Porter Airlines: Air shark

Porter Airlines’ Bob Deluce has a plan for success.

 
(Photo: Markian Lozowchuk)
(Photo: Markian Lozowchuk)

If you don’t know Bob Deluce, then you haven’t flown on one of his planes. When the CEO of Porter Airlines takes one of his regular strolls through Billy Bishop Toronto City Airport, Porter’s corporate headquarters and operations hub located on an island just off the Toronto waterfront, everyone recognizes him. Passengers reach out to say hello, as do his staff. One attractive flight attendant, dressed in Porter’s sleek navy shift dress, scarf and pillbox hat—a uniform that radiates Mad Men–style sex appeal—sidles over to say hello. She doesn’t introduce herself; they’re clearly familiar. “Will I have the pleasure?” she asks fawningly. “Not today,” Deluce replies, smiling.

The exchange is not as saucy as it appears. Deluce travels his own airline frequently, so when crew spot him in the lounge, they ask if he’s on their flight. By all appearances, they look forward to the occasion. Deluce has also been known to come down to the terminal to greet notable passengers—governors, cabinet ministers—when they arrive. As one observer put it to me, “He runs his airline like a family restaurant.”

But Deluce is more than a maître d’. He’s arguably the most successful entrepreneur in Canadian aviation history, and he owes his success to the close contact he keeps with Porter’s 2.5 million passengers and 1,400 employees, something his CEO counterparts at Air Canada, with 35 million passengers and 27,000 employees, or WestJet, 17 million and 9,500, respectively, can only dream of. In an industry known for its aloofness to customer experience—sardine-tin cabins, irritable staff, extra fees, flight delays and overbookings—Porter prides itself on its spacious seating, friendly service, free in-flight food and beverages, and the best on-time record of any Canadian carrier.

“Our service drives a high level of passenger satisfaction,” says Deluce. “Passengers warm up to us quite quickly.” He chooses his words diplomatically, but it’s easy to read between the lines of his politesse: travellers wouldn’t warm to Porter so “quickly” if the service with Air Canada and WestJet weren’t so infuriating. “No airline has been as successful as Porter at cultivating customer loyalty and creating a niche for its brand,” says Robert Kokonis, president of the aviation consulting firm AirTrav.

Since Porter’s 2006 launch, when its two lone aircraft shuttled back and forth between Toronto and Ottawa, Porter has grown to a fleet of 26 Bombardier Q400 turboprops. By 2012, Porter’s share of passenger traffic on the Ottawa-Toronto corridor had risen to 25%, and its list of destinations has grown to 19 cities across eastern North America, including Montreal, Boston, New York (via Newark), Chicago and Washington D.C., plus regional destinations such as Sudbury and Timmins.

Porter Airlines President and CEO Robert Deluce and a member of the flight crew (Photo: Adrian Wyld/CP)
Porter Airlines President and CEO Robert Deluce and a member of the flight crew (Photo: Adrian Wyld/CP)

The privately held Porter doesn’t release financial details. A 2010 prospectus for the company’s planned IPO (aborted due to the lingering hangover from the global financial crisis) showed the company in the red, losing $4.9 million on revenues of $151.2 million in 2009. But that prospectus also hinted at the secret of Porter’s resilience: a break-even load factor on each flight of only 49%, thanks largely to the fuel efficiency of the Q400’s turboprop engines. Simply put, Porter breaks even on half-full planes; every seat sold beyond that is gravy. It’s a nice sweet spot compared to the big carriers, whose break-even load factors can climb as high as 80%.

Deluce claims Porter has been profitable for two years now. (Don’t believe him? Ask his friendly staff. They all received profit-sharing bonuses.) And with his company in the black, he’s preparing to expand again. Last April, Porter announced plans to purchase up to 30 new Bombardier CS100 jets—a next-generation aircraft that would allow Porter to fly non-stop from its hub on the Toronto Islands to destinations in Florida, the Caribbean and the left coast, including Los Angeles, Calgary and Vancouver.

Kokonis believes Alberta and B.C. travellers would warm to Porter in a heartbeat. “The West loves an underdog,” he says. “They always welcome competition—just look at how they responded to WestJet.”

Still, it’s an audacious plan, not least because Billy Bishop’s operations are hemmed in by its short runway and a ban on jets—part of a 1981 agreement between the city, the federal government and the Toronto Port Authority designed to protect local residents. Deluce needs political support for this expansion to take flight. It’s believed that neither Ottawa nor the Port Authority will stand in his way. In short, the only thing that could keep Alberta and B.C. travellers from enjoying more airline competition, and a better in-flight experience, is Toronto City Hall.

Robert Deluce smiles a lot. It’s a shark’s grin, toothy and mischievous, and it suits his character. In an industry that attracts only the most outgoing, competitive, risk-taking entrepreneurs, Deluce is the highest-octane of them all. Both his backers and his opponents describe him as shrewd, iron-willed and, above all, persistent—like a Survivor contestant, he’s able to outwit, outplay and outlast larger rivals. “Some people you can agree to disagree with,” says Adam Vaughan, the Toronto city councillor whose ward is home to Billy Bishop airport, “but with Bob you know you’re in for a battle.” Deluce also has a reputation as a politically connected master networker, and he knows his industry better than anyone. As Calgary-based consultant Rick Erickson puts it, “If you cut his arm, I swear, aviation fuel would spill from his veins.”

Deluce was raised in White River, a northern Ontario town of 607 souls an hour’s drive north of Wawa. His father, Stanley, was a Second World War pilot who came home and started a business flying tourists to Lake Superior. The company grew into Air Ontario. When the family sold a 75% stake to Air Canada in 1986, the deal included the perkiest of perks: free lifetime air travel for Deluce and his wife, Catherine, founder of Toronto brokerage Chestnut Park Real Estate. Air Canada revoked their privileges in 2009, which led Deluce to sue for $5 million—all part of a running battle between Porter and Air Canada over control of the downtown airport.

Passengers disembark a Porter Dash-8 aircraft (Photo: Kenneth Armstrong/CP)
Passengers disembark a Porter Dash-8 aircraft (Photo: Kenneth Armstrong/CP)

Deluce’s fate is tied to that airport, and always has been. At age 16, while attending Toronto’s St. Michael’s College, he learned to fly there. As late as 1961, the island airport was Canada’s busiest, with 212,000 takeoffs and landings. But as jet engines replaced turboprops, the island airport’s runway was simply too short to handle the aircraft, leaving Pearson International Airport, located a 40-minute drive from downtown, to capture the growth in air travel.

Traffic to the island airport declined for decades, and by the early 2000s it had become a mini-Mirabel: a chronic money-loser, with governments arguing over who would foot the bill. Its last remaining scheduled carrier, Air Canada Jazz (created, ironically, from the ashes of Air Ontario), had essentially given up on it, flying fewer than 100,000 passengers through it annually.

To Deluce—who’d gone on to found Canada 3000 in the late 1980s, and to sell his stake at a tidy profit in 1995—that airport was a grossly underused asset. “There is no major city of Toronto’s stature with an airport this close to its downtown,” says Don Carty, the Canadian-born former CEO of Canadian Pacific Airlines and American Airlines who chairs Porter’s board of directors. So when the Toronto Port Authority announced its intention to make the airport self-sufficient by increasing traffic, Deluce hatched his plan: an airline that would fly fuel-efficient turboprops on well-travelled business routes, as well as to Northern Ontario destinations whose passenger demand and pricing sweet-spots he knew all too well.

When he first made his venture public in 2002, it was still just an idea, and he insisted it was contingent upon the construction of a bridge to replace the island airport’s existing ferry service—a project with many detractors, including then city councillor Olivia Chow, now the area’s NDP member of Parliament. In 2003, city council approved the bridge’s construction, but later that same year David Miller campaigned for mayor on a promise to cancel it. Miller’s political ads heralded increased noise, pollution, and the end of waterfront concerts if the bridge was built. Once elected, Miller killed the bridge in his first act of office. Deluce sued Toronto and Ottawa for $500 million, eventually settling out of court with the federal government for an undisclosed sum.

“That whole campaign took Bob by surprise,” recalls Carty. “He really didn’t expect that level of opposition, and the frustration over the decision to cancel the bridge was real.” Deluce took time to regroup. “We both agreed that, despite the setback, this was such a good idea.” The retired Carty, among the most respected men in the airline industry, tells this story with the energy and infection of a 21-year-old app developer.

Service at the Porter Airlines lobby (Photo: Markian Lozowchuk)
Service at the Porter Airlines lobby (Photo: Markian Lozowchuk)

Bridge or no bridge, Deluce was determined to get hold of the island airport’s landing slots, and the best-case scenario was to have them all to himself. So in 2005, he bought the company that owned the terminal. On Jan. 31, 2006, Jazz received its eviction notice. Two days later, Deluce unveiled the Porter brand, finally making his idea a reality. Nine months later it was airborne.

Deluce lost the battle for the bridge, but that hasn’t stopped him from creating the most enjoyable airport experience in the country. The airport upgraded its ferry service, and next year it will complete construction of an $80-million pedestrian tunnel.

In 2011, Deluce cut the ribbon on a shiny new 10-gate terminal at a cost of $50 million, one that avoids the conveyor-belted people-processor feel endemic to airports. Once you’ve checked in at Billy Bishop, a brief escalator ride takes you down to sleek, intimately arranged lounge seating with coffee tables and lamplight. Off to the side, a spacious self-serve area offers nuts, cookies, water, cappuccinos and lattes, all free of charge. How’s this for attention to detail: instead of paper cups, the lattes are served in mugs, and are held in a special countertop rack that warms them as they wait to be used.

While such perks help cultivate passenger loyalty, it’s long been assumed Porter had plateaued. Billy Bishop is restricted to 202 landing slots daily, and the Q400s can’t fly any farther than Porter already flies them. Jets are banned and, anyway, fuel-guzzling jet engines have never fit Porter’s business plan, which calls for fuel-efficient planes with low break-even load factors.

That’s where Porter’s deal with Bombardier comes in. Deluce likes to call the CS100 a “whisper-jet,” though it would be more accurate to say that it’s a “mimic-jet”—one whose noise profile and fuel consumption look more like those of a turboprop. The CS100, which is expected to make its maiden test flight this fall, burns up to 15% less fuel, and is also far quieter than a traditional jet engine—a perfect fit for Porter’s business model, and its home airport. “That plane will be a game changer in the 110- to 130-seat regional category,” says Erickson.

Whether the CS100 will ever land at Billy Bishop is another matter. Deluce has made two requests of Toronto city hall. The first is to extend the runway into the water by up to 200 metres at either end. Detractors fear the extension will be detrimental to pleasure boating in Toronto’s inner harbour. Deluce insists the move will not require an extension of the marine exclusion zone that already keeps watercraft and aircraft at safe distance. Moreover, he says, the extensions are required to meet new Transport Canada safety regulations.

His second ask is more contentious: exempt the CS100 from Billy Bishop’s ban on jets. Exemptions have been granted before, though not for jets: the old Dash-8 aircraft didn’t meet the airport’s strict noise standards either, but was allowed to land there anyway. Deluce says Bombardier has guaranteed him the CS100 will have a noise signature similar to the Q400, and his purchase agreement is conditional on the performance. “If the CS100 can’t meet the requirements, we don’t want it,” he says. “My company is profitable, and we would be happy to continue as a regional operator.”

That would be the preferred option for Adam Vaughan, the local councillor. “There are five other jets in production that could land on the runway configuration Porter is proposing, and once the airport lets one in, they’ll have to let them all in,” he says. Vaughan also points to the waste-transfer and food-service needs that long-haul flights require, fearing the industrial expansion passenger growth will bring. “Deluce is proposing something very big and complex, and the solution isn’t as simple as he makes it out to be.”

Porter Airlines' Bob Delulce announces the purchase of a dozen Bombardier C-series aircraft, Apr. 10, 2013 (Photo: Keith Beaty/Getty)
Porter Airlines’ Bob Delulce announces the purchase of a dozen Bombardier C-series aircraft, Apr. 10, 2013 (Photo: Keith Beaty/Getty)

Vaughan says it’s unlikely Toronto city hall will approve Deluce’s plans, but Deluce’s cunning and persistence have helped him beat the odds before. If he wins, the changes will transform Billy Bishop from a regional into a continental hub. But in this case, the sky is not the limit. “There’s definitely a cap on growth at that airport,” says Steve Silverhart of HUBS Aviation Consulting, who spent a year as ground services manager at Billy Bishop, which handled two million travellers last year. “You’re never going to see five million passengers through there.”

Maybe not—but you might get awful close. By trading up on its fleet, Porter intends to grow primarily by adding more seats and putting more bums in them. While Porter’s Q400s seat 70 passengers, the CS100s would carry 107—a 52% increase. The new planes will certainly allow Porter to increase its share of the Toronto-Ottawa-Montreal route, as well as to expand its reach. Porter’s current 70-seaters are, on average, less than two-thirds full. Add 37 seats to most planes, fill them all, and the passenger ceiling suddenly gets a lot higher. A recent City of Toronto report reckons that, even on the low end, Billy Bishop will handle in excess of four million passengers yearly.

Can Porter keep them all happy? The airline’s reputation rests on its customer service levels, and there is evidence a downward slide has already begun. The self-serve latte bar is busier than ever and not well organized to handle flow. And not everything is free anymore: a miniature cafeteria kiosk now sells gloriously mundane cellophane-wrapped sandwiches, along with chips and soda pop. Perhaps more to the point, checked baggage is no longer free on Porter’s U.S. flights: the first bag costs $25, the second $35, and the third $100, matching Air Canada’s policy.

Erickson isn’t surprised. Compared to the major carriers, Porter was leaving a lot of revenue on the table by not charging for baggage. But he believes Porter will never have to completely abandon its service advantage. “The way this industry is going, anything you want from an airline in terms of convenience, comfort or flexibility, you will have to pay for,” he says. Porter has to stay only slightly above the pack to keep its reputation intact, an easy task in an industry whose customer service is sure to get worse.

Air Canada and WestJet have been watching closely and girding for a battle—but not the one you’d expect. Instead of trying to foil his expansion, they’re letting him do the heavy lifting with regulators; once that’s done, they’ll fight him in the skies. Air Canada, after a lengthy court battle, now holds 30 of Billy Bishop’s 202 landing slots. WestJet, which recently took delivery of its first two Q400s, wants to gain a toehold on the island too. Some Bay Street analysts believe Porter and WestJet are doing the merger two-step, but Deluce denies any talks, and smiles his predator’s smile at the prospect of landing his CS100s in WestJet’s Calgary backyard. A sale would go not only against Deluce’s character, but against WestJet’s and Air Canada’s too. “Unless it’s a distress sale, no one will buy Porter,” says Erickson. “They’d all rather fight it out on the routes.”

In the meantime, Deluce continues to streamline Billy Bishop’s operations. In recent months, the airport’s remaining clutch of small operators and private pilots allege they’ve had their leases terminated or their rents jacked up by as much as 300%—all of which has landed Porter in court yet again. “The airport should be renamed Bob Deluce Airport, because that’s the extent of control and influence,” says the pilots’ lawyer, Julian Falconer.

It’s doubtful Deluce would see that as an insult. Under his influence, that airport has gone from desertion to prosperity. Torontonians have made peace with it too: public opinion in the city, firmly set against the airport’s expansion only a decade ago, now sees it as a boon. But the spectre of jets has rekindled the fires of Deluce’s opponents. Olivia Chow, still an opponent of airport expansion, is mulling a run for Toronto mayor next year. Interest groups such as CommunityAIR and NoJetsTO don’t believe the CS100s will meet their promised noise and emissions standards.

Deluce is undeterred. “He won’t be caught off-guard by the criticism the way he was in 2003,” says Carty. Deluce has friends in high places: the former CEO of the Port Authority who helped him get Porter off the ground, Lisa Raitt, is now the federal minister of transport. The way Deluce tells it, going from turboprops to jets will be no more disruptive than upgrading your cellphone: the new one is faster, more efficient and just as quiet. And who doesn’t want a new cellphone? Bob Deluce isn’t selling jets, runways or even an airline. He’s selling Toronto an upgraded operating system for air travel, and travellers everywhere are hoping he can close the deal.

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