CAIR Issue No. 76 - January 2010

CANADIAN AVIATION INTELLIGENCE REPORT JANUARY 2010

IN THIS ISSUE: CEO Update – page 1 Triple Bottom Line Analysis – page 2 Airline Market Capitalization – page 4 Canada-China ADS – page 6 The Asia Report – page 16 The Europe Report – page 17 The Ottawa Report – page 18 The Washington Report – page 19

CEO UPDATE January 2010

Welcome to the January 2010 edition of InterVISTAS Consulting Inc.’s Canadian Aviation Intelligence Report (CAIR).

InterVISTAS Chairs the Upcoming 2010 Hamburg Aviation Conference Gerry Bruno CEO

The annual Hamburg Aviation Conference (HAC) will be held in Hamburg, Germany from 10-12 February 2010. This conference has become the major global conference on airport economics and is now in its 13th year. InterVISTAS’ Mike Tretheway is cochair of the conference, his third year at the helm. The conference is organised by the Hamburg Airport in association with InterVISTAS Consulting Inc. Other sponsors include the Centre for Transportation Studies at the University of British Columbia and the German Aviation Research Institute (DGLR).

The theme for this year’s conference is Strategy and Innovation in Aviation: Beyond the current crisis.

One of the key presentations will be given by InterVISTAS’ Chief Executive Officer, Gerry Bruno, and Solomon Wong, Senior Vice President. Their presentation is a forward looking solution to border facilitation on flights from Europe to North America. It is entitled North America – Europe Preclearance: Seamless and Secure Borders for an Open Market. Their message is that Open Skies agreements are poised to open markets for greater competition, thus there is a need to improve clearance of passengers and goods for commercial aviation. Though security and border processes may present barriers, a broader preclearance relationship can enhance management of threats and facilitation of legitimate travel.

The HAC is preceded a day earlier by an airport economics workshop put on by the German Aviation Research Society, of which InterVISTAS is a corporate sponsor. At the workshop, InterVISTAS’ Maike Schmudlach, Manager, Consumer Research and Nicole Geitebruegge, Senior Project Manager will present a paper entitled “Benchmarking Consumer Satisfaction at Airports”. The paper investigates measuring customer satisfaction at airports, and issues in benchmarking such as intangible measures between airports.

Information on the HAC can be found at the InterVISTAS website, or at http://www.hamburg-aviation-conference.de

The January 2010 CAIR Line-Up This month’s publication includes columns on the granting of Approved Destination Status for Canada

by China, a year-end review of airline market capitalisations and updates on current security measures at airports. Our regular columns include:

Asia Report

Europe Report

Washington Report

I hope you enjoy this first publication of 2010!

Page 1 January 2010

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TRIPLE BOTTOM LINE ANALYSIS AND JUSTIFYING AIRPORT INFRASTRUCTURE PROJECTS January 2010

Steven Shovar Project Analyst

During the 2008/2009 economic crisis, both Canada and the U.S. used investment as the primary method to stimulate their respective economies. Both governments introduced significant new spending in 2009 with a focus on projects that were “shovel ready” and would result in immediate economic impact. As a result, many airports found themselves in a position to take advantage of these programs to secure funding for infrastructure developments. This recent push for stimulus funds gave rise to the question regarding the most appropriate methodology for building a business case for airport infrastructure projects.

Airports are complex business entities that offer a variety of interconnected services and facilities at a single location. The fundamental function of an airport is to provide a central location and associated infrastructure for air travel but they often provide services and value to a number of stakeholders, while also having significant impact on their surrounding communities. For example, Schiphol Airport in Amsterdam acts as a multimodal hub for air, road and rail traffic while adding value to the Randstad region and throughout the Netherlands.

In recognition of the broad effects industries like airports have on regions, governments have invested in performing “Full Cost Analyses” designed to put quantitative values to previously considered qualitative-only effects. The Federal Government of Canada released a report on the full cost of transportation in 2008. Both the U.S. and Canadian governments have moved towards Triple Bottom Line (TBL) Analysis based on economic, social, and environmental accounts, as requirements in proposed business cases. Methods in which airports can utilize these accounts in government funding business cases are described below.

Economic Impact Analysis. Economic impacts are often the most important aspect of a TBL analysis as infrastructure programs are targeted towards projects that will see immediate job creation.

As airport infrastructure projects, such as runway extensions, often involve a significant construction period, they are advantaged in being able to demonstrate the immediate creation of jobs and the wages that go with them.

Furthermore, airports have the advantage of supporting important economic sectors such as tourism and trade, both of which are often sectors targeted by government for growth. Projects supporting the growth of traffic at an airport can often be linked to supporting these industries. Demonstrating an effect of job creation into external industries provides a competitive advantage for projects seeking funding.

The economic analysis in a TBL also includes financial impacts. While these can include more obscure measures such as the opportunity costs of land use, an effective way to demonstrate the “repayment” of the funding is through the tax contributions of the jobs created by the project.

Environmental Impact Analysis. TBL analysis must also show that the proposed project will result in no additional negative environmental impacts, outside of the construction period, compared to the status quo. Infrastructure developments designed to incorporate sustainable practices, such as Leadership in Energy and Environmental Design (LEED) building designations, provide an advantage for projects seeking funding. This is because, moving forward, projects that support reduced Page 2 January 2010

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environmental impacts are becoming requirements for certain infrastructure funding programs.

For the actual construction of the project, it is important to demonstrate in the business case that proper mitigation strategies are in place to ensure that the environment is minimally impacted.

Social Impact Analysis. Social benefits are generally not required in most current business cases, however, being able to demonstrate the benefits provide important value to the business case. For airports, demonstrating social benefits can vary from measurable, quantitative impacts such as reducing noise impact to qualitative impacts such as community and First Nations support.

Community support can come from the local or regional City Councils and Chambers of Commerce, while First Nations support can come from local First Nations Bands. First Nations support is particularly important for many regional airports in Canada, as these airports are often located outside of urban areas and expansions can come in contact with First Nations land.

Conclusion. Utilizing a Triple Bottom Line analysis is becoming critical to preparing effective business cases for procuring government infrastructure funding. Its broad scope and use of quantitative and qualitative analysis is particularly useful for airports to demonstrate their impact and importance to surrounding communities and regions as well as supporting complementary industries.

A TBL provides the means to effectively show that the desired infrastructure project will have a far reaching impact that makes it worthwhile to pursue.

Page 3 January 2010

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YEAR END 2009 AIRLINE MARKET CAPITALIZATION January 2010

The 2009 Airline Market Cap Update column in the August 2009 issue of InterVISTAS’ Canadian Aviation Intelligence Report showed significant declines in market capitalisation levels for various air carriers in July 2009 over the previous year. At year end 2009, many air carriers have experienced significant improvements in their market capitalisation levels for year-end 2009 over year-end 2008.

Even those carriers with declining market caps during this recent period were facing fairly modest decreases as compared to the earlier results from mid-2009. Part of this may be explained by the North American stock market rally that began in March 2009.

Connie Chang Senior Analyst

Figure 1: Airline Market Capitalisation by Carrier (US$ billions) 10

Canada

US – Full Service

US – Misc.

International

13%

9

33%

8 7 107%

6 5 379%

4 -14%

3

265% 24% 52%

1

-18%

2%

2

15% -11%

-12%

35%

LAN Chile SA

China Eastern

Alaska Air

US Airways

Southwest

JetBlue

Dec-09

GOL Linhas Aereas

Dec-08

AirTran

United

Delta

Continental

American

WestJet

0 Air Canada

Market Capitalisation ($US billions)

US – Low-Cost

Source: Canadian carriers: Air Canada and WestJet 2008 and 2009 Annual Reports and December 31, 2008 and December 31, 2009 closing prices from Yahoo Finance and globeinvestor.com.

U.S. and International carriers: December 31, 2008 and December 31, 2009 closing prices from Aviation Daily, Aviation Industry Stock Performance, December 2008 and December 2009.

Notes: Prices are in U.S. dollars, except for Air Canada and WestJet which are presented in Canadian dollars. *Northwest Airlines merged with Delta on 31 October 2008; therefore, Delta’s 2008 market cap accounts for the acquisition.

Major Canadian air carriers saw mixed results in their market capitalisation levels, with Air Canada experiencing an 11% decline and WestJet showing a 2% increase in market caps in December 2009 over December 2008. Air Canada ended the year with a market cap of approximately CAD$610 million, while WestJet’s market cap was roughly CAD$1.7 billion as of December 31st, 2009.

Page 4 January 2010

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MARKET CAPITALIZATION – CON’T In the United States, three different classes of air carriers were examined – full service carriers, low cost carriers, and other carriers. Most of the examined U.S. full service carriers saw improvements in their market cap levels: Continental, United and Delta saw market caps increase by 24%, 52% and of 13% respectively, while American experienced a relatively small decrease in its market cap of 14% in December 2009 over December 2008. Similarly, US low cost carriers such as Southwest and AirTran saw market cap increases of 33% and 35% respectively, while JetBlue’s market cap dropped by 18% over the same period. Other U.S. carriers examined include US Airways and Alaska Air, which had mixed market cap results. US Airways’ market cap decreased by 12%, whereas Alaska Air’s market cap increased by 15% over the same period.

For comparative purposes, a few select international carriers were examined and included in Figure 1. Chinese carrier China Eastern experienced market cap growth that more than tripled from USD$740 million to USD$2.7 billion over the period from December 2008 to December 2009. Asian carriers in general were able to raise significant amounts of cash through issuing of debt. More dramatically, Brazilian carrier GOL Linhas Aereas saw more than a four-fold increase, with its market cap level increasing from USD$850 million to nearly USD$4.1 billion over the same period. Chilean carrier LAN Chile SA also experienced a significant increase in its market cap level of 107% (although modest compared to the aforementioned international carriers), increasing from USD$2.7 billion to nearly USD$5.7 billion during the period.

Page 5 January 2010

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CANADA RECEIVES APPROVED DESTINATION STATUS FROM CHINA January 2010

Eugene Chu Senior Project Manager

In December 2009, Prime Minister Stephen Harper made the announcement that the Government of China had granted Canada Approved Destination Status (ADS) during his visit to China. Canada had actually completed a Memorandum of Understanding (MOU) with China for Approved Destination Status in January 2005, but confirmation has been subsequently delayed until now. This column examines the ADS scheme and its implications for Canada’s tourism and air travel industry.

Background. Unlike citizens of democratic countries, Chinese nationals cannot travel at will. For example, outbound travel from China to bordering countries did not officially begin until 1987, when Chinese nationals in the border city of Dandong in Liaoning Province were allowed to travel to the border city of Sinuiju in the Democratic People’s Republic of Korea (North Korea) on day tours.

Outbound travel to non-bordering countries was not officially sanctioned until 1988 – when the State Council of China approved travel by Chinese nationals to Thailand to visit relatives.

In 1997, the China National Tourism Administration (CNTA) drafted a series of provisional measures for administering the outbound travel of Chinese nationals, which was approved by the State Council.

This development provided the foundation for the current Approved Destination Status (ADS) scheme.

What is ADS? ADS is a liberalisation of outbound travel from China (although still restrictive by democratic government standards). Specifically ADS allows: •

Chinese nationals from select geographic regions of China to travel to designated countries for the purposes of leisure travel in a group tour format;

•

designated ADS tour operators from the destination country to work with approved Chinese travel agents to market and organise group tours to the destination; and

•

the destination country to market itself as a leisure travel destination directly to Chinese nationals.

Chinese nationals can travel to non-ADS countries as well for the purposes of business, education visiting friends and relatives (VFR), and leisure - but not in a group tour format.

Who has ADS? Australia was one of the first western countries to receive ADS in 1999 (along with New Zealand). Currently, over 130 countries around the world have received ADS – including the U.S. and most major destinations in Europe, Asia and Africa.

What is the Significance of ADS? For Canada, receiving ADS puts the country as a destination on a level playing field with all the other countries that already have ADS. Although ADS is focused on group tour travel, the significance is that it allows Canada to market itself and its tourism products directly in China (to both ADS group travelers and non-ADS independent visitors). This ability to market directly to the Chinese customer is one of the core benefits of ADS for Canada as a destination.

Page 6 January 2010

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APPROVED DESTINATION STATUS – CON’T

In 2008, outbound travel from China reached 45.8 million person-trips, while international outbound tourism expenditures reached an estimated $36.2 million - 5th overall in the world.1 The World Tourism Organisation expects that China will be the fourth largest outbound travel market by 2020 with 100 million annual person-trips. However, it should be noted that the majority (about 80-90%) of international outbound travel is currently being made to Hong Kong and other destinations in Asia such as Japan, South Korea and Thailand.

ADS Implementation. ADS is a complex bilateral agreement that requires co-ordination from many government departments and agencies from both the destination country and China (e.g., foreign affairs, border services, security, tourism boards, etc.). Based on the experience of other countries that have received ADS, it will likely be mid-2010 before ADS is actually implemented in Canada.

Implications for the Tourism and Air Travel Industry in Canada. In 2008, visits by Chinese nationals to Canada increased by 5.3% to 159,000. Preliminary year-to-date October 2009 data from Statistics Canada shows that China was the only major outbound market to post a year-over-year increase in visitors to Canada in 2009. Visitors from China spend an average of over $1,600 per person-trip to Canada, one of the highest among Canada’s major source markets.2 Although it is difficult to estimate the potential impact of ADS on Chinese travel to Canada, an examination of the experience of Australia – one of the first western countries to receive ADS, may provide some insight into the possibilities.

Australia, which offers a somewhat similar tourism product to Canada, received ADS in 1999. Since then, the number of Chinese visitors to Australia has nearly quadrupled to over 356,000 in 2008. However, Australia was the first nonAsian country to receive ADS so the impact may be higher than can be expected for Canada, especially now that most major destinations around the world already have ADS. The Conference Board of Canada expects that ADS will boost the current level of visitation from China to Canada by about 50% by 2015 to 239,000 annual visitors.

Several airlines have announced plans to take advantage of Canada’s ADS designation. Air Canada has indicated that it plans to add daily non-stop services from Toronto and Vancouver to Beijing and Shanghai on a year-round basis, while Cathay Pacific will add three flights per week between Toronto and Hong Kong (which connects to a network of 17 cities in China via Cathay’s sister airline, Dragonair) starting in March 2010.

However, it is important to realize that outbound international travel is a new luxury for most Chinese nationals, and that it will likely take some time before the full potential of the outbound travel market from China is realized. Any venture into this vast and growing market should be viewed as a long-term investment.

1

World Tourism Organisation (UNWTO).

2

Canadian Tourism Commission. This figure includes the average of all Chinese nationals visiting Canada.

Page 7 January 2010

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AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers December 2009 Air Carrier

Air Canada1 Domestic (Mainline) International & Charter

WestJet

Passenger Traffic Revenue Passenger Kilometres % Change % Change over 2008 from 2007

Capacity Available Seat Kilometres

Load Factor

% Change over 2008

% Change from 2007

Change over 2008

Change from 2007

+3.4%

-3.5%

+4.0%

-6.3%

-0.5pts (to 81.2%)

+2.4pts (from 78.8%)

+1.0%

-1.6%

+2.4%

-1.8%

-1.1pts

+0.2pts

+4.5%

-4.3%

+4.8%

-8.3%

-0.2pts

+3.4pts

+8.1%

+21.9%

+7.0%

+18.4%

+0.8pts (to 81.7%)

+2.4pts (from 79.3%)

Analysis: • Air Canada’s domestic traffic sector grew 1.0% in December 2009 over December 2008, contributing to system-wide passenger traffic growth of 3.4% over the same period. Domestic capacity (+2.4%) grew at a greater rate than domestic traffic, resulting in a decrease in the carrier’s domestic load factor from 81.1% in December 2008 to 80.0% in December 2009.

• Air Canada Mainline’s international sector experienced growth in both traffic (+4.5%) and capacity (+4.8%) in December 2009 compared to December 2008. Only traffic to the U.S. was down for the month (-2.8%), while traffic to the Pacific was up significantly (+15.7%). Although traffic and capacity is up in December 2009, the levels achieved are still well below 2007 levels.

• WestJet reported a system-wide load factor of 81.7%, up 0.8 percentage points in December 2009 compared to December 2008. This was due to growth in traffic (+8.1%) outpacing growth in available capacity (+7.0%).

Air Canada Domestic Mainline

4% 2% 0% -2% -4% -6% -8% -10% -12%

Nov08

Dec

Jan09

Feb

Mar

Apr

May

Dom RPK

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Dom ASK

Air Canada International 10% 5% 0% -5% -10% -15% -20% Nov08

Dec

Jan09

Feb

Mar

Apr

May

Int'l RPK

Jun

Jul

Aug

Sep

Oct

Nov

Aug

Sep

Oct

Nov

Dec

Int'l ASK

WestJet 20% 15% 10% 5% 0% -5% -10% Nov08

1

Dec

Jan09

Feb

Mar

Apr

RPK

May

Jun

Jul

ASK

As of July 2009, Air Canada reports only consolidated results including Jazz.

Page 8 January 2010

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Dec

AIRLINE DATA – U.S. U.S. Airlines Release December 2009 Traffic Figures

1

2

2

Notes:

(RPMs – millions)

(ASMs – millions)

Capacity

Load Factor

2,280 ↑7.5%

2,848 ↑6.6%

80.0% ↑0.6 pts

627 ↑6.6%

883 ↑5.5%

71.0% ↑0.8 pts

5,970 ↑3.0%

7,832 ↓5.8%

76.2% ↑6.5 pts

7,538 ↑6.0%

9,086 ↑2.1%

83.0% ↑3.1 pts

9,207 0.0%

11,238 ↓3.1%

81.9% ↑2.5 pts

10,155 ↓1.6%

12,600 ↓3.3%

80.6% ↑1.4 pts

14,685 ↓7.5%

18,077 ↓8.0%

81.2% ↑0.4 pts

4,488 ↓3.6%

5,661 ↓2.4%

79.3% ↓1.0 pts

1,534 ↑5.3%

1,975 ↑8.2%

77.7% ↓2.1 pts

Traffic

Airline

1. Mainline operations only.

2. Load factor includes scheduled service only.

Sources: Carrier traffic reports.

Page 9 January 2010

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AIRLINE DATA – INTERNATIONAL International Airlines Release December 2009 Traffic Figures (RPKs – millions)

(ASKs – millions)

Capacity

Load Factor

1

16,074 ↓5.1%

20,163 ↓5.5%

79.7% ↑0.8 pts

2

13,423 ↑19.1%

17,534 ↑18.0%

76.6% ↑0.8 pts

8,812 ↓4.0%

11,477 ↓4.2%

76.8% ↑0.1 pts

8,289 ↑3.0%

10,074 ↓2.0%

82.3% ↑4.0 pts

7,113 ↓5.1%

8,689 ↓9.4%

81.9% ↑3.8 pts

4

3,781 ↓4.8%

5,374 ↓16.5%

70.4% ↑8.7 pts

5

8,106 ↑4.0%

9,665 ↓2.0%

83.9% ↑4.9 pts

Traffic

Airline

3, 4

1. Includes Martinair.

2. Includes Lufthansa Passenger Airlines, SWISS from July 2009 onwards, British Midland from Sep 2009 onwards and Austrian Airlines.

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

4. Traffic results are for November 2009 – December 2009 results are not yet posted.

5. Includes Cathay Pacific and Dragonair.

Page 10 January 2010

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2008 2009

Toronto

Vancouver

November

-3.2%

-5.9%

MontréalTrudeau -4.6%

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

-0.1%

+2.7%

-5.6%

-1.3%

-8.5%

+3.2%

-1.1%

+7.4%

+0.6%

St. John’s +4.3%

December

-1.1%

-6.7%

-3.3%

+0.8%

+6.8%

+3.5%

-0.9%

-4.9%

-7.1%

-3.1%

+15.1%

+5.3%

+3.8%

4th Quarter Full Year January

-3.1% +2.6% -4.0%

-5.3% +2.0% -9.6%

-4.0% -0.1% -2.7%

-0.9% +2.0% -4.2%

+5.2% +6.1% -1.7%

-0.3% +6.1% -0.9%

-2.0% +0.1% -1.0%

-4.5% +3.2% -7.5%

-0.1% +3.8% +1.1%

-0.7% +2.1% -8.8%

+11.6% +9.6% +10.5%

+5.4% +5.0% +7.1%

+3.5% +3.2% -0.1%

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

-5.9% -8.8% -6.3% -6.7% -11.9% +12.3% -10.4% -4.9% -5.2% -5.1% -5.1% -1.9% -3.2%

-11.3% -11.3% -10.7% -8.1% -14.6% -16.0% -13.1% -11.7% -9.6% -4.5% -8.9% -6.6% -5.2%

-7.0% -5.7% -5.3% -6.4% -10.4% -7.8% -8.2% -1.5% -2.5% -5.4% -3.1% -3.1% -4.4%

-3.5% -7.7% -5.2% -5.1% -8.3% -6.9% -6.8% -2.5% -1.9% +3.1% -0.7% +0.4% -4.0%

-3.2% -3.7% -2.9% 1.5% -8.5% -9.9% -5.7% -7.5% -7.8% -7.3% -7.5% -6.4% -5.2%

-8.0% -4.1% -4.4% -7.1% -4.5% -6.9% -6.2% -5.5% -4.9% -1.8% -4.1% +1.3% +3.2%

-3.5% -5.2% -3.3% -3.2% -8.1% -8.3% -6.6% -7.6% -5.9% -4.3% -6.0% -4.5% -8.9%

-11.3% -14.3% -11.5% -1.9% -8.4% -7.5% -5.9% -3.0% -3.7% +1.2% -2.1% -1.3% +2.2%

-2.8% -1.2% -1.0% 0.1% -3.4% -4.1% -2.5% -1.9% -3.2% +2.3% -1.1% -2.4% +1.5%

-8.5% -5.5% -7.6% -0.7% -2.9% 11.0% +2.4% +2.0% -1.2% +0.3% +0.3% -4.9% +9.6%

+6.5% -0.1% +5.7% 11.8% -2.0% -1.9% +2.3% +8.0% +3.3% -7.2% +1.3% -5.2% -3.8%

+0.8% -5.1% +0.9% 6.4% -2.8% 1.0% +1.4% +1.2% +5.9% +3.3% +3.5% +0.0% +2.5%

-5.9% -4.1% -3.4% 3.3% 2.0% -4.4% +0.1% +1.5% +2.0% +2.8% +2.1% -2.1% -0.1%

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

Page 11 January 2010

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NEWS AIR CANADA UPDATE TORONTO-COPENHAGEN SERVICE ANNOUNCED Air Canada will launch daily non-stop air service between Toronto and Copenhagen on 24 June 2010. The flight will be operated using a 211-seat B767-300ER.

ST. JOHN’S-LONDON HEATHROW SEASONAL SERVICE ANNOUNCED

AIR CANADA WINS HONOURS FROM BUSINESS TRAVELER MAGAZINE READERS

In the magazine’s annual readership survey, Air Canada won four first place awards, the most by any airline. Readers voted Air Canada first in the following categories: •

Best Flight Attendants in North America;

•

Best In-Flight Services in North America;

•

Best North American Airline for Business Class Service; and

•

Best North American Airline for International Travel.

Air Canada will launch daily non-stop seasonal air service between St. John’s, Newfoundland and London Heathrow Airport. The service will operate between 27 May 2010 and 26 September 2010, using a newly refurbished 120-seat Airbus A319 offering Executive Class and Economy Service.

WESTJET UPDATE

HAPPY VALLEY-GOOSE BAY TO ST. JOHN’S ANNOUNCED

MONTRÉAL-LAS VEGAS SERVICE LAUNCHED

Effective 01 May 2010 Air Canada will launch daily non-stop and year-round service between Happy Valley-Goose Bay and St. John’s, Newfoundland. Flights will be operated by Air Canada Jazz, using 50-seat Bombardier CRJ regional aircraft.

MORE FLIGHTS TO CHINA PLANNED

Air Canada will add daily non-stop service yearround from Vancouver and Toronto to Shanghai and Beijing. Currently these routes only operate three days a week outside of the summer season. The move comes in response to Canada being granted Approved Destination Status from China, on 23 December 2009, allowing Chinese group tours to travel to Canada.

Page 12 January 2010

WestJet launched its new year-round, non-stop service between Montréal and Las Vegas on 17 December 2009. Flights are being offered five-times a week.

VANCOUVER-LIHUE/KAUAI SERVICE LAUNCHED

WestJet launched a seasonal non-stop service between Vancouver and Lihue/Kauai on 16 December 2009. Service is offered twice a week until 01 May 2010.

TORONTO-COZUMEL SEASONAL SERVICE LAUNCHED WestJet launched its new non-stop seasonal service between Toronto and Cozumel, Mexico on 10 December 2009. Service will be offered twice per week until 29 April 2010.

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NEWS WESTJET UPDATE – CON’T SUMMER 2010 SCHEDULE

WestJet unveiled its 2010 summer schedule featuring new routes and expanded services, some of which go into effect as early as 2 May 2010. New routes include the following nonstop services: • • • • •

Vancouver-Kitchener/Waterloo (daily); Vancouver-San Francisco (daily); Edmonton-Kamloops (three times weekly); Edmonton-San Francisco (three times weekly); and Toronto-Puerto Vallarta (once weekly).

Five Canadian cities will also see seasonal routes become year-round, including: • • • •

•

Vancouver to Los Angeles, Puerto Vallarta, and Cancun; Edmonton to Cancun; Calgary to Phoenix, Palm Springs, and Cancun; Toronto to Atlantic City, Miami, Puerto Plata, Bridgetown, Cayo Coco, Varadero, Turks and Caicos, St. Maarten, St. Lucia, and Cancun; and Montréal to Las Vegas and Cancun.

Page 13 January 2010

CANADIAN AIRLINE OF THE YEAR BY MAZATLAN TOURISM INDUSTRY The tourism industry of Mazatlan, Mexico named WestJet the Canadian Airline of the Year at Mazatlan’s annual tourism trade show.

This is the first time WestJet has won this award.

US AIRLINES AMERICAN AIRLINES FINALIZES CODESHARE AGREEMENT WITH BRAZIL’S GOL AIRLINES American Airlines and GOL Airlines have

finalized an agreement to place American’s AA code on GOL’s network of flights within Brazil.

In addition, the two airlines have agreed to allow members of both airlines frequent flyer programs to accrue mileage credit on both airlines.

INTERNATIONAL AIRLINES FLYGLOBESPAN COLLAPSE

Scottish airline Flyglobespan collapsed in midDecember affecting thousands of travellers during the Christmas season. The airline was put under the administration of PricewaterhouseCoopers. The airline operated 10 aircraft and employed approximately 800 staff, most of who will lose their positions.

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NEWS INTERNATIONAL AIRLINES – CON’T ICELAND EXPRESS ADDS WINNIPEG Iceland Express will begin offering twice weekly service to Winnipeg in June 2010. The new service increases the airline’s destinations to 27, including other recently announced services to New York, Milan, Luxembourg, Birmingham, Rotterdam, and Oslo from Reykjavik.

AER LINGUS CUTS BACK GATWICK SERVICE Aer Lingus will cut back operations at its Gatwick base from five to three A320s at the start of the summer schedule. This is in response to anticipated low demand during the first half of 2010. The scale back in planes will result in the closure of 11 of 14 routes that Aer Lingus operates out of Gatwick, effective 31 March 2010.

PEOPLE IN THE NEWS CANADIAN ROCKIES INTERNATIONAL AIRPORT APPOINTS NEW MANAGING DIRECTOR

On 9 December 2009, Mr. Tristen Chernove began his new role as Managing Director of Canadian Rockies International Airport, in Cranbrook, BC. Mr. Chernove began his aviation career with Vancouver International Airport in 2003 as a member of the emergency response team. Most recently he was Operations Controller for the Readiness and Transfer of the new Larnaka International Airport in Cyprus.

FORT MCMURRAY AIRPORT APPOINTS NEW CEO On 19 October 2009, Scott Clements began his new role as CEO of Fort McMurray Airport.

Mr. Clements previously served as CEO of the Edmonton Regional Airports Authority.

CARGO FIRST 747 LANDS AT PRINCE GEORGE AIRPORT On 17 November 2009, a Boeing 747 operated

by Southern Air landed at Prince George Airport to refuel on its route from Hong Kong to Caracas. The refuelling stop is the end result of a $37 million dollar government investment to extend Prince George’s runway into one of the longest in Canada.

OTHER BOEING 787 TAKES FIRST FLIGHT On 15 December 2009, Boeing’s 787 took its first flight from Everett’s Paine Field in Washington State. The flight is the beginning of an extensive testing program to achieve FAA certification. The flight was over two years later than originally planned.

BOEING 787 SETS CABIN AIR QUALITY MILESTONE

The Boeing 787 will pump fresh cabin air from a source away from the engines becoming the first plane to do so since the 1950s. Since 1963, all commercial aircraft have drawn air through the engines and into the cabin. This method can lead to engine toxins entering the cabin air.

Page 14 January 2010

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NEWS OTHER – CON’T BAA WINS APPEAL OVER AIRPORT BREAKUP RULING Airport operator, BAA Ltd., won its appeal over a UK government ruling forcing it to sell three of its airports. BAA owns seven airports in Britain including London’s Gatwick and Stansted. In March, the British Competition Commission ruled that BAA had a monopoly over Britain’s main airports and must sell three of them. BAA had previously agreed to sell Gatwick to US investment fund Global Infrastructure Partners. The impact of this ruling on the sale of Gatwick is unknown.

AIRBUS TOPS BOEING IN 2009 DELIVERIES AND ORDERS

Airbus announced that it finished 2009 with 498 plane deliveries and 310 orders. The A320 contributed 402 of these deliveries. This put Airbus ahead of Boeing for the year, who delivered 481 planes and had 263 orders in 2009.

SUNWING TRAVEL GROUP AND FIRST CHOICE CANADA FORM NEW TOUR OPERATOR

Sunwing Travel Group and First Choice Canada announced that all necessary regulatory approvals for amalgamating their Canadian tour operators have been received. The deal has been completed and the new tour operator will be headquartered in Toronto. The combined operation is expected to generate CAD$900 million in annual sales, this compares to CAD$2.5 billion expected from AirTransat Holidays.

Page 15 January 2010

HARPER CABINET SHUFFLE FOCUSED ON ECONOMIC AND SECURITY PORTFOLIOS

On 19 January 2009, Canadian Prime Minister Stephen Harper shuffled many key cabinet members in regards to Economic and Security based positions. Key changes include: •

Public Safety Minister Peter Van Loan will become International Trade Minister;

•

International Trade Minister Stockwell Day has moved to the Treasury Board but retains responsibility for the AsiaPacific Gateway;

•

Treasury Board Minister Vic Toews has moved to Public Safety Minister;

•

Defence Minister Peter McKay’s responsibilities for the Atlantic Gateway have been taken over by Keith Ashfield, current Minister of State for the Atlantic Canada Opportunities Agency and new national Revenue Minister; and

•

Transport Minister John Baird remains in his position.

CANADA REVISES VISIBILTY RULES AT AIRPORT The International Federation of Air Line Pilots’ Association (IFALPA) has released revisions and clarifications that went into effect on 17 December 2009, regarding visibility limits for arrivals and departures due to confusion stemming from those previously put into effect on 12 March 2009. The previous regulations led to confusion as air traffic control would still issue taxi clearance if visibility conditions were below minimum requirements.

This made it possible for flight crews to illegally operate aircraft. The revisions explain how limits are calculated, in order to ensure that pilots are following regulations.

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The 2010 Hamburg Aviation Conference

Strategy and Innovation in Aviation: Beyond the current crisis

10 – 12 February 2010 Steigenberger Hotel Hamburg, Germany

In association with

University of British Columbia Centre for Transportation Studies

Deutsche Gesellschaft fĂźr Luft- und Raumfahrt

THE ASIA REPORT January 2010

Japanese Airlines (JAL) Files for Bankruptcy Protection

Doris Mak Director, Special Projects

Japanese Airlines filed for bankruptcy protection on 19 January 2009, prior to defaulting on US$740 million worth of bonds. It is Japan’s fourth largest bankruptcy ever and largest non-financial company bankruptcy, with the company having over US$25.4 billion of liabilities. The airline said it will continue operations, although significant cuts are expected in routes, planes, and staff. Delta and American Airlines were rumoured to be interested in bailing out JAL, American Airlines wanted to keep it in the Oneworld Alliance, while Delta was trying to switch it to the SkyTeam Alliance.

Asia-Pacific Airline Shares Outgrow World Average Global airline equity prices finished the year up 25% driven by an 11% increase in December. AsiaPacific airlines were a major contributing factor to the rise, growing 35% compared to an average of 14% for airlines in the U.S. and Europe. The airlines were able to raise US$25 billion in cash by issuing debt and US$5 billion in equity. In the third quarter, approximately 100 major airlines had a cumulative profit of $0.9 billion.

However, IATA warned that the late year improvements will not stop the airline industry from experiencing the largest drop in revenues ever seen. Fuel prices continue to be a major concern, finishing 2009 up 44%. In spite of stabilizing traffic and freight demand, airlines continue to be wary of adding capacity.

Tiger Airways Moves Delivery Dates Forward Singapore based airline, Tiger Airways, has moved forward the delivery date of five Airbus A320s by five years. The aircraft were originally to be delivered in 2016, but will now be delivered in the first part of 2011. Tiger Airways’ current fleet includes 17 A320s, with plans to expand to 68 by late 2015.

The airline is pursuing aggressive growth in the Australia and Asian markets despite the current difficult conditions in the industry. In Southeast Asia, the airline is expecting that continued liberalisation of the aviation industry will lead to rapid regional growth. In Australia, the airline is expecting to use its low prices to increase market share.

Australian Discount Domestic Airfares Cut 35% According to the Australian government’s airfare index, the cheapest January domestic Australian discount fares have dropped 35% compared to December peak fares. The fares are also 6% lower than January 2009 fares. Airfares are regularly cut in January as it is one of the slowest times for travel during the year. The cuts are designed to increase local tourism which has struggled due to low international fares and a high Australian dollar, which has led to more Australians taking their vacations abroad.

Australia proposes noise ombudsperson A December 2009 White Paper outlining a new aviation policy proposes the creation of a noise ombudsperson to give airport neighbours an independent arbiter for noise complaints. The ombudsperson would be established by Airservices Australia, the operator of Air Traffic Control Services.

The paper also proposes restrictions on the operation of older aircraft which are “marginally compliant” with ICAO Chapter 3 noise regulations. These restrictions may include time of day restrictions and confinement to certain runways. The government seeks to have aircraft meet ICAO Chapter 4 criteria.

Page 16 January 2010

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THE EUROPE REPORT January 2010

BA Cabin Crew Second Strike Vote Set for 22 January Trade union Unite has informed its BA members that it plans to hold a second strike ballot on 22 January 2010. The first vote saw 92% vote in favour on industrial action, with an 80% voter turnout.

However, BA was able to injunct the vote, which was ruled unlawful, as approximately 900 ineligible cabin crew voted. These crew members were ruled ineligible to vote, as they had previously applied for voluntary redundancy, meaning they would actually be working for BA during the strike action.

Ian Kincaid Director, Economic Analysis

Union leaders have stated that they are undertaking actions to ensure that the same errors are not repeated. If a strike action is approved in the vote, it could begin in early March.

Ryanair Dispute with Italy Ends Ryanair had previously threatened to suspend its domestic Italian flights by 23 January 2010 over security issues. The Italian aviation authority Ente Nazionale per l’Aviazione Civile (ENAC) had passed a new directive allowing passengers who checked in online to board domestic flights with only documentation, rather than a passport or official identity card. Ryanair had said that the directive would force them to allow passengers to board with “nothing more than fishing licences”.

Ryanair had stopped taking bookings for flights after 23 January, but said they would resume after coming to a resolution with ENAC. Despite the new directive, Ryanair will still require either a passport or official identification from passengers to board their planes.

EU Airports Raise Concern over Increasing Security Costs Airports Council International Europe has warned that the intensive security measures proposed by U.S. President Obama could put a strain on airport budgets and force some to pass the costs on to airlines and passengers. The Council is appealing to European governments to cover the costs of new security measures such as installing full-body scanners. Europe is considered the only part of the world where the majority of governments do not currently pay for aviation security. As a result, airports are forced to handle the costs, currently accounting for 35% of European airports operating costs.

European airports believe that passing these costs onto passengers and airlines will only further exacerbate declines in passenger traffic when the aviation industry has already been hard it by the economic crisis.

Body scanners cost approximately US$150,000 a piece and bring additional costs such as training staff in their use. While the EU has not yet introduced new security measures requiring the scanners, some airports have started considering their installation voluntarily. Amsterdam Schipol has ordered 60 units, while London Heathrow acquired four that have yet to be implemented.

Page 17 January 2010

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THE OTTAWA REPORT January 2010

Privacy & New Aviation Security Technologies

Solomon Wong Senior Vice President, Borders, Security & Planning

In response to a terrorist plot targeted at an Amsterdam-Detroit flight on 25 December 2009, security authorities around the world have accelerated plans to introduce new security screening checkpoint technologies. Attracting the greatest attention are full body scanners (a.k.a. whole body scanners/advanced imaging technologies). These devices have the ability to reveal objects underneath clothing: some security experts have touted these devices as augmenting the chance to detect threats to aviation such as a PETN (Pentaerythritol tetranitrate) bomb attached to underwear.

Amsterdam Schiphol has ordered some 60 units. The U.S. Transportation Security Administration, with an existing deployment of these technologies at 19 airports, is poised to accelerate roll-out of the devices following President Obama’s review on the failings of U.S. agencies leading up to the disrupted attack. In Canada, Transport Minister John Baird indicated that 44 devices will be purchased with twelve to be put in place in January 2010, and the rest operational in spring 2010.

Criticism of these units has largely centred around the management of privacy – particularly due to the ability to see through clothing to private areas of the body. As a result, four scanners have lain unused at Heathrow airport after European Union advice that there were privacy and human rights implications.

Some civil liberties groups in Canada have echoed concerns related to privacy and human rights. In 2009, two of the most influential groups undertook reviews of full body scanners and concluded the following: “Whole Body Imaging technologies that incorporate strong privacy filters — de-identifying raw images for backroom screeners, and using generic body images (or rendering body images to mere outlines) for frontline screeners, can deliver privacy-protective security.

When combined with appropriate viewing, usage and retention policies, and appropriate notices to passengers, WBI implementations can satisfy security requirements without sacrificing (and perhaps enhancing) passenger privacy.”

Office of the Information and Privacy Commissioner of Ontario “…we have worked with CATSA to ensure appropriate privacy safeguards. One of the key results is that the technology will be used only for secondary purposes, after an individual has already passed through the metal detector. What’s more, the scans will be voluntary, with passengers given the option of going through them, or having a physical pat-down.”

Chantal Bernier, Assistant Privacy Commissioner of Canada In addition to passenger experience, flows and facility impacts, delivering privacy-protective security will undoubtedly be an ongoing theme as aviation security authorities continue to find ways of intercepting threats to commercial aviation.

Page 18 January 2010

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THE WASHINGTON REPORT January 2010

U.S. Acknowledges “Systemic Inherent Failures” in Security, Advances Full-Body Screening

Steve Martin Senior Vice President

Following a top-level review with a focus on watchlist, President Obama acknowledged that the U.S. aviation security system had essentially failed to stop an individual from attempting to detonate an explosive device on a Northwest Airlines flight on approach into Detroit on Christmas Day. “This was not a failure to collect intelligence,” Mr. Obama said after meeting with his national security team. “It was a failure to integrate and understand the intelligence that we already had”.

Umar Farouk Abdulmutallab, a 23-year old Nigerian, attempted to detonate an explosive device while onboard flight 253 from Amsterdam to Detroit. The device did not explode, but did ignite, causing burns and injuries to Abdulmutallab and two other passengers. After being restrained by other passengers and the flight crew, Abdulmutallab was taken into custody by U.S. law enforcement officers on arrival. He has since been charged with attempting to destroy an aircraft and placing a destructive device aboard an aircraft. Both are 20-year felonies.

In early January, the White House released a report on the attempted attack. While recognizing that U.S. counterterrorism efforts had had many successes since 9/11, the report was nonetheless sharply critical of the National Counter Terrorism Center (NCTC) and the Central Intelligence Agency (CIA).

The report cited: •

a failure of intelligence analysis to identify, correlate, and fuse intelligence;

•

a failure to assign responsibility and accountability; and

•

shortcomings in the watchlisting system. Abdulmutallab was not on the government’s 440,000person terrorist watchlist, although he was known to the intelligence community.

In particular, the report found that the U.S. government had sufficient information prior to the attempted bombing to have potentially disrupted the plot by al-Qa’ida in the Arabian Peninsula.

Simply put, the government failed to connect the dots, despite “intentional redundancy in the system [that] should have added an additional layer of protection”.

The government has responded to the incident in ways that have been variously characterized as aggressive and predictable. The President ordered the agencies to speed the dissemination of information about potential plots and to develop ways of more quickly pursuing connective threads on potential terrorists. President Obama also directed the Federal Bureau of Investigation (FBI) to "conduct a thorough review of Terrorist Screening Database holdings and ascertain current visa status of all 'known and suspected terrorists, beginning with the no fly list" – about 4,000 names.

The President also directed that the Department of Homeland Security (DHS) speed the installation of $1 billion in advanced-technology equipment for the screening of passengers, including body scanners at American airports. Because Abdulmutallab boarded Northwest flight 253 in Amsterdam, the President also directed DHS to work with international airports to see that they upgrade their own equipment to better protect passengers on U.S.-bound flights.

Page 19 January 2010

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THE WASHINGTON REPORT – CON’T The U.S. Transportation Security Administration (TSA) subsequently announced that it plans to buy a total of 450 new body-scanning machines. This represents an increase of 300 over the number that the government had earlier said it would buy. At present, there are about 40 full-body scanning machines in place at various U.S. airports as part of a pilot program.

This deployment certainly runs head long into the privacy concerns that have slowed the adoption of whole-body screening. The machines are capable of producing detailed images of a person’s body.

However, the machines are designed to have revealed the explosives that Abdulmutallab had sewn into his underwear.

Abdulmutallab is believed to have used the chemical PETN (Pentaerythritol tetranitrate), the same substance Richard C. Reid tried to ignite on an American Airlines flight from Paris to Miami in December 2001 by concealing it in his footwear. Critics have noted that although the Reid incident resulted in passengers removing their shoes before boarding most flights and another separate incident prompted restrictions on liquids brought aboard flights, there is still no comprehensive system to prevent passengers boarding with non-metallic explosive materials.

Does it take a near-catastrophe to spur meaningful change?

Page 20 January 2010

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INTERVISTAS NEWS InterVISTAS Speaking Engagements Steve Martin, Senior Vice President • Transportation Research Board Annual Research Conference: Washington, D.C. – 11 January 2010 Mr. Martin moderated a panel discussing updates in the airline industry.

David Berrington, Director, Human Resources and Corporate Services • Segal Business School, Simon Fraser University: Vancouver, BC – 22 January 2010 Mr. Berrington will sit on a panel discussing careers for MBA graduates.

Maike Schmudlach, Manager, Consumer Research and Nicole Geitebruegge, Senior Project Manager • German Aviation Research Society Workshop: Hamburg, Germany – 10 February 2010 Ms. Schmudlach and Ms. Geitebruegge will present a paper entitled “Benchmarking Consumer Satisfaction at Airports”.

Gerry Bruno, Group Chief Executive Officer and Solomon Wong, Senior Vice President • 2010 Hamburg Aviation Conference: Hamburg, Germany – 11 February 2010 Mr. Bruno and Mr. Wong will give a presentation entitled “North America – Europe Preclearance: Seamless and Secure Borders for an Open Market”.

Dr. Mike Tretheway, President, InterVISTAS Consulting Inc., Executive Vice President and Chief Economist, InterVISTAS Group • 2010 Hamburg Aviation Conference: Hamburg, Germany – 11 February 2010 Dr. Tretheway will Chair a session entitled “Airline Strategy and Innovation: The Air Berlin Experience”.

Howard Mann, Vice President, Policy & Market Analysis • AAAE National Air Service Conference: Tampa, Florida – 14-16 March 2010.

Mr. Mann will give a presentation on air service development.

Martin Copeland, Senior Vice President • European Regions Airline Association: Edinburgh, Scotland – 14 April 2010 Mr. Copeland will deliver a presentation on “Airport and Airline Risk Sharing, During the Introductory, Start-up Stage of New Air Services”.

• Low Cost Airlines of the Americas Conference: Miami, Florida – 04 June 2010 Mr. Copeland will participate in a panel discussion and deliver a presentation entitled "The Era of LCC/Legacy Carrier Conflict and Cooperation”.

Page 21 January 2010

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INTERVISTAS NEWS – CON’T New Executive Consultants at InterVISTAS Sue Robson Ms. Robson is an expert in effective communication and has previously run a Training and Development business, developed a high profile media campaign for a UK political party, and worked in broadcast and print journalism. She joins InterVISTAS to support or corporate marketing and airline consulting business. She is based in London, UK. Tim Catling Mr. Catling brings experience consulting to a number of major airline carriers and airline suppliers. He is the former head of PA Consulting’s airline business and the founder of Gravita Consulting. With InterVISTAS he will lead the Airline Business Practice Group and focus on the commercial and financial side of airline business. Tim is based in London, UK.

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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