Copa was established in 1947 by a group of Panamanian investors and Pan American World Airways, which provided technical and economic assistance as well as capital. Initially, Copa served three domestic destinations in Panama with a fleet of three Douglas C-47 aircraft. In the 1960s, Copa began its international service with three weekly flights to cities in Costa Rica, Jamaica and Colombia using a small fleet of Avro 748s and Electra 188s. In 1971, Pan American World Airways sold its stake in Copa to a group of Panamanian investors who retained control of the airline until 1986. During the 1980s, Copa suspended its domestic service to focus on international flights.
In 1986, CIASA purchased 99% of Copa, which was controlled by the group of Panamanian shareholders who currently control CIASA. From 1992 until 1998, Copa was a part of a commercial alliance with Grupo TACA's network of Central American airline carriers. In 1997, together with Grupo TACA, Copa entered into a strategic alliance with American Airlines. After a year our alliance with American Airlines was terminated by mutual consent.
On May 6, 1998, Copa Holdings, the holding company for Copa and related companies was incorporated as a sociedad anónima under the laws of Panama to facilitate the sale by CIASA of a 49% stake in Copa Holdings to Continental. In connection with Continental's investment, we entered into an extensive alliance agreement with Continental providing for code-sharing, joint marketing, technical exchanges and other cooperative initiatives between the airlines. At the time of our initial public offering in December 2005, Continental reduced its ownership of our total capital stock from 49% to approximately 27.3%. In a follow-on offering in June 2006, Continental further reduced its ownership of our total capital stock from 27.3% to 10.0%. In May 2008, Continental sold its remaining shares in the public market.
Since 1998, we have grown and modernized our fleet while improving customer service and reliability. Copa has expanded its fleet from 13 aircraft to 82 aircraft. In 1999, we received our first Boeing 737-700s, in 2003 we received our first Boeing 737-800s, and in 2005 we received our first Embraer 190. In the first quarter of 2005, we completed our fleet renovation program and discontinued use of our last Boeing 737-200s. During the second quarter of 2005, we purchased AeroRepublica, the second-largest air carrier in Colombia in terms of number of passengers carried each year since 2005. We have expanded to 65 destinations in 29 countries. We plan to continue our expansion, which includes increasing our fleet, over the next several years.
Copa Holdings is a leading Latin American provider of airline passenger and cargo service through our two principal operating subsidiaries, Copa Airlines and Copa Airlines Colombia. Copa Airlines operates from its strategically located position in the Republic of Panama, and Copa Airlines Colombia provides service primarily within Colombia complemented by international flights from various cities in Colombia to Panama City, Caracas, Cancun, Mexico City, Guayaquil, and Quito.
Copa Airlines offers more than 280 daily scheduled flights among 65 destinations in 29 countries in North, Central and South America and the Caribbean from its Panama City hub. Copa Airlines provides passengers with access to flights to more than 120 other destinations through codeshare arrangements with the new United pursuant to which each airline places its name and flight designation code on the other's flights. Through its Panama City hub, Copa Airlines is able to consolidate passenger traffic from multiple points to serve each destination effectively.
Copa Airlines Colombia provides service to 10 cities in Colombia as well as international connectivity with Copa Airlines' Hub of the Americas through flights from Barranquilla, Bogota, Bucaramanga, Cali, Cartagena, Medellin and Pereira. Additionally, Copa Airlines Colombia has international flights from Colombia to Panama City, Caracas, Cancun, Mexico City, Guayaquil, and Quito.
As of December 31, 2012 Copa Holdings operates a fleet of 82 passenger aircraft: 56 Boeing 737-Next Generation aircraft, 26 Embraer 190 aircraft.
COMPETITIVE STRENGTHS AND BUSINESS STRATEGY
We believe our primary business strengths that have allowed us to compete successfully in the airline industry include the following:
- Our "Hub of the Americas" airport is strategically located. We believe that Copa's base of operations at the geographically central location of Tocumen International Airport in Panama City, Panama provides convenient connections to our principal markets in North, Central and South America and the Caribbean, enabling us to consolidate traffic to serve several destinations that do not generate enough demand to justify point-to-point service. Flights from Panama operate with few service disruptions due to weather, contributing to high completion factors and on-time performance. Tocumen International Airport's sea-level altitude allows our aircraft to operate without performance restrictions that they would be subject to at higher-altitude airports. We believe that Copa's hub in Panama allows us to benefit from Panama City's status as a center for financial services, shipping and commerce and from Panama's stable, dollar-based economy, free-trade zone and growing tourism.
- We focus on keeping our operating costs low. In recent years, our low operating costs and efficiency have contributed significantly to our profitability. Our operating cost per available seat mile, excluding costs for fuel and fleet impairment charges, was 7.01 cents in 2004, 6.53 cents in 2005, 6.81 cents in 2006, 7.13 cents in 2007 and 7.46 in 2008. See "Item 5. Operating and Financial Review and Prospects" for a reconciliation of our operating cost per available seat mile when excluding costs for fuel and fleet impairment charges to our operating cost per available seat mile. We believe that our cost per available seat mile reflects our modern fleet, efficient operations and the competitive cost of labor in Panama.
- Copa Airlines operates a modern fleet. Copa Airlines’ fleet consists of modern Boeing 737-Next Generation and Embraer 190 aircraft equipped with winglets and other modern cost-saving and safety features. Over the next years, Copa Airlines intends to enhance its modern fleet through the addition of at least 29 additional Boeing 737-Next Generation aircraft. We believe that Copa Airlines’ modern fleet contributes to its on-time performance and high completion factor (percentage of scheduled flights not cancelled). We expect our Boeing 737-700s, 737-800s and Embraer 190s to continue offering substantial operational cost advantages in terms of fuel efficiency and maintenance costs. Copa Airlines Colombia is currently implementing a fleet modernization and expansion plan. Since December 2007, Copa Airlines Colombia has taken delivery of 11 Embraer 190 aircraft and as of December 31, 2009 has purchase options and purchase rights for an additional five Embraer 190 aircraft.
- We believe Copa Airlines has a strong brand and a reputation for quality service. We believe that the Copa Airlines brand is associated with value to passengers, providing world-class service and competitive pricing. For the year ended December 31, 2012, Copa Airlines' statistic for on-time performance was 89.20%, completion factor was 99.47% and baggage handling was 0.45 mishandled bags per 1000 passengers. Our goal is to apply our expertise in these areas to improve Copa Airlines Colombia's service statistics to comparable levels. Our focus on customer service has helped to build passenger loyalty. We believe that our brand has also been enhanced through our relationship with the new United, including our joint marketing of the MileagePlus loyalty program in Latin America, the similarity of our aircraft livery and aircraft interiors and our Copa Club partnership with United Club lounge program.
- Our management fosters a culture of teamwork and continuous improvement. Our management team has been successful at creating a culture based on teamwork and focused on continuous improvement. Each of our employees at Copa Airlines has individual objectives based on corporate goals that serve as a basis for measuring performance. When corporate operational and financial targets are met, employees at Copa Airlines are eligible to receive bonuses according to our profit sharing program. We also recognize outstanding performance of individual employees through company-wide recognition, one-time awards, special events and, in the case of our senior management, grants of restricted stock and stock options. Copa Airlines’ goal-oriented culture and incentive programs have contributed to a motivated work force that is focused on satisfying customers, achieving efficiencies and growing profitability. We seek to create a similar culture at Copa Airlines Colombia.
Our goal is to continue to grow profitably and enhance our position as a leader in Latin American aviation by providing a combination of superior customer service, convenient schedules and competitive fares, while maintaining competitive costs. The key elements of our business strategy include the following:
- Expand our network by increasing frequencies and adding new destinations. We believe that demand for air travel in Latin America is likely to expand in the next decade, and we intend to use our increasing fleet capacity to meet this growing demand. We intend to focus on expanding our operations by increasing flight frequencies on our most profitable routes and initiating service to new destinations. Copa Airlines’ Panama City hub allows us to consolidate traffic and provide service to certain underserved markets, particularly in Central America and the Caribbean, and we intend to focus on providing new service to regional destinations that we believe best enhance the overall connectivity and profitability of our network.
- Continue to focus on keeping our costs low. We seek to reduce our cost per available seat mile without sacrificing services valued by our customers as we execute our growth plans. Our goal is to maintain a modern fleet and to make effective use of our resources through efficient aircraft utilization and employee productivity. We intend to reduce our distribution costs by increasing direct sales, including internet and call center sales, as well as improving efficiency through technology and automated processes.
- Emphasize superior service and value to our customers. We intend to continue to focus on satisfying our customers and earning their loyalty by providing a combination of superior service and competitive fares. We believe that continuing our operational success in keeping flights on time, reducing mishandled luggage and offering convenient schedules to attractive destinations will be essential to achieving this goal. We intend to continue to incentivize our employees to improve or maintain operating and service metrics relating to our customers' satisfaction by continuing our profit sharing plan and employee recognition programs and to reward customer loyalty with the popular MileagePlus frequent flyer program, upgrades and access to Copa Club and United Club lounges.
- Capitalize on opportunities at Copa Airlines Colombia. We are seeking to enhance Copa Airlines Colombia's profitability through a variety of initiatives, including modernizing its fleet, integrating its route network with Copa's and improving overall efficiency.