CAIR Issue No. 62 - May 2008

CANADIAN AVIATION INTELLIGENCE REPORT

In this issue…

Features Columns: • 2007 Aircraft Orders (p.1) • Fuel Price (p.3) • Cargo Capers (p.12) • Caribbean Report (p.13) • Asia Report (p.14) • Europe Report (p.15) • Ottawa Report (p.16) • Washington Report (p.17)

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.18)

2007 AIRCRAFT ORDERS: BOEING VS. AIRBUS May 2008

Boeing records over 1,400 net aircraft orders in 2007 In 2007, the Boeing Company received a total of 1,423 net aircraft orders, adjusted for cancellations and conversions in the year of order (net in year of order). This represents a 35% increase from the previous year. Of Boeing’s net orders, more than half were for the 737 family aircraft. The most popular aircraft type among Boeing customers worldwide was the 737-800 aircraft, with 533 net orders in 2007. Overall, Dubai Aerospace Enterprise was Boeing’s largest customer, with 100 net orders in 2007 split between various aircraft types. Figure 1 summarises Boeing’s net orders by aircraft type.

Connie Chang Project Analyst

Figure 1: Boeing’s Summary of 2007 Net Aircraft Orders Aircraft Family 737

747

767

777

787

Net Aircraft Orders

Aircraft Model Series 737-700 737-700 BBJ 737-800 737-800 BBJ 737-900BBJ 737-900ER 737 Subtotal 747-8 747-8F 747 Subtotal 767-300ER 767-300F 767 Subtotal 777-200ER 777-200LR 777-300ER 777F 777 Subtotal 787-8 787-9 787 Subtotal

Net Aircraft Orders 235 13 533 2 3 64 850 1 24 25 3 33 36 11 9 97 26 143 287 82 369 1,423

Source: The Boeing Company website.

Note: Refers to net aircraft orders (adjusted for cancellations and conversions in the year of order).

Airbus achieves over 1,300 net aircraft orders in 2007 Airbus recorded 82 fewer net aircraft orders than Boeing in 2007, totalling 1,341 net orders. Only a breakdown of gross aircraft orders by aircraft type is available from Airbus. Figure 2 summarises orders by aircraft type.

Page1 May 2008

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2007 AIRCRAFT ORDERS: BOEING VS. AIRBUS – CON’T Figure 2: Airbus’ Summary of 2007 Gross Aircraft Orders Aircraft Type

A330

Aircraft Model Series A318 A319 A320 A321 A330-200 A330-200F A330-300 A330 Subtotal

A340

A340-300 A340-500 A340-600 A340 Subtotal

A350

A350-800XWB A350-900XWB A350-1000XWB A350 Subtotal A380 Gross Aircraft Orders Net Aircraft Orders

Gross Aircraft Orders 13 185 676 40 85 66 47 198 8 7 8 23 111 139 40 290 33 1,458 1,341

Source: Data provided by Airbus.

Note: Refers to gross aircraft orders (before any cancellations and/or conversions).

As shown in Figure 2, Airbus received a total of 1,458 gross orders in 2007, with the most popular aircraft, the A320, capturing nearly half. US Airways made the largest number of aircraft orders in 2007, with a total of 92 gross orders.

Airbus experienced stronger growth in net orders than Boeing in 2007, but both carriers have modest expectations for 2008 Despite the fact that Boeing exceeded Airbus in absolute net orders for the second year in a row, Airbus had much stronger growth (with a 77% increase in gross orders in 2007 over 2006) than Boeing (with a 35% increase in net orders during the same period). Although both companies achieved record orders for the 2007 year, both Boeing and Airbus have modest expectations for 2008. Boeing expects 2008 orders to be “strong but at more normal levels”, while Airbus forecasts that gross orders will decline by 50% over 2007. (Please note gross vs. net orders due to reporting structure) These lowered expectations may be related to the recent delays in aircraft deliveries from both aircraft manufacturers. According to recent articles in Air Transport World, Boeing’s first delivery of the 787 aircraft was delayed, on average, by 27 months for all 58 Dreamliner customers, while Airbus recently announced its fourth delay to the A380 aircraft. For Airbus’ largest customer, Emirates, with its current order of 47 aircraft, this is nearly a two-year delay, resulting in USD$110 million in compensation charges.

Page 2 .

May 2008

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2008 InterVISTAS Consulting Inc., all rights reserved.

FUEL PRICES RISE TO OVER $133 May 2008

Crude oil prices ascend to a record high $133 per barrel…

Crude oil prices for near term delivery reached a record $133 per barrel on 21 May 2008. Earlier in the previous week, prices rose to $128 per barrel before pulling back to $124; prices have continued to climb over the past few months despite market predictions of slowing global demand. The U.S. Energy Information Agency reported on 21 May 2008 that there was a large drawdown on oil stores of 5.3 million barrels compared to analyst forecast of an increase in oil supply of 300,000 barrels. In addition, the decline in the U.S. dollar against the Euro also put pressure on crude oil prices.

Another contributing factor to the price spike in the short term is Goldman Sachs’ recent announcement that it forecasts the average price of a barrel of crude oil for the second half of 2008 will be $141; this is up 32% from its previous forecast for the same time period of $107 per barrel. The investment bank also warned that within two years, the price of crude oil could escalate to $200 per barrel.

Conversely, both OPEC and the IEA (International Energy Agency) have cut their forecasts for 2008 crude oil demand citing slowing global economies and high market prices. Strong demand of oil in China, India and the Middle East will likely offset softening demand in other parts of the world. OPEC is currently the source of 40% of the world’s crude oil output.

…with futures prices at $137 in 2012 and $142 in 2016.

Futures prices in May 2008 are much higher than futures prices established in January 2008. A futures contract in May 2008 for delivery of crude oil in December 2012 is priced currently at $137; a 60% increase over the same contract if purchased in January 2008 and 97% higher than if the contract was purchased in September 2007. In December 2016, the price of a crude oil futures contract is $142.

Crude Oil Futures Prices $140 May 2008 $120

Mar 2008

$100

Nov 2007 Oct 2007

$80

Sep 2007 Nov 2006

$60

$40

Crude Oil Spot Prices

Crude Oil Futures Prices

$20

Sep-12

Jan-12

May-12

Jan-11

Sep-11

May-11

Sep-10

Jan-10

May-10

Jan-09

Sep-09

May-09

Sep-08

Jan-08

May-08

Jan-07

Sep-07

May-07

Sep-06

Jan-06

May-06

Jan-05

Sep-05

May-05

Sep-04

Jan-04

May-04

Jan-03

Sep-03

$0 May-03

Manager, Special Projects

Crude oil prices have changed from backwardation, where futures prices are lower than current spot prices, to contango, where futures prices are higher than current near term prices.

US $ per Barrel

Doris Mak

Month of Delivery

Page 3 .

May 2008

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2008 InterVISTAS Consulting Inc., all rights reserved.

AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers April 2008 Air Carrier

Passenger Traffic Revenue Passenger Kilometres % Change % Change over 2007 from 2006

Capacity Available Seat Kilometres % Change over 2007

% Change from 2006

Change over 2007

Change from 2006

+1.0%

+4.8%

+0.6%

+3.1%

+0.3pts (to 83.5%)

+1.3pts (from 82.2%)

Domestic (Mainline)

+1.8%

+9.0%

+1.0%

+1.6%

+0.6pts

+5.8pts

Jazz

-1.1%

+23.1%

-2.3%

+17.3%

+0.9pts

+3.6pts

International & Charter

+0.7%

+3.2%

+0.5%

+3.7%

+0.2pts

-0.5pts

+20.5%

+47.8%

+21.1%

+40.5%

-0.3pts (to 82.5%)

+4.0pts (from 78.5%)

Air Canada 1

WestJet

Analysis: •

•

•

•

1

Load Factor

Air Canada Mainline announced overall traffic growth resulting in a record system-wide load factor of 83.5% for April 2008, up 0.3 percentage points over April 2007. Traffic growth outpaced capacity increases for the month.

Air Canada’s domestic sector contributed strongly to overall traffic growth, with a 1.8% increase in revenue passenger kilometres in April 2008 over April 2007. Air Canada’s subsidiary, Jazz, on the other hand, saw declining passengers during the period. However, with Air Canada utilizing less regional capacity from Jazz, as shown by the 2.3% decrease in seat capacity, Jazz was able to fly fuller planes in April 2008 as compared to April 2007.

Air Canada Mainline’s international sector also experienced growth in passenger traffic, up 0.7% in April 2008 over April 2007. The largest contributor to the passenger traffic growth was the “Latin America and Other” region, increasing 18.9% during this period.

Air Canada Domestic Mainline

8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2%

Feb- Mar 07

Apr

May

Jun

Jul

Aug

Dom RPK

Sep

Oct

Nov

Dom ASK

Dec

Jan08

Feb

Mar

Air Canada International 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% Feb- Mar 07

Apr

May

Jun

Jul

Aug

Sep

Int'l RPK

Oct

Nov

Int'l ASK

Dec

Jan08

Feb

Mar

Apr

WestJet 25% 20% 15% 10% 5% 0% Feb- Mar 07

Apr May Jun

Jul

Aug

RPK

Sep

Oct

Nov

Dec Jan- Feb 08

Mar

ASK

WestJet reported a decline in its load factor by 0.3 percentage points to 82.5% in April 2008 over April 2007, due to strong increases in seat capacity this month. The carrier also announced that it experienced its “largest year-over-year monthly increase in capacity since December 2006”. This is the first time that WestJet realized stronger growth in seat capacity than in passenger traffic since December 2006.

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

Page 4 .

May 2008

Apr

Jazz data is not included in this graph

InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2008 InterVISTAS Consulting Inc., all rights reserved.

Apr

AIRLINE DATA – U.S. U.S. Airlines Release April 2008 Traffic Figures

1

2

2

Notes:

(RPMs – millions)

(ASMs – millions)

Capacity

Load Factor

2,283 ↑0.8%

2,872 ↑7.4%

79.5% ↓5.2 pts

681 ↓7.6%

963 ↓3.1%

70.8% ↓3.4 pts

6,261 ↑5.7%

8,625 ↑5.3%

72.6% ↑0.3 pts

7,835 ↓0.2%

9,863 ↑3.4%

79.4% ↓2.9 pts

9,272 ↓6.3%

11,514 ↓2.1%

80.5% ↓3.6 pts

10,787 ↓6.6%

13,459 ↓4.3%

80.1% ↓2.0 pts

10,069 ↑2.5%

12,377 ↑2.7%

81.4% ↓0.1 pts

6,591 ↑1.0%

7,961 ↑2.1%

82.8% ↓0.9 pts

5,141 ↓2.0%

6,179 ↓2.6%

83.2% ↑0.5 pts

N/A

N/A

N/A

1,508 ↑5.7%

2,042 ↑9.9%

73.9% ↓2.9 pts

N/A

N/A

N/A

Traffic

Airline

1. Mainline operations only.

2. Load factor includes scheduled service only.

Sources: Carrier traffic reports.

Page 5 .

May 2008

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

Vancouver

March Quarter April May June 2nd Quarter July August September 3rd Quarter October November December 4th Quarter Full Year

+1.5% +2.2% +0.7% +0.3 +1.3% +0.8% -0.4% +0.7% +1.5% +0.5% +3.7% +5.0% +2.8% +3.8% +1.7%

+3.6% +3.9% +4.2% +2.4% +1.8% +2.7% +0.2% +2.6% +3.6% +2.1% +3.2% +7.7% +4.4% +5.2% +3.3%

MontréalTrudeau +8.9% +8.7% +8.9% +6.3% +8.6% +7.9% +10.9% +10.4% +8.9% +10.1% +8.4% +6.1% +8.1% +7.3% +8.7%

January

+4.8%

+9.2%

February

+7.7%

March

+6.2%

1st

2007 2008

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

+9.5% +10.9% +11.9% +8.6% +7.6% +9.1% +5.4% +7.1% +7.9% +6.8% +8.3% +8.0% +3.7% +7.1% +8.5%

+17.1% +17.9% +18.8% +17.5% +22.2% +19.5% +17.8% +17.1% +12.4% +15.9% +13.9% +15.9% +8.2% +12.4% +16.3%

+4.9% +6.3% +8.0% +7.3% +7.6% +7.6% +9.0% +6.6% +3.7% +6.4% +8.4% +11.0% +9.2% +9.5% +7.4%

+5.4% +5.1% +12.2% +8.7% +7.5% +9.3% +3.9% +5.0% +1.9% +3.7% +3.5% +5.7% +3.8% +4.0% +5.5%

-1.2% +0.9% +0.5% -2.5% +3.4% +0.4% +4.4% +4.4% +4.2% +4.3% +4.6% +5.7% +4.2% +4.8% +2.7%

+7.9% +5.6% +9.6% +6.2% +1.9% +5.8% +6.7% +5.4% +6.1% +6.1% +8.0% +10.8% +8.1% +8.9% +6.6%

+15.6% +14.6% +20.8% +17.8% +14.7% +17.7% +7.4% +9.2% +9.6% +8.7% +7.5% +4.2% +3.7% +5.0% +11.3%

+5.7% +7.8% +12.1% +12.7% +11.6% +12.1% +4.6% +9.0% +7.9% +7.2% +7.2% +8.4% +7.5% +7.7% +8.6%

+8.2% +17.0% +7.4% +9.9% +8.0% +8.4% +13.6% 5.7% +10.5% +9.9% +5.5% +9.1% +3.7% +6.0% +10.2%

St. John’s +9.1% +8.1% +2.1% -4.2% -1.0% -1.2% -6.5% -5.8% -0.6% -4.6% +5.2% +0.8% -5.5% +0.5% -0.2%

+4.1%

+4.9%

+7.6%

+6.4%

+4.4%

+2.2%

+6.1%

+7.8%

+9.2%

-0.3%

-2.4%

+12.8%

+9.9%

+7.4%

+10.2%

+8.3%

+7.4%

+8.6%

+7.9%

+10.3%

+9.1%

+8.3%

+3.6%

+8.0%

+2.2%

+7.9%

+8.2%

+6.8%

+4.7%

+20.4%

+2.5%

+0.9%

+19.0%

+15.8%

+5.8%

Source: Transport Canada and individual airports’ traffic reports. N/A: not available at press time. Note: Subject to revision.

Page 6 May 2008

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NEWS AIR CANADA UPDATE

WESTJET UPDATE

NEW CHECKED BAGGAGE POLICY

INTRODUCTION OF FUEL SURCHARGE

Air Canada has revealed that it will limit Tango and Tango Plus passengers to one bag per flight for passengers who book after 15 May 2008 and travel on or after 15 July 2008. The new policy will only affect domestic flights and between Canada and the U.S., including Hawaii. A second bag will be permitted for a fee of $25. Latitude and Executive Class passengers, as well certain frequent flyer program members, will still be permitted to check in two bags.

AC JAZZ EXPANDS OTTAWA SERVICE

Air Canada Jazz announced four new destinations that will be added to its Ottawa operations. The non-stop yearround flights will now connect Ottawa and Washington (Reagan National), Saskatoon, Thunder Bay and Charlottetown. With the addition of the four new locations, Jazz operates non-stop flights from Ottawa to 23 destinations.

Bombardier regional jets will serve all four routes.

INTRODUCTION OF FUEL SURCHARGE Effective since early May, Air Canada has implemented a fuel surcharge on all flights, domestic and international. Domestic flights were initially subject to a $20/$40/$60 fuel surcharge depending on stage length. However, after WestJet followed Air Canada in introducing the fuel surcharge, Air Canada matched WestJet’s fees of $20/$35/$45 for short, medium and long-haul flights. Transborder flights are subject to a $40 surcharge and the fuel surcharge on international flights is a calculated amount based on distance.

Page 7 April 2008

WestJet announced the introduction of a fuel surcharge on its short, medium and longhaul flights, effective 13 May 2008. The surcharge of $20 for short haul, $30 for medium haul and $45 on long-haul flights was implemented as a result of the rising fuel prices over the last year. The announcement was made two days after Air Canada implemented its fuel surcharge.

OTHER CANADIAN AIRLINES ZOOM GEARS UP FOR SUMMER SEASON

Zoom Airlines has begun operating trans-Atlantic operations to Rome as part of its expanding transatlantic routes. Initially serving four UK destinations from five Canadian cities, Zoom is expected to carry approximately 500,000 passengers to Europe in 2008. Zoom Airlines, specializing in the budget minded consumer, will offer 27 flights per week between Canada and the UK; its top destination.

SKYSERVICE OPTS FOR SITA APIS SOLUTION Skyservice Airlines and SITA have announced a new agreement that will see SITA provide Advanced Passenger Information Quick Query (APIS AQQ) technology for Skyservice passengers. SITA will deliver a fully-integrated passenger management system that consists of passenger data at check-in, reservations and departure control services. The decision was reached after SITA became the first IT provider to receive U.S. government approval to transmit passenger data at check-in.

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NEWS - CON’T U.S. AIRLINES HORIZON AIR BEGINS SEATTLE TO PRINCE GEORGE Horizon Air has announced a new daily non-stop service between Seattle and Prince George beginning 1 May 2008. Prince George, Horizon’s seventh Canadian city, will be serviced by a 76-seat Q400 turboprop aircraft.

VIRGIN AMERICA ANNOUNCES SUMMER SCHEDULE

Virgin America announced 12 new daily services that will operate from 11 May 2008 through 6 January 2009. Virgin America President & CEO, David Cush, stated the increased services were a result of “an overwhelming response to our new airline from the travelling public.” Two daily flights were each added to Washington DullesLos Angeles, Washington Dulles-San Francisco, New York-San Francisco, New York JFK-Los Angeles and San Francisco-Seattle. Virgin America began operating in August 2007 and currently serves seven cities.

EOS AIRLINES FILES FOR BANKRUPTCY

Eos Airlines filed for bankruptcy on 26 April 2008 and ceased all operations effective 27 April 2008. Eos operated between New York JFK and London Stansted.

environmental sustainability of the facility,” fits well with Vancouver’s desire to improve cargo processing through the airport. IAT also has facilities at Calgary, Edmonton, Saskatoon and Winnipeg.

AIRBUS TO OFFER A320F Airbus has announced that it will offer a freighter version of its passenger A320 aircraft. Initially the conversion process will be undertaken at the Dresden, Germany plant with the eventual plan to operate an identical operation in Irkut, Russia. The conversion will be undertaken in cooperation with Russian aerospace group UAC under a new company, Airbus Freighter Conversion (AFC).

CARGOJET PURCHASES PRINCE EDWARD AIR Cargojet Income Fund has purchased a 51% interest in Prince Edward Air Ltd. Prince Edward Air is a regional operator of cargo aircraft based in Eastern Canada that provides dedicated cargo lift to couriers and transportation companies. Prince Edward Air will continue to be run by Bob Bateman but will work in combination with Cargojet Regional to create $22 million in combined annual revenues. Ajay K. Virmani, President & CEO of Cargojet, highlighted the strategic position the acquisition provides Cargojet in the regional air cargo business in Canada and noted this will enable Cargojet to develop its overnight air cargo network and fleet expansion plans.

CARGO IAT SIGNS AGREEMENT WITH VANCOUVER AIRPORT International Aviation Terminals (IAT) has entered into a new 10-year lease agreement with Vancouver International Airport for a new air cargo facility. The lease includes a total area of 580,000 sq. ft. with 166,000 sq. ft. for the facility.

The new agreement, which includes “significant improvements to the functionality and Page 8 April 2008

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NEWS - CON’T UNITED NAMES NEW CAO AND COO

PEOPLE IN THE NEWS BARRY REMPEL ELECTED CAC CHAIRMAN The Canadian Airports Council (CAC) has elected Barry Rempel, President of the Winnipeg Airport Authority, as its new Chairman. Mr. Rempel will serve in the position for the next two years with Willam A. Restall, President & CEO of the Saskatoon Airport Authority, elected to the position of ViceChair. Mr. Rempel has served on the CAC board since 2002 and since 2006 in the role of vice-chair. Mr. Rempel believes the key challenges he will encounter are “…the continued financial burden of airport rent, the need for continued liberalization with international markets and the quest for the adequate provision of border services at airports throughout Canada." Mr. Restall will become the first Vice-Chair from Canada’s small airport community.

CATSA ANNOUNCES JACQUES DUCHESNEAU RETIREMENT The Canadian Air Transport Security Authority (CATSA) has announced that Mr. Jacques Duchesneau will be stepping down from the position of President and Chief Executive Officer of CATSA. Kevin McGarr, Executive Vice President and COO, will act as interim President until a successor is appointed.

ROBIN HAYES JOINS JETBLUE AIRWAYS JetBlue Airways announced the appointment of Robin Hayes to the position of Executive Vice President and Chief Commercial Officer. Mr. Hayes has served with British Airways for the past 19 years and most recently as Executive Vice President - The Americas.

Since starting out with BA as a customer service agent in Glasgow, Scotland, Mr. Hayes has held positions of increasing responsibility in both the operational and commercial divisions.

Page 9 April 2008

United Airlines has promoted Pete Macdonald to the position of Chief Administrative Officer and John Tague to the position of Chief Operating Officer. Macdonald, who has been with United for 39 years, will be responsible for the execution of the airline’s five-year plan.

Tangue, formerly Chief Revenue Officer, will be Pete responsible for airport Macdonald operations, cargo, operational services and international and regulatory affairs, amongst other activities.

ROBERT MAURACHER JOINS VIKING AIR Viking Air Limited has appointed Robert Mauracher the new Vice-President of Business Development responsible for worldwide strategic development, sales, marketing, public relations and advertising of Viking’s product line.

Mauracher joins Viking from Hawaii Island Air where he was CEO and responsible for the airlines’ strategic direction and business plan.

Prior to Hawaii Island Air he was with Bombardier Aerospace.

OTHER YVRAS AND CII FORM PARTNERSHIP Under a new partnership to pursue sourcing, funding and potential airport opportunities, Citi Infrastructure Investors (CII) will acquire 50% of the shares of Vancouver Airport Authority Airport Services Ltd. (YVRAS).

YVRAS, which currently operates 18 airports around the world, will be able to utilize the CII assets including extensive capital and global reaching connections. As a result of the partnership, YVRAS will become the exclusive platform for CII to invest in airport assets.

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NEWS - CON’T HALIFAX REPORTS PROFIT OF $5.1 MILLION

OTHER – CON’T BOMBARDIER RELEASES AIRCRAFT MARKET FORECAST Bombardier Aerospace’s annual aircraft Market Forecast predicts that Bombardier is well positioned with its business jets and regional aircraft due to the market shift towards larger and more cost-effective aircraft. It is predicted that 1,320 new business jets will be delivered by manufacturers annually over the period 20082017. This is a substantial increase from the annual average of 620 from 1998 to 2007.

Between 2008 and 2027, 12,900 new 20 to 149 seat commercial aircraft will be delivered by manufacturers. The Market Forecast expects business and commercial aircraft sales will generate US$300 billion and US$528 billion respectively for the industry.

BA EXTENDS CALGARY – LONDON SERVICE British Airways has extended its daily flights between Calgary and London, England through 2008 and into the summer of 2009. BA decided to extend the service due to the high demand that was realized throughout the winter months. The overnight flight will continue to be equipped with business class cabins featuring the completely flat, 180 degree bed with a six foot pitch.

LUFTHANSA ADDS TORONTODUSSELDORF Lufthansa has added six weekly flights between Toronto and Dusseldorf as of 1 May 2008. The new route will be operated by an Airbus A340-300 featuring three-class service; the only North American service to Dusseldorf to do so.

Page 10 April 2008

Halifax International Airport released its 2007 Annual Report following its most successful year to date; revenues exceeded operating costs by $5.1 million; new airline routes were started; it enjoyed its first full year of U.S. preclearance operations, four Airport Service Quality awards were won and it enjoyed increased passenger operations. Overall, 2007 passenger traffic was 3.5 million with transborder and international operations realizing the greatest growth at 15.5% over 2006. Cargo traffic also increased by 7.4% over 2006.

EMIRATES RECEIVES A380 COMPENSATION Airbus has paid Emirates’ US$110 million over the last year as compensation for the delayed delivery of the A380. Emirates, the largest A380 customer with 58 confirmed orders, have seen delivery of the aircraft delayed by almost two years. Tim Clark, Emirates President, maintains belief that Emirates will receive five aircraft by 31 March 2009 and another 12 in the year ending 31 March 2010. Airbus is scheduled to deliver 13 A380’s this year.

JET AND CATHAY AGREE TO FREQUENT FLYER PARTNERSHIP Jet Airways and Cathay Pacific have signed on to a frequent flyer partnership agreement that has been effective since 1 May 2008. The agreement enables passengers to earn and redeem programme miles on flights operated by the other carrier. The agreement also covers Cathay Pacific’s sister airline Dragon Air.

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CARGO CAPERS May 2008

The Sorry State of Air Cargo Data. Regular readers of this column are likely well aware of the serious shortcomings of Canadian air cargo data. Those of you who are focussed on passenger issues may not realise it, but the state of passenger data in Canada is far superior to what is available on the cargo side. For some time now, Canadian airports have been advocating the federal government collect and provide more detailed and timely air cargo data, and many have taken steps to improve their own data collection in the meantime.

Robert Andriulaitis Vice President Transportation & Logistics Studies

What may not be as well known to many in the air cargo field is that the lack of good freight data is not limited to the air mode. Freight data in general, is not as timely, extensive, or detailed as what is available on the passenger side. In part this stems from the competitiveness of the industry and the reluctance of private sector firms to reveal commercially sensitive information. In part this stems from the lower profile freight has among federal government planning and policy officials, which in turn has meant no strong push to collect this commercially sensitive data. This is not to say that freight data has been ignored – in fact many provincial and federal initiatives have been undertaken to better understand what is moving to/from/within our country by land, sea and air. But compared to passenger, and in particular compared to what is really needed to undertake solid planning and policy work, what is available certainly falls short.

Government to the Rescue? A recent initiative by one arm of the federal government is trying to address this shortcoming. Infrastructure Canada is sponsoring the development of a Freight and Logistics Management Manual. I attended a Freight and Logistics Workshop in Vancouver that was one of six regional workshops organised in support of this initiative. The purpose of this project is threefold: to publicise the findings of a freight carrier choice survey conducted in the Québec-Windsor corridor; to create a “living” reference document for freight transportation planners that will be hosted on the Internet and be updated regularly, and that will provide information and links to freight data sources and analytical methodologies; and to determine the state of freight planning practices in Canada. The initiative is headed up by Dr. Murtaza Haider, formerly with McGill University and now professor of Supply Chain/Logistics Management and the Director of the Institute of Housing & Mobility in the Ted Rogers School of Management at Ryerson.

The website link for this is: http://logistics.regionomics.com/. Here you will find background on the initiative, and the latest draft of the manual. Chapter 3 gives a description of the public and private sources of data for air, marine, rail and road. It also provides one page summaries of the various sources. This is still a work in process, and is sparse about private sources, but some of this might be of use to analysts who may not know what else is out there. The authors also welcome feedback and input – in fact they are hoping that this initiative develops a life of its own and becomes something that practitioners regularly use and provide input to. If that takes place, we may be able to improve the state of freight transportation planning in Canada. Given the focus on developing various Canadian gateways and corridors, this is a timely initiative. Actually, it really should have been done long before, but better late than never!

Page 12 May 2008

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CARIBBEAN REPORT May 2008

Airport improvements move forward in Dominica The possibility of night landings at Melville Hall Airport in Dominica moved closer to reality with the completion of Package Three and a substantial part of Package Four of the Air Access Improvement Programme. The Programme is funded by the European Commission and the government of Venezuela and was initiated in 2005. Last month, the 6th Division of the Army Corp of Engineers from Venezuela completed excavation, earth movement and river diversion to create RESA (Reserve End Safety Area) to the west (Package Three) and completed land reclamation, road realignment and coastal defence works to create RESA to the east (Package Four). Work on Package Two is expected to commence in June 2006 and will include runway and apron resurfacing and marking, navigation and lighting equipment installation, drainage and fencing.

Jacqueline Clarke Manager, Strategic Development

Spirit Airlines launches service to Trinidad Spirit Airlines continues to expand its international network with the addition of its 22nd Caribbean/Latin American destination. Effective 12 June 2008, the carrier will launch a new daily nonstop service between the airline’s hub in Fort Lauderdale and Port of Spain, Trinidad. Spirit is the first low-cost carrier to offer service to the destination and the second U.S. carrier to introduce service to the twin-island republic in recent months. U.S. travel to the destination has grown by 25% between 2002 and 2005 (most updated data available), strongly fuelled by the large U.S.-based Trinidadian population which accounted for 30% of visitor travel in 2005.

American Airlines returns to Grenada American Airlines announced plans to launch a daily non-stop service during the winter season between Miami and Grenada, dropping to five times per week during the summer season, effective 20 November 2008. After asking for and receiving an annual subsidy of $1.5 million from the government to maintain air service, American ceased its 727 jet service between Miami and Grenada in 2001, citing route profitability issues after 9/11.The carrier’s return is anticipated to significantly boost U.S. arrivals. Grenada enjoyed 46% growth in visitor arrivals from Europe in 2006 with the addition of new carriers to the route, but only an 8% increase from the U.S., partially due to a reliance on a single carrier providing direct service from this market.

Delta announces new service to Santiago, Dominican Republic Delta will launch daily nonstop service from Atlanta to Santiago, Dominican Republic, on 20 December 2008. The service will complement Delta's existing daily nonstop flights between Atlanta and Santo Domingo, Puerto Plata and Punta Cana.

Sale of Air Jamaica’s Heathrow slots to be investigated.

The Jamaican government submitted a request to the country’s Contractor General to investigate the sale of seven Air Jamaica Heathrow slots to Virgin Atlantic, at a price of US$10 million. The Minister of Finance and the Public Service, Audley Shaw, cited several reasons for the government’s interest in launching an investigation. Foregone revenue from the sale has been estimated by the new government at approximately US$364 million. Additionally, Parliament's consent was not sought and the process was not subject to public tender.

Page 13 May 2008

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ASIA REPORT May 2008

2008 first-quarter profit soars at Air China On 28 April 2008, Air China reported a net profit of CNY1 billion (approximately C$150million), a 147% increase over the CNY423 million (approximately C$63 million) earned in the same quarter last year. The carrier attributed its strong performance to stable growth in the domestic market, capacity increases, and a strong Chinese currency. As a result of a 4.5% appreciation in the Chinese Yuan during the first quarter, Air China’s buying power of US dollar-denominated aircraft and parts increased significantly.

Air New Zealand adjusts forecast downwards for remainder of fiscal year Doris Mak Manager, Special Projects

Despite its favourable full-fiscal-year earnings forecasted in February, Air New Zealand (ANZ) lowered its earnings target due to continued increases in the price of jet fuel and the current demand environment. ANZ’s newly adjusted earnings are forecasted between NZ$200 – NZ$220 million (C$160 – C$170 million) for the year ending June 30.

Dubai Airport overtakes Singapore Changi Airport In terms of passenger throughput, Dubai Airport (DXB) surpassed Singapore Changi Airport (SIN) in the first quarter of 2008. While both DXB and SIN experienced an increase in passenger volumes at 15.1% and 6.7%, respectively, DXB handled 9.34 million passengers compared to SIN’s 9.32 million.

Increases in passenger throughput are expected to continue at DXB, as the airport forecasts full year capacity at 40 million. DXB attributes most of its growth to attention from the global aviation industry and its regional position in attracting foreign investment from Australia. Capacity to and from the Middle East has increased nearly two-fold since 2001 and forecasts expect growth to continue at 7% per year for the next four years.

Domestic growth sluggish in Asia’s emerging markets in 2008 Following a decade-long surge in demand, India, China, and Indonesia are all expecting a slowdown in domestic passenger growth in 2008. Domestic passenger traffic in China grew 11.2% to 41.5 million in the first quarter compared to an expansion of 15.7% in 2007 to approximately 170 million passengers. February snowstorms, a weak Japanese market, and China’s controversial conflict with Tibet were contributing factors. Similarly, India’s domestic market slowed down to 11% growth in the first quarter of 2008 compared to full-year growth of 29% in 2007. In India’s case, consolidation talks, slow aircraft arrivals, and an increase in fuel surcharges had the greatest impact on its domestic market. Domestic passenger volume increased by 26% in Indonesia in the first quarter of 2008 but is expected to slow due to the rising costs of air travel.

Taiwan high speed rail threatens domestic airline market In January 2007, a high-speed rail line opened between the busy domestic air route of Taipei and Kaohsiung, resulting in a decline in domestic air passengers of more than 25% to 6.3 million. Since the rail line began operation, domestic airlines cut service by 27% and refocused their efforts on expanding international services to mitigate the losses from the Taipei-Kaohsiung route. Local carriers in Taiwan are seeking government support to operate more international services to Japan, South Korea and China. Regular air service to China presents a huge growth opportunity for Taiwanese airlines and may offset the losses from a decrease in domestic service due to the high-speed rail.

Page 14 May 2008

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EUROPE REPORT May 2008

Russia looks to re-enter regional jet market with Sukhoi Superjet 100 The much anticipated test flight, originally scheduled for late 2007, of the new Russian Sukhoi Superjet 100 is supposed to occur in the first half of May 2008. Sukhoi is part of the United Aviation Corporation (UAI) that was created by Russian President Vladimir Putin in an attempt to restore the Russian aviation industry to its former glory. With a list price of US$29 million, Sukhoi has already confirmed 73 firm orders with Aeroflot and Russia’s Air Union among others. The Superjet 100 will be competing against Brazil’s Embraer and Canada’s Bombardier, as well as the emerging regional jet markets in China and Japan. The aircraft is being developed in cooperation with Boeing.

European Commission approves secondary slot trading John Weatherill Regional Vice President, InterVISTAS-E.U. UK Office

The European Commission has approved the act of secondary slot trading at European airports. The Commission needed to clarify its position on the issue as a result of the practice of carriers agreeing to trade slots becoming more common, especially at London Heathrow under the new EU/U.S. Open Skies Agreement. Commissioner Barrot stated that the Commission would continue to monitor transactions between carriers to ensure that they are in the best interest of consumers.

European Commission will not restrict size of cabin baggage The European Commission has decided not to pursue regulations that would have called for the size of cabin baggage across the EU Member States to be within 56x45x25cm. The decision not to proceed was based on the desire not to create “undue operational complications and inconvenience for passengers on cabin baggage size.” The decision as to size, shape and number of cabin baggage permitted per passenger will remain with the air carrier. The initial concept was developed during the security threat assessment following the August 2006 threat in the United Kingdom.

Online airline tickets are still risky and misleading An EU investigation has determined that consumers looking to purchase airline tickets online are subject to risk and misleading advertisements. The investigation followed last year’s survey of 386 websites from EU Member States and Norway and the EU decision that required airlines to advertise prices with the taxes included to enable consumers to properly compare airfare prices. Fifty-eight percent of the websites investigated were found to have misleading pricing. Fifteen percent of the websites also did not make available advertised offers. Half of the websites found in violation of advertisement regulations during last year’s survey have corrected the problem. Cross-border websites were found to be the most resistant to compliance with only a 12% correction rate.

New UK aviation green tax loophole could create increased emissions Current tax law stipulates that all air passengers are subject to the aviation green tax ranging from £10 to £80 depending on distance and class of travel. However, the new law, effective November 2009, will see airlines paying a fixed sum for each flight based on the distance travelled and weight of the aircraft. As a result, the British Air Transport Association, representing British Airways, Virgin Atlantic, bmi and 13 other British air carriers, and several government Ministers have expressed concern that passengers will take short-haul flights to continental Europe before connecting on to the long-haul segment of their journey. The British Treasury argues that only a small segment of the population would be willing to change planes to avoid paying the higher tax. However, Air France – KLM claim that over 600,000 passengers already fly from London to Paris or Amsterdam each year before connecting with the long-haul segment of their journey. The Government expects to raise an additional £1.5 billion of aviation tax revenue during the 2011-2012 financial year in comparison to the £2.1 billion earned in the 2007-2008 financial year.

Page 15 May 2008

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OTTAWA REPORT May 2008

Auditor General critical of transition to Safety Management Systems Transport Canada is adopting a Safety Management System (SMS) for sea, rail, and air transportation. This approach was implemented by Canadian international maritime carriers in 1998 and by Canadian railways in 2001. Under SMS, the regulatory mandate of Transport Canada changes fundamentally away from direct inspection of vessels, records and personnel. Instead, the regulator’s role shifts to assessment of a company’s processes and systems to ensure safety.

Solomon Wong Senior Vice President Borders, Security & Planning

SMS deployment is presently advancing for aviation companies including Air Canada, WestJet, and Air Transat, as well as regional operators and maintenance companies. In a May 2008 report to Parliament, the Auditor General reported several weaknesses in the deployment of SMS for aviation companies. Insufficient risk management, forecasted resource requirements and short/medium term performance management were cited as areas requiring improvement. Transport Canada has responded with a plan to address key areas by the 2009-10 fiscal year.

The criticisms have led some to call for a more traditional oversight role for Transport Canada in areas of safety. Yet at the same time, industry self-regulation in safety has potential benefits in promoting a proactive culture to identifying hazards, analyzing associated risks and taking appropriate measures before damage can occur. Lessons from the Auditor General’s report can serve not only to improve SMS deployment, but also other initiatives with comparable goals such as Security Management Systems for airlines and airports in Canada.

“Thickening of the Border” cited as major challenge At the Can/Am Border Trade Alliance Conference in late April 2008, Public Safety Minister, Stockwell Day, reviewed discussions held between the Governments of Canada, United States and Mexico at a leader’s meeting in New Orleans. Minister Day described the “thickening” of the border as a major hindrance in the security and prosperity relationship. In May 2008, Industry Minister, Jim Prentice, added that the burden of new security measures have “created a two-headed monster” in the burden on businesses and travellers.

InterVISTAS President & CEO Gerry Bruno and Can/Am Border Trade Alliance President Jim Phillips present an award to Public Safety Minister Stockwell Day at Ottawa Can/Am Border Trade Alliance Conference in May

Both ministers highlighted the need to target the highest areas of risk to build on the strengths of an integrated North American economy. Greater coordination for investment in borders was cited by ministers as the key to strengthening the U.S.-Canada-Mexico relationship. To address this issue, outgoing Canada Border Services Agency Vice President of Admissibility, Greg Goatbe, reported to Can/Am Border Trade Alliance key advancements in travellers and commercial areas: • •

With 200,000 members, NEXUS now comprises about 3.4% of all journeys for travellers entering Canada. Further electronic passenger processing concepts are being advanced in 2008.

The 2017 CBSA Commercial Vision will be concluded in the coming months to “ensure that trends affecting the future border are identified and appropriate strategic solutions implemented.”

Mr. Goatbe further highlighted the need for continued partnerships and engagement with industry participants on traveller and commercial processing – areas that will increasingly be important to the Canadian aviation industry.

Page 16 May 2008

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WASHINGTON REPORT May 2008

U.S. surprises EU negotiators before second stage negotiations With the Open Skies second stage negotiations set to open on 16 May 2008 in Slovenia, the U.S. top negotiator John Byerly surprised his EU counterpart Daniel Calleja by announcing the U.S.’s intentions to broaden the scope of the talks to achieve an “ancillary multilateral agreement.” Byerly went on to say that the U.S. foresees a shift away from barred service based on nationality and even stated the U.S.’s willingness to discuss U.S. foreign ownership and control laws. New traffic rights, investment liberalization and environment constraints are the U.S.’s three most important areas leading up to the negotiations in Slovenia. However, Byerly did caution the EU, again, on its current position of mandatory U.S. carrier participation in the EU Emissions Trading Scheme effective 2012.

British Airways, Continental and American Airlines explore alliance Jon Ash President InterVISTAS-ga2 Consulting Inc. Washington, D.C.

British Airways, Continental and American Airlines have revealed they are in talks regarding a potential alliance. The alliance would look at joint ticketing and marketing efforts to stimulate growth in the trans-Atlantic market. American Airlines and British Airways have a longstanding partnership via their membership in oneworld but were previously restricted from further deepening that relationship by regulators who ruled it was not in the best interests of the consumers. The addition of Continental Airlines, a member of SkyTeam, to the negotiations has upset Richard Branson, head of Virgin Atlantic, who believes an alliance of the three would create an uncompetitive trans-Atlantic environment.

TSA expands ‘Diamond Self-Select’ program The Transporation Security Administration (TSA) has expanded its ‘Diamond Self-Select’ program several times during the last month. General Mitchell International Airport (Milwaukee), Dallas Love Field, Spokane, Boston and Orlando are among the most recent airports to offer the program which was introduced at Salt Lake City, Utah and Devener, Colorado. The program is designed to ease the congestion and pressure of passengers proceeding through the security screening process by allowing the passenger the option to self-select the screening line based on their familiarity of the process. The Self-Select lanes are part of the TSA’s recent review of the passenger screening process. (For a full analysis of the progam see Canadian Aviation Intelligence Report March 2008).

TSA approves use of Tamper Evident Bags for flights leaving the U.S. The Transportation Security Administration granted its approval of security tamper-evident bags for duty-free liquids purchased post security, for flights departing the U.S. to international destinations.

However, security checkpoints in the U.S. still do not accept the tamper-evident bags. International passengers arriving in the U.S. continuing on to a connecting flight will be required to store any dutyfree liquids in their checked luggage prior to screening. The decision was reached to further harmonize the security measures with those of the European Union. Canada is also looking into the practice of issuing the security tamper-evident bags.

U.S. DoT secures the rights of passengers with disabilities The U.S. Department of Transportation has issued a new rule that provides for greater protection of passengers with disabilities during their air travels. The rule strengthens the Air Carrier Access Act (ACAA) that previously was applied to U.S. airlines and now also extends it to any foreign airline operating a route with an origin or destination in the U.S. The new rule will address issues such as the availability of medical oxygen, implementation of easy-to-read captions for hearing impaired and the supply of all information (i.e. flight delays, schedule changes, weather conditions etc.) to passengers regardless of any impairments.

Page 17 May 2008

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INTERVISTAS NEWS There have been several notable developments and achievements at InterVISTAS Consulting Inc. in May 2008. Our Vancouver office has added a new team member, in addition to an editorial board appointment and also a newly published article. There are also several speaking engagements by our team members in the coming months. We hope that you have enjoyed this edition of the Canadian Aviation Intelligence Report.

Quarterly Journal of Finance and Accounting appoints Dr. Mike Tretheway to the Board of Editors Dr. Mike Tretheway, Executive Vice President, Chief Economist, has been appointed to the Board of Editors of the Quarterly Journal of Finance and Accounting (formerly the Quarterly Journal of Business and Economics). As a member of the Board, Dr. Tretheway will be responsible for submissions on productivity analysis, statistical costing, national income accounting and capital stock measurement among other topics.

Ecological Economics to publish Paulus Mau article Ecological Economics will publish a journal submission by Paulus Mau titled “'The Neighbour Effect': Simulating dynamics in consumer preferences for new vehicle technologies.” The article presents a nation-wide consumer preference study which focuses on monetary and non-monetary tradeoffs that consumers make in deciding between a new vehicle technology (Hybrid Electric Vehicle / Hydrogen Fuel Cell Vehicle) and the conventional gasoline vehicle given various market conditions. The preference parameters which were generated from this study are now being used to inform an Energy-Economic Model called “CIMS”, which the Canadian government uses to estimate the cost of implementing various technology-focused environmental policies.

Steven Shovar joins InterVISTAS’ Vancouver Office InterVISTAS is pleased to announce that Steven Shovar will be joining InterVISTAS as Project Analyst with the Development Economics practice in Vancouver. Steven has just completed a BA in International Studies/Political Science with a Minor in Economics from the University of Northern BC (UNBC). While completing his studies, Steven worked part-time for Services Canada, initially as a Youth Services Officer and then as a Program Officer responsible for negotiating and managing community labour market programs. This included negotiating agreements and working with First Nations groups, labour organizations and municipalities. He brings strong quantitative and qualitative analysis skills, as well as knowledge and experience with community development issues.

Page 18 May 2008

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INTERVISTAS NEWS – CON’T InterVISTAS Upcoming Speaking Engagements Robert Andriulaitis, Vice President, Transportation & Logistics • CAC 2008 Cargo Competitiveness Forum: Toronto, Canada – 22 May 2008 Mr. Andriulaitis will be delivering a presentation titled, “Costs of Canadian Air Cargo Gateways.”

Dr. Joe Kelly, Director, Environmental Services • Canadian Ski Council Symposium: Sun Peaks, Canada – 16 July 2008 Dr. Kelly will be delivering a presentation titled, “Climate Change and the Ski Industry: Issues, Trends and Solutions.”

Dr. Mike Tretheway, Executive Vice President, Chief Economist • Canadian Transportation Research Forum Annual Meeting: Fredericton, New Brunswick – 2 June 2008 Dr. Tretheway will be delivering a presentation titled “Essential Priorities for Canada’s Air Transport System.”

• Canadian Airline Investment Conference: Toronto, Canada – 10 June 2008 Dr. Tretheway will be delivering a presentation titled, “The Carbon Footprint: Emerging Environmental Challenges and Solutions for Sustainable Aviation.”

• ACI-NA Marketing and Communications Conference and JumpStart® Air Service Development Program: Pittsburgh, Pennsylvania – 23 June 2008 Dr. Tretheway will be delivering a presentation titled, “State of the Aviation Industry.”

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.

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