AIR Issue No. 11 - June 2012

JUNE 2012

IN THIS ISSUE: CEO’s Message – p 1

Airline Trends – p.3

Feature Articles – p 3 Regional Updates – p 10 Asia-Pacific  Canada  Europe Latin America  United States

Jet Biofuel – p.5

Airline & Airport Traffic Updates – p 19 Aviation News – p 23 InterVISTAS News – p 30

World Tourism Trends –p.7

CEO’S MESSAGE Welcome to the June issue of the Aviation Intelligence Report.

Gerry Bruno Group Chief Executive Officer

This month we are pleased to announce our participation in the AAAE/IAAE World Conference in Montreal this August 19-22. The American Association of Airport Executives and the International Association of Airport Executives Canada have chosen to focus this year’s conference on the Evolution of the Airport and Air Carrier Industry. John Weatherill from our team will be giving a presentation on global trends in air service development and I will be moderating a panel on how airline alliances and mergers are impacting airports and communities. Other featured speakers include Jim Cherry (Aéroports de Montreal), Lloyd McCoomb, (recently retired from Pearson International), Larry Cox (Memphis-Shelby Airport) and John McCulloch, former CEO of the oneworld alliance.

In this month’s issue we present the second installment of our aviation trends articles. Nicole Geitebruegge reviews trends in airlines in the past decade, and provides some ideas on the coming decade for this sector.

We also feature an article by Geneva Tretheway on the trend in commercial biofuel flights, as well as a look at world tourism trends written by Eugene Chu. We are also pleased to announce three new hires, Julia Green, Wei Jin and Herbert Bremser. You can read about their expertise in our InterVISTAS News section.

We hope you enjoy this issue.

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WHO SHOULD ATTEND          

Airline Executives Airport Directors Attorneys Financial Managers Aircraft Manufacturers Suppliers Concessionaires Government Representatives Educators Industry Consultants

HOTEL INFORMATION Fairmont The Queen Elizabeth Montreal, Quebec, Canada Phone: (514) 861-3511 All attendees will receive a special rate of $169 CDN single/double occupancy.

Reservations must be made by Friday, July 27, 2012, in order to guarantee this rate.

Reservations made after this date only can be honored on a space and rate available basis. To make your hotel reservations, call the hotel directly at (514) 861-3511 or toll free at (800) 441-1414 and identify yourself as part of the AAAE group.

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AGENDA AVAILABLE The agenda is now available for the "Evolution of the Airports and Air Carrier Industry" Conference. IAAECanada and AAAE are pleased to present this new conference, which is focused on the partnership between Airports and Air Carriers.

Specific topics include: 1. What has this Evolution Meant to the Global Community?

2. The Future of Airports and Airlines 3. Airline Alliances 4. Air Cargo Changing Dynamics 5. ICAO Airlines and Airport Safety The cosmopolitan city of Montreal will host this conference, which is scheduled for August 19-22, 2012.

Make your reservations today.

REGISTER NOW

CONTACT INFORMATION Program, Sponsorship & Exhibiting Information Jim Johnson, AAAE (813) 792-1711 Jim.johnson@aaae.org Registration & Hotel Information Brian Snyder, AAAE (703) 824-0500, Ext. 174 Brian.snyder@aaae.org

InterVISTAS’ Aviation Intelligence Report Copyright ©2012 InterVISTAS Consulting Inc., all rights reserved.

GLOBAL AVIATION TRENDS:AIRLINES Not only have airports changed and developed at a very fast speed over the last decade, the airline industry and its business model have also evolved dramatically. How have airlines and their business models been developing over the last decade? What might be the trends in the airline market over the next decade? This article reviews just a few of these trends.

Aircraft Fleet Development Nicole Geitebruegge Senior Project Manager

Deliveries of new aircraft have been increasing since 2003 and are projected to continue this upward trend. Scheduled aircraft deliveries are expected to increase global air capacity and record deliveries of aircraft will drive strong capacity growth which may result in a capacity surplus in some markets, especially in Europe and Asia. Asia-Pacific airlines account for the largest share of aircraft orders.

In terms of New Large Aircraft, we have observed the A380 enter the market in 2007, filling the demand for large widebody aircraft. Other New Large Aircraft are not likely coming in the next decade and it can be expected that the large wide body passenger market will be focusing on Boeing 777 and A380s. For long-haul flights on “thinner” markets, aircraft such as Boeing’s 787 and Airbus’ A350 have entered the market and offer considerably lower operating costs (e.g. fuel costs) than previous generation aircraft.

The regional aircraft market will grow and a new generation of jet engines will enter the market towards the end of this decade.

Airlines around the world are looking for more fuel efficient aircraft not only for environmental reasons but also because fuel accounts for a significant proportion of total airline costs (about 25%).

Even though fuel prices peaked in 2008, they continue to fluctuate and remain uncertain. As such, new aircraft and engine designs have focused on reducing fuel use. New engine technology on larger regional jets (e.g., Bombardier CS-100) will cut aircraft emissions and fuel use by 10-15%. However, emission reductions of up to 40% are possible beyond the upcoming decade. Both Airbus and Boeing will begin delivery of improved products, the B737max and A320neo, with new, more fuel efficient engines (Leap-X engine technology). China, Russia, India and Indonesia will launch new narrowbody aircraft as well. It is expected that these will largely be sold in their domestic markets.

Low-Cost-Carriers (LCCs) LCCs have significantly impacted the airline business model. Since Southwest began operations in the early 1970s, the airline industry has seen rapid expansion of LCCs, especially during the 1990s and 2000s. Broadly, LCCs can be classified into three categories: Classic LCCs, Hybrid LCCs, and Ultra LCCs. While classic LCCs, such as easyJet, exclusively pursue a price leadership strategy to minimize cost and allow for low pricing, Hybrid LCCs such as WestJet and Southwest Airlines pursue a blend of network carrier and LCC models. Ultra LCCs such as Allegiant, on the other hand, are strictly based around low fares and do not offer ‘frills’, they rely mainly on traffic stimulation and generate high proportions of ancillary revenues compared to other types of airlines.

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Since LCCs prefer airport facilities that provide only the essentials, LCCs tend to use secondary or regional airports which are often located some distance away from the city center. LCCs also stimulate Visiting Friends and Relatives (VFR) traffic which tends to be very costconscious.

LCCs will continue to grow and their business models will continue to evolve. Furthermore, LCCs will likely continue to extend their reach and their range of services, for example, start offering intercontinental services or move into the regional market.

Airline Restructuring The airline industry is in a continuous state of restructuring and according to ICAO and IATA, the financial performance of the airline industry is and continues to be volatile. Over the last decade we saw airlines going out of business, or being acquired and restructured. Examples include Zoom, Skybus and Sabena. We have also observed large airlines merging and increased integration with alliance partners through joint ventures and anti-trust immunity, such as with KLM/Air France, United/Continental and Gol/Varig (to name only a few). This trend is expected to continue.

Environmental Issues Greenhouse gas emissions (GHG) and noise are currently the dominant environmental issues facing the airline industry. The increased use of jet aircraft has resulted in increasing noise exposure of communities. Due to the impacts of noise on health, general liveability, and property prices, complaints about noise exposure long have become an issue and there continue to be concerns. To mitigate these concerns, technology improvements (especially in aircraft engines) have dramatically reduced the noise footprint produced by aircraft. IATA estimates that current jet aircraft are about 50% quieter compared to 10 years ago. IATA also projects that a further reduction of 50% could be achieved by 2020. Furthermore, diverse authorities have successfully managed the elimination of noise-sensitive residential areas close to airports.

In terms of GHG emissions, the majority of aviation related emissions come from the combustion of jet fuel. Some governments and organizations have developed measures to decrease greenhouse gas emissions. For example, ICAO has adopted a roadmap for action to reduce CO2 emissions and IATA has committed to a number of targets to reduce emissions including a reduction of emissions to 50% of the 2005 levels by 2050.

Internet and Social Media Google, Apple and the Social Media companies had a dramatic impact on several industries, e.g. music, books, newspapers, and movies. In the airline market, we have seen a shift over the last decade to booking airline fares using the internet via the use of online travel sites. This increasing use of the internet has significantly reduced entry costs for new airlines.

In 2011, Social Media reached almost 1.2 billion users worldwide and a large proportion of air passengers are social media users. Clearly, social media is expected to have great impacts on airlines and the most important development will be the role that social media companies might play regarding the sale and bundling of airline services. Similar to what happened to the music industry, these companies may develop major roles in the airline industry.

Airlines might also see air travel tickets offered via Groupons/Social Shopper deals.

Going forward, the next trend for airlines might involve a change to their business models from transaction processors to solution providers (as Nawal Taneja states in his book, The Passenger Has Gone Digital and Mobile) and offer their passengers a way to customize their flying experience.

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COMMERCIAL BIOFUEL FLIGHTS In February of 2008, Virgin Atlantic successfully flew a Boeing 747 between Amsterdam and Paris to demonstrate the viability of using biofuels in aviation. One of the four engines on the aircraft was fuelled with a mixture of 20% biofuel, derived from coconut and babassu oils, and 80% standard jet kerosene. In the twelve months that followed, Air New Zealand, Continental Airlines, KLM and Japan Airlines completed their own biofuel demonstration flights, using “drop-in” biofuels derived from a variety of plants and algae.

Geneva Tretheway Senior Specialist

The first commercial biofuel flight (i.e., transporting passengers and cargo) was flown by KLM in June 2011. 171 passengers were carried between Amsterdam and Paris on a Boeing 737-800. The fuel was derived from used cooking oil and was mixed with regular jet fuel. Since then, several other airlines have flown commercial flights using a variety of biofuels, including Lufthansa which operated a 6-month test between Hamburg and Frankfurt, and most recently Porter Airlines which flew a Q400 between Toronto and Ottawa with a mixture of Camelina- and Brassica-derived fuels. A table of commercial airline biofuel flights appears at the end of this article.

Some quick facts on jet fuel: The fuels most commonly used in commercial aviation include Jet A and Jet A11. These are kerosenebased fuels, a derivative of petroleum, which are relatively safe to handle thanks to their higher flash point and ignition temperatures (as compared to the more volatile petroleum derivative, methane).

Jet fuel must also have a low freezing point, as it gets very cold at cruising altitude and some petroleum-based products can gel up when exposed to cold temperatures. Several additives are put in jet fuel which improves its use, such as anti-gelling agents, antioxidants, anti-freeze, and anti-static agents, to name a few.

Biofuel, in order to be viable for use in powering a jet engine, must meet strict criteria.

The fuel must remain liquid in the extreme cold temperatures found at cruise altitudes, and must have a high flash point so that it is safe to handle. Currently, biofuel must also work in existing engines, as it would be very costly to develop new engines. Several sources for these “drop-in” fuels are being studied, including:     

Used cooking oil; Babassu nut oil, a palm tree native to the Amazon; Jatropha nut oil, a flowering shrub; Camelina seed oil, grassy plant native to the Mediterranean but grown in other countries; Brassica seed oil, flowering plant related to canola, mustard and cauliflower.

Left to right: cooking oil, babassu palm, jatropha nuts, camelina, brassica.

1

The main difference between these two fuels is that Jet A1 has a lower freezing point and an anti-static additive.

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The process used to extract a useable biofuel from plant oils is similar to that used to transform petroleum into useable fuel. The type of fuel you get is (in a very simplified way) the result of the length of the hydrocarbon chains. In a process called fractional distillation, petroleum is heated to certain temperatures to extract different compounds (or fractions), each with different boiling and vapour points. Varying the temperature of the petroleum will extract different fuels, such as propane, gasoline, kerosene, etc. Each of these fuels has a different hydrocarbon chain length which dictates the volatility of the compound. The smaller the chain, the more volatile the fuel. For example, the shortest hydrocarbon chain is methane (CH4), which is highly flammable. At the other end of the spectrum, paraffin wax has a very long hydrocarbon chain (between C20H42 – C40H82) which gives it the ability to burn very slowly. In case you are wondering, kerosene is around C12H26.

Currently-used biofuels are “drop-in” fuels, meaning they can be mixed with jet kerosene and do not require changes to aircraft engine design. Thus far, commercial airlines have used mixtures containing up to 50% biofuels in their demonstration and commercial flights (a maximum as regulated by the American Society for Testing and Materials – ASTM International). Nearly all of these flights have used the biofuel mixture in only one engine, the other fuelled solely with regular jet fuel. A list of commercial biofuel flights since 2008 appears at the end of this article detailing the type of flight and type of fuel used.

Some of the obstacles to increasing the use of biofuels include the current high cost of production, and the uncertainty surrounding how “green” biofuels really are. The ongoing test flights have shown that biofuels are a viable fuel alternative, but the cost to produce these fuels is still too high to make them practical alternatives. Additionally, IATA’s requirements for biofuels state that they should not be made from food crops, or grown on land needed to grow food crops2. That is, we want to avoid disrupting food production in favour of biofuel production. Several environmental groups have pointed out that the increased interest in oils sourced from rainforests can be destructive to these important ecosystems.3 Crops that use non-arable or fallow land are good candidates to meet IATA’s critera. Brassica is an example of this, as it can be grown in fallow wheat fields. Waste products such as used cooking oil, or other non-agricultural sources such as algae are also being used and do not directly compete with food production.

It is clear that further research and development is required to make a viable, renewable, sustainable fuel source that can replace, or at the very least, supplement petroleum-based jet kerosene.

2

https://www.iata.org/pressroom/facts_figures/fact_sheets/pages/alt-fuels.aspx

3

For example, http://www.guardian.co.uk/environment/2011/oct/05/thomson-biofuels-flight

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Commercial Airline Biofuel Flights Since 2008 Airline

Flight Date

Biofuel source and % biofuel used

Aircraft Type

Flight Type

Notes

Virgin Atlantic Air New Zealand Continental Airlines Japan Airlines TAM Airlines KLM

Feb 2008

Coconut and Babassu Jatropha

20%

Boeing 747

Demo

First commercial airline

50%

Boeing 747

Demo

First South Pacific

n/a

Boeing 737

Demo

First North America

50%

Boeing 747

Demo

First Asia

Nov 2010 Jun 2011

50% n/a

Airbus 320 Boeing 737

Demo Pax (AMS-CDG)

First South America First passenger flight

Lufthansa

Jul 2011

n/a

Airbus 321

Pax (HAM-FRA)

6-month series of flights

Finnair

Jul 2011

50%

Airbus 319

Pax (AMS-HEL)

3 times weekly operation

Interjet AeroMexico

Jul 2011 Aug 2011 Oct 2011 Oct 2011

27% n/a

Airbus A320 Boeing 777

Pax (MEX-TGZ) Pax (MEX-MAD)

First Central America

50% n/a

Boeing 747 Boeing 757

Demo Pax (BHX-ACE)

First China

40%

Boeing 737

Pax (IAH-ORD)

First U.S. passenger flight

Used n/a cooking oil Apr 2012 Used 50% cooking oil ANA & Apr 2012 Used 15% Boeing cooking oil Porter Apr 2012 Camelina and 50% Airlines Brassica Sources: Airline websites, news releases, Wikipedia.

Boeing 777

Delivery

First Mid-East

Airbus 330

Pax (SYD-ADL)

First in Australia

Boeing 787

Delivery

Bombardier Q400

Pax (YTZ-YOW)

First Trans-Pacific; biofuel in both engines First in Canada

Air China Thomson Airways United/ Continental Airlines Etihad Airways Qantas

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Dec 2008 Jan 2009 Jan 2009

Nov 2011

Jan 2012

Jatropha and Algae Algae, Jatropha and Camelina Jatropha Used cooking oil Camelina and Jatropha Used cooking oil Jatropha Jatropha Jatropha Used cooking oil Algae

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INTERNATIONAL TOURISM IN 2011 The global economic crisis resulted in a sharp drop in the demand for travel and international tourism.

However, the marked recovery in the global tourism industry that started in 2010 has continued in 2011. Although significant risks and challenges remain, it is clear that the international tourism industry is trending back towards its pattern of long-term growth. However, the markets driving this growth have shifted. This article examines the growth of tourism in 2011 and the outlook for 2012.

Eugene Chu Senior Project Manager

International Tourism Continues Strong Growth.

2011 was a record year for global tourism as international tourist arrivals reached 982 million while tourist expenditures exceed US$1 trillion. When international tourism expenditures in 2011/10 are converted to constant U.S. dollars, the result is a 7.7% growth rate, compared to 4.6% increase in tourist arrivals yearto-year. This is significant as it suggests that international tourists are not only travelling again, but also spending at a higher rate. It should be noted that the growth of international tourism expenditures outpacing the increase in tourist arrivals could be partly a result of the fluctuations in the value of the U.S. dollar as well relative to other international currencies.

Emerging Markets Continue to Lead Growth.

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.

This trend has continued in 2011. Of note is that in addition to producing a significant volume of tourist arrivals, emerging markets are also generating large amounts of tourism spend. For example, China is now the third largest tourism source market in the world by international tourism expenditures (although it should be noted that much of this spending is currently concentrated in Hong Kong and other destinations in Asia). This trend is expected to continue as these markets continue to grow while challenges in advanced economies such as the U.S. and Europe continue.

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International Travel to Canada Decreases in 2011. On the home front here in Canada, international tourist arrivals declined by 2.4% in 2011 compared to the previous year. Although this was mainly driven by the drop in arrivals from the U.S. (-3.2%) which make up roughly 81% of visitors to Canada, the growth of international travel to Canada from other foreign markets (excluding the U.S.) was relatively weak at 1.5%.4 This compares to a 4% increase in overall visitors to the U.S. which reached a record 62 million plus in 2011.5 Although Canada has strong air links to emerging tourism source markets such as China, the competition for international tourists is only expected to increase as more and more destinations recognize the important contribution of the tourism industry to creating jobs and economic prosperity.

For example, the U.S. has created a national tourism organization, Brand USA, which is embarking on a multi-million marketing campaign ($12.3 million in the next 3 months) to market the U.S. as a tourism destination internationally and here in Canada.6 This not only poses a significant competitive threat to Canada’s international tourism market, but also our domestic travel market due to the relative ease of access to the U.S. for Canadians.

Looking Ahead – Strong Start to 2012 but Risks Remain. According to preliminary statistics from the World Tourism Organization (UNWTO), international tourism is off to a solid start with tourist arrivals increasing by 5.7% in the first two months. However, significant risks and challenges remain.

This includes on-going economic instability in the U.S. and in Europe (both of which are significant tourism source markets), along with continued political unrest in the Middle East, and the always present threat of terrorist attacks and health pandemics. However, the long-term outlook is generally positive for international tourism.

In Canada, the first four months of 2012 have been strong, with international tourist arrivals increasing by 4.9%. This includes a 4.5% increase in arrivals from the U.S. market, and 7.2% increase from other international markets (excluding U.S.). However, this was before Brand USA launched its multimillion marketing campaign in May of this year. A sustained market recovery in the U.S. will help Canada in terms of tourism revenues, but the U.S. also poses a significant threat as a competitive destination for both international visitors and the domestic Canadian travel market.

4

Statistics Canada, International Travel: Advance Information – December 2011.

Office of Travel and Tourism Industries (OTTI), International Visitation to the United States – A Statistical Summary of U.S. Visitation (2011).

5

6

Brand USA news releases.

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ASIA-PACIFIC REPORT Air India’s labour crisis poses questions about the state of the civil aviation industry in India and the fate of the country’s national airline.

Doris Mak Director, Special Projects

Air India and Indian Airlines merged in 2007, but there were significant problems with integration.7 Inter-union rivalry and corporate culture clashes between the two national airlines were evident early on. The issue escalated on Tuesday, May 8th when 220 Air India pilots took mass sick leave in protest of Air India’s intention to provide Boeing-787 Dreamliner flight training to pilots from the one-time Indian Airlines.8 The original Air India pilots, who make up the 500+ member Indian Pilot’s Guild (IPG), fear the proposed training plan will negatively impact their career prospects. The stand-off between Air India management and the striking pilots has proven particularly detrimental. Air India has been forced to cancel upwards of 18 flights a day and has fired 71 pilots since the agitation began.9 The strike has left thousands of passengers stranded and caused significant losses for an already struggling airline.

This strike is a serious blow to Air India’s efforts to escape five years of consecutive deficits. Air India has been surviving on federal funds as a slowdown in air traffic, unprofitable routes, multi-billion dollar aircraft orders (i.e., purchase of Boeing-787 Dreamliner aircraft) and heavy wage bills have drained the national airline. According to India’s Civil Aviation Minister, Ajit Singh, “Air India is in a very bad financial situation. They are not able to pay their employees, have not cleared their airport dues [and] owe billions of rupees to fuel suppliers”.10 What is at stake?

Risk of losing federal funding Air India is at risk of losing a $5.8 billion government bailout should the industrial action continue. The national airline is scheduled to receive $1.3 billion in equity from the government this year, but the fund allocation is linked to the airline’s performance.11 What have the impacts been?

Industrial unrest facing other airlines In the wake of the Air India crisis, other domestic airlines are also facing employee discontent.

Privately-owned Kingfisher Airlines cancelled nearly 17 flights from New Delhi to various domestic destinations on Thursday, May 10th after pilots called in sick. The pilots are said to be protesting against non-payment of salaries.12

7

http://www.moneycontrol.com/news/business/air-india-indian-airlines-merger-wasmistake-ajit-singh-_702530.html

8

http://www.aviationpros.com/news/10711582/20-international-flights-hit-by-ai-pilot-strike

http://india.nydailynews.com/article/3e3f8fc9a8b3b4672565e3f6c0ad4730/air-india-crisis-deepens-sacks-another-25-pilotsroundup 9

10

http://www.deccanherald.com/content/248493/air-india-risks-losing-bailout.html

11

http://www.deccanherald.com/content/248493/air-india-risks-losing-bailout.html

12

http://india.nydailynews.com/article/46f1b35b0181b0d114a1c3fff5fe776c/airlines-advised-not-to-hike-fares-dgca

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Airfares are rising In addition to flight schedule distributions, the pilots’ strike has caused the cost of airfares to rise.

Private airlines are raising fares significantly, reportedly more than doubling ticket prices and forcing passengers to pay extra for seats purchased months ago.13 The Government has issued a strict warning to airlines that action will be taken if fare hikes persist, however, this warning has had little impact.

The problem is bigger than Air India India’s civil aviation industry is suffering under high fuel costs, low fares and a combined debt of $20 billion. Five of the country’s six main carriers are losing money. A government official noted that frequent strikes are creating a bad atmosphere and sending the wrong signals to the international community about the country’s national carriers.14 What happens now?

According to Ajit Singh, the government is open to private investment in Air India.15 Given the country’s status as an emerging market with significant economic growth prospects, numerous parties are no doubt looking to enter the market. Air India has almost a fifth of the domestic market, operating close to 450 domestic and international flights per day. While Air India lacks monetary assets, it has potential value in the form of routes, pilots and other assets16.

13

http://india.nydailynews.com/article/46f1b35b0181b0d114a1c3fff5fe776c/airlines-advised-not-to-hike-fares-dgca

14

http://www.moneycontrol.com/news/business/air-india-indian-airlines-merger-wasmistake-ajit-singh-_702530.html

15

http://www.deccanherald.com/content/248493/air-india-risks-losing-bailout.html

16

http://www.deccanherald.com/content/248493/air-india-risks-losing-bailout.html

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CANADA REPORT The US and Canada will be consulting with stakeholders on facilitating the conduct of cross border business as part of the Beyond the Border Action Plan. We are seeing enhancements to passenger processing that includes a national roll-out of Automated Border Clearance and enhancements to NEXUS. The Economic Action Plan 2012 -2013 (aka the federal budget) bill was tabled on April 28th and went far beyond what was outlined in the budget. In other news, Transport Minister Denis Lebel cements his position as one of Prime Minister Harper’s most influential cabinet ministers and tourism ministers meet to enhance Canada’s tourism potential.

Debra Ward Executive Consultant

Canada and the U.S. Hold Joint Consultations with Stakeholders on Facilitating Cross-Border Business. On 14 May 2012, Canada’s Minister of Citizenship, Immigration and Multiculturalism, Jason Kenney, and U.S. Department of Homeland Security (DHS) Secretary Janet Napolitano announced joint consultations with stakeholders on crossborder business – increasing efforts to facilitate business travel between the U.S. and Canada.

Secretary Napolitano attended the first joint consultation between representatives from several major companies and industry associations in Washington. Minister Kenney attended the joint consultation in Toronto on May 24th. Consultations will be facilitated by the Migration Policy Institute—a non-profit, non-partisan think tank based in Washington, D.C. Stakeholder comments regarding commitments made by the Canadian and U.S. governments to facilitate the conduct of cross-border business in the Action Plan, as well as recommendations for additional improvements, were accepted online until 15 June 2012.

A report on this process will be distributed to stakeholders and will be available on the U.S. DHS and Citizenship and Immigration Canada websites by 31 December 2012 once consultations and the review has been completed.

Beyond the Border Takes Centre Stage at CAN/AM BTA Conference This year’s Canadian/American Border Trade Alliance conference held in Ottawa 6 – 8 May was attended by Aaron Beeson, InterVISTAS’ Manager, Policy, Borders and Security. Focussing on the implementation of the Beyond the Border Action Plan, it featured a high-powered array of speakers from both sides of the border, including Public Safety Minister Vic Toews and U.S. Ambassador to Canada, David Jacobson. It was clear that both governments were committed to the December 2011 Action Plan, stimulating new trade, and facilitating the flow of goods and people across the border.

David Moloney, senior advisor to the Privy Council Office (PCO) and the Canadian lead on the Action Plan, highlighted the need to facilitate the flow of low-risk pre-identified travellers/goods and welcomed input from the participants to ensure the action items are seamlessly implemented. Minister Toews supported this same message and also noted that the ambitious plan is based upon an excellent bi-national working relationship that will enable them to deliver on the action items.

Automated Border Clearance Installed at YUL (ABC) In June 2012, Aéroports de Montréal and the CBSA delivered a major improvement to the international arrivals experience at Pierre Elliott Trudeau International Airport (YUL) with the introduction of Automated Border Clearance kiosks. In advance of a busy summer schedule, the ABC kiosks will enhance the processing capacity of the CBSA by streamlining the return of Canadian passport and permanent resident card holders. As a result of the kiosks, the CBSA is able to increase their ability to process passengers (Canadian and foreign nationals) upon their arrival to YUL. This is particularly important with the busy summer schedule that YUL is expecting and the recent budget constraints imposed on the CBSA by the Economic Action Plan 2012-2013. ABC was initially Page 12 June 2012

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conceived and trialed at Vancouver International Airport and earlier this year (20 April 2012), the CBSA announced its expansion to include other Canadian airports. On behalf of the CBSA, InterVISTAS Consulting supported the national expansion of ABC through the development of the business case that evaluated the existing pilot at YVR and projected the implications of a national airport program roll-out.

Canada and U.S. to Increase NEXUS benefits. The Beyond the Border Action Plan continues to yield positive outcomes, with a joint Canada-U.S. commitment to increase NEXUS benefits.

Announced on 8 May 2012, the commitment includes a streamlined membership renewal process and the launch of a plan to increase membership in the program, which expedites the border clearance process for low-risk, pre-approved travellers into Canada and the United States.

Under these new provisions, Canadian Border Services Agency (CBSA) and U.S. Customs and Border Protection (CBP) will streamline the renewal process by waiving the interview for members who have not had changes to their information and have maintained their low-risk status. Canada and the U.S. also announced that they have begun enrollment blitzes to expedite application processing and launched an outreach and awareness plan to increase membership. A trusted traveller kiosk at Billy Bishop Airport in Toronto was announced earlier this year.

The Government Tabled an Unprecedented Budget Bill on April 28th Bill C-38, the Jobs, Growth and Long-term Prosperity Act, is an omnibus bill, meaning that it will affect a number of existing statutes. The bill was lengthy 417-page tome, and included measures that went far beyond the budget as tabled. Of particular interest: 



The Customs Act is amended to allow the designation of a mixed-traffic corridor if the Minister considers it is necessary in the public interest, of a portion of an access-way that (a) leads from an international border to a customs office designated under section 5; and (b) is used by persons arriving in Canada and by persons travelling within Canada. If applied to air corridors, this could impact international arrivals at CBSA halls, including Transfer Departure Facilities (TDFs), Passenger Information Lists, and more.

The Framework Agreement on Integrated Cross-Border Maritime Law Enforcement Operations between Canada and the United States is implemented.

Details on how the budget, and most especially, fiscal cutbacks, will affect key federal departments and agencies will be known in late May when the Supplementary Estimates (i.e. departmental budgets) are tabled in Parliament.

Minister Denis Lebel Wields Wide Influence in Cabinet. A recent Maclean’s magazine feature confirmed what Ottawa insiders already knew; Denis Lebel, Minister of Transport, Infrastructure and Communities and Minister of the economic development agency of Canada for the region of Québec is one of the most powerful ministers in Prime Minister Harper’s cabinet. He sits on four of the seven key cabinet committees: national security, economic prosperity, and the two central coordinating committees: operations and priorities and planning. According to Maclean’s, the Minister reserves Mondays for transportation issues. However, with his committee positions, it’s fair to say that the decisions and actions he takes every day could have enormous impact on Canada’s transportation systems.

Federal/Provincial/Territorial Tourism Ministers Advance Tourism Opportunities for Canada.

Canada’s tourism ministers agreed to work together to maximize Canada’s visibility to the world, discussing means of improving coordination among governments to achieve this goal. The ministers also received briefings on the Canadian aviation policy framework, the impact of strategically important destinations and attractions, and an update from the Canadian Tourism Commission. They also agreed to explore possible joint participation in a mission to Brazil, a key tourism and trade market, which signed an expanded air service agreement with Canada in August 2011.

Page 13 June 2012

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EUROPE REPORT Lufthansa Receives First Boeing 747-8 Intercontinental Aircraft

Ian Kincaid Vice President, Economic Analysis

Lufthansa received the delivery of the first Boeing 747-8 Intercontinental aircraft, for both the airline and in the world, on 2 May 2012 at Frankfurt Airport, the new aircraft’s home base. At 76.3 metres in length, the new jumbo jet, also referred to as the “Queen of the Skies”, is 5.6 metres longer than the 747-400 and has a capacity for approximately 362 passengers, with eight seats in First Class, 92 seats in Business Class and 262 seats in Economy Class. This new aircraft is equipped with Gent GEnx-2B engines which will allow Lufthansa to reduce its CO2 emissions by 15%, and improvements in the aircraft design will reduce noise emissions by 30%. The first scheduled service for this aircraft was on 1 June 2012 from Frankfurt Airport to Washington Dulles International Airport. The carrier will also be offering services from Frankfurt to Chicago, Los Angeles, New Delhi and Bangalore using the Boeing 747-8 Intercontinental, after Lufthansa receives four additional deliveries of the long-haul aircraft later this year.

Lufthansa was the first carrier to place an order for the Boeing 747-8 Intercontinental aircraft in December 2006, with an order of 20 new aircraft. The remaining aircraft will be delivered to Lufthansa between 2012 and 2015. The Boeing 747-8 will be the second largest aircraft in the carrier’s current long-haul fleet, next to the Airbus A380-800.

International Airlines Group sells BMI Regional to Sector Aviation International Airlines Group (IAG), the parent company of British Airways, signed a binding agreement with Sector Aviation on the sale of bmi Regional, a subsidiary airline of British Airways based at Aberdeen Airport, on 10 May 2012. The Scotland-based holding company, Sector Aviation, purchased bmi Regional for a total of £8 million (equivalent to US$13 million). Included in the sale are all of bmi regional’s owned and leased aircraft. A total of 18 Embraer regional jets comprise the airline’s current fleet, which are operated on scheduled services to 14 destinations in the U.K. and Northern Europe. The deal is still pending approval from the U.K.’s Civil Aviation Authority, but is expected to be completed within two weeks. The transfer of ownership to Sector Aviation will secure approximately 300 jobs at bmi Regional, according to IAG’s chief executive officer, Willie Walsh.

Prior to IAG, bmi Regional was owned by the German carrier, Lufthansa. IAG acquired the regional airline when it purchased the mainline carrier, bmi British Midland, from Lufthansa on 20 April 2012 to strengthen its position at London Heathrow Airport. It also took ownership of another subsidiary airline of bmi, bmibaby. IAG has announced that it will be discontinuing the operations of bmibaby in September 2012, which will place approximately 470 jobs at risk. The remaining operations of bmi will be integrated with that of British Airways. The integration will involve cutting more than 1,000 jobs from the mainline bmi operations.

Page 14 June 2012

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LATIN AMERICA REPORT Two Finalists Named in San Juan Luis Muñoz Marín International Airport Privatization The field of bidders for the privatization of San Juan’s Luis Muñoz Marín International Airport (SJU) was narrowed to two finalists in early May. The transaction initially attracted the interest of twelve bidding consortia, of which six were qualified. Those six consortia submitted indicative bids in March, which the Puerto Rico Public Private Partnership Authority (PPPA) and the Puerto Rico Ports Authority used to determine the two finalists.

Kenneth Currie Executive Vice President

One of the finalists is Grupos Aeropuertos Avance (GAA), and the second is Aerostar Airport Holdings, LLC (AAH). GAA is a consortium headed by Ferrovial Aeropuertos, which operates six airports in the United Kingdom including Heathrow, and Macquarie Infrastructure & Real Assets, the world's biggest infrastructure investment fund with interests in European and Australian airports. AAH is comprised of Aeroportuario del Sureste, which operates nine Mexico airports, and Highstar Capital, which has made investments in airports in Baltimore and the United Kingdom.

The government expects a big upfront payment, with most of the money used to pay off some of the $900 million of outstanding debt issued by Puerto Rico's cash-strapped Ports Authority. They also want improvements to SJU worth $40 million to $60 million in the first five years of the contract as well as long-term investments. The government has indicated that its expectations in terms of facilities investment plans have been exceeded by both GAA and AAH. Puerto Rican officials have indicated they expected to raise $1 billion in an initial payment upon the close of the transaction. The government will also get a percentage of the successful operator's earnings over the life of the fifty-year concession contract.

Binding bids from the two finalists are due July 10, after which one will be selected. Following that, the deal would undergo a Federal Aviation Administration review, a process that could take three months.

Brazil’s Azul and TRIP Linhas Aeras Announce Intention to Merge Azul Linhas Aereas Brasileros and TRIP Linhas Aereas announced their intent to merge on 28 May 2012. The transaction is in the form of a share swap in which Azul’s shareholders will own two-thirds of a holding company proposed for the two airlines, while TRIP’s shareholders will own the remaining one-third. The proposed transaction requires the approval of Brazil’s anti-trust and civil aviation authorities.

If approved, the resultant airline is expected to command a 15% share of the Brazilian domestic market. The merged airline would become the third largest operator in the Brazilian domestic market behind Gol Linhas Aerea Inteligentes and TAM Linhas Aereas, which each command approximately a 40% market share, and ahead of AVIANCA (formerly Oceanair), which would become the fourth largest Brazilian domestic operator.

Azul and Trip have similar fleets, which combined, would include 62 Embraer E-jets, and 50 ATR turbo-props. Azul began operations in 2008 with an initial base at the Viracopos International Airport in Campinas outside of the City of São Paulo, and TRIP has been in operation since 1998. Both airlines have focused efforts on smaller markets that were less favored by Gol and TAM. Their fleets include aircraft smaller than those operated by Gol and TAM, which allow the airlines to efficiently serve these markets.

Page 15 June 2012

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Over the past several years, traffic growth in Brazil has been driven in part by mode shift from intercity bus transportation to air transportation by the country’s growing middle class. TRIP was created by an inter-city bus company that has successfully captured a significant portion of this new market segment flying into smaller markets characterized by rapidly growing personal wealth. Azul’s business plan has focused on stimulating demand through lower fares and a stylish economy class inflight product. The combination of serving up-and-coming markets with a lower-cost product will put pressure on Gol and TAM’s market dominance over the coming years.

The proposed merger of Azul and TRIP continues a trend of mergers in Brazil. Gol acquired certain assets of VARIG, and most recently acquired WebJet. The merger of TAM and LAN Airlines into the LATAM group is expected to be complete this year.

Page 16 June 2012

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UNITED STATES REPORT InterVISTAS Supports Competitive International Service in Houston

Steve Martin Senior Vice President

Earlier this year, Southwest announced plans to launch its first branded international flights from the Houston area beginning in 2015. All of Southwest’s current Houston operations are performed at Houston Hobby (HOU), where it now operates 130 daily flights to domestic locations. Southwest would like to begin international flights to Mexico, the Caribbean, Central America and northern South America after construction of an international terminal and U.S. Customs facility there. All of the region’s existing international flights are handled at Houston’s other airport – Bush Intercontinental (IAH), which is one of United’s largest hubs. Both airports are owned by the City of Houston.

InterVISTAS and partner GRA Inc. analyzed the potential impact of Southwest’s new international service at the request of the Houston Airports System, the local airport authority. This report’s key findings included:  



Houston has international service to 67 markets, of which 50 are in Mexico, the Caribbean, Central America, and northern South America. United and its Star Alliance partners have a nearmonopoly on that service, operating 97% of the seats.

Several other U.S. metropolitan areas have more than one international airport. These include New York, Los Angeles, Miami/Ft. Lauderdale, Washington/Baltimore, Chicago, and the San Francisco Bay area. In each, the international markets have supported more than one carrier and competition between carriers at different airports has lowered fares and grown the air travel market.

New international service at HOU and the resulting competition would generate multiple benefits for Houston area residents, including lower air fares and increased travel options, create over 10,000 jobs across the area, and have a total economic impact of over $1.6 billion annually.

United subsequently commissioned is own study of the effect of Southwest’s new service. United’s study concluded that Southwest’s launching new international service from HOU “will drain passengers from … IAH, resulting in a net loss of 3,700 jobs and $295 million in gross regional product annually in the Houston region.” United also argued that it would lose passenger traffic, forcing some of its operations to become less profitable. United said it would move international flights away from IAH to more profitable airports and routes.

The City was advised by legal counsel that it must "provide reasonable accommodation" to Southwest so the carrier can start international flights out of HOU. The opinion argued that the City is obligated to negotiate with Southwest over a plan to construct a Customs facility and add five gates to Hobby to make it possible for the airline to operate international flights.

Houston Airport System Director Mario Diaz, who supports Southwest's plan, said that the city could reject the proposal only if HOU did not have the capacity to accommodate international flights, if noise or other environmental concerns could not be overcome or if public safety were threatened. Diaz said that none of those conditions apply in this case.

The Greater Houston Partnership – the primary advocate of Houston's business community – announced that it supports Southwest’s plans. This announcement surprised many, because of the connections between the Partnership and United. The Partnership’s immediate past board chairman is Larry Kellner, who was CEO of Continental from 2004 to 2009. The Partnership’s airports task force is chaired by Michelle Baden, United’s managing director for international and state affairs and a registered lobbyist for the airline with the City of Houston.

Page 17 June 2012

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Obituary: Andrew Steinberg Andrew Steinberg, who held two of the most important aviation regulatory positions in Washington, died May 20 at home of complications from ocular melanoma. He was 53.

As assistant secretary of transportation for aviation and international affairs, Steinberg was instrumental in the passage of the historic U.S.-European Union open-skies treaty. Prior to that, he was the chief counsel of the FAA and before joining government was general counsel of Sabre, Travelocity.com and associate general counsel of American Airlines. After leaving the government, Steinberg was a partner in the Washington office of Jones Day, a law firm active in aviation affairs.

Page 18 June 2012

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AIRLINE DATA – ASIA PACIFIC Asia-Pacific Airlines Release Traffic Figures for May 2012 Japan Airlines showed significant improvement in load factors in May, up 13 points on the strength of the 34% growth in passenger traffic that month.

Airline

Traffic (RPKs – millions)

Capacity (ASKs – millions)

Load Factor

9,185 2.2%

11,646 2.0%

78.9% 0.1 pts

7,424 7.1%

9,788 3.9%

75.8% 2.2 pts

4,222 34.0%

6,527 7.1%

64.6% 13.0 pts

8,580 4.5%

10,933 4.2%

78.5% 0.2 pts

1, 2

2

3

Notes:

1. Includes Cathay Pacific and Dragonair.

2. Results are from March 2012 as April 2012 not available at the time of report issue.

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

Source:

Carrier traffic reports

AIRLINE DATA – EUROPE European Airlines Release Traffic Figures for May 2012 Slight improvement in load factors for Air France/KLM and IAG while Lufthansa group showed negligible decline. IAG shows the strongest growth this month in both seats and passenger traffic.

Traffic (RPKs – millions)

Capacity (ASKs – millions)

Load Factor

1

18,119 0.2%

22,436 1.4%

80.8% 1.0 pts

2

17,740 0.9%

22,775 1.0%

77.9% 0.1 pts

3

15,000 6.6%

19,087 5.9%

78.6% 0.5 pts

Airline

Notes:

1. Includes Martinair.

2. Includes Lufthansa Passenger Airlines, SWISS, Austrian Airlines, LH regional airlines, Edelweiss Air, and Germanwings.

3. Performance comprises British Airways (including bmi Mainline, excluding bmi Regional and bmibaby) and Iberia (including Iberia Express).

Page 19 June 2012

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AIRLINE DATA – NORTH AMERICA North American Carriers Release Traffic Figures for May 2012 The major Canadian carriers Porter airlines showed the most improvement in passenger traffic and seat capacity, up 14% and 13% respectively though the airline has a small share of the passenger and capacity markets. WestJet had the most improved load factor on an increase of 4.4 points though Air Canada had the fullest planes with a system load factor of 81.6%.

In the United States, JetBlue and Southwest showed the most activity. JetBlue gained 7% in passenger traffic and 5% in seat capacity, resulting in a 2.2 point increase in its system load factor.

In contrast, Southwest’s lost 3% of its passenger traffic and 1% of its seats resulting in a 1.4 point decrease in load factor. United, American, Delta and US Airways each showed relatively flat results by comparison.

Traffic (RPMs – millions)

Airline

Capacity (ASMs – millions)

Load Factor

CANADA 4,527 1.8%

5,546 2.5%

81.6% 0.6 pts

1,398 7.2%

1,765 1.3%

79.2% 4.4 pts

78.5 14.4%

129.7 12.5%

60.5% 1.0 pts

UNITED STATES

1

3

2

3

Notes:

1.

2.

3.

4.

Source:

Carrier traffic reports.

Page 20 June 2012

2,732 7.4%

3,221 4.6%

84.8% 2.2 pts

18,085 0.3%

21,620 0.4%

83.6% 0.1 pts

11,875 0.4%

14,215 0.6%

83.5% 0.8 pts

16,532 0.6%

19,649 0.9%

84.1% 0.2 pts

5,528 0.9%

6,568 0.3%

84.2% 0.1 pts

8,974 2.6%

11,036 0.9%

81.3% 1.4 pts

Results include American Eagle, Executive Airlines, and American Connection.

Results are combined traffic results for Southwest Airlines and AirTran.

Consolidated results for United Continental Holdings.

Results are for mainline operations which include US Airways Express flights operated by wholly owned subsidiaries PSA Airlines and Piedmont Airlines.

InterVISTAS’ Aviation Copyright ©2012 InterVISTAS Consulting Inc.

2012

2011

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

May June 2nd Quarter July August September 3rd Quarter October November December 4th Quarter

+5.3% +4.6% +5.3% +6.1% +4.9% +5.4% +5.5% +2.0% +3.1% +2.0% +2.3%

+1.5% +1.1% +1.1% +1.8% +3.3% +2.8% +2.7% +0.0% +1.9% +3.9% +2.0%

+5.6% +5.8% +6.1% +7.4% +4.9% + +5.9% +2.6% +3.0% +2.0% +2.5%

+1.8% +0.8% +1.6% +1.2% +3.2% +2.1% +2.2% +0.3% -0.6% +1.7% +0.5%

+2.5% +1.8% +2.5% +4.0% +3.3% +4.1% +3.8% +5.8% +5.4% +4.2% +5.1%

+1.8% +0.2% +1.5% +4.9% +2.6% +6.7% +4.7% +4.7% +7.3% +4.4% +5.5%

-2.4% -0.6% -1.4% +1.5% +4.6% +1.9% +2.7% +2.8% +4.3% +3.8% +3.6%

+0.3% +1.1% +1.6% +0.7% +0.3% +1.7% +0.8% +1.6% +4.7% +2.9% +2.9%

-1.4% -3.4% -3.4% +1.3% +1.4% -2.9% 0.0% -0.4% 0.0% +2.3% +0.6%

-1.6% +1.7% -1.0% -0.1% -2.5% +2.7% -0.2% +1.7% -0.2% +1.0% +0.9%

+0.9% +0.7% +0.4% +4.3% +1.4% +5.2% +3.6% +7.2% +7.0% +3.4% +5.8%

+3.7% -2.1% +2.6% -1.7% -3.3% +4.2% -0.4% -0.9% +3.1% +2.3% +1.5%

Full Year

+1.5% +5.6% +6.9% +2.9%

+5.3% -0.4% +4.9% +5.6%

+1.1% +6.5% +7.6% +4.1%

+3.1% +8.7% +10.1% +5.7%

+3.4% +7.8% +9.4% +6.3%

+0.6%

January February March

+4.7% +5.2% +7.5% +4.4%

+2.5% +3.1% +2.0% +5.8%

-1.0% -0.7% +4.2% 0.0%

-0.1% +1.5% +6.8% +6.3%

+2.5% +7.1% +8.4% +6.8%

+1.9% +2.2% +5.3% +3.8%

1st Quarter April

+5.6% +5.3%

+5.1% +4.8%

+3.4% +2.3%

+6.0% +6.7%

+8.1% +6.6%

+7.8% +6.0%

+3.8% +5.2%

+1.0% +2.1%

+4.8% +3.3%

+7.4% +9.6%

+3.8% +2.9%

+8.5% +9.9% +5.5% +7.9% N/A

Source: Individual airports’ traffic reports. Note: Subject to revision.

Page 21 June 2012

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Summary of Total Year-Over-Year Passenger Traffic Performance at Selected U.S. & International Airports

2012

2011

United States

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

Atlanta

Chicago

+7.5% +4.6% +4.8% +5.6% +5.3% +3.2% +4.8% +2.4% +3.1% +1.2% +2.2% +3.6% +7.3% +7.7% +4.0% +6.1% +4.1%

-0.6% +1.6% +0.3% -1.3% -0.6% +0.2% -0.6% -0.9% -1.9% +2.0% -0.3% -0.4% +1.0% +11.3% +2.5% +4.5% +3.2%

Los Angeles +10.5% +6.0% +7.9% +6.7% +5.1% +6.1% +6.0% +2.7% +3.7% -0.4% +2.0% +4.6% +5.4% +8.2% +6.1% +6.5% +2.6%

International

Dallas

Denver

+0.6% +3.3% +1.1% +3.8% +2.9% +4.9% +3.9% +0.9% +0.7% -1.6% 0.0% +1.6% +0.4% +9.7% +2.6% +4.0% +0.3%

+3.8% +1.5% +2.1% +0.8% +2.3% +0.6% +1.3% -2.4% +1.6% +2.1% +0.3% +1.7% -0.6% +2.5% -1.0% 0.2% N/A

New York JFK +6.5% +1.6% +5.2% +3.0% -3.6% +2.6% +0.6% -0.2% -1.3% +3.7% +1.1% +2.5% +7.2% +12.5% +8.5% +9.2% +7.3%

London Heathrow +11.6% +6.3% +15.3% +2.5% +0.7% +1.4% +1.5% -1.3% -0.5% +14.7% +3.8% +5.5% +2.3% +3.8% +6.9% +4.4% +0.0%

Paris CDG +1.8% +3.2% +9.3% +4.0% +1.1% +4.7% +3.2% +1.3% +2.2% +9.0% +4.0% +4.8% +3.3% +3.6% +5.9% +4.3% +2.9%

Frankfurt

Beijing

+5.8% +4.9% +12.3% +5.2% +2.5% +4.3% +4.0% +2.5% +4.3% +12.2% +5.9% +6.5% +5.5% +0.7% +4.1% +3.5% +2.8%

+7.9% +6.7% +8.4% +3.7% +5.4% +6.7% +5.3% +3.8% +7.2% +2.7% +4.5% +6.4% +5.0% +8.2% +4.2% +5.7% +1.6%

Tokyo Narita -28.4% -24.3% -30.0% -18.4% -12.5% -15.0% -15.3% -13.8% -5.9% +0.4% -6.8% -17.1% +1.4% +3.8% +30.3% +11.1% +51.3%

Mexico City +7.7% +3.0% +5.6% +4.5% +7.0% +29.1% +11.7% +19.6% +20.7% +23.4% +21.3% +9.3% +22.5% +24.0% +19.7% +21.9% +12.2%

Source: Individual airports’ traffic reports. Note: Subject to revision.

Page 22 June 2012

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AVIATION NEWS ASIA-PACIFIC UPDATE MALAYSIAN AIRLINES TO OFFER THE WIDEST SEATS IN THE SKY Malaysian Airlines announced it will fit its new Airbus SAS A380s with first-class seats that are wider than any seats currently available. The seats will measure 40 x 87 inches; larger than a typical single bed mattress. Malaysian Airlines is looking to win over corporate and long-haul travelers, as high fuel prices and competition from budget carrier AirAsia, led to a USD $795 million loss last year.

QANTAS TO SEPARATE INTERNATIONAL BUSINESS Qantas Airways is restructuring in an effort to show its unions, the government and stakeholders that Qantas is serious about fixing its ailing global segment. By separating its lossmaking international business from its profitable domestic operations, Qantas can address its problematic global segment head on.

ASIA-PACIFIC AIRPORTS REPORT DOUBLEDIGIT GROWTH ACI Asia-Pacific reported a 10.9% year-over-year increase in passenger numbers at airports in the Asia-Pacific region (for March 2012). In particular, traffic at Japanese airports has rebounded significantly since the 2011 earthquake and tsunami, with Tokyo Narita Airport reporting the strongest growth at +30.3% followed by Tokyo Haneda (+28.8%) and Osaka Kansai (+20.3%).

JETGO AUSTRALIA SIGNED OFF BY CIVIL AVIATION SAFETY AUTHORITY JetGo Australia is now ready for business after being signed off by the Civil Aviation Safety Authority (CASA). Targeting the lucrative fly-in fly-out mining market, JetGo will run flexible charter services, flying from Brisbane, the Sunshine Coast and Sydney to various mining centres.

Page 23 June 2012

INDONESIA IN NEED OF NEW AIRPORTS Garuda Indonesia has called on the Indonesian government to execute plans to develop the country’s airport infrastructure. Jakarta Soekarno-Halto International Airport is currently operating at capacity. The Indonesian government intends to expand the existing airport and build a secondary airport east of the capital city (Karawang International Airport).

Construction is scheduled to begin in 2015 and be complete by 2019.

SINGAPORE AIRLINES PROFIT SINKS 69% Singapore Airlines (SIA) reported a net income of S$336 million for its fiscal year, a 69% decrease from an S$1.09 billion net income the year prior. SIA reported a fourth quarter deficit of S$38.2 million this past year (from an S$171 million profit the year prior). SIA executives indicated that high fuel prices and an uncertain economy weighed heavily on the airline.

INCHEON RECIEVES TOP HONOUR AT SKYTRAX WORLD AIRPORT AWARDS Incheon International Airport was named the World’s Best Airport 2012 at the Skytrax World Airport Awards in Vienna, Austria. The World Airport Awards recognize achievements in product and service quality across the global airport industry.

SRILANKAN TO JOIN ONEWORLD oneworld has announced that it has elected SriLankan Airlines as its next member. The airline will join the alliance late next year, and adds three new destinations to the alliance’s world-wide route network: Kochi, Tiruchirapalli and Thiruvananthapuram, which are located in southern India.

InterVISTAS’ Aviation Intelligence Report Copyright ©2012 InterVISTAS Consulting Inc., all rights reserved.

SINGAPORE LCC SCOOT TAKES INAUGURAL FLIGHT Scoot’s inaugural flight took place on 5 June 2012 and carried 400 passengers from Singapore (SIN) to Sydney (SYD) after a delay caused by a medical incident. Scoot was launched by Singapore Airlines and will serve the medium- to long-haul market as a low-cost carrier. The airline will initially fly from SIN to Sydney, Gold Coast, Bangkok and Tianjin with plans to add Tokyo and Taipei before autumn. The LCC’s fleet is currently comprised of two Boeing 777s with 402 seats, with more aircraft being added starting next year.

CANADA UPDATE ARRIVALS HALL AT EDMONTON INTERNATIONAL GETS A MAKE-OVER Edmonton International Airport revealed its recently renovated Canada Arrivals Hall. Airport officials hope the upgrade will give foreign travelers a better first impression of Edmonton and ensure capacity needs are met. The new hall is part of a $670million airport expansion project that began in December 2011.

NEW PASSENGER AIR SERVICE TO YVR The Federal Government and the Vancouver Airport Authority announced that Sichuan Airlines initiated passenger service between China and Vancouver starting June 2012. The service will operate three times per week between Chengdu and Vancouver. Chengdu is one of the most important commercial centers in Western China, with a population of 14 million and a booming manufacturing industry. The new passenger service is made possible by the Canada-China Air Transport Agreement. This new route signals Sichuan Airlines’ recognition of YVR as a vital portal between Canada and China.

Page 24 June 2012

AIR CANADA RE-LAUNCHES FLIGHTS BETWEEN ST. JOHN’S AND LONDON Air Canada announced the relaunch of seasonal non-stop service from St. John’s, NL to London Heathrow. Atlantic Canada residents will now be able to quickly and efficiently connect to several European capitals via Air Canada’s Star Alliance partners.

Service will operate until September 30, 2012 and complement Air Canada’s current daily nonstop flights to London Heathrow from other Canadian cities such as Halifax. In 2012, Air Canada will operate 84 flights each week from Canada to London Heathrow.

A RECORD YEAR FOR THE HALIFAX AIRPORT AUTHORITY Last year was a good year for the Halifax International Airport Authority, the operator of the Halifax Stanfield International Airport. Airport passenger traffic increased by 2.5%, cargo activity increased by 2.8%, several capital improvement projects were completed and the airport was profitable. The latest figures indicate that Halifax Stanfield is worth over $1.25 billion to the Halifax economy annually.

WESTJET LAUNCHES DAILY SERVICE FROM VANCOUVER TO CHICAGO O’HARE WestJet announced it will launch daily, nonstop service between Vancouver International Airport and Chicago O’Hare International Airport.

WESTJET FOUNDER INDUCTED INTO THE CANADIAN BUSINESS HALL OF FAME WestJet founder and Chairman, Clive Beddoe, has been inducted to the Canadian Business Hall of Fame. The Canadian Business Hall of Fame recognizes and celebrates the accomplishments of Canada’s most distinguished business leaders.

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AIR CANADA CONSIDERS PREMIUM ECONOMY CLASS Air Canada is considering offering a “premium” economy section with wider seats and more legroom, in addition to its traditional business and economy cabin sections. Air Canada hopes this new seat class will appeal to travelers who want comfort, but are not willing to pay business-class fares. The airline is currently evaluating the additional revenue potential against the costs associated with transforming its airplanes.

WESTJET PICKS BOMBARDIER FOR REGIONAL SERVICE After months of vigorous competition between two well-known aircraft manufacturers, WestJet has decided to order Canadian-built Bombardier Q400 turboprops over French/Italian-built ATR 72-600s. WestJet plans to unveil its new regional routes in early 2013.

The smaller Q400s are ideal for routes to regional markets deemed too small for WestJet’s Boeing 737s.

EDMONTON INTERNATIONAL AIRPORT INSTALLS INDOOR VERTICAL GARDEN Edmonton International Airport has become the first airport to support an indoor vertical garden. The hydroponically-fed wall comprised of 32 species and 8,000 individual plants, is located in the new Stantecdesigned airport terminal. This green wall will add tons of oxygen to the terminal each year while absorbing indoor pollutants.

SAINT JOHN AIRPORT CEO ELECTED TO CANADIAN AIRPORTS COUNCIL Bernie LeBlanc, CEO of the Saint John Airport, has been elected vice chair of the Canadian Airports Council. Mr. LeBlanc is an active member of community and industry associations. He recently completed a stint on the board of the Atlantic Canada Airports Association.

Page 25 June 2012

WESTJET INTRODUCES NEW CARGO WEBSITE WestJet launched a new stand-alone cargo website (westjetcargo.com). The website features include the ability to track and trace cargo shipments individually and in real-time; access up-to-date shipping guidelines, restrictions and embargoes, and request waybills and make claims online.

CBSA ANNOUNCES THE EXPANSION OF THE AUTOMATED BORDER CLEARANCE PROGRAM The Canada Border Services Agency (CBSA) announced the gradual expansion of the Automated Border Clearance (ABC) program to other international airports across the country.

The ABC program provides self-serve kiosks so travelers can scan their own passports and declaration forms before proceeding to border service officers. A pilot program running at Vancouver International Airport revealed the kiosks speed up customs processing and reduce passenger wait times.

AIR NAVIGATION SATELLITE SYSTEM ANNOUNCED BY IRIDIUM AND NAVCANADA

The next generation in air traffic surveillance was announced jointly by Iridium Communications and NAV Canada. Sixty-six satellites, set to be launched between 2015 and 2017, will be equipped with Automatic Dependent Surveillance Broadcast receivers, which will provide world-wide airspace coverage to interested air navigation providers. This system will provide more accurate and more reliable air navigation, and will also allow more efficient aircraft spacing than existing systems, and would augment the next-generation groundbased systems being installed in the U.S. and other countries.

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EUROPE UPDATE UK CONSIDERS SALE OF AVIATION FUEL NETWORK Britain’s Ministry of Defense (MoD) announced it is considering selling its 2,500 km long aviation fuel network in order to generate income for the British government looking to reduce its debt burden. The MoD’s network distributes around 40% of Britain’s aviation fuel and supplies sites such as Heathrow and Gatwick airports. Once sold, the MoD will contract the buyer to continue supplying its sites with aviation fuel.

RYANAIR POSTS RECORD PROFIT, BUT REMAINS CAUTIOUS ON OUTLOOK Despite posting a record annual profit for the fiscal year to March, Ryanair warned high fuel costs and a worsening economic outlook in Europe could cause profits to slip up to 20% in the coming year. The Dublin-based airline, famous for its no-frills service, posted a net profit of $715 million, which represents a 50% year-over-year increase and the highest figure yet for the 27 year old airline. The budget carrier has been on a significant growth run, reporting at least a 25% increase in profit every year since 2009.

However, Ryanair executives predict this strong run will likely come to an end in the coming year.

OPENING OF BERLIN BRANDENBURG AIRPORT DELAYED INDEFINITELY Berlin Brandenburg International Airport (BBI) is intended to replace Berlin’s two existing airports Tegel and Schoenefeld, which are both currently operating at capacity. BBI’s airport operator announced that meeting the revised June 3rd opening date is impossible. The delay is attributed to the terminal’s fire protection system. BBI was originally scheduled to open in November 2011, but terminal modifications caused a six month delay. This latest delay will no doubt cause problems for Lufthansa and Air Berlin, as both airlines planned on accessing additional capacity by summer 2012.

Page 26 June 2012

SCHIPOL LAUNCHES BEHIND THE SCENES TOUR Schiphol Group and Lovers Company have launched a multi-media bus tour to provide visitors with a behind the scenes look at the operations of Amsterdam Airport Schiphol. Tour participants will gain access to restricted areas of the airport and see sights such as the old air traffic control tower, the cargo aprons and the snow clearance fleet. The tour also includes a video presentation, which provides an overview of the history of Schiphol, airport operations, etc.

EU, US AND SWITZERLAND AGREE ON CARGO SCREENING PROCEDURES

In an effort to eliminate redundancy in air cargo screening, the United States, European Union and Switzerland have agreed to mutually recognize each other’s cargo screening procedures. This will streamline the process for Trans-Atlantic air shipments, which will now only have to follow one set of security rules.

NORTHERN EUROPE NAVIGATION SERVICE PROVIDERS FORM COOPERATIVE ALLIANCE Air Navigation Service Providers (ANSPs) in Denmark, Estonia, Finland, Iceland, Ireland, Latvia, Norway, Sweden and the UK have formed the Borealis Alliance, aimed at improving service quality, flight efficiency and reducing environmental impact. The alliance also aims to achieve cost reductions for their users through cooperation with its members. The alliance will undergo an initial proving period through 2013.

Lance Stuart, of the UK’s NATS, will be the alliance’s Executive Director.

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ACI ANNOUNCES AIRPORT ACHIEVEMENT AWARDS Award winners in five categories were announced at the 22nd ACI Europe Annual Congress. Awards were given to airports demonstrating achievement in customer service, retail, security and corporate responsibility. London City Airport (LCY) won in the 1-5 million passenger category, Edinburgh Airport (EDI) won in the 5-10 million category, Hamburg (HAM) won in the 10-25 million category, and Amsterdam (AMS) won in the over 25 million category. A fifth award recognising eco-innovation was given to Manchester Airport (MAN).

LATIN AMERICA UPDATE BRAZIL’S SECOND LARGEST AIRLINE IS CUTTING JOBS Gol Linhas Aereas Inteligentes (Gol), Brazil’s second largest airline, is cutting 1,200 jobs. According to Gol executives, the job cuts are largely by natural attrition, as the airline aims for “orderly” growth. Gol reported a loss in the first quarter, as expenses, (mainly fuel costs) outpaced revenues. Gol is currently reviewing its processes and decreasing capacity, in an effort to streamline operations and manage costs.

A NEW CHAPTER IN THE COMMERCIAL DEVELOPMENT OF TOCUMEN INTERNATIONAL AIRPORT Panama City’s Tocumen International Airport is awarding 27 retail tenders in its North Pier terminal. The business segments that have been opened for bids include sporting goods, specialty goods, Panamanian goods and luxury brands. Tocumen is in the midst of a major expansion program that will see North Pier completed in January 2013, followed by a new Central and South Terminal (first phase due for a 2014 completion).

Page 27 June 2012

MIDDLE EAST / AFRICA UPDATE SAUDI ARABIAN AIRLINES GETS IPO APPROVAL Saudi Arabia’s Capital Markets Authority has approved Saudi Arabian Airlines initial public offering (IPO) of 30% of its catering unit. Investors have been eagerly awaiting this announcement, as this is the first part of the Saudi flag carrier, one of the kingdom’s largest state-owned entities, to be listed.

PALESTINIAN AIRLINES RESUMES FLIGHTS AFTER 7 YEARS Palestinian Airlines has resumed service after being grounded for 7 years due to the worsening IsraeliPalestinian conflict. Now, as Rafah gradually reopens, Gazans are now able to travel and Palestinian Airlines once again has potential customers.

VIRGIN DROPS SERVICE TO KENYA Virgin Atlantic announced plans to withdraw operations between Nairobi and London this September, citing high operating costs and reduced passenger numbers as the reason. Virgin Atlantic launched operations in Kenya in 2007, making Nairobi city its fourth African destination.

Since the launch of the Kenya route, the British Air Passenger Duty has risen by over 100% and fuel costs have increased by more than 50%.

12TH AIRPORT SHOW TAKES PLACE IN DUBAI The Airport Show took place in Dubai from May 22-24. For the past 12 years, the Airport Show has showcased key industry insights and expertise covering all aspects of airport construction, operations, technology and services. With over 210 exhibitioners and a myriad of free seminars, this event is ideal for industry participants who wish to be at the forefront of technological innovations and learn about the large scale projects taking place in the Middle East.

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UNITED STATES UPDATE SOUTHWEST WILL PAY FOR $100M EXPANSION IN HOUSTON Southwest Airlines has committed to pay for $100 million in airport improvements so that international flights can operate from Houston’s Hobby Airport. If the federal government approves the agreement, Southwest will pay to build five new gates and a customs facility, all of which will be owned by the city. Currently, Southwest only operates domestic flights out of Hobby Airport. Southwest believes international service will boost travel through and to Houston, provide lower fares, result in more competition and create jobs.

AIRLINE PROFITS DROP IN 2011 The largest airlines in the U.S. generated $7.1 billion in profits last year, down from $10.5 billion in 2010. Industry experts cite increasing fuel costs over the last year as the reason for narrowing profit margins. In addition, the total collected by airlines from bag fees dropped from $3.39 billion in 2010 to $3.36 billion in 2011. The decline suggests air travelers are packing fewer bags when flying, as the total number of passengers traveling in 2011 actually increased by 1.5% compared to the previous year.

NORFOLK SOUTHERN IS BUILDING AN INTERMODAL FACILITY IN CHAROTTE, NC Norfolk Southern has broken ground on a new intermodal hub for transferring containers between trains and trucks. The intermodal facility is located at the Charlotte Douglas International Airport and will be capable of handling 200,000 lifts per year. The facility will replace the railroad’s existing intermodal facility in downtown Charlotte, North Carolina. With the new facility, Norfolk Southern will be able to handle more intermodal traffic and move more freight from the overburdened highway system and onto the rails. The new facility will cost roughly $92-million, of which $15.7 million will come from federal funds and financial support from the state of North Carolina.

Page 28 June 2012

DELTA ACQUIRES OIL REFINERY Delta Air Lines announced its acquisition of an oil refinery in Trainer, Pennsylvania. This strategic acquisition may provide the airline with a distinct cost advantage.

Delta will be able to cover a large portion of its jet-fuel needs at the major New York airports, potentially at a lower cost than its competitors.

However, there is a risk that the refinery may not be profitable and economic regulations could impact operations.

NEW SMARTPHONE APPLICATION LAUNCHES AT SACRAMENTO INTERNATIONAL AIRPORT HMSHost has introduced a new smartphone application (called B4 You Board) that allows travelers at Sacramento International Airport to order food from airport restaurants and have it delivered to their gate. Once delivered, the food can be taken onto the plane. This mobile application is being touted as an innovative means to improve the travel experience at Sacramento international Airport.

OTHER NEWS BOMBARDIER IS BACK IN BRAZIL Canadian aircraft manufacturer, Bombardier, is rebuilding the estranged trade relationship between Canada and Brazil. Last month, Bombardier opened a monorail factory in Sao Paulo. As part of an $816 million contract to build a new line for city’s rapid transit system, Bombardier will build 53 of the 300 INNOVIA Monorail trains in the Sao Paulo factory.

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AIRBUS DECIDES TO OFFER EXTRA-WIDE SEATS ON NEW A320 AIRCRAFT Leading aircraft manufacturer, Airbus, has decided to offer extra-wide seats on their new A320 aircraft. Currently, A320 economy seats are 18 inches wide, but now 20inch seats are available on each side of the aircraft’s single aisle. Airbus is marketing the extra-wide seats as a potential revenue generator for airlines, as the seats could be marketed as a premium economy product.

NEXUS PROGRAM IMPROVEMENTS WELCOMED BY AIRPORTS

The U.S. Customs and Border Protection and Canada Border Services Agency introduced a series of steps to streamline and expedite applications and renewals in the NEXUS trusted travelers program, as well as increase awareness of the program’s benefits amongst the traveling public. Airports Council International (North America) and its Canadian division, the Canadian Airports Council welcomed the NEXUS program improvements.

DEMAND GROWTH COMPROMISED BY HIGH OIL PRICES The International Air Transport Association (IATA) announced global traffic results for March, showing total passenger demand rose 7.6% and freight demand rose 0.3% compared to March of last year. Given the prevailing economic conditions in Europe, passenger demand is holding up well. However, yields are not keeping pace with the continued very high price of oil.

common type of accident, have decreased from 23 incidents in 2009 to 17 in 2011. Aviation continues to be one of the safest modes of travel.

INTERLINE AGREEMENT ANNOUNCED FOR JETBLUE AND AIR CHINA

JetBlue and Air China have announced their intent to form an interline agreement, subject to government approval. The airlines will connect to each other’s networks at Los Angeles and New York JFK airports starting this fall once they have been granted approval.

CODESHARE AGREEMENT BEGINS FOR WESTJET AND CHINA EASTERN

WestJet and China Eastern have entered a codesharing agreement, with the China Eastern code (MU) placed on WestJet flights starting 1 July 2012 to facilitate connections onto WestJet’s route network.

INTERLINE AGREEMENT FOR VIRGIN AMERICA AND JAPAN AIRLINES

Virgin America and Japan Airlines have announced an interline agreement that would allow the carriers to connect to each other’s networks via San Francisco and Los Angeles airports. The agreement will enable the carriers to seamlessly transfer passengers and baggage on Trans-Pacific routes.

IATA REPORTS 2011 AS SAFEST YEAR IN AVIATION HISTORY The accident rate for Westernbuilt jets was just 0.37 per million flights in 2011, beating the 2010 mark by 39%. IATA has had several audit groups in place which are focused on addressing specific types of accidents, in order to reduce the overall accident rate world-wide. Runway excursions, the most Page 29 June 2012

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INTERVISTAS NEWS The InterVISTAS Group continues to be active in delivering a diverse range of consulting projects around the world and some of the new projects we are working on are listed below:

BelleAir 

Improve revenue management practices for Albania’s leading carrier.

Central Illinois 

Work with Vital Economy to provide high-level economic and land-use planning for ten potential highway improvements.

Comox Valley Airport 

One year contract extension – scope includes air service development, an air fare study and strategic support.

El Paso International Airport 

The City of El Paso selects InterVISTAS as the Air Service Development consultant.

French Caribbean Regional Airlines 

Provide route analysis and business plan.

Garuda Indonesia 

Develop air cargo strategy.

Halifax International Airport Authority 

Update Five-Year Strategic Plan.

Malaysia Airlines and Qantas 

Evaluate the feasibility of a premium airline in Asia.

Port Alberni Port Authority 

Provide economic impact study.

Port Metro Vancouver 

Along with Royal Haskoning’s Ocean Shipping Consultants, develop new container forecasts for the Port.

Singapore Changi Airport 

Provide economic impact study.

Vancouver Convention Centre Sustainability 

Provide sustainability advisory services.

Page 30 June 2012

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INTERVISTAS NEWS – CONT’D InterVISTAS Recent and Upcoming Speaking Engagements Hans Mohrman, Executive Vice President 

2nd International Forum – Airport Development Russia & CIS; Moscow, Russia – 27 – 29 March 2012

Photo of Hans

Hans presented during Session One: Managing Modern Airport Operations: Challenges, Planning & Development.

Kenneth Currie, Executive Vice President 

8th Annual National System Planning Symposium; Galveston, Texas –21 May 2012.

Kenneth spoke on the impact airline mergers, consolidation, and bankruptcies have on airports and their surrounding communities.

George Novak, Director Safety, Borders & Security 

Airports Consultants Council (ACC) Webinar; 21 May 2012.

George spoke on the legal issues and pitfalls in international projects.

Rob Beynon, Vice President, Planning and Development Economics 

International Association of Airport Executives; Victoria, BC – 05 June 2012.

Rob was the luncheon speaker and the topic was the emerging aircraft technology and implications for airports.

Paul Ouimet, Executive Vice President 

Destination Marketing Association International Annual Convention; Seattle, Washington – 16-18 July 2012.

Paul will participate in the forum titled “Potential or Peril: Travel Forecast Forum”

Page 31 June 2012

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InterVISTAS Staff Announcements Herbert Bremser Joins InterVISTAS as Vice President, Airline Practice We are pleased to announce that Herbert Bremser has joined our team as Vice President. Herbert brings extensive experience with Airline Technology. He began his career with Lufthansa and held several IT positions. Later he joined Air New Zealand and worked in senior IT roles. Herbert started Sabre New Zealand, overseeing implementation of their new airline application portfolio. He later joined Amadeus and was responsible for managing their airline business in Distribution, IT Services and E-commerce. He played a key role in migrating Qantas, the Amadeus launch customer, to the new generation passenger services suite, ‘Altea’. His client portfolio included Air New Zealand and Virgin Blue Group. He then pursued a career as an independent consultant to the airline IT industry and dealt extensively with the implementation of complex and large implementation of IT projects. Herbert has strong skills in building successful relationships between suppliers and customers, has led large IT departments of up to 400 staff, and developed IT and business strategies and organizational structures. He holds a double-degree in Business Administration and Engineering from the Technical University in Darmstadt, Germany.

Herbert is based in Auckland, New Zealand and will support both airline IT strategy delivery roles and our business development efforts in Australia, New Zealand and East Asia.

Julia Green Joins InterVISTAS as Project Analyst We are pleased to announce that Julia Green has joined our resource team as Project Analyst in the Vancouver office. Julia is a recent graduate of Simon Fraser University’s MBA program, and also has an undergraduate degree from Queen’s University in Psychology. Her previous work experience includes working as an Account Planner for Media Experts (Vancouver), and she has completed an internship with law firm Fasken Martineau, handling marketing duties. Julia will support all offices and practice groups with analytical, research and writing support.

Wei Jin Joins InterVISTAS as Project Analyst We are pleased to announce that Wei Jin has joined our Air Service Development group as Project Analyst in the Vancouver office. Wei recently completed the Airport Operations Diploma program at the British Columbia Institute of Technology, and spent over four weeks with InterVISTAS in 2011 as part of his internship requirement. Wei also holds a Bachelor of Commerce from the University of British Columbia, with a concentration in Transportation & Logistics and International Business. He brings a strong logistics background having worked with some freight logistics firms previously.

Page 32 June 2012

InterVISTAS’ Aviation Intelligence Report Copyright ©2012 InterVISTAS Consulting Inc., all rights reserved.

InterVISTAS’ 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 provide comments/feedback on the InterVISTAS’ Aviation Intelligence Report, please contact Paul Ouimet at paul.ouimet@intervistas.com or 1-604-717-1800.

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