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CANADIAN AVIATION INDUSTRY REVIEW

In this issue… Features Columns: • Western Hemisphere Travel Initiative Here January 23rd (p.1) • North America 2006 Aircraft Orders – Boeing vs. Airbus (p.3) • Tourism Trends – Shift and Diversification (p.5) • Economic Outlook (p.13) • Program Celebrates Customer Service Excellence Among Canada’s Level II Airports (p.15)

Regular Reports: • Airline Data - Canada (p.6) • Airline Data – U.S. (p.7) • Selected Canadian Airport Data (p.8) • Industry News (p.10) • Ottawa Report (p.16) • Washington Report (p.17) • InterVISTAS News (p.18)


WESTERN HEMISPHERE TRAVEL INITIATIVE HERE JANUARY 23RD January 2007

The Western Hemisphere Travel Initiative (WHTI) is a requirement set forth by the U.S. Department of Homeland Security and Department of State that requires all citizens and permanent residents of Canada, United States, Mexico, Bermuda, and the Caribbean to present a valid passport or alternative documentation that denotes identity and citizenship when travelling to the U.S. from the Western Hemisphere. The implementation date of this rule is 23 January 2007 for all air passengers. (WHTI may be implemented as late as 1 June 2009 for other modes of travel.)

Stanley Tse Senior Project Manager

Background Currently, citizens and permanent residents of these countries may utilize a variety of identification or “foundational” documents such as birth certificate or driver’s license. For example, a driver’s license can be used to establish identity and a birth ceritificate or naturalization papers could be used to establish citizenship. The goal for WHTI is to strengthen border security and facilitate entry into the United States by providing standardized, secure and reliable documentation that will allow for quick and accurate identification of a traveller and citizenship or permanent residence status. Under the new rule, the allowable documents for air travel to the U.S. are: Meets WHTI Passport

;

NEXUS (used in conjunction with a NEXUS kiosk, see nexus.gc.ca)

;

Facilitates Travel

Cost U.S.: $97 Cdn: $87

;

U.S.: $50 Cdn: $80

An Opportunity for NEXUS NEXUS is a joint Canada Border Services Agency and U.S. Customs and Border Protection initiative with the aim of expediting border clearance process for low-risk, pre-approved travellers into Canada and the United States. The various NEXUS programs and their respective cards for each mode of travel were recently consolidated into one unified scheme and identification card. A roll out for NEXUS beyond the current pilot program at Vancouver International Airport to all Canadian U.S. PreClearance airports is planned starting in 2007. The impending WHTI deadline presents a good opportunity for the eight U.S. Pre-Clearance airports in Canada to promote the availability of the program. For these airports, NEXUS facilitates the flow of legitimate travel for frequent flyers and may help alleviate congestion at border clearance areas.

Page 1 January 2007

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2007 InterVISTAS Consulting Inc., all rights reserved.


WESTERN HEMISPHERE TRAVEL INITIATIVE HERE JANUARY 23RD – CON’T

Informing Travellers In terms of market impacts, WHTI may dissuade travel due to the costs associated with obtaining documents as well as the inconvenience. To avoid potential issues that may arise from attempting to fly to the U.S. without proper documentation awareness of the requirements among air passengers is needed. Members of the aviation industry should make a concerted effort to disseminate the correct information, and to do so as soon and as widely as possible. Several airports, travel agencies, tourism groups, government agencies, and media outlets have made attempts at making the WHTI requirements known. While some communications convey the appropriate information, others have been inconsistent. The key points that should be relayed regarding WHTI are: •

Passports or NEXUS are required for all air passengers arriving in the U.S.

WHTI applies equally to Canadians going to the U.S. or Americans returning.

Tuesday, 23 January 2007 is the implementation date for air travel.

NEXUS is available as an alternative for citizens and permanent residents of both Canada and the U.S.

Because passports and NEXUS require a certain amount of time between application and receipt/the ability to use, the correct and clear message must be expressed as soon as possible.

Page 2 January 2007

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2007 InterVISTAS Consulting Inc., all rights reserved.


NORTH AMERICA 2006 AIRCRAFT ORDERS – BOEING VS. AIRBUS January 2007

Boeing As of 31 December 2006, Boeing reported 1,044 net aircraft orders for the year. This exceeds 2005’s record by 42 aircraft and becomes the all time record high year for Boeing. The net total includes cancellations subtracted from the gross total orders (net year of cancel).

Amy Yeung Senior Analyst

North American based (U.S. and Canada) customers, including business jet customers, made up less than 30% (290 aircraft) of Boeing’s total order in 2006. Boeing’s 737-700 aircraft was the most popular model purchased by North American airlines, followed by the 737-800 and 737-900ER. WestJet was Boeing’s only Canadian customer in 2006, ordering three 136-seat Boeing 737-700 aircraft. Of the total 290 North America aircraft orders, 68 planes were to leasing companies, and the aircraft could end up placed outside of North America. Boeing’s 2006 North American Aircraft Orders CUSTOMER NAME 737 - 700 AirTran Airways Continental Airlines Southwest Airlines WestJet - 700 Subtotal - 800 Alaska Airlines Aviation Capital Group Corp. Delta Air Lines GE Capital Corporation Intl Lease Finance Corp. - 800 Subtotal - 900ER Continental Airlines GE Capital Corporation - 900ER Subtotal 737 Subtotal 747-8F Atlas Air Guggenheim Aviation Partners 747-8F Subtotal 777-300ER Intl Lease Finance Corp. 777F FedEx Guggenheim Aviation Partners 777F Subtotal 787-8 C.I.T. Leasing Corporation Continental Airlines Intl Lease Finance Corp. Pegasus Aviation Finance 787-8 Subtotal TOTAL NORTH AMERICA AIRCRAFT ORDERS Page 3 January 2007

TOTAL 25 2 82 3 112 13 14 10 29 6 72 24 1 25 209 12 4 16 2 15 3 18 5 13 2 2 22 267

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2007 InterVISTAS Consulting Inc., all rights reserved.


NORTH AMERICA 2006 AIRCRAFT ORDERS – BOEING VS. AIRBUS – CON’T

BOEING BUSINESS JET CUSTOMER NAME 737 - 700 Various - 800 Various - 900 Various 747-8 Various 787 -8 Various -9 Various TOTAL NORTH AMERICA BUSINESS JET ORDERS

TOTAL 9 2 3 4 2 3 23

Source: Boeing

Airbus Airbus reported a total of 824 aircraft orders in 2006, as of 31 December. U.S. and Canadian-based customers contributed 15% (121 aircraft) of Airbus’ total order in 2006. The A319 aircraft was the most popular model sold in North America, follow by the A330-200 and A320. No Canadian airline placed any order for Airbus aircraft in 2006. Of the 121 aircraft total, 43 were placed with leasing companies therefore the planes could be placed outside of North America. At the end of 2006, there were still no North American airline orders for the A380. Airbus’ 2006 North American Aircraft Orders CUSTOMER NAME Skybus C.I.T. Leasing Corporation GE Commercial Aviation Services Intl Lease Finance Corp. A319 Subtotal A320 Frontier Airlines C.I.T. Leasing Corporation GE Commercial Aviation Services Intl Lease Finance Corp. A320 Subtotal A321 US Airways Group A330-200 C.I.T. Leasing Corporation Intl Lease Finance Corp. Pegasus Aviation Finance Company A330-200 Subtotal A350 Intl Lease Finance Corp. Pegasus Aviation Finance Company A330-200 Subtotal TOTAL NORTH AMERICA AIRCRAFT ORDERS A319

TOTAL 65 5 1 3 74 6 4 2 3 15 7 10 3 6 19 4 2 6 121

Source: Airbus

Page 4 January 2007

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2007 InterVISTAS Consulting Inc., all rights reserved.


TOURISM TRENDS – SHIFT AND DIVERSIFICATION 15 January 2007

Over the past 15 years, there has been a dynamic shift and diverisfication of tourism source markets and destination choice. Drivers of these changes include economic growth, liberalisation of air policy and outbound travel in the emerging countries, especially amongst the BRIC (Brazil, Russia, India and China) economies, and continued globalisation. This column examines the changes that have taken place in tourism source markets and destination choice between 1990 and 2005 by looking at tourism expenditures and tourism receipts respectively. International Tourism Expenditures

Eugene Chu Senior Analyst

Shift and Diversification of Source Markets. As shown by the figure to the right, the share of international tourism expenditures accounted for by the top 10 tourism source markets has dropped from 70% in 1990 to 54% in 2005. This means that the source of tourism expenditures has become more spread out amongst different markets. In addition, there has been a change in the tourism source markets that make up the the top 10-with China and Russia emerging in 2005.

Shift and Diversification of Destination Choice. Similarly, the share of international tourism receipts accounted for by the top 10 destinations has dropped from 59% in 1990 to 53% in 2005 (shown right). This is an indication that tourism receipts are being divided amongst many more destinations, a sign of increasing competition. During this time, the relative popularity of destinations has also shifted and changed, with China and Australia emerging in the top 10.

2005

1990 United States, Germany, Japan, United Kingdom, Italy, France, Canada, Austria, Netherlands, Sweden

Germany, United States, United Kingdom, Japan, France, Italy, China, Canada, Russia, Netherlands

66%

51%

Canada 3%

30%

46%

Canada 4%

Other

Other

Notes: Countries listed in descending order of tourism expenditures for 1990 and 2005. Source: World Tourism Organisation (UNWTO).

International Tourism Receipts 2005

1990 United States, France, Italy, Spain, United Kingdom, Austria, Germany, Switzerland, Canada, Mexico

United States, Spain, France, Italy, United Kingdom, China, Germany, Turkey, Austria, Australia

57%

Canada 2%

41%

Other

51%

51%

Canada 2%

47%

Other

Notes: Countries listed in descending order of tourism receipts for 1990 and 2005. Source: World Tourism Organization and United Nations.

Looking Ahead. The UNWTO forecasts that Europe will remain the world’s largest generating region of tourists in 2020, while the Asia Pacific will move to second place, North America will fall to third. Similarly, the UNWTO expects that Europe will continue to be the most popular destination in the world, but the Asia Pacific will become the second largest receiving region by 2020, while North America will fall to third. Implications. The top 10 markets’ share of tourism expenditures has declined, decreasing the reach and impact of marketing resources focused on these markets only. Furthermore, the relative importance of source markets has changed, with emerging markets becoming increasingly important. Customer’s choice of destinations has also become more wide-spread, increasing the level of competition amongst destinations. What this means is that the tourism market has become increasingly more competitive, making it critical to develop unique strategies focused on carefully selected target markets. Page 5 January 2007

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2007 InterVISTAS Consulting Inc., all rights reserved.


AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers December 2006 Passenger Traffic

Air Carrier

Capacity

Revenue Passenger Kilometres

Load Factor

Available Seat Kilometres

% Change over 2005

% Change from 2004

% Change over 2005

% Change from 2004

Change over 2005

Change from 2004

Air Canada1

+5.2%

+13.0%

+3.1%

+7.7%

+1.6pts (to 78.9%)

+3.7pts (from 75.2%)

Domestic (Mainline)

+7.8%

+5.4%

+2.5%

-0.1%

+4.0pts

+4.2pts

Jazz

+25.5%

+133.6%

+20.8%

+119.9%

+2.7pts

+4.2pts

International & Charter

+4.3%

+16.2%

+3.3%

+10.9%

+0.7pts

+3.6pts

+21.5%

+39.7%

+21.9%

33.9%

-0.2pts (to 78.0%)

+3.3pts (from 74.7%)

WestJet

Air Canada Domestic Mainline

Analysis: •

1Air

10%

Air Canada Mainline’s domestic load factor increased by 4.0 points due to growing domestic passenger traffic by 5.2% over 2005. Despite expansion in domestic capacity by 2.5%, Air Canada continues to transfer seat capacity to Jazz, resulting in a 20.8% rise in capacity for Jazz during the month. Year-to-date, Air Canada Mainline’s domestic load factor fell by 0.3 points while Jazz’s load factor increased 1.1 percentage points over 2005. Air Canada’s international traffic and capacity continued to grow during December. Transborder traffic and capacity achieved the highest growth of all international regions, increasing by 10.4% and 8.0% respectively over December 2006. Year-to-date, Air Canada’s international capacity exceeded traffic, resulting in a decline in load factor of 1.5% over 2005.

Jazz data is not included in this graph

5% 0% -5% -10%

Oct- Nov Dec Jan- Feb Mar Apr May Jun July Aug Sept Oct Nov Dec 05 06

Dom RPK

Dom ASK

Air Canada International 15% 10% 5% 0% -5% Oct- Nov Dec Jan- Feb Mar Apr May Jun July Aug Sept Oct Nov Dec 05 06

Int'l RPK

Int'l ASK

WestJet 35% 30% 25% 20% 15% 10% 5%

December is the only month in 2006 where 0% Oct- Nov Dec Jan- Feb Mar Apr May Jun July Aug Sept Oct Nov Dec WestJet experienced a lower load factor 05 06 RPK ASK than in the prior year. Growth in passenger traffic by 21.5% was offset by an increase in capacity levels of 21.9%. Overall, WestJet’s year-to-date load factor increased to 78.2 percent.

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

Page 6 January 2007

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2007 InterVISTAS Consulting Inc., all rights reserved.


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

1

2

2

Notes:

(RPMs – millions)

(ASMs – millions)

Capacity

Load Factor

2,031

2,558

79.4%

↑9.8%

↑14.6%

↓3.5 pts

719

1,024

70.2%

↑1.6%

↑3.6%

↓1.4 pts

5,506

7,991

68.9%

↑10.3%

↑8.3%

↑1.3 pts

7,481

9,407

79.5%

↑6.9 %

↑4.4%

↑1.8 pts

9,375

11,773

79.6%

↓0.8%

↓0.3%

↓0.4 pts

11,358

14,351

79.1%

↓1.1%

↓1.3%

↑0.2 pts

9,436

12,121

77.8%

↑3.5%

↑0.2%

↑2.5 pts

6,376

7,897

80.7%

↑1.1%

↑0.1%

↑0.7 pts

5,093

6,752

75.4%

↑4.8%

↑0.4%

↑3.2 pts

365

462

79.1%

↓15.4%

↓19.0%

↑3.3 pts

Traffic

Airline

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

Sources: Carrier traffic reports.

Page 7 January 2007

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2007 InterVISTAS Consulting Inc., all rights reserved.


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

2005

Toronto

Vancouver

November

+0.6%

+5.2%

MontréalTrudeau +4.1%

December

-0.6%

+0.5%

4th

+0.0%

Full Year

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

St. John’s

+12.1%

+10.7%

-2.5%

+6.2%

+3.0%

+8.5%

+24.0%

+18.0%

+15.6%

+5.0%

+4.3%

+10.3%

+4.9%

-3.5%

+5.4%

+5.6%

+3.8%

+19.1%

+12.2%

+9.5%

+7.9%

+3.2%

+4.0%

+9.8%

+10.4%

-2.2%

+6.0%

+2.4%

+4.9%

+19.6%

+13.9%

+12.5%

+3.6%

+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%

January

+1.0%

-1.1%

+0.9%

+9.2%

+10.7%

+1.0%

+2.8%

+5.4%

+6.2%

+20.3%

+10.1%

+4.4%

+9.7%

February

-0.2%

+1.5%

+1.9%

+7.9%

+10.9%

+0.2%

-0.6%

+1.2%

+1.4%

+11.0%

+3.0%

-2.8%

+7.0%

March

+3.2%

+3.5%

+7.2%

+9.2%

+13.0%

+3.9%

+2.0%

+4.8%

-3.5%

+15.4%

+0.1%

-3.8%

-7.8%

Quarter

+1.4%

+1.3%

+3.4%

+8.8%

+11.6%

+1.8%

+1.4%

+3.8%

+0.9%

+15.5%

+4.4%

-0.8%

+2.0%

April

+6.2%

+4.3%

+6.5%

+18.8%

+20.7%

+3.8%

+0.6%

+6.8%

+4.2%

+17.9%

+9.5%

+13.9%

+13.1%

May

+4.8%

+3.2%

+8.3%

+16.0%

+20.6%

+0.3%

+6.4%

+8.4%

+10.3%

+13.2%

+7.7%

+23.3%

+15.2%

1st

Quarter

2006

June

+2.9%

+2.7%

+4.5%

+9.6%

+13.2%

+1.8%

+4.1%

+0.7%

+8.6%

+13.4%

+5.3%

+12.5%

+3.7%

2nd Quarter

+4.6%

+3.3%

+6.4%

+14.6%

+18.1%

+1.9%

+3.8%

+5.2%

+7.8%

+14.7%

+7.4%

+16.3%

+10.3%

July

+2.2%

+4.8%

+1.9%

+7.6%

+13.8%

-2.1%

+4.9%

+8.5%

+7.4%

+14.4%

+5.9%

+7.1%

+13.2%

August

+6.8%

+3.9%

+3.4%

+10.0%

+18.2%

+2.2%

+8.5%

+7.1%

+11.3%

+12.2%

+5.8%

+15.9%

+11.5%

September

+2.2%

+2.1%

+2.2%

+9.9%

+13.1%

0.0%

+8.8%

+4.9%

+6.9%

+16.6%

+6.9%

+10.4%

-0.5%

3rd

+3.8%

+3.7%

+2.5%

+9.2%

+15.1%

+0.1%

+7.3%

+6.9%

+8.6%

+14.3%

+7.1%

+11.1%

+8.6%

October

+2.6%

+2.3%

+4.0%

+9.9%

+18.4%

+2.3%

+7.7%

+6.2%

+12.6%

+13.7%

+7.1%

+6.2%

+0.9%

November

+3.9%

+3.7%

+8.6%

+14.1%

+16.5%

+3.0%

+8.3%

+0.6%

+2.7%

+14.5%

+2.7%

+3.7%

-1.1%

Quarter

Source: Transport Canada and individual airports’ traffic reports

Page 8 January 2007

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2007 InterVISTAS Consulting Inc., all rights reserved.


Air Travel Market Profile: U.S. to Canada (2006) Comprehensive and Timely Market Data: A Key to Tourism Development

InterVISTAS Consulting, Ascend, and Airlines Reporting Corporation (ARC) have collaborated to create a unique market report covering visitor volumes and travel characteristics for air visitors from the United States – the Canadian tourism industry’s largest and most important inbound market.

InterVISTAS Consulting Inc. 550-1200 West 73rd Avenue, Vancouver, B.C., V6P 6G5 Canada Telephone:1-604-717-1822

The air visitor data covered in the report relies primarily on ticket sales data from the ARC COMPASS® data warehouse, the leading, trusted source for U.S. travel transaction information. Travel information processed from 20,000+ U.S. travel agencies and corporate travel departments, including the on-line entities, was analysed for the report. The report includes the following topics: • Airline ticket distribution • U.S. - Canada air capacity • U.S. - Canada on-flight passengers • U.S. air visitors to Canada • Visitor volumes by origin city • Travel seasonality • Trip routing • Length of stay • Trip party reservation size • Advance purchase • Average airfares and more. For additional details, please visit: http://intervistas.com and follow the ‘Research’ link under the Publications & Presentations menu. ARC COMPASS® is a registered trademark of Airlines Reporting Corporation (ARC).


NEWS ARTICLES AC TO ADD DAILY DEER LAKE – TORONTO

AIR CANADA UPDATE ACE ANNOUNCES C$856 MILLION AEROPLAN DISTRIBUTION On 28 December, ACE Aviation Holdings, parent company of Air Canada, announced that the initial distribution of its Aeroplan Income will be valued at approximately C$856 million or C$7.57 per ACE share. The announcement followed an earlier decision issued by the Ontario Superior Court, which denied the application of the Air Canada Pilots Association against ACE and Air Canada seeking an injunction order that would prevent ACE from distributing the Aeroplan Income Fund to ACE shareholders.

On 4 January, Air Canada announced that it is introducing daily non-stop year-round service between Deer Lake and Toronto beginning 4 May. The Deer Lake-Toronto flights will be operated using 120-seat Airbus A319.

AC TO LAUNCH SEASONAL HALIFAX – EDMONTON DAILY

Air Canada will launch seasonal daily service between Halifax and Edmonton from 15 June to 16 September. All flights will be operated using 120-seat Airbus A319.

JAZZ TO ADD SEASONAL SERVICE BETWEEN CALGARY AND PALM SPRINGS

AC LAUNCHES SEASONAL NON-STOP EDMONTON – CANCUN

On 20 December, Air Canada introduced weekly non-stop service from Edmonton to Cancun. The seasonal service is offered every Wednesday until 11 April. All flights will be operated using 207-seat Boeing 767 and are available in both Executive and Economy class.

On 16 December, Air Canada introduced daily non-stop seasonal operation between Calgary and Palm Springs. The seasonal service is available until 10 April in both Executive and Economy class. All flights will be operated using 75-seat next generation Bombardier CRJ-705 aircraft.

AC ADDS WEEKLY EDMONTON – PUNTA CANA SEASONAL SERVICE

JAZZ TO LAUNCH DAILY HALIFAX – NYLGA IN APRIL

On 21 December, Air Canada launched weekly non-stop flights between Edmonton and Punta Cana, Dominican Republic. The seasonal service is offered every Thursday until 19 April. All flights will be operated using 207-seat Boeing 767 and are available in both Executive and Economy class.

Air Canada will launch daily year-round service between Halifax and New York City (LaGuardia) starting 1 April. All Halifax-New York, LaGuardia flights will be operated by Jazz using 50-seat Bombardier CRJ regional aircraft.

AC INTRODUCES WEEKLY TORONTO – IXTAPA SEASONAL FLIGHTS

Air Canada will operate seasonal non-stop flights from Toronto to Ixtapa, Mexico every Saturday starting 14 April. All flights will be operated using 120-seat Airbus A319, available in both Executive and Economy class.

Page 10 January 2007

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NEWS ARTICLES GTAA APPOINTS DR. LLOYD MCCOOMB AS NEW CEO

CARGO NEWS FEDEX BUYS ANC HOLDINGS TO EXPAND U.K. MARKET On 15 December, FedEx Corporation acquired ANC Holdings Limited for £120 million. ANC is a domestic express operator that offers distribution and logistics services, as well as pick-up and delivery network across the U.K. ANC has approximately 4,500 employees and a fleet of 2,200 vehicles. The acquisition allows FedEx Express, an operating unit of FedEx Corporation, to offer bundled transportation services to U.K. customers.

FEDEX ANNOUNCES SECOND QUARTER PROFIT OF $511 MILLION On 20 December, FedEx announced that its consolidated fiscal second quarter profit, ended 30 November, increased by 8% to $511 million compared to the same period in 2005. The company’s revenue rose by 10% to nearly $9 billion in 2006 compared to approximately $8 billion in 2005. Operating income went up from $790 million to $839 million, while the company’s operating margin fell from 9.8% to 9.4%. FedEx commented that the company financial performance is higher than forecasted because fuel prices were lower than expected.

PEOPLE IN THE NEWS DELL COMPUTER NAMES FORMER AMERICAN AIRLINES CEO DON CARTY AS NEW CFO On 19 December, Dell Computer announced the appointment of Don Carty as Vice Chairman and Chief Financial Officer, effective 1 January 2007. Mr. Carty was the former CEO of American Airlines as well as Canadian Pacific Airlines. Mr. Carty will continue to hold positions as Chairman of Virgin America, Porter Airlines and serve on the board of Hawaiian Airlines. Page 11 January 2007

On 5 January, the Greater Toronto Airports Authority announced the appointment of Dr. Lloyd A. McCoomb as President and CEO effective 1 February 2007. Dr. McCoomb will be replacing Mr. John Kaldeway who had announced his intention to retire. Dr. McCoomb has thirty-five years’ experience in transportation and engineering management. He joined the GTAA in 1996 and currently serves as Vice President, Planning and Development of the GTAA.

YVR PROMOTES TONY GUGLIOTTA TO SENIOR VP, MARKETING AND COMMERICAL DEVELOPMENT The Vancouver Airport Authority announced the appointment of Mr. Tony Gugliotta as Senior Vice President, Marketing and Commercial Development. Mr. Gugliotta will be responsible for airline passenger and air cargo development, retail concession and land development. He will also continue his involvement in major government policy issues. Mr. Gugliotta joined the YVRAA in 1992 and was the former Senior Vice President, Finance and Chief Financial Officer of the Airport Authority.

YVR PROMOTES GLEN MCCOY TO VP, FINANCE AND CFO

The Vancouver Airport Authority announced the appointment of Mr. Glenn McCoy as Vice President, Finance and Chief Financial Officer. Mr. McCoy joined the airport in 1990 and became the Director of Finance 2003. Mr. McCoy holds an M.B.A. in Finance, and also holds the professional designations of Certified General Accountant (CGA) and Chartered Financial Analyst (CFA).

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2007 InterVISTAS Consulting Inc., all rights reserved.


NEWS ARTICLES ATA REPORTS 3% GROWTH IN U.S. AIR CARGO TRAFFIC IN NOVEMBER 2006

OTHER VARIG LEAVES STAR ALLIANCE

Varig will leave the Star Alliance effective 31 January 2007 due to large reduction in routes and change in the Brazilian market. Other Alliance members together offer more than 270 weekly flights to Africa, Europe and North America from six destinations in Brazil. Star Alliance has accepted the membership application of Turkish Airlines. The integration of Turkish Airlines should be completed by April 2008.

KAMLOOPS CHARGES $5 AIF PER DEPARTURE

The Air Transport Association (ATA) reported that its 15 U.S. based airlines carried nearly 3% more domestic and international cargo in November 2006 than November 2005. Revenue Ton-Miles (RTM) for the month of November 2006 was 2.3 million compared to 2.2 million in RTM reported in November 2005. In contrast, mail deliveries declined to 86,000 RTM compared to 103,000 RTM last year, resulting from more mail being shipped by truck than by air and more mail being sent by freighter than by combination aircraft.

On 21 December, the Kamloops Airport announced that an airport improvement fee of $5 per departure will take effect on all tickets sold on or after 1 January 2007 for travel on or after 1 February 2007. The AIF will contribute toward the airport’s $17 million capital project, which includes runway expansion, terminal building expansion and navigation aids improvements.

IATA REPORTS 7% PASSENGER TRAFFIC GROWTH IN NOVEMBER 2006

IATA reported that international passenger traffic rose by 6.7% in November 2006 compared to November 2005 while capacity increased by 5.5% over this period, resulting in a 73.9% load factor. IATA expects traffic growth to slow down in 2007 even though the November RPKs growth rate is the highest recorded since May. The Middle East is still the fastest-growing region, with a RPKs growth rate of 18.3% compared to the same month in 2005. Latin America is the only region that experienced traffic decline in November 2006. The 2.1% decrease in traffic reflects the decline of Varig in Latin America.

Page 12 January 2007

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ECONOMIC OUTLOOK January 2007

Slowdown and a ‘soft landing’. Following rapid growth at the start of 2006, the economies of both Canada and the U.S. cooled to below average levels. Projected growth rates for the fourth quarter of 2006 for both countries were below 2% on an annualised basis. This slowdown was largely driven by factors prominent in the U.S. economy, but Canada is being dragged down with it.

Q1 2007

Q1 2006

Q1 2005

Q1 2004

Senior Analyst

Q1 2003

Josh Drury

In the U.S., the Real U.S. and Canadian GDP slowdown has largely (Annualised Quarterly %) been driven by a correction in the 8% housing market, Historical Forecast 7% including declines in Data Data housing starts and U.S. 6% residential investment. Canada 5% Prior to this, the steady increase in home 4% prices in the U.S. had 3% contributed significantly to that 2% country’s economic growth, as the wealth 1% effect of increased 0% home value led to increased consumer -1% spending. The -2% declines in housing starts and average Source: Bureau of Economic Analysis and Statistics Canada for Historical Data / home price actually TD Economics for Forecast Data started in early 2006, but the effect on spending has taken time to feed through. In Canada, the impact has been felt in other sectors but the result is similar. Canada’s domestic market and consumer spending remain relatively robust, and the housing market has seen a more generally a stabilisation than a correction, as the runup in home prices was less pronounced (with the exception of the West and particularly Alberta). However, the U.S. slowdown directly affects a substantial portion of the Canadian export market and stagnant exports have been a detriment to the Canadian economy. The good news is that this slowdown has been gradual and appears to be bottoming out – in other words, a ‘soft landing’. Earlier in 2006, there had been concern among some economists that there existed a risk of a recession, particularly if the correction in the housing market was too sharp – a ‘burst’ of the ‘housing bubble’. While an adjustment has occurred, it has been relatively small and gradual, lessening recession fears.

Page 13 January 2007

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ECONOMIC OUTLOOK – CON’T Slow return to moderate growth. While this slow growth is expected to continue through early 2007 for both countries, there are positive signs that growth may slowly pick up, albeit to more modest levels than before. One positive indicator is that employment in both countries has remained at high levels, even as spending has cooled. After minor increases in unemployment through mid-2006, the U.S. rate declined to a 5-year low in unemployment while Canada recently returned to a 30-year low.

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Moving forward, downward Unemployment, U.S. and Canada pressure on the housing market, (Seasonally adjusted) and its effect on spending, is expected to run its course 8% in early 2007 as excess housing is bought up and the market stabilises. 7% Consumer spending will not see as high growth as previously but should return to healthy levels in 6% the U.S., and remain steady in Canada. Lastly, easing in energy prices Canada 5% should help stimulate the US economy, as well as reduce inflationary 4% pressures. Relatively high inflation had necessitated increases in interest rates, particularly Source: Bureau of Labour Statistics and Statistics Canada in the U.S., even as the economy showed signs of softening. Lower inflation and cooler growth may prompt the U.S. Federal Reserve to lower interest rates and provide further stimulus, although this is not certain. Overall, 2007 growth for the year as a whole is expected to be slightly over 2% for both Canada and the U.S. Growth is expected to strengthen throughout the year and lead to better performance in 2008.

Page 14 January 2007

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PROGRAM CELEBRATES CUSTOMER SERVICE EXCELLENCE AMONG CANADA’S LEVEL II AIRPORTS January 2007

Comox places first for third year in a row. Comox Valley Airport in B.C. has

Joe Kelly Director, Strategic Services

emerged as the leading Level II airport in the country in terms of achieving high levels of passenger satisfaction with its airport facilities and services. The airport won the honour among stiff competition in InterVISTAS Consulting’s 2006 Customer Service Benchmarking Program for Canada’s Level II airports. The second and third-place finishers overall were Hamilton International Airport in Ontario and Kelowna International Airport in B.C. Comox has won the top honours for three consecutive years.

The Program. This national survey program was initiated in 2003 on behalf of the Canadian Airports Council’s Small Airports group to provide a cost-effective and efficient program to gather passenger opinion on service levels experienced at Level II airports across the country. The program provides a formal third-party customer service audit as a strategic tool for airport senior management groups and their Boards of Directors. Past surveys have tracked service levels to uncover or validate trends, monitor success levels of customer service programs and identify new revenue streams for airports. “There are a number of reasons why we continue to take part in the benchmarking program,” states Kathy Penner, the Marketing & Customer Service Manager for Comox Valley Airport. “Having received top marks for the third consecutive year has been a testament to the emphasis we place on providing consistent, quality experience to visitors. We utilize the passenger feedback as a barometer of what we are doing right and where we need to improve services or facilities. As an example, the lower score on ground transportation and parking gives us leverage when we approach local government about infrastructure improvements. The demographic profiling is valuable for marketing purposes and is of great interest to business and development.”

All airports did well. Along with Comox, all the other airports participating in the program achieved remarkably strong customer service ratings. "This is not surprising, since small airports tend to be closely integrated within their communities," says Richard Paquette, President and CEO of Victoria Airport Authority and a Board Member of the Canadian Airports Council. “The airports that participate in the program have demonstrated their commitment to remain on top of customer service issues.” InterVISTAS Consulting’s Customer Service Benchmarking Program is designed to elicit feedback from passengers on their level of satisfaction with a number of key variables that contribute to their experience at Canada’s Level II airports. Passenger interviews are conducted over a seven-day period each August by InterVISTAS, assisted by local survey teams. Planning for next year’s program is already underway. With several new features planned, the 2007 program should be the most comprehensive and far-reaching to date. For more information or to sign up for the program, please contact Joe Kelly from InterVISTAS Consulting by phone (604-717-1811) or via email (joe_kelly@intervistas.com). Page 15 January 2007

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OTTAWA REPORT January 2007

Bill C-257 Could Impact Canada’s Airports The Canadian Airports Council (CAC) commented that the approval of Bill C-257 could shut down some or all of Canada’s airports if a strike or lockout were to occur. Bill C-257 is an Act to Amend the Canada Labour Code (Replacement Workers). If passed into law, airports would not be able to use management staff or replacement workers, even for essential tasks in the event of a strike or lockout. This would affect the airports’ ability to meet federal regulatory safety and security requirements.

Pearson’s Landing Fees Up 1.45% Due to Airport Rent Martin Copeland Senior Vice President, Aviation

On 13 December, the Greater Toronto Airports Authority announced that aircraft landing fees will increase 1.45% effective January 2007. The 1.45% increase is minimal compared to the 7% rise in landing fees in January 2006. However, the President and CEO of the Air Transport Association of Canada, Sam Barone, commented that the fees could have been avoided if the federal government cut Pearson’s airport rent as promised. Toronto Pearson will pay the federal government over $150 million in airport rent in 2007, which accounts for nearly 30% of the airport’s operating budget. GTAA officials said that 34% of the landing fees collected went toward the $144 million in airport rent in 2006. Airport officials promised to cut landing fees if the federal government reduces Pearson’s airport rent.

Prime Minister Announces Mirabel Airport Land Sales Program On 18 December, Prime Minister Stephen Harper announced the establishment of a sales program for 11,000 acres of farmland at the Mirabel Airport. The sales program will allow farmers to buy back the land they are currently leasing from Transport Canada, which transferred the responsibility for the operation, management and development of the Mirabel Airport to Aéroports de Montréal (ADM) in 1992. A transition committee has been established to commence the sales proceedings. The sales program is expected to begin in summer 2007. The government will ensure that the transition committee carries out its terms of reference with clarity and fairness. The sales program does not entail any change to the airport’s current functions.

NAV Canada Reports 5.5% Traffic Increase for October 2006 NAV Canada reports that its October traffic increased by 5.5% compared to the same month in 2005. Traffic is measured in weighted charging units that reflect the number of flights, aircraft size and distance flown in Canadian airspace.

EU Wants Open Skies Deal with Canada The European Union has proposed to begin open skies negotiations with Canada. If the open skies agreement comes into effect, it will replace individual bilateral agreements between Canada and 17 individual members of the 25 members of the EU. The EU is Canada’s second largest source of tourists. According to a study commissioned by the European Commission, an EU-Canada open skies agreement could increase the number of passengers between the EU and Canada from 8 million in 2006 to 14 million by 2011. The study also estimated that the agreement would generate consumer benefits exceeding $110 million and create nearly 4,000 jobs in the first year.

Page 16 January 2007

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WASHINGTON REPORT January 2007

DOT Rejects Virgin America Application Due to Foreign Ownership Rules On 27 December, the U.S. Department of Transportation (DOT) denied Virgin America’s application for an operating certificate. Under the Federal Aviation Act, to be certificated as a U.S. airline, Virgin America needs to show that the president and two-thirds of the board of directors are U.S. citizens, and that at least 75 percent of the voting interest is owned or controlled by U.S. citizens. The DOT, in its show-cause order, concludes that Virgin America is not qualified to receive an operating certificate in the U.S. because it is not under the actual control of U.S. citizens and that the name-brand licensing agreement between Virgin Group and Virgin America could affect the carrier’s decisionmaking in the U.S.

Jon Ash President InterVISTAS-ga2 Consulting Inc. Washington, D.C.

DOT Awards United Daily Rights to China On 9 January, the U.S. Department of Transportation tentatively awarded United Airlines the right to operate daily non-stop service between Washington Dulles and Beijing starting 25 March 2007. The finding was that United’s new operation would add the most capacity to the Washington-China market, over 250,000 seats annually, in comparison to other carrier proposals. Barring a successful objection the ruling becomes final on 23 January.

FAA Continues to Control LaGuardia Congestion On 29 December, the Federal Aviation Administration (FAA) announced that it is putting temporary measures to control congestion at New York’s LaGuardia Airport. The temporary measures, effective 1 January 2007, limits the number of scheduled operations to 75 flights per hour and the number of non-scheduled operations to six flights per hour from 0600 to 2159 Monday to Friday. The same flight cap applies on Sunday from 1200 to 2159. FAA also requires airlines to use their slots at least 80% of the time or risk losing their slots in a lottery.

Congress Approves Aerospace Workforce Bill Congress passed Bill HR 758 that will create a federal Interagency Aerospace Revitalization Task Force to ensure the stability of the aerospace industry workforce in the U.S. The task force, led by the Labor Department, will develop strategies to expand public and private aerospace job training programs. The task force is required to report to Congress each year on the status of federal policies and partnerships designed to advance training programs. According to the Aerospace Industries Association (AIA), the average age of the American aerospace manufacturing workers is over 50 years old and the AIA estimates that 27% of aerospace workers will become eligible for retirement in 2008.

FAA Wants Security Upgrades for Planes The Federal Aviation Administration (FAA) has proposed security upgrades for new passenger jets to decrease aircraft vulnerability and increase aircraft survivability in the event of a bombing or hijacking. The FAA wants manufacturers, such as Boeing and Airbus, to design aircraft with stronger floors, bulkheads and ceilings around flight deck doors to better protect the crew. The FAA proposed improving the smoke and fire suppression systems and other changes that would make it difficult to hide explosives or weapons in the cabin. The proposal also includes constructing a reinforced compartment on planes where a bomb could be placed should one be discovered during flight. The FAA proposal is estimated to cost manufacturers and airlines more than $450 million over dozens of years. Page 17 January 2007

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INTERVISTAS NEWS January 2007

InterVISTAS Launches “Air Travel Market Profile: U.S. to Canada” InterVISTAS Consulting, the Airlines Reporting Corporation (ARC) and Ascend have recently released a unique market profile report covering U.S. air visitors to Canada. Its purpose is to provide a comprehensive, timely, and insightful glimpse into one of the most mature, yet critical, origin market for Canadian tourism – the United States. The report covers airline capacity and travel distribution trends to thoughtful analyses and more than 75 detailed tables and graphics. This essential 100-page report provides the key indicators to understand the current changes taking place in the U.S. to Canada air travel market, and to support a wide range of marketing and strategic planning projects. For more details, please visit the “Publications & Presentations” section of the InterVISTAS web site at www.intervistas.com and select “Research” from the drop-down menu, or contact: Ms. Nancy Keen, Vice President, Market Research and Analysis Telephone: (604) 717-1822 Email: nancy_keen@intervistas.com

InterVISTAS Upcoming Speaking Engagements Dr. Mike Tretheway, Executive Vice President and Chief Economist 10th Hamburg Aviation Conference: Hamburg, Germany – 14-17 February 2007 Dr. Tretheway will participate in a panel on, “The Changing Supply Chain in Aviation.” Canadian Airports Council’s Airports Canada 2007 Conference and Exhibition: Ottawa-Gatineau, QC – 25-26 April 2007 Dr. Tretheway will participate in a panel on, “The Quest for New Services.” Mr. John Weatherill, Director, Airline Planning Africa Airports 2007: Johannesburg, South Africa – 27-28 February 2007 Mr. Weatherill will be delivering a presentation titled, “Effectively Marketing Africa’s Airports.” World Regional Airports Congress: London, United Kingdom – 16-17 April 2007 Mr. Weatherill will be delivering a presentation titled, “Understanding and Applying E.U. Guidelines on Start-up Aid for Airlines at Regional Airports.”

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 the street. Thus, some of the information is speculative and may not materialise. To inquire about advertising opportunities or to provide comments/feedback on the InterVISTAS’ Canadian Aviation Intelligence Report, please contact Rob Beynon at rob_beynon@InterVISTAS.com or 1-604-717-1864. To subscribe, please send an email to subscribe@InterVISTAS.com

Page 18 January 2007

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CAIR Issue No. 48 - January 2007