Introduction:
Porter Airlines has managed to find success where many small carrier airlines have not. The company has survived predator competition from Air Canada to become a recognized brand in South Eastern Canada for the time-sensitive business traveller segment. The company has developed a loyal customer base and continues to capitalize on its strengths which include it location, ownership of the Billy Bishop Airport. Despite its success the company is currently focused on expanding its operational efforts both nationally and cross-border to the US and must consider a variety of options which can achieve this.
Situational Analysis:
External Environment:
PESTEL:
Political: Porter operates largely within Canada. Its home terminal is located in Toronto so it largely affected by the political environment in Canada, at large, but more specifically by the political environment in Ontario. The local and national political environment in Canada is relatively stable as there are no significant unrests in the country to impact the operations of the Porter Airlines.
Economic: The economic environment in Canada has also been stable in recent years. Inflation rates are currently decreasing and lower than the GDP growth rate of 2.63% . The stabilization of oil prices will lead to savings for companies since fuel costs are a major expense for most airlines. Tax policies are favourable for Canadian corporations. However, the Canadian dollar has been experiencing recent instability which can severely impact costs for aviation companies who usually have costs that are quoted in US dollar.
Social: There is a social trend towards increased travel which benefits the airline industry. Particularly, since Porter focuses on the business traveler segment, the company specifically benefits from globalization of businesses which often requires sending employees to different locations quickly. Operating in the Canadian market means there is a premium placed on convenience and speed which are trends the company must attend to. In addition, safety remain a paramount concern among travelers.
Technology: In the airline industry technology most effectively impacts flight times and fuel costs. Getting the most efficient plane is extremely important for cost containment. Technology also impacts the amenities that can be offered to customers. Trend towards e-ticketing and web-check in for convenience.
Environmental: Environmental sustainability is becoming an increasingly important concern across the globe but more so in the West. Companies now have a higher expectation to partake in activities which are beneficial to the environment or try to reduce the negative impact of their activities on the environment. The airline industry is particularly impacted by reducing carbon emissions and improving fuel efficiency.
Legal and Regulatory: The airline industry is a highly regulated industry, much of which occurred after the 9/11 incident in the US in 2001 . Increasing regulations relate to safety measures for individual travelers, air traffic control, passenger and baggage screening etc.
PORTER’s ANALYSIS:
Threat of new entrants: The airline industry has experienced increased liberalization in recent years which allows existing airlines from other countries to enter the Canadian market. The barriers to entry in new markets for existing airlines is low since companies have already invested in the capital costs required. Though the industry is capital intensive, the popularity of leases makes these investments more affordable for new entrants. However, profit margins are thin and may not attract new comers. In addition, existing companies benefit from economies of scale. Overall this threat is assessed at a medium level.
Supplier Bargaining Power: Porter’s main supplier is Boeing. Boeing is one of two major suppliers in the airline industry. This means there are not many options for the airline to choose from. However, airplanes are usually standardized and require little specification in terms of amenities offered. Unfortunately, this does not significantly increase the ability to switch between suppliers as there are usually extensive contracts and agreements and honoring these typically impacts the airline’s credit terms. As a result, supplier bargaining power is high.
Buyer Power: Buyers typically have low switching costs and many airlines to choose from. There are significantly more buyers than sellers in this industry. In addition, the business traveler segment largely catered to by Porter is not price sensitive since they are usually last minute bookers who care more about convenience. As a result, buyer bargaining power is low.
Threat of Substitutes: There are substitutes such as taking a car, train, boat, or bus. However, costs for some of these options may be greater than that of taking a plane. In addition, these options may take a significantly greater amount of time and convenience and time is very important to the customer segment. Therefore, this risk can be assessed low to medium.
Industry Rivalry: The airline industry seems to be in the mature stage of its lifecycle and has growth has been stagnant. This means that competitors are largely established in the industry. The costs of switching or exiting the industry are very high due to the fixed capital intensiveness of the industry. Profit margins are low and it usually difficult to differentiate from competitors. The competition from rival firms is probably the highest force in the airline industry.
The strongest forces that Porter needs to consider are supplier power and industry rivalry.
Internal Environment:
Summary of SWOT analysis: One of Porter Airline’s best strengths lies in the location of the airport. Being located in the downtown Toronto, the Billy Bishop Airport allows Porter to offer its customer segment what they value most, convenience. In addition, the airline’s ownership of the airport also allows it control costs, which is significant for airlines.
A significant weakness that Porter needs to address include implementing pre-clearance for travel to the US as travellers must go through customs after arrival. This reduces the convenience factor the company offers.
Opportunities for Porter includes exploring partnerships with corporations since their customers are typically business travellers. Partnerships could include discounts for committing to exclusively travel with the airline.
Porter should continuously monitor the threat of competition from Air Canada. The airline is notorious for price wars in order to push competitors out of the market. This could be made possible if Porter offers Air Canada a new lease. A looming threat for the industry is the attempt of unions to attract non-unionized employees. This will significantly increase labour costs.
A further SWOT analysis of the time-sensitive business travel industry can be found in Appendix1.
Strategy: The strategy being used by Porter Airlines is focused differentiation. The company targets a small segment of business travelers, largely in the Toronto core, and differentiates itself by focusing on convenience and “high class” service.
Key Success Factors: Some key success factors for the business traveler segment is short turn-around time, location, good customer experience, customer loyalty, and cost containment.
Competitive Advantage: Porter’s competitive advantage comes from the location of the airport, as well as its ownership of the airport which allows it to reduce costs and offer customers quick service and convenience. The company’s brand recognition among Canadian’s as a “high class” service also offers it an advantage.
Issues:
Porter is currently focusing on expanding its operations and has generated a few options. The company needs to determine what expansion strategy it should use in light of weaknesses and threats identified. In addition, the company needs to evaluate whether it should permit Jazz to return to the island airport.
Alternatives:
The first alternative Porter has considered is to continue expansion through its Toronto airport and only expand by increasing the number of cities it flies to within 500 nm. This will include flying to both U.S. and Canadian destinations. The advantage of this strategy is that it will require little to no change from what Porter’s current strategy. It allows Porter to continue to rely on its advantage of its location and ownership of the location which allows it to reduce its costs. This strategy will also not require significant additional financing.
The disadvantage of this option is that it caps the ability of Porter to grow outside of the Toronto traveler market and limits the company’s exposure to mostly Toronto travelers. It offers the company very little prospects for expand since it will still be focusing on Toronto as its point of origin.
The second alternative the airline has considered is selecting cities in the west, such as Regina and Thunder Bay, as origin terminals and flying within 500 nm of those cities as well. This would include later plans to potentially expand to Vancouver and Calgary. The advantage of this option is that it increases the market size for Porter as they will be able to operate in more geographical markets. 21% of origin destination traffic is from Vancouver. This is a large market for Porter to take advantage of. The company will also be able to offer customers increased options through connections on its airline. This will be beneficial since business travel can extend to areas all over Canada and may be increasingly required by the business segment. 27% of travelers already require connections.
The disadvantages of this option is that it will require significant financing since more planes and landing slots would be required. Porter would also face increasing operational costs since it would have to pay for aviation services and maintenance at airports it doesn’t own. This could also decrease the competitive advantage of convenience and turn –around time since the company will not be the sole carrier awaiting servicing. There is also more competition in the west, with WestJet in operation alongside Air Canada, which will make it difficult to compete in the market.
The third alternative Porter should consider is diversifying its target market and expanding its efforts in the leisure segment. This may take the form of offering deals on midday flights that are typically not booked to capacity and advertising to the leisure traveller. The advantage of this option is that it allows Porter to utilize unused capacity without making significant additional investment. It allows Porter to diversify its business offering and reduce business risk.
The disadvantages of adopting this strategy is that leisure travellers may dilute the brand image of “high class travel” that was created due to focusing on the business traveler segment.

Recommendation:
It is recommended that Porter takes a combined approach to expanding its airline business. It is most beneficial for the company to currently seek opportunities to expand by offering flights to new destinations within 500 nm of Toronto and not seeking to choose new origin destinations at this time. There are multiple cities within the 500 nm radius of Toronto that the company can add to its flight route. This will allow the company to continue its slow and methodical growth. Cities such as Buffalo, Washington, and Boston may generate active routes for the airline. Porter will be able to increase brand awareness in the US. The company should also increase its focus on the leisure segment. This is a good strategy because the company can leverage its brand of “high class” travel in this area and may also attract current business travellers to its leisure segment, thereby increasing customer loyalty. It is important for Porter to continue to deliver quick and convenient service for its clientele and provide good customer service quality to retain customers.
The company should not offer a new lease to Air Canada at the island airport. The location of the airport is a major part of the airline’s competitive advantage and inviting Air Canada back to the airport will only attract increased competition for Porter.
Implementation:
In order to implement the suggested strategies Porter should first determine which cities are have the highest market potential for the airline to offer flights to. It should ensure it has the resources in the form of aircraft to expand to these cities without straining services to other cities. Similar to its testing of the Mont-Tremblant route on a seasonal basis, Porter could test cities before fully committing to the flight schedule.
Some challenges the company may encounter in implementing the new strategy are what goals should it set for adding new routes and how can it monitor the achievement of these goals. The company may also face challenges in obtaining financing for expansion since it is a private company. Its financial performance is not made public so it is up to private investors determine whether the company is worth their investment.