Porter Airlines Inc. is facing major hurdles as it tries to take on heavy hitters Air Canada and WestJet Airlines Ltd. with the purchase of up to $2-billion in new jets and expanded transcontinental routes to the west and south.
The privately held, Toronto-based regional airline confirmed Wednesday that it is acquiring 12 Bombardier CS100 jets, with the option to purchase 18 more. In addition, it is adding six more, short-haul Bombardier Q400 aircraft to its fleet of turboprop planes.
The move marks an ambitious plan by the regional airline to greatly expand its service map and position itself head-on with the biggest players in the Canadian airline industry in a number of high-traffic routes. Porter cited Vancouver, Edmonton, Calgary, Winnipeg, Los Angeles, Florida and the Caribbean as new destinations it could reach with the new jets.
But the company faces stiff challenges to make that happen. Flying the jets out of Toronto's Billy Bishop island airport would require the federal government, the City of Toronto and the Toronto Port Authority to agree to rewrite the rules currently barring commercial jets from the airport, as well as allow the lengthening of the current runway by 168 metres on both ends.
If Porter doesn't get permission from the three authorities, the deal with Bombardier is off. "It is a conditional order. We always knew we would have to go to the three members of the tripartite agreement," said Robert Deluce, Porter's president and chief executive officer.
Air Canada, which also has regular flights from the airport, argued Wednesday that an expanded city airport should be opened up to more competition.
"Our view is that prior to taking a position on any further investment in Toronto Billy Bishop City Centre Airport, Air Canada wants some assurance that this public asset will be opened up to greater competition, and that slots will become available for carriers such as Air Canada who have been actively seeking increased access for some time," the company said in a press statement.
Even if Porter can get an agreement to fly jets from Billy Bishop, questions remain as to how it will finance the order, worth more than $2.3-billion.
"In the case of the aircraft, we've been able to finance successfully the 26 Q400s that we operate, and we do not anticipate any difficulty being able to finance the CS100s that we've now signed a conditional order on with Bombardier," Mr. Deluce said.
He added that for the past two years, the company has been operating at a profit and isn't considering an initial public offering to finance its expansion, at least not now.
"We've not thought about an IPO again in more recent times," Mr Deluce said. "Everyone's aware that we did look at that in 2010. Some time in the future, that's always a possibility, but not something that we are even contemplating right at this moment in time."
With flight attendants and pilots in attendance, cheering loudly, executives from Porter and Bombardier touted the airline's major expansion plans in a splashy announcement, complete with a full-scale model of the CS100's interior cabin.
The plan to enter highly competitive routes with relatively small jets, with only 107 seats could make it hard for Porter to compete, particularly if Air Canada and WestJet start lowering fares and adding flights.
This competition "will make it difficult for Porter to establish a presence outside its current area of operations without incurring significant costs," National Bank Financial analyst Cameron Doerksen said in a research note prior to Porter's official announcement.
Porter also will be up against U.S. carriers on some of those routes, adding price pressures. "It's all about seats and prices, whether you connect or whether you fly non-stop," added Robert Kokonis, managing director of research firm AirTrav in Toronto.
Porter's flights have been less full in recent months, causing speculation about the company's health. While Air Canada and WestJet have reported record load factors, Porter's have been falling. AirTrav noted in a report that, from September 2012 to March 2013, Porter's load factor dropped by 4.9 per cent, while Air Canada's climbed 2.1 per cent and WestJet's rose 3 per cent.
"The condition of its passenger load factor is concerning," the report said. "Porter's traffic decline is critical because it is the metric which drives top-line revenues."