AIR Issue No. 3 - March 2011

CANADIAN AVIATION INTELLIGENCE REPORT MARCH 2011

IN THIS ISSUE: CEO Update – p 1 Impact of the Earthquake in Japan – p 2 Tourism Industry Update – p 4 Airline Data – p 6 Airport Data – p 9 News – p 10 Asia Report – p 14 European Report – p 15 Washington Report – p 16

InterVISTAS News – p 19

CEO UPDATE March 2011

Welcome to the March 2011 edition of InterVISTAS Consulting Inc.‘s Canadian Aviation Intelligence Report (CAIR). The following are some interesting new projects we are currently working on.

Gerry Bruno CEO

InterVISTAS to Assist with Strategy Implementation at Kilimanjaro International Airport After completing a detailed market size analysis, route development strategy and stakeholder consultations, InterVISTAS will assist in strategy implementation for Kilimanjaro International Airport. This will involve preparation of new route profitability forecasts and business cases, participation in meetings with target airlines, and representation at industry events.

InterVISTAS to Conduct the Region of Waterloo Airport Program Review InterVISTAS has been selected to conduct the Region of Waterloo Airport Program Review. The airport is seeking a detailed review of the administration & operation of the airport, including: Safety/security, Ops & maintenance, Finance/administration and Marketing/communications. In addition, a review of human resources and organizational structure between and within functional areas will also be conducted.

The March 2011 CAIR Line-Up In this month‘s publication, we lead off with an article on the impact of the earthquake in Japan and a recap of 2010 international tourism, followed by our regular monthly columns, which include: 

Asia Report



European Report



Washington Report

We hope you enjoy this issue.

Page 1 March 2011

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Picture

IMPACT OF THE EARTHQUAKE IN JAPAN March 2011

On the morning of 11 March 2011, a 9.0 magnitude earthquake struck Japan which was then followed by a tsunami that brought the country to a halt. Stock markets around the world reacted by unloading Japanese stocks, which led to a 5% drop in the Tokyo Stock Exchange and the Nikkei reaching a 5week low.

Matt Boire Project Analyst

Japanese Airport Impacts The tsunami flowed through Sendai Airport (located in northeast Japan) submerging and debilitating the runway, taxiways, and infrastructure of the airport. Currently, Sendai Airport remains closed and is only being used for humanitarian purposes. Included in the airport shutdown was Narita, Japan‘s main international gateway and Haneda, Japan‘s busiest airport, which were closed for 24 hours and saw air traffic re-routed to Yokota Air Base. Although the disruption in service is measurable, the long run impact on the demand for air services to and from Japan still remains uncertain. Amidst damages estimated by the World Bank in the range of $230 billion, the official death toll surpassing 10,000 people and with 17,000 still missing, and several nuclear reactors on the brink of meltdown, there is still much uncertainty. Disruptions to manufacturing and supply chains, particularly in the electronics and automotive sectors, and in air transportation and tourism sectors provide further challenges.

Japanese Airline Impacts The earthquake and tsunami could not have come at a more challenging time for Japan Airlines. In January 2010 Japan Airlines filed for bankruptcy protection after several years of losses compounded by the slowdown in international business travel following the 2008 financial crisis. As a result of a number of restructuring steps, including raising $3 billion in new loans and capital and reducing its workforce by nearly 40%, Japan Airlines emerged out of bankruptcy protection on 28 March 2011, only two and half weeks after the earthquake and tsunami. Facing reductions in international passenger traffic of 25% and a decrease in domestic air travel close to 28%, Japan Airlines President Mr. Masaru Onishi has a considerable managerial challenge ahead of him. In response to the reduced international demand, Japan Airlines has announced a reduction of 74 weekly flights on 11 international routes. Given the devastation and continued uncertainty surrounding the outcome of the Fukushima Daiichi nuclear power plant, international air travel is expected to be slow to recover.

The earthquake also brought major disruptions for All Nippon Airways, especially on international flights to North America and other Asian destinations. Over 162 ANA flights were cancelled on 11 March 2011, contributing to the 20,000 passengers that were reported stranded at Narita and Haneda. In light of these delays, ANA is waiving fees associated with flight cancellation, refunds or date change on international flights to and from Japan for tickets dated before 16 March.

The falling demand for seats could cause major issues for ANA, especially as ANA moves into April and the tourist season. In the midst of the uncertainty and the damage, ANA is supporting earthquake and relief efforts donating 10 million yen to aid those affected and offering free transport of relief workers and supplies.

Page 2 March 2011

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IMPACT OF THE EARTHQUAKE IN JAPAN – CON’T Rail Impact The tsunami and following electrical crisis also impacted the Shinkansen rail service in Japan, although no derailments occurred on this line. The Shinkansen or ‗Bullet train‘ network suspended operations on 11 March with most lines coming back into operation after 14 March. Since 1992, the Shinkansen have been equipped with Urgent Earthquake Detection and Alarm System, which causes the trains to break automatically in the event of an earthquake, may have prevented any derailment on this network.

After 14 March, shortages of power and concerns over the Fukushima Daiichi nuclear power plant, rail services were reduced with trains running at approximately 30% of their normal frequency. Only within the last week of March has service returned to normal levels after several weeks of disruption.

Going Forward As stories of suffering and loss turned to stories of survival and rescue, the markets have slowly begun to regain confidence. Going forward, it will be important to keep a watchful eye on major Japanese airlines and how they are able to respond to reductions in demand, in particular, Japan Airlines having come out of bankruptcy protection and restructuring and All Nippon Airways.

Page 3 March 2011

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INTERNATIONAL TOURISM IN 2010 March 2011

Eugene Chu Senior Project Manager

2009 was a challenging time for the tourism industry, with international tourist arrivals dropping to below 2007 levels following a decade of almost uninterrupted growth (there was a decline in 2003 due to SARS). However, the recovery started in the last few months of 2009 and has continued through to 2010, which was marked by a number of international mega events including the Winter Olympic & Paralympic Games in Canada, Commonwealth Games in India, FIFA World Cup in South Africa, and World Expo in China.

International Tourist Arrivals Rebound in 2010. 2010 was a much-welcomed year in the world of international tourism with total tourist arrivals reaching 935 million. This is an increase of 6.7% from 2009 and the highest number on record for international tourist arrivals. Data on 2010 international tourism receipts is not complete yet, but preliminary results show that although receipts lagged behind arrivals, it has rebounded as well.

Emerging Markets Continue to the Lead Recovery. One of the key trends over the past decade has been the rapid growth of emerging markets (both as a source market and as a destination) relative to the advanced economies/traditional markets. As a result, the gap in tourist arrivals in advanced economies and emerging markets has been reduced considerably. This was apparent in the 2010 rebound as well.

Mirroring the two speed economic recovery, international tourist arrivals in emerging markets grew by +8.2%, compared to +5.3% for advanced markets.

Specifically, tourist arrivals in North America increased by 7.8% in 2010 to approximately 99 million.

Elsewhere around the world, Europe, Africa and the Middle East experienced growth in tourist arrivals of 3.2%, 6.4%, and 14%, respectively, while the Asia Pacific region recorded growth in tourist arrivals of about 13% - nearly double the world average. China, Taiwan, South Korea and Japan all recorded double digit growth.

Page 4 March 2011

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INTERNATIONAL TOURISM IN 2010 – CON’T International Travel to Canada Increases in 2010. International (non-U.S.) tourist arrivals in Canada increased by 6.8% in 2010 – almost mirroring the growth of international tourist arrivals globally. This was driven by the emerging BRIC countries (Brazil, Russia, India, China), nearly all of which showed double digit growth.1 Growth of arrivals from Mexico and Australia were also notable.

Meanwhile, automobile trips by U.S. residents to Canada decreased by -3.5% while air travel was up 5.7% to 3.7 million visitors.

Looking Ahead – Confidence in the International Tourism Industry. The World Tourism Organization‘s (UNWTO) Panel of Tourism Experts, which includes some 330 specialists from over 100 countries around the world, are bullish about 2011 – most are expecting results to be better than the rebound in 2010. Meanwhile, the UNWTO is projecting growth of 4-5% growth in tourist arrivals for 2011. However, it should be noted that significant risks do remain. This includes continued economic weakness and slow growth in advanced economies, political unrest in the Middle East, and the evolving nuclear crises in Japan, among others.

1

2010 statistics for Russia were unavailable at the time of publication.

Page 5 March 2011

InterVISTAS‘ Canadian Aviation Intelligence Report Copyright ©2011 InterVISTAS Consulting Inc., all rights reserved.

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

February 2011 Air Carrier

Passenger Traffic Revenue Passenger Kilometres % Change % Change over 2010 from 2009

Capacity Available Seat Kilometres

Load Factor

% Change over 2010

% Change from 2009

Change over 2010

Change from 2009

Air Canada1

+3.7%

+9.4%

+7.1%

+14.7%

-2.5pts (to 75.9%)

-3.7pts (from 79.6%)

Domestic

-1.8%

-1.9%

-3.7%

+1.0%

+1.5pts

-2.4pts

International & Charter

+6.1%

+14.7%

+11.8%

+8.2%

-4.0pts

-4.1pts

+12.2%

+22.2%

+10.7%

+20.9%

+1.1pts (to 83.6%)

+1.0pts (from 82.6%)

WestJet

Analysis: Air Canada‘s system-wide traffic increased by +3.7% and available capacity increased by +7.1% in February 2011 compared to February 2010.

Both traffic (-1.8%) and available capacity (-3.7%) of Air Canada‘s domestic sector experienced a decrease year-over-year. Load factor increased (+1.5 percentage points to 79.4%) over the same period.

Air Canada‘s international traffic increased by +6.1% and available capacity grew by +11.8% year-over-year. All regions experienced increases in traffic, except for the Atlantic region (-4.4%).

WestJet reported a growth in both passenger traffic (+12.2%) and available capacity (+10.7%) over February 2011. Its systemwide load factor increased +1.1 percentage points to 83.6% year-over-year.

1

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

Page 6 March 2011

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AIRLINE DATA – U.S. U.S. Airlines Release February 2011 Traffic Figures Airline

1, 2

1

Notes:

Traffic

Capacity

(RPMs – millions)

(ASMs – millions)

2,082 9.0%

2,600 1.4%

80.1% 5.6 pts

604 14.7%

898 13.6%

67.3% 0.6 pts

13,747 1.1%

18,078 1.8%

76.0% 2.3 pts

8,626 2.2%

11,532 3.1%

74.8% 0.7 pts

12,663 1.4%

17,188 6.1%

73.7% 3.4 pts

4,010 4.1%

5,223 5.3%

76.8% 0.8 pts

1,330 2.7%

1,730 0.3%

76.9% 1.8 pts

Load Factor

1. Load factor includes scheduled service only.

2. Results are consolidated for United Airlines and Continental Airlines.

Sources: Carrier traffic reports.

Page 7 March 2011

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AIRLINE DATA – INTERNATIONAL International Airlines Release February 2011 Traffic Figures Traffic

Capacity

(RPKs – millions)

(ASKs – millions)

1

14,665 4.9%

18,902 5.1%

77.6% 0.1 pts

2

12,929 13.1%

18,234 15.7%

70.9% 1.6 pts

7,893 1.2%

11,140 6.0%

70.9% 3.3 pts

7,977 5.1%

10,244 7.2%

77.9% 1.6 pts

6,374 1.0%

8,483 5.4%

75.1% 4.8 pts

4

4,473 22.7%

6,949 23.6%

64.4% 0.8 pts

5

7,360 0.1%

9,520 8.9%

77.3% 6.8 pts

Airline

3

Load Factor

1. Includes Martinair.

2. Includes Lufthansa Passenger Airlines, SWISS, British Midland and Austrian Airlines.

3. Includes Qantas Domestic, QantasLink, Jetstar Domestic, Qantas International, Jetstar International, and Jetstar Asia.

4. Traffic results are for January 2011. February 2011 results are not yet posted.

5. Includes Cathay Pacific and Dragonair.

Page 8 March 2011

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

Vancouver

Montréal

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

2010

January February March 1st Quarter April May June 2nd Quarter July August September 3rd Quarter October November December 4th Quarter

-0.7% 0.0% +4.1% +1.2% +2.7% +8.2% +7.9% +6.3% +7.3% +4.7% +6.8% +6.2% +8.4% +4.7% +3.6% +5.6%

-1.9% +3.4% +3.0% +1.5% +2.3% +7.3% +8.2% +6.0% +4.7% -0.3% +3.0% +2.4% +7.3% +5.8% +3.0% +5.3%

+0.7% +0.9% +3.3% +1.7% +3.6% +9.1% +11.4% +8.1% +7.1% +5.3% +10.3% +7.4% +8.1% +8.2% +6.0% +7.4%

+2.1% +1.0% +5.0% +2.8% +0.1% +7.5% +7.6% +5.0% +5.9% +1.1% +3.3% +3.4% +3.2% +7.8% +0.4% +3.6%

-1.4% -2.7% +1.2% -1.0% -3.8% +3.7% +3.8% +1.1% 0.0% -1.1% +2.1% +0.2% -1.8% +1.2% -2.2% -1.1%

+4.9% +5.4% +8.1% +6.2% +5.0% +3.9% +8.2% +5.7% +6.9% +6.7% +3.9% +5.8% +2.1% +7.1% +5.6% +4.9%

-2.1% -3.6% +1.2% -1.5% -4.4% +1.4% +2.4% -0.2% +2.4% -2.5% +1.9% +0.5% -1.0% +2.2% -0.6% +0.1%

+1.2% +0.9% +5.8% +2.9% +0.5% +5.0% +1.6% +2.8% +6.9% -1.6% -0.2% +1.6% +0.2% +3.9% +7.2% +3.5%

+0.1% -6.8% +4.6% -0.5% -1.6% +1.5% +0.7% +0.2% +0.8% -2.6% -2.8% -1.6% -2.0% -3.6% -3.0% -2.8%

+10.0% -1.3% +4.4% +4.4% +3.4% +0.3% -11.7% -3.0% +3.4% +4.1% -0.5% +2.5% +3.0% -6.1% +2.4% -0.2%

+7.0% +5.8% +5.6% +6.2% +4.9% +9.5% +6.4% +6.9% +2.8% +3.0% +5.1% +3.6% +2.2% +5.0% +3.3% +3.5%

+10.5% +11.7% +13.5% +11.9% +9.7% +11.0% +8.3% +9.6% +11.6% +6.3% +3.6% +7.1% +4.9% +9.5% +14.9% +9.8%

St. John’s +4.6% +4.1% +10.9% +6.8% +9.3% +8.4% +11.2% +9.7% +12.0% +6.0% +1.4% +6.7% +4.4% +6.3% +8.8% +6.3%

2011

January

+5.7%

+3.0%

+8.5%

+0.6%

+0.7%

+3.2%

-2.7%

+4.0%

+1.6%

-1.9%

-4.1%

+3.9%

+1.9%

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

Page 9 March 2011

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NEWS

AIR CANADA TO LAUNCH SERVICES FROM BILLY BISHOP AIRPORT

AIR CANADA UPDATE AIR CANADA TO SUSPEND SERVICES DUE TO HIGH FUEL COSTS On 16 March 2011, Air Canada announced that it will be suspending services in response to high fuel costs.

The carrier will no longer be offering flights from Ottawa to Thunder Bay and Washington Dulles, from Montréal to Washington Dulles, and from Calgary to London, Ontario, Chicago and San Francisco beginning 1 May 2011. In addition, Air Canada has also started incorporating fuel surcharges on particular routes, due to rising jet fuel prices.

FIRST DELIVERIES OF 787 AIRCRAFT DELAYED On 8 March 2011, Air Canada announced that according to Boeing, the delivery of the first five 787 aircraft that the carrier has ordered has been delayed. The orders are now scheduled to be delivered between the fourth quarter of 2013 and the first half of 2014. Initially, the deliveries were scheduled for the latter of half of 2013. Air Canada has placed a total of 37 orders for the 787 aircraft. Boeing has yet to update the carrier with the schedule of deliveries for the remaining orders.

AIR CANADA CARGO SIGNS TWO-YEAR CONTRACT FOR INTERNATIONAL RFS In order to decrease total costs and to improve services, Air Canada signed a two-year contract for international road feeder services (RFS) with the Wallenborn Group. The Wallenborn Group is a leading international road feeder service provider and a high-value cargo transportation company in Europe. It will be handling services for Air Canada in 40 airports, including Frankfurt, London Heathrow, Brussels, Copenhagen, Amsterdam, Oslo and Zurich.

Page 10 March 2011

Air Canada announced that it will be launching its services from Toronto City Centre Billy Bishop Airport on 1 May 2011.

The carrier will offer 15 flights each day from the airport operated by Sky Regional Airlines Inc. using Bombardier Dash 8 Q-400 aircraft. These initial services will include non-stop flights between downtown Toronto and Montreal Trudeau International Airport. Ticket sales for Air Canada‘s services from Toronto Island began on 7 March 2011.

WESTJET UPDATE WESTJET ANNOUNCES CHERYL SMITH AS EXECUTIVE VICE-PRESIDENT & CHIEF INFORMATION OFFICER On 11 March 2011, WestJet announced Cheryl Smith will be serving as the new Executive VicePresident and Chief Information Officer of the carrier. Ms. Smith currently works for Smith and Associates in Virginia, U.S.A. She has 30 years of experience in information technology, working in senior leadership positions for companies such as Ernst & Young, Honeywell Federal Systems, Verizon and KeySpan Energy.

WESTJET SIGNS CODESHARE AGREEMENT WITH AMERICAN AIR LINES On 28 February 2011, WestJet signed a comprehensive codeshare agreement with American Airlines. Under the agreement, WestJet will be allowed to place its code on American Airlines and American Eagle flights from Canada to Chicago O'Hare and Boston, while American Airlines will be allowed to place its code on WestJet flights to 20 Canadian cities.

This will allow WestJet and American Airlines to expand their transborder networks. The codeshare agreement is still pending regulatory approval.

InterVISTAS‘ Canadian Aviation Intelligence Report Copyright ©2011 InterVISTAS Consulting Inc., all rights reserved.

NEWS

WESTJET UPDATE – CON’T WESTJET INTRODUCES NON-STOP SERVICES TO ORLANDO On 20 February 2011, WestJet launched non-stop services to Orlando from St. John's International Airport. The seasonal services will operate every Sunday from 20 February 2011 to 8 May 2011.

WestJet is currently the only carrier to offer services on this route.

U.S. AIRLINES UPDATE AMERICAN AIRLINES LAUNCHES NEW SCHEDULE FOR LONDON EXPRESS SERVICE On 17 March 2011, American Airlines announced that, together with British Airways and Iberia, the carrier is offering a new schedule for express services between London Heathrow Airport (LHR) and New York John F. Kennedy International Airport (JFK). In the new schedule, the three carriers offer the trans-Atlantic flights 15 times daily, with flights offered every hour in late afternoons and evenings from New York to London. The services between the two cities were launched on 27 March 2011.

U.S. AIRLINE EMPLOYMENT INCREASES IN JANUARY According to the U.S. Department of Transportation, the number of full-time equivalent jobs in the overall workforce of the U.S. airline industry increased by +0.4% in January 2011 compared to the same month last year, to a total of 380,949. In December 2010, the U.S .airlines‘ workforce also grew year-over-year. Prior to the growth experienced in December 2010 and January 2011, year-over-year U.S. airline employment growth contracted each month since June 2008.

Page 11 March 2011

SOUTHWEST AIRLINES AND AIRTRAN MERGER RECEIVES APPROVAL On 24 February 2011, Southwest Airlines and AirTran received an approval from the U.S. Federal Aviation Administration (FAA) on the transition plan for the merger between the two carriers. The transition plan indicates that the two carriers intend to operate under a Single Operating Certificate. Southwest Airlines first announced its plans to acquire AirTran in 27 September 2010. The merger is still pending approval from US Department of Justice and AirTran shareholders.

CARGO UPDATE GROWTH OF GLOBAL AIR FREIGHT CONTRACTS DUE TO POLITICAL UNREST According to international air traffic statistics released by the International Air Transport Association (IATA) on 29 March 2011, growth of cargo demand contracted in February 2011 to 2.3% year-overyear, which was 6.4 percentage points less than that of the previous month. Cargo grew 8.7% in January 2011 compared to January 2010.

According to IATA, the significant fall in airfreight growth was mainly due to the political unrest in the Middle East and North Africa.

IBERIA UNVEILS PLAN FOR NEW CARGO HUB AT MADRID-BARAJAS AIRPORT On 28 March 2011, Iberia and Aena unveiled new plans for a $140 million cargo facility, which would become the largest hub for air cargo to and from Latin America. Iberia will be responsible for 60% of the cost of new 39,000m2 facility, with Aena responsible for the remaining 40%. The Madrid-Barajas cargo terminal saw 23% growth in cargo volumes in 2010 over 2009 cargo levels. By 2030, the cargo terminal is expected to grow to 650,000 tonnes per annum.

InterVISTAS‘ Canadian Aviation Intelligence Report Copyright ©2011 InterVISTAS Consulting Inc., all rights reserved.

NEWS

CARGO UPDATE – CON’T GLOBAL AIR CARGO ADVISORY GROUP FINALISE GROUP’S BASIC PRINCIPLES The newly formed Global Air Cargo Advisory Group (GACAG) finalised and signed the group‘s basic principles and objectives at the IATA World Cargo Symposium in Istanbul that occurred 8-10 March 2011. The four founding members of the group, the International Federation of Freight Forwarders Associations (FIATA), the International Air Transport Association (IATA), the International Air Cargo Association (TIACA) and the Global Shippers' Forum (GSF), agreed that air cargo security and e-commerce would be the top priorities of the group. The GACAG will also be addressing issues with regards to customs and trade facilitation and sustainability of the global air cargo industry.

PEOPLE IN THE NEWS CANADIAN AIRPORTS COUNCIL APPOINTS DANIEL-ROBERT GOOCH AS PRESIDENT On 21 March 2011, the Canadian Airports Council (CAC) announced that Daniel-Robert Gooch has been appointed as President of the national airports trade association. Mr. Gooch is currently the CAC Director of Communications and Policy and has been serving the CAC for the past five years. He has 16 years of experience in communications and public affairs, including a position as publisher and editor of the electronic newsletter, Commercial Aviation Today.

Page 12 March 2011

CALLS FOR REVIEW OF ATC STAFFING LEVELS AND PROCEDURES On 28 March 2011, Rep. Brian Higgins (D-N.Y.), called for multiple staffing at major airport air traffic control towers following an incident at Ronald Regan Washington National Airport involving an air traffic controller.

Representative Higgins drew attention to the red flags issued by the National Air Traffic Controllers Association (NATCA) and what they call ―a nation-wide staffing crisis.‖ According to the NATCA, as of March 31, 2009, there were 11,219 fully certified controllers in the U.S., 27% below the jointly authorized FAA and NATC levels from 1998 and a 16 year low.

Congressman Higgins, a member of the Homeland Security and Foreign Affairs Committees, also called for a review of current staffing level procedures.

AIRPORTS UPDATE PM HARPER ANNOUNCES NEW FUNDING FOR JEAN-LESAGE INTERNATIONAL AIRPORT On 16 March 2011 in Québec City, Prime Minister Stephen Harper announced new support for long-term expansion and modernization projects at JeanLesage International Airport. The work will include widening and extending two paved strips, upgrading utilities, and the construction of new taxiways to improve passenger service and cargo capacity at the airport. Funding of this project is made available through the Gateways and Border Crossings Fund, which is intended to provide funding for transportation infrastructure and other initiatives aimed at developing border crossings, gateways, and trade corridors.

InterVISTAS‘ Canadian Aviation Intelligence Report Copyright ©2011 InterVISTAS Consulting Inc., all rights reserved.

NEWS AIRPORTS UPDATE – CON’T

OTHER NEWS

BAA LTD. PLANS $80 MILLION INVESTMENT IN HEATHROW AIRPORT

BILL REQUIRING AIRLINES TO PASS ALONG CANADIAN PASSENGER DETAILS TO U.S. HOMELAND SECURITY PASSES 3RD SENATE READING

On 28 March 2011, BAA‘s chief executive, Colin Matthews announced an investment of 50 million pounds (US$80 million) to improve existing weather and emergency response infrastructures with a goal of never closing because of controlable conditions. Mr. Matthew, acknowledging the role of Heathrow to International travel, said that the resources will go to training and investment to achieve the highest standards of passenger care. British Airways, Virgin Atlantic, and British Midland International will be among three airlines and regulators who will be able to review the proposal in April.

CATSA INTRODUCES NEW INIATIVES TO IMPROVE TRAVEL IN CALGARY The Canadian Air Transportation Security Authority (CATSA) has announced that it will be launching the ‗Trusted Traveller CATSA Security Line‘ for pre-approved, low risk travellers. Also announced is a new line, ‗Family/Special Needs‘ to assist passengers requiring greater assistance and attention.

Page 13 March 2011

On 23 March 2011, Bill C-42 entitled ‗An Act to Amend the Aeronautics Act‘ has passed the third reading in Canada‘s Senate. With Bill C-42, personal information, such as name, gender and birthdate of passengers travelling to the United States or through U.S. airspace can now be shared with the U.S. Department of Homeland Secutiry. This information will be used to determine whether any passengers pose risks to U.S. national security.

IATA DOWNGRADES AIRLINE INDUSTRY OUTLOOK FOR 2011 Amidst political unrest in the Middle East and rising oil prices, the International Air Transport Association (IATA) has downgraded its industry profits outlook for 2011 from $9.1 billion estimated in December 2010 to $8.6 billion, with a predicted net profit margin of 1.4%. This downgrade represents a 46% decline from 2010 profits of $16 billion. Although fuel represents 29% of costs (up 3% in 2010), IATA predicts that growing economies may help airlines offset the rising costs.

InterVISTAS‘ Canadian Aviation Intelligence Report Copyright ©2011 InterVISTAS Consulting Inc., all rights reserved.

THE ASIA REPORT March 2011

IATA calls on Japanese government to support airports and aviation industry

Doris Mak Director, Special Projects

In response to the earthquake and tsunami that affected Japan, the International Air Transport Association (IATA) has been coordinating with the Japanese Government and major United Nations and industry organizations to bring relief supplies and fuel supplies, and to ensure that airlines are receiving the best medical and operational advice. On 18 March 2011, the association also released its first assessment of the impact of the calamity on global air transport. The Director General and CEO of IATA, Giovanni Bisignani, indicated that although it is too early to determine the long-term impacts of the crisis, the short-term impacts would include a decrease in traffic to/from Japan, which is not expected to improve until reconstruction begins in the second half of the year.

Qantas reaches settlement with New Zealand Commerce Commission regarding price fixing activities On 18 March 2011, Qantas announced that it had reached a settlement with the New Zealand Commerce Commission regarding price fixing activities with other international airlines that occurred between 2000 and 2006. As part of the settlement, the Commission will be giving a recommendation to the New Zealand High Court that Qantas pays a fine 50% less than other carriers, equivalent to NZ$6.5 million, for cooperating with the Commission in the investigation of the price fixing case. All other terms of agreement are confidential. The penalty hearing is scheduled for 11 April 2011.

Korean Air increases orders of 747-8 freighter aircraft On 18 March 2011, Boeing announced that Korean Air increased its order of 747-8 freighters by two.

The additional orders are valued at US$639 million. The carrier had already placed an order for five 747-8 freighter aircraft and five 747-8 Intercontinental aircraft. Korean Air‘s current fleet includes 27 freighter aircraft manufactured by Boeing.

Air China to increase fleet size by more than 30 planes in 2011 Air China has plans to increase its current fleet size by more than 30 aircraft in 2011 to meet increasing market demand. The new aircraft will operate on the carrier‘s long-haul international routes and be used on the carrier‘s services to Shanghai. As part of Air China‘s plans to increase its fleet size this year, the carrier has reached an agreement with Boeing for an order of five 747-8 Intercontinental aircraft. The order for the new aircraft is still pending approval from the Chinese government. Air China is the first Chinese carrier to place an order for this aircraft type.

Domestic jet fuel price increases 5.8% in China On 19 February 2011, the Chinese government increased domestic jet fuel prices by 5.8% to CNY6,340 (US$967) per ton due to rising oil prices. With fuel costs comprising 40% of total expenses, on average, Chinese carriers will experience an increase in costs on their domestic routes. China Southern is expected to incur an increase in fuel costs of CNY924 million (US$141 million) annually, while the annual fuel costs of Air China and China Eastern Airlines are expected to be higher by CNY784 million (US$120 million) and CNY809 million (US$123 million), respectively. In response to the increase in jet fuel prices, most Chinese carriers have raised the fuel surcharges on their domestic services.

Page 14 March 2011

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THE EUROPEAN REPORT March 2011

New nonstop services between London Heathrow Airport and two U.S. cities to be offered by Delta Air Lines

Ian Kincaid Vice President, Economic Analysis

After gaining new slots at London Heathrow Airport, Delta Air Lines launched new nonstop services between the airport and two U.S. cities – Boston and Miami – on 26 March 2011. The nonstop transAtlantic flights will be offered daily. Delta began offering services to London Heathrow Airport in 2007, and currently offers 10 daily flights to the airport from the U.S. Other U.S. cities that have services to London Heathrow operated by Delta are Atlanta, Detroit, New York-JFK, and Minneapolis-St. Paul.

EU signs comprehensive aviation agreement with Brazil On 18 March 2011, the European Union (EU) signed a comprehensive aviation agreement with Brazil.

Under the air services agreement, EU airlines will be allowed to operate direct flights between Europe and Brazil, without any restrictions on prices, routes and frequency of flights. The agreement is expected to bring new business opportunities to Brazil by creating better services for passengers and European cargo operators. Approximately 4.5 million passengers travel by air between Europe and Brazil each year and passenger traffic is expected to grow by 335,000 additional passengers during the first year of the agreement. The strategic partnership between the EU and Brazil began in 2007.

Lufthansa to place orders for 35 new aircraft On 16 March 2011, the Lufthansa Supervisory Board granted permission for the carrier to order 35 new aircraft to expand the aircraft fleets of the entire group. Included are orders for 25 Airbus A320neos, five A321neos and five Boeing 777 freighters, which are valued at approximately US$4 billion. The new aircraft from Airbus will be used to operate continental services across Europe for the Passenger Business Group, while the Boeing freighters will be used to meet the growing demand of Lufthansa‘s Logistics business segment. The new aircraft from Airbus and Boeing are expected to be delivered beginning in 2016 and 2013, respectively.

British Airways and American Airlines launched services between Tokyo and London As part of the oneworld alliance, British Airways and American Airlines joined together to launch a new service between Tokyo Haneda Airport and London Heathrow Airport on 21 February 2011.

Oneworld alliance is the only alliance with member airlines that offer flights from Haneda Airport to Europe, with Japan Airlines also offering services from Haneda Airport to Paris Charles De Gaulle Airport. The flights between Haneda Airport and Heathrow Airport will be offered five times weekly.

British Airways already offers daily services to Narita Airport from the U.K. European Union Member States are allowed to impose penalties on airlines for excessive noise In response to a fine imposed on noise made by freighter aircraft operated by European Air Transport (EAT) at Brussels-National Airport, Advocate General Cruz Villalón of the Court of Justice of the European Union (EU) delivered his opinion on 17 February 2011, indicating that Member States of the EU are allowed to impose penalties on airlines for excessive noise, as measured from the ground. He stated that EU rules on maximum noise levels and operating restrictions does not prohibit Member States from imposing fines. However, Villalón‘s opinion is non-binding and the judges of the EU‘s highest court have yet to make a decision on the fine imposed in Belgium.

Page 15 March 2011

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THE WASHINGTON REPORT March 2011

FAA Forecasts Steady Growth in U.S. Airline Traffic FAA‘s annual forecast predicts that air travel will more than double in the next 20 years and will reach the 1 billion passenger mark by 2021, two years earlier than foreseen in last year‘s projection.

Steve Martin Senior Vice President

The agency predicted that the number of passengers traveling on U.S. airlines will increase by 3.5 percent from last year to 737.4 million passengers in 2011. That figure is projected to grow an average of 2.8 percent each year during the remaining forecast period to 1.3 billion by 2031.

Enplanements on international flights will grow nearly twice as fast as the domestic market.

Growth rates for domestic and international traffic, indexed to 2000.

Most growth in aircraft will occur within narrowbodies. FAA projects that the number of narrowbody aircraft operated by U.S. mainline carriers will increase by nearly 1400 between 2010 and 2029. The number of widebody aircraft will increase at a slightly faster rate than narrowbodies, increasing from just over 500 to more than 1200. The increase in regional jet aircraft is expected to be in units with more than 60 seats.

Page 16 March 2011

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THE WASHINGTON REPORT – CON’T

Total landings and takeoffs at FAA-towered airports are forecast to decrease slightly in 2011, and then grow at an average annual rate of 1.6 percent each year, reaching 69.4 million in 2031.

Oil Price Rise Threatens Carrier Revenue, Fares, and Traffic Gains Airlines worldwide face ―a very challenging year‖ as the price of oil rises, even after air-traffic growth accelerated in January, the International Air Transport Association said. Fuel costs have surged amid concern that the turmoil in Libya will crimp supply. IATA estimates that every $1 increase in the perbarrel price of oil costs the airline industry $1.6 billion. In the U.S., the Air Transport Association has reported that a 1 cent increase in a gallon of fuel costs U.S. airlines $175 million annually; a $1 increase in the price of a barrel costs them $415 million.

International scheduled traffic rose 8.2 percent in January, compared with a year earlier, IATA said in a statement. That beat the 5.4 percent growth logged in December when wintry weather in Europe and North America curbed traffic. ―With most major indices pointing to strengthening world trade and economic growth this is positive for the industry,‖ Giovanni Bisignani, IATA‘s chief executive officer, said in the statement. ―But we are all watching closely as events unfold in the Middle East. The region‘s instability has sent oil prices skyrocketing.‖ IATA on Dec. 14 forecast carriers would log net income of $9.1 billion in 2011 based on oil at $84 a barrel. This month, ATA noted that if fuel costs are 45% above last years‘ average (as those costs were in mid-March), U.S. carriers‘ fuel expenses would increase by $9 billion.

Page 17 March 2011

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THE WASHINGTON REPORT – CON’T Carrier respond to rising fuel costs Airlines have responded by raising ticket prices, cutting flights, and adding fuel surcharges on longer flights.

United Continental Holdings Inc. said that it is cutting growth plans for 2011. Its system-wide capacity would remain flat for the year, and it would curb capacity by offering fewer flights on some routes, exiting less-profitable routes and postponing the start of some new flights, such as planned service from Newark, N.J., to Cairo slated to launch this spring. Before the fuel spike, United had planned to boost its international flying by 4.5 percent to 5.5 percent this year, while trimming domestic capacity by 0.5 percent to 1.5 percent. The new plan is for United to increase overseas capacity by 2.5 percent to 3.5 percent and cut domestic flying by 1.5 percent to 2.5 percent. United said it is also studying dropping fuel-inefficient aircraft from its fleet.

Frontier Airlines said Monday it will be ―trimming its operating schedule‖ this spring due to the ―uncertainty of future oil prices.‖ It had previously planned to grow capacity somewhere between 1.5 percent to 2.5 percent for the second quarter of 2011. With the rise in fuel prices, it now plans for capacity to remain unchanged compared to the second quarter of 2010. A Frontier spokesperson said the planned schedule reductions are limited, focused predominately on off-peak travel days, and are mostly limited to day-of-week frequency reductions.

Southwest Airlines is raising ticket prices in response to rising fuel costs. According to CEO and Board Chairman Gary Kelly, the fare increase that went into effect mid-February — $10 round trip — is part of the company‘s effort to pass along fuel costs to customers and maintain a healthy level of profitability for the company. ―Our fuel bill compared to last year, adjusting for some slight changes in capacity, is up $1.3 billion and our earnings last year were up about $550 million,‖ Kelly said. ―So it is a very significant effect, in other words, to incur the kinds of changes in energy prices we‘ve seen.‖ Kelly said the carrier is also focusing on efficiency measures to lower its fuel consumption. The company is also working to increase its fuel efficiency, including implementing new cockpit technology. Efforts to modernize the air traffic control system could save the airline 15 percent or more compared with today‘s consumption levels, he said.

Page 18 March 2011

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INTERVISTAS NEWS Carol Smiciklas Joins InterVISTAS InterVISTAS is pleased to announce that it has engaged Carol Smiciklas as an Executive Consultant effective immediately. Carol, who is based in Toronto, comes to InterVISTAS with 16 years‘ experience with the Greater Toronto Airports Authority (GTAA) where she held various key positions including Manager of Terminal Services, ORAT Manager of the Airport Development Project and SLA/Customer Experience Manager. Prior to GTAA, Carol worked in in-flight services for Air Transat and reservation and sales in the hotel industry.

InterVISTAS Upcoming Speaking Engagements Dr. Mike Tretheway, President, InterVISTAS Consulting Inc., Executive Vice President and Chief Economist, InterVISTAS Group CAC 2011 Conference: Ottawa, ON – 20 April 2011 Dr. Tretheway will be participating in a panel and speaking on ―Piloting through Clear Skies? Putting the Canadian Footing into a Global Context‖.

Marine Pilotage Association: Halifax, NS – 6 July 2011 Dr. Tretheway will be presenting on the status and future of economic and safety regulation, in general, and of marine transport in particular.

Kevin Schorr, Vice President, Air Service Development AAAE/Great Lakes Chapter AAAE 16th Annual National Air Service Conference: Lansing, MI – 10-12 April 2011 Mr. Schorr will be participating in two separate panel discussions/presentations: How to Gain Credibility as an Air Service Development Professional and Airline Marketing Incentives New Standards – Are You in Compliance?

Karla Petri, Manager, Consumer Research 14th Annual Manitoba Aviation Council Conference: Winnipeg, MB – 26-27 April 2011 Ms. Petri will be presenting an overview of global economic and industry trends with a focus on factors that impact Manitoba‘s aviation industry.

Page 19 March 2011

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INTERVISTAS NEWS – CON’T Mark Haneke, Vice President, Network and Strategic Planning Terrapinn Low Cost Airlines World Americas Conference: Miami, Florida – 3-4 May 2011 Mr. Haneke will be participating as a panel moderator on ―Maximizing Passenger Yields with Effective Route Development Strategies‖.

InterVISTAS‘ Canadian Aviation Intelligence Report is a collection of information gathered from public sources, such as press releases, media articles, etc., information from confidential sources, and items heard on the street. Thus, some of the information is speculative and may not materialise.

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