BATTLE FOR BILLY BISHOP
TORONTO’S TINY ISLAND AIRPORT HAS BECOME A LIGHTNING ROD FOR CONTROVERSY AS AIR CANADA CHALLENGES PORTER AIRLINE’S ‘ NEAR MONOPOLY’ ON THE REGIONAL HUB.
THERE IS NO PRECEDENT FOR AN AIRPORT AUTHORITY TO DICTATE ROUTES AND RESTRICT COMPETITION. IF ANYTHING, THEY ENCOURAGE COMPETITION.
— BENJAMIN SMITH, AIR CANADA
Someone with a healthy streak f or mischief must have come up with t he idea to rename the airport on Toronto Island after Billy Bishop.
The 2009 decision to link the legendary First World War flying ace to the airport was meant to be a feel- good story: Bishop once ran a flight service for wealthy Torontonians from the island to Ontario cottage country, and the new name was a popular choice.
But over the past decade, the airport has become almost as renowned for political and business dogfighting as Bishop’s aerial feats over German lines a century ago.
Depending on how you measure it, Billy Bishop Toronto City Airport is either the seventh- or ninth-busiest in Canada. Last year, roughly 2.5 million passengers passed through the airport’s terminal, built five years ago, a number expected to remain stable or slightly rise in 2016. On a typical weekday, there are 202 commercial takeoffs or landings on the island, connecting the airport to 24 short-haul destinations in Eastern Canada and the United States.
It’s a remarkable turnaround from the early 2000s, when the airport’s shabby buildings were in desperate need of improvement and the single commercial carrier operating there, Air Canada Jazz, flew only to Ottawa.
“Back then we all hoped the airport would turn out to be the jewel in the crown that it has become,” says Toronto lawyer Michèle McCarthy. She was chair of the Toronto Port Authority, the federal agency that oversees the airport, when the transformation began. “Considering where we started, one can be quite proud of how it came together.”
But the makeover did not come without fierce battles, some of which created lingering bitterness that re- mains in play as Billy Bishop enters an uncertain stage in its history.
That stage was set in December when the Justin Trudeau government, freshly elected, kept a campaign promise not to amend the tripartite agreement Ottawa has with PortsToronto ( the port authority’s new name) and the City of Toronto to allow commercial jets at Billy Bishop.
In 2013, Porter Airlines Inc., the airport’s main tenant and itself a lightning rod in Billy Bishop’s evolution, boldly asked to have the 32- year- old agreement rewritten so it could use jets to fly to destinations — Western Canada, San Francisco, Miami, the Caribbean — located beyond the 1,800-kilometre range of its existing fleet of Bombardier Q400 turboprops.
The thinking was that Porter had done what it could with its short- haul service, now it wanted to take advantage of its virtual control of the takeoff and landing slots on the island to go head- to- head with its competitors, principally Air Canada, on service to more distant locations.
Robert Deluce, Porter’s brash chief executive, framed his proposal as a benefit for flyers — more options, affordable fares — as well as the local economy: 1,000 jobs on top of the 1,400 he already employed and up to an extra $ 250 million in annual economic activity.
“It’s time to spread our wings,” Deluce told the Financial Post at the time. “It’s what our customers are telling us: They want the convenience of the island and they want choice.”
As for the three-way agreement, scheduled to last until 2033, that imposes strict noise and curfew restrictions on the airport — no commercial flights are allowed between 11 p.m. and 6:45 a.m .— Deluce insisted his plan to fly Bombardier’s new CSeries aircraft, the shrewdly nicknamed “whisper jet,” would easily meet the noise limits.
Unsurprisingly, the community groups that had been fighting airport expansion — and even the airport’s existence — for decades weren’t buying it. They predicted the arrival of jets would create safety issues and lead to more traffic congestion and pollution, and that the 400- metre runway extension required to handle jets would further degrade waterfront that belongs to the public.
Porter’s principal rivals,
CUSTOMERS ARE TELLING US THEY WANT THE CONVENIENCE OF THE ISLAND.
Air Canada and WestJet Airlines Ltd., complained that allowing jets would be yet another example of how the airport had become Porter’s “private playground,” to use Air Canada chief executive Calin Rovinescu’s words.
If Porter got to fly jets, they said, they deserved their fair share of the action.
Deluce, who declined to comment for this story, sees things differently. “Our significant investment in the airport for the last 10 years has been a catalyst for its revitalization,” he said in a statement.
And that, in a way, takes us back to the beginnings of the success, and the troubles, at Billy Bishop.
In 1999, tired of covering the port authority’s deficits, the federal government restructured the agency and ordered it to find a way to make the airport self- sufficient.
With only Air Canada operating daily flights to Ottawa through i ts Jazz subsidiary, the authority decided improvements and expansion were required to eliminate the under-utilized airport’s $1 million in annual losses.
It was almost inevitable its officials would run into Deluce, a confident entrepreneur with decades of regional airline experience.
Since the late 1990s, Deluce had been developing an idea to use the island airport as a hub for a new regional service. It was an idea that after years of plan- ning, a nasty lawsuit over a cancelled drawbridge to the island, and the courting of investors for $ 125 million emerged as Porter Airlines.
By 2006, Porter was ready to fly. Under a new financial model, the port authority was to collect landing fees from the airline and airport improvement fees from departing passengers.
More crucially, Porter used the $20 million in compensation it received for dropping the drawbridge lawsuit to buy the airport terminal from the port authority. It promptly evicted its rival, Air Canada’s Jazz.
Then, under a contract whose details have never been made public, Porter was given more or less exclusive use of the airport for five years.
Air Canada was outraged, even more so when the port authority refused to find it another building from which to operate. It began a series of court challenges, arguing the authority had signed a contract essentially creating a monopoly at a publicly owned facility.
After a year, Air Canada was allowed back at the airport with one route — and an exorbitant rent bill, according to the airline. A decade later, Air Canada is still angry and still fighting for a bigger piece of the pie at Billy Bishop.
“It is not normal in the biggest city in a country for a startup airline to be given a near monopoly of a public asset — it doesn’t happen anywhere else in the world,” says Benjamin Smith, Air Canada’s president of passenger services.
“They have carved out a protection ... which in our mind is an unfair one and one which we believe will not stand the test of time.”
So far, Air Canada has lost its court battles, something Smith believes has more to do with lack of precedence than the validity of Air Canada’s position.
“It is difficult for judges to find any ... reference points, and with us being a much larger carrier and the port authority endorsing all of this, it makes it very difficult for us,” he says. “It has been a very, very challenging and slow process for us.”
What is particularly frustrating, Smith says, has been watching Porter get every advantage to flourish at the airport — the green light to build a $50-million terminal and then sell it in 2015 at a large profit being a prime example — when it was never offered any such opportunities during the years it operated there as the sole commercial carrier.
Former port authority chair McCarthy has a different recollection. She says when it became clear airport expansion had become a priority, several airlines, including a U. S.- based carrier, came by “to kick the tires.”
Every airline had the same opportunities, she says. Air Canada, McCarthy recalls, was “keen to move their operations out” of the island airport, which she concedes was in pretty sad shape at the time, and concentrate its energy at its hub at Toronto Pearson International Airport.
But more than that, McCarthy says, Porter showed up with a solid plan. “They came to us and said, ‘ We’re going to dedicate our efforts to this project’ and, frankly, that was really quite appealing to us.”
Deluce seems impatient with talk of favouritism: “We took the risk and we deserve to get some rewards,” he told a reporter in 2013.
Smith says Air Canada did not talk with the port authority about what was possible at the airport because it never thought such opportunities were available on the island.
The airline was in the middle of a losing battle with Transport Canada, which oversees the country’s airports, for the right to build its own terminal at Pearson, he says, and did not imagine the same department “would create this very lucrative special deal at the island.”
IT IS NOT NORMAL IN THE BIGGEST CITY IN A COUNTRY FOR A STARTUP AIRLINE TO BE GIVEN A NEAR MONOPOLY OF A PUBLIC ASSET.
— BENJAMIN SMITH, AIR CANADA
Karl Moore, a McGill University business professor and aviation expert, says he sympathizes with Air Canada, but also believes Deluce deserves credit for the “chutzpah he showed by making a success of an airport everyone else had left to languish.”
Brian Iler, head of the activist citizen’s group CommunityAIR, has a different take. He’d prefer no commercial flights at all on the island, but believes Porter’s “sweetheart deal” is so unfair that it almost turns Air Canada into a sympathetic underdog.
“The port authority either had to shut down the airport or find a way to make it viable, and it chose expansion,” he says. “So it encouraged the financial viability of Porter, which it saw as the best bet for the airport’s future.”
In the end, however, it all comes down to slots — takeoffs and landings. The same tripartite agreement that prohibits jets at Billy Bishop also contains a complicated formula that determines the number and timing of the slots allowed at the island each day.
From 2005 until 2010, Porter was given all but a few of the 112 slots, an advantage the port authority said was essential if the fledgling airline was to establish itself and, in turn, make money for the airport.
By 2009, with Billy Bishop operating in the black and Porter’s new terminal ready to open, the port authority decided to increase the number of slots by 90, and handed the decision on who should get them to a British- based independent slot allocation co-ordinator.
ACL-UK awarded 44 slots to Porter, another 30 to Air Canada and 16 to Continental Airlines. Porter was given Continental’s slots in a later allocation after the U.S.-based carrier merged with United Airlines, leaving Porter with 85 per cent of the 202 total.
Again, Air Canada took exception to the process, and went to court to have it overturned. Once again, it lost.
Geoffrey Wilson, chief executive of PortsToronto, says the slots went to Porter because it intended to use them to fly to destinations not already serviced by Billy Bishop. Air Canada appeared interested only in adding routes to Montreal, a destination served by airlines at both Billy Bishop and Pearson.
“They were aware of the criteria and the established slot allocation process we have at the airport,” Wilson says. “It is not an unusual process ... it’s something they would see at other airports in the world.”
Air Canada’s Smith says that’s simply not the case: “There is no precedent at any of the more than 200 airports where we operate around the world for an airport authority to dictate routes and restrict competition. If anything, they encourage competition.”
Beyond that, Smith says, Air Canada made it clear it intended to begin new routes to New York and Ottawa, but Porter got all 16 slots anyway.
Smith suggests that by advertising heavily in Canada’s major newspapers Porter has “bought peace of mind” — soft coverage — and argues that too many have accepted Deluce’s narrative that he is the little plane that could.
Air Canada would also like Ottawa to turn over administration of Billy Bishop to the Greater Toronto Airports Authority ( GTAA), which runs Pearson and which the airline believes is better able to manage complex airport operations.
So what happens next at Billy Bishop?
For starters, says PortsToronto’s Wilson, the number of slots will remain the same while his agency works with the city of Toronto to update its 2012 master plan for the airport.
PortsToronto can probably use an injection of good press
THE PORT AUTHORITY HAD TO EITHER SHUT DOWN THE AIRPORT OR FIND A WAY TO MAKE IT VIABLE.
after the jets controversy and activists’ criticism that its management of the airport benefits Porter more than the community. Taking it slow and consulting with the community is one way to do that.
Previous studies have shown the airport has a theoretical capacity of up to 3.8 million passengers annually, 50- per- cent more than now. Wilson says that won’t happen any time soon, if ever.
In the short term, PortsToronto has applied to have a U.S. customs preclearance facility located at Billy Bishop, the only one of Canada’s large airports without one. It is also pressing to extend the tripartite agreement beyond 2033 to make it easier to raise money for capital investments such as resurfacing a runway.
As for Porter, the airline has not said much about its plans since the jets proposal was nixed. Deluce has said his airline remains viable, and that Porter is committed to Billy Bishop for the long term.
Porter, a private company, was able to pay off its debt — which was $ 306 million in 2010 when it filed an initial public offering, subsequently scrapped — with proceeds from its passenger terminal, sold last January to Nieuport Aviation Infrastructure Partners GP. The terms of the saleleaseback deal weren’t disclosed, but published reports indicated it was a conditional arrangement that could raise 10 times the terminal’s original $50-million cost.
But some analysts have suggested the jets veto, Porter’s first serious setback in a decade, makes the airline vulnerable to a takeover. Even without the jets, it controls a healthy slot portfolio at an attractive airport.
Indeed, there are those who suggest that Deluce’s jets gambit was itself designed to make Porter attractive for a takeover, possibly by WestJet. Deluce has said that was never in the cards.
Whatever the case, Porter’s dominance at Billy Bishop remains the foundation of its business strategy. The airport’s appeal for business travellers hoping to avoid the long trip to Pearson to catch a flight is not in dispute.
Since the jets decision, there have been suggestions Porter might fly the CSeries jets out of other airports, but that would mean going headto- head with its competitors without the benefit of its main advantage.
“Billy Bishop is not Porter’s only asset, but it certainly is its biggest asset,” says McGill’s Moore. “There is such an advantage to flying out of there, whereas if they fly from Pearson or Trudeau (in Montreal), they have no advantage over Air Canada or any of the larger carriers.”
Moore says it is also possible Ottawa could reconsider its refusal to allow jets to help ease Quebec- based Bombardier Inc.’s financial woes. Porter had placed a conditional order for 12 of its CSeries jets with options for 18 more, a deal that would be worth more than US$ 2 billion.
But getting Ottawa to reconsider jets at Billy Bishop is a long shot, given the strong opposition to the idea from a group of Toronto-area Liberal MPs, including former city councillor Adam Vaughan. Vaughan referred calls to Transport Canada.
Air Canada, of course, wants a bigger piece of the action at Billy Bishop, and there are indications that at least one U. S. carrier is looking for a stake at the airport, and might even be willing to challenge Porter’s dominance there as a violation of the Canada- U. S. Open Skies agreement that guarantees reciprocal two- country airport access.
But as long as PortsToronto holds fast at 202 slots, and Porter remains viable and unswerving, there’s little chance of any of that happening anytime soon.
What we can count on, though, is more of the kind of skirmishing for which the airport’s namesake is famous.