Case Analysis of Porter Airlines

Porter Airlines is aimed to deliver “convenience, speed and service” to time-sensitive frequent business travelers for short-haul flights, competing on its brand, location, and level of service. Through its low-cost structure, Porter can provide a quality journey to their customers. As the single airline at the island airport Toronto City Centre Airport (TCCA), they can offer shorter traveling time to the airport, shorter check-in lines and security lines, and quicker turnaround time, free shuttle between Union Station and the ferry to TCCA, web check-in.

In addition, Porter provides upscale amenities in the terminal buildings and customer service: free baggage allowance of two checked bags, one carry-on baggage and one personal item; free wireless internet, conference room, computer room, complimentary refreshments and drinks, business center, and an onsite licensed restaurant in the terminal building. They also offer free in-flight drink and snack, hotel and car rental arrangements, and limousine and taxi service.

To keep their cost low, Porter implemented the following ways: they use single-aircraft fleet (Bombardier Q400S) with Pratt and Whitney PW150A engine as their airplane, which is ideal for short-haul flights. It has smaller airfields, lower cruise altitudes, lower maintenance costs with high utilization, maximum cruise speed of 414 miles per hour, lower pilot and flight attendant pay rates, lower airport fees, and more importantly, its fuel burn and emissions level is 30%~40% lower than a comparable regional jet. Moreover, its low cost and high efficiency, this aircraft also provides excellent customer experience. The Q400S is the quietest turboprop, its ANVS system significantly reduced its cabin vibration and noise, increasing passenger comfort.

Besides, it also adopts paperless tickets, employs non-unionized worker with lower pay rates, lower costs in pilot training, maintenance, and parts inventory; it also takes secondary airports which is a massive reduction in landing fees. Porter Airlines targets time-sensitive working professionals, mainly origin-destination business travelers who traveled to or from Toronto for short business trips from 1-5 days. These travelers tended to book more at the last minute, and they are willing to pay more for time flexibility. Thus, Porter offers frequent flights, three fare classes which provide an array of options for complimentary changes and cancellations, appealing to their targeted consumer segment. Moreover, the number of leisure travelers also increases; to them, flying with Porter Airlines gradually became a mark of social status.

Rather than focusing on low-fare, Porter utilizes its effort in building its brand. It wants to create a “high-class” image, from the lounge design to the staff uniforms and the glassware on the plane. Porter Airlines has many competitive advantages. Its prime location, the TCCA, which is ideally beside downtown Toronto, with a value proposition which very fits its targeted consumer segment (convenient service, free shuttle, lounge).

Currently, it is also the sole operating airline at the TCCA. Its low-cost structure, short turnaround time, complimentary changes and cancellation policies, and frequent flights are also parts of their competitive advantage. The aircraft fleet they used (Bombardier Q400S) also fits for its cost structure and utilization level. As I have mentioned above, Porter’s upscale amenities really matters for its target customers. First of all, as I have mentioned above, its location significantly reduces traveling time of business travelers, and it provides convenient free shuttles to TCCA, which is their primary advantage. Secondly, the frequent flights and the three fare classes with an array of complimentary changes and cancellations give their customers more flexibility in time, in the case of extended conferences, meetings, and traffic, etc. Third, the free wireless internet and conference room gives convenience to business travelers while they wait for the boarding; the aircraft has lower noise, the snack and drinks in the lounge and in-flight also raise the satisfaction level of their customers. Their partnerships with hotels and car rental companies, and taxi and limousine service made more convenience as well. Their value proposition of delivering comfort, speed, and service successfully filled their customers’ need.

The internal competitive rivalry in this market is intense. There exist many low-fare small competitors, but since Porter is focusing on a very segmented market, the threat comes from these small competitors is comparatively lower. But Air Canada is in the market, and it can fight long period of price wars; as for now, Air Canada is focusing its service and the competition in the Pearson airport, they did not expect new entrants in the TCCA.

The threat of new entrants to this market is low; it has high barriers to entry: heavy capital requirement, licenses, and many government regularities; but once the firm enters this market, the threat of new entries became low. The threat from substitutes is little, for domestic trips, travelers can choose to drive or take trains; for long distance trips, options beyond flying would be shipping, but these alternatives are incredibly time-consuming, thus, the threat is low. Bargaining power of buyers is low to moderate, despite many low fare airlines, Porter offers a unique value proposition to its targeted customer segment with quality service. There also exists customer switching costs in frequent traveler points and membership system. Since Porter uses Bombardier Q400S as their single-aircraft fleet, they do not have a choice of aircraft, and Bombardier can offer a fixed price for Porter to buy 10 more aircrafts with no discounts. Thus, the bargaining power of suppliers is high. The external problem and constraints that Porter is facing could be analyzed through PEST analysis. To begin with, the TPA (Toronto Port Authority) restricted the TCCA to serve short distance flights to only 500nm from Toronto, which limited Porter’s service area and expansion opportunities. To cope with the restriction on service region, Porter only uses Bombardier Q400S as their aircraft, which is ideal for short haul flights. In addition, the lawsuit of Air Canada Jazz is pending. Therefore, Porter has to be aware of the possibility of the re-entry of Jazz to the TCCA.

Government’s intervention on the bridge between the city and the island airport also acts as one of their barriers, and Porter uses free ferry shuttling to deal with this constraint. In economic terms, the leisure travelers traveling with Porter Airlines is increasing, and since Toronto was widely deemed as Canada’s commercial capital, the traffic through the city is expected to increase, as a result, Porter has optimistic future economically. In social terms, as I have mentioned in the economic part, the number leisure customers are increasing as flying with Porter gradually became a mark of social status, it is a new opportunity for Porter to develop their service and profit. Since the Bombardier Q400S is already one of the most technologically advanced turboprops in the market, therefore in the short term, the possibility of having some major technology change or innovations is small.

Porter Airlines’ future plan is to add more routes not based in Toronto (Regina-Winnipeg, Thunder Bay- Winnipeg), and also considering many small cities for their expansion. They should be prepared to deal with the local rules and negotiate with the local airport about the flying schedule. They are also considering permitting Jazz to return to TCCA, which they have to be extremely aware of the possible threats to enter into a new competition.

Currently, Porter has 17 aircrafts, and the number is growing; a new terminal which costs $50 million would be opened Mar 7, 2010, they also plan to have a new ferry. These changes would increase customers’ experience, enhance their competitive advantage, and stable their position in the market. Porter Airlines is also planning to have an IPO between 2010 and 2015 to raise additional capital for expansion, which Porter need to prepare for the documents, and get ready to be recognized by Air Canada and other airlines, and enter a new, more intense competition.