Porter Airlines

Executive Summary

This report takes a look at the current environment and gives key recommendations on which steps to take in the near future during these uncertain times. The key objective is to ensure the success of Porter Airlines as a whole by helping to maintain and/or increase both profitability and long term success. The recommendations, given after having concluded a comprehensive environmental scan as well as a SWOT analysis, recognize Porter Airlines’ unique competitive standpoint and keep in mind their key focuses on their speed, convenience and service.

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Our analysis has shown that Porter Airlines is actually standing on a very firm base in terms of internal structuring and marketing. Past marketing initiatives have been strong and successful, positioning Porter as the airline for leisure and business travellers. Choosing key cities to expand in, the Company has kept their operations small and efficient, both in terms of cost and control. Their investment in the technologically advance Q400 airplanes have been timely and have also enabled them to reduce costs where possible. However, external factors are proving to be difficult with political factors creating a possible monopoly for the Star Alliance group (major competitor Air Canada is a founding member)[1] as well as the overall economic slump giving the entire industry a hit. Major competitors are in an easier position to negotiate lower operational costs but Porter still has a safety cushion if the need to cut costs proves itself.

Because most of the factors affecting Porter currently are external, Porter Airlines will have to mainly weather the storm. However, because competitors must do the same, Porter can use this time to expand and develop their rewards program (which is not as diverse as the competition) as well as spend more money on product-driven advertisement since the mindset during the economic crisis focuses more on value for the dollar. With their physical expansion, they can also start negotiating competitive prices to lower operational costs.

Environmental Scan

Internal Environment

Past and Present Marketing Activities

Since its launch, the marketing activities undertaken by Porter Airlines have evolved slowly but surely into a comprehensive program that acts as a solid base for the Company’s continued expansion. Porter’s beginning steps in brand marketing were integral with their slogan “Flying Redefined” and their commercial that emphasizes their focus on speed, convenience and service. Their marketing program started evolving afterwards to include product-driven advertising (such as their direct flights to and from New York) as well as creating the VIPorter rewards program. Last year, they also started “building hotel, transportation, retail and entertainment partnerships”[2] as they planned to expand in the United States.

All of the mentioned activities were logical continuations of the one before and definitely proved to be a beneficial influence on their overall sales. Their branding has been strong enough to elicit images of their technology advanced Q400 airplanes and business friendly services (instead of rude service and uncomfortable seating with other families)[3]. Because of this, their marketing budget should see a shift in emphasis so that the majority is spent on two main aspects. The first is a continuation of their product-based advertising (with a highlight on the new flights to Calgary, Vancouver and Florida). This advertising will help bring their already strong branding home, connecting their service with the consumers’ needs and wants. The second aspect is to continue developing their VIPorter rewards program by continuing to expand their existing partnerships with varied services in the cities they fly to. By doing so, they can create an unbeatable package with little or no cost to Porter themselves.

Human Resource Capacity

One of the three aspects that Porter Airlines prides themselves on is their exceptional service. The level of professionalism that they maintain is crucial in staying competitive. Because of their relatively small number of staff, they can continually train their staff, keeping them up-to-date with new policies and procedures at less cost than larger airlines.

Operational Capacity

Success in the airline industry means more sales volume while continuously maintaining low operational costs. In terms of both, Porter Airlines seems to have remained steady in keeping up its competitive edge. With the new incoming batch of Q400 airplanes (more due at the end of the year), Porter has been able to enjoy better performance at less cost (less vibrations, good speed, and gas efficient). This coincides as well with more capacity for new flights if needed.

Financial Strength

As stated in the brief, Porter Airlines has received $2,000,000 in investments for the new flights. In our preliminary analysis, this investment should be enough but our assessment will continue to be revised as the economic crisis continues. However, with four major investors, Porter should rest assured that they can get past the economic slump.

External Environment

Political/Regulatory Environment

In the larger more broad sweep of the political environment, factors that affect airlines in general include the tighter restrictions placed on air travel due to terrorist attacks internationally. This is especially important to Porter Airlines since a portion of daily flights goes to and from Canada to the United States. Because of the increase in security, passengers will be subject to longer and more stressful customs/border experiences. Another factor that may hold bearing on Porter’s activities is the re-election of the Conservative Party as Canada’s leading political party. The Conservative Party has, in the past, been more partial to economics and may relax business regulations that may benefit, or at least affect, Porter Airlines.

In a more direct environment, recent U.S. regulatory activities show plans that will grant anti-trust immunity to different airlines that are related to Air Canada. This has direct impact on Porter Airlines as these airlines would have complete monopoly (or lion shares) of flights in certain areas (such as from Toronto to New York)[4].

Economic Environment

One of the largest and most prominent problems right now is the world economic slump. Coinciding with fluctuating gas prices, companies everywhere are finding it hard to keep a stand. Because Porter Airlines targets two different audiences, the economic slump can affect them in two ways. The first is, as is normal in any economic slump, their leisure travellers may find it harder to spend money on vacations or personal trips. The second is that business travellers may not find a reason to travel. With the new U.S. president pushing for a protectionist economic position, Canadian companies may find it hard to continue to stay in the American market. This may however be negated by the fact that business travellers will be flying out even more often to ensure their business stays afloat.

A trump card in this economic crisis is the slowly increasing trend of people taking personal vacations when they lose their job. Many are purposely taking a vacation to a different place to get away from their stressful lives.

Social and Cultural Environment

In general, quick weekend trips have become more common with the “yuppie” generation. People are taking longer to get married and prefer to spend their extra money on quick vacations for themselves and/or with friends. These types of people expect good service and the ‘bang for the buck’ which positions Porter Airlines quite well since their service is customer oriented but also gives more for the dollar.

Technological Environment

Today’s world is seeing technology move forward at a rapid pace. Because of this, people expect a good service oriented company to stay ahead of the times. Airlines are no exception, especially when the targets are people whose lifestyles are submerged in technology as well (with their Blackberries, laptops and other mobile technology). Porter Airlines should not have a problem in this aspect however since their air fleet boasts new and technology advanced Q400s. The consumer can also feel at home with the personal lounge in the boarding zone that offers complimentary wireless internet and business work stations.

Competitive Environment

Competition is tough in Canada with heavyweights Air Canada, their discount company Jazz, and WestJet holding a predominant position. After breaking into the American market, Porter Airlines also has to compete with major U.S. airlines. Because of their size, they can negotiate for cheaper operational costs which then lead to their ability to cut air fares.

However, Porter Airlines holds key advantages with their flights flying straight to the city centers which minimize travel costs for consumers. They also offer complimentary refreshments and internet at their boarding zones along with onboard meals- both of which have been cut from larger airlines. Furthermore, their fare structure and their “green” airplanes give them a perceptive edge in a society that has become more environmentally aware but also appreciates flexibility in pricing.

SWOT Analysis

Internal Factors
Activity
Impact
Strengths
Past and present marketing activities:

Past Branding campaigns in creating positive image -“Flying Redefined”

Product-driven advertising

VIPorter rewards program – needs to be developed but has good foundation

High

High

Medium

Strengths
Human Resource Capability:

Small numbers- easily trainable staff (cost efficient)

Training programs held relatively often to keep staff professional and up-to-date

Medium

High

Strengths
Operational Capability:

Increase market share by providing exceptional service at a valued price

New batch of Q400s more cost-efficient, helps to leverage profit

Additional capacity for new flights with incoming airplanes at end of year

High

High

Medium
Strengths
Financial Strength:

Secured funding to execute marketing plans

Varied investors for market security

High

Low
Weaknesses
Past and present marketing activities:

Need to further develop VIPorter rewards program/ expand partnership base to make program more comprehensive

Medium
Weaknesses
Operational Capability:

Incoming fleet may prove to be weak link if economic crisis lasts too long- sales volume may not be high enough to fill new airplanes

Medium

External Factors
Activity
Impact
Opportunities
Political/Regulatory:

Conservative government may create good business environment

Low
Opportunities
Economic Environment:

Vacation trips may be on rise as people pamper themselves after losing job in economic crisis

Medium
Opportunities
Social and Cultural Environment:

Quick vacations to other cities are becoming norm with ‘yuppie’ generation

Porter’s quality for the dollar fits expectations and brings them above airlines with perceived bad service

High

High
Opportunities
Technological:

Fuel efficient plane allows Porter to save fuel cost

Technology-welcome atmosphere (waiting zones) provides better more accommodating atmosphere for business travellers

Medium

Medium
Opportunities
Competitive Environment:

Porter provides free onboard meals, complimentary refreshments and other services that have been cut out of other airlines

Fleets are ‘green’ with good speed and performance for less fuel- marketable aspect

High

Medium
Threats
Political/Regulatory Environment:

Uncontrollable factors (terrorist attacks, etc) have led to stricter security measures with customs leading to negative flying experiences

U.S. regulatory plans in favour of competition

High

High
Threats
Economic Environment:

Given recession, business and leisure travelers will reduce significantly

High

Threats
Competitive Environment:

Other major carriers have economic clout to enter price war

Other carriers offer better more comprehensive loyalty rewards programs which affects market share distribution

High

Medium

Question #3: Considering the current state of the economy and nature of the product, discuss opportunities for future product development in the airline industry.

As is recognized by the Chairman of Porter Airlines, Donald Carty, the economy is in a state of crisis and has of yet, still to improve. It is acknowledged that because of this, most consumers will “hunker down” and decide to spend less. This in turn affects companies where they maintain heavy operational costs in hopes of justifying it enough with volumes of sales. In the case of Porter Airlines, it seems like they will be able to weather through the crisis with their 1) lowered operational costs because of cost-efficient Q400s, 2) smaller operational costs with lower cost structure and fewer staff , 3) newer incoming fleet still months away which will avoid more costs of flying without full capacity. They still have flexibility in terms of pricing since they offer more than the major competitors and can brave the political landscape better without having to lay off large numbers of staff.

The economic crisis is projected to last until 2010. Until then, Porter Airlines can use the time to further expand and develop their rewards program, expanding it to include partnerships with other companies. By doing so, they can make it more comprehensive and competitive with existing programs by other airlines.  They can also continue to stay ahead in technology and invest in customer oriented services. With their expansion, they will also have more leverage in their negotiations for lowered operational costs.

This year is an ideal time to do the above as larger companies will be more concerned with cutting costs and capacity. Their services and programs will stay stagnant or only improve slightly. Because of this, Porter should continue to expand and look to develop in order to come out on top when the economy has balanced out.

Question #4: In your opinion, do you believe the airline industry market will continue to grow as industry consultants predict?  Why or why not?

The airline industry will definitely run into some obstacles before it can improve. Before the economic hit, the airline industry was already under a lot of pressure to lower costs because of soaring fuel prices. Sales took a hit and companies were forced to lay off workers and cut capacity. Now, with the economy in its slump, the United States is taking a protectionist stance and consumers feel the need to save instead of spend. The airline industry is, in effect, taking hits left, right and center. Larger airlines will be forced to cut down in size, shedding off excess bulk that cannot be used at this time.

However, once the economy has bottomed out, the airline industry may see a healthy boost again. In the last decade, there has been an increasing trend whereby middle-high income earners choose to enjoy life and travel around for awhile before settling down. Indirectly, this also means that there will be the need again for an airline, such as Porter, that offers services that bring city dwellers to experience life elsewhere. This was not possible before since people settled down earlier, raising families at an early age. Business travelers are also expecting their travel to suit their lifestyle so services such as Porter’s passenger lounge with business workstations will become more prevalent. Additionally, services once cut by larger airlines will be added again to their flights in order to add more of a competitive edge in the new playing field after the slump.

Therefore, in the short run, the airline industry will experience a ‘shedding’ but will come out in the long run as a market ready to become sleeker, less bulky and more user friendly.

[1] http://www.thestar.com/Business/article/580507
[2] www.flyporter.com
[3] http://www.thestar.com/comment/columnists/article/408791
[4] http://www.thestar.com/Business/article/580507

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