Porter Air Says Recession Won't Stop Expansion

February 18, 2009

"In spite of the economy and in spite of the downturn within the industry itself, Porter is actually doing quite well and continuing to thrive," -- Porter CEO Robert Deluce.

At a time when North America's major airlines are struggling to ride out the recession, a regional upstart, Porter Airlines, remains committed to an ambitious expansion plan.

The two-year-old airline intends to double its aircraft fleet and add up to three new destinations this year, its chief executive said, bringing the total number of cities it serves to 12.

Closely held Porter, which does not release financial statements, has been profitable since June 2007 and remains confident of its future despite the North American economic downturn, chief executive Robert Deluce said in an interview.

"In spite of the economy and in spite of the downturn within the industry itself, Porter is actually doing quite well and continuing to thrive," said Deluce, former president of defunct airline Canada 3000.

Porter has two points working for it -- convenience and low operating costs -- said Jacques Kavafian, an airline industry analyst at Research Capital.

Porter is the only airline that flies out of Toronto's City Center Airport, minutes away from the city's financial district. Its rivals fly out of Pearson International, up to an hour's drive northwest of downtown Toronto.

By using its own terminal at City Center, the airline says its customers also save time on everything from check-in and security to aircraft taxiing on the runway.

"If you look at time savings and airport taxi expense or parking at the (downtown) airport, when you compare all that together, the cost with Porter would be lower than flying out of Pearson airport," Kavafian said.

Porter, whose chairman is Donald Carty, who once ran American Airlines, also has the advantage of operating fuel-efficient 70-seat Bombardier Q400 turboprops. Bombardier says most major airlines can break even using the Q400 with a load factor of just 42 percent.

Porter won't disclose its specific load factors, the measure of how crowded its planes fly, but it says some busier routes such as Ottawa, Montreal and Halifax are so full that the airline is adding frequency.

"With the kind of aircraft that we operate, we really need a load factor that's a lot closer to 60 than to 80 to be very, very profitable," Deluce said.

In January, Canada's two biggest airlines, Air Canada and WestJet, both reported record load factors of about 78 percent.

Starting off with just two planes and two routes -- from Toronto to Montreal and Ottawa -- the airline has since added six more aircraft and five new destinations including Halifax, Nova Scotia, Quebec City, Quebec's Mont Tremblant ski resort, and Newark, NJ and Chicago in the US.

Deluce said it is scheduled to take delivery of 10 more planes this year to service new routes, with Boston, Washington and Philadelphia high on the list.

Porter's fares typically cost more than economy-class tickets at its domestic rivals, but the retro-styled company -- with its propeller aircraft and 1960s-inspired Pink Tartan crew uniforms -- tries to sell a "flying refined" experience evoking a bygone era "when flying was fun".

Analysts say Air Canada and WestJet have both tried to use aggressive pricing to stave off Porter's push.

"Certainly Air Canada and WestJet should view Porter as a threat on those routes that they compete, primarily the more business travel-oriented routes," said Cameron Doerksen, an airline analyst at Versant Partners.

On the three airlines total flights from Toronto to Ottawa for the week of February 16-22, Porter offered 18 percent of the seats available, WestJet 22 percent, and Air Canada 60 percent.

ECONOMIC TURBULENCE

Struggling to manage fluctuating fuel costs and economic uncertainty, Air Canada recently cut 2,000 jobs and 7 percent of its capacity. This week WestJet reported a 46 percent drop in fourth-quarter earnings.

"There's no question that the airlines from a demand point of view are seeing some weakening," Doerksen said.

"I would suspect Porter is seeing something similar, but then again they're serving a different niche... It's difficult to compare," he added, referring to Porter's limited number of short-haul routes.

Before Porter's launch in October 2006, Air Canada's regional affiliate Jazz Air was evicted from City Center airport after Deluce's company bought the terminal. That makes Porter the only airline that currently operates from the airport, which is owned by a federal government agency and located on an island just off Toronto's lake front.

From the start, the City of Toronto has been antagonistic toward Porter's expansion plans as it considers the noise and pollution of a busy airport to be at odds with its waterfront revitalization plans.

On taking office in 2003, one of Mayor David Miller's first acts was to kill plans for a bridge to the airport, and passengers must now take a short ferry ride to get there.

"(Miller's) long time position has been that there shouldn't be an airport there. That property should be used for public purposes," said Don Wanagas, spokesman for the mayor.

When asked what strategic options lie ahead for Porter, Deluce said anything is possible, but steered clear of talking about any acquisition hopes.

"If I had to speculate at all in terms of which direction we might eventually go it's more likely to go in the direction of an IPO if and when we ever require additional capital to fund our growth," Deluce said.