Troubled Skies for Porter Airlines

Those that read the Toronto Star or other Canadian newspapers are sure to have come across Porter’s stylized, animated ads. Although their mascot is a raccoon, the company’s image conveys refined, easy travel.  And sure, why not, their hub airport is literally in downtown Toronto. With the company’s growing destinations and a strong corporate image in eastern Canada, Porter has received much praise for its adoption of similar business strategies to its once western counterpart, Westjet.  With Porter stepping up its seating capacity recently and adding new destinations such as Chicago, it seemed as though an IPO might be worth the risk for the company and investors.

Well, that’s in a perfect world. In late May it was revealed that Porter would be issuing a $120 million IPO. Analysts were skeptical of buying into the company, and because of this, Porter’s tentative per share price was lowered from $7 to $5.50, reflecting what the company eventually felt as a 20% overvaluation. And just the next week it was announced that the company would shelve its IPO altogether.

Why the sudden change? It turns out that it’s anything but sudden. Although Porter seems to have high growth potential, the company is plagued by external threats. Sure the company recently announced a more than double increase in passengers and revenue, but Porter still has yet to make a profit after four years of operation.

Everyone knows the airline industry is a tough business. But Porter’s market seems to be more and more squeezed. In the past week it was announced that Continental and Jazz both won spots at Porter’s previously exclusive hub airport, Billy Bishop, on Toronto Island. Although these spots don’t really take away from Porter’s flights, it represents a squeeze, especially by Jazz, that Porter is feeling for its market share.

As competitors squeeze the company on its home turf, Porter has had no long-term option but to try to expand its customer base and therefore its destinations. The very point of the IPO is to add more planes to its fleet to service growing routes. But destinations like Chicago are proving unsuccessful as the company stretches its reach beyond its proven regional niche. It seems as though the company is stuck between a rock and a hard place; can the little guy still takeoff in the cut-throat airline industry?

Porter may seem squeezed, but their break-even point is a healthy indicator of future profits. And with increasing passengers, the company may still see clear skies. With current market volatility, holding off on their IPO was a wise decision. Holding off until the company gains a stronger foothold in its market might be even wiser.