After less than six months of flights, Canada's newest regional airline has a number of things going against it: Protesters showed up to picket the first day of operations; it has limited potential for growth at its tiny island airport; and the industry is known for a long list of companies that have failed.
But a strong business model and solid management team should put Toronto-based Porter Airlines and its parent company, Regional Airlines Holdings Inc. (REGCO), on a clear flight path to success, according to experts.
"We have no shortage of aviation entrepreneurs in this country who have tried to start their own airline and failed," says industry consultant Rick Erickson, managing director of R.P. Erickson and Associates in Calgary. "We make excellent aircraft and have well-trained pilots and flight crews. But past attempts have been historically either underfinanced, not enough expertise or both.
"I'm bullish on Porter's chances because they have all that covered."
|Brennan O'Connor, Business Edge|
|Porter Airlines CEO Robert Deluce (with flight attendant Katherine Chassi) targets business flyers.|
REGCO announced just over a year ago it would begin flying passengers out of the Toronto City Centre Airport, located southeast of the downtown financial district.
It posed a distinct advantage over Pearson International Airport in nearby Mississauga, which was known for difficult accessibility, lengthy delays and high prices.
"(A downtown businessperson) can go from the office to sitting in the actual aircraft in about 35 minutes," said Erickson. "This poses a distinct advantage for the niche they are targeting, which is the business traveller."
Soon after that first announcement, Porter had more surprises up its sleeve.
It had negotiated an agreement with the Toronto Port Authority to severely restrict Air Canada's Jazz division, Porter's main competitor, from using the airport terminal. Porter had an overwhelming majority of the available time "slots" at the departure gates, blocking Jazz from using them for its passengers.
Air Canada launched several unsuccessful court appeals. The most recent one was turned down last month by a judge who rebuked the airline for "wasting the court's time" with what she saw as a frivolous appeal with no new information presented.
The fledgling carrier also released brief details of one of the highest levels of equity financing in the airline industry: $125 million.
Investors included Edgestone Capital Partners and Borealis Infrastructure, the investment arm of the giant Ontario Municipal Employees' Retirement System (OMERS).
"These guys obviously impressed a lot of the right people with their business plan. It's certainly not easy to get that kind of investment," said Erickson.
Porter began flights on schedule late last October, using 10 of the 70-seat Q400 turboprops built just north of Toronto.
With leather seats arranged in a 2-2 configuration, the aircraft has about two to three inches more legroom than its standard counterparts and no middle seats.
It was positioning itself as a more comfortable alternative to other carriers. Wireless Internet access was available in the bright new passenger waiting area.
During flights, amenities such as soft drinks, coffee, light meals and snacks were available to passengers at no charge.
Erickson said there was little chance of major players such as Air Canada giving away amenities to woo business travellers. They are successful right now with incremental discounts for passengers who give up an inflight meal or frequent flyer points.
Robert Deluce, Porter's president and CEO, brushed off the additional cost during an interview. "There's going to be an extra cost to providing these things, sure.
"But I sincerely believe that business passengers are tired of being nickel-and-dimed to death," he said. "We have to be different."
Deluce said his team decided early on that controlling a majority of the time slots at the airport departure gates had to be a key part of its strategy. "We needed the island airport and the timing was just right."
For Deluce, using the island airport put him back on familiar territory.
He got his pilot's licence there in the mid-'60s before moving on to run Canada 3000 from 1988 to 1995. His oldest brother, William, is a past president of Air Ontario.
"This (Porter) is an idea we've been working on since the late '90s and early 2000," said Deluce.
He had been making the rounds with investors at about the same time as two passenger jets were crashed into New York's World Trade Centre, sending a chill through the airline industry.
Then, as they were finalizing their deal, Jetsgo stranded thousands of passengers around the world when it declared bankruptcy overnight in 2005 and CanJet announced it was no longer going to be a passenger carrier in 2006.
But Deluce said the investors were not fazed.
"They recognized we had an excellent business plan and the expertise to pull it off. It was difficult; arranging any kind of financing like that is difficult. They realized it was a strong business plan put forward by some good people," he said, recalling the boardroom discussions.
Porter had used its connections as much as possible during the negotiations. After all, REGCO was partly owned by Larry Tannenbaum, chairman of Maple Leaf Sports and Entertainment, who is well established in Toronto's Bay Street financial district.
Deluce had earlier managed to convince Donald Carty, a former executive with American Airlines Inc., to join Porter as chairman. "Don Carty is like the godfather of the airline industry," joked analyst Erickson. "Getting him on your team with a new airline is a big advantage."
During the early negotiations, Deluce talked to Fred Lazar, an associate professor of economics at Toronto's York University and Schulich School of Business, to get some of Lazar's opinions.
"Air Canada and Jazz could easily have undercut us on price at Pearson. The island airport was an important piece," Lazar recalled in an interview. "Air Canada had been frustrating the port authority for years because they were winding down their operations at the island airport.
"The port authority knew there was potential at that airport, but Air Canada had decided it didn't want two bases of operations in Toronto. By the time Air Canada realized what was happening it was too late."
A group of nearby residents called Community Air wasn't impressed with their new neighbour and its plans to increase traffic in the idyllic island setting.
As live TV cameras rolled and police watched, they protested at Porter's first day of flight. Business travellers shrugged their shoulders that morning and continued to board the plane.
Lazar admitted there is little chance Porter will be able to expand the island airport as business grows. "Most airlines have gotten into trouble for growing too quickly. They will never amount to a major player in the airline industry, and they're enjoying occupying their own little niche quite successfully. Small is beautiful."
Erickson said using the island airport could be a disadvantage for leisure passengers, who have to battle downtown traffic and find expensive parking in order to get to the island ferry and finally the airport. "This is good for the business traveller but little else."
He added Community Air's concerns over the increased aircraft traffic are probably unfounded. They would be better off lobbying city politicians to do something about the Gardiner Expressway, a major raised highway that cuts across Toronto's downtown waterfront, Erickson said.
(David Hatton can be reached at firstname.lastname@example.org)