Porter Airlines
Case Brief
Embry-Riddle Aeronautical University

Background Porter Airlines is another unlikely success story in the fierce and cutthroat regional airline industry. Founded in 2002 by Robert Deluce, a regional airline veteran, Porter Airlines wanted to take advantage of a small but crucial market in the Toronto area and grow from that beginning. The Toronto area is considered Canada’s financial hub and thus created a large number of business travelers. Deluce’s strategic vision for Porter was to start with exceptional customer service and combine that with numerous flight options by instituting a quick turnaround system for departures and arrivals. He also wanted a competitive but low cost fare structure with the intent to gain a healthy market share in a short period of time. Porter wanted to use a single turbo prop airplane fleet that would have low maintenance costs and would be efficient to run over short distances. This would allow Porter to offer more flights at lower capacities yet still be able to make a profit. Deluce also wanted his working environment to be friendly but efficient and he leads by example. Deluce has also been known to come down to the terminal to greet notable passengers—governors, cabinet ministers—when they arrive. As one observer put it to me, “He runs his airline like a family restaurant.” (Preville, 2013) Air Canada, its subsidiaries and affiliates dominated the Canada airline industry and they often used strong-arm tactics to crush any competition. The lack of competition in Canada’s airline industry allowed Air Canada to maintain high fares and this was something that Deluce wanted to exploit with Porter Airlines. Air Canada had deep pockets and could easily drive out small start-up airlines with price wars and deeply discounted fares. Deluce had a very ingenious plan to prevent Air Canada from using its muscle to sabotage his plans.

Venture Capital and Toronto City Center Airport (TCCA) Deluce first used his contacts and experience in the airline industry to raise a significant amount of capital. Porter’s parent company, Regco Holdings and owned by Deluce, raised approximately $125 million through a private placement of equity to a handful of investors. Impressively, it was the second-largest equity raise by a new carrier in North American airline history; JetBlue Airways had raised $158 million US in 2002. (Wings Magazine, 2014) This capital would normally be necessary to fight off an Air Canada assault, but Deluce’s plan was not to have to battle Air Canada toe-to-toe. Air Canada operated its Toronto hub at Lester B. Pearson International Airport which was approximately 27 kilometers from Toronto. Travel time from Toronto’s financial center to Pearson was 40-90 minutes depending on traffic conditions. TCCA was a small airport located on the Toronto Islands and only three kilometers from downtown Toronto. It was much more convenient for business travelers but was under-utilized due to the ruthless tactics of Air Canada. Air Canada kept a small presence at TCCA to run potential competitors out of the market but paid little attention to the small airport. Deluce had assembled the capital and a strong management team and he approached the Toronto Port Authority (TPA), who managed TCCA, with his proposal. TCCA was on the verge of bankruptcy and the TPA was very cooperative in helping Deluce get Porter off the ground. TPA signed a long term lease with Porter Airlines and limited the slots at TCCA available to other air carriers. While waiting on resolution of a legal dispute over a bridge to the island, many of the private owners of the terminal and hangers became disillusioned and sold their buildings to Regco Holdings. Porter now controlled a long term lease and the infrastructure of TCCA. In 2010, TCCA was renamed Billy Bishop Toronto City Airport. Deluce’s gamble worked and now it would be difficult for Air Canada to derail Porter’s vision.
Daily Operations Porter operates Bombardier Q400s primarily on nonstop routes within 500 miles of Toronto. The carrier’s strategy has been focused on providing convenience, comfort and speed to differentiate itself from its competition. Convenience is provided by operating its hub out of TCCA, a short ride from the downtown financial core aboard a complimentary Porter shuttle bus. Further convenience is enabled by its website for ticketing, seat selection, flight status information and online check-in. Porter’s terminal has self-serve electronic kiosks to issue boarding passes. Porter’s hub terminal provides a stylish lounge that serves refreshments and features wireless internet access and a business center. Onboard its aircraft, Porter serves complimentary wine, beer and premium snacks to its passengers in leather seats with extended leg room. Porter’s Q400s provide near-jet block times and there is are quick boarding and deplaning times compared with larger aircraft. This is a customer focused high service-oriented business model not previously seen with a single-class short-haul airline. (Wings Magazine, 2014)
Future Expansion Porter’s future success at Bishop Airport and in southeastern Canada and northeastern United States rests on expanding destinations and acquiring more aircraft to service those destinations. Growth is necessary but it must be done carefully. Porter has done a fantastic job of expanding operations with their current fleet and under the conditions at Bishop. Porter is now poised to make the next jump in their growth. In April 2014, Toronto City Council voted unanimously to adopt a city staff report that allows the city, Toronto Port Authority and federal government to negotiate conditions for proceeding with a Porter Airline proposal to add jet service and extend the runway at Billy Bishop Toronto City Airport. This will likely take until early 2015 and includes an environmental assessment of the runway plan, final certification of the CS100 and agreement on traffic improvements for the area. (Porter Airlines, 2014)
Summary
Porter Airlines under the direction of Robert Deluce demonstrated excellent strategic planning and vision. Deluce put Porter in position to succeed in an environment where many others had failed. Air Canada’s predatory practices made operating in the Canadian airline industry nearly impossible for a regional startup. Porter found a niche in the market and then carefully plotted a course to capitalize on their vision. They are now embracing a major change, switching from prop jets to longer range jets. This will bring increased scrutiny from Air Canada and will require Porter Airlines to stay in touch with the market and their customers.

References
Porter Airlines. (2014, August 1). Fly Farther with the Service and Convenience You’ve Come to Love. Retrieved from Porter Plans: https://www.porterplans.com/Info/The-Process
Preville, P. (2013, September 25). Porter Airlines: Air Shark. Retrieved from Canadian Business: http://www.canadianbusiness.com/companies-and-industries/air-shark/
Wings Magazine. (2014, July 29). From Startup to Upstart: A position report on Porter Airlines . Retrieved from Wings Magazine: http://www.wingsmagazine.com/content/view/2005/38/