CAIR Issue No. 38 - February 2006

INTERVISTAS ’CANADIAN AVIATIONINTELLIGENCE REPORT

In this issue…

Features Columns: Regular Reports:• A Review of Domestic Seat Capacity in Canada (p.1)• Airbus and Boeing Report Record Aircraft Orders (p.2)• The Boeing 737-700ER (p.3)• United Airlines: Emergence from Ch 11 Bankruptcy

Protection (p.5)• Porter Airlines to Fly from Toronto City Centre (p.6)• Japan’s Outbound Travel Market (p.7)• Airport Best Practices: Preparing for the Big One,

Emergency Preparedness (p.15)• Cargo Capers (p.16)

• Airline Data-Canada (p.9)• Airline Data-U.S. (p.10)• Airport Data (p.11)• Industry News (p.12)• Washington Report (p.17)• Ottawa Report (p.18)• InterVISTAS News (p.19)

InterVISTAS’ Canadian Aviation Intelligence ReportFebruary 2006 Copyright ©2006 InterVISTAS Consulting Inc., all rights reserved. Page 1

Kahlil PhilanderProject Research Analyst

A REVIEW OF DOMESTIC SEATCAPACITY IN CANADA9 February 2006

In the period from August 1999 to August 2004, there was a decline in the number of domestic seatsoffered within Canada. There was also a shift in capacity from full service carriers (FSCs) to low-costcarriers (LCCs). By August 2005, seat capacity had finally crept back to 1999 levels. The shift incapacity to LCCs also began to reverse course. Jetsgo left the Canadian airline industry and theirLCC capacity was only partially replaced by growth at WestJet and CanJet. Meanwhile, FSC AirCanada and its regional Jazz subsidiary have increased capacity somewhat since 2004.

Growth in Full Service Seat CapacityTotal domestic seat capacity in Canada declined from 4.5 million in August 1999 to 4.2 million inAugust 2004, when Air Canada shed most of the capacity it obtained in the merger with CanadianAirlines. However, between August 2004 and August 2005, Air Canada and Jazz increased theiroverall domestic seat capacity by 10%. Air Canada Jazz now operates 31% of Air Canada’s domesticcapacity and represents 17% of all domestic seat capacity within Canada.

Jetsgo Leaves Gap in LCC CapacityLCC seat capacity grew almost 275% between August 1999 and August 2004, but due to the demiseof Jetsgo, LCC seating declined by 8% in the period from August 2004 to August 2005. Despite adecline in the overall LCC market during this period, WestJet and CanJet have both managed toexpand their capacity. WestJet steadily grew its domestic seat capacity by 14% in 2005, to over 1million seats, and CanJet increased its capacity by 18%. Table 1 summarises domestic seat capacityby carrier.

Table 1: Domestic Seat Capacity in CanadaTotal Volume of Seat Capacity Share of Total Seat Capacity

Carrier August1999

August2004

August2005

August1999

August2004

August2005

Air Canada1 1,988,234 2,194,715 2,413,920 44.1% 51.8% 53.4% Canadian Airlines 1,597,238 - - 35.4% 0.0% 0.0%

AC Total 3,585,472 2,194,715 2,413,920 79.5% 51.8% 53.4% WestJet 290,848 940,547 1,073,787 6.5% 23.1% 23.8% Royal Aviation 64,791 - - 1.4% 0.0% 0.0% Jetsgo - 269,592 - 0.0% 5.9% 0.0% CanJet - 120,960 150,875 0.0% 2.9% 3.3%

LCC Total 355,639 1,331,099 1,224,662 7.9% 31.9% 27.1% Other2 566,304 674,378 881,574 12.6% 16.3% 19.5%Grand Total 4,507,415 4,200,192 4,520,156 100.0% 100.0% 100.0%

Sources: OAG Max August 1999 and 2004 disk; Planet Profitability Forecasting System

1 Includes Air Canada mainline, Zip and Jazz2 Includes Canada 3000, Air Transat, Skyservice, Harmony and other carriers.


Eugene ChuSenior Analyst

AIRBUS AND BOEING REPORTRECORD AIRCRAFT ORDERS13 February 2006

In early 2006, both Airbus and Boeing announced record aircraft orders for the year ended 31December 2005 with a total of over 2,100 aircraft orders worldwide, a record for the industry. Theyear 2005 also marked the official launch of new aircraft models from both Airbus and Boeing,including the A350 and the 747-8, respectively.

Comparison of Airbus and Boeing Orders. For the second consecutive year, Airbusreported more aircraft orders than Boeing: 1,111 compared to 1,029 respectively for 2005. However,there are differences in the composition of Boeing and Airbus orders between aircraft categories. Themajority of Airbus’ orders are narrowbody aircraft (i.e., A320 family) while Boeing appears to be thepreferred supplier for wide-body aircraft (i.e., B747, B767). In addition, Boeing aircraft make up mostof the orders for long range aircraft, including those capable of intercontinental flights. A summary isprovided in Table 1.

Table 1: 2005 Aircraft OrdersModel Orders Model OrdersA318/319/320/321 918 B737-600/700/800/900 574

A300/310 7 B747-400/8 48

A330/340 79 B767-200/300 19

A350 87 B777-200/300/ER 153A380 20 B787-3/8/9 235

Airbus

Total 1,111

Boeing

Total 1,029

Source: Boeing and Airbus websites.Notes: Refers to gross aircraft orders (before any cancellations and/or conversions).

Backlog of Aircraft Orders. For both Airbus and Boeing, aircraft orders exceededdeliveries in 2005, adding to the backlog of aircraft orders. At the end of January 2006, Airbus had abacklog of 2,165 aircraft, while Boeing had 1,826 unfilled aircraft orders. This will ensure that bothmanufacturers will maintain relatively high production rates in the next few years to fullfil these orders.

Looking Ahead. Airbus has indicated that a full composite narrowbody aircraft will beintroduced sometime in the middle of the next decade. For now, the A320 family will remain as themanufacturer’s primary aircraft in the narrowbody category. Meanwhile, Boeing strengthened itsdominance in the long range aircraft category with the launch of the B747-8 Interncontinental,complementing the B787 Dreamliner. In 2005, the manufacturer showcased its expertise in the longrange aircraft category by setting a new record for the world’s longest non-stop stop flight by acommercial aircraft, with the B777-200LR’s eastbound flight from Hong Kong to London Heathrow.3Although Boeing and Airbus are now nearly even in terms of total aircraft deliveries, it is clear thateach manufacturer will have dominance in different aircraft categories.

3 The previous record was also set by Boeing with its B747-400 flight between London and Sydney in 1989.


THE BOEING 737-700ER10 February 2006

Long Haul at Lower CostOn 31 January 2006, with an order for two planes from All Nippon Airways, Boeing launched the 737-700ER, the longest-range version of its popular 737 family of aircraft. Boeing is explicitly targetinglow cost carriers looking to expand their operations to include transatlantic services, as well astraditional carriers wishing to exploit opportunities on new, non-stop niche markets.

The Long Range Recipe. The –700ER is inspired by the Boeing Business Jet (BBJ), itself aderivative of the 737-700. The new aircraft uses the fuselage of the –700, but the larger wings of the–800. This change, along with additional fuel storage capacity, gives the 737-700ER a range of up to5,510 nautical miles (10,200 km) – almost 65% further than the current 737-700. And unlike the BBJ,which is designed for low-density, all business configurations, the new –700ER can achieve its rangelimits with a load of 126 passengers in a two-class configuration. By comparison, most 737-700operators configure their aircraft with 125-140 seats.

The range of the new 737-700ER is comparable to that of the Boeing 767-400 and the Airbus A330-300, but as a narrowbody jet with a much lower operating weight, will be less costly to operate on aper flight basis. As a result, airlines can begin exploring long haul markets, including transoceanic citypairs, which may be too thin to support non-stop service with existing aircraft.

Range Limits and Traffic Requirements. The map below compares the approximate range limitsfrom Toronto of the existing 737-700 and the new 737-700ER. While the original –700 cannot reachEurope without stopping to refuel, the new –700ER can make any point in Western or Eastern Europe,and can reach as far as North Africa on a non-stop basis.

737-700 Range Limit

737-700 ERRange Limit

New non-stoproute oppotunites

YYZ

With a seating capacity of only 126 passengers, the market size required to support non-stop serviceis significantly lower than that required to support service with larger jets of comparable range. Toachieve an average load factor of 80%, a 737-700ER operator would need to carry 73,500passengers annually. By comparison, the 80% load factor threshold requires 143,000 passengers forthe 767-400, or 172,000 passengers for A330-300.

John WeatherillDirector, Airline Planning


THE BOEING 737-700ER – CON’TAir Service Implications. The –700ER opens up the transatlantic market to carriers intent on addingsmaller spokes to their North American or European hubs (e.g., London-Winnipeg) or, for LCCs withless-developed hub structures, the opportunity to serve primary markets (e.g., Toronto-London) with alower cost narrowbody jet.

Among traditional airlines, U.S. carriers have recently focused on redeploying 757/767 aircraft fromthe low-yield domestic market to higher-yield transatlantic routes, where competition from low costcarriers is far less intense. Although this is a sound strategy that has produced positive results,efforts have been constrained by aircraft size (the 767 is too large for many markets) and aircraftrange (the 757 can reach only Western Europe from the Northeast U.S.). The 737-700ER offers asolution to both problems, especially for carriers currently holding orders and options for 737 familyaircraft.

On the low-cost side, some see the introduction of transatlantic services by LCCs to be inevitable.With lower trip costs (and potentially lower per-seat costs) than existing widebody options, includingthe revolutionary 787, the –700ER may be the catalyst for this expansion. Low cost carriers thatcurrently operate 737-family aircraft, such as WestJet and Ireland-based Ryanair, can also takeadvantage of commonality between the –700ER and their existing fleets, further reducing the cost ofoperating these aircraft.

Planning for the 737-700ER.As the delivery of the first737-700ER is scheduled tooccur in early 2007, airportsand communities shouldbegin examining theimplications of this aircraft ontheir long-range air services.Given the extended planningcycle required forinternational services,communities should startlaying the researchgroundwork necessary toquantify and communicatethese new air serviceopportunities to airlines thatbegin to order the 737-700ER.


UNITED AIRLINES:EMERGENCE FROM CH 11 BANKRUPTCY PROTECTION13 February 2006

On 9 December 2002, UAL Corporation, parent company to United Airlines, filed for Chapter 11bankruptcy protection. This bankruptcy filing is the largest filing by an airline in the U.S. The airlineexited bankruptcy on 1 February 2006, over three years after the airline sought creditor protection.

Leaner OperationsOver the past three years, United Airlines shed a total of $7 billion in annual expenditures. The airlinecurrently operates with 30% fewer staff totalling 58,000 and the airline also operates 20% fewerplanes with a fleet of 460. Total operating costs have declined 20% to 7.5 cents per seat mile(excluding fuel costs). In total, labour costs have been reduced by more than $3 billion annually,mainly due to two deep labour cost cutting actions (which occurred in May 2003 and November 2004)and the elimination of defined-benefit pension plans for workers. The latter labour cost cut andpension plan change was mainly due to the continuing high fuel costs.

Shift in Network FocusIn late 2004, United Airlines cut 12% of its domestic seat capacity and increased its international seatcapacity by 14%, largely due to the intense competition the airline faced domestically by low-costcarriers. With its extensive international offering, the airline shifted its operations focus to the morelucrative international sector taking advantage of its role in the Star Alliance, the world’s largest andmost successful airline alliance. During its time in bankruptcy protection, United also developedspecific products for its corporate and business clients by launching a new premium transcontinentalservice. United also upgraded its regional jet service, United Express, to offer premium first class andeconomy plus options. United’s low cost service, Ted, continues to compete in many markets andacts as a feeder service to United’s mainline operations.

The FutureOn 30 December 2005, the majority ofcreditors voted in favour of thereorganisation plan that the airline putforward. The airline was able to secure $3billion in exit financing ($2.8 billion term loanand $200 million in revolving credit) from asyndication led by JP Morgan and CitigroupCapital Markets. Under the reorganisationplan put forward, owners of old UALcommon stock shares would recover 0% oftheir investment. On 20 January 2006, thereorganisation plan was approved by the courts, which set the stage for the airline to come out ofbankruptcy protection in early February. Although the airline posted a $21 billion loss (whichincluded $20.6 billion in reorganisation items, excluding those items, the net loss was $557 million) in2005, investors are bullish on its share price with many analysts upgrading the stock in light of itsreorganisation efforts over the past three years.

Although United Airlines has been able to decrease its annual expense by $7 billion, industry punditsstate that the airline could have been more aggressive as the industry’s operating environment todayis much harsher than when the airline sought protection 3 years ago with fuel prices remaining at highlevels. At the time, crude oil prices were under $30 per barrel compared to $60 today.

Doris MakSenior Project Manager


Kahlil PhilanderProject Research Analyst

PORTER AIRLINES TO FLY FROMTORONTO CITY CENTRE20 February 2006

After revealing plans to fly from Toronto City Centre Airport(TCCA) three years ago, REGCO Holdings Inc. has finallylaunched Canada’s newest regional passenger carrier, PorterAirlines Inc. The announcement was formally made on 2February 2006 – one day after REGCO placed a firm order for ten74-seat Bombardier Q400 aircraft. REGCO has managed tosecure $125 million in equity financing for the new airline.

Numerous Potential Flight DestinationsAlthough the Toronto based airline has not yet confirmed whichdestinations it will serve, it is expected to begin operations in2006. The future fleet of Q400 aircraft has a 500 nautical milerange, enabling the start-up carrier to provide service to numerousCanadian and U.S. destinations from downtown Toronto. TheToronto-built, turbo-prop planes have a moderate fuel burn advantage over conventional jet aircraftand allow for steeper approach to the downtown location. Deliveries of the planes are scheduled tobegin mid-summer.

Upgrade to Ferry Service at Island AirportIn order to accommodate additional traffic at the island airport, the Toronto Port Authority hascommitted $15 million to new ferry facilities. A new ferry will be purchased with the funds, and serviceis expected to run about ten times per hour. In May 2005, the City of Toronto paid the Port Authority$35 million to settle a $500 million lawsuit, a result of cutting plans to build a bridge to the airport.

Future of Jazz at TCCA UnknownThe increase in ferry service to TCCA sparked initial interest in increased flights from Air CanadaJazz. The regional subsidiary of Air Canada was considering added service between the airport andOttawa, as well as restarting service to Montreal. Jazz has cited past cancellation of air services atthe airport to be a result of inadequate access from existing ferry services. However, on 31 January,Jazz was served a 30-day Notice of Termination that ended its lease agreement at TCCA. Jazz hassaid that it intends to seek an alternate lease at the airport, but negotiations thus far have not createda resolution. For the month of March, Jazz has suspended its five weekly roundtrip flights betweenOttawa and TCCA.

REGCO Names Carty ChairmanDon Carty has been named as the new chairman of Porter Airlines and REGCO Holdings. Carty haspreviously held the positions of President and CEO of American Airlines and CP Air, and providesmany years of industry experience to the start-up. Carty has served as a board member of HawaiianAirlines since July 2004 and has been recently named the non-executive chairman of Virgin America.Carty will retain all three posts. Mr. Carty is a graduate of Queen’s University in Kingston, Ontarioand the Harvard Graduate Business School. In addition to his airline posts, Carty serves as chairmanof Big Brothers Big Sisters of America and as a director of Dell, Sears Holding, Placer Dome, CHCHelicopter, and Solution.


JAPAN’S OUTBOUND TRAVELMARKET13 February 2006

17.4 million OutboundJapanese Tourists in 2005!According to the 2005 Visitor Arrivals andJapanese Overseas Travellers reportreleased by the Ministry of Justice ofJapan, the number of Japanese touristswho traveled abroad in 2005 rose 3.5%over 2004 to 17.4 million. Outbound travelis now approaching the 2000 peak of 17.8million.Japanese travel to China and Korea decreased due to anti-Japan demonstrations, but travel toTaiwan has increased. The total number of Japanese travellers in 2005 to Taiwan was 1.3 million –the first time that visitor volumes exceeded 1 million to a single destination. In addition, the CentralJapan International Airport, located just outside of Nagoya, opened in February 2005. It is Japan’sthird most important international airport after Tokyo-Narita and Osaka.

Japanese Travel Market Characteristics

The peak travel season for outboundleisure travel from Japan is from theend of the calendar year to the AsianNew Year (late Dec-early Jan), SpringBreak (late Mar-early Apr), the so-calledgolden week of consecutive holidays(late April - early in May) and Summervacation (mid-July to the end of Aug).

According to the Japan TourismMarketing Co., the top 5 preferreddestinations in 2004 for Japanesetravellers were China, Korea, Hawaii,U.S. Mainland and Thailand.

In 2005, the Japanese traveled on average 2.7 times a year and spent an equivalent ofCAD$2,800 per person-trip. A total of CAD$48 billion was spent by all outbound travellers in2005. The expenditure includes passenger transportation, accommodation, food/beverage andshopping.

Japanese travellers are generally seeking vacations that will provide them with refreshment andrelaxation to take time out from their stressful lives, or they choose to seek discovery, adventure,and excitement to obtain new physical and emotional experiences.

Japanese travellers can be divided into three groups: women in their 30s, middle aged (50’s),and Seniors (in their 60’s). Detailed characteristics are displayed for each market in Table 1.

Japanese Departures by Country

Source: Japan Tourism Marketing Co.

Japanese Outbound Travel Volume

0

2

4

6

8

10

12

14

16

18

20

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Out

boun

d Tr

avel

lers

(mill

ions

)

Source: Ministry of Justice of Japan.

Yumiko KoderaStudent Intern

Exchange with VancouverCareer College


JAPAN’S OUTBOUND TRAVELMARKET – CON’TTable 1: Japanese market Characteristics

Women (30s) Middle Aged (50s) Seniors (60s)Born 1965-1975 1946-1956 Before 1945

Market Size 8.5 million 20 million 30 millionCharacteristic Full time employment

Single Higher disposable

income

Empty-nesters Increased disposable

income

Retired Rich in time Live on pension,

retirement fundTravelPreferences

Strong desire forrelaxation to reducestress

Shopping, eating

High quality products& services

Luxury tour Service in Japanese

Required Japanesetour guide andoccasional Japanesefoods

Avoid peak travelseasons

Travel Style Personal travel Packaged/Individual Packaged TourPopular TravelDestinations

Korea Men: ChinaWomen: Hawaii

Men: ChinaWomen: Hawaii

Source: Japan Tourism Marketing Co.

Shift in type of outboundJapanese travellersWomen aged 20-29 used to be the mostimportant market, however, this age categoryhas declined in this size from 27.9% in 1990to 18.4% in 2004. Due to changes inemployment, women aged 30-39 have grownin importance. Those aged 50 and over arealso growing in size and importance. Thispopulation segment grew from 24.5% in 1990to 34.0% in 2004.

Forecast for 2006According to World Tourism Organization, Asia and the Pacific is expected to be the fastest growingregion in the world (+9%) for outbound travel, confirming the dynamism of the tourism sector in thispart of the globe. Japanese outbound traveller’s interest to travel to Europe will likely to rise due tothe Torino Winter Olympics and the FIFA World Cup in Germany.

Outbound Japanese traveller segmented by age group

6.9 7.7 6.9 8

27.9 27.7 27.9 18.4

19.4 18.9 19.422.2

21.5 18.8 21.517.3

14.7 15.3 14.718.6

9.8 9.8 15.411.5

0%

20%

40%

60%

80%

100%

1990 1995 2000 2004

Under 19 20-29 30-39 40-49 50-59 60-

Sources: Ministry of Justice of Japan


AIRLINE DATA – CANADATraffic and Load Factors on Canada’s Major Air CarriersJanuary 2006

Passenger TrafficRevenue Passenger Kilometres

CapacityAvailable Seat Kilometres Load Factor

Air Carrier % Changeover 2005

% Changefrom 2004

% Changeover 2005

% Changefrom 2004

Changeover 2005

Change from2004

Air Canada1 +2.7% +9.1% +2.2% 0.7% +0.4 pts(to 78.1%)

+6.1 pts(from 72.0%)

Domestic(Mainline) -4.3% -1.0% -4.2% -10.3% -0.1pts +7.1 pts

Jazz +79.9% +117.6% 81.9% 76.9% -0.8 pts +12.4 pts

International& Charter +5.3% +12.9% +4.6% +5.1% +0.4 pts +5.5 pts

WestJet +20.8% +58.7% +11.6% +43.7% +5.7 pts(to 75.5%)

+7.1 pts(from 68.4%)

Analysis:• Air Canada's domestic mainline

traffic and capacity continued tofall for the fourth consecutivemonth. However, this decline isoffset by the strong performanceof Jazz in the domestic andtransborder markets.

• System wide, Air Canada'sJanuary traffic increased 2.7%and capacity increased 2.2%,resulting in a marginal increase inload factor over January 2005.The positive system-wide resultswere mainly due to stronginternational operations to theU.S., Europe and Asia Pacific.

• WestJet achieved a 20.8% growthin traffic during January 2006 on asmaller capacity increase,resulting in an improved loadfactor of 75.5% for the month.

1 Air Canada consists of all Air Canada operations with the exception of Jazz.

OTHER CARRIERS:LOAD FACTORS

CanJet: not reported

Air Canada Domestic Mainline Air Canada Domestic Mainline

-8%-6%-4%-2%0%2%4%6%

Jan-05

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-06

Dom RPK Dom ASK

Jazz data is not includedin this graph

-10%-5%0%5%

10%15%

Jan-05

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-06

Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

0%10%20%30%

40%50%60%

Jan-05

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-06RPK ASK

WestJetWestJet


AIRLINE DATA – U.S.U.S. Airlines Release January 2006 Traffic Figures

Traffic Data – January 2006

Airline Load Factor Traffic(RPMs – millions)

Capacity(ASMs – millions)

75.1%

1.8 pts11,031

4.4%14,685

1.9%

66.1%

4.7 pts669

28.3%1,012

19.0%

69.6

10.7 pts319

54.2%459

61.2%

178.3%

2.2 pts6,626

13.0%8,725

12.2%

73.4%

1.7 pts8,573

4.5%11,680

6.8%

82.3%

1.4 pts1,790

25.1%2,175

27.2%

80.9%

4.1 pts5,429

6.7%6,707

11.5%

63.4%

4.6 pts4,758

18.8%7,506

10.1%

277.7%

1.6 pts9,031

2.4 pts11,626

0.4%

270.6%

1.0 pts4,655

5.5%6,598

6.8%

Notes: 1. Mainline operations only.2. Load factor includes scheduled service only.

Sources: Carrier traffic reports.

InterVISTAS’ Canadian Aviation Intelligence ReportFebruary 2006 Copyright ©2006 InterVISTAS Consulting Inc., all rights reserved.Page 11

Toronto Vancouver Montréal-Trudeau Calgary Edmonton Ottawa Winnipeg Halifax Victoria Kelowna Saskatoon Regina St.

John’sDecember +14.2% +6.8% +20.9% +8.9% +8.4% +11.0% +5.1% +8.0% +2.1% +3.9% +8.1% +3.6% +6.8%4th Quarter +14.0% +6.7% +16.1% +9.7% +3.1% +11.4% +3.5% +6.4% +0.3% +5.9% +8.0% -2.1% +11.9%

2004

Full Year +15.7% +9.6% +18.6% +7.0% +5.1% +10.2% +7.7% +9.1% +5.7% +3.6% +5.6% +0.3% +14.0%January +15.0% +9.8% +14.4% +13.2% +9.6% +12.9% +13.6% +7.0% +4.7% +12.4% +17.8% +9.7% +11.9%February +8.7% +4.5% +3.8% +10.2% +7.8% +5.5% +7.0% +4.8% +7.1% +15.8% +10.5% +8.5% +1.5%

March +10.2% +8.2% +5.5% +17.5% +12.5% +7.3% +9.7% +7.1% +15.4% +19.5% +19.2% +22.2% +19.6%1st Quarter +11.2% +7.5% +7.7% +13.7% +10.0% +8.4% +10.0% +6.3% +9.3% +16.0% +15.7% +13.3% +11.5%

April +4.0% +3.9% +5.7% +3.5% +5.5% +0.1% +4.3% -0.2% +2.6% +18.8% +6.0% +3.8% +9.8%May +6.7% +5.5% +3.6% +12.2% +12.0% +5.5% +8.0% -4.5% +5.8% +26.3% +13.5% +5.7% +8.5%June +6.3% +4.0% +7.5% +10.1% +13.9% +3.4% +2.9% -0.5% +6.8% +22.7% +10.9% +12.4% 12.4%

2nd Quarter +5.7% +4.5% +5.6% +8.6% +10.4% +3.1% +5.0% -1.8% +5.1% +22.6% +10.2% +7.3% +10.3%July +3.6% +3.4% +4.0% +11.2% +11.7% +4.8% +4.5% -9.7% +1.2% +15.9% +5.2% +10.9% +14.0%

August -1.1% +2.7% +1.5% +12.7% +8.8% +4.4% +4.6% -6.4% +5.2% +26.4% +10.3% +2.4% +8.9%September +4.5% +2.6% +7.4% +7.9% +13.5% +7.1% +6.6% +0.3% +2.9% +16.1% +12.9% +13.9% +8.9%3rd Quarter +2.2% +2.9% +4.1% +10.7% +11.2% +5.4% +5.1% -5.6% +3.1% +19.6% +9.3% +8.8% +8.0%

October -0.1% +4.3% +3.7% +7.1% +16.7% -0.7% +6.4% -0.7% +3.1% +16.1% +11.8% +12.8% -0.9%November +0.6% +5.2% +4.1% +12.1% +10.7% -2.5% +6.2% +3.0% +8.5% +24.0% +18.0% +15.6% +5.0%December -0.6% +0.5% +4.3% +10.3% +4.9% -3.5% +5.4% +5.6% +3.8% +19.1% +12.2% +9.5% +7.9%4th Quarter +0.0% +3.2% +4.0% +9.8% +10.4% -2.2% +6.0% +2.4% +4.9% +19.6% +13.9% +12.5% +3.6%

2005

Full Year +4.6% +4.4% +5.4% +10.6% +10.5% +3.6% +6.5% -0.4% +5.5% +19.3% +12.3% +10.6% +8.2%Source: Transport Canada and individual airports’ traffic reports.If your airport is interested in providing InterVISTAS Consulting Inc. with its monthly passenger statistics, please email Doris Mak at [email protected]

Summary of Total Year-Over-Year Passenger Traffic Performance at Selected Canadian Airports


NEWS ARTICLESAIR CANADA UPDATEAIR CANADA 2005 PROFIT JUMPS TO $258MILLION

On 10February, Air

Canada reported that income for the yearend 31December 2005 totalled $258 million, up from anet loss of $880 million in 2004. Operatingrevenue increased 10% to $9.8 billion from $8.9billion in 2004. Fuel expense increased $592million in 2005, a 37% rise from 2004. For thefourth quarter of 2005, Air Canada reported anet loss of $35 million, down from a loss of $3million in 2004.

AIR CANADA TO FLY TORONTO-LOSANGELES-SYDNEYAir Canada announced that in 2007 it will beginflying its new 777s from Los Angeles to Sydney,Australia using rights in the new Canada-US fullopen skies treaty. The flight will originate inToronto. The AC press release hinted thatVancouver passengers may be routed via LAX,rather than on the current YVR-Honolulu-Sydney flight. The LAX-SYD route has been thesubject of much contention in the past twoyears. Singapore and other airlines have beenseeking 5th freedom rights from Australia tooperate SYD-LAX against long time incumbentsQantas and United, but have been unsuccessfulthus far. Canada has 5th freedom rights fromSan Francisco and Honolulu to Australia, butlacked U.S. authority until the recent open skiestreaty with the U.S. A route via LAX will requirea revision to the Canada-Australia agreement.

AIR CANADA CONNECTS FORTMCMURRAY-TORONTO-ST. JOHN’SAir Canada announced on 17 February that itwill introduce a new non-stop service betweenFort McMurray and Toronto. The same servicewill then continue from Toronto to St. John’s. AirCanada will offer Saturday service on the routebeginning 8 April and ramp up to daily serviceby 17 June.

AIR CANADA LAUNCHES NORTHAMERICA PASSOn 2 February, Air Canada launched a range ofone-year, multi-trip passes that give passengersaccess to Air Canada and Jazz trips throughoutCanada and the U.S. The passes offer accessto all flights within eight geographic zones andare valid for one year.

AIR CANADA LAUNCHES BUSINESSFLIGHT PASSESOn 1 February, Air Canada announced newmulti-trip pass products for businesses ofvarious sizes. The ‘Flight Pass for SmallBusiness’, aimed at small to medium-sizedenterprises, contains eight flight credits that canbe used by up to eight different employees overa three-month period. The ‘Corporate Pass’,available on a negotiated basis to Air Canada’sbest corporate clients, can be used by up to 300different employees during a three-monthperiod.

OTHER CANADIAN AIRLINENEWSWESTJET 2005 REVENUE SURGES 24%

WestJetrevenue for the

yearend 31 December 2005 amounted to $1.4billion, up from $1.1 billion in 2004, whileoperating expenses rose to $1.3 billion from$1.1 billion in the same period. Despite costsper available seat mile rising to 12.5 cents from11.4 cents, 2005 net earnings increased to $24million from a net loss of $17 million in 2004.

CANJET INTRODUCES DEER LAKE-TORONTO SERVICE

CanJet announced on 2February that it will be

introducing daily non-stop service between DeerLake and Toronto on Boeing 737 aircraft,effective 26 June 2006. CanJet also confirmedit will be introducing new morning flightsbetween Halifax and St. John’s effective 5 June2006.


NEWS ARTICLESCANADIAN AIRPORTSEDMONTON INTERNATIONAL POSTSRECORD TRAFFIC IN 2005

Edmonton InternationalAirport, handled a record 4.5million passengers in 2005, a

10.5% increase over 2004. The airport sawdouble-digit passenger volume growth in allmarket segments. International traffic increased13.1%, transborder traffic increased 11.9%, anddomestic traffic increased 10.2%.

WINNIPEG AIRPORTS AUTHORITYOPERATING REVENUES UP $2.4MILLION

On 25 January, WinnipegAirports Authority Inc.released its annual results for2005, showing year-over-year

increases in revenues and passenger volumes.Operating revenues for 2005 were $37.1 millionand Airport Improvement Fee (AIF) revenueswere $19.6 million, representing increases overthe $34.7 million and $14.3 million respectivelyin 2004. Annual passenger traffic was over 3.2million, up 6.5% from 2004. 2005 net incomewas $26 million, 22% higher than in 2004.

CARGOFED EX BUYS OUT JOINT VENTUREWITH CHINA’S DTW GROUPFedEx Express has agreed with Tianjin DatianW. Group (DTW) to acquire DTW’s 50% sharein the two companies’ ‘International PriorityExpress’ joint venture. The $400 millionpurchase provides FedEx with DTW’s domesticexpress network in China and converts the jointventure to a wholly FedEx-owned company.

PEOPLE IN THE NEWSGENTILLETTI NAMED PRESIDENT OFTRANSAT TOURS CANADA

On 25 January, Transat A.T.Inc. announced theappointment of NelsonGentilletti as President of

Transat Tours Canada. The subsidiary of

Transat A.T. Inc. includes Vacances TransatHolidays and Nolitours as well as commercialoperations of Air Transat. Gentilletti previouslyheld company positions of Vice President,Finance and Administration and CFO, andExecutive Vice President of Transat ToursCanada.

WESTJET ANNOUNCES APPOINTMENTOF EXECUTIVE VICE-PRESIDENT

WestJetannounced on

24 January the appointment of MatthewHandford to the position of Executive Vice-President, People. Handford joined WestJet inJune 2005 from Crystal Decisions Inc., aVancouver-based business intelligence softwarecompany. Fred Ring, who previously held thetitle, moves to Executive Vice President,Corporate Projects.

BOLOURI APPOINTED AS PRESIDENTAND CEO OF AIR CANADA TECHNICALSERVICES

ACE Aviation Holdings, parentcompany of Air Canada,announced on 25 January theappointment of ChahramBolouri as President andCEO of Air Canada Technical

Services (ACTS). Bolouri comes to Air Canadaafter 23 years at Nortel, during which he held anumber of executive positions, most recentlyPresident, Global Operations.

CARTY NAMED CHAIRMAN OF VIRGINAMERICA

Virgin America(VAI) has namedDon Carty

Chairman of the company, two months afternaming Mark Lanigan to the same position.Carty will become an investor in VAI partners foran undisclosed amount.

NEW ACTING PRESIDENT AND CEO ATBCACEffective 1 February 2006, R.W. Back has beennamed Acting President and CEO of the BritishColumbia Aviation Council (BCAC).


NEWS ARTICLESOTHERBYERLY SAYS DON’T DELAY FOREIGNOWNERSHIP

U.S. Deputy Assistant Secretaryfor Transportation, John Byerlysaid that congressional sentimentto delay the U.S. DOT Notice of

Proposed Rulemaking which would give greaterlatitude to foreign investors in U.S. airlines,would undermine the attempt to obtain an openskies agreement with the European Union. Asource of congressional concern is that onlyCongress should change foreign ownershipprovisions.

RYANAIR TEAMS WITH RESORTDEVELOPER

European low cost carrierRyanair has teamed withresort developer MajesticWorldwide. Ryanair will list

Majestic properties on the airline's website, andMajestic will pay commissions to Ryanair on anysales initiated through the website.

JET BLUE TO LAUNCH ORLANDO-PUERTO RICO SERVICE

On 3 May, Jet Blue willintroduce two new dailynon-stop flights from

Orlando to San Juan and Aguadilla. American,Delta, and Spirit also plan to launch daily servicebetween Orlando and San Juan.

AMERICA WEST AND QANTAS TO CODESHARE LOS ANGELES-EDMONTON

Qantas and America West are to code shareon America West flights from Los Angeles toPhoenix and Edmonton.

SKYBUS ALTERS APPLICATION TOSERVE CANADALow-cost carrier, Skybus, has amended itsforeign operating certificate application to theU.S. DOT. The American start-up airline hasasked for permission to serve all of Canada, notjust Toronto as in its previous application.

FRONTIER AND HORIZON TO CODESHARE FROM DENVER TO CANADA

Frontier has obtained an exemption from theU.S. DOT to operate between any point in theU.S. and any point in Canada. The carrier willhold out service from Denver to Canada througha code share with Horizon, but would like anexemption to launch its own service ifnecessary.

EXPEDIA LAUNCHES CORPORATETRAVEL AGENCY

Expedia Inc.announced on 31January the launch of

Expedia Corporate Travel in Canada. ExpediaCorporate Travel is aimed at small to medium-sized businesses, providing access to a widerange of fares, reduced transaction costs, andtools for managing travel policy and billingoptions.


AIRPORT BEST PRACTICES:PREPARING FOR THE BIG ONE,EMERGENCY PREPAREDNESS10 February, 2006

In the last five years, emergency preparedness has emerged as a critical topic for North America andits airports. The U.S. Senate Panel’s recent grilling of former Federal Emergency ManagementAgency (FEMA) Director Michael Brown on federal response to Hurricane Katrina underlines thecontinuing concern in the U.S. and Canada with emergency response. In both countries the federalgovernments have reorganised departments and functions to meet potential disasters. The recentCAR 308 debate might be viewed as the Canadian federal government questioning the ability ofexisting regulations to guide regional airports to respond to emergencies.

During a catastrophic emergency, airports are a gateway through which regional and nationalresponse will flow. Whether it be recent hurricanes or a potential building-levelling earthquake inVancouver. But in these circumstances the airport infrastructure may be damaged, operationsdisrupted, and airport staff may be burdened with pressing personal loss. Even with the best plans,operating in these circumstances is, or will be, trying.

On 29 August 2005, the airports of Southeast Texas, Louisiana, and Mississippi faced such a task,and met it, in Hurricane Katrina. The lessons of that storm are still being learned, but key bestpractices stand out:

Have a plan, and co-ordinate it with regional and national emergency response plans; Inventory your assets available for an emergency and have them ready to use; Remember that your staff and supporting staff are human, and will probably be coping with

personal tragedy in the event of a catastrophe. They will not be responding to their full capability.Plan accordingly;

Establish incident command. In trying times, leadership is crucial to direct staff and thoseresponding to the incident.

New Orleans Louis ArmstongInternational Airport was able to beginsupporting relief efforts in New Orleansthe day after Katrina, despite damagesuch as that in the photo at right. This isbecause of support from its staff, theability to respond immediately, and theassistance of numerous local volunteersand airport responders from acrossNorth America. With many roads to thecity washed out, the airport became abase for recovery operations and a linkto the submerged city because it wasprepared to respond.

Rob BeynonDirector, Airport Marketing


Robert AndriulaitisDirector, Transportation and

Logistics Studies

CARGO CAPERS7 February 2006

Was ist loß in der Kargowelt? You may wonder whythe subheading is in [undoubtedly grammatically incorrect] German.Well, if giants Deutsche Post and Deutsche Bahn continue on thepaths they have mapped out, German may well become thelanguage of choice in cargo!

The big get bigger – part 1. In an earlier column on howvarious Post Offices were shaking up the air cargo industry, wediscussed the fact that Deutsche Post had become a significantplayer on the global scene. At that point, Deutsche Post had acquiredinternational integrator DHL, Swiss freight forwarder Danzas, Airborne(although it had to spin off the air operations as U.S. law restrictsforeign ownership of air carriers), and U.S. forwarder Air ExpressInternational (AEI, which had been the largest U.S. freight forwarderwhen it merged with DP/DHL back in 1999).

At the end of last year, the Deutsche Post family grew even larger,acquiring U.K. logistics company Exel. In 2004, the express/logisticsportion of Deutsche Post earned a touch under $20 billion in revenues.With Exel posting revenues of about $12.6 billion in 2004, we are nowlooking at a logistics provider with revenues expected to be in the $33 billion range. To put this incontext, Panelpina, a large freight forwarder had revenues of about $5 billion in 2004, whilecompetitor Kuehne & Nagel, while even larger, had revenues of “only” $10 billion. Air Canada, withabout $2 billion in revenues, and even CN, with $6.5 billion in revenues, are babies in comparison.Furthermore, when you add in the postal and financial activity, Deutsche Post becomes a $76 billioncorporation, and you can understand why competitors are nervous about how DP uses its extremelydeep pockets.

The big get bigger- part 2. Now another German powerhouse,Deutsche Bahn (German Rail) has decided to flex its already formidablemuscles and become an even larger player in the logistics field. DB hadalready acquired Stinnes Logistics (and its subsidiary, freight forwarderSchenker) back in 2002. Now DB has just completed its acquisitionof BAX Global, for a reputed US $1.1 billion. In 2004, the Transportand Logistics division of DB (excluding passenger rail)earned about $16 billion. Adding in BAX Global bringsthis to the $20 million range. The corporation as awhole has revenues in the $37 billion range.

So, was ist loß? Obviously the cargo world isn’t going to start speaking German. Thesedevelopments, however, suggest that these two German giants are extremely serious aboutdominating global logistics. Airports in Canada should be giving serious consideration to targetingthese two for services, distribution activities, and even value-added operations. The challenge iscertainly formidable given the global competition to land these two, but the pay-off would besignificant indeed.


WASHINGTON REPORT10 February 2006

Continued U.S. Airline LossesThe U.S. Air Transport Association (ATA) estimates that U.S.airlines lost $10 billion in 2005, bringing the total post – 2000losses to more than $42 billion. The ATA attributes much of theloss to high fuel prices compared to the relatively low airfaresbeing charged. The ATA has also urged regulators to reduce thefinancial stress on the airline industry by asking for a restructuringof the current excise tax based funding of the air traffic system toa user pay arrangement so that the airlines are not subsidisingnon-airline users.

DOT Grants for Small CommunitiesThe U.S. Department of Transportation (DOT) has invited communities to submit proposals forFederal grants for a total value of $10 million to assist small communities to address air service issuessuch as high airfares and insufficient air service levels. The DOT will be awarding up to 40 grants in2006, this is the fifth year that the program as been in effect. Priority will be given to communitieswho:

Have shown that airfares in their community are higher compared to other communities, Have contributed financially to air service development (not including airport revenues), and Have established or will establish a public/private partnership to improve air service to the

community.

U.S Eases Post 9/11 Rules to Attract VisitorsU.S. Secretary of State, Condoleezza Rice and Homeland Secretary, Michael Chertoff, announcednew measures that would ease U.S. entry procedures for foreign tourists, students and businesstravellers. Government plans for the program include testing digital videoconferencing for visainterviews, extending the length of student visas to 120 days from 90 days, and creating a “modelairport” or a welcoming airport environment which will be piloted at Washington Dulles and HoustonBush airports. The U.S. government also expects to develop inexpensive security cards for foreignand U.S. residents travelling across the U.S. borders with Canada and Mexico and to the Caribbeanand Bermuda.

FAA Issues Proposed Changes to the Passenger Facility ChargesProgramOn 2 February 2006, the FAA proposed changes to the Passenger Facility Charge (PFC) Program inorder to add more eligible uses of revenue, to protect PFC revenues in the event of airline bankruptcy,and to clarify the use of PFC revenues in debt servicing. Among the proposed changes are: Make low-emission airport vehicles and ground transport equipment eligible for PFC funding, Use PFCs to pay debt service on airport related projects that would not otherwise be PFC

eligible, Clarifying the status of PFCs of military charters, Structure the PFC account requirements for airlines in bankruptcy, and Making airport cost-sharing of air traffic modernisation PFC eligible.

Jon Ash

PresidentInterVISTAS-ga2 Consulting Inc.

Washington, D.C.


OTTAWA REPORT13 February 2006

New Government Updates Transport PortfolioUnder the newly elected Harper Conservative government, the Canadiantransportation portfolio has been reorganised to better link urban,interprovincial and international infrastructure development. The Ministerof Transport, Infrastructure and Communities (previously Minister ofTransport) will now also be responsible to manage the Office ofInfrastructure Canada and the National Capital Commission. A number ofCrown corporations have been moved to this portfolio as well, includingCanada Post and the Canada Lands Company. This has been done tocreate a more consistent approach to Crown Corporation governance andministerial accountability.

Cannon Named Minister of Transport, Infrastructure and CommunitiesPrime Minister Stephen Harper has appointed Pontiac MP LawrenceCannon as the Minister in charge of the newly created Transport,Infrastructure and Communities portfolio. Mr. Cannon is also first on thelist of ministers designated to replace Harper if he is unable to perform hisduties as Prime Minister. Previous to this position, Cannon has served inthe transportation industry as the President of the Quebec Urban TransportAssociation and as the President of the Outaouais Urban TransitCorporation. Mr. Cannon has over 25 years experience in business andpolitics, and holds a Masters in Business Administration and a Bachelor of Arts in Political Science.

NAV CANADA Revenues Up $13 millionOn 12 January, NAV CANADA, the country’s provider of civil air navigationservices, announced its financial results for the three months ending 30November 2005. The results show an operating surplus and animprovement in the company’s rate stabilisation account. Revenues forthe first quarter of fiscal year 2006 were $292 million, up from $279 million for the same period theprevious year and arising from a 4.1% increase in air traffic. Expenses were $218 million, up from$204 million for the same period last year. The company added $11 million to its rate stabilisationaccount, increasing it to $49 million from $38 million at the end of the last fiscal year.

Government of Canada Cancels Ridley Terminal DivestitureLawrence Cannon, Minister of Transport, Infrastructure and Communitiesannounced on 7 February 2006 that the government had stopped the processunderway to divest Ridley Terminals Inc., located in Prince Rupert, B.C. Recentresurgence in the B.C. coal mine industry was cited as the reason for the reversal.The decision to set aside the divestiture will allow the Crown Corporation to signlong-term contracts with clients.

NAV CANADA to Construct New Facility in Campbell RiverNAV CANADA announced on 31 January that it has begun construction of a new Air OperationsBuilding to replace the existing structure built in 1982. The facility, to be completed by the fall of 2006at a cost of $2.4 million, will include a new Flight Service Station (FSS) and Technical OperationsMaintenance Centre.

Sam BaroneRegional Vice President

Ottawa, ON


InterVISTAS’ Canadian Aviation Intelligence Report is a collection of information gathered from public sources,such as press releases, media articles, etc., information from confidential sources, and items heard on thestreet. Thus some of the information is speculative and may not materialise.

To inquire about advertising opportunities or to provide comments/feedback on the InterVISTAS’ CanadianAviation Intelligence Report, please contact Rob Beynon at [email protected] or 1-604-717-1864.

To subscribe, please send an email to [email protected] unsubscribe, please send an email to [email protected].

INTERVISTAS NEWSFebruary 2006

New publications available at www.intervistas.comPresentation: “Evolving Seamless and Secure Travel: Threats and Opportunities in a Global Environment”

was presented by Solomon Wong at the 85th Annual Transportation Research BoardConference, Washington, DC

InterVISTAS Upcoming Speaking Engagements

11 & 12 February 2006: CBC Newsworld, Weekend Business ReportDr. Mike Tretheway, Executive Vice-PresidentDr. Tretheway will speak about economic development and the 2010 Winter Olympic Games.

23 February 2006: 9th Annual Hamburg Aviation Conference, Hamburg, GermanyDr. Mike Tretheway, Executive Vice-PresidentDr. Tretheway has been honoured by being selected to give the Martin Kunz Memorial Lecture.The title of his presentation is “Airline Economics 30 Years after Deregulation.”

22 February 2006: GARS Workshop, Hamburg, GermanyMr. Ian Kincaid, Director, Economic AnalysisThe title of his presentation is “Issues in Benchmarking Airports.”

CAIR Issue No. 38 - February 2006

Documents

Transcript of CAIR Issue No. 38 - February 2006