Porter Airlines: Where's the Momentum?
Community Air Press Release of May 28, 2010:
Porter Aviation Holdings’ Final Preliminary Prospectus, released last Wednesday, reveals
some disturbing numbers in its first quarter (Q1) 2010 financial results.
Having spent $25 million in sales and marketing over the 2009 year, what does it have to
show for that spending in 2010? Do the Q1 2010 numbers disclose any momentum in a
positive direction?
A comparison between the last two consecutive quarters, Q4 2009 and Q1 2010, tells the
story:
Revenues dropped by $4,300,000.
Operating expenses increased by $2,164,000.
Cost per available seat mile increased almost 10% - from 22 cents to 24 cents.
Net income of $455,000 in Q4, 2009, slid in Q1 2010 to an operating loss of
$5,972,000 in Q1 2010. That loss over three months is $1,363,000 greater than the
total loss for all of 2009.
Surprisingly, these worsening numbers were achieved after spending a whopping $7.4 million
on sales and marketing in Q1 2010, and regularly offering discounted pricing.
Other numbers also paint a difficult financial picture.
Porter’s load factor (percentage of seats filled) dropped in Q1 2010 to 47% from
50.2 % in Q4 2009. The Q1 load factor dropped slightly below the total 2009 figure
of 47.9%. Still flying with more than half its seats empty.
Working capital deficit ($11,846,000 as of December 31, 2009) deteriorated to
$33,467,000 by March 31, 2010.
Restricted cash ( money held by credit card companies as security for unused ticket
purchases, should they have to be refunded) jumped from $12,256,000 at December
31, 2009 to $17,581,000 at March 31, 2010
Unrestricted cash fell by $10,732,000 to $9,179,000 at March 31, 2010 – enough for
about two weeks’ expenses (monthly expenses are now almost $18 million).
Accounts payable rose to almost $28 million from $24 million at December 31, 2009.
Given spending of $14 million per month (excluding salaries) in Q1 2010, suppliers
are waiting about two months to be paid. How patient will they continue to be?
As reports from Porter’s customers are positive, one would have expected these numbers to
be much more positive. Producing worsening numbers after almost four years of operation
and massive expansion suggests there’s something deeply wrong with Porter’s business
model. As one long-time industry insider noted:
"Their operating margin including interest as an expense places them squarely, and
quite handily, as the worst performing airline in North America in 1Q 2010. For the
record, that margin is -16.11%. As I recall, the next worst was AMR [American
Airlines] at -10%."
Another financial analyst put it this way:
"What's wrong with this picture?
A 4 year old monopolistic airline with a sophisticated operation generates a $6
million dollar loss in Q1 2010 notwithstanding a doubling of passenger volume vs.
Q1 2009 and heavy price discounting across the board.
And Porter could only manage to fill 47% of seats available?"
Porter Aviation Holdings’ Final Preliminary Prospectus, released last Wednesday, reveals
some disturbing numbers in its first quarter (Q1) 2010 financial results.
Having spent $25 million in sales and marketing over the 2009 year, what does it have to
show for that spending in 2010? Do the Q1 2010 numbers disclose any momentum in a
positive direction?
A comparison between the last two consecutive quarters, Q4 2009 and Q1 2010, tells the
story:
Revenues dropped by $4,300,000.
Operating expenses increased by $2,164,000.
Cost per available seat mile increased almost 10% - from 22 cents to 24 cents.
Net income of $455,000 in Q4, 2009, slid in Q1 2010 to an operating loss of
$5,972,000 in Q1 2010. That loss over three months is $1,363,000 greater than the
total loss for all of 2009.
Surprisingly, these worsening numbers were achieved after spending a whopping $7.4 million
on sales and marketing in Q1 2010, and regularly offering discounted pricing.
Other numbers also paint a difficult financial picture.
Porter’s load factor (percentage of seats filled) dropped in Q1 2010 to 47% from
50.2 % in Q4 2009. The Q1 load factor dropped slightly below the total 2009 figure
of 47.9%. Still flying with more than half its seats empty.
Working capital deficit ($11,846,000 as of December 31, 2009) deteriorated to
$33,467,000 by March 31, 2010.
Restricted cash ( money held by credit card companies as security for unused ticket
purchases, should they have to be refunded) jumped from $12,256,000 at December
31, 2009 to $17,581,000 at March 31, 2010
Unrestricted cash fell by $10,732,000 to $9,179,000 at March 31, 2010 – enough for
about two weeks’ expenses (monthly expenses are now almost $18 million).
Accounts payable rose to almost $28 million from $24 million at December 31, 2009.
Given spending of $14 million per month (excluding salaries) in Q1 2010, suppliers
are waiting about two months to be paid. How patient will they continue to be?
As reports from Porter’s customers are positive, one would have expected these numbers to
be much more positive. Producing worsening numbers after almost four years of operation
and massive expansion suggests there’s something deeply wrong with Porter’s business
model. As one long-time industry insider noted:
"Their operating margin including interest as an expense places them squarely, and
quite handily, as the worst performing airline in North America in 1Q 2010. For the
record, that margin is -16.11%. As I recall, the next worst was AMR [American
Airlines] at -10%."
Another financial analyst put it this way:
"What's wrong with this picture?
A 4 year old monopolistic airline with a sophisticated operation generates a $6
million dollar loss in Q1 2010 notwithstanding a doubling of passenger volume vs.
Q1 2009 and heavy price discounting across the board.
And Porter could only manage to fill 47% of seats available?"
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