How can an airline like Porter that still runs with its planes a third empty afford to expand with a huge new jet purchase?
This, after all, is an airline that constantly advertises seat sales. And when you get to the airport, the plane is rarely full.
The key has been costs. Details are scant, because Porter is privately held, but in 2010 Porter said its breakeven load factor was 49 per cent. At that point, the company was operating just below that level. Last year, the airline reported a load factor of 62 per cent.
So even though its planes were far less full than Air Canada or WestJet (2012 load factors of 82.7 per cent and 81.9 per cent respectively), Porter should be turning a profit thanks to the operating leverage of every point of load factor over its breakeven number.
There are a couple of factors that would have made it tough for Porter to hold its breakeven load factor as low as 49 per cent in the last few years. In the interim, jet fuel prices have climbed significantly.
Porter, at least as of 2010, had not used hedges on fuel, and if that's the case would have felt the increase in its margins.
Porter also had a non-union work force in 2010. While that's still largely true, a small percentage of the company's work force has since joined unions.
Indeed, the breakeven point had risen about 18 months later. In late 2011, Porter CEO Robert Deluce told the Financial Post the airline needed 55 per cent to make money. Still, that would put Porter in the black at current levels.
That breakeven point was also much lower than Air Canada and WestJet, which an analyst estimated were in the 70 per cent to- 80 per cent range.
On the other side, the airline has grown significantly and should have the benefit of scale.
Porter's head said Wednesday that there is no initial public offering planned, so we are unlikely to get another look at Porter's financials any time soon.
The airline's owners include Mr. Deluce, and a group of private equity funds. They include pension fund OMERS, EdgeStone, and a fund backed by General Electric.
(Boyd Erman is a Globe and Mail Reporter & Streetwise Columnist.)
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