WSJ: Tiny Airline Flies Circles Around Rivals

For those who might have missed it, this article appeared in today’s Wall Street Journal:

By SUSAN CAREY

TORONTO—As a teenager, Robert Deluce learned to fly at this city’s small airport just outside the downtown on a Lake Ontario island.

Lately, the 59-year-old airline entrepreneur has been giving his own brand of flying lessons there in a dogfight with larger competitors over a lucrative flying niche: the high-margin business traveler.

In 2005, Mr. Deluce bought the airport’s ramshackle terminal and later kicked out an Air Canada regional partner named Jazz Air. Then, he set up Porter Airlines, which has become a hit with business fliers for its top-notch service and convenient location, a one-minute ferry ride from the downtown waterfront. Earlier this month, closely held Porter opened the first phase of a gleaming, 150,000-square-foot terminal that eventually will house two passenger lounges and 10 aircraft gates.

All of which has much bigger rivals including Air Canada and Continental Airlines Inc. gunning to break Porter’s monopoly at the Billy Bishop Toronto City Airport, recently renamed in honor of a World War I fighter pilot.

While Porter has been thriving and expanding to destinations in Eastern Canada and the U.S., bigger carriers that serve the same routes have been watching some of their best customers defect to Porter. That’s partly because the big guys fly out of Toronto’s Pearson International. The vast Air Canada hub is 17 miles northwest of Toronto—a 50 Canadian dollars cab ride in heavy traffic—and often features longer security lines and other hassles of a major airport.

.”We’re anxious to get into the airport,” Calin Rovinescu, chief executive of Air Canada, said of Porter’s home base. Air Canada last month filed a lawsuit to force the public airport’s overseer, the Toronto Port Authority, to dole out sufficient numbers of new takeoff and landing slots to competitors, and to refrain from restricting services the rivals can offer.

“The fact that everyone but Porter is frozen out shows just how cold it can get in downtown Toronto,” quips a spokesman for Continental, which has objected to the U.S. Department of Transportation’s 2007 decision to renew Porter’s authority to fly to the U.S., and also wants to serve the island airport.

Porter flies to Continental’s Newark, N.J., hub up to eight times a day, but Continental, through a regional partner, serves only Pearson. If it eventually lands at the island, Continental would have to rent space from none other than Porter.

The new carrier’s mascot is a raccoon. “He’s mischievous and determined and pretty much always achieves his desired goal,” said Mr. Deluce, chuckling over breakfast at a Toronto hotel. “Air Canada and Jazz probably think he’s over-mischievous.”

Mr. Deluce, a short man with sandy hair, is a native of northern Ontario and one of nine children in a family with deep roots in Canada’s aviation industry. His family sold two regional carriers to Air Canada—companies that are among those that eventually became Jazz. Mr. Deluce was president of a charter airline but left before it collapsed shortly after the 2001 terrorist attacks. He still flies an amphibious Cessna 185 to his lakeside vacation cottage.

In recent years, Toronto’s waterfront has been revitalized, with high-rise condos and parks replacing grain elevators and industrial warehouses. Air Canada’s partner Jazz and a predecessor, which had been flying to and from the downtown airport for years, reduced service even as the redevelopment was progressing. The airport’s traffic waned to 25,000 fliers in 2005 from 400,000 a year in the late 1980s.

Smelling opportunity, Mr. Deluce pounced, acquiring the old terminal and evicting Jazz. He raised C$126 million in start-up capital and placed a US$500 million order for 20 Canadian-built turboprop aircraft. With 70 seats, they are perfectly sized for the airport’s short, 4,000-foot runway. Porter took wing in October 2006.

His aggressive tactics as CEO have earned him both criticism and grudging respect. Brian Iler, chairman of CommunityAir, a Toronto citizens advocacy group that wants the airport shut because of noise issues and other concerns, gives Mr. Deluce his due. “Everything he has done, he’s managed to turn things his way,” Mr. Iler says. “It’s an amazing run of luck.”

But Mr. Iler also believes the exclusivity Porter has enjoyed has made it far more successful that it would have been if it were subject to competition.

Mr. Deluce insists that Air Canada and Jazz have passed up opportunities to return to the island airport. “It’s not as if we’ve enjoyed a monopoly,” he protests. “We’ve always competed with Air Canada in every market we’re in.”

Porter Airlines says it’s on track to carry 1.3 million passengers in and out of Billy Bishop this year, up from 269,000 in 2007. Traffic last year at Pearson, the main Toronto airport, dipped by 6% to 30.4 million passengers due to the economic slowdown and airline cutbacks.

Porter now flies to four U.S. destinations and seven other cities in Eastern Canada, with an eighth coming this month. It had its first month of profitability in June 2007 and paid out to its employee profit-sharing plan that year and in 2008, Mr. Deluce says. He won’t say whether Porter was profitable in 2009.

The new airline has attracted a following for its downtown location, competitive fares, leather seats with generous legroom and complimentary beer, wine and snacks. Female flight attendants wear retro pillbox hats and peplum jackets.

Christopher Sears, vice president of research for Montreal-based brokerage firm MacDougall, MacDougall & MacTier Inc., said he has flown Porter 30 to 40 times between Montreal and Toronto. Once he arrives in Toronto, he grabs a free shuttle to a hotel two blocks from his firm’s Toronto office.

“Porter has built up a lot of goodwill with me,” he says, vowing to stick with the company even if rivals break into the downtown airport.

Mark McQueen, chairman of the Toronto Port Authority, says Air Canada and Continental, via regional partners, recently responded to his call to start service from the island. “This airport would benefit from additional routes and carriers,” he says. “The litigation is irrelevant.”

But the newcomers may not get to mount as many flights as they would like. The port authority says noise studies indicate that new slots could be created to allow 21 to 46 additional flights a day. Porter, which would be in line for some of the new ones, already has enough slots to operate 60 daily flights. Air Canada, in its lawsuit, contends that giving more to Porter will “entrench unfair, illegal and improper competitive advantage.”

MRM