Canada’s airline industry is being remade, which is good for business travellers, and bad for the rest of us – The Globe and Mail

Written by on 17/05/2019

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Porter Airlines, the Toronto-based regional carrier with the raccoon logo, is in the enviable position of being a perfect complement to the country’s second-largest player, WestJet Airlines Ltd.

Chris Young/The Canadian Press

Canada’s two largest carriers are remaking the country’s airline industry and the wheeling and dealing isn’t expected to stop until there’s a new owner for Porter Airlines Inc.

Porter, the Toronto-based regional carrier with the raccoon logo, is in the enviable position of being a perfect complement to the country’s second-largest player, WestJet Airlines Ltd., which agreed to a friendly $3.5-billion buyout from private-equity firm Onex Corp. last Monday. The case for consolidation grew stronger on Thursday, when market leader Air Canada announced it’s in exclusive talks to acquire charter company Transat A.T. Inc. for $520-million.

These two takeovers are driven by WestJet and Air Canada’s shared goal of putting more business travellers in their planes. The acquisition of Transat and any potential deal involving Porter hold no joy for the rest of the flying public. Airline consolidation in a country that limits access for foreign carriers is going to mean less competition, in the form of fewer seat sales and higher ticket prices.

After announcing an offer for WestJet, Onex managing director Tawfiq Popatia said his company had no plans to stage what the private-equity types call a “roll up” strategy by moving quickly to snap up smaller rivals. And at Porter, spokesman Brad Cicero said the two recent deals “highlight general investment interest in the airline industry, but have no direct impact on Porter’s business. Porter is not considering a sale process.”

However, in finance circles, there is widespread expectation Onex’s long-term plan for transforming WestJet into a far more serious competitor to Air Canada will involve additional acquisitions.

Calgary-based WestJet’s potential interest in Porter starts with the airline’s network across the eastern United States, Ontario, Quebec and the Atlantic provinces. These are high-volume destinations, and Canada’s financial centre is minutes away from Porter’s main hub at Billy Bishop Toronto City Airport. For business travellers, convenience counts.

Convenience is an issue when New York-bound passengers book a Porter flight. Their planes are routed through the airport in Newark, N.J., easily an hour from Manhattan. WestJet could shift those flights to its eight existing slots at a far more convenient airport, New York’s LaGuardia, which is currently getting a long-overdue renovation.

The logistics of a partnership between Porter and WestJet work well. The two carriers already fly the same plane – the 80-passenger, propeller-driven Bombardier Q400. And both airlines can claim a customer-friendly service culture.

It’s worth noting that Porter has been up for sale in the past. Its owners are founder Robert Deluce and his family – son Michael Deluce took the reins as CEO last month – along with private-equity investors Edgestone Capital Partners and the Ontario Municipal Employees Retirement System, or OMERS. The group attempted to take the company public in 2010, but pulled the offering when they couldn’t get the price they wanted, opting instead to sell the terminal in Toronto for an estimated $700-million.

Looking further ahead, Porter has long lobbied for permission to fly jets from Toronto’s island airport. To date, the federal government has nixed the idea. But if a new generation of quieter jets is allowed to take off and land at Billy Bishop – a move endorsed by Ontario Premier Doug Ford – it would dramatically increase Porter traffic through Toronto. That sort of game-changing shift is straight out of the private-equity playbook followed by investors such as Onex. An equally seismic shift would result from allowing foreign airlines greater access to the domestic market, or the opportunity to own a Canadian carrier.

The history of Canadian aviation is filled with airlines that soared for a time, only to hit turbulence and be sold to stronger rivals. That list includes Wardair, Pacific Western, Canadian Airlines and Air Ontario, which the Deluce family sold to Air Canada in 1986. The current round of consolidation is notable because it will see two deep-pocketed carriers with strong leaders – Air Canada under CEO Calin Rovinescu and founder Gerry Schwartz at Onex – vying to dominate the domestic skies. It’s a corporate battle that will captivate Bay Street and benefit the business flier, and leave the rest of us paying more to check our baggage.

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