CAIR Issue No. 51 - April 2007

CANADIAN AVIATION INDUSTRY REVIEW

In this issue…

Features Columns: • Economic Outlook – Consumer Confidence (p.1) • Fuel Price Update (p.3) • The European Report (p.11) • The Ottawa Report (p.13) • The Washington Report (p.14)

Regular Reports: • Airline Data – Canada (p.4) • Airline Data – U.S. (p.5 ) • Selected Canadian Airport Data (p.6) • Industry News (p.7) • InterVISTAS News (p.15)

ECONOMIC OUTLOOK – CONSUMER CONFIDENCE April 2007

Consumer Expectations Indexes of consumer sentiment, of both the present situation and expectations of the future, can be useful as an indicator of future economic performance as they impact consumer spending. In general, high levels of consumer confidence signal strong consumer spending, while low expectations of future performance may lead consumers to scale back discretionary spending, particularly large purchases. These, in turn, impact the performance of the economy as a whole. A look at indicators for Canada and the U.S. shows differing trends in consumer sentiment in the two countries.

Jan-07

Oct-06

Jul-06

Apr-06

Jan-06

Oct-05

Jul-05

Apr-05

Jan-05

Oct-04

Senior Analyst

Jul-04

Josh Drury

Canada. In Canada, the present Canadian Consumer Sentiment and Expectations situation index and expectations index are measured monthly by 120 TNS Canadian Facts. The Present Situation Index present situation index has 115 Expectations Index continued to trend generally 110 upwards over the past year and is at or near its highest levels in 105 recent years. This generally reflects good economic conditions 100 including steady economic growth and low unemployment. The 95 index peaked in January before dropping sharply in February 90 (attributed to setbacks including the CN strike and a drop in financial markets), but rebounded in March. It currently stands at Source: TNS Canadian Facts 115.5, down from 118 in January, but up significantly from 110.6 a year ago.

Similarly, the expectations index is also slowly trending upwards, but with a much more modest trend.

Levels in March were also near recent highs (104.5, up from 101.7 in February and slightly higher than March 2006). However, it is notable that in the last two years, a large gap has opened between how Canadians view their present situation and their expectations of the future. Expectations are positive, but not so rosy as how Canadians view their present situation. In terms of consumer behaviour, it is expected that consumer expenditures will remain healthy, but will moderate from relatively high current levels.

The U.S. Several measures of consumer confidence in the U.S. are collected regularly, including the University of Michigan Consumer Sentiment Index, which includes measures for consumer sentiment (reflecting current conditions) and consumer expectations. Both measures appear to have recovered somewhat following a long downward trend through the summer of 2006. However, in recent months both measures are falling again. The Consumer Expectations index in March was 78.7, down sharply from 87.6 in January but still slightly above levels from March 2006. As in Canada, U.S. consumer sentiment is somewhat higher than future expectations, but in the U.S. this gap has been fairly steady and less pronounced than in Canada recently.

Page 1 April 2007

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

ECONOMIC OUTLOOK – CONSUMER CONFIDENCE – CON’T The recent drop in expectations to a 6-month low is attributed to rising prices, particularly in gasoline and energy costs, and concerns over the stock market and real estate market. The latter in particular has seen a much more pronounced run-up in the U.S. than in Canada and has started to see some downward corrections.

U.S. Consumer Sentiment and Expectations 100 95 90 85 80 75 70 65 Consumer Sentiment

60

Page 2 April 2007

Mar-07

Dec-06

Sep-06

Jun-06

Mar-06

Jan-06

Oct-05

Jul-05

Apr-05

Jan-05

Oct-04

Jul-04

While expectations are higher 55 Consumer Expectations than they have been through 50 much of the last two years – including a low point following the hurricane disasters of 2005 – they remain relatively low Source: University of Michigan Consumer Sentiment Index historically, which may hamper the U.S. economy’s recovery from low growth levels. Consumer spending has been a key driver of the U.S. economy in recent years, and the recent slowdown has been attributed largely to the slowdown in the housing market, feeding through to consumer spending. While a recovery in consumer spending had been expected to help restore overall economic growth, lower consumer confidence and spending levels are now expected to contribute to slower recovery and lower growth in 2007 than had previously been projected.

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

FUEL PRICE UPDATE 17 April 2007

Crude oil prices rise above $60…

Current crude oil prices have risen to above $66, a level not seen since October 2006. However, current prices are still well below the price peak of $77 achieved in mid July 2006. Current futures prices for December 2007 show the price of crude oil rising above the $70 per barrel price range.

Crude oil prices continue to be in contango, where the futures prices are higher than the current spot price.

Futures prices in April 2007 are higher relative to futures prices established in January 2006. A futures contract in April 2007 for delivery of crude oil in December 2012 is priced currently at $68; this is a 14% increase over the same contract if purchased at the beginning of 2006.

Crude Oil Futures Prices $80

Apr 2007 $70

Nov 2006 Jan 2006

$60

Dec 2005 $50 Apr 2005

Crude Oil Spot Prices

$40

Crude Oil Futures Prices -----

$30 May 2003 Jul-12

Oct-12

Apr-12

Jan-12

Jul-11

Oct-11

Apr-11

Jan-11

Jul-10

Oct-10

Apr-10

Jan-10

Jul-09

Oct-09

Apr-09

Jan-09

Jul-08

Oct-08

Apr-08

Jan-08

Jul-07

Oct-07

Apr-07

Jan-07

Jul-06

Oct-06

Apr-06

Jan-06

Jul-05

Oct-05

Apr-05

Jan-05

Jul-04

Oct-04

Apr-04

Jan-04

Jul-03

Oct-03

$20 Apr-03

Oil prices rise above $60, but futures prices to $68 in 2012.

... Crude oil futures prices at $70 in the long term

Jan-03

Manager, Special Projects

US$ Per Barrel

Doris Mak

U.S. Refining Capacity & Summer Driving There are continual concerns surrounding U.S. refining capacity. U.S. refining infrastructure has been prone to severe and prolonged breakdowns that have traditionally threatened supply levels (e.g., Hurricanes Katrina and Rita). In addition, with the upcoming summer driving season, the demand for gasoline will continue to put downward pressure on refined U.S. fuel supply. The U.S. has been unable to build its gasoline stockpiles, which in turn has contributed to current high crude oil prices.

Month of Delivery

Page 3 April 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 March 2007 Passenger Traffic Capacity Air Carrier

Revenue Passenger Kilometres

% Change over 2006

% Change from 2005

Load Factor

Available Seat Kilometres

% Change over 2006

% Change from 2005

Change over 2006

Change from 2005

Air Canada1

+5.0%

+9.0%

+2.0%

+3.8%

+2.4pts (to 83.8%)

+4.0pts (from 79.8%)

Domestic (Mainline)

+5.0%

+0.4%

-0.5%

-6.1%

+4.4pts

+5.4pts

Jazz

+16.8%

+120.5%

+12.0%

+106.6%

+3.1pts

+4.8pts

International & Charter

+5.0%

+12.3%

+2.9%

+7.7%

+1.7pts

+3.5pts

+22.5%

+40.9%

+17.8%

+28.7%

+3.3pts (to 85.2%)

+7.4pts (from 77.8%)

WestJet

Analysis: • Air Canada Mainline’s domestic load factor for March increased by 4.4 percentage points as a result of traffic growth by 5% and declining capacity by 0.5% over 2006. Amid the continual transfer of seat capacity to Jazz, Jazz experienced an increase in load factor by 3.1 percentage points with traffic continuing to outpace capacity increases.

March passenger traffic for Jazz increased nearly 17% in the past year and more than 120% over a two-year span.

• For the month of March, Air Canada’s international load factor increased by 1.7 percentage points over 2006, despite the expansion in international capacity by 2.9%.

This is due to the rise in international traffic by 5% over March 2006.

• WestJet experienced an increase in load factor by 3.3 percentage points to 85.2% over March 2006. This was caused by traffic growth by 22.5% in March that outpaced capacity expansion by 17.8%. ______________________ 1

10%

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

5% 0% -5% -10%

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

Dom RPK

Dom ASK

Air Canada International 10% 8% 6% 4% 2% 0% -2% Jan- Feb Mar Apr May Jun July Aug Sept Oct Nov Dec Jan- Feb Mar 06 07

Int'l RPK

Int'l ASK

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

RPK

ASK

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

Page 4 April 2007

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

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

1

2

2

Notes:

(RPMs – millions)

(ASMs – millions)

Capacity

Load Factor

2,264

2,647

85.5%

↑9.9%

↑11.3%

↓1.0 pts

757

1,021

74.1%

↑1.0%

↑1.0%

↑0.0 pts

6,084

8,299

73.3%

↑4.3%

↑7.5%

↓2.2 pts

7,953

9,632

82.6%

↑3.4%

↑1.8%

↑1.4 pts

10,315

12,139

85.0%

↑1.6%

↑0.5%

↑1.0 pts

11,933

14,478

82.4%

↓1.4%

↓2.9%

↑1.3 pts

10,416

12,551

83.0%

↑3.5%

↑0.4%

↑2.5 pts

7,018

8,189

85.7%

↑1.3%

↑1.8%

↓0.4 pts

5,618

6,853

82.0%

↑0.2%

↓0.9%

↑1.0 pts

367

432

84.8%

↑12.8%

↑3.0%

↑7.3 pts

Traffic

Airline

1. Mainline operations only.

2. Load factor includes scheduled service only.

Sources: Carrier traffic reports.

Page 5 April 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

2006 2007

Toronto

Vancouver

MontréalTrudeau

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

St. John’s

February March

-0.2% +3.2%

+1.5% +3.5%

+1.9% +7.2%

+8.1% +9.4%

+10.9% +13.0%

+0.2% +3.9%

-0.6% +2.0%

+1.2% +4.8%

+1.4% -3.5%

+11.0% +15.4%

+3.0% +0.1%

-2.8% -3.8%

+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%

January

+3.0%

+5.5%

+10.3%

+10.8%

+18.3%

+5.9%

+3.2%

+2.3%

+4.7%

+15.2%

n/a

+18.8%

-4.6%

February

+2.0%

+2.7%

+7.0%

+10.4%

+18.3%

+8.3%

+6.8%

+2.0%

+4.0%

+12.9%

n/a

+24.2%

+0.0%

Source: Transport Canada and individual airports’ traffic reports.

Note: n/a refers to statistics that are not available at press time.

Page 6 April 2007

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

NEWS ARTICLES AIR CANADA CELEBRATES NEW BOEING 777 AIRCRAFT

AIR CANADA UPDATE AIR CANADA APPOINTED AS THE OFFICIAL AIRLINE FOR 2010 Air Canada has been selected as the Official Airline of the Vancouver 2010 Winter Olympic and Paralympic Games by the Vancouver Organizing Committee (VANOC).

Air Canada’s six-year agreement with VANOC consists of sponsorship rights and transportation for Canadian Olympic teams for the Beijing 2008, Vancouver 2010 and London 2012 Olympic Games. Air Canada has also pledged to donate more than $600,000 to the Paralympic Committee.

AIR CANADA BOOSTS CAPACITY TO CHINA

Air Canada will be using its first Boeing 777 aircraft to increase Toronto-Shanghai flights from three flights per week to daily frequencies in April 2007. Air Canada will also double its Vancouver-Beijing route frequency to twice daily flights by shifting usage of B767-300s from the Indian market, resulting in the end of AC’s regular scheduled services to India that will commence 1 May 2007.

AIR CANADA INTRODUCES NON-STOP SEASONAL SERVICES BETWEEN ST. JOHN’S, NL AND LONDON, U.K.

Beginning 1 April, Air Canada will be offering non-stop seasonal service between St. John’s, NL and London, U.K., until the end of October 2007 using A319 jets. This new flight will begin with three per week frequencies, incrementing to five times weekly in June and further increasing to daily frequency until the end of September.

This new seasonal flight offers connecting service between Halifax and London and between Montreal and London.

Page 7 April 2007

Air Canada welcomes the first of eight widebodied Boeing 777 aircraft to be added to its fleet in 2007. The aircraft is scheduled to serve Toronto-London starting 6 April, TorontoFrankfurt and Toronto-Tokyo routes in August, Toronto-Hong Kong in August and VancouverSydney in December. The remainder of the Boeing 777 fleet will be used in primary longhaul routes to Europe, Asia and the South Pacific.

WESTJET UPDATE WAL-MART’S PREFERRED AIRLINE: WESTJET

WestJet has been selected as the preferred, Canadian airline for the world’s largest retailer, Wal-Mart Stores Inc. As part of their agreement, WestJet will provide transportation and group services to all WalMart business travel.

OTHER CANADIAN AIRLINE NEWS HARMONY ENDS ALL SCHEDULED SERVICES Beginning 9 April, Harmony Airways has put an end to all scheduled services. The airline has stated that it is exploring other options, such as becoming a charter service provider. Most of the 350 Vancouver-based employees of Harmony will be layed off.

AIR TRANSAT EXPANDS FLEET TO 16 WIDE-BODY JETS

Air Transat has purchased a new Airbus 259-seat A310300, expanding its fleet to a total of 16 widebody jets. As a result, 15 pilots and 120 flight attendants will be hired to accommodate the capacity expansion.

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

NEWS ARTICLES OTHER CANADIAN AIRLINE NEWS – CON’T

CARGO

ZOOM ANNOUNCES INCREASED WINTER 2007/2008 SERVICES

To be delivered in 2009 and 2012, UPS’ recent order of 27 Boeing 767-300s is the largest freighter order for this aircraft type since 1993. This $4 billion deal is also a sign of revival for Boeing 767 freighters.

Zoom Airlines has decided to expand its winter 2007/2008 schedule to accommodate increased demand for low-cost, full scheduled services from its five UK hubs (London Gatwick, Glasgow, Manchester, Belfast, and Cardiff). Frequencies are increased for flights from London Gatwick to Vancouver (to three per week), Montreal (to two per week) and Toronto (to two or three per week). In addition, there will be new weekly service between Belfast and Vancouver.

SUNWING OFFERS E-TICKETING Sunwing Airlines is now offering electronic ticketing services on their official website. Fully paid E-ticket status can be viewed 28 days in advance of departure.

Sunwing Airlines, a subsidiary of Sunwing Vacations, is a Canada-based airline that offers charter services to Canada, United States, Mexico and the Caribbean.

U.S. AIRLINE NEWS CONTINENTAL LAUNCHES NON-STOP QUEBEC-CLEVELAND FLIGHTS Continental Airlines is introducing nonstop seasonal service between Cleveland and Jean Lesage International Airport in Quebec City. Operating between 9 June and 28 October 2007, this new once per week flight will use 50-seat Embraer ERJ-145 aircraft.

Page 8 April 2007

REVIVAL OF BOEING 767 FREIGHTER

CARGOLUX PURCHASES THREE ADDITIONAL BOEING 747-8FS Cargolux recently increased its order of Boeing 747-8 freighters from ten to thirteen aircraft and secured two options in addition to its allocation of ten purchase rights.

The three additional 747-8 freighters are valued at $845 million at list prices. This brings the total orders for Boeing 747-8s to 87.

NEW CUSTOMS’ SYSTEM COULD CAUSE CHAOS Beginning 1 July 2007, European Customs will be using a new system that is based on EU’s requirements for a Single Administrative Document Harmonisation (SADH) to standardise declaration codes in Europe.

However, as this new system had not been tested until late January, freight forwarders are being warned of the potential chaos that may arise from European Customs’ ‘big bang’ approach to implementing the system.

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

NEWS ARTICLES KELOWNA AIRPORT LENGTHENS RUNWAY

PEOPLE IN THE NEWS DAVID WHITAKER NAMED NEW PRESIDENT AND CEO OF TOURISM TORONTO

David Whitaker has been selected as President and CEO of Tourism Toronto, the Toronto Convention and Visitor Association, effective 30 April 2007.

He previously held various senior leadership positions with the Greater Miami Convention and Visitors Bureau for 17 years, with his most recent role as Executive Vice President and Chief Marketing Officer.

OTHER CAE RECEIVES C$109 MILLION WORTH OF CONTRACTS CAE announced in the beginning of April that it had been awarded with C$109 million worth of product and service contracts. These contracts include two Boeing 787 simulators provided to Japan Airlines, an EH101 full crew mission simulator provided to AgustaWestland, maintenance and support services for German Armed Forces and pilot and crew training for the United States Navy Forces.

BOMBARDIER WELCOMES 500TH BR710 ENGINE FROM ROLLS-ROYCE Rolls-Royce recently delivered the 500th BR710 engine to Bombardier, used to power the Bombardier Global 5000 and long range Global Express XRS business aircraft. On 22 March, Rolls-Royce and Bombardier celebrated their successful partnership with a ceremony at Bombardier’s manufacturing facility in Toronto, Canada.

Page 9 April 2007

Kelowna International Airport has secured financing of $7.15 million, out of the required $15.65 million, to lengthen its runway from 2,225 metres to 2,743 metres. The lengthening of Kelowna International Airport’s runway may lead to the potential expansion of more long haul, non-stop charter flights from Europe to Okanagan resorts.

PHILIPPINE INCREASE YVR TO 5X

Philippine Airlines has announced it will be increasing the service of its ManilaVancouver-Las Vegas flights to five times weekly.

TWIN OTTER BACK IN PRODUCTION

Victoria BC based Viking Air Ltd. has announced it will restart production of the deHavilland DHC-6 Twin Otter and has 30 orders. The 19 seat aircraft will be sold for $3.2 million each and will be built under the initial type certificate. The new "-400" model will use Pratt & Whitney Canada PT6A-34 engines, an update to the '-27' engines on the original production run.

2006 DOMESTIC TOURISM SPENDING INCREASES BY 7%

According to publications released by Statistics Canada, domestic tourism spending increased by 7% over 2005. Overall tourism spending increased 4.6% for the same period, reaching $67 billion.

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

THE EUROPEAN REPORT April 2007

This month we introduce The Europe Report, a new feature in CAIR. Each month, InterVISTAS-EU Consulting will examine and report on key developments in European aviation.

EU-US Open Skies – European Reaction and Implications On March 22, European transport ministers unanimously approved an open skies agreement to replace existing (and now illegal under Commission law) bilaterals between the United States and individual European Union countries. In spite of last minute revisions designed to appease the British, the agreement is hoped to be signed in Washington on April 30.

John Weatherill Director, Airline Planning IVC UK Office

Open Access for Community Carriers Like other open skies accords, the new agreement removes restrictions on airport access, frequency, capacity and eligible air carriers. Among countries with which the U.S. already had open skies agreements, the new deal further liberalizes these markets by introducing the concept of a community carrier, allowing any EU-based airline the right to fly to the U.S. from any EU airport. Thus, a British carrier such as Virgin Atlantic could offer Paris-Orlando service, should they deem the route worthy. It also sets the stage for Ireland-based Ryanair to serve the U.S. from any of its 23 European bases – a move it expects to make around the turn of the decade.

This component of the agreement offers new air service opportunities to airlines on both sides of the Atlantic, and received support from most airlines and airports. A particular beneficiary is Air FranceKLM, now recognized as an EU carrier by a major partner, allowing further integration of routes and schedules at Paris and Amsterdam. The ability to merge across borders without losing U.S. traffic rights has led to speculation of further intra-EU consolidation, with British Airways and Lufthansa cited as possible suitors for Iberia, and Lufthansa and Air France for Alitalia.

UK Concessions While most players supported the increased access afforded by the agreement, some, particularly in the UK, felt that the Commission was giving up a key bargaining chip (access to Heathrow, severely restricted under the existing Bermuda II agreement), without gaining sufficient concessions from the Americans (cabotage and foreign control of U.S. airlines). In the eyes of many, the ability of U.S. airlines to carry passengers between EU countries is an unfair advantage, which should be rectified with cabotage rights for European airlines in the U.S. To salvage the agreement while addressing these concerns, the Council voted to pass the agreement, provided that a Second Stage deal be in place by 2010. If Phase II (possibly allowing cabotage and foreign control) is not agreed to by then, EU members can begin to revoke certain traffic rights from U.S. carriers.

In addition, at the request of the British, the effective date of the agreement was pushed back by five months, to 30 March 2008, so that the removal of Heathrow access restrictions coincides with the opening of the airport’s new Terminal 5.

Page 11 April 2007

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

THE EUROPEAN REPORT – CON’T Heathrow Access After years of access limited to just four carriers (AA, UA, BA and VS), any U.S. or European airline will now be permitted to fly between Heathrow and any point in the United States. This will clearly have detrimental effects on the four airlines above, although it is notable that American and United support open skies nonetheless, for its overall liberalization benefits. In fact, the new agreement offers some benefits to the LHR-U.S. incumbents, by allowing service to U.S. cities prohibited under Bermuda II, such as Dallas, Houston and Las Vegas.

The extent to which other airlines will infiltrate LHR is unclear. True, U.S. carriers presently restricted to Gatwick will be anxious to serve Heathrow, but LHR remains extremely congested, with current airlines holding grandfather rights to 97% of the airport’s slots (the remaining 3% are at times generally considered unsuitable for transatlantic operations), including 40% held by BA alone. Slots can be transferred from other airlines at approximately US$600,000 for one weekly slot, if terminal space is available for the required aircraft size, but timings may still be less attractive than current Gatwick schedules.

Those best placed to take advantage are airlines with existing LHR slot holdings. BMI presently holds 12% of Heathrow’s slots, and will likely initiate LHR-U.S. flights (In the late ‘90s, the airline bought several A330s expecting Bermuda II to be replaced, but has been forced to fly them on LHRCaribbean/Middle East and Manchester-U.S. routes). European carriers such as Air France and Lufthansa also have significant Heathrow slot holdings, and could use these to fly non-stop to alliance partner hubs in the United States, for example. For its part though, Lufthansa has said it will take a calm and measured approach to any such move, and Air France will likely do the same. Competition will likely increase on Heathrow-U.S. services, but at a gradual rate.

EU-Canada Open Skies Now that the initial EU-U.S. agreement is in place, Canada would be wise to negotiate a similar pact with Europe. Canada presently has bilaterals in place with 17 European countries (including an open skies agreement with the UK), all of which are now considered illegal under EU law.

The European Commission has stated its desire to negotiate a new bilateral with Canada, and has estimated that such an agreement could increase Canada-EU air traffic to 14 million annual passengers by 2011, up from 8 million annual passengers currently. The economic benefits of liberalizing air services are well documented.

With Canada’s Blue Sky policy in place, both sides appear to have the will to negotiate. While the Canadian government has stated that it has no plans to allow foreign airlines to fly domestically, the EU-U.S. agreement sets a precedent to proceed without cabotage, at least for the short term, and may facilitate a more timely negotiation of an EU-Canada bilateral.

Page 12 April 2007

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

THE OTTAWA REPORT April 2007

Airports Disappointed Budget Does Not Address Rent On 19 March, airports and industry groups released separate statements expressing concern for the high airport rents on major Canadian airports and lamented that no action had been taken in the recent federal budget to reduce these rents. The Canadian Airports Council (CAC), Air Transport Association of Canada (ATAC) and the Greater Toronto Airports Authority (GTAA) all released statements indicating that the lack of action to provide rent relief was undermining the competitiveness of Canadian airports. The Air Transport Association of America (ATA) issued a similar statement observing that Canada’s largest airports are among the most expensive in the world and that lack of rent relief threatens cross-border trade and travel.

ACAP Funding Announced for 27 Canadian Airports Brian Kelly Executive Consultant

On 2 April, Lawrence Cannon, Minister of Transport, Infrastructure and Communities, announced funding of $33 million for 28 projects under the Airports Capital Assistance Program (ACAP). The projects are spread across 27 airports in six provinces and two territories. Of the total, $22 million will be spent in 2007-2008 with the remainder to be spent as the projects are completed in future years.

The funded projects relate to airside safety improvements including rehabilitation of airside surfaces, airside electrical systems, and purchase of snow-clearing and fire safety equipment.

Canadian Airports among World’s Safest: CAC On 22 March, the Canadian Airports Council (CAC) responded to a Senate report on airport safety by issuing a statement that Canada’s airports and aviation system are among the safest in the world.

The CAC cited passenger screening and extensive restrictions on items that can be carried on-board aircraft, in addition to a number of measures where Canada is a leader in aviation security, including biometric Restricted Area Identification Cards (RAIC) for airport workers, hold baggage screening, and supply chain security of products sold at Canadian airports. The CAC noted aviation security derives its strength from combined layers of security and constant monitoring and modification to meet anticipated threats.

Tourism Industry Generally Pleased with Budget Initiatives The federal budget released on 19 March contained a number of initiatives directed at supporting the Canadian tourism industry, responding to concerns over the end of the GST/HST Visitor Rebate Program. As announced last fall, beginning 1 April visitors can no longer claim rebates for taxes on purchases in Canada. However, initiatives announced in the budget include the creation of the Foreign Convention and Tour program which will allow for GST/HST rebates on conventions in Canada and on accommodation portions of tour packages beginning after 31 March. Other initiatives in support of tourism include additional funding to local arts and heritage festivals, historical sites and heritage buildings, improvements to the Foreign Workers program to address labour shortages, and $2.1 billion for gateways and border crossings to improve access. The Tourism Industry Association of Canada (TIAC) expressed disappointment over the end of the full rebate program but was pleased with the new initiatives.

NAV Canada reports 6.7% Traffic Increase for January NAV CANADA reports that its January 2007 traffic increased by 6.7% compared to the same month in 2006. Traffic is measured in weighted charging units that reflect the number of flights, aircraft size and distance flown in Canadian airspace.

Page 13 April 2007

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

THE WASHINGTON REPORT April 2007

U.S., European Union Reach Draft Open Skies Agreement

Jon Ash President Inc. Washington, D.C.

InterVISTAS-ga2 Consulting

On 22 March, a draft aviation agreement between EU and the U.S. was endorsed by the EU as transport ministers of the 27 member states unanimously agreed to support the agreement. The U.S. must also sign the agreement, however it is expected to do so 30 April at the U.S.-EU Summit in Washington. Once signed, it would become effective 30 March 2008. The agreement would allow any U.S. or EU airline to fly between any point in the U.S. and any point in the EU without restriction on routes, frequency, or price. This represents a change from previous bilateral agreements where only a carrier based in a particular EU Member State could operate between the U.S. and that Member State. The agreement also opens London Heathrow Airport to competition where transatlantic routes are currently limited to operation by two U.K. and two U.S. airlines. A second stage of the agreement, to be negotiated by 2010, is expected to address cabotage and foreign control of U.S. airlines. The agreement provides for a termination clause in which individual member states can withdraw traffic rights from U.S. carriers if this second stage is not successfully negotiated by 2010 (further details in The European Report).

FAA Forecasts 1 Billion Passengers Annually by 2015 On 15 March, the Federal Aviation Administration released aerospace forecasts for the period 20072020, which show continued steady growth in air traffic. Passenger volumes carried annually by U.S. commercial carriers are expected to grow from a forecast of 768 million passengers this fiscal year to 1 billion by 2015 and 1.2 billion by 2020. This growth is the equivalent to the traffic of two major hub airports every year through 2020. Certain key hubs are expected to be acutely affected by increased traffic, with operations at Washington Dulles, New York Kennedy and Los Angeles International expected to grow by more than 50% in this period. The FAA argues that this growth will cause growth in delays without significant reforms, and calls for a revised financing system to fund the development of a ‘next generation’ satellite-based air traffic control system to handle the increased traffic.

DOT Tentatively Approves Revised Virgin America Application On 20 March, the U.S. Department of Transportation (DOT) awarded tentative approval for Virgin America’s application to operate as a U.S. airline, following significant revisions to the proposed ownership and management structure. Virgin had a previous application rejected in December 2006 as it failed foreign ownership rules requiring the airline to demonstrate it would be under the actual control of U.S. citizens. Virgin responded with proposed changes to meet all requirements of the DOT, including reducing foreign presence on its board of directors, eliminating veto power by the Virgin Group, revising its trademark license to ensure the airline could act independently of U.K. carrier Virgin Atlantic, and agreeing to replace CEO Fred Reid, who is viewed as being too closely associated with foreign investors. Pending final approval after the proposed changes, Virgin America hopes to inaugurate a San-Francisco–New York service this summer, with several other cities to be added within a year.

FAA to Hire 15,000 Air Traffic Controllers over Next Decade On 7 March, the Federal Aviation Administration released its updated plan to hire 15,000 air traffic controllers over the next 10 years. The FAA currently employs over 14,600 air traffic controllers but will need to replace many of these as they approach retirement age. The FAA projects that approximately 6,800 controllers will retire in the next eight years. The updated plan calls for hiring and training nearly 1,400 new controllers over the next year alone, which will represent a net increase of 189 over 2006 levels. The FAA plans to increase the total number of controllers to 16,000 by 2016.

Page 14 April 2007

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

INTERVISTAS NEWS April 2007

Mike Tretheway appointed to the Board of Directors of Tourism BC The BC Minister of Tourism has announced that Mike Tretheway has been appointed to be a member of the Board of Directors of Tourism BC (TBC). This will be an exciting time for Tourism BC as it moves into Olympics/Paralympics marketing mode, and as it seeks to achieve the Premier's goal of doubling tourism in BC by 2015.

InterVISTAS Upcoming Speaking Engagements John Weatherill, Director, Airline Planning • 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.”

• Low Cost Carriers Evolving Business Models Conference: Frankfurt, Germany – 9-10 July 2007 Mr. Weatherill has been invited to speak on a topic of choice. The topic is still to be announced.

Solomon Wong, Vice President, Security & Planning • 2007 ACI-NA Public Safety & Security Conference: Spokane, Washington – 16-17 April 2007 Mr. Wong will be delivering a presentation titled, “Improving Border & Aviation Security Cohesion and Effectiveness.”

Gerry Bruno, President and Chief Executive Officer • ATAC Spring Symposium: Ottawa, Ontario – 16 May 2007 Mr. Bruno will be delivering a presentation titled, “Seamless Border Strategies for Gateway Competitiveness.”

Dr. Mike Tretheway, Executive Vice President and Chief Economist • University of British Columbia International Conference on Gateways and Corridors: Vancouver, BC – May 2-4 Dr. Tretheway will be delivering a presentation titled “Gateway and Corridor Performance: What is Important?”

• BCAC Airports Conference: Vancouver, BC – 10 May 2007 Dr. Tretheway will be delivering a presentation titled, “State of the Aviation Industry.”

• Canadian Airline Investment Conference: Toronto, ON –7-8 June 2007 Dr. Tretheway will be delivering a presentation titled, “Sustainable Aviation: Emerging Environmental Challenges and Solutions – Are There Investment Incentives for Manufacturers?”

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 To unsubscribe, please send an email to unsubscribe@InterVISTAS.com Page 15 April 2007

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