Air Canada mulling its future at Toronto's Billy Bishop airport

Billy Bishop Toronto City Airport is pictured on Friday, July 26, 2013. (Michelle Siu / THE CANADIAN PRESS)

MONTREAL -- Air Canada is thinking about throwing in the towel on its operations at Billy Bishop airport near Toronto's downtown after nearly four years of operation.

The country's largest airline says its traffic from the island airport increased last year, but is nonetheless evaluating the viability of operating 15 round-trip flights per day to Montreal as part of its continuing efforts to cut costs.

Air Canada has long complained about the limited number of flights it is allowed to operate from the airport that prevents it from expanding its operations. The airline's (TSX:AC) main Toronto hub is at Pearson International Airport in Mississauga, Ont.

The Toronto Port Authority, which operates the airport, said Air Canada's reflection on its future at the tiny island airport came as a surprise.

"The TPA has had no discussions with Air Canada on this matter," said Deborah Wilson, vice-president of communications and public affairs.

"Air Canada offers an excellent service to Montreal from the airport and we hope they will continue to offer these flights to their passengers who, based on reported traffic and load increases, clearly value Air Canada operations at Billy Bishop Airport.

Air Canada declined to provide details on what prompted the review or say how soon it could end regional flights from the Toronto airport.

Analyst David Tyerman of Canaccord Genuity said he suspects Air Canada is not making enough money from the route which is operated for the company by Sky Regional Airlines despite the improved demand last year.

With no connections to its main network in Toronto and only one destination from Billy Bishop, Air Canada doesn't have the critical mass, he said.

"It's probably been a tough slog and without any signs of them being able to get any more business out of it I think that probably just makes the operation very difficult to make really viable," Tyerman said in an interview.

He added Air Canada may also be attempting to pressure for more landing and takeoff slots at the airport to increase capacity.

Air Canada returned to the Toronto island airport in May 2011, more than five years after suspending flights in 2006.

Billy Bishop is the main base for rival Porter Airlines.

Porter CEO Robert Deluce said the airline is happy with the success of its business at the airport.

"We would apply for any slots that became available at the airport to continue expanding our route network," he said in an email.

The holding company that owns Porter put the terminal up for sale last summer to raise money for expanding its aviation operations.

Porter hopes to receive the go-ahead to fly jets from the airport despite local opposition to the plan that would require an extension of the runway. The Toronto Port Authority is conducting a review at the request of the Toronto City Council.