Airline Industry, Rivalry, Barriers to Entry

Today's Boston Herald describes the rapid growth in both performance (sales) and capacity (# of planes) of Canada-based Porter Airlines.  The article contains much information relevant to to two of the "Five Forces" described in the industry analysis framework of Harvard Business School Professor Michael Porter (no relation).  Most notable are references to the determinants of the two forces labeled "industry rivalry" and "barriers to entry." The 5-forces framework identifies several factors that influence the intensity of rivalry, e.g.  the tendency for capacity to be augmented in large increments, the degree of product and service differentiation,  and the diversity of competitors. Though rather short, the article manages to touch upon each of these. 

Concerning the former, we are told the following, the CEO states that "We know we can easily add one or more additional flights.” The 3-year-old airline will add a 14th 70-seat Bombardier Q400 aircraft to its fleet Tuesday and will have 18 in service by November and an expected 20 by April."  What we may gather here is that capacity may be augmented in increments of flights of one or more. Those flights are on planes with 70 seats and cover a distance of 431 miles. This translates into just over 30K airline seat miles (ASM). We are further told that Porter Air competes with Air Canada and American Eagle, both large, legacy carriers. While there is no information given about the size of Air Canada's jets, American Eagle flies very small jets on commuter flights as well as those to and from small regional airports. Thus, it is mos likely that capacity can be augmented in single flights for all three airlines, with the largest most likely being Canada's national carrier.

Rivalry is also said to be intensified to the degree that products and services are undifferentiated. One which in which Porter differentiates itself from Air Canada and American Eagle is the airport into which it flies: it's the only of the three that flies into Toronto's City Centre airport. The others fly "into Toronto Pearson International Airport in Mississauga, about 17 miles and a $60 cab ride from downtown..." By contrast, from City Center airport "travelers can take a 1.5-minute free ferry ride to the mainland and then a free six- to seven-minute shuttle bus to downtown." Porter also differentiates itself through in-flight amenities (complimentary beer, wine and “premium” snacks, leather seats) and pre-flight perks ( e.g.,  a business-style lounge in Toronto). 

Concerning barriers to entry, we see one in the form of government policy that may indirectly affect rivalry.  Specifically, as a Canadian carrier Porter is prohibited from flying passengers between cities in the US. That law does not, however, prevent Porter from flying from Boston's Logan to other Canadian destinations.