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Porter Airlines Case Study


Executive Summary

Porter Airlines is a new entrant in the Canadian airline industry. The airline uses Toronto City Center Airport (TCCA) as the hub of its operations. During the early years of its existence, Air Canada was Porter’s major competitor. Porter is the first airline to push Air Canada out of the market. Air Canada currently operates from Lester B.

Pearson International Airport. In the absence of Air Canada, Porter has improved the quality of its services, which has increased the competitiveness of the airline in the market. Porter differentiates its services on the basis of their quality and convenience of the flights. Porter is both the tenant and landlord of terminal and hangar buildings. This enables the company to maximize the efficiency of its operations.

Despite the current success of the airline, it is evident that the future may bring several problems. Future entry of Air Canada can increase competition. In addition, continued development of TCCA lacks political support. Porter relies on the continued development of TCCA for its growth. Therefore, lack of development of the airport hinders the growth of the airline. This necessitates the airline to devise strategies that would enable it to venture into other markets to reduce its overreliance on TCCA.

Venturing into other markets requires the airline to have enough funds to counter competition from airlines that are dominant in the markets. Therefore, the company should launch its IPO, before venturing into other markets. The IPO will provide it with additional capital, which will enable the airline to venture into the markets successfully.

In addition, the airline should use quality and convenience of its flight schedule to differentiate its services. This will make the company able to attract customers in the frequent business traveler segment in the new markets.

Problem Statement

Porter Airlines is a relatively young company. The airline has enjoyed considerable success since its inception. Strategic planning by the company’s founder, Robert Deluce, has enabled the company to become successful in areas where other airlines have failed. Porter operates the bulk of its flights from Toronto City Center Airport (TCCA).

Prior to the entry of Porter Airlines into the market, Air Canada was the dominant player in the Canadian market. Air Canada used predatory practices to push out competitors on several occasions. Air Canada had funds to sustain stiff competition from other smaller airlines. The company did not find TCCA as an attractive market. This is the major reason that made Air Canada lose its stranglehold on the airport.

This facilitated Porter’s entry into the market. However, Air Canada would like to return to the market through its major subsidiary, Air Canada Jazz. This necessitates Porter to brace itself for stiff competition. It is a fact that the competition will reduce Porter’s profitability. Air Canada will use all its resources to push Porter out of the market.

However, Porter has a competitive advantage that other airlines pushed out of the market by Air Canada did not have. The company has controlling rights on hangar and airport buildings. Porter may use this to improve its competitiveness or restrict the competition from Air Canada. In addition, Porter has funds to enable it to overcome stiff competition from Air Canada.

The size of TCCA restricts Porter’s expansion. Porter can only fly to locations that are within 500 nautical miles (NM) from TCCA. This restricts the growth of the airline. Therefore, it is critical for the company to start operating flights from other airports. However, achieving such goals, the company will ventur into the market dominated by other airlines.

Porter will face stiff competition from these airlines as they will strive to maintain their market share. This necessitates Porter to use an effective strategy to enter into the markets. In addition, there is a lack of political will for the continued development of the airport. The current mayor runs a successful campaign using cancellation of the proposed bridge as one of his policies. Lack of development of TCCA would restrict the growth of Porter Airlines during a critical stage of its existence.

Situational Analysis

SWOT Analysis

Strengths

Porter Airlines is the first airline which treatens to push Air Canada out of the market. The company has enough resources to survive stiff competition from other airlines that may venture into its domestic market. Availability of funds guarantees the future growth and profitability of the company.

In any industry, it is vital for a company to make drastic decisions to enable it to cope with the changes in the market. Large organizations require board members or shareholders to endorse the decisions of the company. This usually prolongs the decision making period. Porter is a privately owned airline. Therefore, the company can make decisions faster than publicly owned airlines do, as they require the endorsement of the shareholders. This gives the company a competitive edge over publicly owned airlines.

Regco, a company owned by Porter’s founder, owns the terminal and hangar buildings. This enables Porter to give priority to its customers, control end-to-end experience, and maximize the efficiency of its operations. This provides Porter with a competitive edge over other airlines that may operate in the airport in the future.

Porter’s employees are not unionized. This implies that the airline pays its employees lower wages, since unionized employees generally demand higher pay. In addition, Porter has lower pilot training and aircraft maintenance than Air Canada does. This is because Porter uses a single aircraft fleet, the Bombardier Q400 turboprop.

Porter has a cost structure that is significantly lower than that of Air Canada and other major airlines. The airline uses secondary airports that have significantly low landing fees. In addition, the airline’s planes have quick turnaround times. This ensures that aircraft spend as much time in the air as possible.

In addition, Porter relies heavily on the sale of its tickets via the Internet. This eliminates the costs associated with issuing paper tickets. Reduced operational expenses enable the company to charge low airfares to its employees and remain profitable.

Porter Airlines is a relatively young airline. This enables the airline to buy aircraft using highly advanced technology. However, old airlines usually have old aircraft. Replacing old aircraft with new one is usually very expensive. Porter uses the Bombardier Q400 as the only type of aircraft in its fleet.

Use of the Bombardier Q400 turboprop as its only aircraft gives it a competitive edge over other airlines. This is because the Q400 has low maintenance costs and landing fees. In addition, the Q400 uses highly advanced technology that improves comfort and fuel efficiency. The Q400 has an Active Noise and Vibration Suppression (ANVS) system that reduces the noise in the aircraft. This improves the comfort of the passengers.

In addition, use of advanced technology makes the Q400 have a fuel consumption rate that is 30 to 40% lower fuel that other aircraft of comparable size. These features of the Q400 give Porter Airlines a competitive edge over other airlines that use other types of aircraft. In addition, Porter has an agreement with Bombardier Q400 which enables it to acquire 10 more Q400s at a fixed price.

Porter’s founder, Robert Deluce, is a veteran in the aviation industry. Therefore, he has a clear understanding of the activities in the airline industry. Deluce may use his experience in the aviation industry to improve the competitiveness of the company. In addition, the airline has an experienced management team. This gives Porter a competitive edge over other airlines in the industry.

Weaknesses

Porter uses only the Bombardier Q400 turboprop. Using only the Q400 makes the airline fail to benefit from advanced technology in other types of aircraft. In addition, using only the Q400 exposes the company to high risks where competitors should use seat capacity in creating a competitive edge.

This is because the Q400 is a relatively small aircraft with a capacity of only 70 passengers. Air Canada has used flooding the market with excess seat capacity to push competitors out of the market in the past. Therefore, Air Canada may use the same strategy to push Porter Airlines out of the market since it has different types and sizes of aircraft. This necessitates the airline to have a graet variety in its fleet of aircraft.

Porter is a relatively young airline. Therefore, it is does not have enough resources to compete with other companies that have been in the industry for a long time. Therefore, airlines, such as Air Canada, may use predatory prices to push Porter out of the market.

Opportunities

Porter currently operates only from TCCA. The airline has enough resources to enable it to venture into other markets. The airline may start operating some flights based out of Toronto. This would lead to significant growth of the airline.

US market is one of the most lucrative airline markets in the world. The company may venture into various US cities that are 500 NM from its hub in TCCA. Porter intends to add US customs pre-clearance during the next phase of TCCA expansion. This would provide Porter access to various secondary domestic airports in the US. These airports include LaGuardia and Reagan. This would improve profitability of the airline significantly.

Porter has a fleet of 17 Bombardier Q400 turboprop planes. This is a small number of aircraft for an airline that already commands a sizeable percentage of the market share. Therefore, the airline has a high potential for growth in the future. Steady growth in the company can lead to a significant increase in the number of aircraft that the company operates. This will increase the number of passengers, flights, and profitability of the company.

Porter Airlines is still a privately owned airline. This provides the airline with a huge potential form of capital if it launches an Initial Public Offer (IPO) in the future. The IPO will provide the airline with more capital for expansion into other cities.

Future expansion of TCCA will provide the airport with an opportunity to grow. This is because Toronto is more easily accessible than Lester B. Pearson International Airport. This would greatly benefit Porter as it is the major airline in TCCA.

Threats

Porter’s main business hub is TCCA. However, the airport faces several problems. Politicians are against the continued development of the airport. The mayor of the city of Toronto has claimed that continued development of the airport would lead to disruption of the peaceful life of the residents of Toronto. In fact, the mayor has used cancelation of construction of the bridge connecting the Toronto Island with the mainland to run a successful election campaign.

The success of the mayor’s campaign shows that people object to the continued development of the airport. Lack of political will might hinder the development of the airport. Porter depends on the development of TCCA for its growth. Therefore, lack of development of the airport will hinder the development of the airline.

The airport has faced the risk of going bankrupt in the past. Bankruptcy of the airport can be detrimental to Porter. This is because the airline has interests in the airport’s terminal and hangar buildings. Bankruptcy of TCCA may lead to the ultimate collapse of Porter Airlines.

Competition Analysis

The airline industry is a capital-intensive industry. Availability of capital enables airlines to effectively compete. An airline may compete on several aspects. An airline may use price, quality of its services, and convenient flight times to benefit in the industry. Air Canada is the dominant airline in the industry.

The airline has a market share of 55%. The airline uses its huge market share and availability of resources to compete with other airlines. These factors enable the airline to engage in lengthy price wars with other airlines in the industry. The airline floods the market with excess seat capacity to push its competitors out of the market.

The company has successfully used this strategy to counter stiff competitions from other airlines in the past. In addition, the company uses its huge resources to buy out its competitors. This has made the airline maintain a monopolistic stranglehold on the market, as well as this fact necessitates Porter to take strategic steps to prevent it from being pushed out of the market by Air Canada.

There are several types of customers in the market. The frequent business traveler is one of the most profitable market segments. This is because frequent business travelers are time sensitive and often book at the last instances. Porter has high frequency flights, which are attractive to a frequent business traveler.

However, operating frequency flights may reduce the passenger load capacity of Porter Airlines. Having a high load capacity is one of the major factors that increase the profitability of te company. However, it is extremely difficult to achieve a load capacity of 100% because travelers may cancel their flights. In addition, tendency to book at the last minute reduces the probability of the airlines to have full capacity.

In this market segment, reduction in the frequency of flights may reduce the competitiveness of an airline. Quality of services is one of the major factors that companies use to attract more customers in this market segment. Porter has successfully been able to play in this market. The size and comfort of its aircraft give the company a competitive edge to win over customers in this market segment.

Strategy Formulation

It is evident that the entry of other airlines into TCCA will greatly increase competition facing Porter. This necessitates Porter to formulate a strategy that will enable it to counter the stiff competition. Entry of other airlines into TCCA, which is the main hub of Porter’s operations, will lead to a significant reduction in Porter’s profitability. Air Canada may flood the market with excess seat capacity to push Porter out of the market.

Therefore, Porter should ensure that it improves the quality of its services. Improvement in the quality of services would enable the company to retain its existing customers. Air Canada may not be able to compete with Porter on the basis quality of services. There is a high probability that Air Canada will use predatory prices to enhance its competitiveness.

This strategy will not be effective since Porter mainly targets the frequent business traveler segment. In this market segment, quality and convenience of the flights are the major factors that influence the competitiveness of an airline. Therefore, Porter should ensure that it improves the quality of its services. However, focus on this market segment will make the airlines lose their customers in other market segments.

It is vital for Porter Airline to venture into other markets. Operating from only TCCA poses great risks to the company if Air Canada uses its power to push Porter out of the market. The airline should start operating flights from other airports. However, Porter will face stiff competition from other airlines that are dominant in the markets. The quality of the services has enabled Porter to conquer the market.

Therefore, Porter should use quality and convenience of its flight schedule to differentiate itself from its competitors. Successful entry into other markets will improve the image of the company. Porter should launch its IPO, before venturing into other markets. This will provide the airline with funds for continued expansion.

Implementation

Porter should take strategic steps to ensure that the entry of Air Canada into the market does not threaten its market position. The company should run extensive advertising campaigns aimed at making the customer view Air Canada as a monopoly that is not sensitive to the needs of its customers. In addition, Porter should run advertising campaigns that portray the airline as a local company. These advertising campaigns are an extra expense to the company. However, Porter has enough funds to enable it to run those campaigns.

Porter should put emphasis on the quality of its services. Therefore, the airline should undertake a survey to determine areas that need improvement. The company may use feedback from customers to determine areas that need improvement. These measures will enhance the image of the airline. They would enable the company to counter competition from Air Canada or other airlines that may be willing to venture into Porter’s domestic market.

Successful venture into other markets requires Air Canada to have enough funds. However, Porter poses enough funds to enter into other markets. The airline should use quality and convenience of its flights schedule to differentiate its services. The company should launch its IPO before venturing into other markets.

The airline should use the publicity generated from the IPO to launch venture into other markets. Therefore, the IPO is a critical factor that will determine the future growth of the airline. The IPO will provide Porter with funds and publicity that will enable it to successfully operate in other markets. In addition, the IPO will provide it with funds to buy additional aircraft.

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IvyPanda. (2019, May 28). Porter Airlines. Retrieved from https://ivypanda.com/essays/porter-airlines-case-study/

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"Porter Airlines." IvyPanda, 28 May 2019, ivypanda.com/essays/porter-airlines-case-study/.

1. IvyPanda. "Porter Airlines." May 28, 2019. https://ivypanda.com/essays/porter-airlines-case-study/.


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IvyPanda. "Porter Airlines." May 28, 2019. https://ivypanda.com/essays/porter-airlines-case-study/.

References

IvyPanda. 2019. "Porter Airlines." May 28, 2019. https://ivypanda.com/essays/porter-airlines-case-study/.

References

IvyPanda. (2019) 'Porter Airlines'. 28 May.

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