Portugalia has cemented its position as the first and, so far, the only home-grown challenger to TAP since its launch in 1990. The carrier is one of the best examples of the gradual impact of deregulation in Europe. It has followed an opportunistic path from the domestic market through limited international operations - including one eighth freedom route - to other niche operations made possible by the 50-seat regional jet.

The emerging viability of long, thin operations with the regional jet has offered up a new niche in Europe to Portugalia. The airline received the first two of six EMB-145s earlier this year and has used the aircraft alongside its six existing Fokker 100s to carve a niche in Portugal-Spain business markets. Portugalia now operates daily services from Lisbon and Porto to Barcelona, Bilbao, Las Palmas, Palma and Tenerife. It also serves Bilbao from Lisbon via Madrid.

The extra capacity saw a 20.5 per cent jump in passengers in the first nine months of the year and a 38 per cent increase in international passengers. The carrier already operates Fokker 100 services to Madrid, Brussels, Manchester, Mulhouse and three German points. 'It's very difficult to expand quickly but it was a now-or-never decision,' says Joïo Ribeiro da Fonseca, Portugalia's chairman. 'Our strategy was never going head-to-head with the majors,' adds Francisco Bordalo, commercial director. 'The main goal was to serve the Iberian peninsula as a region.'

Four more EMB-145s are due to arrive by next March, with two more on option. These will allow Portugalia to move up to double daily frequency on most routes while adding a limited number of sectors, including Lisbon-Porto-Milan in December. Fonseca believes Portugalia is taking advantage of its competitors' weakness and has an 18-month head start. 'Our biggest problem is to absorb this phase of growth so we don't lose our aggressiveness and quality,' he says.

Portugalia broke even for the first time in 1995 and followed up with a PTE128 million (US$710,000) net profit last year. Sales climbed 75 per cent from 1993-6 reaching PTE14.95 billion in 1996 with a target of more than $100 million for the first time this year.

The carrier already has a firm hold on the small mainland market which accounted for 54 per cent of total passengers last year. It has a 75 per cent share on the 400,000 passengers-a-year Lisbon-Porto market, and 50 per cent on the smaller Lisbon-Faro sector.

The next task will be to challenge TAP, with which it codeshares on some European and domestic sectors, on routes to Madeira and the Azores when they are deregulated next year. Fonseca says the carrier will lease in B737s if it decides to enter the market and will use the feed from its existing international services.

Portugalia is controlled by the Espirito Santo financial group which has expressed its desire to sell off its 80 per cent holding to a strategic partner. In July the airline signed up with British Airways' FFP and Fonseca is actively seeking more alliance agreements.

Source: Airline Business