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CANADIAN AVIATION INTELLIGENCE REPORT

In this issue… Features Columns: • Airline Capacity Cuts in North America (p.1) • What is an Origin/Destination Model? (p.3) • The Environment Report (p.12) • The Caribbean Report (p.13) • The Asia Report (p.14) • The European Report (p.15) • The Ottawa Report (p.16) • The Washington Report (p.17)

Regular Reports: • Airline Data - Canada (p. 5) • Airline Data – U.S. (p.6) • Selected Canadian Airport Data (p.7) • News (p.8) • InterVISTAS News (p.18)


AIRLINE CAPACITY CUTS IN NORTH AMERICA June 2008

Recently, several U.S. legacy carriers announced further capacity cuts for the fourth quarter of 2008. With the exception of American Airlines, these announcements were made after the most recent OAG schedule release at the end of May 2008.The new schedules are not yet available for analysis. Once these changes come into effect in September 2008, we will re-examine the year-over-year seat capacity. For now, we will look at the cuts the airlines planned to make before these announcements. In light of the recent capacity cut announcements this may seem premature, but several of the legacy airlines have already made capacity cuts in the 5% range in reaction to the latest industry trend on everyone’s mind: the rising cost of oil.

Geneva Tretheway

Airline capacity changes June 2008 vs June 2007

Senior Analyst

US Full Service

US Low-Cost

US Regional Canada

15%

10%

5%

N/A

0%

N/A N/A

-5%

WestJet

Air Canada

Big Sky

Aloha

Allegiant

Midwest

ATA

Spirit

Frontier

JetBlue

AirTran

Southwest

Hawaiian

Alaska

Continental

Northwest

United

US Airways

Delta

American

-10%

Source: OAG Schedules June 2008 and June 2007

With the exception of Continental Airlines, most top legacy carriers in the U.S. and Canada show decreases in domestic seat capacity between June 2007 and June 2008. In the U.S., low-cost airlines have increased their capacity, though not at the volume the legacy carriers are dropping theirs. The U.S. legacy group dropped 1.5 million seats for June 2008 compared to June 2007. For that same period, the U.S. low-cost group increased their capacity by 0.6 million seats. U.S. regionals have decreased seat capacity by 0.5 million, almost off-setting the LCC increase. Noteworthy here are the recent closures of Aloha, Big Sky and ATA, whose combined capacity reduction has been 822,000 seats. In addition, Frontier Airlines filed for bankruptcy protection and continues to operate while undergoing restructuring. Skybus, Eos and Champion Air also ceased operations last month, but they serve specialized markets and thus are not included in this analysis.

Page 1 June 2008

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


AIRLINE CAPACITY CUTS IN NORTH AMERICA – CON’T June 2008

On the Canadian side, both Air Canada and WestJet have increased their domestic seat capacities by 4.5% and 11.6% respectively. However, Air Canada recently announced its own round of capacity cuts coming this fall and winter (7% of total system capacity), and corresponding staff lay-offs as a result of its reduced operations. The airline stated that a $1 increase in the price of a barrel of oil results in an additional fuel cost of $26 million. Summary of North American Airline 4th Quarter Capacity Reduction Announcements To-Date Fall 2008 capacity cuts Airline

Aircraft Reductions (total)

System-wide/ Consolidated

Mainline Only

Regional Only

Air Canada

-7%

n/r

n/r

Northwest

-3% to -4%

-8.5% to -9.5%

n/r

33

Continental

-8.3%

-13.2%

-4.1%

67

United

-8% to -9%

-9.5% to -10.5%

+3% to +4%

100

American

-7% to -8%

-11% to -12%*

-10% to -11%

40-45

US Airways

-3% to -5%

4% to -6%

-1% to +1%

12+

-4%

n/r

n/r

75-90

Delta *Domestic only n/r = not reported

All figures are subject to revision

Page 2 June 2008

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


WHAT IS AN ORIGIN/DESTINATION MODEL? June 2008

What is an O/D model and why is it difficult to estimate true O/D?

Sushma Narayan Senior Analyst

An origin/destination (O/D) model is created to understand the air travellers’ true origins and destinations for any specific airport, city, or region. For example, on a flight from Vancouver International Airport to Los Angeles International Airport there will be numerous passengers with many different origins and destinations. One passenger may only be travelling from Vancouver to Los Angeles, another could be connecting in Los Angeles to fly to Nadi, Fiji Islands, while a third may have started their journey in Kelowna and connected in Vancouver to travel to Los Angeles and onwards to Bogota, Colombia. In this simple example, the one single flight Vancouver – Los Angeles, serves the demand for at least three different O/D’s: Vancouver – Los Angeles; Vancouver – Nadi; and Kelowna – Bogota. Measuring only the volume of passengers travelling Vancouver – Los Angeles would overstate the Vancouver – Los Angeles O/D while not reflecting the demand on the other O/D’s flowing over the route. An O/D model, however, estimates the true travel volume by citypair based on the passengers’ entire journey and allows airlines, airports and tourism organizations to better understand, plan for, and serve their markets. Estimating true O/D demand is, however, a challenging endeavour for several reasons: •

Within Canada, and most other countries, there is no single source that provides this information requiring the estimates be modeled from several incomplete data sources.

O/D data is captured through travellers’ booking or ticketing information but as there are numerous purchasing and booking channels, (i.e., the Internet, travel agencies, calling the carriers directly) capturing this data in one single source is impossible.

Travellers may purchase their ticket from one location (i.e., their hometown’s travel agency) but then drive to an airport, other than their local airport, to originate their air journey. If, for example, the other airport has better service or availability of cheaper fares, passengers may be willing to add a drive journey to their trip for the cost savings or improved overall convenience. Such behaviours unfortunately mask the passengers’ true origins.

Passengers flow over a complex network of flights. There are numerous different routing options (i.e. open jaw 1 , multiple stopovers, circuitous itineraries) that a passenger can take that disguise or confuse the final destination.

Complete routing information is not available for certain types of carriers, typically charter and low cost carriers which do not directly participate in airline interline programs.

In order to correctly estimate O/D market sizes for an airport or city pair, one has to be aware of the need to use various data sources, recognise the limitations within each data source and also understand the dynamics of the information.

1

Open jaw tickets is an airline ticket in which the traveler returns from a city other than the one he or she arrived at, or in which the final destination is not the same as the original departure city.

Page 3 June 2008

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ORIGIN/DESTINATION MODEL – CON’T How is an OD estimate generally created? The foundation for modelling O/D market sizes is ticketing or booking data. Ticketing data refers to all air tickets sales made by travel agencies through global distribution systems 2 (GDS). Booking data is similar to ticketing data; however it represents passenger bookings as opposed to actual sales (tickets). When working with booking data, there has to be consideration for cancelled tickets. We refer to ticket data and booking data, collectively as GDS data, as both sources reflect transactions made via the GDS. Historically, tickets issued by travel agents represented approximately 80% of all airline tickets issued for scheduled flights worldwide. However, the increasing growth in low-cost carriers and an industry shift towards increasing carrier direct ticket sales has caused the share of GDS sales to fall. While GDS data still represents one of the most comprehensive databases of airline ticketing and booking volumes, the information needs to be augmented and cross-checked with data from several other sources. As the representativeness of the GDS data varies by market, carrier mix, and world region, the factors used to model the GDS data need to be developed uniquely and specifically for each O/D being examined. Airport site statistics, flight schedule data (sourced, for example, from the Official Airline Guide), U.S. Department of Transportation’s (DOT) T100 on-flight and U.S. DOT’s O/D passenger statistics, Statistics Canada’s O/D databases, Statistics Canada’s customs entries data and population statistics are all data sources incorporated in the modelling exercise. This information typically provides total passenger volumes for an airport, flight leg, region, or country and is used for balancing totals and scaling ratios. To fully understand a market, direct consumer research is also often required. Pulling together the various data sources, cross-checking them and assessing their statistical value are essential elements in developing an O/D model.

How is an O/D model useful to various types of organizations? Knowing the true origin and destination of passengers is important for air service development initiatives. O/D market sizes allow an airport to demonstrate to the prospective carriers the network value of service to their airport. It is also an important input to market share models used by airlines and airports to predict the profitability of a route or network. An O/D model, however, is not only useful for airports and airlines; many travel and tourism organizations also find these models of benefit. A travel and tourism organisation would use the information in an O/D model to measure the impact of promotional campaigns, provide support for joint promotional initiatives with other industry partners, and target their marketing spend to the most important markets.

2

Major computer reservations systems (CRS) operations that book and sell tickets for multiple airlines are known as global distribution systems (GDS).

Page 4 June 2008

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AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers May 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

+5.4%

+5.2%

+4.7%

+3.7%

+0.5pts (to 84.3%)

+1.1pts (from 83.2%)

Domestic (Mainline)

+8.0%

+9.6%

+7.6%

+6.7%

+0.3pts

+2.1pts

Jazz

-5.4%

+13.3%

-2.6%

+13.7%

-2.1pts

-0.4pts

International & Charter

+4.4%

+3.4%

+3.5%

+2.4%

+0.7pts

+0.1pts

+19.3%

+43.4%

+20.1%

+38.6%

-0.5pts (to 79.5%)

+2.6pts (from 76.9%)

Air Canada 3

WestJet

Analysis: •

3

Load Factor

Air Canada Mainline’s domestic sector contributed significantly to system-wide passenger traffic growth (of 5.4%) this May, having increased 8.0% over May 2007. This is accompanied by increasing domestic seats by 7.6% during the same period. As a result, the carrier’s domestic load factor increased from 81.7% in May 2007 to 82.0% in May 2008. Air Canada Mainline’s international sector also experienced growth in both passenger traffic and seat capacity levels, increasing by 4.4% and 3.5% respectively in May 2008 over May 2007. The “Latin America and Other” region shows the strongest growth in terms of seats by 37.0% during this period, possibly as a result of Air Canada’s introduction of three new holiday resort destinations, namely Ixtapa/Zihuatanejo (Mexico), Santa Clara (Cuba) and Turks & Caicos, as well as increased frequencies to Cuba, Mexico, Jamaica, Hawaii and St. Lucia – all of which began during the months and April and May.

Air Canada Domestic Mainline

9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2%

Mar07

Apr

May

Jun

Jul

Aug

Sep

Dom RPK

Oct

Nov

Dom ASK

Dec Jan08

Feb

Mar

Apr

May

Jazz data is not included in this graph

Air Canada International 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% Mar07

Apr

May Jun

Jul

Aug

Sep

Int'l RPK

Oct

Nov

Feb

Mar

Apr

Nov Dec Jan- Feb 08

Mar

Apr May

Int'l ASK

Dec Jan08

May

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

May Jun

Jul

Aug Sep

RPK

Oct

ASK

WestJet reported a slight decline in its system-wide load factor by 0.5 percentage points to 79.5% in April 2008 over April 2007, due to strong increases in seat capacity this month (by 20.1%). However, the increased capacity has allowed WestJet to carry 100,000 more passengers this May 2008 compared to May 2007.

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

Page 5 June 2008

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

1

2

2

Notes:

(RPMs – millions)

(ASMs – millions)

Capacity

Load Factor

2,167 ↓2.3%

2,736 ↑1.2%

79.2% ↓2.8 pts

726 ↓9.5%

994 ↓6.5%

73.1% ↓2.4 pts

6,672 ↑6.5%

8,914 ↑5.2%

74.9% ↑0.9 pts

8,280 ↑1.8%

10,202 ↑2.2%

81.2% ↓0.3 pts

9,796 ↓4.1%

11,865 ↓1.7%

82.6% ↓2.0 pts

11,755 ↓1.1%

14,387 ↓1.1%

81.7% ↑0.0 pts

10,508 ↑4.2%

12,673 ↑1.5%

82.9% ↑2.1 pts

6.998 ↑4.3%

8.180 ↑2.7%

85.6% ↑1.3 pts

5,.386 ↑0.6%

6,542 ↑0.0%

82.3 ↑0.4 pt

1,734 ↑18.2%

2,187 ↑14.0%

79.3% ↑2.9 pts

887 ↑2.5

1,079 ↓0.8

82.2 ↑3.3 pts

Traffic

Airline

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

Sources: Carrier traffic reports.

Page 6 June 2008

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


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

2007 2008

Toronto

Vancouver

1st Quarter April May June 2nd Quarter July August September 3rd Quarter October November December 4th Quarter Full Year

+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%

+3.9% +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 +8.7% +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%

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

+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%

+17.9% +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%

+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%

+5.1% +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%

+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%

+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%

+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%

+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%

+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 +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%

January

+4.8%

+9.2%

+4.1%

+4.9%

+7.6%

+6.4%

+4.4%

+2.2%

+6.1%

+7.8%

+9.2%

-0.3%

-2.4%

February

+7.7%

+12.8%

+9.9%

+7.4%

+10.2%

+8.3%

+7.4%

+8.6%

+7.9%

+10.3%

+9.1%

+8.3%

+3.6%

March

+6.2%

+8.0%

+2.2%

+7.9%

+8.2%

+6.8%

+4.7%

+20.4%

+2.5%

+0.9%

+19.0%

+15.8%

+5.8%

1st Quarter

+6.2%

+9.9%

+5.2%

+6.8%

+8.6%

+7.2%

+5.5%

+11.2%

+5.4%

+6.2%

+12.2%

+7.6%

+2.5%

April

+5.5%

+6.2%

+3.4%

+2.4%

+5.2%

+10.0%

+4.6%

+9.2%

+3.2%

-0.8%

+1.9%

+3.4%

+2.5%

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

Page 7 June 2008

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NEWS AIR CANADA UPDATE

WESTJET UPDATE

CAPACITY AND STAFF REDUCTIONS

WESTJET BEGINS SERVICE BETWEEN TORONTO AND QUÉBEC CITY

On 17 June 2008, Air Canada (AC) announced capacity and employment reductions for its fall and winter schedule. Compared to 2007, total system capacity will decrease by 7% in the fourth quarter 2008 and first quarter 2009. The decrease in total system capacity, which includes domestic capacity reductions of 2%, U.S. transborder reductions of 13% and international capacity reductions of 7%, will necessitate fewer employees. As a result, 2,000 staff positions will be eliminated throughout all levels of the organization. AC indicated that the reductions were in reaction to record high oil prices and the federal and provincial regulatory environment of increasing fuel excise taxes, security fees, and airport charges. The carrier revealed that fuel accounts for 30% of its total operating expenses and that every CDN$1 increase in the price of oil per barrel contributes an additional CDN$26 million to its annual fuel expense.

ONTARIO AND QUÉBEC AIR TRAVEL PASSES RETURN

On 18 May 2008, WestJet flew its inaugural non-stop, daily service between Toronto and Québec City. The carrier anticipates adding a second daily flight on 2 November 2008.

WESTJET EXPANDS SCHEDULED SERVICE TO MEXICO On 9 June 2008, the Canadian federal government approved WestJet’s request to increase scheduled service to Mexico. The following designations have been granted with immediate effect: Vancouver-Mazatlan; Calgary-Puerto Vallarta; Edmonton-Cancun; Edmonton-Puerto Vallarta; Winnipeg-Mazatlan; Winnipeg-Puerto Vallarta; Halifax-Cancun. The following designations have been approved for December 2009: Vancouver-Cancun; Vancouver-Puerto Vallarta; Calgary-Cancun; Winnipeg-Cancun; TorontoCancun; Toronto-Puerto Vallarta; MontréalCancun. WestJet has yet to release the routes that it will operate.

Air Canada has announced the reactivation of its Ontario and Québec air travel passes. The passes will provide travelers with an uncapped amount of travel within the respective provinces for $1,099. Passes are effective on Air Canada and Air Canada Jazz services between 1 July and 31 August 2008. Exceptions to the pass include point-to-point travel between Toronto and Ottawa and travel to/from Iles de la Madeleine, Québec.

AIR CANADA INAUGURATES OTTAWAFRANKFURT AND TORONTO-MADRID FLIGHTS Starting 1 June 2008, Air Canada, in cooperation with its Star Alliance partner Lufthansa, began direct, daily service between Ottawa and Frankfurt, Germany. New daily service from Toronto to Madrid began 15 June 2008. Page 8 June 2008

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NEWS – CON’T OTHER CANADIAN AIRLINES

U.S. AIRLINES

PORTER AIRLINES ANNOUNCES FREQUENT FLYER PROGRAM

DELTA INTRODUCES NEW INTERNATIONAL ROUTES

Toronto-based Porter Airlines announced VIPorter, its frequent flyer program, is slated to begin 9 June 2008. The VIPorter program has no blackout periods and points can be earned at each level of fare class, with 10pack Porter Passes and with group bookings.

In partnership with Air France, Delta introduced a non-stop service between Salt Lake City, Utah and Paris and added a fourth daily flight between its Atlanta hub and Air France’s hub in Paris. The twice daily Salt LakeParis service will be operated on a code-share basis by Air France and Delta. Six new non-stop flights were added from JFK: Georgetown, Guyana; Cape Town, South Africa (via Dakar, Senegal); Cairo, Egypt; Malaga, Spain; Amman, Jordan; and Antigua, Antigua and Barbuda. Delta also added non-stop service from Atlanta to Stockholm, Sweden. Delta has increased international routes and expects that over 40 percent of its summer traffic will be international traffic.

PORTER AIRLINES INCREASES TORONTO-NEWARK WEEKEND SERVICES Porter Airlines announced an increase in weekend service between Toronto City Centre Airport (TCCA) and Newark Liberty International Airport. Beginning 20 June 2008, overall flight frequencies will change from 40 to 38 per week, consisting of six return flights every weekday, three return flights Saturday and five return flights Sunday. One additional weekday TCCAMontréal return flight was also announced for the summer season.

ZOOM EXPANDS TRANSATLANTIC OPERATIONS TO WINNIPEG

Zoom Airlines announced on 6 May 2008, the only direct, non-stop scheduled service from Winnipeg to London, Gatwick. Economy fares are priced at $299 and premium economy service is $499. Additionally, Zoom expanded its Paris routing to include three weekly flights from Toronto, four weekly flights from Montréal, and two flights per week from Calgary and Vancouver.

LAS VEGAS, LOS ANGELES ADDED TO SUNWING SCHEDULE Beginning in the fall of 2008, Sunwing Airlines will offer air services to Las Vegas from Vancouver and Toronto commencing 11 September 2008 and Calgary commencing 20 November 2008. Service from Vancouver to Los Angeles will begin 15 November 2008, and run through May 2009. Page 9 June 2008

CARGO FEDEX EXPANDS KELOWNA FACILITY

Federal Express Canada unveiled two new expansions to its exiting facility in Kelowna. A new office, customer service, sorting and warehouse facility opened 2 June 2008 to meet the demand of the fast-growing BC Interior market. The facility services ground transportation for the Kelowna area and air freight feeder operations.

UPS FREIGHT EXTENDS SERVICE

Beginning 30 June 2008, UPS Freight will extend its reliability guarantee to shipments moving across the CanadaU.S. border. The guarantee, which was introduced in the United States in January 2008, applies to direct shipment points in both Canada and the lower 48 states and allows customers to request a waiver of freight charges if their shipment fails to arrive on time.

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


NEWS – CON’T CARGO – CON’T CATHAY PACIFIC TAKES DELIVERY OF B747-400ERF On 28 May 2008, Cathay Pacific Airways took delivery of Boeing’s 747400ERF Extended Range Freighter. The ten remaining aircraft on order from Boeing, all 7478F models, will be delivered between 2009 and 2012. The next generation freighters provide more fuel efficiency and a reduced environmental impact compared to the Boeing 747-200 Classic freighters being replaced.

AIR CANADA WITHDRAWS FROM THE FREIGHTER BUSINESS

Citing the rapid surge in fuel costs, Air Canada (AC) announced the end of its freighter operations. AC had already discontinued its Shanghai-Toronto freighter service and will cease operation of its Frankfurt-Toronto route in June 2008. Upon cessation, AC will return the last of its MD-11 freighters to World Airways. Despite the cancellation, AC expects to reevaluate its freighter business at some point in the future.

PEOPLE IN THE NEWS BAA APPOINTS STEPHAN PEAT TO OPERATE SIX UK AIRPORTS The British Airports Authority (BAA) announced that Stephan Peat will act as Managing Director for its airport division. The division, which excludes LondonHeathrow, consists of Gatwick, Stansted, Southampton, Aberdeen, Edinburgh and Glasgow. Peat is currently the Director of Operations for the Tube Lines consortium.

PM NAMES NEW PRESIDENT OF CANADA BORDER SERVICES AGENCY The Office of the Prime Minister announced 13 June 2008, that Stephen Rigby will replace Alain Jolicoeur as President of the Canada Page 10 June 2008

Border Services Agency (CBSA) on 1 August 2008. Presently, Mr. Rigby is Associate Deputy Minister of Foreign Affairs and has extensive civil service experience including Executive Vice-President of the CBSA, Acting Security Advisor to the Prime Minister, and Assistant Commissioner at the Canada Revenue Agency.

JEAN BARRETTE JOINS OTTAWA INTERNATIONAL AIRPORT AUTHORITY

Jean Barrette was appointed Vice President of Operations and Security at the Ottawa International Airport Authority on 12 June 2008. Mr. Barrette held various positions of increasing responsibility at the Ottawa International Airport prior to joining Transport Canada, where he is currently the acting Director of Security Operations. Mr. Barrette will assume his new role at the Authority in mid-July 2008.

CRILLY APPOINTED TRANSLINK’S REGIONAL TRANSPORTATION COMMISSIONER On 5 June 2008, the Mayors’ Council on Regional Transportation named Martin Crilly its Regional Transportation Commissioner for TransLink. Crilly, who also serves as a Commissioner at BC Ferries, will hold the position until 30 April 2013. Prior to accepting the post, he was the Executive Director of the International Centre for Sustainable Cities, a non-government organization based in Vancouver, BC.

MAJALI NAMED NEW IATA CHAIRMAN

Samer Majali, the former CEO of Royal Jordanian Airlines, succeeded Fernando Pinto as the Chairman of the IATA Board of Governors. Majali’s one-year term, commencing 3 June 2008, is expected to be difficult as the industry faces erratic fuel prices and imminent cut backs. IATA also announced Majali’s eventual successor; Tony Tyler, Chief Executive of Cathay Pacific, will assume the role of IATA Chairman as of June 2009.

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


NEWS – CON’T OTHER PAPER AIRLINE TICKETS ELIMINATED

After a four-year pursuit of abolishing paper tickets, the International Air Transport Association (IATA) announced 31 May 2008 that the industry’s conversion to 100% electronic ticketing is complete. The phase-out of paper tickets will save the industry US$3 billion worldwide and decrease the cost of issuing a ticket from US$10 to US$1.

AIR ONE ORDERS 44 AIRBUS AIRCRAFT

In an attempt to develop a comprehensive longhaul route network, Italy’s Air One ordered forty-four Airbus aircraft. The latest order is in addition to Air One’s existing request for sixty-five A320 aircraft with an option of twenty-five more. The most recent order includes twelve A350-800s with twelve options and twelve A330-200s with eight options. Air One’s first two long-haul routes will be launched later this month from Milan-Malpensa to Boston and Chicago-O’Hare.

AIRWAYS NEW ZEALAND, INCHEON AND TAMPA WIN IATA’S EAGLE AWARDS

The International Air Transport Association (IATA) recognized Airways New Zealand (ANZ), Incheon International Airport (INC) and Tampa International Airport (TPA) by awarding each its Eagle Award. The Eagle Award honours both air navigation service providers and airports for continuous improvement, cost efficiency, and exemplary performance in customer satisfaction. ANZ was recognized for meeting the needs of its customers and resisting increases to charges over the last 10 years. Both INC and TPA reduced costs and passed the savings to their customers. INC reduced landing charges by 10% and saved airlines US$75 million. TPA, despite spending US$1 billion in renovations, reduced passenger departing fees from US$5.32 in 1995 to US$4.26 in the last two years.

MEXICANA AIRLINES ADDS CALGARY AND EDMONTON TO ITS CANADIAN DESTINATIONS On 3 June 2008, Mexicana Airlines announced new services to Calgary and Edmonton from Mexico City, offering four flights a week and three flights a week, respectively. Presently, Mexicana flies to three Canadian destinations, Vancouver, Toronto, and Montréal.

Page 11 June 2008

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THE ENVIRONMENT REPORT June 2008

NJ and NY Port Authority to offer carbon credits On 21 April 2008, the Port Authority of New York and New Jersey announced a program that will permit drivers and airline passengers to buy credits to offset their carbon emissions. Revenue from the credits, which will be purchased at a website operated on behalf of the Port Authority, will be used to plant trees, install solar panels, build wind turbines, and invest in other carbon-reducing and offsetting measures. The Port itself has committed to buying carbon offsets to reduce the greenhouse gases it produces.

EMA aspires to carbon neutrality by 2012

Joe Kelly Director, Environmental Services

East Midlands Airport (EMA), which serves UK cities Nottingham, Leicester, and Derby, expects to achieve carbon neutrality for its ground operations by 2012 through carbon emission cuts and an offsetting program. To date, EMA has invested in significant technologies to achieve its environmental ambitions of mitigating 12,000 tonnes of CO2 emissions per year. As of February 2008, 20% of the airport’s energy needs were generated from renewable sources. The Sky-Walk, the centerpiece of EMA’s plan, is a passenger concourse that takes advantage of geothermal technology to heat the entire building. Other climate control technologies include the replacement of gas heating with locally-produced wood-fired boilers, a wind-driven air conditioning system that delivers fresh air into the building and expels warm air through external louvers, and a polycarbonate roof that captures natural light and reflects it internally through a mirror-finished aluminum tube.

British Airways diversifies green initiatives British Airways recently revealed a multi-pronged approach to address climate change. BA is supporting research at Cambridge University to gain a better understanding of the environmental effects of aviation with a focus on lesser known pollutants such as contrails. Furthermore, BA is providing funding for a range of products including an attempt to halt deforestation in Brazil, which is a significant source of CO2 emissions. On the passenger side, BA aims to simplify how passengers purchase carbon offsets for their flight emissions and invest the proceeds into numerous green projects. BA has partnered with Morgan Stanley in order to channel the funds from offsetting toward various green projects which include hydro-electric power initiatives in Santa Catarina, Brazil and the Gansu province of China and a wind farm in Ningxia province, China.

Virgin tests bio jet fuel In an effort to demonstrate the feasibility of clean jet fuels, Virgin Atlantic flew the inaugural flight of a commercial aircraft powered with biofuel on 24 February 2008. The fuel, which was a mixture of coconut and babassu oil, is expected to produce less carbon dioxide emissions than regular jet fuel. Virgin and its partners Boeing, General Electric, and Imperium Renewables are excited at the prospect of using biofuels, especially considering the fact that the Boeing 747 aircraft used in the test flight required no design enhancements to use the biofuel mixture.

Partnership launches Whistler EcoPath Tourism Whistler and the Resort Municipality of Whistler introduced Whistler EcoPath, an online emissions calculator aimed at increasing awareness of climate change. Carbon offsets associated with travel to and from the resort can be purchased through the resort’s official website, Whistler.com. Other web-based resources available at the website include green meeting options and a travel checklist for visitors to reduce their environmental footprint.

Page 12 June 2008

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THE CARIBBEAN REPORT June 2008

It’s All About Capacity….. …Major operator slashes flights and routes Last month, American Airlines (AA) and American Eagle (AE) announced plans to significantly cut capacity at the San Juan hub in an effort to cut costs and mitigate the impact of rising fuel costs on the AMR Group’s operations. AA will retire approximately 45 aircraft and AE will retire its fleet of 34seat Saab 340s. Effective September 2008, AA will reduce its daily flights from 38 to 18, ending nonstop, daily service to San Juan from Baltimore/Washington, Fort Lauderdale, Newark, Orlando, Los Angeles and Washington Dulles. In the Caribbean, AA will no longer serve Antigua, St. Maarten and Santo Domingo with jet service from San Juan. Effective the same date, AE will reduce its Caribbean schedule from 55 to 33 daily departures out of San Juan. The regional carrier will eliminate daily flights from San Juan to Aruba as well as to Samana, Dominican Republic.

Jacqueline Clarke Manager, Strategic Development

....JetBlue and Cape Air increase service to San Juan JetBlue and Cape Air immediately followed up on AA’s announcement with capacity announcements of their own. Effective September 2008, JetBlue will increase to four daily flights on the JFK to San Juan route, adding a fifth service in November, with sixth and seventh daily flights commencing in December. From Orlando, the airline will increase to four daily services and will add a fifth daily roundtrip during the peak December holiday season. Seasonal service between San Juan and Boston will begin two months early this year. Nonstop flights will ramp up from twice-weekly in September to a daily service in November with a second daily nonstop in December and January. Cape Air announced increases to its Caribbean service effective October 2008, a month after American's cutbacks in the region take effect. The Hyannis, Massachusetts-based carrier will increase services between St. Thomas and San Juan to 12 from seven. Its service between St. Croix and San Juan will increase from four to eight daily roundtrips. The carrier is adding four aircraft to the nine operated in the region to handle what it expects to be increased demand, in light of capacity cuts. ….Sunwing expands ’08/09 winter schedule to Caribbean Sunwing Airlines will offer service from six new Canadian gateways to the Caribbean and Mexico for the upcoming 2008/09 winter season. New routes include Kelowna, BC to Cancun and the Mayan Riviera; Windsor to Santo Domingo, Dominican Republic and Varadero, Cuba; Hamilton to Punta Cana, Dominican Republic and Varadero; Kitchener to Cancun, the Mayan Riviera and Jamaica; Sault Ste. Marie to Varadero and Val d’Or, Quebec to Varadero. ….Cayman Airways adds to its fleet Cayman Airways acquired its third 737–300 jet in May as it continued with plans to improve efficiency and increase frequency on existing routes. The carrier will also acquire two larger capacity turboprop aircraft to replace two Twin Otters currently providing inter-island service. With the 50-seater Saab 2000, Cayman Airways plans to increase inter-island service, introduce direct flights from South Florida to Cayman Brac and expand service regionally to Central America, Cuba and South Florida. ….Inter-island traffic boosted by regional carrier Cuban airline, Aerocaribbean, announced the inauguration of a new route between Punta Cana, in the Dominican Republic, and the Haitian capital, Port au Prince to commence on 8 July 2008. The carrier will also increase to a twice-weekly service between Punta Cana and Varadero, Cuba and a third weekly flight from Santiago de Cuba to Port au Prince between 24 June and 21 October 2008.

Page 13 June 2008

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THE ASIA REPORT June 2008

Budget Carrier Oasis Forfeits Licenses, Faces Bankruptcy Hong Kong-based budget airline, Oasis, recently had 13 transport licenses revoked by the Air Transport Licensing Authority. Originally lapsed on 9 April 2008, the licenses were revoked due to the carrier’s cessation of air services and its state of financial affairs Financial services group, KPMG, was appointed by the court to act as Oasis’ provisional liquidators as the airline faces bankruptcy. The case will be presented in a hearing before Hong Kong’s High Court on 11 June 2008. If Oasis is able to recover from financial distress and revive its business, it will have to apply for new air transport licenses in order to resume servicing its flight operations. Among the revoked permits were routes between Hong Kong and Bangkok, Vancouver, Berlin, Chicago, London, San Francisco, Singapore, Sydney, and other international cities.

Doris Mak Manager, Special Projects

China Southern and Air France KLM Sign Joint Venture Cargo Agreement China Southern Airlines (CZ) and Air France KLM (AF KLM) announced the launch of a cargo joint venture on 3 June 2008. The joint venture will be named Asia Europe Cargo, or AE Cargo, and is expected to commence formal operation in 2009. At the outset, AE Cargo will operate a fleet of 10 aircraft consisting of both 747s and 777s. The framework agreement specifies that CZ will have a 75% stake in the cargo entity while AF KLM will hold the remaining 25%. Currently, only 24% of the domestic cargo market in China is serviced by Chinese carriers.

Airbus Gears Up Chinese A320 Assembly Facility With production scheduled to begin in August 2008, Airbus is making preparations to ship sections of its A320 aircraft to an assembly line in Tianjin, China. The Chinese assembly facility, which is an exact replica of the Airbus assembly line in Finkenwerder, Hamburg, will use the same processes and documentation as its European counterpart. A319 and A320 aircraft sections from the Finkenwerder factory will be loaded into containers, transported by ship to the port of Tianjin, and travel by road to the Tianjin Airbus facility for final assembly. The first delivery of a Chinese-built Airbus aircraft is scheduled for June 2009 to customer, Sichuan Airlines. Output at the Tianjin facility is expected to expand to four aircraft a month and orders-on-hand from local airlines already exceed line capacity at the Chinese plant.

High Fuel Costs Force Asian Airlines to Cut Capacity Thai Airways, China Airlines, EVA Air, and Air New Zealand all recently revealed changes to their operations. Thai Airways announced on 10 June 2008 that it will cut or reduce flights to destinations in the United States. Cancellation of its New York-Bangkok service will take effect 1 July 2008 and daily service on its Los Angeles-Bangkok route will be reduced to five-times-a-week. Furthermore, the non-stop Los Angeles-Bangkok route will be re-routed through Japan, as the carrier reshuffles its long-haul operations and tries to sell four Airbus 340 jets. Thai Air cited rising energy prices as the main reason for a change in flight plan and will consider resuming services if fuel prices decrease. China Airlines also introduced a cut in passenger capacity, mostly to the US and Asia, by 10% beginning in June 2008 and EVA announced a trimming of 5% of its passenger network beginning in September 2008. Similarly, Air New Zealand announced short-haul capacity cuts and an increase in fare prices.

Page 14 June 2008

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THE EUROPEAN REPORT June 2008

BMi values Heathrow slots at £770 million BMi, holding 11% of London-Heathrow slots, have valued the slots at £770 million. End of year 2006, the same slots were valued at £12million. The drastic increase in the value can be linked to the recently activated EU/US Open Skies agreement and the EU ruling that airport slots are permissible to be traded at market value. A recent study by Deloitte valued a peak-time Heathrow slot at approximately £25-30 million. BMi has been the subject of much speculation since the EU/US Open Skies agreement was signed due to their holding of the second most slots at London-Heathrow. British Airways owns 41% of Heathrow’s slots. Both majority shareholder, BMi Chairman Sir Michael Bishop (50% plus one) and Lufthansa (30%) have buy and sell options that expire in June 2009.

John Weatherill Regional Vice President, InterVISTAS-E.U. UK Office

Industry Shows Significant Interest in Soon-to-be Privately Managed Prague Airport According to Czech Transport Minister Ales Rebicek, around 65 parties have expressed interest in Prague Airport. Near the beginning of June 2008, the Czech government decided to privatize Prague Airport in a move that would be the largest privatization deal during its term in office. Interested parties include FRAPORT, Aéroport de Paris and several Czech private equity firms. The successful bidder for Prague Airport will be required to provide sufficient financial compensation as well as provide strategic opportunities for Prague Airport. The privatization process should also result in financial success for the Czech government as it is the only major airport in Eastern Europe expected to be privatized through 2009.

EU Emissions Trading Scheme Update On 27 May 2008, The European Parliament (EP) voted on draft amendments to the EU emissions trading scheme (ETS). Contrary to the European Commission’s (EC) proposal for a one-year allowance period for intercontinental flights, the EP agreed that all flights leaving or landing in the EU will be required to participate in the ETS from 2011 onward. The EP and EC also differed on the amount of emissions to cap and the permissible number of permits to be auctioned. EP members voted to lower the emissions cap to 90% of 2004-06 levels whereas both EC and the Council sought an emissions cap at 100% of 2004-06 levels. In terms of permits, the EC determined that 25% of carbon emission credits be auctioned, while the Council requested that only 10% be auctioned. The EU ETS remains a controversial proposal, causing reaction from the airline industry, domestic and foreign governments, and environmentalists.

Silverjet Negotiations Breakdown London-based Silverjet suspended operations 30 May 2008 due to limited working capital reserves. However, at the announcement of suspended operations, Silverjet also announced that they would be seeking new investors with the hope to re-establish operations. Kingplace, an investment group registered in Ireland and managed by Heritage in Geneva, Switzerland, was expected to complete its acquisition of Silverjet by 13 June 2008, but negotiations collapsed due to unusual complexities. Subsequently, Silverjet preliminary agreement to resume flight operations failed on 13 June 2008 and it decided to proceed with 300 to 400 job cuts. The business-focused carrier offered service from London to New York and Dubai.

Page 15 June 2008

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THE OTTAWA REPORT June 2008

New City Pairs for Services Between Canada & Mexico On the heels of new agreements signed with the Philippines and Barbados under Canada’s Blue Sky policy, five air carriers have been designated to operate new air services between Canada and Mexico. The two countries have had a bilateral Air Transport Agreement since 1961 with amendments as recent as last year. In addition to existing services, the new designations cover 64 air carrier city-pairs for Air Canada, Air Transat, Skyservice, Sunwing and WestJet scheduled services.

Solomon Wong Senior Vice President, Borders, Security & Planning

49 city-pairs will be permitted in 2008; and additional 15 in December 2009. The majority of new routing possibilities are additions to Cancun, Puerto Vallarta and Huatulco. In addition Cargojet has been designated to operate three all-cargo routes from Hamilton to Guadalajara, Mexico City and Monterrey. The growth of trade and travel between Canada and Mexico is expected to be strengthened through these potential services, particularly to support the goals of the US-Canada-Mexico Security and Prosperity Partnership.

Border Business Resumption Message Service Launched The impacts of natural disasters or acts of terrorism can be quite pronounced beyond immediate casualties. Outages of transportation and communication systems can seriously delay emergency response as well as disrupt economic activities over a long term (e.g. Hurricane Katrina). As a result of lessons learned from recent incidents, a major focus from the Government of Canada on “business resumption” strategies is underway. Canada Border Services Agency recently launched a new messaging system that will provide businesses with access to alerts about any major disruptions at Canadian border crossings. Based on Really Simple Syndication (RSS) formats, the Above: CBSA’s approach for news feeds for messaging system provides an business resumption promises future additional layer of information applications for aviation – working on all major platforms such as BlackBerry, iPhone or distribution without clogging up e-mail desktop computers. inboxes. The advantage of RSS feeds that all internet browser technologies in recent years have built in capabilities to process RSS information. Available now for land borders alone, the eventual expansion to aviation could assist in business resumption for air passenger and cargo operations.

Page 16 June 2008

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


THE WASHINGTON REPORT June 2008

United and US Airways Implement First Bag Fees on Select Routes United Airlines and US Airways have followed American Airlines initiative to implement a $15 fee for a passenger’s first bag on domestic routes. American Airlines implemented the first bag fee on 21 May 2008. Both United and US Airways have already instituted a second bag fee of $25 for domestic routes. United Airlines began charging passengers for their first checked bag as of 13 June 2008. Beginning 18 August 2008, United Airlines will also apply the first checked bag fee to routes to/from Canada, Puerto Rico and the U.S. Virgin Islands. Passengers on international flights (except Canada) remain exempt from first and second baggage fees. US Airways will not implement the new fee until travel on or after 9 July 2008. Domestic, Canadian, Latin American and Caribbean flights will be included in the new US Airways baggage pricing policy. Delta, Continental and Northwest have all stated they will not implement a first bag fee.

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

FAA Opens New East Coast Routes Since 5 June 2008, airlines have had the opportunity to operate routes not previously available due to Federal Aviation Administration (FAA) restrictions. The FAA increased route options in the New York oceanic, Miami oceanic and the San Juan Centre Approach Control airspace. The decision was reached to save money, reduce delays, help the environment and reduce congestion in corridors that are heavily used. The routes provide air traffic controllers with the luxury to offer closer flight paths between aircraft and more efficient flight altitudes that will help to deliver the aircraft to its destination in a timelier manner. Aircraft carbon emissions are expected to decrease by 3.9 million tons and fuel costs between $400 and $700 million over the next 15 years.

Workforce and Fleet Cuts at Major U.S. Carriers In an effort to mitigate rising fuel prices and a weakening economy, American Airlines (AA), Continental Airlines (CA), Delta Airlines (DA), and United Airlines (UAL) all announced strategies to restructure their operations. AA and DA introduced plans earlier this year to reduce their respective workforces by 1,000 and 2,000 employees. In addition to job cuts, AA expects to retire at least 75 aircraft, initiate a US$15 fee for the first piece of baggage after 15 June 2008 and curtail domestic mainline capacity by as much as 12% in the fourth quarter. Similarly, on 4 June 2008, UAL announced a 2-year plan to reduce mainline domestic capacity by 17-18%, downsize its labour force by 1,500 employees and decommission 100 aircraft. CA will eliminate 3,000 positions, reduce its fleet by 67 aircraft through 2009 and decrease domestic mainline capacity by 11% in the fourth quarter of 2008. Each carrier cited the need to increase their competitiveness in an increasingly demanding environment.

Lieberman Warner Climate Security Act Unsuccessful The carbon cap-and-trade program proposed under the Lieberman Warner Climate Security Act failed to gain momentum in the U.S. Senate and was withdrawn from consideration on 6 June 2008. The law, which would have required U.S. airlines to purchase emissions allowances from oil companies beginning in 2012, was a controversial piece of legislation opposed by many domestic air carriers. Under the Act, the Air Transport Association (ATA) estimated that airlines would have had to spend a minimum of $5 billion more for fuel each year. The figure would have doubled to $10 billion per year by 2020. President Bush cautioned that had the bill been supported by the Senate and put to a vote, he would have vetoed it.

Page 17 June 2008

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


INTERVISTAS NEWS Dr. Joe Kelly awarded Charles R. Goeldner Article of Excellence The Journal of Travel Research has awarded the Charles R. Goeldner Article of Excellence to Dr. Joe Kelly and his co-authors, Wolfgang Haider and Peter Williams for their article "A Behavioural Assessment of Tourism Transportation Options for Reducing Energy Consumption and Greenhouse Gases.” The article outlines an approach for examining tourist destination travel mode choices and forecasting the resulting environmental impact of those selections. The article was published in the Journal of Travel Research Vol 45(3): pp 297-309.

Nicole Geitebruegge appointed Senior Project Manager InterVISTAS is pleased to announce that Nicole Geitebruegge will take on the position of Senior Project Manager in the Logistics, Economics and Regulatory practice. Nicole has a Masters equivalent degree in Business and Engineering, specializing in technology management and transportation engineering, from the Berlin University of Technology. She also has one year of PhD studies in Marketing Modeling at the Sauder School of Business at UBC. Nicole will take on increasing responsibility for project management of transportation and logistics projects.

Eugene Chu appointed Senior Project Manager InterVISTAS is pleased to announce that Eugene Chu will take on the position of Senior Project Manager in the Destinations and Customer Experience practice. Eugene joined the Company in 2003 as a Project Analyst in the Economics, Regulatory and Logistics practice at the time, and advanced to Senior Analyst in 2006. In the past three years, Eugene has become more centrally involved in our growing tourism practice at InterVISTAS, and his expertise in the field has been key to our successful delivery of several tourism marketing programs and strategic plans. In his new role Eugene will specialize in projects related to the tourism industry. He will also contribute to a number of other strategic planning and facilitation programs.

Page 18 June 2008

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INTERVISTAS NEWS – CON’T InterVISTAS Upcoming Speaking Engagements Dr. Mike Tretheway, Executive Vice President, Chief Economist • 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.” 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.” John Weatherill, Regional Vice President - Europe • World Low Cost Airline Congress: London, England – 22-23 September 2008 Mr. Weatherill will be leading a workshop on, “Route development covering ASD strategy, analysis and financial incentives” and will present “Building a New Route Business Case.” • World Regional Airports Congress: London, England – 25 September 2008 Mr. Weatherill will be delivering a presentation titled, “Low Cost Long Haul and Regional Airports: Assessing the Opportunities.”

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 Andriulaitis at rob_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 19 June 2008

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CAIR Issue No. 63 - June 2008  
CAIR Issue No. 63 - June 2008  

InterVISTAS report on aviation industry.

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