An airline is only as strong as its route network so it's no surprise that major carriers fight hard for access to top airports. And in the last few years, Canada's top airlines have each pushed for a greater presence at Toronto's Billy Bishop Airport.
But recent discussions by Air Canada (TSX:AC) could signal a change in both the airline's and the airport's future.
Location, location, location
Unlike the larger Toronto Pearson International Airport, which lies 14 miles away from downtown Toronto, Billy Bishop Airport sits on the Toronto islands and allows incoming passengers to walk into the city.
But while Toronto Pearson is dominated by Air Canada and WestJet Airlines (TSX:WJA), Billy Bishop is dominated by privately held Porter Airlines accompanied by limited service from Air Canada.
As Porter Airlines has looked to grow, expansion at Billy Bishop is near the top of the agenda. However, the ability to expand is currently constrained by a ban on jet aircraft at the airport. Determined to push forward anyway, Porter is pushing local officials to end the jet ban and approve the lengthening of runways to accommodate larger aircraft.
But the expansion proposal has attracted Air Canada and WestJet as well, with both airlines registering their interest in acquiring slots at the airport. No decision has been reached as to which airlines would get additional slots.
Although Air Canada currently operates service at Billy Bishop and has expressed interest in acquiring additional slots, the airline may be changing its tune in a bid to cut costs. Now, the airline is evaluating whether or not to continue its 15 daily roundtrip flights to Montreal; its only flights using Billy Bishop Airport.
Despite pushing for expansion at the airport less than a year ago, Air Canada's Billy Bishop service may fall victim to the airline's cost cutting plan that seeks to reduce costs by 15% over the course of five years.
Even a rise in traffic last year may not be enough to save the service. Air Canada does not break down each route for margins and profitability but the fact that the airline is considering ending these flights shows that the route leaves something to be desired.
Air Canada would not be the only airline to reduce service at Billy Bishop Airport. In 2011, its Star Alliance partner United Continental Holdings (NASDAQ:UAL), parent company of United Airlines, declined to launch a service to utilize the 16 slots it was awarded.
At the time, United cited fuel prices for making such service uneconomical. Since fuel prices have declined significantly in the past few months, there is a possibility that United may reconsider but the airline has yet to make such an announcement.
Winners and losers
While Air Canada will make its own decisions over whether cutting this service would benefit the airline, there are other companies that stand to win or lose if Air Canada ends flights.
The situation for Porter Airlines remains up in the air. While having Air Canada leave would remove one competitor, another may come to use the slots left behind. Such a carrier may or may not aggressively compete with Porter. Either way, Porter controls most of the airport's slots and seems intent on maintaining its position.
One company that would be disappointed by such a move would be Bombardier (TSX:BBD.B). The company makes the C Series which is particularly well suited for Billy Bishop Airport if the ban on jet aircraft is ended. Last year, Air Canada declined to place an order for the C Series but left open the possibility that an order could be placed in the future. But if the carrier ends service at Billy Bishop, then the chances of Air Canada placing an order for the C Series decline significantly.
Air Canada has seen a major turnaround in the past few years mostly due to a combination of international expansion and cost cutting. With cost cuts being a core part of the airline's turnaround plan, it would not be surprising to see underperforming routes get cut.
While its tough to gauge how the Montreal to Billy Bishop flights have been performing for the airline, I would not be surprised to see cuts in this area as Air Canada looks to lower its cost structure and become more competitive with rivals.