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CANADIAN AVIATION INTELLIGENCE REPORT

In this issue… Features Columns: • CEO Update (p.1) • Challenging Times for International Tourism (p.2) • Caribbean Report (p.10) • Asia Report (p.11) • European Report (p.12) • Ottawa Report (p.14) • Washington Report (p.16)

Regular Reports: • Airline Data - Canada (p.3) • Airline Data – U.S. (p.4) • Selected Canadian Airport Data (p.5) • News (p.6) • InterVISTAS News (p.17)


CEO UPDATE February 2009

Welcome to the February 2009 edition of InterVISTAS Consulting Inc.’s Canadian Aviation Intelligence Report (CAIR).

DHV and Delcan Meet to Discuss Climate Change Practice

Gerry Bruno President & CEO

On 26 January 2009, members of the DHV and Delcan family, including InterVISTAS and NACO, met in Vancouver, BC to outline a global greenhouse gas business strategy for the group of companies. Hosted by InterVISTAS, the session focused on developing strategic business solutions to address the growing concern of global climate change to public and private sector clients. Special guest speaker Warren Bell, Executive Director of Policy at the Climate Action Secretariat of British Columbia, presented on the local effects of climate change and government initiatives and policies to address climate change in British Columbia.

Back Row (left to right): Joe Kelly, Paul Belella, Sean Broadbent, Richard Mudge, Diana Hamilton Front Row (left to right): Bruce Okabe, Rik Krabbendam, Ken Curry, Keith Jasper, Roel Klein, Doug Floyd, Jean-Paul Laube

The strategy session marked an important first step in a collaborative effort by the DHV and Delcan family to increase its global presence in climate change consulting services. The group has an established greenhouse gas consulting practice comprised of a global team of over 30 environmental professionals and currently offers a suite of services, ranging from greenhouse gas inventories and strategic plans to carbon offset programs and policy analysis.

InterVISTAS Projects Update The InterVISTAS Group is currently working on a large number of consulting assignments for a broad range of clients throughout the world. Some recently awarded projects include:

Pre-Clearance Act Review InterVISTAS has been commissioned by the Department of Foreign Affairs and International Trade Canada to undertake an independent review of the Preclearance Act. The purpose of this exercise is to review and report upon the administration and operation of the Preclearance Act and its four sets of regulations, as they pertain to experiences in commercial aviation since the Act entered into force. A consultation session is open for public feedback until 26 March 2009. (http://preclearancereview-examenprecontrole.intervistas.com/)

Tourism Whistler Room Night Forecast Model Tourism Whistler has awarded InterVISTAS a one-year contract to provide regular updates to its room night forecast model. Based on historical sales patterns, projected trends in several economic indicators and other factors such as the 2010 Olympic Games, the model generates monthly forecasts of destination-wide room night sales for numerous key market regions. Tourism Whistler uses the forecasts to help inform various destination marketing and planning decisions.

Page 1 February 2009

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2009 InterVISTAS Consulting Inc., all rights reserved.


CHALLENGING TIMES FOR INTERNATIONAL TOURISM February 2009

The global international tourism industry has exhibited strong growth over the last several years but is currently facing a signficant global recession. This column higlights the performance of the global tourism industry over the last decade, and also provides an expected outlook for 2009 and beyond based on current economic challenges. Growth of International Tourism

Growth of International Travel Worldwide.

900

908

850

924

850

800

805

750

763

700 682

650

682

702

692

633

600 570

550

610

593

536 20 08

20 06 20 07

20 04 20 05

20 03

20 01 20 02

20 00

UNWTO Panel of Tourism Experts Confidence Index (World)

175

Much Better

150 150 Better

144

144

140

140

136

137

143 132

119

125

98

100

71

75 Worse

50 Much Worse

ts 20 04 at io Pr os n 2 00 pe 4 ct Ev s al ua 200 5 tio Pr os n 2 00 pe 5 c Ev ts al ua 200 6 tio Pr os n 2 00 pe 6 ct Ev s al ua 200 7 tio Pr os n 2 00 pe 7 ct Ev s al 2 00 ua 8 tio Pr os n 2 00 pe 8 ct s 20 09 Source: World Tourism Organization (UNWTO).

Future Prospects. Although the current outlook is weak due to the global economic recession, it is important to keep in mind that this softening of international tourism growth follows four consecutive years of above average growth (7% compared to 4% average). Furthermore, international tourism has shown to be resilient in the past, declining only twice in the last 30 years (i.e., 1982 recession and SARS outbreak in 2003). The UNWTO stands by its long-term Tourism 2020 Vision forecast of 1.6 billion international tourist arrivals by 2020.

al u

Ev

Pr os

pe c

20

03

25

at io n

consecutive years of growth, the UNWTO expects that international tourism will slow to 0% to -2% in 2009, with a high degree of uncertainty due to the continuing evolving economic conditions.

Page 2 February 2009

19 99

Source: World Tourism Organization (UNWTO).

Equal

Weak Forecast for 2009. After five

19 97 19 98

19 96

the current economic environment, confidence among the panel of tourism experts from the UNWTO has dropped to a historic low – with a 98 point evaluation rating for 2008, and an even lower 71 point prospects rating for 2009 (higher point ratings reflect more confidence and vice versa).

500 19 95

Tourism Industry Confidence Low. Given

al u

Senior Project Manager

950

Ev

Eugene Chu

International tourism arrivals worldwide have exhibited consistently strong growth over the last decade – reaching 924 million tourist arrivals in 2008. However, a 5% increase during the six months of 2008 was followed by a -1% decline in the second half of the year, as global economic conditions deteriorated.

International Tourist Arrivals – World (in millions)

2009 International Tourism Prospects International Tourist Arrivals – World (% year over year change)

12 10 8 6 Tourism 2020 Vision Long Term Average of 4.1%

4 2 0 98/97

97/96

99/98

01/00

03/02

05/04

-2

07/06

Forecast 09

Source: World Tourism Organization (UNWTO).

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2009 InterVISTAS Consulting Inc., all rights reserved.


AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers January 2009 Air Carrier

Passenger Traffic Revenue Passenger Kilometres % Change % Change over 2008 from 2007

Capacity Available Seat Kilometres % Change over 2008

% Change from 2007

Change over 2008

Change from 2007

Air Canada1

-7.7%

-4.6%

-8.5%

-5.5%

+0.7pts (to 79.4%)

+0.8pts (from 78.6%)

Domestic (Mainline)

-2.9%

+1.0%

-1.5%

+1.6%

-1.2pts

-0.5pts

Jazz

-17.7%

-11.0%

-11.9%

-4.9%

-4.5pts

-4.4pts

International & Charter

-9.4%

-6.5%

-11.0%

-7.9%

+1.4pts

+1.3pts

+10.3%

+28.2%

+9.4%

+26.6%

+0.6pts (to 76.8%)

+0.9pts (from 75.9%)

WestJet

Analysis: •

1

Load Factor

Air Canada Mainline’s domestic sector decrease contributed to a system-wide passenger traffic decline of 7.7%. Domestic traffic (-2.9%) decreased at a greater rate than domestic seat capacity (-1.5%) in January 2009 over January 2008. As a result, the carrier’s domestic load factor decreased from 79.5% in January 2008 to 78.3% in January 2009. Air Canada Mainline’s international sector decreased in both traffic (-9.4%) and capacity (-11.0%) in January 2009 over January 2008. The “Latin America and Other” region shows the strongest growth in January 2009, as traffic and capacity increased by 7.5% and 8.8%, respectively. This continued growth is likely due to Air Canada’s codeshare agreement with Brazilian airline TAM in October 2008 and capacity increases to Argentina, Brazil, and Chile, announced in March 2008 that took effect 1 December 2008.

Air Canada Domestic Mainline

10% 8% 6% 4% 2% 0% -2% -4% -6%

Nov- Dec 07

Jan- Feb 08

Mar

Apr

May June July Aug

Dom RPK

Sep

Dom ASK

Oct

Nov

Dec

Jan09

Jazz data is not included in this graph

Air Canada International 10% 5% 0% -5% -10% -15% Nov- Dec Jan- Feb 07 08

Mar

Apr

Int'l RPK

May June July Aug

Sep

Oct

Nov

Int'l ASK

Dec Jan09

WestJet 25% 20% 15% 10% 5% 0%

Nov- Dec Jan- Feb Mar Apr May June July Aug Sep Oct Nov WestJet reported a slight increase in its system07 08 RPK ASK wide load factor of 0.6 percentage points to 76.8% in January 2009 over January 2008. Passenger traffic (+10.3%) growth outpaced capacity (+9.4%) growth over January 2008.

Dec Jan09

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

Page 3 February 2009

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2009 InterVISTAS Consulting Inc., all rights reserved.


AIRLINE DATA – U.S. U.S. Airlines Release January 2009 Traffic Figures

1

2

2

Notes:

(RPMs – millions)

(ASMs – millions)

Capacity

Load Factor

1,930 ↓7.1%

2,609 ↓5.1%

74.0% ↓1.6 pts

521 ↓17.9%

852 ↓12.4%

81.2% ↓4.1 pts

5,135 ↓6.4%

8,172 ↓4.4%

62.8% ↓1.4 pts

6,428 ↓11.0%

8,786 ↓6.5%

73.2% ↓3.6 pts

8,580 ↓10.9%

11,413 ↓10.5%

75.2% ↓0.3 pts

9,639 ↓11.7%

13,066 ↓8.3%

73.8% ↓2.8 pts

8,874 ↓2.2%

11,812 ↓1.9%

75.1% ↓0.3 pts

5,652 ↓8.2%

7,268 ↓6.4%

77.8% ↓1.5 pts

4,352 ↓6.2%

5,743 ↓6.9%

75.8% ↑0.6 pts

1,270 ↑4.5%

1,736 ↓3.8%

73.2% ↑5.8pts

632 ↓16.0%

901 ↓13.3%

70.2% ↓2.3 pts

Traffic

Airline

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

Sources: Carrier traffic reports.

Page 4 February 2009

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2009 InterVISTAS Consulting Inc., all rights reserved.


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

2007

Toronto

Vancouver

December

+2.8%

+4.4%

MontréalTrudeau +8.1%

4th

+3.8%

+5.2%

Full Year

+1.7%

January

+4.8%

February March 1st

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

+3.7%

+8.2%

+9.2%

+3.8%

+4.2%

+8.1%

+3.7%

+7.5%

+3.7%

St. John’s -5.5%

+7.3%

+7.1%

+12.4%

+9.5%

+4.0%

+4.8%

+8.9%

+5.0%

+7.7%

+6.0%

+0.7%

+3.3%

+8.7%

+8.5%

+16.3%

+7.4%

+5.5%

+2.7%

+6.6%

+11.3%

+8.6%

+10.2%

-0.2%

+9.2%

+4.3%

+4.9%

+7.6%

+6.4%

+4.4%

+2.2%

+6.1%

+4.5%

+9.2%

-0.3%

-2.2%

+7.7%

+12.8%

+9.8%

+7.4%

+10.2%

+8.3%

+7.4%

+8.6%

+7.9%

+10.3%

+9.1%

+8.3%

+4.3%

+6.2%

+8.0%

+2.2%

+8.0%

+8.2%

+6.8%

+4.7%

+20.4%

+2.5%

+0.7%

+19.0%

+15.8%

+5.8%

Quarter

+6.2%

+9.9%

+5.3%

+6.8%

+8.6%

+7.2%

+5.5%

+11.2%

+5.4%

+5.0%

+12.2%

+7.6%

+2.7%

April

+5.5%

+6.2%

+3.1%

+3.6%

+5.3%

+10.0%

+4.6%

+9.2%

+3.2%

+0.1%

+1.9%

+3.4%

+2.5%

May

+5.1%

+6.7%

+1.4%

+3.1%

+5.9%

+7.6%

-2.1%

+12.1%

+3.3%

+1.0%

+3.5%

+5.3%

+5.2%

June

+6.4%

+5.1%

-2.7%

+2.4%

+5.2%

+8.5%

-1.4%

+6.6%

+7.6%

+0.5%

+6.1%

+2.2%

+6.4%

Quarter

2008

2nd Quarter

+5.7%

+6.0%

+0.5%

+3.0%

+5.5%

+8.7%

+0.2%

+9.3%

+4.7%

+0.5%

+3.9%

+3.6%

+4.8%

July

+3.0%

+0.7%

-2.1%

+1.9%

+7.2%

+9.1%

-1.4%

-3.9%

+5.6%

+2.7%

+8.8%

-1.5%

+0.3%

August

+3.0%

+0.3%

-0.9%

+1.0%

+4.1%

+9.9%

-4.8%

+2.0%

+6.7%

+4.8%

+8.1%

+6.9%

+3.0%

September

-1.6%

-6.0%

-5.1%

-5.7%

+4.9%

+6.9%

-2.4%

-4.1%

+3.5%

+2.0%

+14.9%

+4.7%

+2.5%

3rd

+1.6%

-1.4%

-2.6%

-0.7%

+5.4%

+8.6%

-2.9%

-1.8%

+5.4%

+3.2%

+10.5%

+3.2%

+1.9%

October

-4.8%

-3.2%

-4.0%

-3.4%

+6.1%

+1.0%

-3.7%

-1.0%

+3.5%

+2.4%

+12.3%

+10.3%

+2.7%

November

-3.2%

-5.9%

-4.6%

-0.1%

+2.7%

-5.6%

-1.3%

-8.5%

+3.2%

-1.1%

+7.4%

+0.6%

+4.3%

December

-1.1%

-6.7%

-3.3%

+0.2%

+6.8%

+3.5%

-0.9%

-4.9%

-7.1%

-3.1%

+15.1%

+5.3%

+3.8%

4th

Quarter

Quarter

Full Year

-3.1%

-5.3%

-4.0%

-1.2%

+5.2%

-0.3%

-2.0%

-4.5%

-0.1%

-0.7%

+11.6%

+5.4%

+3.5%

+2.6%

+2.0%

-0.2%

+1.9%

+6.1%

+6.1%

+0.1%

+3.2%

+3.8%

+2.1%

+9.6%

+5.0%

+3.2%

Source: Transport Canada and individual airports’ traffic reports. Subject to revision.

Page 5 February 2009

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2009 InterVISTAS Consulting Inc., all rights reserved.


NEWS JAZZ REPORTS 2008 NET INCOME OF $135 MILLION

AIR CANADA UPDATE NEW CALGARY SERVICES

On 3 February 2009, Air Canada (AC) announced the addition of four new non-stop services departing from Calgary. Daily non-stop service to San Diego will begin 15 May 2009 and both daily non-stop service to London, Ontario and seasonal service to Whitehorse will begin operation 1 June 2009. New non-stop service to Portland will begin on 15 June 2009.

On 10 February 2009, Jazz reported fourth quarter operating income of $39.7 million, up $3.7 million or 10.3% from the same quarter last year. Operating income for the year totalled $148.3 million, a slight decrease of 3.2% from $153.2 million in 2007. Net income of $34.9 million in Q4 2008 was relatively flat compared to Q4 2007 (-0.5%), while net income for fullyear 2008 was down 10.5% from $150.7 million in 2007 to $134.8 million in 2008.

$1 BILLION NET LOSS IN 2008

AC announced an operating loss of $146 million in the fourth quarter of 2008 compared to operating income of $72 million in the same quarter of 2007. AC also announced similar year-end results of a $39 million operating loss compared to operating income of $433 million in 2007. Record high fuel prices throughout the year amounted to $3.4 billion, an increase of $867 million or 34% over full year 2007 expenses. Passenger revenue decreased by 1% or $14 million in the fourth quarter of 2008 over 2007 due to a decline in traffic, but increased $384 million or 4% to $9.7 billion from year-end 2007 to 2008 mainly due to increased fares and fuel surcharges collected. A net loss of $727 million and $1,025 million were reported for the fourth quarter and 2008 year-end, respectively.

EUROPE PASS INTRODUCED

AC announced the introduction of the Europe Pass on 18 February 2009. Valid for one year from the date of purchase, the pass offers either six flight credits (three round trips) for an individual traveller or eight flight credits for up two travellers (four round trips per individual or two round trips per pair of travellers). The pass is available in three versions (Executive First and two Economy Class versions) and can be purchased from four regional zones across Canada and the U.S. Valid only on service between Canada and Europe and the U.S. and Europe, the pass cannot be used for intraEurope air travel. Page 6 February 2009

WESTJET UPDATE NEW OTTAWA SERVICE WestJet announced new non-stop service between Ottawa and Cancun on 27 January 2009. The weekly service is scheduled to begin 4 March 2009 and conclude 29 April 2009, and will operate every Wednesday.

$178 MILLION IN NET INCOME FOR 2008 WestJet announced fourth quarter revenue of $616 million in 2008, an improvement of nearly 12% compared to the $552 million generated in the same quarter last year. For the year, WestJet reported revenue of $2,550 million in 2008, an increase of nearly 20% over the $2,127 million earned in 2007. Despite the increase in revenue, quarterly net earnings decreased almost 46% from $75.4 million in the fourth quarter of 2007 to $40.8 million in the fourth quarter of 2008. Similarly, year-end net earnings decreased over 7% from $193 million in 2007 to $178 million in 2008.

InterVISTAS’ Canadian Aviation Intelligence Report Copyright Š2009 InterVISTAS Consulting Inc., all rights reserved.


NEWS – CON’T WESTJET CON’T CHARTER AGREEMENT WITH TRANSAT TERMINATED WestJet and Canadian tour operator Transat amicably terminated an air transportation agreement on 13 February 2009. The 2003 agreement, scheduled to expire in 2010, permitted Transat to offer charter services to sun destinations aboard WestJet aircraft. President Nelson Gentiletti of Transat Tours Canada stated that market conditions caused both parties to mutually terminate the relationship. The termination takes effect at the conclusion of the current winter season on 10 May 2009.

OTHER CANADIAN AIRLINES SUNWING ADDS 14TH AIRCRAFT Sunwing Airlines added a Boeing 737-800 to its fleet on 30 January 2009, bringing its fleet total to 14 aircraft. Sunwing’s expansion required the recruitment of 14 new pilots and 35 additional flight attendants. A 15th aircraft is scheduled for delivery in April 2009.

VIRGIN OFFERS SERVICES TO BOSTON Virgin America launched service between Los Angeles-Boston and San Francisco-Boston on 11 February 2009. Service between Los Angeles and Boston will operate three times daily, while San Francisco-Boston service will operate twice daily.

DELTA ADDS CARIBBEAN CAPACITY On 10 February 2009, Delta announced increased capacity to the Caribbean. New non-stop daily service between New York-JFK and Port-auPrince, Haiti will begin 20 June 2009, while service between New York-LaGuardia and Bermuda will resume daily non-stop service on 22 May 2009.

CARGO FEDEX OPENS NEW HUB IN CHINA

U.S. AIRLINES SOUTHWEST PILOTS DEAL LIMITS CODESHARES On 30 January 2009, Southwest Airlines reached an agreement in principle on a new five-year contract with the Southwest Airlines Pilot Association (SWAPA) that contains codeshare restrictions. The discount carrier and its pilot union agreed not to pursue any codeshare agreements with domestic carriers without SWAPA’s permission and to impose limits on the number of codeshares with foreign carriers. The contract stipulation arose as a result of concerns raised by Southwest pilots after the carrier entered codeshare agreements with low-cost carriers Page 7 February 2009

WestJet and Volaris, and the codeshare with ATA Airlines that ended with ATA’s cessation of operations. The union board will vote on the contract in the first week of March, which if passed, will replace Southwest’s existing contract with SWAPA that contains no codeshare limitations.

FedEx Express, a subsidiary of FedEx Corporation, began operating out of its largest hub outside the United States in Guangzhou, China on 6 February 2009. The US$150 million hub will be the company’s center for regional operations for the next 30 years and will process 136 weekly flights, providing access to over 220 countries and territories. The new facility features a ramp control tower to manage aircraft movements, a dedicated customs clearance facility, and advanced packing/sorting systems that can process up to 24,000 packages an hour.

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2009 InterVISTAS Consulting Inc., all rights reserved.


NEWS – CON’T OTTAWA WELCOMES NEW UNITED SERVICE

CARGO CON’T ACCC ESCALATES PRICE-FIXING INVESTIGATION The Australian Competition and Consumer Commission (ACCC) expanded its cargo price-fixing investigation on 11 February 2009 and commenced legal proceedings against Air France, Cargolux, KLM, and Martinair in their 2003-2006 fuel surcharge collusion. Although the Federal Court will determine the final monetary penalties, Cargolux and Martinair offered to each pay A$5 million, while Air France and KLM offered to pay a combined A$6 million. British Airways and Qantas were assessed penalties of A$5 million and A$20 million, respectively, for their involvement in the collusion. ACCC began proceedings against Singapore Airlines Cargo in December 2008 and stated it will continue its investigation into the price-fixing activities of other airlines.

AIRPORTS UPDATE GTAA ANNOUNCES AIRPORT CHANGES

On 13 February 2009, The Greater Toronto Airports Authority (GTAA) revealed plans to reduce expenses and increase revenue in anticipation of a 5.8% reduction in 2009 passenger volume. The four major initiatives outlined by the GTAA include: cost containment measures such as a hiring freeze, airside and groundside facility closures, contracted services consolidation, and management salary freeze; deferment of capital programs; a landing fee rebate program that incentivizes air carriers to offer new services, and; an increase in Airport Improvement Fees of $5 to $25 per departing passenger effective 1 June 2009.

Page 8 February 2009

On 12 February 2009, the Ottawa International Airport Authority announced new non-stop service between Ottawa and Denver operated by United Airlines. From Denver, passengers will be able to connect onward to Los Angeles, San Francisco, Phoenix, and Las Vegas, among others. Daily Ottawa-Denver service is scheduled to begin 4 June 2009.

PEOPLE IN THE NEWS BASILE NAMED VP OF SALES AT BOEING

On 4 February 2009, Boeing appointed Aldo Basile its new Commercial Airplanes Vice President of Sales for Europe, Russia, and Central Asia. With over 30 years of experience, Basile joined Boeing in 1978 and held various positions of increasing responsibility before accepting the new position. Mr. Basile succeeds Marlin Dailey, who was recently designated Boeing Commercial Airplanes Vice President Sales.

ADAMS DESIGNATED TO THE BOARD OF DIRECTORS OF THE TORONTO PORT AUTHORITY Transport Minister John Baird announced the appointment of Jeremy Adams to the board of directors of the Toronto Port Authority on 19 January 2009. Mr. Adams has worked in numerous communications and policy-related positions for both the private and public sector. The appointment carries a term of three years.

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2009 InterVISTAS Consulting Inc., all rights reserved.


NEWS – CON’T CANADA AND COSTA RICA COMMIT TO AIR TRANSPORT AGREEMENT

OTHER IATA REPORTS 2008 PASSENGER TRAFFIC UP 1.6%, INTERNATIONAL CARGO TRAFFIC DOWN 4%

According to International Air Transport Association (IATA) traffic figures released 29 January 2009, passenger traffic dropped 4.6% in the month of December 2008 compared to December 2007, but experienced a slight increase of 1.6% in full year 2008 results over 2007. Capacity for the year increased 3.5%, while the load factor of 75.9% was down 1.4 points from 77.3% in 2007. International cargo traffic plummeted 22.6% in the month of December 2008 compared to December 2007, reflecting declines in world trade. Year-over-year international cargo traffic in 2008 decreased 4.0% over 2007. As a result of dismal traffic figures, airlines registered a US$5 billion loss in 2008.

SIA SUSPENDS VANCOUVER SERVICE On 15 February 2009, Singapore Airlines (SIA) announced that it will suspend flights to Vancouver due to decreased demand resulting from the global economic slowdown. The carrier, which currently operates service between Vancouver and Seoul, South Korea three times weekly, will suspend service indefinitely after its final flight on 25 April 2009. SIA also plans to cut flights to the United States, Europe, and Asia, although no specific details have been released.

Page 9 February 2009

On 17 February 2009, an “Open Skies-type” air transport agreement was concluded between Canada and Costa Rica. The new agreement permits airlines to operate scheduled services between any bilateral citypairs using both proprietary aircraft and codesharing. The agreement also allows airlines greater flexibility in the scheduling and pricing of flights, and the selling of services between both countries, as well as a third country. The specific rights contained in the new air transport agreement have not been released yet in order to give airlines time “to consider opportunities and plan accordingly.”

GOVERNMENT OF CANADA REVEALS ACAP FUNDING RECIPIENTS The Canadian government announced recipients of infrastructure funding from the Airport Capital Assistance Program (ACAP) on 6 February 2009. Now in round two of the 2009-2010 program, ACAP has invested approximately $489 million for 598 projects at 167 airports in airport safety initiatives since its inception in 1994. The latest round of program contributions were awarded based on a set criteria prioritized on a four-point scale ranging from first-priority projects, such as safety-related airside projects, to fourth-priority projects, such as asset protection and refurbishing. The five largest recipients of round two funding included: North Bay Airport with an allocation of over $5 million toward runway rehabilitation; Attawapiskat Airport with an allocation of over $1 million to be used for the purchase of crushed gravel; Kashechewan Airport with an allocation of over $700,000 to purchase a supply of crushed gravel; Red Deer Airport with an allocation of nearly $500,000 to replace its plow truck and sweeper; and High Level Airport with an allocation of over $400,000 to replace its snow blower. The current five year program will direct $190 million to eligible projects by March 2010.

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2009 InterVISTAS Consulting Inc., all rights reserved.


THE CARIBBEAN REPORT February 2009

Punta Cana Airport Upgraded The Dominican Republic’s busiest airport, Punta Cana International, recently upgraded its facilities to install the country’s only Doppler weather radar system. It also added new e-ticketing machines, assigned baggage-drop areas to reduce check-in times and built a new check-in terminal with 40 stations and a new baggage belt system. Additional renovations are expected to be completed over the next two years, including a larger runway, the expansion of existing taxiways and a new control tower. The renovation was financed by Grupo Punta Cana, owner and operator of the airport, and the Punta Cana Resort & Club. In 2008, the airport ranked as the Caribbean’s third busiest, handling 80 daily flights and welcoming more than 2 million visitors.

Jacqueline Clarke Manager, Strategic Development

Local Carriers Cut Capacity Jamaica's national carrier, Air Jamaica, and regional airline, LIAT, are both cutting routes as the economic slowdown continues to impact the region’s tourism industry. On 26 February 2009, Air Jamaica will cease service to three U.S. gateways – Miami, Atlanta and Los Angeles – and cut service between Jamaica and two Caribbean destinations – Barbados and Grenada. The airline has served the Miami gateway since its inception in 1969. The service reductions will be accompanied by a fleet reduction as the carrier will return six of its 15 aircraft. Workforce reductions are also expected but are not yet confirmed. In its new pared-down schedule, Air Jamaica will operate 218 weekly flights to 14 destinations. LIAT, the Antigua-based, regional carrier, announced reductions in the number of daily flights to Antigua and Barbuda, Barbados, Guyana, and St Kitts and Nevis.

JetBlue to Begin Service to Jamaica in May 2009 JetBlue Airways announced plans to launch a new daily service from New York (JFK) to Montego Bay, Jamaica, commencing on 21 May 2009. The route will be operated by the carrier’s 150-seat Airbus A320 aircraft and is subject to receipt of government operating authority.

Caribbean Sun Plans Return In an application submitted to the U.S. Transportation Department, South Florida-based Caribbean Sun disclosed its intentions to resume service on an unspecified Caribbean route as World Atlantic Airways. In 2007, Caribbean Sun shut-down its five year-old operation, which included a network based in San Juan, Puerto Rico with operations to other destinations in the Caribbean serviced by a small fleet of Dash 8 aircraft. The application indicated that the carrier plans to start service later this year with a 164-seat, all-coach class MD82. The new entity is funded by Miami Tech Line Maintenance.

Page 10 February 2009

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THE ASIA REPORT February 2009

Hong Kong Airport Reports Substantial Cargo Traffic Decline Passenger traffic at Hong Kong International Airport in January 2009 was only marginally higher than traffic volumes reported in the same month in 2008. International passengers from North America and Europe saw double digit declines; however, the declines were offset by increased outbound travel mainly due to Chinese New Year. Cargo volumes declined nearly 29% for the month. The steep decline in cargo traffic is due to the continuously shrinking international trade as a result of the global economic downturn. Imports from Japan, Europe and Southeast Asia dropped significantly, and exports to Europe, North America and Taiwan were the biggest decliners.

Doris Mak Director, Special Projects

Civil Aviation Administration of China Plans to Reduce Flight Times, Restrict New Bases In a bid to help China’s airlines get out of the current financial crisis, the Civil Aviation Administration of China (CAAC) plans to reduce every flight time by 3 minutes and will also control capacity increases of Chinese airlines. It is expected that the 3 minute reduction in flight time will save airlines about US$1.3 billion per annum by optimizing routes and shortening flight distances. During the first eleven months of 2008, Chinese airlines posted cumulative net loss of US$1.1 billion. The CAAC is also restricting airlines from opening new domestic hubs. Airlines must satisfy six conditions in order to obtain approval from the CAAC focussed on an airline’s safety record, fleet size, financial performance, on-time performance, payment of financial obligations and legal compliance.

Virgin Blue Holdings Reports US$65 million Net Loss for 6-month ended December 31 Virgin Blue Holdings reported a half year net loss of US$65 million compared to a profit of US$73 million during the same period last year. The poor financial result was due mainly to the fuel hedging losses and a one-time charge from the establishment of its V Australia subsidiary. The airline announced a 30% salary cut to executives, a hiring freeze and a 10% pay cut for board members as cost cutting moves.

Singapore’s Civil Aviation Authority Adds to Air Hub Development Fund Singapore’s Civil Aviation Authority (CAAS) announced an additional US$46 million to the US$85 million Air Hub Development Fund. This brings a total of US$131 million in funds to assist its airline and airport partners in weathering the current economic downturn. Components of the relief package include airport rental rebates and a ‘promotions fund’ to assist food/beverage and retail concessionaires at Changi Airport. The Air Hub Development Fund was first set up in 2003 to assist Singapore’s aviation industry tide over the uncertainty that the aviation industry faced during that time period.

Page 11 February 2009

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THE EUROPEAN REPORT February 2009

Hamburg Aviation Conference The 12th Annual Hamburg Aviation Conference was held on the 11-13th February 2009 in the Free and Hanseatic City of Hamburg in Germany.2 The Hamburg Aviation Conference offers a unique forum for academics, researchers and industry participants (airlines, airports, manufacturers, maintenance providers, airport concessioners, government, etc.) to come together to discuss the economics of the aviation industry. The conference is generously sponsored by Hamburg Airport with support from InterVISTAS, University of British Columbia, University of Applied Sciences in Bremen, and the German Aeronautical and Astronautical Society (DGLR). The conference attracts attendees and participants from Europe, North America, Asia and Australia.

Ian Kincaid Director, Economic Analysis InterVISTAS – EU UK Office

This year, the very timely theme of the conference was New Challenges for Financial Viability and Economic Sustainability in Aviation. The speakers and session chairs included representatives from Lufthansa, Greater Toronto Airport Authority, Flybe, Air Berlin, Booz Allen, InterVISTAS and renowned academics from various universities across the globe. A number of common themes and ideas came out of the conference which can be summarised as follows: ƒ

Aviation is clearly facing major challenges. 2008 was one of the most stressful years in commercial aviation. High fuel prices and the economic slowdown once again resulted in massive financial losses at air carriers. While fuel prices have declined in 2009, the continuing economic slowdown is likely to make 2009 a challenging year.

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However, as with previous recessions, the aviation industry is still expected to come back strongly, most likely starting in 2010. The long term outlook remains unchanged. When the recovery does occur, the industry will be different than when it went into recession. The players in the market will have changed, either through failures or mergers, the technology will have changed – the new B787s and A380s will become more prominent in the market, and the business models will continue to evolve, resulting in a greater blurring of the LCC and full service business models and perhaps a trend away from hubbing operations.

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Regardless of the slowdown, environmental issues will still be a major focus for the aviation industry. The EU has passed legislation to bring air transport into the European carbon trading regime. Australia has begun to develop a climate change policy for aviation and even the U.S. appears ready to embrace climate change as a national priority. However, while in the short term this could have negative implications for aviation, in the long term, these environmental goals can be compatible with efficiency aims of the industry through the use of more efficient aircraft, point-to-point operations and improved air traffic control operations. It is also important to place aviation in the wider context of emissions reductions – aviation may be one of the more visible polluters, but it is by no means the largest.

Free and Hanseatic refers to the Hamburg’s historic status as a free imperial city of the Holy Roman Empire and its membership of the Hanseatic League in the Late Middle Ages and Early Modern Period. 2

Page 12 February 2009

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THE EUROPEAN REPORT – CON’T February 2009

Hamburg Aviation Conference – Con’t ƒ

Long term airport viability will require strategy changes both by airports and their government regulators. Airlines are increasingly pressuring airports to reduce their costs but at the same time continual investments are required in airport capacity, services and systems. Airports will need to respond with new innovative approaches to further efficiency enhancements and commercial revenue development.

ƒ

Airport competition and regulation is also being revisited. The potential breakup of the BAA airports in the UK is likely to usher forth a new form of economic regulation. In the U.S., airport privatisation is gaining traction (e.g., Chicago Midway). Changes may be required in the regulatory environment to ensure long term financial viability and to allow greater airport competition. Governments should realign air service policy with infrastructure policy and give greater consideration to the role of airports.

As always, the conference generated a great deal of lively discussion and debate. In addition, the Hamburg Aviation Conference acts as an anchor for other activities during the week. The German Aviation Research Society (GARS) has a one day scientific workshop on emerging research in aviation economics on the day before the conference. Furthermore, the newly formed Süllberg Society held its third annual discussion on the Saturday after the conference. This is a forum devoted solely to discussion by twelve distinguished aviation economists on a single topic. In the past, the quality of presentations and dialogue at the Hamburg Aviation Conference has been so high that papers have been published in book form or in special issues of the Journal of Air Transport Management. This year the conference organisers will again be assembling conference papers for publication. In the meantime, details of the conference and copies of the presentations given (both this year and in previous years) can be found at http://www.hamburg-aviationconference.de.

Page 13 February 2009

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THE OTTAWA REPORT February 2009

Bill C-10: Budget Implementation Act – Foreign Ownership Limits & Competition Law Buried deep within the Budget Implementation Act (Bill C-10) lies a long-awaited yet surprising provision; a proposed amendment to the Canada Transportation Act and concurrent changes to the Air Canada Public Participation Act that eliminate the requirement for many of the dual-share structure arrangements which have been witnessed in Canada in recent years to get around foreign ownership limits.

Fred Gaspar Regional Vice President, InterVISTAS Ottawa Office

Whereas the previous limit of 25% foreign ownership in fact precluded significant levels of foreign ownership in commercial aviation interests in Canada, the changes envisioned to the Act specifically identify the 49% threshold of voting interests in a Canadian carrier as the new threshold for ownership and control for the purposes of interpreting the Act. Although there is not much in the way of meaningful action at the moment on this front, insofar as the federal Cabinet still must first pronounce the new limit, the formalization of the threshold limits in the Act for the purposes of defining control do away with the complex share structure arrangements referred to above which had been developed in recent years by Canada’s large carriers to avoid the otherwise restrictive foreign ownership limits. Additionally, Bill C-10 proposes to change the Competition Act by introducing an Administrative Monetary Penalty (AMP) for entities found guilty of an abuse of dominant market position. Although such provisions had been previously applied to Canada’s aviation industry in the wake of the Air Canada – Canadian Airlines merger in 2000, this amendment to the Act provides for a more general applicability of the Act. Bill C-10 is expected to receive relatively speedy passage through Parliament given its role in enabling many of the spending stimulus provisions announced in the budget last month.

Bill S-2: Amendments to the Customs Act The long-awaited successor to previous versions of the same legislation which expired with successive elections has been re-introduced, this time in the Senate. Bill S-2 provides for a number of substantive amendments to the Customs Act including: ƒ

formalizing requirements in customs controlled areas;

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amending provisions respecting the determination of value for duty; and,

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modifying advance commercial reporting requirements.

Of these, the Customs Controlled Area regulations offer the most substantive development for Canadian airports in particular. Once promulgated, the Act and the regulations to follow will ostensibly empower CBSA officers to intercept individuals in designated areas of the airport environment who may be participating in conspiracies related to their area of responsibility.

Page 14 February 2009

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THE OTTAWA REPORT – CON’T February 2009

Bill S-2: Amendments to the Customs Act – Con’t It is expected that this development will help to enable many passenger processing innovations related to traffic flows as well as air service and ancillary economic development tools such as transfer departure facilities and a possible Arrivals Duty Free regime, on which the Government of Canada committed to launching consultations in the Budget presented in the House of Commons last month.

Fire Sale – ‘Everything Must Go!’ Recent reports have surfaced in Ottawa suggesting that the federal government is actively – and seriously – contemplating a program of large-scale divestiture of significant Crown assets, including many which are transportation-related. The Transport, Infrastructure and Communities portfolio was signaled in the federal budget as one of the priority departments to be examined for such activity. In and of itself, this is only logical given this department’s overall responsibility for Crown agencies. However, it is the transportation ‘assets’ that offer the most intriguing possibility and concern. The Canadian Air Transport Security Authority (CATSA), for instance, immediately stands out as an entity whose future could become much like that of NavCanada, which was privatized as a non-share capital corporation in 1996 for a return to the Crown of $1.5 billion. While much debate will and should happen around the relative value of CATSA, any move to privatize the corporation will likely be welcomed by the Authority’s Board of Directors, given its recent challenges to establish a stable level of funding from the Government of Canada. Notably, no formal commitment has been made with respect to any particular course of action. CAIR will continue to monitor and advise of developments on this front.

Page 15 February 2009

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THE WASHINGTON REPORT February 2009

Ray LaHood Confirmed as Obama’s Transportation Secretary Former 14-year Republican congressman from Illinois, Ray LaHood, has been confirmed by the U.S. Senate as the next U.S. Transportation Secretary. Although lacking somewhat in transportation experience, LaHood has a strong congressional record and is considered a centrist. LaHood is best known for his work on the House Appropriations Committee. He was well-received by both Democratic and Republican Senators, who voted unanimously to confirm him. During his confirmation hearings, LaHood promised to make NextGen (modernisation and restructuring of the U.S. National Aviation System) the focus of his tenure. He also indicated that he opposes slot auctions as a means to address congestion.

Osmus Named Acting FAA Administrator Jon Ash President, InterVISTAS – ga2 Consulting Inc. Washington, D.C.

The White House has named Lynne Osmus to succeed Robert Sturgell as acting FAA Administrator. Osmus, who served in the FAA for nearly 30 years, was assistant administrator for security and hazardous materials and a senior adviser to Sturgell during his tenure as FAA deputy administrator. Osmus also served as the FAA liaison with the Obama transition team and worked previously as Chief of Staff for former Administrator Jane Garvey, an FAA administrator in the Clinton Administration.

House Re-Introduces FAA Bill The FAA Reauthorization Act of 2009 (HR 915) was reintroduced in the House of Representatives. The bill is very similar to the version passed by the House during the prior Congress, except in terms of its total authorized funding level of $70 billion, a slight increase from the previous version. More specifically, the bill would provide: $16.2 billion for the Airport Improvement Program, $13.4 billion for FAA Facilities & Equipment (funding for NextGen), $38.9 billion for FAA Operations, and $1.35 billion for Research, Engineering, and Development. The bill also significantly increases the amount of funding available for subsidised air service to small communities, raising the total from $127 million to $200 million.

U.S. House Transportation Committee Introduces Legislation Against International Alliances U.S. House Transportation Committee Chairman James Oberstar has introduced legislation requiring a congressional study of DOT Transportation policies toward international alliances. The bill would direct the congressional “watchdog agency,” the Government Accountability Office (GAO), to study DOT policies for approving alliances between U.S. and foreign air carriers and granting them exemptions to U.S. antitrust laws. Oberstar said that the GAO study was intended to assess whether the benefits to consumers of alliances with antitrust immunity outweigh the adverse effects of the resulting loss of competition. Following this study, DOT will be required to review its policies and make any needed changes. The legislation contains a sunset provision for alliances; it would eliminate the antitrust immunity that the alliances currently enjoy unless DOT “affirmatively decides that the immunity should continue under any new laws and policies.”

Page 16 February 2009

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INTERVISTAS NEWS InterVISTAS Upcoming Speaking Engagements Dr. Mike Tretheway, Executive Vice President, Chief Economist • FAA Forecast Conference: Washington, DC – 1 April 2009. Dr. Tretheway will be speaking on the issue of the impacts of climate change mitigation on air travel. • Canadian Airports Council Conference: Ottawa, ON – 30 April 2009. Dr. Tretheway will chair a session titled “The Future of the International Airline Sector”. Dr. Joe Kelly, Director, Environmental Services • Thompson Rivers University, Tourism Management School: Kamloops, BC – 3 April 2009. Dr. Kelly will be delivering a presentation titled “Tourism and Climate Change”. • International Association of Assembly Managers: Vancouver, BC – 24-27 April 2009. Dr. Kelly will be delivering a presentation titled “Sustainable Event Planning”. Solomon Wong, Senior Vice President, Borders, Security, & Planning • AAAE/ACC Design Symposium: Denver, CO – 26 February 2009. Mr. Wong will be delivering a presentation titled: “Thoughtful IT: Planning with a Purpose”.

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 Robert Andriulaitis at robert_andriulaitis@intervistas.com or 1-604-717-1807. To subscribe, please send an email to subscribe@InterVISTAS.com To unsubscribe, please send an email to unsubscribe@InterVISTAS.com Page 17 February 2009

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CAIR Issue No. 68 - February 2009