CAIR Issue No. 38 - February 2006 by Leah Dupuis

INTERVISTAS ’ CANADIAN AVIATION INTELLIGENCE REPORT

In this issue… Features Columns: • A Review of Domestic Seat Capacity in Canada (p.1) • Airbus and Boeing Report Record Aircraft Orders (p.2) • The Boeing 737-700ER (p.3) • United Airlines: Emergence from Ch 11 Bankruptcy Protection (p.5) • Porter Airlines to Fly from Toronto City Centre (p.6) • Japan’s Outbound Travel Market (p.7) • Airport Best Practices: Preparing for the Big One, Emergency Preparedness (p.15) • Cargo Capers (p.16)

Regular Reports: • Airline Data-Canada (p.9) • Airline Data-U.S. (p.10) • Airport Data (p.11) • Industry News (p.12) • Washington Report (p.17) • Ottawa Report (p.18) • InterVISTAS News (p.19)

A REVIEW OF DOMESTIC SEAT CAPACITY IN CANADA 9 February 2006

In the period from August 1999 to August 2004, there was a decline in the number of domestic seats offered within Canada. There was also a shift in capacity from full service carriers (FSCs) to low-cost carriers (LCCs). By August 2005, seat capacity had finally crept back to 1999 levels. The shift in capacity to LCCs also began to reverse course. Jetsgo left the Canadian airline industry and their LCC capacity was only partially replaced by growth at WestJet and CanJet. Meanwhile, FSC Air Canada and its regional Jazz subsidiary have increased capacity somewhat since 2004.

Growth in Full Service Seat Capacity Kahlil Philander Project Research Analyst

Total domestic seat capacity in Canada declined from 4.5 million in August 1999 to 4.2 million in August 2004, when Air Canada shed most of the capacity it obtained in the merger with Canadian Airlines. However, between August 2004 and August 2005, Air Canada and Jazz increased their overall domestic seat capacity by 10%. Air Canada Jazz now operates 31% of Air Canada’s domestic capacity and represents 17% of all domestic seat capacity within Canada.

Jetsgo Leaves Gap in LCC Capacity LCC seat capacity grew almost 275% between August 1999 and August 2004, but due to the demise of Jetsgo, LCC seating declined by 8% in the period from August 2004 to August 2005. Despite a decline in the overall LCC market during this period, WestJet and CanJet have both managed to expand their capacity. WestJet steadily grew its domestic seat capacity by 14% in 2005, to over 1 million seats, and CanJet increased its capacity by 18%. Table 1 summarises domestic seat capacity by carrier. Table 1: Domestic Seat Capacity in Canada Total Volume of Seat Capacity Carrier Air Canada1

Share of Total Seat Capacity

August 1999

August 2004

August 2005

August 1999

August 2004

August 2005

1,988,234

2,194,715

2,413,920

44.1%

51.8%

53.4%

35.4%

0.0%

2,194,715

2,413,920

79.5%

51.8%

53.4%

Canadian Airlines 1,597,238 AC Total 3,585,472 WestJet

290,848

940,547

1,073,787

6.5%

23.1%

23.8%

Royal Aviation

64,791

1.4%

0.0%

Jetsgo

269,592

0.0%

5.9%

0.0%

CanJet

120,960

150,875

0.0%

2.9%

3.3%

355,639

1,331,099

1,224,662

7.9%

31.9%

27.1%

566,304

674,378

881,574

12.6%

16.3%

19.5%

4,507,415

4,200,192

4,520,156

100.0%

LCC Total Other2 Grand Total

Sources: OAG Max August 1999 and 2004 disk; Planet Profitability Forecasting System

Includes Air Canada mainline, Zip and Jazz Includes Canada 3000, Air Transat, Skyservice, Harmony and other carriers. InterVISTAS’ Canadian Aviation Intelligence Report Page 1 February 2006 Copyright ©2006 InterVISTAS Consulting Inc., all rights reserved. 1 2

AIRBUS AND BOEING REPORT RECORD AIRCRAFT ORDERS 13 February 2006

In early 2006, both Airbus and Boeing announced record aircraft orders for the year ended 31 December 2005 with a total of over 2,100 aircraft orders worldwide, a record for the industry. The year 2005 also marked the official launch of new aircraft models from both Airbus and Boeing, including the A350 and the 747-8, respectively.

Eugene Chu Senior Analyst

Comparison of Airbus and Boeing Orders. For the second consecutive year, Airbus reported more aircraft orders than Boeing: 1,111 compared to 1,029 respectively for 2005. However, there are differences in the composition of Boeing and Airbus orders between aircraft categories. The majority of Airbus’ orders are narrowbody aircraft (i.e., A320 family) while Boeing appears to be the preferred supplier for wide-body aircraft (i.e., B747, B767). In addition, Boeing aircraft make up most of the orders for long range aircraft, including those capable of intercontinental flights. A summary is provided in Table 1. Table 1: 2005 Aircraft Orders Model Airbus

A318/319/320/321

Orders 918

Boeing

Model

Orders

B737-600/700/800/900

574

A300/310

B747-400/8

A330/340

B767-200/300

A350

B777-200/300/ER

153

A380

B787-3/8/9

235

Total

1,111

Total

1,029

Source: Boeing and Airbus websites. Notes: Refers to gross aircraft orders (before any cancellations and/or conversions).

Backlog of Aircraft Orders. For both Airbus and Boeing, aircraft orders exceeded deliveries in 2005, adding to the backlog of aircraft orders. At the end of January 2006, Airbus had a backlog of 2,165 aircraft, while Boeing had 1,826 unfilled aircraft orders. This will ensure that both manufacturers will maintain relatively high production rates in the next few years to fullfil these orders.

Looking Ahead. Airbus has indicated that a full composite narrowbody aircraft will be introduced sometime in the middle of the next decade. For now, the A320 family will remain as the manufacturer’s primary aircraft in the narrowbody category. Meanwhile, Boeing strengthened its dominance in the long range aircraft category with the launch of the B747-8 Interncontinental, complementing the B787 Dreamliner. In 2005, the manufacturer showcased its expertise in the long range aircraft category by setting a new record for the world’s longest non-stop stop flight by a commercial aircraft, with the B777-200LR’s eastbound flight from Hong Kong to London Heathrow.3 Although Boeing and Airbus are now nearly even in terms of total aircraft deliveries, it is clear that each manufacturer will have dominance in different aircraft categories.

The previous record was also set by Boeing with its B747-400 flight between London and Sydney in 1989. InterVISTAS’ Canadian Aviation Intelligence Report Copyright ©2006 InterVISTAS Consulting Inc., all rights reserved.

Page 2 February 2006

THE BOEING 737-700ER 10 February 2006

Long Haul at Lower Cost On 31 January 2006, with an order for two planes from All Nippon Airways, Boeing launched the 737700ER, the longest-range version of its popular 737 family of aircraft. Boeing is explicitly targeting low cost carriers looking to expand their operations to include transatlantic services, as well as traditional carriers wishing to exploit opportunities on new, non-stop niche markets.

John Weatherill Director, Airline Planning

The Long Range Recipe. The –700ER is inspired by the Boeing Business Jet (BBJ), itself a derivative of the 737-700. The new aircraft uses the fuselage of the –700, but the larger wings of the –800. This change, along with additional fuel storage capacity, gives the 737-700ER a range of up to 5,510 nautical miles (10,200 km) – almost 65% further than the current 737-700. And unlike the BBJ, which is designed for low-density, all business configurations, the new –700ER can achieve its range limits with a load of 126 passengers in a two-class configuration. By comparison, most 737-700 operators configure their aircraft with 125-140 seats. The range of the new 737-700ER is comparable to that of the Boeing 767-400 and the Airbus A330300, but as a narrowbody jet with a much lower operating weight, will be less costly to operate on a per flight basis. As a result, airlines can begin exploring long haul markets, including transoceanic city pairs, which may be too thin to support non-stop service with existing aircraft. Range Limits and Traffic Requirements. The map below compares the approximate range limits from Toronto of the existing 737-700 and the new 737-700ER. While the original –700 cannot reach Europe without stopping to refuel, the new –700ER can make any point in Western or Eastern Europe, and can reach as far as North Africa on a non-stop basis.

YYZ

737-700 Range Limit 737-700 ER Range Limit

New non-stop route oppotunites

With a seating capacity of only 126 passengers, the market size required to support non-stop service is significantly lower than that required to support service with larger jets of comparable range. To achieve an average load factor of 80%, a 737-700ER operator would need to carry 73,500 passengers annually. By comparison, the 80% load factor threshold requires 143,000 passengers for the 767-400, or 172,000 passengers for A330-300.

Page 3 February 2006

THE BOEING 737-700ER – CON’T Air Service Implications. The –700ER opens up the transatlantic market to carriers intent on adding smaller spokes to their North American or European hubs (e.g., London-Winnipeg) or, for LCCs with less-developed hub structures, the opportunity to serve primary markets (e.g., Toronto-London) with a lower cost narrowbody jet. Among traditional airlines, U.S. carriers have recently focused on redeploying 757/767 aircraft from the low-yield domestic market to higher-yield transatlantic routes, where competition from low cost carriers is far less intense. Although this is a sound strategy that has produced positive results, efforts have been constrained by aircraft size (the 767 is too large for many markets) and aircraft range (the 757 can reach only Western Europe from the Northeast U.S.). The 737-700ER offers a solution to both problems, especially for carriers currently holding orders and options for 737 family aircraft. On the low-cost side, some see the introduction of transatlantic services by LCCs to be inevitable. With lower trip costs (and potentially lower per-seat costs) than existing widebody options, including the revolutionary 787, the –700ER may be the catalyst for this expansion. Low cost carriers that currently operate 737-family aircraft, such as WestJet and Ireland-based Ryanair, can also take advantage of commonality between the –700ER and their existing fleets, further reducing the cost of operating these aircraft. Planning for the 737-700ER. As the delivery of the first 737-700ER is scheduled to occur in early 2007, airports and communities should begin examining the implications of this aircraft on their long-range air services. Given the extended planning cycle required for international services, communities should start laying the research groundwork necessary to quantify and communicate these new air service opportunities to airlines that begin to order the 737700ER.

Page 4 February 2006

UNITED AIRLINES:

EMERGENCE FROM CH 11 BANKRUPTCY PROTECTION 13 February 2006

On 9 December 2002, UAL Corporation, parent company to United Airlines, filed for Chapter 11 bankruptcy protection. This bankruptcy filing is the largest filing by an airline in the U.S. The airline exited bankruptcy on 1 February 2006, over three years after the airline sought creditor protection.

Leaner Operations

Doris Mak Senior Project Manager

Over the past three years, United Airlines shed a total of $7 billion in annual expenditures. The airline currently operates with 30% fewer staff totalling 58,000 and the airline also operates 20% fewer planes with a fleet of 460. Total operating costs have declined 20% to 7.5 cents per seat mile (excluding fuel costs). In total, labour costs have been reduced by more than $3 billion annually, mainly due to two deep labour cost cutting actions (which occurred in May 2003 and November 2004) and the elimination of defined-benefit pension plans for workers. The latter labour cost cut and pension plan change was mainly due to the continuing high fuel costs.

Shift in Network Focus In late 2004, United Airlines cut 12% of its domestic seat capacity and increased its international seat capacity by 14%, largely due to the intense competition the airline faced domestically by low-cost carriers. With its extensive international offering, the airline shifted its operations focus to the more lucrative international sector taking advantage of its role in the Star Alliance, the world’s largest and most successful airline alliance. During its time in bankruptcy protection, United also developed specific products for its corporate and business clients by launching a new premium transcontinental service. United also upgraded its regional jet service, United Express, to offer premium first class and economy plus options. United’s low cost service, Ted, continues to compete in many markets and acts as a feeder service to United’s mainline operations.

The Future On 30 December 2005, the majority of creditors voted in favour of the reorganisation plan that the airline put forward. The airline was able to secure $3 billion in exit financing ($2.8 billion term loan and $200 million in revolving credit) from a syndication led by JP Morgan and Citigroup Capital Markets. Under the reorganisation plan put forward, owners of old UAL common stock shares would recover 0% of their investment. On 20 January 2006, the reorganisation plan was approved by the courts, which set the stage for the airline to come out of bankruptcy protection in early February. Although the airline posted a $21 billion loss (which included $20.6 billion in reorganisation items, excluding those items, the net loss was $557 million) in 2005, investors are bullish on its share price with many analysts upgrading the stock in light of its reorganisation efforts over the past three years. Although United Airlines has been able to decrease its annual expense by $7 billion, industry pundits state that the airline could have been more aggressive as the industry’s operating environment today is much harsher than when the airline sought protection 3 years ago with fuel prices remaining at high levels. At the time, crude oil prices were under $30 per barrel compared to $60 today. Page 5 February 2006

PORTER AIRLINES TO FLY FROM TORONTO CITY CENTRE 20 February 2006

After revealing plans to fly from Toronto City Centre Airport (TCCA) three years ago, REGCO Holdings Inc. has finally launched Canada’s newest regional passenger carrier, Porter Airlines Inc. The announcement was formally made on 2 February 2006 – one day after REGCO placed a firm order for ten 74-seat Bombardier Q400 aircraft. REGCO has managed to secure $125 million in equity financing for the new airline.

Numerous Potential Flight Destinations Kahlil Philander Project Research Analyst

Although the Toronto based airline has not yet confirmed which destinations it will serve, it is expected to begin operations in 2006. The future fleet of Q400 aircraft has a 500 nautical mile range, enabling the start-up carrier to provide service to numerous Canadian and U.S. destinations from downtown Toronto. The Toronto-built, turbo-prop planes have a moderate fuel burn advantage over conventional jet aircraft and allow for steeper approach to the downtown location. Deliveries of the planes are scheduled to begin mid-summer.

Upgrade to Ferry Service at Island Airport In order to accommodate additional traffic at the island airport, the Toronto Port Authority has committed $15 million to new ferry facilities. A new ferry will be purchased with the funds, and service is expected to run about ten times per hour. In May 2005, the City of Toronto paid the Port Authority $35 million to settle a $500 million lawsuit, a result of cutting plans to build a bridge to the airport.

Future of Jazz at TCCA Unknown The increase in ferry service to TCCA sparked initial interest in increased flights from Air Canada Jazz. The regional subsidiary of Air Canada was considering added service between the airport and Ottawa, as well as restarting service to Montreal. Jazz has cited past cancellation of air services at the airport to be a result of inadequate access from existing ferry services. However, on 31 January, Jazz was served a 30-day Notice of Termination that ended its lease agreement at TCCA. Jazz has said that it intends to seek an alternate lease at the airport, but negotiations thus far have not created a resolution. For the month of March, Jazz has suspended its five weekly roundtrip flights between Ottawa and TCCA.

REGCO Names Carty Chairman Don Carty has been named as the new chairman of Porter Airlines and REGCO Holdings. Carty has previously held the positions of President and CEO of American Airlines and CP Air, and provides many years of industry experience to the start-up. Carty has served as a board member of Hawaiian Airlines since July 2004 and has been recently named the non-executive chairman of Virgin America. Carty will retain all three posts. Mr. Carty is a graduate of Queen’s University in Kingston, Ontario and the Harvard Graduate Business School. In addition to his airline posts, Carty serves as chairman of Big Brothers Big Sisters of America and as a director of Dell, Sears Holding, Placer Dome, CHC Helicopter, and Solution.

Page 6 February 2006

JAPAN’S OUTBOUND TRAVEL MARKET 13 February 2006

Japanese Outbound Travel Volume

Yumiko Kodera Student Intern Exchange with Vancouver Career College

According to the 2005 Visitor Arrivals and Japanese Overseas Travellers report released by the Ministry of Justice of Japan, the number of Japanese tourists who traveled abroad in 2005 rose 3.5% over 2004 to 17.4 million. Outbound travel is now approaching the 2000 peak of 17.8 million.

Outbound Travellers (millions)

17.4 million Outbound Japanese Tourists in 2005!

18 16 14 12 10 8 6 4 2 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: Ministry of Justice of Japan.

Japanese travel to China and Korea decreased due to anti-Japan demonstrations, but travel to Taiwan has increased. The total number of Japanese travellers in 2005 to Taiwan was 1.3 million – the first time that visitor volumes exceeded 1 million to a single destination. In addition, the Central Japan International Airport, located just outside of Nagoya, opened in February 2005. It is Japan’s third most important international airport after Tokyo-Narita and Osaka.

Japanese Travel Market Characteristics

The peak travel season for outbound leisure travel from Japan is from the end of the calendar year to the Asian New Year (late Dec-early Jan), Spring Break (late Mar-early Apr), the so-called golden week of consecutive holidays (late April - early in May) and Summer vacation (mid-July to the end of Aug). According to the Japan Tourism Marketing Co., the top 5 preferred destinations in 2004 for Japanese travellers were China, Korea, Hawaii, U.S. Mainland and Thailand.

Japanese Departures by Country

Source: Japan Tourism Marketing Co.

In 2005, the Japanese traveled on average 2.7 times a year and spent an equivalent of CAD$2,800 per person-trip. A total of CAD$48 billion was spent by all outbound travellers in 2005. The expenditure includes passenger transportation, accommodation, food/beverage and shopping.

Japanese travellers are generally seeking vacations that will provide them with refreshment and relaxation to take time out from their stressful lives, or they choose to seek discovery, adventure, and excitement to obtain new physical and emotional experiences.

Japanese travellers can be divided into three groups: women in their 30s, middle aged (50’s), and Seniors (in their 60’s). Detailed characteristics are displayed for each market in Table 1.

Page 7 February 2006

JAPAN’S OUTBOUND TRAVEL MARKET – CON’T Table 1: Japanese market Characteristics Born Market Size Characteristic

Travel Preferences

Women (30s)

Middle Aged (50s)

Seniors (60s)

1965-1975

1946-1956

Before 1945

8.5 million

20 million

30 million

Full time employment

Empty-nesters

Retired

Single

Rich in time

Higher disposable income

Increased disposable income

Live on pension, retirement fund

Strong desire for relaxation to reduce stress

High quality products & services

Shopping, eating

Luxury tour

Service in Japanese

Required Japanese tour guide and occasional Japanese foods

Avoid peak travel seasons

Travel Style Popular Travel Destinations

Personal travel

Packaged/Individual

Packaged Tour

Korea

Men: China

Women: Hawaii

Source: Japan Tourism Marketing Co.

Shift in type of outbound Japanese travellers

Outbound Japanese traveller segmented by age group

Women aged 20-29 used to be the most important market, however, this age category has declined in this size from 27.9% in 1990 to 18.4% in 2004. Due to changes in employment, women aged 30-39 have grown in importance. Those aged 50 and over are also growing in size and importance. This population segment grew from 24.5% in 1990 to 34.0% in 2004.

Forecast for 2006

100%

9.8 14.7

11.5 15.3

9.8 14.7

21.5

18.8

21.5

19.4

18.9

19.4

20%

27.9

27.7

27.9

6.9

7.7

6.9

1990

1995

2000

2004

80% 60% 40%

Under 19

20-29

30-39

40-49

15.4 18.6 17.3 22.2 18.4

50-59

60-

Sources: Ministry of Justice of Japan

According to World Tourism Organization, Asia and the Pacific is expected to be the fastest growing region in the world (+9%) for outbound travel, confirming the dynamism of the tourism sector in this part of the globe. Japanese outbound traveller’s interest to travel to Europe will likely to rise due to the Torino Winter Olympics and the FIFA World Cup in Germany.

Page 8 February 2006

AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers January 2006 Passenger Traffic

Air Carrier

Capacity

Revenue Passenger Kilometres

% Change % Change over 2005 from 2004

% Change over 2005

% Change from 2004

+9.1%

+2.2%

0.7%

-4.3%

-1.0%

-4.2%

Jazz

+79.9%

+117.6%

International & Charter

+5.3%

+20.8%

OTHER CARRIERS: LOAD FACTORS

Air Canada1

+2.7%

CanJet: not reported

Domestic (Mainline)

WestJet

Change over 2005 +0.4 pts (to 78.1%)

Change from 2004 +6.1 pts (from 72.0%)

-10.3%

-0.1pts

+7.1 pts

81.9%

76.9%

-0.8 pts

+12.4 pts

+12.9%

+4.6%

+5.1%

+0.4 pts

+5.5 pts

+58.7%

+11.6%

+43.7%

+5.7 pts (to 75.5%)

+7.1 pts (from 68.4%)

Analysis: •

•

Load Factor

Available Seat Kilometres

Air Canada's domestic mainline traffic and capacity continued to fall for the fourth consecutive month. However, this decline is offset by the strong performance of Jazz in the domestic and transborder markets. System wide, Air Canada's January traffic increased 2.7% and capacity increased 2.2%, resulting in a marginal increase in load factor over January 2005. The positive system-wide results were mainly due to strong international operations to the U.S., Europe and Asia Pacific. WestJet achieved a 20.8% growth in traffic during January 2006 on a smaller capacity increase, resulting in an improved load factor of 75.5% for the month.

Air Canada Domestic Mainline 6% 4% 2% 0% -2% -4% -6% -8%

Jazz data is not included in this graph

Jan- Feb Mar 05

Apr May Jun

Dom RPK

Jul

Aug Sep

Oct Nov Dec Jan06

Dom ASK

Air Canada International 15% 10% 5% 0% -5% -10% Jan- Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan05 06

Int'l RPK

Int'l ASK

WestJet

60% 50% 40% 30% 20% 10% 0% Jan- Feb 05

Mar

Apr

May Jun

RPK

Jul

ASK

Aug Sep

Oct

Nov

Dec Jan06

1 Air Canada consists of all Air Canada operations with the exception of Jazz. Page 9 February 2006

AIRLINE DATA – U.S. U.S. Airlines Release January 2006 Traffic Figures Traffic Data – January 2006 Airline

Load Factor

Traffic (RPMs – millions)

(ASMs – millions)

75.1%

11,031

14,685

Ç1.8 pts

Ç4.4%

Ç1.9%

66.1%

669

1,012

Ç4.7 pts

Ç28.3%

Ç19.0%

69.6

319

459

Ç10.7 pts

È54.2%

È61.2%

78.3%

6,626

8,725

Ç2.2 pts

Ç13.0%

Ç12.2%

73.4%

8,573

11,680

Ç1.7 pts

È4.5%

È6.8%

82.3%

1,790

2,175

È1.4 pts

Ç25.1%

Ç27.2%

80.9%

5,429

6,707

Ç4.1 pts

È6.7%

È11.5%

63.4%

4,758

7,506

Ç4.6 pts

Ç18.8%

Ç10.1%

77.7%

9,031

11,626

Ç1.6 pts

Ç2.4 pts

Ç0.4%

70.6%

4,655

6,598

Ç1.0 pts

È5.5%

È6.8%

Notes:

1. 2.

Sources:

Carrier traffic reports.

Page 10 February 2006

Capacity

Mainline operations only. Load factor includes scheduled service only.

Summary of Total Year-Over-Year Passenger Traffic Performance at Selected Canadian Airports MontréalCalgary Edmonton Ottawa Winnipeg Halifax Victoria Kelowna Saskatoon Trudeau December +14.2% +6.8% +20.9% +8.9% +8.4% +11.0% +5.1% +8.0% +2.1% +3.9% +8.1% th 4 Quarter +14.0% +6.7% +16.1% +9.7% +3.1% +11.4% +3.5% +6.4% +0.3% +5.9% +8.0% Full Year +15.7% +9.6% +18.6% +7.0% +5.1% +10.2% +7.7% +9.1% +5.7% +3.6% +5.6% January +15.0% +9.8% +14.4% +13.2% +9.6% +12.9% +13.6% +7.0% +4.7% +12.4% +17.8% February +8.7% +4.5% +3.8% +10.2% +7.8% +5.5% +7.0% +4.8% +7.1% +15.8% +10.5% March +10.2% +8.2% +5.5% +17.5% +12.5% +7.3% +9.7% +7.1% +15.4% +19.5% +19.2% st 1 Quarter +11.2% +7.5% +7.7% +13.7% +10.0% +8.4% +10.0% +6.3% +9.3% +16.0% +15.7% April +4.0% +3.9% +5.7% +3.5% +5.5% +0.1% +4.3% -0.2% +2.6% +18.8% +6.0% May +6.7% +5.5% +3.6% +12.2% +12.0% +5.5% +8.0% -4.5% +5.8% +26.3% +13.5% June +6.3% +4.0% +7.5% +10.1% +13.9% +3.4% +2.9% -0.5% +6.8% +22.7% +10.9% nd 2 Quarter +5.7% +4.5% +5.6% +8.6% +10.4% +3.1% +5.0% -1.8% +5.1% +22.6% +10.2% July +3.6% +3.4% +4.0% +11.2% +11.7% +4.8% +4.5% -9.7% +1.2% +15.9% +5.2% August -1.1% +2.7% +1.5% +12.7% +8.8% +4.4% +4.6% -6.4% +5.2% +26.4% +10.3% September +4.5% +2.6% +7.4% +7.9% +13.5% +7.1% +6.6% +0.3% +2.9% +16.1% +12.9% rd 3 Quarter +2.2% +2.9% +4.1% +10.7% +11.2% +5.4% +5.1% -5.6% +3.1% +19.6% +9.3% October -0.1% +4.3% +3.7% +7.1% +16.7% -0.7% +6.4% -0.7% +3.1% +16.1% +11.8% November +0.6% +5.2% +4.1% +12.1% +10.7% -2.5% +6.2% +3.0% +8.5% +24.0% +18.0% December -0.6% +0.5% +4.3% +10.3% +4.9% -3.5% +5.4% +5.6% +3.8% +19.1% +12.2% th 4 Quarter +0.0% +3.2% +4.0% +9.8% +10.4% -2.2% +6.0% +2.4% +4.9% +19.6% +13.9% Full Year +4.6% +4.4% +5.4% +10.6% +10.5% +3.6% +6.5% -0.4% +5.5% +19.3% +12.3% Source: Transport Canada and individual airports’ traffic reports. If your airport is interested in providing InterVISTAS Consulting Inc. with its monthly passenger statistics, please email Doris Mak at doris_mak@intervistas.com Toronto

2004 2005

Page 11 February 2006

Vancouver

Regina +3.6% -2.1% +0.3% +9.7% +8.5% +22.2% +13.3% +3.8% +5.7% +12.4% +7.3% +10.9% +2.4% +13.9% +8.8% +12.8% +15.6% +9.5% +12.5% +10.6%

St. John’s +6.8% +11.9% +14.0% +11.9% +1.5% +19.6% +11.5% +9.8% +8.5% 12.4% +10.3% +14.0% +8.9% +8.9% +8.0% -0.9% +5.0% +7.9% +3.6% +8.2%

NEWS ARTICLES AIR CANADA LAUNCHES NORTH AMERICA PASS

AIR CANADA UPDATE AIR CANADA 2005 PROFIT JUMPS TO $258 MILLION On 10 February, Air Canada reported that income for the yearend 31 December 2005 totalled $258 million, up from a net loss of $880 million in 2004. Operating revenue increased 10% to $9.8 billion from $8.9 billion in 2004. Fuel expense increased $592 million in 2005, a 37% rise from 2004. For the fourth quarter of 2005, Air Canada reported a net loss of $35 million, down from a loss of $3 million in 2004.

AIR CANADA TO FLY TORONTO-LOS ANGELES-SYDNEY

Air Canada announced that in 2007 it will begin flying its new 777s from Los Angeles to Sydney, Australia using rights in the new Canada-US full open skies treaty. The flight will originate in Toronto. The AC press release hinted that Vancouver passengers may be routed via LAX, rather than on the current YVR-HonoluluSydney flight. The LAX-SYD route has been the subject of much contention in the past two years. Singapore and other airlines have been seeking 5th freedom rights from Australia to operate SYD-LAX against long time incumbents Qantas and United, but have been unsuccessful thus far. Canada has 5th freedom rights from San Francisco and Honolulu to Australia, but lacked U.S. authority until the recent open skies treaty with the U.S. A route via LAX will require a revision to the Canada-Australia agreement.

AIR CANADA CONNECTS FORT MCMURRAY-TORONTO-ST. JOHN’S Air Canada announced on 17 February that it will introduce a new non-stop service between Fort McMurray and Toronto. The same service will then continue from Toronto to St. John’s. Air Canada will offer Saturday service on the route beginning 8 April and ramp up to daily service by 17 June.

Page 12 February 2006

On 2 February, Air Canada launched a range of one-year, multi-trip passes that give passengers access to Air Canada and Jazz trips throughout Canada and the U.S. The passes offer access to all flights within eight geographic zones and are valid for one year.

AIR CANADA LAUNCHES BUSINESS FLIGHT PASSES On 1 February, Air Canada announced new multi-trip pass products for businesses of various sizes. The ‘Flight Pass for Small Business’, aimed at small to medium-sized enterprises, contains eight flight credits that can be used by up to eight different employees over a three-month period. The ‘Corporate Pass’, available on a negotiated basis to Air Canada’s best corporate clients, can be used by up to 300 different employees during a three-month period.

OTHER CANADIAN AIRLINE NEWS WESTJET 2005 REVENUE SURGES 24%

WestJet revenue for the yearend 31 December 2005 amounted to $1.4 billion, up from $1.1 billion in 2004, while operating expenses rose to $1.3 billion from $1.1 billion in the same period. Despite costs per available seat mile rising to 12.5 cents from 11.4 cents, 2005 net earnings increased to $24 million from a net loss of $17 million in 2004.

CANJET INTRODUCES DEER LAKETORONTO SERVICE

CanJet announced on 2 February that it will be introducing daily non-stop service between Deer Lake and Toronto on Boeing 737 aircraft, effective 26 June 2006. CanJet also confirmed it will be introducing new morning flights between Halifax and St. John’s effective 5 June 2006.

NEWS ARTICLES CANADIAN AIRPORTS EDMONTON INTERNATIONAL POSTS RECORD TRAFFIC IN 2005

Edmonton International Airport, handled a record 4.5 million passengers in 2005, a 10.5% increase over 2004. The airport saw double-digit passenger volume growth in all market segments. International traffic increased 13.1%, transborder traffic increased 11.9%, and domestic traffic increased 10.2%.

WINNIPEG AIRPORTS AUTHORITY OPERATING REVENUES UP $2.4 MILLION On 25 January, Winnipeg Airports Authority Inc. released its annual results for 2005, showing year-over-year increases in revenues and passenger volumes. Operating revenues for 2005 were $37.1 million and Airport Improvement Fee (AIF) revenues were $19.6 million, representing increases over the $34.7 million and $14.3 million respectively in 2004. Annual passenger traffic was over 3.2 million, up 6.5% from 2004. 2005 net income was $26 million, 22% higher than in 2004.

CARGO FED EX BUYS OUT JOINT VENTURE WITH CHINA’S DTW GROUP

FedEx Express has agreed with Tianjin Datian W. Group (DTW) to acquire DTW’s 50% share in the two companies’ ‘International Priority Express’ joint venture. The $400 million purchase provides FedEx with DTW’s domestic express network in China and converts the joint venture to a wholly FedEx-owned company.

PEOPLE IN THE NEWS GENTILLETTI NAMED PRESIDENT OF TRANSAT TOURS CANADA On 25 January, Transat A.T. Inc. announced the appointment of Nelson Gentilletti as President of Transat Tours Canada. The subsidiary of Page 13 February 2006

Transat A.T. Inc. includes Vacances Transat Holidays and Nolitours as well as commercial operations of Air Transat. Gentilletti previously held company positions of Vice President, Finance and Administration and CFO, and Executive Vice President of Transat Tours Canada.

WESTJET ANNOUNCES APPOINTMENT OF EXECUTIVE VICE-PRESIDENT

WestJet announced on 24 January the appointment of Matthew Handford to the position of Executive VicePresident, People. Handford joined WestJet in June 2005 from Crystal Decisions Inc., a Vancouver-based business intelligence software company. Fred Ring, who previously held the title, moves to Executive Vice President, Corporate Projects.

BOLOURI APPOINTED AS PRESIDENT AND CEO OF AIR CANADA TECHNICAL SERVICES

ACE Aviation Holdings, parent company of Air Canada, announced on 25 January the appointment of Chahram Bolouri as President and CEO of Air Canada Technical Services (ACTS). Bolouri comes to Air Canada after 23 years at Nortel, during which he held a number of executive positions, most recently President, Global Operations.

CARTY NAMED CHAIRMAN OF VIRGIN AMERICA Virgin America (VAI) has named Don Carty Chairman of the company, two months after naming Mark Lanigan to the same position. Carty will become an investor in VAI partners for an undisclosed amount.

NEW ACTING PRESIDENT AND CEO AT BCAC

Effective 1 February 2006, R.W. Back has been named Acting President and CEO of the British Columbia Aviation Council (BCAC).

NEWS ARTICLES SKYBUS ALTERS APPLICATION TO SERVE CANADA

OTHER BYERLY SAYS DON’T DELAY FOREIGN OWNERSHIP U.S. Deputy Assistant Secretary for Transportation, John Byerly said that congressional sentiment to delay the U.S. DOT Notice of Proposed Rulemaking which would give greater latitude to foreign investors in U.S. airlines, would undermine the attempt to obtain an open skies agreement with the European Union. A source of congressional concern is that only Congress should change foreign ownership provisions. RYANAIR TEAMS WITH RESORT DEVELOPER European low cost carrier Ryanair has teamed with resort developer Majestic Worldwide. Ryanair will list Majestic properties on the airline's website, and Majestic will pay commissions to Ryanair on any sales initiated through the website.

JET BLUE TO LAUNCH ORLANDOPUERTO RICO SERVICE

On 3 May, Jet Blue will introduce two new daily non-stop flights from Orlando to San Juan and Aguadilla. American, Delta, and Spirit also plan to launch daily service between Orlando and San Juan.

Low-cost carrier, Skybus, has amended its foreign operating certificate application to the U.S. DOT. The American start-up airline has asked for permission to serve all of Canada, not just Toronto as in its previous application.

FRONTIER AND HORIZON TO CODE SHARE FROM DENVER TO CANADA Frontier has obtained an exemption from the U.S. DOT to operate between any point in the U.S. and any point in Canada. The carrier will hold out service from Denver to Canada through a code share with Horizon, but would like an exemption to launch its own service if necessary.

EXPEDIA LAUNCHES CORPORATE TRAVEL AGENCY

Expedia Inc. announced on 31 January the launch of Expedia Corporate Travel in Canada. Expedia Corporate Travel is aimed at small to mediumsized businesses, providing access to a wide range of fares, reduced transaction costs, and tools for managing travel policy and billing options.

AMERICA WEST AND QANTAS TO CODE SHARE LOS ANGELES-EDMONTON Qantas and America West are to code share on America West flights from Los Angeles to Phoenix and Edmonton.

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AIRPORT BEST PRACTICES: PREPARING FOR THE BIG ONE, EMERGENCY PREPAREDNESS 10 February, 2006

In the last five years, emergency preparedness has emerged as a critical topic for North America and its airports. The U.S. Senate Panel’s recent grilling of former Federal Emergency Management Agency (FEMA) Director Michael Brown on federal response to Hurricane Katrina underlines the continuing concern in the U.S. and Canada with emergency response. In both countries the federal governments have reorganised departments and functions to meet potential disasters. The recent CAR 308 debate might be viewed as the Canadian federal government questioning the ability of existing regulations to guide regional airports to respond to emergencies.

Rob Beynon Director, Airport Marketing

During a catastrophic emergency, airports are a gateway through which regional and national response will flow. Whether it be recent hurricanes or a potential building-levelling earthquake in Vancouver. But in these circumstances the airport infrastructure may be damaged, operations disrupted, and airport staff may be burdened with pressing personal loss. Even with the best plans, operating in these circumstances is, or will be, trying. On 29 August 2005, the airports of Southeast Texas, Louisiana, and Mississippi faced such a task, and met it, in Hurricane Katrina. The lessons of that storm are still being learned, but key best practices stand out:

Have a plan, and co-ordinate it with regional and national emergency response plans;

Inventory your assets available for an emergency and have them ready to use;

Remember that your staff and supporting staff are human, and will probably be coping with personal tragedy in the event of a catastrophe. They will not be responding to their full capability. Plan accordingly;

Establish incident command. In trying times, leadership is crucial to direct staff and those responding to the incident.

New Orleans Louis Armstong International Airport was able to begin supporting relief efforts in New Orleans the day after Katrina, despite damage such as that in the photo at right. This is because of support from its staff, the ability to respond immediately, and the assistance of numerous local volunteers and airport responders from across North America. With many roads to the city washed out, the airport became a base for recovery operations and a link to the submerged city because it was prepared to respond.

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CARGO CAPERS 7 February 2006

Was ist loß in der Kargowelt? You may wonder why the subheading is in [undoubtedly grammatically incorrect] German. Well, if giants Deutsche Post and Deutsche Bahn continue on the paths they have mapped out, German may well become the language of choice in cargo!

Robert Andriulaitis Director, Transportation and Logistics Studies

The big get bigger – part 1. In an earlier column on how various Post Offices were shaking up the air cargo industry, we discussed the fact that Deutsche Post had become a significant player on the global scene. At that point, Deutsche Post had acquired international integrator DHL, Swiss freight forwarder Danzas, Airborne (although it had to spin off the air operations as U.S. law restricts foreign ownership of air carriers), and U.S. forwarder Air Express International (AEI, which had been the largest U.S. freight forwarder when it merged with DP/DHL back in 1999). At the end of last year, the Deutsche Post family grew even larger, acquiring U.K. logistics company Exel. In 2004, the express/logistics portion of Deutsche Post earned a touch under $20 billion in revenues. With Exel posting revenues of about $12.6 billion in 2004, we are now looking at a logistics provider with revenues expected to be in the $33 billion range. To put this in context, Panelpina, a large freight forwarder had revenues of about $5 billion in 2004, while competitor Kuehne & Nagel, while even larger, had revenues of “only” $10 billion. Air Canada, with about $2 billion in revenues, and even CN, with $6.5 billion in revenues, are babies in comparison. Furthermore, when you add in the postal and financial activity, Deutsche Post becomes a $76 billion corporation, and you can understand why competitors are nervous about how DP uses its extremely deep pockets.

The big get bigger- part 2. Now another German powerhouse, Deutsche Bahn (German Rail) has decided to flex its already formidable muscles and become an even larger player in the logistics field. DB had already acquired Stinnes Logistics (and its subsidiary, freight forwarder Schenker) back in 2002. Now DB has just completed its acquisition of BAX Global, for a reputed US $1.1 billion. In 2004, the Transport and Logistics division of DB (excluding passenger rail) earned about $16 billion. Adding in BAX Global brings this to the $20 million range. The corporation as a whole has revenues in the $37 billion range.

So, was ist loß? Obviously the cargo world isn’t going to start speaking German. These developments, however, suggest that these two German giants are extremely serious about dominating global logistics. Airports in Canada should be giving serious consideration to targeting these two for services, distribution activities, and even value-added operations. The challenge is certainly formidable given the global competition to land these two, but the pay-off would be significant indeed.

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WASHINGTON REPORT 10 February 2006

Continued U.S. Airline Losses The U.S. Air Transport Association (ATA) estimates that U.S. airlines lost $10 billion in 2005, bringing the total post – 2000 losses to more than $42 billion. The ATA attributes much of the loss to high fuel prices compared to the relatively low airfares being charged. The ATA has also urged regulators to reduce the financial stress on the airline industry by asking for a restructuring of the current excise tax based funding of the air traffic system to a user pay arrangement so that the airlines are not subsidising non-airline users.

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

DOT Grants for Small Communities The U.S. Department of Transportation (DOT) has invited communities to submit proposals for Federal grants for a total value of $10 million to assist small communities to address air service issues such as high airfares and insufficient air service levels. The DOT will be awarding up to 40 grants in 2006, this is the fifth year that the program as been in effect. Priority will be given to communities who: Have shown that airfares in their community are higher compared to other communities, Have contributed financially to air service development (not including airport revenues), and Have established or will establish a public/private partnership to improve air service to the community.

U.S Eases Post 9/11 Rules to Attract Visitors U.S. Secretary of State, Condoleezza Rice and Homeland Secretary, Michael Chertoff, announced new measures that would ease U.S. entry procedures for foreign tourists, students and business travellers. Government plans for the program include testing digital videoconferencing for visa interviews, extending the length of student visas to 120 days from 90 days, and creating a “model airport” or a welcoming airport environment which will be piloted at Washington Dulles and Houston Bush airports. The U.S. government also expects to develop inexpensive security cards for foreign and U.S. residents travelling across the U.S. borders with Canada and Mexico and to the Caribbean and Bermuda.

FAA Issues Proposed Changes to the Passenger Facility Charges Program On 2 February 2006, the FAA proposed changes to the Passenger Facility Charge (PFC) Program in order to add more eligible uses of revenue, to protect PFC revenues in the event of airline bankruptcy, and to clarify the use of PFC revenues in debt servicing. Among the proposed changes are:

Make low-emission airport vehicles and ground transport equipment eligible for PFC funding,

Use PFCs to pay debt service on airport related projects that would not otherwise be PFC eligible,

Clarifying the status of PFCs of military charters,

Structure the PFC account requirements for airlines in bankruptcy, and

Making airport cost-sharing of air traffic modernisation PFC eligible.

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OTTAWA REPORT 13 February 2006

New Government Updates Transport Portfolio Under the newly elected Harper Conservative government, the Canadian transportation portfolio has been reorganised to better link urban, interprovincial and international infrastructure development. The Minister of Transport, Infrastructure and Communities (previously Minister of Transport) will now also be responsible to manage the Office of Infrastructure Canada and the National Capital Commission. A number of Crown corporations have been moved to this portfolio as well, including Canada Post and the Canada Lands Company. This has been done to create a more consistent approach to Crown Corporation governance and ministerial accountability.

Sam Barone Regional Vice President

Ottawa, ON

Cannon Named Minister of Transport, Infrastructure and Communities Prime Minister Stephen Harper has appointed Pontiac MP Lawrence Cannon as the Minister in charge of the newly created Transport, Infrastructure and Communities portfolio. Mr. Cannon is also first on the list of ministers designated to replace Harper if he is unable to perform his duties as Prime Minister. Previous to this position, Cannon has served in the transportation industry as the President of the Quebec Urban Transport Association and as the President of the Outaouais Urban Transit Corporation. Mr. Cannon has over 25 years experience in business and politics, and holds a Masters in Business Administration and a Bachelor of Arts in Political Science.

NAV CANADA Revenues Up $13 million On 12 January, NAV CANADA, the country’s provider of civil air navigation services, announced its financial results for the three months ending 30 November 2005. The results show an operating surplus and an improvement in the company’s rate stabilisation account. Revenues for the first quarter of fiscal year 2006 were $292 million, up from $279 million for the same period the previous year and arising from a 4.1% increase in air traffic. Expenses were $218 million, up from $204 million for the same period last year. The company added $11 million to its rate stabilisation account, increasing it to $49 million from $38 million at the end of the last fiscal year.

Government of Canada Cancels Ridley Terminal Divestiture Lawrence Cannon, Minister of Transport, Infrastructure and Communities announced on 7 February 2006 that the government had stopped the process underway to divest Ridley Terminals Inc., located in Prince Rupert, B.C. Recent resurgence in the B.C. coal mine industry was cited as the reason for the reversal. The decision to set aside the divestiture will allow the Crown Corporation to sign long-term contracts with clients.

NAV CANADA to Construct New Facility in Campbell River NAV CANADA announced on 31 January that it has begun construction of a new Air Operations Building to replace the existing structure built in 1982. The facility, to be completed by the fall of 2006 at a cost of $2.4 million, will include a new Flight Service Station (FSS) and Technical Operations Maintenance Centre.

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INTERVISTAS NEWS February 2006

New publications available at www.intervistas.com Presentation:

“Evolving Seamless and Secure Travel: Threats and Opportunities in a Global Environment” was presented by Solomon Wong at the 85th Annual Transportation Research Board Conference, Washington, DC

InterVISTAS Upcoming Speaking Engagements

11 & 12 February 2006: CBC Newsworld, Weekend Business Report Dr. Mike Tretheway, Executive Vice-President Dr. Tretheway will speak about economic development and the 2010 Winter Olympic Games.

23 February 2006: 9th Annual Hamburg Aviation Conference, Hamburg, Germany Dr. Mike Tretheway, Executive Vice-President Dr. Tretheway has been honoured by being selected to give the Martin Kunz Memorial Lecture. The title of his presentation is “Airline Economics 30 Years after Deregulation.”

22 February 2006: GARS Workshop, Hamburg, Germany Mr. Ian Kincaid, Director, Economic Analysis The title of his presentation is “Issues in Benchmarking Airports.”

InterVISTAS’ Canadian Aviation Intelligence Report is a collection of information gathered from public sources, such as press releases, media articles, etc., information from confidential sources, and items heard on the street. Thus some of the information is speculative and may not materialise. To inquire about advertising opportunities or to provide comments/feedback on the InterVISTAS’ Canadian Aviation Intelligence Report, please contact Rob Beynon at rob_beynon@InterVISTAS.com or 1-604-717-1864. To subscribe, please send an email to subscribe@InterVISTAS.com To unsubscribe, please send an email to unsubscribe@InterVISTAS.com.

Page 19 February 2006