Published in August 2016 issue

While Copa Airlines (CM), Panama’s international carrier, operating out of its Tocumen International Airport (PTY) Hub of the Americas (Airways, July 2014), has grown into one of the leading airlines in the region, another airline has been growing sizably in Copa’s shadow: Air Panama (7P).

By Sebastian Schmitz

Panama, in Central America, is not a vast country. It’s just a bit smaller than the US state of South Carolina. Yet, the little nation has a very dense network of domestic flights.

Based at Panama City’s downtown Albrook Airport (PAC), Air Panama has developed a comprehensive network of mostly domestic flights. With a very colorful fleet, mainly composed of Fokker F50 and F100 aircraft, this airline is staking quite bold ambitions to grow its international footprint in the coming months.

A VERY MODEST LAUNCH IN THE 1980S

The roots of this airline go back to PARSA, a small air taxi service founded in 1980. With a a fleet of Cessnas and Britten-Norman Islanders for charter services, PARSA was based at Paitilla Airport, in the heart of Panama City.

As the city expanded and required more space for development, the pressure increased on the small city airport, which eventually closed in 1999 after around 70 years of operation, opening up much-needed land for Panama’s fast-growing skyline.

The good news for PARSA and general aviation flying was that an alternative airfield was nearby: the former US Air Force Station Albrook Air Base.

After the US forces moved out of Panama and the station closed in 1997, the airport was converted into a civilian facility and most operators, including PARSA, moved in. Just a few miles away from the city center, very close to the southern entrance of the Panama Canal, PAC is very attractive for travelers, as the drive out the international airport in Tocumen takes at least half an hour. Albrook— formally named Albrook ‘Marcos A. Gelabert’ International Airport, in honor of a Panamanian aviator—is one of those old-fashioned airfields in which you have dozens of hangars scattered around, sometimes housing some very interesting aircraft.

As it grew bigger, PARSA focused on scheduled flying and created a new brand for that purpose: Turismo Aéreo. It acquired Fokker 27s, much bigger aircraft than any the airline had previously operated, and painted them in a beautiful green and white color scheme. They were deployed on scheduled routes to the city of David (DAV)—the only other major city in Panama—and to Bocas del Toro (BOC), in the northwest of the country. Bocas, hugely popular with divers, has developed into a tourist hub. Its good air access to Panama City has surely helped with that development.

In the early 2000s, the airline’s fleet (operated as PARSA and Turismo Aéreo) consisted of Fokker 27s, Twin Otters, a Cessna Caravan and a smaller Cessna 182 aircraft. In 2005, the small, family-owned carrier acquired an almost iconic airline name: Air Panama.

Older readers will recall that there once was another airline with the same name. Air Panama (International) was created in 1968 as a joint venture between the government of Panama and Iberia (IB). Ten years later, the Spanish carrier sold its share to a local group of Panamanian investors, eventually becoming fully state-owned and operated until, facing stiffer competition from the ambitious Copa Airlines, it was liquidated in January 1990.

After Air Panama’s (International) demise, Copa was quick to fill the gap in international service. Meanwhile, PARSA grabbed the well-regarded Air Panama name. It applied a red and white paint scheme, incorporating the Panamanian flag to its aircraft—and Air Panama 2.0 was born.

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MONOPOLIST NO LONGER

For years, there were two domestic airlines operating on the busiest domestic routes from Albrook Airport: Air Panama and Aeroperlas (WL), which was linked to the TACA Group of Central American airlines.

Copa Airlines, busily developing its international network out of PTY, paid scant attention to the domestic market. It seemed that Aeroperlas and  Air Panama could peacefully coexist. However, in March 2012, blaming a ‘difficult market environment,’ Aeroperlas suddenly stopped flying. Plans to restructure the business (if they were serious at all) never materialized—and all that is left of Aeroperlas today is a beautiful model of its ATR42 standing in the small food court of Albrook Airport.

When Aeroperlas stopped flying, Air Panama had a monopoly on the domestic routes. Raul Morales, Air Panama’s commercial director, says that the airline had not been entirely happy with Aeroperlas’ sudden disappearance, because it could not immediately fill the lost capacity. Being the only operator, it found itself to be an easy target, with passengers blaming any delay or irregularity on ‘the lazy monopolist that doesn’t care’.

At the time that Aeroperlas folded, Air Panama was just in the process of adding bigger aircraft to its fleet. A pair of Fokker 70s—the first-ever jet aircraft that Air Panama operated, and largely used on the trunk route to DAV—were replaced by bigger and more efficient Fokker 100s, which had more seats yet largely the same operating costs. Fokker 50s coming in from Norway’s SAS complemented and replaced the smaller Saab 340s.

“Relying on Fokker aircraft has proved to be a good strategy for the airline,” says Morales. “They are a robust and reasonably modern aircraft. We can acquire them at much better prices than, say, an Embraer, and passengers like them.”

By introducing the Fokker 100s and 50s, Air Panama could provide the capacity lost through the demise of Aeroperlas. For just over two years, it was the only airline offering domestic flights. This changed in January 2015, when Copa Airlines launched twicedaily Embraer 190 flights from Panama City to DAV—Air Panama’s bread-andbutter route. And, although Morales had mused that being a monopoly was a less-than-perfect situation for Air Panama, CM’s entry into this market was definitely something he was not very happy about.

When the new route was announced, Air Panama questioned whether Copa should be allowed to operate this domestic service. A requirement for an airline to operate domestically is a minimum 60% ownership by Panamanian nationals. Air Panama’s owner, Eduardo Stagg, publicly questioned his rival’s domestic ownership—an unsettled dispute as this article goes to press. Local observers say that Copa’s entry into the domestic market may have been partly in retaliation for Air Panama’s launch of flights to Medellin (MDE) in Colombia, traditionally Copa territory; Air Panama now flies there daily.


 

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FOKKERS, ISLANDERS, TWIN OTTERS: A COLORFUL FLEET

Air Panama’s fleet has always been very diverse for so small an airline. As of May 2015, the fleet numbers five Fokker 100s, four Fokker 50s, three Cessna 208 Caravans, two DHC6-300 Twin Otters and three Britten-Norman Islanders. Past fleets equally comprised many different aircraft types: Fokker 27s, Saab 340s, a single Dash 8-300 and Casa 212, among others. It is probably the world’s only airline to have ever operated the Fokker 27, 50, 70 and 100 all at the same time.

The Boeing 737s—the biggest aircraft that can operate from Albrook Airport—were proved to be cost-ineffective and were recently retired from the fleet. The Fokker 50s are a safe bet on the other really busy domestic route for Air Panama, the one to BOC, where the airport is too small to handle jet aircraft. With its Cessna Caravans, Islanders and Twin Otters, Air Panama serves a plethora of domestic routes.

The Fokker 70s, the first-ever jets to fly for the carrier, were acquired to better compete with Aeroperlas on the route to DAV while offering a superior product. The Fokker 70s had been acquired from the Ford Motor Company and kept their previous operator’s paint scheme when they started flying for Air Panama. Later, as this color scheme looked really quite good, it was also painted on the Fokker 100s when they entered service with the airline. Both Fokker 70s have since been sold to Australia-based Alliance Airlines (QQ). The Fokker 27s, a type that  operated on cargo flights even years after it had been retired from passenger service, have now been put up for sale and are apparently awaiting their delivery to an African operator. They no longer fly for Air Panama.

The diversity of this carrier’s small fleet is something that might not help when it comes to operating costs. Fleet utilization is also not very high, with many aircraft operating only one or two daily rotations. Still, every aircraft type perfectly fulfills its own role and is needed for its unique purposes, and the fact that Air Panama has been around for such a long time proves that it must be doing something right.

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INTERNATIONAL EXPANSION

Why so many domestic flights in a country as small as Panama? The answer is simple. The roads—particular those to remote areas—are often in bad condition, and getting from A to B can take much longer than one would expect by looking at a map.

The country’s trunk route is Panama City to DAV. Flights between the two cities account for more than 50% of the domestic air travel. Air Panama operates up to four daily round trips, usually deploying its Fokker 100 aircraft. However, now that Copa has entered the fray, it will be interesting to see how things develop.

The other busy route is to BOC, a small island, part of a beautiful archipelago in the country’s northwest. A surface trip from Panama City can take eight or nine hours, making a swift one-hour flight a very tempting alternative. Apart from BOC and DAV, Air Panama serves 15 domestic towns on scheduled flights and many more on charters. Many stations have tiny airstrips consisting of little more than a small runway. Some airports see only one or two weekly flights, often served on multi-stop runs. For the small communities, though, these flights are very important links. The shortest trips, such as to Isla Contadora—a nearby island in the Gulf of Panama—can take a mere 15 minutes, while the longest domestic sector is about an hour.

With the domestic market saturated, Air Panama must look to international routes if it wants to grow. International flights from Panama are well covered by Copa, leaving only a few niches or routes that might support a competitor. Still, regional cross-border flying is very lucrative for airlines, with even short international flights in the region commanding some of the world’s highest ticket fares in relation to distances traveled.

For years, Air Panama had been flying to Costa Rica’s capital, San José (SJO), a flight usually routed through DAV. It was the airline’s only international service.

In July 2014, however, the airline launched a new route to Medellin (MDE), Colombia’s second biggest city. This international expansion may well be a thorn in Copa’s flesh. Until recently, the roles were clearly assigned: Copa, the much bigger airline, flew internationally, while Air Panama largely stuck to domestic routes. Now, with Copa entering what Air Panama regards as its home turf—the route to David—and Air Panama expanding internationally, the unwritten agreement that had put the airlines in separate territories seems to have been metaphorically ripped up. Stagg, Air Panama’s owner, has recently talked about a possible new route to the Colombian capital, Bogotá (BOG), and additional service to SJO. Morales also mentioned the Cayman Islands, a route not currently served from Panama, as a possible niche.

Moreover, charter flying has always been an important source of additional revenue for Air Panama, and all of its aircraft regularly operate  such flights. The country has become a popular tourist destination and the Panamanian government is pressing ahead with the development of its airports. Former Air Force or Navy bases have been converted for civilian use; these include the former Howard Air Force Base in Balboa—now Panama Pacific International Airport (BLB)—just across the entrance to the Panama Canal from Panama City, and the airport in Rio Hato (RIH), around 80 miles west of the city, close to many popular resorts. Air Panama has been using both airports for its charter flights.

Apart from expanding its international network, Air Panama is also looking for opportunities to grow its business beyond the country’s borders. One such opportunity has been identified in San José, Costa Rica. Once an important hub for the TACA Group, this airport was largely abandoned by the airline after its 2013 merger with Avianca (AV), which focused largely on its three hubs in BOG, San Salvador (SAL), and Lima (LIM). SJO then lost many direct flights to the United States and some routes within the region. Seeing an opportunity, Air Panama’s owners are working with local partners to set up a new Costa Rican carrier—Air Costa Rica—to fill the niche created by Avianca-TACA’s departure. Air Costa Rica plans to use of one of Air Panama’s recently retired Boeing 737s to initially operate charter flights, and to later serve Miami (MIA), Managua (MGA) and Panama City. As of March 2015, the new carrier was in the process of certification.

ANOTHER MOVE FOR AIR PANAMA?

While Albrook Airport is small and easy to use, it is also surrounded by urban development and some challenging terrain. The single runway’s southern end is adjacent to a major road and Panama’s port; the northern end is bordered by some hills. The runway length of 5,905ft (1,800m) allows limited operation of larger aircraft like the Boeing 737.

Any visitor will notice that there is very little room for expansion and, when just two Fokker 100s are parked on the apron at the same time, the place crowds up. Air Panama has made the airport its home, occupying three maintenance hangars and keeping its headquarters on top of the small passenger terminal. Travelers usually find the airport quite pleasant to use. The terminal has recently been upgraded and offers all the amenities you would expect in a 21st century airport. Still, should Air Panama need to expand, space will definitely be an issue, and a situation similar to that in the 1990s, when Paitilla Airport closed and airlines had to move to Albrook, could present itself.

Yet, once more, an alternative airport lies just around the corner: Panama Pacific. Air Panama has even used it for charter flights to further away places like Venezuela. Located just across the Panama Canal, the airport is much closer to the city than PTY and is easily accessible by road.

In a few years, BLB will even be connected to the Panama Metro system. Panama City is growing rapidly, and with PAC sitting on a prime piece of land, the pressure will soon grow to use it for other purposes—especially with an alternative, offering more space and a longer runway, available a few miles away. No decision has yet been made but, should Air Panama decide to move, Panama Pacific (where Viva Colombia, the Colombian low-cost airline, is currently the only scheduled carrier) seems a more appealing alternative than the quite congested Tocumen Airport, with its dominating Copa presence.

THE BEST IS YET TO COME

Over the last few years, Air Panama has evolved from a smallish family business into a much more professional airline. From transporting 172,154 passengers in 2011, the airline reported carrying approximately 300,000 last year. It has been successful in identifying lucrative niches to operate in. Its recent addition of a second international route to Medellin seems to be a success, and the airline is likely to add new cities.

But competition is intensifying. No doubt that the Panamanian market will be benefited from this expansion, but the big question is whether Air Panama is ready to cope with Copa’s dominance and low-cost carriers such as Viva Colombia.