CAIR Issue No. 49 - February 2007

CANADIAN AVIATION INDUSTRY REVIEW

In this issue…

Features Columns: • Post 9-11: Continued Traffic Recovery (p.1) • Cargo Capers (p.10)

Regular Reports: • Airline Data – Canada (p.3) • Airline Data – U.S. (p.4) • Selected Canadian Airport Data (p.5) • Industry News (p.6) • Ottawa Report (p.12) • Washington Report (p.14) • InterVISTAS News (p.15)

POST 9-11: CONTINUED TRAFFIC RECOVERY 16 February 2007

The airline industry has faced adversity over the past 6 years, with the events of September 11th, the war in Iraq, the SARS epidemic and the global economic downturn. This column analyzes the impact of 9/11 on air passenger volumes in North America and the subsequent recovery passenger air traffic.

Canadian Air Travel

Connie Chang

Traffic at Canadian airports experienced declining traffic levels from 2000 for the initial 3 years after 9/11. However, for 2004 and onward, passenger air traffic is 10% above pre 2001 levels. Both domestic and international air traffic are up 11% and 19% respectively in 2005 over 2000.

Transborder traffic still lags pre 9/11 levels; however, the gap appears to be gradually diminishing.

Project Analyst

Annual Enplaned/Deplaned Passengers (000s) at Canada’s Top 30 Airports U.S.

% Change from 2000

Other Int’l

% Change from 2000

Total of All Sectors

% Change from 2000

Year

Domestic

% Change from 2000

2000

48,487

-

20,459

-

14,576

-

83,522

-

2001

48,393

-0.2%

19,179

-6.3%

14,559

-0.1%

82,131

-1.7%

2002

46,588

-3.9%

18,021

-11.9%

13,810

-5.3%

78,419

-6.1%

2003

47,047

-3.0%

17,194

-16.0%

13,759

-5.6%

78,000

-6.6%

2004

51,434

6.0%

19,117

-7.0%

16,094

10.0%

86,645

4.0%

2005

53,964

11.0%

20,268

-1.0%

17,348

19.0%

91,580

10.0%

Source: Transport Canada

For 2006, November year-to-date traffic data shows that total Canadian air traffic is up by 15% over 2000 for the same eleven month period. With a slight increase in transborder passenger traffic by 2% over 2000, the level of air travel between the United States and Canada is no longer worse than pre 9/11 volumes.

U.S. Air Travel In contrast to the Canadian airline industry, traffic levels for U.S air travel are still worse than pre 9/11 levels. Overall, total enplaned passengers decreased by 7% in 2006 over 2000. Data from the Air Transport Association shows that this decline in air traffic is directly caused by domestic traffic as international traffic improved by 21% in 2006 over 2000. Despite being the hardest hit international region due to the SARS outbreak, Asia Pacific appears to have fully recovered, showing growth in passenger traffic by nearly 4% in 2006 over 2000. Asia Pacific traffic is up 28.9% in 2006 over 2003, the year of the SARS outbreak.

Page 1 February 2007

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

POST 9-11: CONTINUED TRAFFIC RECOVERY – CON’T Annual Enplaned Passengers (000s) Carried by ATA Member Airlines Only Int’l

% Change from 2000

Total

% Change from 2000

Pacific (Subset of Int’l)

% Change from 2000

Year

Domestic

% Change from 2000

2000

537,886

-

55,532

-

593,418

-

13,245

-

2001

498,688

-7.3%

52,055

-6.3%

550,743

-7.2%

12,130

-8.4%

2002

473,369

-12.0%

51,948

-6.5%

525,317

-11.5%

11,511

-13.1%

2003

460,170

-14.4%

51,024

-8.1%

511,194

-13.9%

10,676

-19.4%

2004

482,413

-10.3%

58,107

4.6%

540,519

-8.9%

12,421

-6.2%

2005

490,230

-8.9%

63,578

14.5%

553,808

-6.7%

13,360

0.9%

2006

483,758

-10.1%

67,053

20.7%

550,811

-7.2%

13,765

3.9%

Source: Air Transport Association

There has been negative impact on the Canadian airline industry for the initial few years immediately following the tragedy of 9/11; however, this decline in air travel has diminished in recent years and is currently followed by an expansion in the air travel industry in all sectors. Although the United States is still experiencing a slight decline in total enplaned passenger volumes from pre 9/11, the U.S. air travel industry is on the road to recovery as the decline in air passengers has lessened.

Page 2 February 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 January 2007 Passenger Traffic

Air Carrier

Capacity

Revenue Passenger Kilometres

Load Factor

Available Seat Kilometres

% Change over 2006

% Change from 2005

% Change over 2006

% Change from 2005

Change over 2006

Change from 2005

Air Canada1

+2.7%

+5.5%

+2.0%

+4.2%

+0.5pts (to 78.6%)

+0.9pts (from 77.7%)

Domestic (Mainline)

+5.3%

+0.8%

+1.3%

-3.02%

+3.0pts

+2.9pts

Jazz

+19.3%

+114.6%

+14.1%

+107.4%

+3.1pts

+2.3pts

International & Charter

+1.9%

+7.2%

+2.2%

+6.9%

-0.2pts

+0.2pts

+20.0%

+44.9%

+19.4%

33.2%

+0.4pts (to 75.9%)

+6.1pts (from 69.8%)

WestJet

Analysis: • Air Canada Mainline enters the New Year with an increased load factor for its domestic market by 3.0 points to 78.9% over January 2006. This is the third consecutive month that traffic has outpaced capacity increases.

Air Canada’s continual transfer of seat capacity to Jazz has resulted in a 19.4% increase in seat capacity and a 0.4 point increase in load factor for Jazz over 2006.

Over a two-year period, the capacity level for Jazz has more than doubled for the month of January.

10%

Air Canada Domestic Mainline Jazz data is not included in this graph

5% 0% -5% -10%

Nov- Dec Jan- Feb Mar Apr May Jun July Aug Sept Oct Nov Dec Jan05 06 07

Dom RPK

Dom ASK

Air Canada International 15% 10% 5%

• Air Canada’s international traffic and capacity increased by 1.9% and 2.2% respectively over January 2006. Increases in international traffic and capacity were largely contributed by the transborder sector, with an expansion by 6.5% and 11.2% respectively over 2006.

• WestJet’s rising capacity levels by 19.4% were offset by the growth in passenger traffic by 20% in January 2007 over 2006.

Seasonal services added for the month of January include non-stop flights from Toronto to Fort Lauderdale, Tampa and Nassau, Bahamas. This resulted in the best January load factor in the history of WestJet of 75.9% in 2007.

1Air

0% -5% Nov- Dec Jan- Feb Mar Apr May Jun July Aug Sept Oct Nov Dec Jan05 06 07

Int'l RPK

Int'l ASK

WestJet 35% 30% 25% 20% 15% 10% 5% 0% Nov- Dec Jan- Feb Mar Apr May Jun July Aug Sept Oct Nov Dec Jan05 06 07

RPK

ASK

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

Page 3 February 2007

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

AIRLINE DATA – U.S. U.S. Airlines Release January 2007 Traffic Figures

1

2

2

Notes:

(RPMs – millions)

(ASMs – millions)

Capacity

Load Factor

1,937

2,546

76.1%

↑8.3%

↑17.1%

↓6.2 pts

661

1,026

64.4%

↓1.2%

↑1.4%

↓1.7 pts

5,179

8,120

63.8%

↑8.8%

↑8.2%

↑0.4 pts

7,019

9,201

76.3%

↑5.9 %

↑5.5%

↑0.4 pts

9,216

11,816

78.0%

↑2.0 %

↑1.6 %

↑0.3 pts

10,902

14,489

75.2%

↓1.2%

↓1.3%

↑0.1 pts

8,855

12,016

73.7%

↑3.3%

↑2.9%

↑0.3 pts

5,956

7,643

77.9%

↑1.5%

↑3.8%

↓1.8 pts

4,872

6,649

73.3%

↑4.7%

↑0.8%

↑2.8 pts

286

404

70.7%

↓10.4%

↓11.8%

↑1.1 pts

Traffic

Airline

1. Mainline operations only.

2. Load factor includes scheduled service only.

Sources: Carrier traffic reports.

Page 4 February 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 Toronto

Vancouver

MontréalTrudeau

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

St. John’s

-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%

+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%

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%

January February March

+1.0% -0.2% +3.2%

-1.1% +1.5% +3.5%

+0.9% +1.9% +7.2%

+9.2% +8.1% +9.4%

+10.7% +10.9% +13.0%

+1.0% +0.2% +3.9%

+2.8% -0.6% +2.0%

+5.4% +1.2% +4.8%

+6.2% +1.4% -3.5%

+20.3% +11.0% +15.4%

+10.1% +3.0% +0.1%

+4.4% -2.8% -3.8%

+9.3% +6.7% -5.8%

1st Quarter

+1.4%

+1.3%

+3.4%

+8.9%

+11.6%

+1.8%

+1.4%

+3.8%

+0.9%

+15.5%

+4.4%

-0.8%

+2.6%

April May June

+6.2% +4.8% +2.9%

+4.3% +2.7% +2.6%

+6.5% +8.3% +4.5%

+19.6% +16.0% +9.5%

+20.7% +20.6% +13.2%

+3.8% +0.3% +1.8%

+0.6% +6.4% +4.1%

+6.8% +8.4% +0.7%

+4.2% +10.3% +8.6%

+17.9% +13.2% +13.4%

+9.5% +7.7% +5.3%

+13.9% +23.3% +12.5%

+13.1% +15.1% +3.9%

2nd Quarter

+4.6%

+3.2%

+6.4%

+14.8%

+18.1%

+1.9%

+3.8%

+5.2%

+7.8%

+14.7%

+7.4%

+16.3%

+10.3%

July August September

+2.2% +6.8% +2.2%

+4.8% +3.9% +2.1%

+1.9% +3.5% +2.6%

+7.4% +10.2% +10.0%

+13.8% +18.2% +13.1%

-2.1% +2.2% 0.0%

+4.9% +8.5% +8.8%

+8.5% +7.1% +4.9%

+7.4% +11.3% +6.9%

+14.4% +12.2% +16.6%

+5.9% +5.8% +6.9%

+7.1% +15.9% +10.4%

+13.2% +11.7% -0.5%

3rd Quarter

+3.8%

+3.7%

+2.7%

+9.2%

+15.1%

+0.1%

+7.3%

+6.9%

+8.6%

+14.3%

+6.2%

+11.1%

+8.7%

October November December

+2.6% +3.9% +6.4%

+2.3% +3.7% +6.2%

+3.9% +8.6% +8.7%

+9.9% +14.1% +11.4

+18.4% +15.4% +18.2%

+2.3% +3.0% +3.8%

+7.7% +8.3% +3.4%

+6.2% +0.6% -2.4%

+8.9% +2.7% -0.1%

+13.7% +14.5% +14.5%

+7.1% +2.7% +3.7%

+6.2% +3.7% +10.2%

+1.7% +0.2% -1.1%

4th Quarter Full Year

+4.3% +3.5%

+4.1% +3.1%

+7.0% +4.7%

+11.7 +11.1

+17.4% +15.5%

+3.0% +1.7%

+6.4% +4.8%

+1.7% +4.6%

+3.9% +5.4%

+14.3% +14.7%

+4.5% +5.6%

+6.7% +8.0%

+0.3% +6.0%

December

2005

4th

Quarter

2006

Source: Transport Canada and individual airports’ traffic reports.

Page 5 February 2007

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NEWS ARTICLES AIR CANADA LAUNCHES TORONTOSHANGHAI FLIGHTS

AIR CANADA UPDATE AIR CANADA INTRODUCES “WESTERN COMMUTER PASS” On 18 January, Air Canada launched a “Western Commuter Pass” for frequent travellers flying between Calgary, Edmonton, Vancouver, Victoria and Abbotsford. The pass is available in 10 or 20 credits for a fixed number of pre-purchased flights, or an unlimited flat fee subscription pass for 3 or 6 months. The pass is also available in a 30 credits multi-user “Small Business Pass” version for up to eight travellers from one company. All versions of the Western Commuter Pass are available at Tango Plus and Latitude fare levels. Starting at $129 per one way trip including all airport fees and charges, the pass can be purchased from the Air Canada web site or travel agents.

AIR CANADA RELOCATES TRANSBORDER OPERATIONS AT TORONTO PEARSON Effective 30 January, all Air Canada, Jazz and Air Canada Vacations passengers will use Terminal 1 rather than Terminal 2 when arriving or departing on transborder flights at Toronto Pearson Airport. The opening of the new Pier F at Terminal 1 allows Air Canada to operate domestic, transborder and other international flights at the same terminal at Toronto Pearson, increasing the convenience for connecting passengers.

AIR CANADA ADDS VANCOUVERBEIJING SERVICE On 1 February, Air Canada announced that it is adding a second daily Vancouver-Beijing flight from 1 July to 30 September. All flights will be operated using 211-seat Boeing 767-300 aircraft.

Page 6 February 2007

Air Canada will introduce three times weekly non-stop service from Toronto to Shanghai beginning 6 April. The carrier will offer daily non-stop service effective 30 June for the summer peak period and then will resume to three flights per week for the 2007-08 winter schedule.

AIR CANADA BEGINS EDMONTONMONTEGO BAY SEASONAL SERVICE

On 6 February, Air Canada began new, nonstop, seasonal operation between Edmonton and Montego Bay. The seasonal service is available every Tuesday until 17 April. All flights are operated using a 207-seat Boeing 767 aircraft.

AIR CANADA LAUNCHES HALIFAXCUBA FLIGHTS

On 10 February, Air Canada launched new, non-stop, seasonal flights from Halifax to Holguin, Cuba. The seasonal service is available every Saturday until 12 May. All flights are operated using a 120-seat Airbus A319 aircraft.

AIR CANADA REPORTS OPERATING INCOME OF $114 MILLION IN 2006 On 9 February, Air Canada reported 2006 operating income of $114 million, or $236 million excluding special charges, compared to $191 million in 2005 despite a 16% increase in fuel expenses valued at $347 million. Passenger revenues increased by 8% or $690 million compared to 2005 due to yield improvement and capacity growth. Excluding fuel expense and the special charge for labour restructuring, unit cost, measured by operating expense per available seat mile (ASM), increased by 1% compared to 2005.

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

NEWS ARTICLES AIR CANADA UPDATE – CON’T AIR CANADA JAZZ REPORTS OPERATING INCOME OF $144 MILLION IN 2006 On 7 February, Air Canada Jazz reported 2006 operating income of $144 million compared to 130 million in 2005. Unit cost was reduced in all expense categories except aircraft rent and fuel, which was a pass-through cost borne by Air Canada. The $4 million in non-operating expenses contributed to a net income of $140 million for Jazz in 2006 compared to 118 million in 2005. The $8 decrease in non-operating expense compared to 2005 mainly resulted from the restructuring of the long-term debt of Jazz concurrently with the initial public offering of Jazz Air Fund.

WESTJET UPDATE WESTJET ADDS SEVEN NEW DOMESTIC ROUTES On 17 January, WestJet announced the following new non-stop seasonal services: Starting 29 April: • Edmonton – Montreal service daily Starting 14 May: • Vancouver – Ottawa service daily • Calgary – Kitchener-Waterloo-Cambridge service daily • Montreal – Charlottetown service daily • Toronto – Saint John service 6 times per week • Toronto – Deer Lake service 6 times per week

WESTJET REPORTS NEARLY 380% NET EARNINGS INCREASE IN 2006 On 14 February, WestJet reported a nearly 380% net earnings increase from $24 million in 2005 to $115 million in 2006, a record high year for WestJet. Cost per available seat mile (CASM) was 12.6 cents for 2006 compared to 12.5 cents in 2005 despite a 17% rise in oil prices in 2006. Excluding fuel, CASM remained at 9.2 cents in both years.

CARGO NEWS UPS FORECASTS UP TO 10% INCREASE IN 2007 EARNINGS On 30 January, UPS announced that its forecasted 2007 earnings per share is to increase between six and ten percent, or between $4.10 and $4.25 per share due to the slowing U.S. economy. UPS reported a net income of $1.13 billion in fourth quarter 2006 compared to $1.05 billion in fourth quarter 2005.

FEDEX EXPRESS CANADA OFFERS GLOBAL TRADE ADVISORY SERVICES

On 13 February, FedEx Express Canada launched global trade advisory services to businesses seeking cross border security program approval, such as Free and Secure Trade (FAST) and Customs-Trade Partnership Against Terrorism (C-TPAT). FedEx Global Trade Advisory service will examine the client’s operations, identify the client’s needs in order to comply with the regulatory application process, assist the client with the application process, and perform on-going account maintenance and security audits.

Starting 27 June: • Calgary – St John’s service daily

Page 7 February 2007

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NEWS ARTICLES YVR WELCOMES PETER WEBSTER AS NEW BOARD DIRECTOR

PEOPLE IN THE NEWS TRANSPORT CANADA APPOINTS JOHN KALDEWAY TO CATSA On 12 February, Transport Canada named Mr. John Kaldeway as the Canadian Airports Council representative to the Canadian Air Transport Security Authority (CATSA) board. Mr. Kaldeway was the president and CEO of the Greater Toronto Airports Authority (GTAA) from October 2004 to the December 2006 prior to his retirement. Mr. Kaldeway began his career in aviation more than 30 years ago with Transport Canada. He transferred from Transport Canada to the GTAA in December 1996.

WESTJET APPOINTS VITO CULMONE AS NEW CFO On 22 January, WestJet announced the appointment of Mr. Vito Culmone Executive Vice-President, Finance and Chief Financial Officer (CFO) effective 1 March 2007. Mr. Culmone has a Chartered Accountant designation and has worked in various business environments including a 12-year career at Molson Inc. Mr. Culmone held the position of Vice-President, Commercial Finance with Molson Canada prior to joining WestJet.

EDMONTON AIRPORTS ANNOUNCES CAROL HUTCHINS AS NEW DIRECTOR, AIR SERVICE DEVELOPMENT

On 17 January, Edmonton Airports announced the appointment of Ms. Carol Hutchins to the position of Director, Air Service Development. Ms. Hutchins has nearly 20 years of travel industry management experience. She was the Director, Revenue Management at Air Canada Vacations prior to joining Edmonton Airports. Ms. Hutchins will be based in Toronto, where she can work closely with many eastern Canadian and U.S. based airlines and charter carriers.

Page 8 February 2007

On 17 January, the Vancouver International Airport Authority announced the appointment of Peter Webster to the Board as a federal government appointee.

Mr. Webster is a business executive with over 30 years experience serving Boards in various Canadian and U.S. businesses. Mr. Webster is a trustee of the R. Howard Webster Foundation and the Vancouver Police Foundation. He is also the Chair of the Boys and Girls Clubs of Canada Foundation.

OTHER VANCOUVER LOWERS LANDING FEES FOR INTERNATIONAL FLIGHTS

On 31 January, the Vancouver International Airport Authority announced a reduction in landing fees for international passenger and cargo flights into the Vancouver International Airport (YVR) effective January 2007. The new international fees will be the same as domestic fees, which remain unchanged; making YVR’s international fees the lowest of all major Canadian airports. The estimated cost savings for transborder passenger flights using Boeing 747, Boeing 777 and Airbus 320 are 10%, 9% and 6% respectively compared to the 2006 landing fees.

Meanwhile, cargo operators using Boeing 747-F on international routes are expected to pay 32% less in landing fees.

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

NEWS ARTICLES DELTA ORDERS 30 BOMBARDIER CRJ900S

OTHER – CON’T WINNIPEG AIRPORTS AUTHORITY REPORTS $61 MILLION IN REVENUE IN 2006

The Winnipeg Airports Authority reported the highest passengers increase in the history of the Winnipeg James Armstrong Richardson International Airport. Approximately 3.4 million passengers passed through Winnipeg in 2006, a 5% increase compared to 2005. Consolidated revenues for 2006 increased by nearly 6.5% to about $60.5 million due to higher passenger traffic and more scheduled services compared to 2005.

Operating costs went up 5% to $32 million in 2006 as a result of increasing payroll and employee benefits. Total net income decreased by $2 million to $19 million in 2006 because of rising interest and amortization.

FRONTIER AIRLINES FLYS TO VANCOUVER

U.S. carrier Frontier Airlines will begin daily service between Vancouver and Denver on 5 May. As a result, passengers travelling from Vancouver to Denver will have access to connecting services to 22 U.S. cities year-round and to four Mexican destinations during the winter season.

Page 9 February 2007

Delta announced that it has ordered 30 90-seat CRJ900 regional jets from Bombardier valued at $1.1 billion. The carrier also took options for an additional 30 aircraft for another $1.2 billion, bringing the total contract value to $2.3 billion.

A320 PRODUCTION MOVES TO HAMBURG

Airbus’s senior management plans to shift final assembly of the A320 to Hamburg, leaving Toulouse with final assembly of wide-bodied aircraft such as the A330, A340 and A380. Airbus officials expected shifting the A320's final assembly to Toulouse to make economic sense, although it would require building another production line and other new investments. Currently, Hamburg produces fuselages for the A320 family aircraft and is responsible for the final assembly of the A318, A319 and A321 aircraft.

BOMBARDIER BUILDS NEW 100PASSNGER CRJ Bombardier has introduced the new 100-seat CRJ1000 to compete with Embraer in terms of low operating costs. The new aircraft is 11,250 KG lighter and 15% more fuel efficient than Embraer’s 190. Bombardier has already received 38 firm orders and 23 conditional orders and options for the new aircraft.

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

CARGO CAPERS February 2007

Air Cargo Prospects. Word on the street is that air cargo volumes are slowing dramatically.

A quick look at the “Breaking News” from last week’s AirCargo World Online also seems rather alarming from the perspective of air cargo operators: • • •

• • •

NWA Cargo Revenue Fell KAL Cargo Soars, Yield Plunges U.S. Air Cargo Falls 2.3 Percent

Kuijpers Launches Cargo Airline Avion Orders Airbus Freighters UPS Orders 767s

Revenues, yields and U.S. volumes are dropping, more freighters are coming on the market, and more carriers are entering the market. Not exactly a recipe for financial success!

As regular readers of this column will know, I am quite bullish on the long term growth prospects of air cargo. The continually improving service levels made possible by more and better freighters, the continually decreasing yields when measured in real terms, and the underlying market dynamics of globalised supply and demand in an era of growing trade where time is of the essence, all bode well for air cargo. How does one reconcile that with the rumblings of a drop-off in air cargo demand?

ATA results. The latest ATA Cargo Traffic Report shows that growth certainly tailed off towards the end of last year. Splitting the total by sector, the statistics show Atlantic volumes doing well, Latin America doing reasonably well, and Pacific, while strong early in 2006, tailing off towards the end of the year, just when you’d expect strong growth to take place as we approach Christmas and Chinese New Year.

Total Air Cargo Growth (month over month) 14.0% 12.0% 10.0% 8.0% 6.0%

2006 2005 2004

4.0% 2.0% 0.0% -2.0% -4.0% Dec

Nov

Oct

Sept

Aug

Jul

Jun

May

Apr

Mar

-6.0% Feb

Vice President Transportation and Logistics Studies

Jan

Robert Andriulaitis

Source: ATA December 2006 Monthly Cargo Traffic Report

Page 10 February 2007

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

CARGO CAPERS – CON’T So what is happening over the Pacific? Well, for one thing, it could be nothing more than a continuation of the normal short-term market fluctuations. There are a couple of other items, however, that give some potential cause for some short-term concern.

The threat of tariffs. There had been an attempt in 2003 by some U.S. Senators to pass a bill that would impose a 27.5% tariff on Chinese goods (S. 1586, To authorize appropriate action if the negotiations with the People's Republic of China regarding China's undervalued currency and currency manipulation are not successful). The 27.5% was an average estimate by how much the Yuan was “artificially pegged … below its market value.” While the bill did not become law, it signalled U.S. concerns about the trade imbalance with China, and in 2005 China revalue the Yuan, and since then, it has risen 6% relative to the U.S. dollar. This has hurt the profits of Chinese exporters, which reportedly operate on slim margins. If the Yuan rises further, the volume of Chinese exports to the U.S. could diminish.

There is a very shiny silver lining to this cloud, however, since the rise in the value of the Yuan would make U.S. goods more affordable to the Chinese consumer, and could lead to increased Chinese imports of U.S. goods. This would be welcomed by the carriers as it would lessen the current severe imbalance in cargo flows that causes them such headaches.

The threat of quotas. The U.S. and China signed an MOU late in 2005 which imposed quotas on textiles and apparel from China. The quota will apply for 2006, 2007 and 2008. Thought quotas were eliminated for all WTO members in 2005; goods from China are still subject to “safeguard” actions through 2008. This was one of the conditions for China’s accession to the WTO back in 2001. Though this is reportedly having an impact on air cargo, this situation is only a temporary one, and one limited to one area of trade.

Thus despite these two threats, and any short-term grief they might cause, the future is still looking up!

Page 11 February 2007

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

OTTAWA REPORT February 2007

Skyservice Designated to Fly Croatia, Serbia, Belgium and France On 19 February, the Minister of Transport, Infrastructure and Communities announced the designation of Skyservice Airlines to operate scheduled services to Croatia, Serbia, Belgium and France. Skyservice has been operating charter flights to several European destinations for over 10 years, including Croatia and Serbia since 2004. The designations were made possible by the bilateral air transport agreements already in place with the respective European countries. The agreements permit Canada and each European country to designate any number of airlines for the operation of scheduled air services to and from Canada.

Canada Launches $61 Million EcoFreight Program Martin Copeland Senior Vice President, Aviation

On 15 February, the federal government launched a $61 million ecoFreight program for reducing the environmental and health effects of freight transportation. The ecoFreight program is part of the federal government’s ecoTransport Strategy designed to promote a clean and efficient transportation system. The ecoFreight program consists of six initiatives, two of which are targeted to the trucking industry while the other four initiatives apply to carriers and users of all modes (air, rail, road and marine). Initiatives relating to the air mode include: • Up to $10 million in Freight Technology Demonstration Fund for testing and measuring the environmental and operational performance of new and under-utilised technologies.

• Up to $10 million in Freight Technology Incentives for mitigating financial barriers to the adoption of new and under-utilised technologies.

• Up to $7 million on Partnerships on Freight for bringing together a range of partners within the freight transportation sector to reduce emissions from freight transportation.

Government Launches NEXUS at Toronto Pearson On 12 February, the Minister of Public Safety announced the operation of the NEXUS Enrolment Centre and automated self-serve kiosks at Toronto Pearson. NEXUS is part of the North America Security and Prosperity Partnership and it is designed to expedite the border clearance process for low-risk, pre-approved travelers into Canada and the U.S. NEXUS members are pre-approved to cross the Canada-U.S. border by land, sea, and air under the NEXUS program. Vancouver is the first airport in North America to offer NEXUS Air. NEXUS will expand to Edmonton, Calgary, Winnipeg, Ottawa, Montreal and Halifax.

CAC Calls for Five Point Competitive Plan On 29 January, the Canadian Airports Council (CAC) presented a five-point competitive plan to federal legislators to increase the competitiveness of Canadian airports in the world. The CAC identified the elimination of airport rent, more resources for border services and the negotiation of more liberalised bilateral agreements as three of the five top priorities. The CAC also proposed an increase in Airports Capital Assistance Program funding (ACAP) and a change in regulation to permit Arrivals Duty Free at Canadian airports.

Page 12 February 2007

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

OTTAWA REPORT – CON’T BC Aviation Council Wants Provincial Aviation Fuel Tax Cut The BC Aviation Council (BCAC) and the Vancouver Board of Trade sent letters to the Minister of Finance, the Honourable Carole Taylor, to consider eliminating or reducing the provincial aviation fuel tax so that B.C. is competitive with other jurisdictions. Currently, there is an inconsistency in aviation fuel tax rates among jurisdictions and the rates may differ between international and domestic flights.

NAV Canada Reports 5.3% and 4.6%Traffic Increase for November and December NAV Canada reports that its November traffic increased by 5.3% and its December traffic increased by 4.6% 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.

Page 13 February 2007

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

WASHINGTON REPORT February 2007

FAA Gets $14 Billion in FY2008 Request On 6 February, the Secretary of Transportation released the U.S. Department of Transportation (DOT) fiscal year 2008 budget which includes $14 billion for the Federal Aviation Administration (FAA) to increase the safety, performance, and capacity of the aviation system. Of this total, 67% or $9.4 billion is for safety, 26% or $3.6 billion is for reducing congestion, and the remaining 7% is for performance such as organizational excellence and environmental stewardship.

Pilot US VISIT Program Requires More Fingerprinting Jon Ash President Inc. Washington, D.C.

InterVISTAS-ga2 Consulting

The pilot US VISIT program that is scheduled to begin this summer will require foreign visitors to submit ten fingerprints rather than the two currently required by the Department of Homeland Security (DHS) for the purpose of better matching and verifying identities. The DHS hopes to implement the 10-print system at all airports that process arriving international travelers by 2008. The fingerprinting can be done at an embassy when the traveler gets a visa or at the port of entry for travelers in the Visa Waiver program.

Travel to U.S. Down 17% since 9/11 The Travel Industry Association released a study that looked at the economic effect of 9/11 and found that the U.S. market share of the $6 trillion worldwide travel market fell from 7.5% in 2000 to 6.1% in 2006. The number of overseas travelers to the U.S. decreased by 17% since 9/11 and has cost the U.S. more than $15 billion in tax revenue and nearly 200,000 jobs. In 2006, the U.S. was ranked as the world’s most unfriendly nation to visitors in a survey of travelers from 16 nations due to tightened security measures and toughened visa and entry requirements.

Air Travel Price Fare Index Went Up 7.5% in 3rd Quarter 2006 According to the U.S. Bureau of Transportation Statistics, the Air Travel Price Index (ATPI) for the 3rd quarter 2006 is 7.5% higher compared to the same period in 2005, resulting in the largest year-toyear rise since 3rd quarter 2000. However, the ATPI fell 2.6% compared to 2nd quarter 2006, which may be affected by seasonal factors. The ATPI is a statistical index that documents quarterly changes in airline prices since the first quarter of 1995 using tickets actually purchased by passengers for itineraries on U.S. carriers originating from the U.S. The index measures changes in airline ticket prices used on identical routings and identical classes of service on a quarter-by-quarter basis. The index can be used to compare airfares in the most recent available quarter to any quarter since the base year of 1995.

Airlines Battle Sharp Rise in LAX Fees The Los Angeles World Airports board voted in favour of increasing the terminal charges at Los Angeles Airport (LAX) occupied by Southwest Airlines by nearly 300% or about $36 million annually, making it the largest increase in industry history. The board also doubled the maintenance and operations fees paid by American Airlines and other carriers. This could result in an additional $9 million in fees in the first year for American airlines. Southwest Airlines is considering filing a litigation through the U.S. Department of Transportation (DOT). American Airlines has filed a federal lawsuit against the Los Angeles World Airports, joined by United and Continental Airlines. The Los Angeles World Airports said in a statement that the rise in fees is the result of increased in security costs following the events of 9/11.

Page 14 February 2007

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

INTERVISTAS NEWS February 2007

Mr. Christian Hansen, Manager, Security & Trade Policy • B.C. Tourism Industry Conference: Victoria, B.C. – 22 February 2007 Mr. Hansen will be delivering a presentation titled, “Perimeter Clearance and Travel.”

Mr. Paul Clark, Vice President, Consumer Strategy • B.C. Tourism Industry Conference: Victoria, B.C. – 23 February 2007 Mr. Clark will be delivering a presentation titled, “Engaging the Indian Outbound Tourism Market: Key Opportunities & Challenges Ahead.”

Mr. Martin Copeland, Senior Vice President, Aviation • Belize Air Service and Tourism Summit: Belize City, Belize – 22 February 2007 Mr. Copeland will be delivering a presentation titled, “Attracting, Maintaining and Developing Air Services.”

• Airline Fleet Planning Conference: Bellingham, Washington – 22-23 March 2007 Mr. Copeland will be delivering a presentation titled, “Airline Fleet Planning and Airport Perspective.”

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.”

Dr. Mike Tretheway, Executive Vice President and Chief Economist • 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.”

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.

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Page 15 February 2007

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