, CM is the best option even for coach passengers to the central or western US or from western S. America. It is not competitive w/ flight times from eastern S. America or the eastern U.S. which are both the highest revenue regions of the Latin America to the US. MIA is the best hub to connect that traffic in markets that cannot sustain nonstop service.
As for Gol (comments below), AA and Gol might very well come up w/ a codeshare agreement but DOT data shows that AA didn’t connect very much traffic from its MIA-Brazil flights to Latam, in part because AA flies to many of the largest markets itself. Gol is not going to fix what AA didn’t or hasn’t done in years of a relationship with Latam.
Tim – Yes, Copa’s fares are cheaper but that’s also because the premium cabin has historically been a much weaker product. That is changing with flat beds on the new deliveries, so I would expect we’d see fares rise.
You seem to contradict yourself by asking why anyone would want to partner with Copa to siphon off traffic through their hubs then explaining exactly why that wouldn’t happen. As you yourself note, Copa works best from the western half of the country. That is an area where American could gain traffic by linking the networks. The eastern half, which you say is where the money is, is better served via American hubs anyway, so you think the business traveler is going to go out of his/her way to connect via Panama?
No. It just adds more breadth to the network and allows people from all over the US to get to Latin America more easily.
CF,
thanks for replying.
Copa’s coach fares in many markets are still lower than legacy carriers. They are trying to move upscale w/ premium cabins but they still are not in the best geographic location for the majority of Latin-US traffic flows which means longer elapsed times.
Copa very much competes from the eastern US to Latin America not so much for business passengers but for coach passengers. AA has little reason to share those passengers with anyone. Copa’s fares are lower and budget conscious passengers use them despite the much longer elapsed times.
UA is strongest to Central America and northern S. America but they are not going to let that strength get away from them. Alliances and partnerships are not created to make an equal piece of the pie for everyone but for carriers to be as strong as they can. It is precisely because of the level of competition in UA and its partners’ markets that they likely can hold onto what they have.
It is also possible that UA could dump Azul for Gol which is far more valuable to UA. Even a supposed AA-G3 partnership is not a given until the ink is fully dry.
AA is still the largest carrier from the west coast to S. America which is where Copa could best help them. AA’s DFW and MIA hubs are heavily fed from the western US so AA would still be siphoning off part of its connecting traffic to Copa which prices their product, even in coach, lower than AA. Copa is also growing faster to Latin America than AA which means there would be a shift in market share over time.
I simply don’t see this proposed change of partnership happening – mostly because it is driven more by a need in your mind for AA to regain the lead in Latin America which very well might evaporate as DL and UA both create partnerships that come close to parity with AA on a standalone basis. Only DL/Latam will be able to effectively compete in the MIA to Latin America market and together they could, in time, grow into the very Central America markets where neither are strong as well as numerous smaller markets in S. America that neither DL or Latam serve now but AA most certainly does from MIA.
finally, let’s keep in mind that all of this is being discussed now because Latin America was very slow to allow joint ventures compared to Europe and then Asia. A lot of the imagined internet scenarios just won’t work out in real life – but the lateness in getting JVs across Latin America creates opportunities that each carrier will try to optimize for their good – but, just as has been the case in Europe and Asia, there are clear advantages that some carriers have and others have not been able to replicate. The same will be true in Latin America as well. As the largest carrier and with a near monopoly among US network carriers in S. Florida, AA has the most to lose in this new era of Latin America- US carrier joint ventures.
I definitely agree with Tim Dunn, and thank him for adding on. Basically, no matter what, even with the lie flat seats on some of these airplanes, Copa will always sell at a discount to AA, even from the west, as they do not have the corporate contracts and frequent flyer/ familiarity that AA has in both the U.S. and the foreign points of sale. As Tim says, DFW and MIA DO handle the flows from all over the country very well – AA has nothing to gain by putting somebody from LAX or SFO on a flight over PTY when they could carry that same passenger over DFW or MIA and keep all the revenue for themselves. And even in a joint venture, there are incentives and abilities for airlines to keep the traffic on themselves. Finally, your notion that AA or CM would add flights to smaller markets such as St Louis or Nashville or others (Austin could probably make sense) to feed a Panama City hub really probably wouldn’t happen. As mentioned, the Panama market is a small origin/destination market. Higher yields/ fares are mostly on the local market, with the flow over market being the gravy. Nasvhille, St Louis, etc, have very small local markets to Panama, as well as small market sizes to most Latin American destinations. If you really want to serve that Latin market from smaller American cities, the smart choice is simply to add more frequencies to Dallas and/ or Miami. These markets have better local markets to/ from these North American markets, as well as substantial local markets to the Latin destinations. And there’s nothing that American could do, per se, to increase the size of markets between these second tier U.S. cities and Latin America. Adding additional service to Miami and Dallas would always be the better option.
While adding a Panama City hub looks nice on the map, it really doesn’t do much for AA except dilute revenue via a non-strategic and small market that is not strategically important for AA’s bread and butter markets
I had a conversation once with a senior leader Network Planning leader at a major US airline about COPA and their value to a US airline in a partnership. He told me that, while the connecting hub at PTY is excellent, the best partners provide a major presence in a large home market. The Panama market is quite small and relatively inconsequential, which is its major drawback. The connecting flows to South America aren’t “owned” by COPA. Those markets can be accessed in other ways if critical, especially the large and important ones. An airline can fly nonstop, they can find another partner, or they can just decide that it isn’t that important. Once you get past the major South American cities, the markets get small real fast. A better partner would provide a major market share presence in the larger Latin markets, thus providing the partnership with built-in customer base.
For American, I’m not sure what COPA really gets you much that you couldn’t accomplish solo. MIA and DFW are excellent hubs for Latin markets. Do they give you great connections to/from all markets? No. No airline has those. But AA already has the best connectivity to SA by far. To pry COPA away from United would require a very open checkbook, something AA needs to be very careful with. In the end, it would only give them a connecting hub that competes with its own two online hubs. It doesn’t provide them a built-in customer base in important SA home markets.
This is the reason that United wasn’t just satisfied with COPA. It went after Avianca for access to the large Colombia market. COPA served Colombia perfectly well beyond PTY. But that wasn’t good enough for UA. It is all about the Point of Sale strength.
For AA, a much more viable strategy in my mind is to leverage new generation narrowbodies to northern SA and secondary Brazil markets via MIA and DFW. They’ve already been doing this, but the return of the MAXs and delivery of the 321NEO XLRs will give them even more capability to expand their significant presence in those markets. AA is the only US carrier in the SA market that has enough Point of Sale presence (through time in market and scale) to go it alone in most of these markets. Of course GOL makes a lot of sense for them because of their scale in the Brazil market. AA and GOL are actually a very complemetary pairing, each providing something the other desperately needs. And AA might as well go after at least a non-JBA with Aerolineas, providing it critical access to Argentina.
They’d still be solo in Chile unless they can work out some sort of a deal with Sky, but that would pretty much cover the most critical needs. AA can handle the rest with narrowbodies. All without the expense, and potential embarrassment, of trying to pry Copa away from United. It just isn’t worth it. If they are going to invest, invest in GOL and cement that Brazil presence.
very well said, @jetatl.
Copa has built a high- volume connecting hub in a market with a very small local market for one reason and one reason only – to provide relevance to themselves and no one else.
Further, any alliances with any other large foreign carrier in N. America would simply involve diverting traffic from a foreign carrier’s own current or potential network in order to push it through PTY which makes no strategic sense. AA can fly to any destination in CM’s network nonstop from its own hubs – as could UA or any carrier in Latin America, esp. w/ the advent of even more capable narrowbodies.
Talk of winning over CM to AA is driven by nothing but a need to soothe the loss of Latam but CM or any other potential partner for AA doesn’t solve the real strategic issue for AA which is that Latam provides the platform on which another US network carrier can build a presence from Miami to Latin America, creating competition which AA hasn’t seen in decade. Not only does an alliance between AA and CM not fix that but it also makes little strategic sense for AA or CM in the scope of what both need to do to maintain and grow their own relevance in Latin America.
I think this ignores certain elements of Panama City as a commerce hub that could be worked with. While the Panama papers are a significant blow to Panama’s credibility, they still have the canal and already function as a significant operations center for multinationals in Latin America. I was there on a business trip earlier this year and there is a decided focus on building that business community. Once that happens, I suspect Copa will be a much bigger business destination. The sixth freedom flights work pretty well for flights beyond to SA.
Brett –I see and agree with your ‘case for Copa’! That would be great. I’m not sure if I’m as clear about the case for Gol. Since Gol and Delta did not work out, was the problem with Gol or with Delta? Thanks, Scott M.
GOL is the largest domestic airline in Brazil and holds the best slot portfolio at the most critical airports. It is also very well run. Delta/GOL was working fine until LATAM became available. LATAM is the crown jewel of all of South America, and a much better fit for Delta’s network, which needs more US/SA connections and MIA access. GOL can’t provide those. AA, on the other hand, doesn’t need either of those things. So GOL works fine for them.
Scott -Others have addressed the case for Gol, but in my mind, that’s just a pure codeshare relationship. It lets American connect people beyond the gateways in Brazil with Gol being able to sell tickets into the US.
between latam , avianca and copa….copa is the best run airline of the 3…besides pty is bulls eye dead center in americas…reason why copa can serve any destination with a 737
I’ve read elsewhere that American is already in talks with Gol. No surprise there. But the more I think about it, an American/Copa/Gol hookup presents a compelling possibility.
First to quickly address Gol: An American/Gol hookup is a no-brainer. Since Gol is mostly domestic, it makes a better fit with American than it was with Delta. American can easily provide the international connections Gol lacks, while Gol can provide Brazilian feed. Simple. Clean.
In one of the articles CF cited Friday, the author made the point that the proposed Delta/LATAM joint venture would have 29% of the U.S. to South America market. American by itself would be left with a paltry 28%. And the proposed United/Avianca/Copa/ Azul joint venture would have a 27% share. That’s hardly the earth-shattering dominance some have hyperbolically painted for the new Delta/LATAM hookup. Does the new Delta/LATAM partnership change the market? You bet it does. Is it the reason American will soon enter Chapter 11 bankruptcy? Not quite. The true beneficiaries of all of the recent transactions will be consumers.
CF makes a compelling argument for Copa joining with American. Those who’ve disagreed have also provided an excellent counterpoint. In my opinion (and the numbers above appear to bear this out) American doesn’t need Gol or Copa to be competitive. It can compete quite effectively without a South American partner. But there’s nothing to be gained by going it alone when there are partners available. Copa’s Panama City hub is redundant in the Avianca/United/Azul hookup. I agree with CF that Copa would be a greater asset to American’s possible network than United’s. Not only that, but Avianca could be set free and thrive without Copa’s Panama City hub canabalizing its hubs.
At this point, how things got here is less important than where the players go from here. It could be quite interesting.
Of course everyone is entitled to their opinion but wishful thinking does not change the strategic and economic realities which will drive any mergers or joint ventures or even codeshare changes involving US and Latin carriers.
Of course CM overlaps with UA’s own proposed joint venture partners but when was the airline industry nicely carved up to create 3 nice equal partnerships? You do realize that AA and LA had every intention of cooperating with each other – each the largest carrier on their continent – until the Chilean government said they could not? You do realize that AA and BA fought for years to join the two largest carriers in the US-UK market and have succeeded in doing so only because creative steps by their competitors have allowed new competition into the market?
Who said AA would file for bankruptcy as a result of the DL/Latam deal? If AA ends up in bankruptcy again, it will be because they cannot succeed in getting their costs down to levels competitive with DL or UA which also do a far better job of generating international revenue. AA simply has a domestic oriented network w/ costs that are far higher than DL or UA.
The real risk from the DL/Latam deal, once again, to AA is that a US legacy carrier now has a platform for growth in the MIA to Latin America market which AA dominated for decades. There simply is no way that DL plus Latam will be over time solely the simple combination of the two today.
btw, Gol does fly to MIA in markets redundant to AA – or routes that AA has or could fly. Both are hindered by the MAX right now but that will be corrected in time. AA simply has far less need to connect traffic to Gol – even though having that relationship for Gol and AA is better than neither having nothing – but the loss to both is far greater than the previous DL/G3 and AA/Latam partnerships.
Creating combinations that minimize AA’s losses don’t at all mean that they are ideal for any party including Copa.
As with a million other things that are discussed on here, time will tell.
What “wishful thinking” are you referring to? None of what I wrote has anything to do with wishful thinking. They’re merely observations.
Believe it or not, I do realize American and LATAM were going to join forces into a potentially dominant force. That’s moot now. And when did I write that the airline industry has to be carved up into nice equal parts? Never. I simply cited an article that indicates the Latin American market is going to be fairly balanced moving forward. That’s not a bad thing.
This isn’t the only airline blog or forum I read. There are lots of people who want American to go under. And most of them have an irrational hatred for the airline, particularly its CEO. Envy is such a noble emotion, but I digress… Personally, I don’t hate any airline. I want all of them to do well. It’s better for the airlines. It’s better for consumers. It’s better for shareholders. It’s better for the employees. AND it’s better for the country if we have a strong airline industry. Why would anyone hate an airline so much that they want it to be liquidated? I simply can’t understand that kind of thinking.
It wasn’t all that long ago that US Airways had better results than a number of the other legacies because it had a much smaller international presence. Market conditions ebb and flow. Part of American’s international drag has been its large Latin American presence. The economies down there have struggled, and there’s political unrest. That can change. Based on what I’ve read elsewhere, Allegiant, Spirit, and Alaska all have better margins than Delta. And Southwest has been more consistently profitable than all the other airlines. None of those carriers have a large international footprint. And Southwest has only been flying internationally for a few years.
There may be a risk to American in Miami. But there’s also a risk to Delta if it grows too quickly or adds too much capacity. Business is about taking risks. “The greater the risk, the greater the reward” as the saying goes. Southwest thought it could take out US Airways in Philadelphia. Delta thought it could make a dent in DFW. How did those work out? Will American lose some of its approximately 70% market share in Miami? Probably. But no one knows how much.
Okay, so Gol flies to Brasilia, Manaus and Fortaleza from Florida. That’s hardly a massive international presence. Sao Paulo to Orlando is 3698 nautical miles according to Great Circle Mapper. If Gol wanted to fly that route, it could probably scrounge up a used 767 or two until newer aircraft can be delivered. But an American partnership saves that cost and effort.
I’m not suggesting that Copa is THE “ideal” partner for American. No one is. If you read my initial comment, I stated that American doesn’t need Copa to be competitive in Soth America. In fact, it doesn’t need a partner at all. The potential of Copa leaving United for American is simply an intriguing possibility. And with so little real news in the airline industry in the last couple of weeks, it gives us something to speculate about.
Time will tell …
The wishful thinking is trying to rip airlines out of existing partnerships in order to help AA overcome the loss of Latam. In contrast to what you note, Copa is in a partnership that they have given no indication they want out of.
I couldn’t possibly assimilate a host of internet noise about AA into yours or anyone else’s summation of what AA’s future strategy in Latin America should be – and I doubt if anyone else could either because it isn’t driven by rational thinking.
DL/Latam is very low risk -both carriers have existing presences in the US and Latin America; they will be combining their very different networks to create something more than what they are today – but we have no idea what that might be. There is a lot of potential but no huge steps are needed on either side in the short term for 1+1 to be much more than 2.
ALK’s margins over the past 5 years have been lower than DAL’s. Of the airlines you list, ALK is the only one that has a business model remotely close to the legacy airlines – which is who Latam considered having a partnership with.
since you bring up DFW, you do realize that Delta took much of its DFW capacity and deployed it to grow NYC where it is now the largest airline. They gained far more revenue in NYC than they gave up in DFW. And Delta is still the #2 airline at DFW in revenue. DAL had a very low market share in DFW for a hub carrier which is why they walked away from all of the capacity associated w/ the hub – but they lost proportionately little in terms of local market revenue.
According to DOT data – which comes from the data which carriers report and not the DOT’s analysis – American’s weakest global regions are transpacific and then transatlantic. They have lost billions of dollars trying to build their own presence to Asia and also have never had a competitive presence to continental Europe.
USAirways had higher profits than other carriers including American for a period – but it was US’ CEO that orchestrated a merger than has resulted in lower margins and has not fixed the strategic gap between AA on one side and DL and UA internationally on the other. AA is still a large domestic airline in the #3 place to both Asia and Europe and, based on your own data, it will be on par at best but not largely in front of anyone in Latin America. Think about that.
Alex along w/ jetatl have a very good understanding of the dynamics at play. Copa has built a network to siphon off passengers from legacy networks. They have little they can contribute to anyone else and very few can gain much from Copa.
always good to discuss this stuff with you.
I understand Copa is already part of a joint venture agreement, as does CF. It’s simply an intriguing possibility.
American doesn’t need a partner to compete in South America. The article indicates American is only 1% smaller than the combined Delta/LATAM joint venture (it doesn’t mention if that reflects revenue from Gol, by the way). Based on what’s already happened, I’m guessing American is going to sit idly by. It’ll give Delta/LATAM all it can handle. There’ll be plenty of competition. But the way the airline industry is nowadays, both sides will be sure that it’s rational competition. It probably won’t be the bloodbath we saw in the past. To the point of rational competition: I’d love to have a dollar for every time I’ve read that American couldn’t compete with Southwest here in Phoenix. It does, because both carriers have worked out their own unique niches. That’s the nature of mature industries.
DOT numbers don’t reflect margins. Market share isn’t necessarily a sign of weakness or strength in those terms. Legacy airlines competed on the basis of market share for years, and ignored margin. That’s why they all went bankrupt.
Profitability is far more important than market share.
By the way, I do realize Delta is doing just fine from a profitability perspective.
I agree with most of your points.
DL and G3 do not have a joint venture so their revenue is not linked. G3 has minimal revenue in the US, as noted.
The DOT does publish revenue and net income by global region here https://www.transtats.bts.gov/Data_Elements_Financial.aspx?Data=6
From that data, margins can be calculated fairly easily.
Again, this data is provided by the airlines themselves. Those that believe that the DOT is making some subjective assessment of airline networks are wrong. All the DOT is reporting is what airlines provide. If the DOT says that AA loses money flying the Pacific, it is because that is the data AA has provided to the DOT.
Neither the DOT or any airline provides any level of profitability below that level – city or route level – and those that make statements about profitability below the global region including domestic level – are dong so based on their own assumptions.
you are right that there won’t be any blood shed. AA will lose share in the S. Florida to Latin America market. Given that they had no legacy carrier competition for decades, it is a given that they will lose some share to whoever came along.
Any attempts to AA to offset that share loss – whether that be by internal growth or partnerships – has to make sense economically. Partnerships are much more complicated because both sides have to win in order for anything to happen. The reason why AA is a lot less likely to engage in some of the steps some are discussing is because the benefit for both sides is not near as large as some want to believe.
DL is not only doing just fine but it is generating margins in the top tier of the industry – and above every other network carrier in the world.
Is Copa the second largest carrier in Columbia too? Seems that could be valuable too.
Wonder if they have any aspirations for “Copa Peru” or “Copa Chile”
Heck why partner with GOL and become the the whole Copa Cabana.
DPcat – I see what you did there. Good work!
I assume it’s second in Colombia after buying AeroRepublica, which now flies under the Copa name. It also has Wingo, the low cost carrier focused on Colombia.
From what I understand (from a friend of mine who’s originally from there), Panama used to be part of Colombia. Backed by the U.S., it seceded from Colombia when the Panama Canal was built. I’m guessing she’d love to see a non-stop flight from Phoenix to Panama City, where her mother still lives.
Cranky, I think you’ve made a strong case for why Copa’s current relationship with UA and AV isn’t a good strategic fit, but I don’t think you’ve made a compelling case for a JV with AA.
CM’s strategic situation is a bit unusual, because its local origin/destination traffic is a tiny fraction of its revenue. Most of its revenue (and substantially all of its potential growth) comes from passengers connecting through their scissor hub at PTY.
Importantly, this means that almost all of their itineraries already include a connection. This drastically reduces the value of adding a partner airline, because demand for 2+ stop itineraries is much lower than demand for 1-stop. A New Orleans-bound traveler might happily fly BOG->PTY->MSY, but a London-bound traveler is going to balk at BOG->PTY->PHL->LHR. They’ll just book BOG->IAH->LHR, BOG->ATL->LHR, or similar.
Because of the preference for 1-stop itineraries, it’s not clear what value AA would actually bring to the table for CM. Any flight that AA operates from the US to PTY is a flight that CM could already have operated itself, probably at much lower costs than AA. AA can provide regional feed into its US hubs for flights to PTY, but the total number of travelers that are traveling from secondary markets in the US *and* are willing to deal with a 2-stop itinerary to get there is pretty tiny.
Overall, I’m not clear on what Copa would gain from the JV, other than access to AA’s marketing machine, and it’s not clear that that would be worth the profit-sharing and handcuffs on growth that a JV would entail.
For Copa, it looks like partnering with AA is solid.
– They could build a network to secondary US cities where AA may dump off (for lack of a better word) passengers onto Copa and add secondary cities in south america to expand AA’s reach. (AA could then focus on higher revenue flow & local O&D’s–heck, it could add a net zero seats by downgauging existing departures and adding departures)
– Gets equal if not better terms in any kind of financial investment–financial backing (cash infusion, co-signer etc.) to grow the network and reward stockholders with a premium and equity growth.
– Avianca’s main hub, I think, is in Colombia so it is very dupplicative to Copa’s PTY hub, so a removal of competition for UA’s feed.
Jetatl –just a comment about AA relying on the MAX to fly to smaller SA cities –I think it’ll be a long time before the flying public (who are paying attention to the MAX news) will get on a MAX plane again.