INDUSTRY REVIEW
Page 1 December 2003
© InterVISTAS Consulting Inc.
THE CONTINUING SHIFT IN AIR CANADA’S DOMESTIC SEAT CAPACITY 16 January 2004
Jennifer Tso Project Analyst
Mainline steady. Over the past three years, Air Canada has been Air Canada Domestic Seat Capacity shifting its domestic capacity 120% between mainline, Jazz, Zip and 100% Tango. While its overall capacity Zip 80% has decreased, the share of Tango 60% domestic seat capacity flown by Jazz 40% Mainline mainline services has only declined 20% slightly, from 58.4% to 56.7%. A 0% year ago, mainline share was down 'Jan 2001 Jan-02 Jan-03 Jan-04 to roughly 52%, but at this time the Tango brand was carrying just over 10% of capacity. Tango was not a separate carrier. It was a service brand which used AC mainline pilots, flight attendants and customer service agents. Jazz down. The biggest shift since January 2001 has been the reduction in traffic handled by Jazz. This regional carrier has lost a quarter of the capacity share it used to have, from 41% to 31%. Zip up but low fare brands down. Zip has more than doubled since a year ago, and now handles almost 12% of domestic seat capacity. However, this is only slightly greater than what Tango handled a year ago. In fact, the total share of domestic capacity handled in Air Canada low fare aircraft configurations (Tango and Zip) has declined from 15.3% to 11.9%.
Air Canada Domestic Seat Capacity Breakdown Carrier January 2001 January 2002 Air Canada Mainline 58.4% 59.5% Regional/Jazz 41.6% 36.8% 1 Tango 3.7% Zip Total Domestic 2,506,049 2,222,703 Seat Capacity % Change in Total Domestic -11.3% Seat Capacity from 2001
January 2003 51.9% 32.8% 10.5% 4.8%
January 2004 56.7% 31.4% 11.9%
2,247,368
2,180,150
-10.3%
-13.0%
Source: OAG Max January 2001, January 2002, January 2003, December 2003, Tango Timetable 2001 and January 2003, Zip website.
Tango has been incorporated as a fare class in Air Canada mainline as of October 1, 2003. Page 1 December 2003 Š InterVISTAS Consulting Inc. 1
DECLINING CARRIER COMMISSION EXPENSES 16 January 2004
Declining Commission Expenses: Historically, commissions have been paid by airlines to travel agents, industry wholesalers/consolidators, tour operators and other companies participating in the travel distribution network. Over recent years we have seen a decline in commissions paid by airlines. In particular, many U.S. and Canadian carriers have eliminated travel agency commissions on domestic tickets.
Jennifer Tso Project Analyst
In Q2 2003, commission expenses of U.S. network carriers dropped 18% to $346 million, compared to the same period in 2002. As shown, Continental Airlines exhibited the largest percentage drop in commission expenses, down 34% from the same quarter in 2002. Compared with network carriers, commission expenses of U.S. low-cost carriers have shown more aggressive declines. Commission expenses for these carriers declined 33% to $30 million in Q2 2003, compared to the same period in 2002. JetBlue shows the largest percentage decline in commission expenses among lowcost carriers, essentially down to zero. What external factors caused airlines to cut commissions? One reason for declining commissions is the emergence of low-cost carriers. Low-cost carriers are always striving to decrease their break-even points so that they remain profitable. As discussed above, the commission expenses of network carriers have declined but not at the same rate as those of the low-cost carriers. Network carriers are beginning to change their business models by decreasing costs and becoming as profitable as their counterparts. Perhaps the key driving force for the decline in commission expenses is the introduction of the Internet. According to the General Accounting Office Airline Ticketing Report, the percentage of tickets booked online increased from 7% to 30% between 1999 – 2002. Historically, consumers typically purchased tickets through a travel agent. Airlines paid anywhere from 8-11% commission to the agency, which translated into high commission expenses for the airline. For example, in 1998 U.S. Airways’ commission expenses represented about 7% of total operating costs. As the Internet emerged, airlines developed less expensive online booking websites that bypassed travel agent ticket sales. As well, Internet-based agencies such as Expedia and Travelocity, which use global distribution systems to book tickets, cost the airlines less than booking through traditional travel agencies. Low-cost carriers have led the move towards this more cost-efficient distribution channel and have benefited from lower distribution costs. Network carriers are now adapting to online booking systems and are experiencing declines in commission expenses.
Page 2 December 2003
Š InterVISTAS Consulting Inc.
AIRLINE STOCK P RICES SHOW IMPROVEMENT 16 January 2004
In spite of the fact that several U.S. (and Canadian) airlines are in or skirting bankruptcy, in 2003 the stock prices of several airlines showed dramatic improvements. Network Carriers: Network carriers, the ones under severe profitability pressures, have nevertheless shown improvement in their 2003 stock performance in many cases. American Airlines, who was close to Chapter 11 bankruptcy in the fall, has seen its stock price increase 96% in the 12 months ending 31 December 2003. Continental Airlines showed the largest increase among U.S. network airlines, with an impressive 124% increase in stock price. However Delta Airlines was down 2.4% by comparison. United is still operating under Chapter 11 and US Airways just exited from bankruptcy protection. Air Canada has been under CCAA protection since April 1, 2003. While the company has indicated that its shares will be worthless after emerging from bankruptcy its shares are still trading in positive territory.
Change in stock price Dec 31 2002 - Dec 31 2003 600% 500% 400%
Low Cost Carriers
Network Carriers
300% 200% 100% 0%
Page 3 December 2003
Continental
American
British Airways
Northwest
KLM
Hawaiian
Alaska
Delta
Air Canada
America West
AirTran
Frontier
ATA
WestJet
JetBlue
-100% Ryanair
Research Analyst
Southwest
Geneva Tretheway
Low Cost Carriers: While the performance of some network carrier stocks was strong in 2003, it is the low-cost carriers who remain the stars. ATA’s and Frontier’s stocks are both up 111%, AirTran is up 205%. America West, sometimes classified as low cost carrier, is up a whopping 589%! Southwest and Ryanair stocks experienced solid annual increases of 16% and 29% respectively. On a split adjusted basis, JetBlue’s stock price increased 47%. Just prior to 2003’s year-end, the airline’s stock split 3 for 2, increasing the outstanding volume of shares to over 100 million. North of the border, WestJet’s stocks experienced exceptional growth with its stock price increasing 76% during 2003.
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AIRLINE DATA – CANADA T RAFFIC AND LOAD F ACTORS ON CANADA’S M AJOR AIR CARRIERS DECEMBER 2003 Passenger Traffic Capacity Revenue Passenger Kilometres Available Seat Kilometres Air Carrier % Change over 2002
% Change from 2001
% Change over 2002
% Change from 2001
% Change over 2002
% Change from 2001
+0.2%
-0.4%
-2.6%
-0.2%
+2.0 pts (to 72.0%)
-0.1 pts
Domestic (Mainline)
-1.3%
-10.1%
-3.5%
-2.9%
Jazz
+2.4%
N/A
-4.0%
N/A
International & Charter
+0.8%
+4.3%
-2.2%
+1.1%
Air Canada 2
NEW CARRIERS: LOAD FACTORS Jetsgo: 77% (Dec) Zip: not reported CanJet: not reported
Load Factor
+1.6 pts (69.0%) +3.6 pts (55.8%) +2.1 pts (73.2%)
-5.5% N/A +2.2%
+1.5 pts -1.7 pts (to 73.6%) -0.6 pts Jetsgo +231.4% N/A +233.9% N/A N/A (77.4%) Note: N/A – As Jazz was not reported in 2001, a percentage change from 2001 could not be calculated. WestJet
+40.6%
+112.3%
+37.9%
Analysis: •
•
Air Canada appears to be finally reversing it long standing traffic declines. In December, for the first time in 2003, the carrier posted growth in system-wide passenger traffic. Although modest (0.2% growth relative to the same month a year ago), it is a continuation of a trend which began in May, when the bad traffic news became a bit less negative each month. WestJet now marks its third month in a row with traffic growth greater than capacity. With the exception of two months, since early 2002, WestJet's capacity growth exceeded traffic growth. This caused as steady decline in load factor. Beginning in October 2003, this process has reversed.
+117.2%
Air Canada Domestic Mainline 5% 0% -5% -10% Jazz data is not included in this graph
-15% -20% -25%
Dec- Jan02 03
Feb Mar
Apr
May Jun
Dom RPK
Jul
Aug
Sep
Oct
Nov
Dec
Oct Nov
Dec
Oct
Dec
Dom ASK
Air Canada International 10% 5% 0% -5% -10% -15% -20% -25% -30% -35%
Dec- Jan02 03
Feb Mar
Apr
May
Int'l RPK
Jun
Jul Aug
Sep
Int'l ASK
WestJet
70% 60% 50% 40% 30% 20% 10% 0%
2Air
Dec- Jan- Feb Mar 02 03
Apr
Canada Mainline consists of all Air Canada with the exception of Jazz.
Page 4 December 2003
May
Jun
RPK
Jul
Aug Sep
Nov
ASK
© InterVISTAS Consulting Inc.
AIRLINE DATA – U.S. U.S. Airlines Release December 2003 Traffic Figures Traffic Data – December 2003 Airline
2
1
2
2
Notes:
1. 2.
Load Factor
Traffic ( RPMs – millions)
(ASMs – millions)
Capacity
73.7 %
10,352
14,030
á 0.5 pts
â 0.1%
â 0.8%
64.6%
446
690
á 1.5pts
á 18.0%
á 15.3%
68.7 %
1,124
1,824
â 2.8 pts
á 11.1%
á 15.0%
77.0%
5,183
6,735
á 3.1 pts
á 7.6%
á 3.3%
74.1%
8,592
11,596
â 0.2 pts
â 0.5%
â 0.3%
82.2%
1,078
1,311
â 2.7 pts
á 43.6%
á 48.2%
78.1%
5,732
7,335
á 1.2 pts
â 4.8%
â 6.3%
64.0%
3,935
6,152
á 2.0 pts
á 1.1%
á 4.3%
78.4%
9,204
11,743
á 2.5 pts
â 2.8%
â 5.8%
72.9%
3,125
4,289
á 0.5 pts
á 4.1%
á 3.4%
Mainline Load factor includes scheduled service only
Sources: Carrier traffic reports.
Page 8 December 2003
© InterVISTAS Consulting Inc.
Summary of Total Year-Over-Year Passenger Traffic Performance at Selected Airports
2003
Vancouver
MontrealTrudeau
Calgary
Edmonton
Ottawa
Winnipeg
Halifax
Victoria
Kelowna
Saskatoon
Regina
St. John’s
2nd Quarter September
N/A N/A
-9.0% +12.6%
-10.9% +22.5%
-3.8% +20.1%
-6.7% +7.6%
-12.3% +23.7%
-6.9% +16.4%
-6.0% +26.1%
-6.3% +13.2%
-6.1% +11.8%
-8.7% +12.6%
-11.1% +10.5%
-11.9% +20.0%
3rd Quarter October November December 4th Quarter
N/A N/A N/A +8.2% N/A
-2.6% +12.5% +4.7% +4.3% +7.2%
-0.2% +15.3% +5.3% +7.8% +9.7%
+2.9% +14.3% +0.6% +7.1% +7.6%
-4.4% -0.1% +9.4% +11.7% +6.9%
+0.5% +6.4% +3.0% +6.3% -5.1%
+1.2% +5.9% +5.7% +15.2% +8.9%
+11.2% +7.9% +5.7% +8.1% +7.3%
-4.8% +0.1% +0.1% +1.4% +0.5%
+0.2% +5.7% -1.4% +4.3% +3.0%
-5.4% +1.7% +0.2% +1.5% +1.1%
-5.8% +4.4% +1.2% +3.2% +3.0%
-0.8% -0.7% -2.3% +2.2% -0.3%
Full Year January February March 1st Quarter April May June 2nd Quarter July August September 3rd Quarter October November
-7.5% +5.7% +4.6% +0.4% +3.4% -15.1% -17.3% -9.0% -13.7% -6.0% -7.6% -5.9% -6.6% -2.3% 0.1%
-3.9% +2.8% -0.6% -1.4% +0.2% -13.6% -13.5% -9.9% -12.2% -4.5% -1.2% -3.0% -2.8% -3.1% 2.2%
-4.3% +7.2% +3.7% -1.8% +2.9% -10.2% -7.4% 0.0% -5.6% +2.9% -1.0% +1.7% +1.1% +4.0% +11.4%
+1.2% +6.3% +5.6% +3.7% +5.2% +1.6% -1.4% +1.9% +0.7% +4.7% +1.4% -1.8% +1.6% -0.7% +8.0%
-4.1% +3.5% +3.0% -0.4% +2.0% +1.1% -5.3% -0.4% -1.6% +2.5% +0.3% +8.6% +3.4% +10.4% +7.2%
-5.1% +6.2% +3.9% +2.2% +4.0% -7.6% -1.5% +2.5% -2.1% +3.0% -7.0% +1.6% -0.9% +1.4% +6.5%
-3.8% +13.0% +12.7% +5.1% +10.1% +4.4% -0.5% +5.0% +3.0% +3.7% +0.4% +1.5% +1.8% +7.4% +5.8%
+0.1% +4.5% +13.8 N/A +10.0% +6.1% -1.2% +4.1% +2.9% +5.7% +4.1% -0.6% +3.3% +2.5% -0.05%
-4.8% +2.9% +7.5% +0.2% +3.3% -0.9% +0.4% +0.6% +0.0% +11.9% +9.8% +10.8% +10.8% +15.4% +13.7%
-1.3% +4.0% +2.0% +5.0% +3.7% -0.6% -1.0% -0.5% -0.7% +5.0% +0.5% -0.7% +1.7% +1.1% +9.6%
-5.1% +6.8% +6.0% -3.7% +3.1% -3.9% -5.3% +1.4% -2.6% +1.2% -4.8% -2.4% -2.0% N/A N/A
-5.5% -0.3% +8.8% -4.2% +1.3% -1.6% -1.6% +7.0% +1.3% +4.7% -2.2% -0.2% +0.7% -1.3% 19.8%
-5.7% -5.8% -2.0% -3.1% -3.7% -1.7% +4.5% +17.8% +7.1% +21.1% +22.5% +12.3% +19.0% +9.4% N/A
Page 9 January 2004
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CANADIAN A IRPORTS
2002
Toronto
NEWS ARTICLES AIR CANADA UPDATE
FUEL PRICES January 8, 2004 •
SPOT OIL PRICES CONTINUE TO INCREASE
•
FUTURES PRICES INCREASE
Crude Oil Prices: • Spot – US$33.98 (up 10.4% from December) Futures • 6 month - $32.73 (May 2004 delivery) • 12 month -$29.78 (December 2004 delivery) • 2 year - $27.70 (December 2005 delivery) • 5 year - $27.25 (December 2008 delivery) Monthly Spot Prices $40.00
US$ per Barrel
$35.00 $30.00 $25.00 $20.00 $15.00 Feb- Mar Apr May Jun Jul Aug Sep Oct N o v Dec Jan03 04
AIR CANADA REACHES US$1.5B FINANCING DEAL WITH GECAS Air Canada has reached a financing agreement with GE Capital Aviation Services (GECAS) that includes a US$585 million loan, US$950 million to finance the purchase of regional jets, and restructured leases on 108 aircraft. Under the terms of the deal, Air Canada must maintain a cash balance of C$750 million-which can fall to C$500 million only if certain performance targets are met. The carrier’s collateral, in the form of spare parts, cannot fall below US$517 million. Additionally, if Air Canada sells 100% of Aeroplan - its frequent flyer program, it must reserve 25% of the proceeds, or no less than US$125 million, towards paying the loan. The carrier must obtain approval from GECAS before selling Aeroplan. The agreement is also conditional on the carrier emerging from bankruptcy protection by April 30th. GECAS will receive a one-time US$10.6 million payment to provide the loan, and US$500,000 annually to manage the loans. AIR CANADA ORDERS 90 AIRCRAFT FROM BOMBARDIER AND EMBRAER Air Canada has completed a memorandum of understanding to purchase 45 Bombardier and 45 Embraer regional aircraft for US$2.65 billion. Negotiations continue for an additional 15 aircraft. The order consists of 15 Bombardier CRJ-200 and 30 CRJ-705 to be delivered in 2004, and 45 Embraer 190 scheduled for November 2005 delivery. Both the Bombardier and Embraer orders include options for an additional 45 aircraft. The purchase is subject to satisfactory financing terms, approval from equity investor Trinity Time Investments, and the court overseeing the carrier’s restructuring under the Companies’ Creditors Arrangement Act (CCAA).
Page 10 January 2004
AIR CANADA RECONFIRMS TRINITY AS EQUITY PARTNER Air Canada’s Board of Directors has again selected Victor Li’s Trinity Time Investments as the carrier’s equity partner after comparing revised bids from both Cerberus Capital Management and Trinity. The revised proposal calls for Trinity to invest CDN$650 million for 31% of the shares in Air Canada, and offers creditors up to 66% of the carrier’s equity. A US$106 million note held by GE Capital Aviation Services (GECAS) will be paid out in cash instead of stock. Trinity also reached a deal with Deutsche Bank, which is backstopping a CDN$450 million rights offering that allows creditors the opportunity to purchase more shares at discounted rates. AIR CANADA JAZZ TO INCREASE FREQUENCY TO PRINCE GEORGE ON SMALLER PLANES Starting February 1, Air Canada Jazz will increase the number of daily flights from Prince George to Vancouver from four to six. However, the service capacity will remain almost the same as a smaller 50-seat de Havilland Dash 8-300 will replace the 77-seat BAE-146 jet currently used. AIR CANADA INCORPORATES FUEL SURCHARGE INTO FARES Beginning January 21, Air Canada will include the fuel surcharge on all domestic fares, including flights operated by Air Canada, Air Canada Jazz, and Zip. Fuel surcharges are already included in international flights and range from CDN$10-$20, depending on distance. Other Canadian airlines, including WestJet and Jetsgo, will also adopt this change. CTA ORDERS AIR CANADA TO ELIMINATE INSURANCE SURCHARGE The Canadian Transportation Agency (CTA) has ordered Air Canada to drop the CDN$6 insurance surcharge on its fares by March 27. The surcharge was introduced in September 2001 as a temporary levy to cover rising insurance costs after the September 11 terrorist attacks.
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NEWS ARTICLES OTHER CANADIAN AIRLINES WESTJET TRIPLES TORONTO SERVICE WITH EASTERN EXPANSION
Beginning April 18, 2004, WestJet will increase it’s departures from Toronto Pearson International Airport to 182, including 39 weekly flights from Toronto to Montreal, and 32 flights between Toronto and Ottawa. Departures from Toronto to Calgary will be increased to 40 weekly, and from Toronto to Winnipeg 18 weekly. The new schedule will have 1,580 weekly departures across Canada, with increases in all major routes including Montreal, Toronto, Ottawa, Vancouver, Calgary, Edmonton and Winnipeg. JETSGO ADDS TWO NEW AIRCRAFT Jetsgo has announced it will add two new aircraft to its fleet, bringing the total to 14. Additional capacity will be added from Toronto and Montreal for spring break service to Orlando, Fort Lauderdale, St. Petersburg, and Fort Myers. Services from Winnipeg, Halifax and Vancouver will also increase.
US AND INTERNATIONAL AIRLINES CANADIAN AFFAIR STARTS NEW U.K. SERVICES Beginning in May, Canadian Affair Ltd., a London based tour operator, will introduce services from Toronto to Manchester and Birmingham three times weekly using My Travel Airlines (U.K. tour operator). Five weekly flights between Toronto and Gatwick will be added, and up to seven daily flights between Glasgow and Toronto will be offered during the peak summer season. Approximately 90% of the flights will be provided by Thomas Cook Airlines using a Boeing 757. The tour operator plans to grow into a scheduled operator by 2005.
Page 11 January 2004
U.S. AIRWAYS RENEWS LEASE FOR 10 GATES AT PITTSBURGH AIRPORT U.S. Airways has completed an agreement to lease 10 gates and associated terminal and support facilities at Pittsburgh International Airport through 2018, replacing a lease that was rejected earlier as part of the carrier’s bankruptcy restructuring. The remaining 40 gates will be leased on a month to month basis. U.S. Airways also signed a three-year lease for on-airport support facilities including maintenance hangars, cargo, mail sorting, and food services. The carrier will maintain a schedule similar to its existing service at Pittsburgh until September. FRONTIER FIRST TO REPAY POST SEPT. 11 FEDERAL GUARANTEED LOAN Frontier Airlines is the first U.S. carrier to repay in full its US$70 million loan guaranteed by the Air Transportation Stabilisation Board (ATSB) after the tragic events of September 11. MESA ENDS ATLANTIC COAST BID Mesa Air Group Inc. has ended its bid for Atlantic Coast Airlines (ACA). This comes after United Airlines terminated a proposed service agreement with Mesa that would have had the carrier operate some of ACA’s routes. A federal court had temporarily blocked the bid for potential anti-trust violations. Atlantic Coast will continue with plans to launch its low cost carrier, Independence Air at Washington Dulles International Airport. AIR ASIA EXPANDS WITH 737-300 Air Asia, a low cost carrier based in Malaysia, plans to increase its fleet to 21 by June 2004. The carrier is currently operating 11 737300 aircraft.
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NEWS ARTICLES JETBLUE AND AIRTRAN BOOST IN-FLIGHT ENTERTAINMENT SYSTEMS JetBlue announced that it has reached deals with XM Satellite Radio and Fox parent News Corp. to add up to 100 channels of digital satellite radio and pay-per-view movies on its flights. The new services will be introduced on its fleet of A320s this fall and on the Embraer 190s as they are delivered next year. JetBlue was the first to offer satellite T.V. on its flights in 2000. AirTran, which currently does not provide in-flight entertainment services, will also be adding the XM Satellite Radio system on its flights beginning this summer.
NEW CARGO CARRIER LAUNCHED IN CHINA Air China Cargo has been officially launched. The new carrier is owned by Air China (51%), CITIC Pacific (25%), Capital Airport (24%) and has capital resources of CNY 3.5 billion (CAD$547 million). Air China Cargo will deploy 5 Boeing 747 freighters. The carrier will also use space on 8 Boeing 747-400 passenger-cargo planes and 115 passenger aircraft with cargo space from the mainline. The freighter's service network covers most Chinese provincial capitals and major cities, in addition to 36 cities in 27 countries and regions.
CARGO
VOLGA-DNEPR TO LAUNCH NEW AIRLINE Volga-Dnepr announced plans to launch Air Bridge Cargo on April 2, 2004. The new carrier will operate under its own Air Operator’s Certificate, offering scheduled freighter service between Europe and Asia through Russia, with plans to serve the U.S. from Moscow in the future. Volga has bought two B747-200s with plans to acquire at least eight 747s by 2010 for the new airline.
U.S. CARGO VOLUME DECREASES U.S. Air Transport Association figures for November show a 2.1% decrease in revenue ton miles for domestic cargo and a 6.1% decrease for international cargo. Total freight volume for the month decreased by 4.2% from the previous year. INTERNATIONAL FREIGHT TRAFFIC INCREASES The International Air Transport Association (IATA) reported that total international FTKs are up 2.4% for November and year-to-date traffic is up 4.8% over 2002. The Middle East saw the largest increase with an 18% rise in its international freight traffic. ASTAR AIR CARGO RULED TO BE U.S. CARRIER An administrative law judge has determined that ASTAR Air Cargo does not violate U.S. foreign ownership and limitations. UPS had objected to AStar's license based on nationality claims. The carrier was formed at the request of German owned DHL, who is financing 80% of a loan for its purchase price, and is AStar’s dominant customer. ASTAR is headed by former Northwest Airlines CEO John Dasburg and has an 11 year contract with DHL. The DOT will conduct a final analysis to determine whether or not ASTAR qualifies as a U.S. carrier. Page 12 January 2004
FEDEX ACQUIRES KINKO’S FedEx will acquire Kinko’s in a US$2.4 billion deal with Clayton, Dubilier & Rice. The transaction will close in the first calendar quarter of 2004. FEDEX TO MOVE ASIA HUB TO CHINA FedEx announced that it will move its hub at Subic Bay in the Philippines to Guangzhou, China. The current lease at Subic Bay expires in 2007 and the runway and apron have limited expansion room. FEDEX AND UPS TOP IN RTKs Airline Business has released its top 100 cargo airline ranking for 2002. Based on cargo traffic RTKs, FedEx took the top spot with over 14.6 million RTKs, followed by UPS at 7.3 million RTKs and Lufthansa Cargo with 7.2 million RTKs. Air Canada ranked 24th with 1.9 million RTKs flown in 2002.
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NEWS ARTICLES FEDEX Q2 PROFITS DOWN FedEx’s net income was US$91 million for its second fiscal quarter ended 30 November 2003, down 63% from US$245 million one year ago. Before realignment costs, revenue was US$266 million, or 9% ahead of 2002. CATHAY PACIFIC PLANS EXPANSION OF FREIGHTER FLEET Cathay Pacific will add up to 13 Boeing 747-400F freighters to its fleet by 2007 as it expands international services to Beijing, Munich and North America. The carrier has ordered one B747-400F to be delivered in January 2005, and plans to convert six to 12 B747-400s into freighters by 2007. Cathay Pacific currently operates 11 freighters including five 747-400Fs and six 747-200Fs.
AIRPORTS HAMILTON INTERNATIONAL AIRPORT CELEBRATES 1 MILLIONTH PASSENGER OF 2003 The 1 millionth passenger of 2003 passed through Hamilton International Airport at 9:00 AM Friday, December 12th. This is the first time the airport has passed the 1 million-passenger mark in a single year. WESTJET REDUCES SERVICE AT HAMILTON As part of its increased service to Toronto, WestJet is rationalising service at a number of other airports in Canada. Hamilton will lose 60% of its WestJet flights and its routes to Montreal and Ottawa. The latter route also results in the loss of the one way services to Gander and St. John's. WestJet will retain 63 flights at Hamilton and its maintenance base. While the airport expects that another airline will take the opportunity to fill the void left by the reduced WestJet service, it has put its expansion plans on hold.
Page 13 January 2004
DORVAL RENAMED TO MONTRÉALTRUDEAU As of 1 January 2004, Montréal-Dorval Airport is now known as Montréal-Pierre Elliot Trudeau. Aéroports de Montréal is encouraging the use of Montréal-Trudeau for everyday reference. The airport’s identifier code, YUL, will remain unchanged. NAV CANADA COMPLETES CDN$11M UPGRADE AT MONTREAL-TRUDEAU AIRPORT NAV Canada has completed a CDN$11 million upgrade to the Montreal Area Control Centre and Air Traffic Tower located at the MontrealPierre Elliot Trudeau International Airport. The upgrade includes the Integrated Information Display System/Extended Computer Display System (IIDS/EXCDS), which provides controllers with faster and more reliable access to air traffic information by integrating flight data. The Control Centre and Air Traffic Tower provides en route information services to aircraft flying over Quebec and adjoining provinces. LOW COST CARRIER TERMINAL TO BE CONSTRUCTED AT CHANGI AIRPORT The Ministry of Transport in Singapore confirmed that it is considering plans to build a passenger terminal for low cost carriers at Singapore Changi Airport. Low cost carriers ValuAir, Air Asia and Tiger Airways are all planning to launch services from Singapore in the first half of 2004.
AIRCRAFT MANUFACTURERS AIRBUS OUTPACES BOEING IN AIRCRAFT DELIVERY FOR 2003 Boeing delivered 281 commercial aircraft in 2003, 26% less than last year. Over half of these deliveries were for the Boeing 737 series. Meanwhile, Airbus delivered its 300th aircraft at the end December 2003, and is expected to have slightly over 300 deliveries for the year.
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NEWS ARTICLES BOEING RECEIVES CND$360M B737-700 WESTJET ORDER Boeing announced that it has received a CDN$360M order from WestJet for seven new B737-700s scheduled to be delivered in 2005. Currently, WestJet’s fleet consists of 44 B737s, including 26 B737-700s.
REGULATORY U.S ANNOUNCES CRS DEREGULATION The U.S. government says it will lift most restrictions on computer reservation systems (CRS) by January 31 because they are no longer necessary due in part to the increase in on-line booking. The government regulated CRS in the 1980s when they were all owned by US airlines and nearly 90% of ticket sales were through travel agents using CRS. The remaining two restrictions, which prohibit CRS from biasing flight listings in favour of some airlines and from requiring airlines to provide all fares, will be lifted in July to give the market time to adjust. U.S. ANNOUNCES AIR MARSHAL PLAN WITH MIXED RESPONSE FROM AIRLINES The U.S. government announced Dec 30th that it will require armed air marshals to be placed on certain international flights into the United States. The British government said it was open to the plan but that certain conditions would have to be met. Thomas Cook Airlines and South African Airways disagree with the idea and say they would rather cancel flights. Air Canada and the Canadian government have a limited program in place that they plan to expand to accommodate the new requirement. EUROPEAN COMMISSION INVESTIGATES FARE DISCRIMINATION CLAIMS The European Commission (E.C.) has received complaints that certain airlines charge different prices for the same service depending on the customer’s country of residence. The E.C. has begun an investigation into 18 airlines’ pricing practices. Nationality-based discrimination in the single European market is prohibited by the European Union Treaty. Page 14 January 2004
PEOPLE RICHARD KOROSCIL APPOINTED PRESIDENT & CEO OF TRADEPORT INTERNATIONAL Richard Koroscil has been appointed President and C.E.O of TradePort International Corporation, the operator of the Hamilton International Airport. Previously, he served as Vice President of Operations with YVR Vancouver Airport Services Ltd., where he was responsible for the operations at all YVRAS airports in Canada and internationally -15 airports in total. He is a graduate of the Aviation Management program at Durham College of Applied Arts and Sciences. His experience has also included several positions in the Canadian airport industry, including Airport Manager at Timmins and Windsor airports and Vice President of Operations at Vancouver Airport. INTERVISTAS CONSULTING INC. PROMOTES PAUL GRIMSEY InterVISTAS Consulting Inc. is pleased to announce the promotion of Paul Grimsey. Mr. Grimsey has been appointed Vice President, Finance and Administration & Chief Financial Officer. He has over 10 years experience as a Chartered Accountant, including positions in the cruise and destination management industry, and the food industry. Prior to becoming a Chartered Accountant, Mr. Grimsey worked as a commercial pilot and flew professionally for 10 years.
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NEWS ARTICLES NEW ACI CHAIRMAN Niels Boserup, CEO of Copenhagen Airports Ltd, was unanimously elected Chairman of Airports Council International (ACI) for a twoyear term starting January 1 at the ACI General Assembly on December 6, 2003. NTERVISTAS CONSULTING INC. PROMOTES JOHN WEATHERILL InterVISTAS Consulting Inc. is pleased to announce the promotion of John Weatherill. Mr. Weatherill has been appointed as Manager, Airline Planning. Prior to joining InterVISTAS Consulting Inc., Mr. Weatherill worked with WestJet Airlines. He has considerable experience in marketing new air services to airlines and has developed good working relationships with most network and low cost carriers in North America. DAVID STONE NAMED TSA ADMINISTRATOR David M. Stone has been named to serve as acting TSA Administrator, replacing James M. Loy, who was recently named deputy secretary of the Department of Homeland Security. Stone was formerly the Deputy Chief of Staff at the Transportation Security Administration (TSA) and Security Director for Los Angeles International Airport.
Page 15 January 2004
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ECONOMIC O UTLOOK 9th January 2004
Daily Exchange Rate: U.S. Dollar per Canadian Dollar 0.80 0.78 0.76 0.74 0.72 0.70 0.68 0.66 0.64
Jan-04
Dec-03
Nov-03
Oct-03
Sep-03
Aug-03
Jul-03
Jun-03
May-03
Apr-03
Mar-03
0.60
Jan-03
0.62 Feb-03
Ian Kincaid Manager, Economic Analysis
The Canadian Dollar. Can it go any higher? In 2003, the Canadian dollar rose dramatically against the U.S. dollar. Starting the year at 63.5 U.S. cents, the Canadian dollar reached 77.4 U.S. cents by the end of the year; an increase of 22%. In 2004, the loonie has risen even higher, to 78.8 U.S. cents (by January 9 th). The last time the Canadian dollar was at this level was in May 1993.
Source: Prof. Werner Antweiler, University of British Columbia
Many analysts believe that the Canadian dollar will remain strong for some time to come, and may strengthen further. Much of the rise of the loonie can be attributed to a general weakness in the U.S. dollar. The U.S dollar has declined against most major currencies (such as the Euro, British Pound and the Japanese Yen) over the last year. Both the U.S. Federal reserve and the U.S. government have indicated that they will continue to support a weak dollar policy until it becomes clear the economic recovery is well under way. Impact on Canadian Airports The strong Canadian dollar makes Canada a more expensive place for Americans to visit, which could negatively impact on tourism. However, the exchange rate is only one factor affecting tourism. Probably the most important factor is the health of the U.S. economy, which appears to improving rapidly. The U.S. economy grew by a staggering 8.2% in the third quarter of 2003, and is forecast to grow by a robust 3½ to 4% in 2004. Canadian Dollar Versus Major Currencies Per Canadian Dollar
The flip side of the strengthening Canadian dollar is that travel to the U.S. has become significantly cheaper, which could mean more outbound travel from Canadian airports. As most Canadian airports handle more outbound travel than inbound, the net result for airport traffic could well be positive.
Jan 2, 2003
Jan 9, 2004
Change
U.S. Dollar
0.64
0.79
Euro
0.61
0.61
+24% 0%
British Pound
0.40
0.43
+8%
Japanese Yen
76.1
83.9
+10%
Australian Dollar
1.13
1.01
-11%
Source: Prof. Werner Antweiler, University of British Columbia
Another point to consider is that, while the Canadian dollar has risen significantly against the U.S. dollar, its performance against many other currencies has been less dramatic or even negative (see the table above). For example, the Canadian has remained flat against the Euro and has even declined against the Australian dollar.
Page 16 January 2004
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CANADA BORDER SERVICES AGENCY CREATED Reorganisation of agencies one step in streamlining management of borders. On December 12, 2003 Paul Martin unveiled a new focus for the management of borders. Previously, border inspection functions reported to three different ministers. Now, a new Canada Border Services Agency has been established and it (CBSA) reports only to the Public Safety & Emergency Preparedness Minister, Anne McLellan.The Minister also has the responsibility for working with her counterpart in the United States (Department of Homeland Security Secretary, Tom Ridge) for the Smart Border process. The former agencies (CFIA, CCRA) and department (CIC) still retain many of their original duties. The only functions transferred over to CBSA are: • • Solomon Wong Director, Security and Planning
•
Customs Program; Immigration intelligence, interdiction and enforcement functions; and Passenger and initial import inspection services at ports of entry.
Unlike the structure for CBSA proposed for Kim Campbell’s short lived 1993 government, immigration policy and the passport office remain intact.
F orm er S tr uc ture M inister of Agriculture and A gri-Food
M inister of N ational Reve nue
Minister of Citizenshi p and Immigrati on
C FIA
C CRA
C IC
Canadian Food Inspection Agency
Customs and Revenue Agency
Citizenship and Immigration Canada
(transfer of public safety responsibilities)
D e ce m b e r 1 2 , 2 0 0 3 Minister of Public Safety & Emergency Preparedness
CBSA Canada Border Services Agency
Partial Alignment with the U.S. Model. The changes bring a partial alignment of the approach used by the U.S. in the creation of the Bureau of Customs and Border Protection under a Department of Homeland Security. Key differences include: • Maintaining transportation security directly under the control of Transport Canada • Keeping the Coast Guard under the control of the Department of Fisheries and Oceans Key Issues. The definition of CBSA operations is anticipated to take months. Most functions are expected to be transparent to travellers and shippers. For example, the “primary inspection lines” at international airports have long had customs officers administer immigration duties. Furthermore, immigration and customs authorities had numerous joint programs such as CANPASS well under way. Despite existing coordination, major issues that will impact airports include: • How the new agency will ensure its systems communicate with each other and become fully integrated. • Defining the civil service rules governing thousands of workers – in particular for essential services. • Will the CBSA co-ordinate efforts in Canada to advance transportation security at airports and ports? Additional changes leading to and after a spring 2004 election will provide greater clarity in the functionality of the CBSA. Page 17 January 2004
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WASHINGTON REPORT 15 January 2004
FAA Reauthorization Becomes Law: On December 12, 2003, President Bush signed into law the Federal Aviation Administration’s four-year, $60 billion reauthorization bill, Vision 100 – The Century of Aviation Act. This bill provides$14 billion for airport construction projects, $140 million to assist small communities in attracting and retaining air service, $308 million to ensure air service to isolated communities and $2 billion to create more efficient security screening at airports. New Security Rules for Foreign Airlines: On December 29, 2003, the U.S. Department of Homeland Security (DHS) announced that any foreign passenger and cargo international flights entering U.S. air space will be required to place armed, trained, government law enforcement officers aboard. Prior to this announcement, DHS had raised the threat level for the U.S. to Code Orange, the second-highest level. Charles Chambers Senior Vice President GA2 And Regional Vice President InterVISTAS Consulting Inc. Washington, D.C.
TSA Awards First-Round Grants to Airports: On December 16th, 2003, the Transportation Security Administration (TSA) awarded $7.8 million in grants for Airport Terminal Security Enhancements. Eight airports were awarded grants and include: T.F.Green State Airports, R.I.; Newark International; Helena Regional, Mont.; Boston Logan International; Chicago Midway; Denver International; and Key West International, Fla. An additional $17 million is anticipated to be awarded in the next few weeks. U.S., EU Reach Deal on Passenger Data: In an effort to fight terrorism, the European Union (EU) has agreed to allow the U.S. to continue to collect passenger data from transatlantic airlines. Under the agreement, the U.S. can collect 34 types of data records including passenger name, address, telephone number, credit card numbers, travel companions and the amount of checked-in luggage. The U.S. will be allowed to store the information for 3½ years and the data will only be used by the Homeland Security Department in terrorism investigations and other international crimes. U.S. Congress Postpones Decision on Pension Relief: When U.S. Congress adjourned for the year in December, it had failed to approve pension relief sought by airlines. Senate leaders agreed to consider a House-passed bill when they return in late January. The bill would allow businesses to use an index of long-term corporate bond rates to calculate pension liabilities over the next two years. DOT Appoints Karan Bhatia: The Department of Transportation has appointed Karan Bhatia as Assistant Secretary for Aviation and International Affairs, with responsibility in international aviation, international transportation and trade issues, airline economics and related matters. Prior to joining DOT, Bhatia had served as the Deputy Under Secretary for Industry and Security for the U.S. Department of Commerce.
Page 18 January 2004
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THE OTTAWA SCENE 16 January 2004
Prime Minister Announces Return of Parliament. Prime Minister Paul Martin announced on January 7, 2004 that Parliament will return on Monday, February 2, 2004. The Governor General, on the Prime Minister’s recommendation, signed a proclamation to recall Parliament at three o’clock on February 2 for the dispatch of business. The Speech from the Throne, which will open the 3 rd session of the 37th Parliament, will be read by the Governor General in the Senate that afternoon. The Speech from the Throne is expected to build on the government’s commitment to a facilitation focus as part of its agenda. The creation of the Canada Border Services Agency is evidence of this new direction.1 The Canada-U.S. Smart Border action plan will be administered by this agency. The Speech will also likely outline how Canada plans to approach its overall relationship with the United States. The creation of a new Cabinet Committee on Canada-U.S. relations chaired by the Prime Minister, a Canada-U.S. Secretariat in the Privy Council Office, as well as the appointment of a Parliamentary Secretary to the Prime Minister for Canada-U.S. relations signal how important this government views relations with the U.S. A key question is how this new emphasis on Canada-U.S. relations will impact the air transport relationship between the two countries. Sam Barone Regional Vice President, Ottawa
While a number of other changes to the Federal Government have been announced, it is still too early to determine their true impacts on the airport and airline communities. One thing is clear, however, and that is that the points of influence if not power have increased in Ottawa. In the post-democratic reform era, Parliamentary Secretaries, Ministers of State, Associate Members, Ministers, MPs, Advisors, Legislative Committees, Cabinet Committees, and officials etc. are all, in their own right influential players in the policy process. It will be important to target all audiences when advocating a position or advancing an issue. It will mean spending more time educating everyone – not just Ministers – on the merits of a specific position on key issues in order to achieve substantive policy changes. Minister Valeri to Rethink Aviation Policy. In an interview with the Financial Post, Minister Tony Valeri (Hamilton Stoney Creek) indicated that he will review Canada's aviation policy. The review would include foreign ownership limits, airport rents and the aviation security charge. This is a major change from the attitude of his predecessor, David Collenette. We expect that Minister Valeri will look at air policy in terms of what it can do for the Canadian economy. When he chaired the Caucus economic development committee, Valeri approached air policy from an overall economic perspective, not from a carrier protectionist viewpoint. He is likely to be sympathetic to the needs of shippers, the tourism industry and other air transport users. It is unlikely that he will have time prior to the expected federal election to make significant changes, but the review and consultation process between now and the election could set the stage and the tone for long overdue policy changes in aviation.
This 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 materialize. Prepared by InterVISTAS Consulting Inc.
1See
article in this issue titled “Canadian Border Services Agency Created” in this month’s publication.
Page 19 January 2004
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