BUSINESS

Porter Airlines set to unveil expansion that could heat up Canadian competition

04/09/2013 07:54 EDT | Updated 06/09/2013 05:12 EDT
Competition could heat up in Canada's airline industry as Porter Airlines is set to announce an expansion to its service based from a downtown Toronto airport.

"Porter Airlines to spread its wings," the airline said as it announced a news conference Wednesday to outline its growth plans at Billy Bishop Toronto City Airport.

The event comes as the Wall Street Journal, citing two people familiar with the deal, reported Tuesday that Porter signed a letter of intent with Montreal-based Bombardier (TSX:BBD.B) in December for the CSeries jets.

The addition of the CSeries jets would be a major shift for Porter, which currently uses only the smaller Bombardier Q400 turboprop planes in its fleet.

Bombardier announced in December that an unidentified customer in the Americas had expressed interest in a dozen, 110- to 125-seat CS100 jets with an option on 18 more.

It valued the 30 planes at US$2.08 billion before discounts.

Bombardier CEO Pierre Beaudoin wouldn't confirm the report, but said the airport's 4,000-foot runway is currently too short for the CSeries and jets are barred from the airport.

Beaudoin was asked about the possibility of those limitations changing.

"I build airplanes, not airports," he told reporters in Montreal after speaking to the Montreal Council on International Relations.

Beaudoin said it's up to customers to announce contracts and wouldn't indicate if a Bombardier official will attend the event.

Porter competes with Air Canada (TSX:AC.B) and WestJet Airlines Ltd. (TSX:WJA) and has differentiated itself by using the small island airport near downtown Toronto as its main base.

Adding longer range CSeries wouldn't mean transcontinental flights, but would put Winnipeg and Florida within range, said analyst Cameron Doerksen of National Bank Financial.

The analyst said Porter would face "fierce opposition" from its larger rivals. Adding another hub elsewhere in the country would provoke a war.

"This may lead to yield erosion in the short to medium-term, but will make it difficult for Porter to establish a presence outside its current area of operations without incurring significant costs," he wrote in a report.

Operating the CSeries from its Toronto hub would eat into its rivals traffic and reduce yields on longer routes to the United States and elsewhere.

However, Porter won't be a near-term competitive threat because the initial fleet of only 12 planes would only begin to be delivered until late 2014 or 2015, Doerksen added.

He said the country's top two airlines would continue to benefit from the size of their networks, frequency advantages and the fact that most Toronto travellers fly from Pearson International Airport.

Analyst Chris Murray of PI Financial said a CSeries order from Porter could involve the company re-igniting its stalled plans to go public.

If the airline decides to add another hub, Montreal's Trudeau airport makes sense because it is connected with frequent service to Billy Bishop.

"The whole idea is you want to have connections," Murray said in an interview.

Porter flies to about a dozen cities in Eastern Canada and the United States and carried 2.45 million passengers last year.

On Monday, the privately owned airline announced a labour agreement between 44 unionized cleaning staff at Billy Bishop Airport and Porter FBO Ltd.

Meanwhile, 22 employees who refuel planes for Porter Airlines were still on strike after talks broke down nearly three months ago.