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Some interesting news: Source From http://www.yyznews.com/Mar.html

Load Factor ---Porter's CEO Robert Deluce says the 3-year-old company is able to break even when its planes are half empty, giving it a competitive edge over rival carriers. Mr. Deluce disclosed that the privately owned carrier's load factor, or the proportion of seats filled by paying customers, had to reach only 49.3 per cent last year for Porter to break even. While he did not give details on Porter's actual financial performance in 2009, he said the regional airline was profitable on a "fully allocated basis" from mid-2007 through 2008, issuing profit-sharing cheques to employees for both 2007 and 2008. He estimated last year's break-even load factor to be 71 per cent for WestJet Airlines and 83 per cent for Air Canada. The 2009 load factor at WestJet was 78.7 per cent while it was 80.7 per cent at Air Canada. Calgary-based aviation consultant Rick Erickson said it's hard to independently verify Porter's internal data because it is privately owned. Porter's break-even load factor "is perhaps aggressive and a little lower than I thought," Mr. Erickson said. Mr. Deluce said Porter's break-even load factor has steadily declined from 58.4 per cent in 2007 and 51.1 per cent in 2008. Industry observers say Porter has been able to keep operating costs under control with its single-fleet type of fuel-efficient Bombardier Q400 turboprops, while attracting a loyal following among corporate customers who prefer Toronto City Centre Airport over Pearson International airport. Mr. Deluce said Porter has its hands full now with regional growth prospects, but within a few years, it will mull over acquiring a mid-range jet that would help it compete outside its hub near downtown Toronto. "Longer-term possibilities leave open consideration for a mid-range jet type that could be utilized outside of our Toronto base and capitalize on opportunities beyond the current regional focus, including transcontinental routes," he said, referring to point-to-point flying that doesn't involve landing or taking off in Toronto. Mr. Deluce added that no decision has been made on whether Porter will be embarking on an initial public offering this year, but the IPO route is one option for raising money to fuel expansion plans.
 
^ It is always interesting, to me, when people launch successful businesses based upon a pretty defined business plan and then get to that point where they have to decide if they should deviate from the plan.

Both WestJet and Porter have been in the news lately with this decision being part of it (interesting Porter got there much faster). In the case of WestJet they are considering buying smaller jets to service smaller markets in Canada and Porter is considering larger, non-YTZ friendly, mid range jets.

Both airlines, and analysts, tell you that a key part of their success is having a fleet of like aircraft allowing them to realize significant operational efficiencies over airlines (eg AC) that have multiple plane types in their fleet (to serve a more diverse market).

Very interesting stuff (from a nerdy business point of view).
 
ya they issued profit sharing cheques in 07 and 08... none since. Considering they issue them quarterly, it means they haven't been profitable in at least 15 months.
 
They invested $45m in April 2009 in expanded facilities. Between that and the recession, it doesn't seem unreasonable to suspend profit sharing in the meantime. It's what my company did last year (while profitable, margins were down), so I don't expect it to be too uncommon of a situation.
 
That $45million was just a drop in the bucket and I'm fairly certain was paid for with the seed money provided by investors. Besides, that's roughly the cost of only two Q400 planes. When I left Porter just over a year ago they were profitable and had either 8 or 10 planes (can't remember). The fleet has doubled since then. So, essentially, they were making a profit on their first 8-10 planes, but their last 8-10 haven't been profitable. I don't think the recession is the cause, to be honest. They just aren't getting the market penetration in the US that they were expecting. You could say that's because of the recession in the US, but from my experience, there's far more to it than that. I'd put it down to the recession if they were only marginally under the break even point to the US destinations. breaking even would be a good day for two of the US routes and an amazing day in the other. So it's no wonder Deluce is talking about bigger planes. They need to hit more domestic markets with larger planes to try and keep pace. 70 seaters to Halifax a few times a day aren't cutting it.
 
Porter exercised their pricing option on their 19/20th planes in June 2009. Are you implying that they did this after they first 18 were operating in the red?

With 20 planes, they are looking for a new pricing option, so looking at larger planes makes sense, if you are not limiting yourself to YTZ.

I'll grant your knowledge of specific route profitability, but that mostly relates to good business sense and when to keep a loss leader and when to drop a money pit.

I do hate seeing a company that does one thing really well branch out and do lots of thinks kinda good. Look at RIM.
 
Yep, they bought quite a few planes while being in the red. It was expected because it would be near impossible to start up an airline and only base initial growth on profits. You would be stagnant for a long time.

Porter has a few issues going forward. They'll eventually have competition from YTZ (they're trying all they can to limit the impact there, including taking up as many takeoff/landing slots as possible, even if they don't plan to use them. i.e. see the increase in flights to YOW/YUL), they don't really have US market penetration, which was a massive part of their business plan, second only to establishing themselves in the YOW-YUL-YTZ triangle. And, because of the quick growth, the employee quality is eroding. For a company dependent on great customer service, front end employees are integral. However, because the company is growing so fast, the good employees are moving up in the company, leaving new employees and the crappy ones behind.

To me, if they don't fix the last issue, it'll catch up to them, and people will begin to notice the quality eroding. Regarding US penetration, that is only important if they can't figure out a way to expand domestically. If they want to remain a regional airline, they need to get into the Philadelphias and Washingtons and figure out a way to have a big impact there. As for the first issue of the island monopoly, I think if AC gets in there, they're going to completely undercut Porter. I know KeithZ thinks that the extra perks that come with flying Porter is enough to combat AC, but I'm really not sure. In my experience, even businesses are looking for the lowest fare. And we all know that price is the biggest factor for non-business travellers, whether they get free cookies and coffee or not. It's going to be an interesting 2 years or so I think.
 
The airline business is far more complex than that. Personally, I doubt that Porter is not making money. They probably aren't making enough to warrant profit sharing cheques for employees. The Q400 is a cash cow for airlines. If you can get 35 bums in the seats, you can make money. Even on their US routes, that's eminently achievable.

And let's not minimize the $45 million terminal investment. At the equivalent of two Q400s, that's the equivalent of spending 10% of their fleet acquisition cost on an asset that does not generate revenue immediately. It's a big hit to take, while they were effectively doubling the size of their fleet.

As for larger aircraft, I am betting we'll see some Bombardier CSeries love as soon as Porter can figure out where to build a proper hub on par with YTZ for their cross-canada/non-YTZ ops. Till then, 70 seaters to Halifax does work. They are filling the planes and making money so I don't know why anybody would think they aren't "cutting it". They are regional airline on par with AC Jazz, for example, which also uses 70 seaters to get to Halifax from non-Toronto destinations. By that standard they are doing really well. And just have a look at how AC deploys their Embraers (with 73 and 93 seats) in the Maritimes too. It's not like AC is always running large metal out East either.
 
jn_12 said:
Yep, they bought quite a few planes while being in the red. It was expected because it would be near impossible to start up an airline and only base initial growth on profits. You would be stagnant for a long time.

Porter has a few issues going forward. They'll eventually have competition from YTZ (they're trying all they can to limit the impact there, including taking up as many takeoff/landing slots as possible, even if they don't plan to use them. i.e. see the increase in flights to YOW/YUL), they don't really have US market penetration, which was a massive part of their business plan, second only to establishing themselves in the YOW-YUL-YTZ triangle. And, because of the quick growth, the employee quality is eroding. For a company dependent on great customer service, front end employees are integral. However, because the company is growing so fast, the good employees are moving up in the company, leaving new employees and the crappy ones behind.

To me, if they don't fix the last issue, it'll catch up to them, and people will begin to notice the quality eroding.
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Agree on this point. But it's an issue for any growing business. And one that can be resolved. Now that they've maxed out their growth plans for the next year or more, it's an issue they can address. Moreover, they have a much easier shot at addressing employee quality since they only have one large hub (and employee base) to deal with.

jn_12 said:
Regarding US penetration, that is only important if they can't figure out a way to expand domestically. If they want to remain a regional airline, they need to get into the Philadelphias and Washingtons and figure out a way to have a big impact there.
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They'll get there. Most people barely know about Porter. Let alone knowing about their US ops. I think they did make a mistake trying to attract US travelers to Canada in a recession. Their marketing should have focused on Canadians bound for those destinations.

jn_12 said:
As for the first issue of the island monopoly, I think if AC gets in there, they're going to completely undercut Porter. I know KeithZ thinks that the extra perks that come with flying Porter is enough to combat AC, but I'm really not sure. In my experience, even businesses are looking for the lowest fare. And we all know that price is the biggest factor for non-business travellers, whether they get free cookies and coffee or not. It's going to be an interesting 2 years or so I think.
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Actually I think they're competitive with AC without the perks. Regional ops are largely schedule driven and in the special case of YTZ, constrained by the size of metal you can use. Convenience is a huge factor. The fact that Porter has and always will have more slots than AC severely limits AC's potential and ability to hurt Porter. They can undercut all they want. But at the end of the day they only have so many slots and because of the Island's constraints, they can't increase seat capacity by using larger aircraft (which is the normal way out of this bind). This means they could fly every flight filled to the gills and will still only have a limited impact on Porter as long as AC is slot restricted.

Moreover, because Deluce's other arm is doing the servicing at YTZ, so he can ensure that servicing rates are high enough to hurt AC and its *A partners while taking some paper losses on Porter. So even Air Canada's effort to bleed Porter could still be profitable to Deluce and not as easy as Rovinescu imagines. But Porter's main competitive edge remains the number of slots they have at the most convenient airport in Toronto.

As for the perks....when prices reach their equilibrium, even at Air Canada's cut-rate prices, Porter will always be the better value proposition for travelers because of the perks. While free cookies won't determine which airline you fly if the fares are different, they will be the winning factor if all things are equal.
 
jn_12 said:
Yep, they bought quite a few planes while being in the red. It was expected because it would be near impossible to start up an airline and only base initial growth on profits. You would be stagnant for a long time.
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I don't disagree. However, my point between the last two planes and infrastructure spending something could have been cut if it did not increase there competitiveness/mid-term profitability. Long-term they could have delayed the terminal works for a couple years.

Customer service importance to Porter can't be understated. Unlike AC, which is a household name even if prefixed with bloody or similar words, Porter's reputation is word of mouth spread. Poor service means no distinction from the unpersonable big carriers. A couple cookies aren't going to make me less upset if I'm made to feel like a number or piece of meat.

That said, there are still some 'big' (bigger than St. John's, NL) eastern Canadian markets that Porter hasn't tapped into yet.

Winnipeg MA (Census Metro Population 694,668, Growth Rate 2.7%)
St. Catharines–Niagara ON (Census Metro Population 390,317 , Growth Rate 3.5%)
Windsor ON (Census Metro Population 323,342 , Growth Rate 5.0%)
Sherbrooke QC (Census Metro Population 186,952 , Growth Rate 6.3%)

Too close / expensive:
Hamilton ON (Census Metro Population 692,911, Growth Rate 4.6%)
London ON (Census Metro Population 457,720 , Growth Rate 5.1%)
Kitchener-Waterloo ON (Census Metro Population 451,235, Growth Rate 8.9%)
Oshawa ON (Census Metro Population 330,594, Growth Rate 11.6%)
Barrie ON (Census Metro Population 177,061, Growth Rate 19.3%)
 
Mapleson said:
I don't disagree. However, my point between the last two planes and infrastructure spending something could have been cut if it did not increase there competitiveness/mid-term profitability. Long-term they could have delayed the terminal works for a couple years.

Customer service importance to Porter can't be understated. Unlike AC, which is a household name even if prefixed with bloody or similar words, Porter's reputation is word of mouth spread. Poor service means no distinction from the unpersonable big carriers. A couple cookies aren't going to make me less upset if I'm made to feel like a number or piece of meat.

That said, there are still some 'big' (bigger than St. John's, NL) eastern Canadian markets that Porter hasn't tapped into yet.

Winnipeg MA (Census Metro Population 694,668, Growth Rate 2.7%)
St. Catharines–Niagara ON (Census Metro Population 390,317 , Growth Rate 3.5%)
Windsor ON (Census Metro Population 323,342 , Growth Rate 5.0%)
Sherbrooke QC (Census Metro Population 186,952 , Growth Rate 6.3%)

Too close / expensive:
Hamilton ON (Census Metro Population 692,911, Growth Rate 4.6%)
London ON (Census Metro Population 457,720 , Growth Rate 5.1%)
Kitchener-Waterloo ON (Census Metro Population 451,235, Growth Rate 8.9%)
Oshawa ON (Census Metro Population 330,594, Growth Rate 11.6%)
Barrie ON (Census Metro Population 177,061, Growth Rate 19.3%)
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Can the Q400 reach Winnipeg from TCCA?

Given that list of Too close/expensive, maybe Porter should be investing in smaller planes that could service those markets. London, Barrie, and even Kingston come to mind as potential markets
 
Can the Q400 reach Winnipeg from TCCA?
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No. They would have to stop along the way. Probably in Thunder Bay, although if there was potential O&D traffic, they could do it through Sudbury, Timmins or the Sault. EDIT: Winnipeg to Ottawa would be a possible route as well.

Given that list of Too close/expensive, maybe Porter should be investing in smaller planes that could service those markets. London, Barrie, and even Kingston come to mind as potential markets
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I don't expect that they would get smaller planes due to the slot limit at BBTCA. As long as there are places to send 70-seat planes to, they won't want to be using the slots for planes with fewer seats.

It might be something AC Jazz might want to do though.

In other news, Porter announced yesterday summer service to Mt. Tremblant with flights on Sundays and Thursdays.
http://www.flyporter.com/en/press2010.aspx?id=112
 
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http://www.q400.com/q400/en/range.jsp

The Q400 could reach Winnipeg if the runway was long enough. The aircraft is limited by the length of the runway. I am guessing that 550-600nm is the absolute maximum that Porter can pull off with a Q400 from YTZ given that their two furthest direct destinations are about that far (Thunder Bay at ~500nm and Myrtle Beach at ~600nm). Moncton runs out of Ottawa and it's 644nm direct. So I guess we know the limits of Porter's ops.

From Ottawa though, a Q400 could achieve max range (1362nm). So Winnipeg-Ottawa would be possible. Heck, the max range is just 33nm short of Winnipeg-Halifax. If the wanted to put on passengers restrictions....

I think though what we'll see soon is Ottawa and Halifax becoming Porter's new hubs. And maybe Porter will choose to deploy CSeries jets on long-haul routes (Ottawa-Winnipeg) and between hubs (Ottawa-Halifax).

Like I said before, just look at Air Canada Jazz to know what Porter's going to do next. That's their real competition, not mainline AC. Jazz has hubs at Calgary, Montreal, Toronto and Vancouver. But more importantly its focus cities are Ottawa, Halifax, Edmonton and Winnipeg. For Porter, it makes no sense to target Jazz's hubs which exist to support Air Canada's main network. But it does make sense to target Jazz's focus cities. Watch for serious expansion in Ottawa (hence the lounge) and Halifax.
 
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