CAIR Issue No. 15 - March 2004 by Leah Dupuis

IVC Market Intelligence Report

HAS W ESTJ ET REPLACED CANADIAN AIRLINE’S DOMESTIC SEAT CAPACITY ? 12 March 2004

WestJet is 59% of Canadian’s domestic capacity. Although WestJet has aggressively grown since 1999, the low cost carrier is currently providing only 59% of the domestic seat capacity Canadian Airlines provided prior to its merger into Air Canada. In 1999, Canadian Airlines offered 19 million seats compared to WestJet’s current domestic seat capacity of 11 million. It will be a few years before the low cost carrier completely replaces Canadian Airline’s seat capacity.

Air Canada has shed all of Canadian’s capacity. Air Canada steadily reduced seat capacity

Doris Mak Senior Market Analyst

after the merger with Canadian Airlines. In 1999, Air Canada offered 21.6 million seats compared to Canadian Airline's 18.8 million seats. Combined, the airlines offered 40.4 million domestic seats. In 2000, the combined seat capacity of both airlines declined by 13%. Air Canada continued to reduce domestic seat capacity in the years following the merger up to 2003. In 2003, Air Canada was offering 21.8 million seats, almost identical to its 1999 total domestic seat capacity of 21.6 million. In essence, Air Canada has shed all of the domestic seat capacity that Canadian was providing to the market and is now back to its pre-merger size.

Domestic capacity down 25% since merger. Overall, the combined domestic seat capacity of Air Canada, Canadian Airlines, and WestJet has declined 25% since 1999. In spite of WestJet’s strong growth since 1999 (the airline has tripled its capacity), it has not made up for the loss of domestic capacity formerly offered by Canadian Airlines.

Canadian Major Carriers Annual Domestic Seat Capacity 1999

2000

2001

2002

2003

As per 2004 schedule

Air Canada

21,605,425

23,573,584

31,876,257

26,269,941

21,841,779

21,886,318

Canadian Airlines

18,776,574

11,579,936

Subtotal (AC + CAI)

40,381,999

35,153,520

31,876,257

26,269,941

21,841,779

21,886,318

WestJet

3,516,060

4,392,150

6,334,415

8,010,805

9,663,300

10,976,020

TOTAL

43,898,059

39,545,670

38,210,672

34,280,746

31,505,079

32,862,338

Carrier

Source: BACK OAG Schedules. Annual domestic seat capacity presented.

Page 1 March 2004

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INCREASED USE OF THE INTERNET FOR AIRLINE TICKET PURCHASE March 2004

Rise in Internet Bookings in Canada The latest Ipsos-Reid Internet usage study, released in August 2003, reported that 36% of the 18 million Canadian adults with Internet access use it to book some element of travel, this is up from 31% in 2002 and up from 18% in 2000. An additional 20% use the Internet to research travel, bringing total Internet usage for trip planning and purchase to 56% of Canadian Internet users. The study also reported that 35% of Canadians use the Internet as their primary source of travel planning, followed by travel agents and family/friends, each at 14%.

Current Canadian Carrier Direct Internet Bookings Angelica Sparolin

Air Canada – In a January 2003 press release, Air Canada reported that 50% of Air Canada’s domestic ticket sales are now made online, half of which are made through its travel agency website. Air Canada is currently trying to increase the use of the Internet for transborder bookings through the introduction of the same simplified fare structure as for the domestic sector. This includes adding its new web-only Tango fare class for transborder destinations.

WestJet – According to its latest “Renewal Annual Information Form”, 60% of WestJet’s bookings are made through its Internet site (including both consumer and travel agency sales). A further 28% are made through their call centre while the remaining 12% represent sales such as group bookings, Air Miles and Sabre.

Zip – The majority of Zip tickets continue to be booked via the Internet, with more than 75% of passengers purchasing their tickets online (Note that this excludes those connecting from Air Canada mainline routes).1

Jetsgo – Between 75% and 80% of all Jetsgo’s tickets are distributed via the Internet.2

Senior Research Analyst

Increased Internet Bookings in the United States A new study released by the U.S. Travel Industry Association of America reported that over 64 million U.S. travellers used the Internet to research travel online in 2003, similar to volumes in 2002. However, the number actually booking travel grew by 8% to 42 million travellers. The amount that use the Internet to book all of their travel also grew from 23% in 2002 to 29% in 2003, as did the average annual online travel spending, up from $2,300 in 2002 to $2,600 in 2003. These figures include not only airline tickets, but other aspects of travel such as accommodations and car rentals.

1 “Zip 2

Air Sees Profit at End of First Year,” Globe and Mail, 10 October 2002.

“Jetsgo gets off to a bumpy beginning,” Peter Fitzpatrick, The National Post, June 19, 2002.

Page 2 March 2004

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INCREASED USE OF THE INTERNET – CONTINUED

A separate study prepared by the U.S. 1999 2002 General Accounting Airline Online Airline Office (GAO), reported Websites Travel Websites the market shares of 3% Agencies 13% various booking channels 4% for airline tickets. While Online Airline Call Travel Centres travel agents continued to Agencies 26% make up the largest 17% share of bookings, their Traditional Traditional share had dropped Airline Call Travel Travel significantly from 67% in Centres Agencies Agencies 1999 to 46% in 2002. 24% 67% 46% Internet usage has absorbed the majority of Source: U.S. General Accounting Office, “Airline Ticketing: Impact of Changes in the this shift, growing from a Airline Distribution Industry.” combined 7% for airlines and online agencies in 1999 to 30% in 2003. Airline call centres remained relatively constant, down slightly from 26% to 24%.

Top Online Travel Agencies According to the GAO study, Expedia, Travelocity, and Orbitz continue to dominate among online travel agencies in the U.S. Within Canada, the top non-airline sites for travel were similar with Expedia, Travelocity, and the Canadian Automobile Association taking the top positions (Ipsos-Reid Study 2003).

Page 3 March 2004

Top Online Travel Agencies 2003 Canada 1. Expedia 2. Travelocity 3. CAA* *Canadian Automobile Association, including local branches.

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AIRLINE DATA - CANADA Traffic and Load Factors on Canada’s Major Air Carriers - February 2004 Passenger Traffic

Air Carrier

% Change from 2002

% Change % Change % Change % Change over 2003 from 2002 over 2003 from 2002

+7.8%

-0.7%

+9.4%

+5.0%

Domestic (Mainline)

+8.5%

-3.6%

+10.4%

+2.0%

Jazz

-0.8%

+8.6%

+5.5%

+3.4%

International & Charter

+7.4%

+0.5%

+9.1%

+6.3%

Jetsgo:

81% (Feb)

Zip:

not reported

WestJet

+44.1%

+114.5%

+39.3%

+118.3%

CanJet:

not reported

Jetsgo

+220.9%

N/A

+186.0%

N/A

Analysis: §

Load Factor

Available Seat Kilometres

% Change over 2003

Air Canada 3

NEW CARRIERS: LOAD FACTORS

Capacity

Revenue Passenger Kilometres

Air Canada’s domestic traffic showed much improved traffic growth of 8.5% in February 2004 compared to the past 12 months. However, the load factor decreased as capacity, which increased by 10.4% during the month, outpaced traffic growth. The growth in international traffic was also outpaced by a corresponding capacity increase, as Air Canada continues to expand its services to Latin America and the Caribbean. WestJet’s growth in traffic exceeded the increase in capacity for the fifth consecutive month; load factor for February 2004 was 67.4%.

-1.1 pts (to 72.6%) -1.2 pts (to 74.0%) -3.8 pts (to 59.4%) -1.1 pts (to 72.1%) +2.3 pts (to 67.4%) +8.8 pts (to 80.8%)

-4.2 pts -4.2 pts +2.8 pts -4.1 pts -1.1 pts N/A

Air Canada Domestic Mainline 15% 10% 5% 0% -5% -10% -15% -20% -25%

Jazz data is not included in this graph

Feb- Mar 03

Apr May

Jun

Jul

Dom RPK

Aug

Sep

Oct

Nov

Dec Jan- Feb 04

Dom ASK

Air Canada Canada International International 20% 10% 0% -10% -20% -30% -40%

Feb03

Mar

Apr

May Jun

Jul

Int'l RPK

Aug

Sep

Oct Nov

Dec Jan- Feb 04

Oct

Dec Jan04

Int'l ASK

WestJet WestJet 70% 60% 50% 40% 30% 20% 10% 0% Feb- Mar 03

Apr

May

Jun

Jul

Aug

RPK

Sep

Nov

Feb

ASK

Air Canada Mainline consists of all Air Canada with the exception of Jazz. Page 4 InterVISTAS Consulting Market Intelligence Report March 2004 ©InterVISTAS Consulting Inc. 3

AIRLINE DATA – U.S. U.S. Airlines Release February 2004 Traffic Figures Traffic Data – February 2004 Airline

Load Factor

Traffic (RPMs – millions)

Capacity (ASMs – millions)

68.9 %

9,376

13,603

á 0.2 pts

á 12.2%

á 11.9%

63.9%

434

679

á 4.4pts

á 35.5%

á 26.2%

66.2 %

1,113

1,752

á 0.3 pts

á 9.5%

á 4.3%

70.2%

4,512

5,430

á 1.3pts

á 13.9%

á 11.7%

68.6%

7,460

10,877

0.0 pts

á 8.0%

á 8.1%

77.9%

1,053

1,352

â 1.6 pts

á 48.8%

á 51.7%

74.5%

5,155

6,923

á 1.2 pts

á 1.1%

â 0.5%

62.2%

3,659

5,881

â 0.3 pts

á 8.8%

á 9.3%

73.2%

8,162

11,092

á 3.0 pts

á 8.0%

á 3.7%

68.5%

2,846

4,159

á 1.4 pts

á 15.5%

á 13.2%

Notes:

Mainline

Load factor includes scheduled service only

Sources:

Page 5 March 2004

Carrier traffic reports.

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Edmonton

Ottawa

+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% +2.7% -0.9% -4%

+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% N/A N/A N/A

+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% +5.4% +3.9% +2.7%

+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% +4.9% +7.4% +2.9%

+1.5%

+10.7%

+4.2%

+8.1%

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

+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% +1.9% -0.1% -4.6%

2004

Calgary

Vancouver

2003

MontréalTrudeau

Toronto

January

+1.6%

Page 6 March 2004

CANADIAN A IRPORTS

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

Halifax

Victoria

Kelowna

Saskatoon

Regina

St. John’s

+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% +6.0% +4.5% +1.3%

+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% +6.0% +6.4% +5.1%

+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% +2.9% +1.9% +4.2%

+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% +16.1% +15.6% +7.3%

+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% +9.1% +6.6% +2.9%

+6.8% +6.0% -3.7% +3.1% -3.9% -5.3% +1.4% -2.6% +1.2% -4.8% -2.4% -2.0% -1.7% -0.3% +0.8% -0.4% -0.5%

-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% +2.0% +6.33% +2.4%

-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% +9.4% +13.9% +10.8% +9.4%

+3.5%

+6.5%

+3.2%

+12.4%

+5.9%

-1.8%

+8.3%

+12.8%

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NEWS ARTICLES AIR CANADA UPDATE AIR CANADA PENSION DISPUTE CONTINUES 12 March 2004 SPOT OIL PRICES CONTINUE TO INCREASE FUTURES PRICES INCREASE Crude Oil Prices: Spot – US$36.19 (up 6.4% from February) Futures • 6 month - $34.15 (July 2004 delivery) • 12 month -$31.61 (February 2004 delivery) • 2 year - $29.34 (February 2005 delivery) • 5 year - $27.90 (December 2009 delivery) Monthly Spot Prices $40.00

US$ per Barrel

$35.00 $30.00 $25.00 $20.00 $15.00 Apr- May Jun Jul Aug Sep Oct Nov Dec Jan- Feb Mar 03 04

Air Canada has reached a tentative agreement with its unions to finance the carrier’s CDN$1.24 billion pension deficit over 10 years. However, the proposal from Air Canada’s equity investor, Trinity Time Investment, to change the current pension program from a defined benefit plan to a defined contribution plan, has been rejected by the unions. Trinity Time has revised the proposal to offer non-unionized employees the opportunity to choose between the two different plans, but was prevented from making the same offer to unionized employees due to opposition from the unions.

AIR CANADA RECALLS FLIGHT ATTENDANTS

Air Canada has recalled 125 flight attendants as part of its recruitment campaign. With the recall, all 400 flight attendants that were laid off in May 2003 will have returned to work. The launch of new services to Delhi, India, combined with an expanded schedule to Latin America and the Caribbean, have increased operational requirements. Air Canada has also introduced new non-stop flights between Hong Kong and Toronto.

AIR CANADA AND JAZZ REACH AGREEMENT WITH PILOT UNIONS

Air Canada and its subsidiary Jazz, has reached a tentative agreement with its two pilot unions, the Air Canada Pilots Association (ACPA), and the Airline Pilots Association (APA) respectively, over the allocation of regional aircraft between the carriers. Industry sources indicate that the deal will allocate the 50-74-seat Bombardier jets to Jazz, and the 93-seat Embraer 190 jets to Air Canada mainline. It is expected that the pilots will ratify the agreement by 19 March, which also requires approval from the bankruptcy court appointed monitor, Ernst and Young, and Justice James Farley. Page 7 March 2004

AIR CANADA BEGINS CODE SHARE FLIGHTS WITH AIR JAMAICA

Air Canada and Air Jamaica have begun selling seats on codeshare flights between Toronto-Kingston, and TorontoMontego Bay. Air Canada will increase its Toronto-Montego Bay flights from four times weekly, to daily service beginning 4 April. Beginning 5 April, Air Jamaica will start daily service between Kingston and Toronto, while Air Canada will service the route twice weekly.

JAZZ TO DECREASE FORT ST. JOHN SERVICE

Starting in June, Air Canada Jazz will cancel its service between Fort St. John and both Fort Nelson, B.C. and Grande Prairie, Alberta as part of its restructuring. The carrier will also substitute the Dash 8-300 in place of the BAE 146 jet on its flights between Fort St. John and Vancouver. The base in Fort Nelson will be closed.

AIR CANADA RESUMES HAITI SERVICE

Air Canada has resumed twice weekly non-stop service between Montréal and Port-au-Prince. The carrier had suspended service to Haiti on 28 Feb and 2 March due to political turmoil and instability in the country.

AIR CANADA LAUNCHES ONBOARD CAFÉ SERVICE ON JAZZ FLIGHTS

Air Canada has launched an onboard café service program in co-operation with Cara Operations to replace complimentary meal service on Jazz flights. The café offers customers meals and snacks priced between CDN$1-$7. Non-alcoholic beverage and basic snack service in Hospitality service, and meal/beverage service in Executive Class will remain complimentary.

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NEWS ARTICLES AIR CANADA TO LAUNCH NEW MONTRÉAL-NOVA SCOTIA SERVICE

Starting 1 June, Air Canada will launch new nonstop daily service between Montréal and Sydney, Nova Scotia. The flights will be operated with 50-seat Canadair regional jets.

CANJET ADDS CHICAGO MIDWAY AND NEW YORK LAGUARDIA SERVICE

Starting 4 June, CanJet Airlines will launch daily non-stop service from Toronto Pearson International and Pierre Elliot Trudeau International Airport in Montréal, to New York LaGuardia Airport. In addition, non-stop service between Toronto Pearson International and AIR CANADA INCREASES SUMMER Chicago Midway International Airport will be MONTRÉAL-EUROPE SERVICE Air Canada will launch a second daily non-stop introduced. The service to Chicago will be service between Montréal and both London and offered 12 times per week, with daily flight connections from Halifax, St. John’s, and Deer Frankfurt on 1 June, and 1 July, respectively. Lake. These services are part of the carrier’s summer schedule and are in addition to its year round JETSGO INCREASING SERVICE TO daily service between these cities. Twice daily non-stop service between Montréal and Paris WESTERN AND ATLANTIC CANADA – will also be re-introduced starting 23 June. In BOOSTS TORONTO SERVICE addition, codeshare flights between Montréal and Beginning April 2004, Jetsgo will Vienna non-stop will begin 31 March, operated by increase its service between Austrian Airlines four times weekly, while non- Halifax and Toronto to three per day, and stop codeshare flights between Montréal and increase service from St. John’s, Nfld., to Munich non-stop will begin 8 June, operated by Toronto to five flights per week, with non-stop Lufthansa Airlines six times per week. service on the route starting 18 April. Effective 19 April, the carrier will increase its service between Toronto and Ottawa by 50%, to 12 flights per OTHER CANADIAN AIRLINES day. In addition, year-round non-stop flights from Toronto to Vancouver, Calgary, and Winnipeg CANJET TO LAUNCH SERVICE FROM will be offered three times daily beginning 3 May HAMILTON Beginning 19 April, CanJet Airlines 2004. will operate three non-stop roundtrip flights each weekday between Hamilton International Airport and Ottawa. In addition, daily flights between Hamilton and Montréal will be launched. Starting 3 May, CanJet Airlines will also launch non-stop service between St. John’s and Deer Lake, with continuing service to Halifax from Deer Lake, five times weekly.

Page 8 March 2004

Jetsgo’s summer schedule includes the return of Victoria as a summer destination starting 25 June, with non-stop service to Toronto three times weekly. Operations from Toronto to Abbotsford, B.C., will also be added three times weekly. In Atlantic Canada, Fredericton, and Saint John, N.B., will each receive three times weekly summer service beginning 24 June. Stephenville will return to the schedule on 30 June with one flight per week, increasing to two weekly flights starting 31 July. Jetsgo’s summer schedule will be effective through the Labour Day weekend for most destinations.

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NEWS ARTICLES JETSGO REINSTATES NAVCAN SURCHARGE INTO ADVERTISED FARES

CANADIAN AFFAIR TO RESUME LONDON-EDMONTON SERVICE

WESTJET TO LAUNCH NEW LOYALTY PROGRAM WITH BMO AND AIR MILES

AMERICA WEST EXPANDS SERVICE FROM LAS VEGAS

Jetsgo will re-instate the NavCan surcharge as a separate item into its advertised fares, effective immediately. On 21 January 2004, the carrier had incorporated all surcharges into its fares, but Air Canada, WestJet, and CanJet has not followed. The charge ranges from $9-$20 depending on the flight length.

WestJet has completed an agreement with BMO Bank of Montréal and The Loyalty Group, founder of the Air Miles Reward Program, to market a tri-branded MasterCard for personal and small business customers. The card will allow customers to earn and redeem Air Miles, in addition to unique WestJet related benefits. Specific reward options will be announced later in 2004, when the program is officially launched.

US AND INTERNATIONAL AIRLINES IATA PASSENGER AND FREIGHT TRAFFIC GROWS STRONGLY

According to International Air Transport Association (IATA) figures, worldwide passenger and freight traffic increased by 5.9% and 7.2% respectively, yearover-year in January 2004. In the Middle East, after a slow down due to the war in Iraq, passenger traffic increased by 30.3% during the month. Traffic in the Asia Pacific and Africa also increased, which can be partly attributed to the New Year’s holiday in Asia. In North America and Europe, passenger traffic increased by 3.3% and 3.8% respectively. Average load factor was 73.3% for the month of January.

Page 9 March 2004

Beginning 2 May, U.K. tour operator Canadian Affair will resume weekly summer charters between London Gatwick and Edmonton International Airport. The service will increase to twice weekly in June, and will be operated by My Travel Airline with A330 aircraft.

America West Airlines has begun new non-stop service between Las Vegas and Austin, El Paso, San Antonio, Cleveland, Edmonton, and Vancouver. Starting June 1 st, the carrier will also initiate daily service between Las Vegas and Fresno, San Luis Obispo, Medford, and Calgary. In addition, service between Las Vegas and Santa Barbara will be increased from one per day to two daily.

AMERICA WEST EXPANDS EDMONTON SERVICE Starting June 4 th, America West Airlines will launch daily non-stop service between Los Angeles International Airport (LAX) and Edmonton, Canada. The new service will be provided by America West Express using Canadair regional jet aircraft.

AMERICA WEST EXPANDS VANCOUVER SERVICE America West Airlines will introduce daily nonstop service between LAX and Vancouver International Airport, Canada. America West Express will operate the new service with Canadair regional jet aircraft.

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NEWS ARTICLES ATA PLANS LAUNCH OF SCHEDULED EUROPEAN FLIGHTS

JETBLUE TAKES FIRST STEP TOWARDS CANADIAN EXPANSION

SPIRIT AIRLINES RECEIVES APPROVAL TO EXPAND INTERNATIONAL ROUTES

CATHAY PACIFIC TO LAUNCH NON-STOP HONG KONG-NEW YORK SERVICE

ATA Holdings Corp., parent company of ATA Airlines, plans to offer scheduled service to Europe within the next two years. Based in Chicago, the carrier currently operates flights throughout the U.S. to Mexico and the Caribbean, and also provides the U.S. military with charter service to worldwide destinations. International destinations currently make up approximately 20% of ATA’s total capacity. The carrier indicated that it would operate between popular tourist destinations, such as Florida and small European cities.

Spirit Airlines has received approval from the U.S. Department of Transportation to operate to 11 countries in North America, Central America, and the Caribbean, including Canada. The carrier currently has one international flight, from Fort Lauderdale to Cancun, Mexico. Spirit Airlines is expected to announce its first international destination from Detroit Metropolitan Airport by the end of March 2004, while most of the other international destinations will be operated from Fort Lauderdale-Hollywood International Airport.

New York based JetBlue Airways has filed an application with the U.S. Department of Transportation (DOT) for a certificate that would allow it to operate scheduled services between the U.S. and five countries, including: Canada, the Bahamas, Bermuda, the Dominican Republic and Jamaica. It has also asked the DOT for an exemption to allow the carrier to launch three daily flights to the Dominican Republic starting in June 2004. JetBlue currently operates to 23 destinations in 11 U.S. states and Puerto Rico.

Cathay Pacific Airways will become the first carrier to launch daily non-stop service between Hong Kong and New York J.F.K. Airport on 1 July. The flights will be operated with the ultralong-haul A340-600. With the continuation of its one-stop service via Vancouver, Cathay Pacific will become the only carrier to operate double daily service between Hong Kong and New York.

LOW-COST OZJET PLANNED FOR AUSTRALIAN DOMESTIC MARKET

Formula One Minardi Team head, Paul Stoddart, plans to launch Ozjet in October 2004. The low VALUAIR TO LAUNCH FROM SINGAPORE cost Australian carrier will fly to cities along the Australian east coast using both primary and IN MAY Singapore’s first low cost carrier, ValuAir is set to secondary airports. Fares will average AUD $149 launch in May 2004 with two leased A320s. The one-way. carrier will initially operate to Hong Kong, Jakarta, and Bangkok, with flights to India, Perth, and China likely to be introduced in the next phase of expansion. ValuAir indicated that its fares will be 40-50% lower than full-service airlines, but still offer basic meals and drinks for passengers.

Page 10 March 2004

NEWS ARTICLES CANADIAN AIRPORTS

AIRCRAFT MANUFACTURERS

YVR ANNOUNCES CDN$1.4 BILLION CAPITAL PROGRAM

EMBRAER BEGINS DELIVERY OF 170 MODEL

The Vancouver International Airport Authority has announced a CDN$1.4 billion capital program to upgrade the airport. This includes the addition of nine new international gates, renovations to domestic terminal areas, upgrades to the parkade, airport roads, baggage systems, runways, taxiways, security, and also the Airport Spur portion of the Richmond-Airport-Vancouver (RAV) Transit Line. The upgrades are designed to accommodate the 23 million passengers expected by 2013, as well as new and larger aircraft.

Brazil based Embraer has begun delivery of the Embraer 170. LOT Polish Airlines has taken delivery of one jet, while U.S. Airways has taken delivery of two Embraer 170s. Embraer plans to deliver 53 of the 170 model this year.

CARGO ATA REPORTS MARGINAL RTK INCREASE

The Air Transport Association (ATA) reported that 1.8 billion revenue ton-miles were transported in the first YVR INCREASES NORTH AMERICA AIF The Vancouver International Airport (YVR) will month of 2004, an increase of 0.6% over the use the airport improvement fees (AIF) to finance same month in 2003. the CDN$1.4 billion capital program. The AIF for passengers travelling to destinations within North 3 NEW AIRCRAFT FOR KLM CARGO KLM Cargo took delivery of 3 America will increase from $10 to $15 effective 1 Boeing 747-400Fs in February. The January 2005. The AIF for passengers travelling aircraft will help KLM Cargo lower within B.C. ($5) and to destinations outside North unit costs by increasing the efficiency and America ($15) will remain unchanged. The AIF flexibility of its fleet. will be incorporated into airline tickets and no longer be collected at the terminal after 1 June UPS DENIES BID TO CANCEL AIRBUS 2004.

ORDERS

UPS has denied reports that it was in talks with Airbus to cancel more than US$1.6 billion in A300-600 aircraft orders. Ninety of the aircraft The Greater Toronto Airports were ordered in 1998 and 2001, with 32 of the Authority (GTAA) has applied for an planes delivered in January and 8 more expected appeal of the Ontario Superior Court’s decision that gives Air Canada preferential rights this year. The Wall Street Journal reported that UPS wanted to cancel 20 of its remaining 50 to 14 gates at the airport’s new terminal. The orders but because some of the planes are airport had recently announced that it would allocate eight gates to Air Canada, and have the already in production, UPS had been told that no more than 16 could be cancelled. Airbus carrier share the other six with WestJet. However, Air Canada claimed that it had reached commented that they were discussing delivery a deal with the GTAA earlier in January 2001 for rescheduling with UPS for some aircraft. priority access to all 14 gates. The new terminal is set to open 6 April 2004.

GTAA APPEALS COURT DECISION ON GATE ALLOCATION

Page 11 March 2004

NEWS ARTICLES ABX AIR REPORTS FIRST PROFIT AS INDEPENDENT COMPANY

ABX Air, the former cargo airline unit of Airborne Express now an independent airline following the acquisition of Airborne’s ground services by DHL, reported that in their 4 th quarter the airline earned US$274 million in revenue and net earnings of $7.6 million or $0.13 per diluted share. ABX Air ended 2003 with US$1.16 billion in revenues and a net loss of $447 million. The loss resulted from a $466 million impairment charge, net of taxes, taken during the third quarter of 2003. Without the charge, net earnings were $19.2 million, or $0.33 per diluted share.

EUROPEAN UNION TO IMPOSE DUTIES ON SUBSIDIZED FOREIGN CARRIERS

The European Parliament has passed legislation that will enable the European Commission to impose duties on foreign carriers that received government subsidies and have used them for competitive advantage. European airlines have claimed that the subsidies granted by the U.S. government to U.S. airlines have distorted the transatlantic market in the U.S. carriers’ favour.

EUROPEAN COMMISSION TO PROPOSE AIRPORT FEE RULES

Following its Ryanair-Charleroi decision, the European Commission has confirmed that it is AIR CHINA TO PLAN COUNTRY’S THIRD working on a set of guidelines for airport fees. The guidelines will cover many types of CARGO AIRLINE Air China, in a joint venture arrangements, including those between statewith CITIC Pacific of Hong owned airports and airlines as well as privately Kong and Beijing Capital International Airport, owned airports. has committed CNY3.5 billion (CDN$566 million) for the carrier’s new international cargo airline. EUROPEAN COMMISSION SINGLE SKY Air China’s four Boeing 747-200Fs have been RULES BY YEAR-END acquired for the airline’s fleet and will be Following the passage of Single Sky framework supported by the carrier’s eight 747-400Cs and legislation, the European Commission expects four 747-400s. The cargo airline will fly to 36 to implement the first rules supporting the major provincial capitals and cities domestically legislation by year-end. The rules will require and to 27 international destinations. Air China’s nations to set up air traffic management (ATM) main cargo competitors are China Southern supervisory bodies to certify and monitor ATM Airlines and China Cargo Airlines. organizations, require transparent charging procedures for user fees, flexible access to military airspace, and harmonization of airspace REGULATORY/GOVERNMENT categories, as well as the development of equipment standards, including flight data EUROPEAN COMMISSION APPROVES processing.

AF/KLM MERGER

The European Commission gave conditional approval to the Air France – KLM merger on 11 February 2004. The two airlines agreed to surrender 47 pairs of slots per day at their main hubs in order to comply with competition rules. The merger will see KLM join the SkyTeam Alliance.

Page 12 March 2004

NEWS ARTICLES US DEVELOPING OVERSEAS INSPECTOR PLAN

The US Department of Homeland Security (DHS) is developing a plan to station American inspections officers in major airports overseas. Seven specific cities are being considered, including London, Tokyo, Paris, Frankfurt, and Mexico City. The inspections officers would screen passenger lists for people on security alert lists. The DHS says the plan could save airlines and governments money that would be spent on processing fines and returning rejected passengers to their point of origin. Currently, an airline pays a US$10,000 fine for every such passenger it brings into the U.S. U.S. Customs officials said that officers would have no legal authority and that the airlines would decide whether to let a passenger board or not. U.S. Customs also said that each country would have the freedom to choose to participate or not.

CANADA AND RUSSIA REACH NEW AIR SERVICES AGREEMENT

Canada and Russia have agreed to a new air services agreement that will allow each nation's respective carriers to increase services between the two countries. The agreement also includes specified rights for over-flights into each other's airspace. In November 2003, the two governments had reached a temporary arrangement that allowed Air Canada to fly over Russian airspace on route from Toronto to India.

Page 13 March 2004

PEOPLE ATLAS AIR WORLDWIDE NAMES JEFFREY H. ERICKSON NEW CEO

In addition to his current role as president, Jeffrey H. Erickson has been named chief executive officer of Atlas Air Worldwide. As of 30 January 2004, he replaces John Blue who served as acting CEO since March 2003 when the board of directors replaced Richard Shuyler. Atlas Air Worldwide is in a restructuring process and intends to emerge from Chapter 11 later this year. World Airways Chairman and CEO Hollis Harris will retire this spring. Gen. Ronald Fogleman (Ret.) will replace him as non-executive chairman, and by Randy Martinez, who will become president and CEO.

FREDERICK REID LEAVES DELTA FOR VIRGIN USA

Delta’s President and COO, Frederick Reid, will leave Delta Air Lines in April to become chief executive of Virgin Group’s new lowcost U.S. airline, Virgin USA. The new carrier is scheduled to launch in early 2005. Delta’s Chief Executive Gerald Grinstein intends to fill Reid’s position internally.

ECONOMIC OUTLOOK

Ian Kincaid Manager, Economic Analysis

6% 5% 4% 3% 2% 1% 0%

2003

2001

1999

1997

1995

1993

1991

1989

-2%

1987

-1% 1985

has been in a slump since the early 1990s, sparked by a stock market crash in 1989. Part of the reason for the prolonged stagnation is deflation – falling prices, the opposite of inflation. Deflation discourages both consumer spending and business investment, and it lowers wages. However, recent data suggests that Japan is turning a corner. In the last quarter of 2003, Japan’s real GDP grew by 7% - its fastest growth since 1990 and the 4 th consecutive quarter of positive growth. Real GDP growth for the whole of 2003 is expected to be around 2.7%.

1983

Japan. Lost in Deflation? Japan’s economy

Japan’s Real GDP (% Change)

1981

10 March 2004

Source: Statistics Bureau of Japan

There is good reason to believe that Japan’s economic expansion can continue. Domestic consumption is on the rise, and business profits and investment are booming (business investment increased by 8.8% in 2003), largely due to increased exports. Many analysts expect deflation to turn to “healthy” inflation this year or the next, so long as the Bank of Japan sticks to its expansionist monetary policy. There are still major problems to overcome - Japan’s public debt stands at over 160% of GDP and many industries need major reform, particularly banking. However, the outlook is brighter than it has been for considerable time.

Elsewhere in Asia… China, Hong Kong, Taiwan and South Korea

China’s economy continues its impressive performance, growing by 8.5% in 2003. This follows over five years of GDP growth in the range of 7-8% per annum. The Economist Intelligence Unit forecasts that China’s economy will grow by 8.4% in 2004, and by 7.8% in 2005. At present, there is no evidence that China’s economy is over heating – inflation remains below 5%. Hong Kong has been suffering from deflation which, like Japan, put a major drag on the economy. Real GDP growth in 2001 and 2002 was in the range of 0.5-2% per annum. GDP growth in 2003 is was also around 2%, but this is fairly impressive given that Hong Kong bared the brunt of the SARS outbreak. The Hong Kong economy is expected to pick up over the next few years due, in part, to closer ties to China’s economy. Real GDP is forecast to grow by 6.5% in 2004, and by 4.0% in 2005. Deflation is expected to come to an end in 2005. Strong economic growth is forecast for Taiwan in the next few years. GDP growth is expected to be 5.4% in 2004 and 4.9% in 2005 (GDP growth in 2003 was 2.7%), boosted by closer ties with China’s economy and increased exports. South Korea’s economy grew by 2.7%, somewhat slower than previous years – South Korea averaged 7.5% annual growth between 1999 and 2002. The economy is expected to pick up in 2004, growing by 5.1% followed by 4.2% growth in 2005.

More tourism for Canada? As these Asian economies grow, there is potential for increased

tourism to Canada. This will depend on effective marketing by government and businesses. One important step is for Canada to obtain Approved Destination Status (ADS) from China. ADS designation reduces the amount of bureaucracy Chinese citizens must go through to visit a country and allows that country to market itself in China as a tourist destination. Canada does not yet have ADS designation but the Chinese government has indicated Canada is its next priority. Australia obtained ADS in 1997 and has seen tourist traffic from China quadruple in five years. Page 14 March 2004

REGIONAL JETS AT LOW COST CARRIERS? March 2004

In June 2003, JetBlue announced that it had placed an order for up to 200 Embraer 190 jet aircraft. It was the first significant move by a low cost carrier (LCC) away from a single fleet type, and the first time a major LCC had ordered regional jets. Subsequently, both Southwest Airlines and WestJet Airlines confirmed that they too are considering adding smaller aircraft to their fleets. Critics note that adding a second aircraft type increases the costs of crew training and scheduling, maintenance and spare parts inventories. Furthermore, the higher unit cost of smaller jets has been considered inconsistent with running a low cost operation. So why has JetBlue made this move?

John Weatherill Senior Airline Analyst

In order to operate aircraft large enough to minimise unit costs, but small enough to turn quickly at the gate, LCCs have historically selected planes in the 120-160 seat range. For any type of aircraft, there are a fixed number of routes which have the market size to support the corresponding level of capacity. With the exceptional growth posted by low cost carriers in recent years, the number of routes which can support additional narrowbody Low cost carriers have typically flights becomes continually reduced. operated planes in the 120-160 seat While LCCs generally stimulate new traffic with their range, but many markets are simply too low fares, some markets are simply too small to small to support this size of aircraft. support large jet service. In such cases, LCCs will be LCCs with one fleet type ignore forced to ignore (or abandon) these routes in favour potentially profitable routes, and face of larger markets. The introduction of smaller aircraft limits to growth. by JetBlue, and possibly others, has the potential to fuel continued growth by LCCs.

Economics of Smaller Aircraft – Better Than Expected Smaller aircraft can offer both cost advantages and revenue advantages to an airline in certain circumstances. Cost Advantages: Low Trip Costs for Low Traffic Routes Smaller aircraft generally have lower trip costs than larger aircraft, and will therefore have lower passenger costs, up to the aircraft's capacity. Beyond the smaller jet's capacity, however, there is potential for the larger plane’s higher trip costs to be spread over more passengers, which may result in a lower passenger cost than the RJ can achieve. However, where passenger demand is less than the regional jet's traffic spill level, the smaller aircraft (with the lower trip cost) will always be more profitable. Revenue Advantages: Smaller Capacity Increases Yields Introducing smaller aircraft reduces available capacity in the market, which can improve yields. With less capacity, airlines need to sell fewer deeply discounted seats in order to fill their flights, resulting in a greater proportion of higher yield traffic and improving average passenger revenue. The combination of both cost and revenue advantages means that smaller aircraft can provide positive contribution at significantly lower levels of demand than larger aircraft.

Page 15 March 2004

REGIONAL JETS AT LOW COST CARRIERS? - CONTINUED Characteristics of Appropriate Markets Low cost carriers often stimulate new traffic by offering additional capacity at low fares. The degree of traffic stimulation depends on the relative price discount offered after the LCC enters the market. However, the pricing in the market is indirectly dependent on the level of available capacity, which in turn depends on the type of aircraft in use. Smaller aircraft provide less capacity, generating higher yields and stimulating less new traffic. With this combination of lower trip costs and higher fares, but less traffic, it is estimated that an Embraer 190 can be viable in markets that are approximately 30% smaller than those required to support an A320. This difference would allow an A320 operator such as JetBlue to offer direct service between at least 350 additional city pair markets in the United States alone.

Smaller aircraft result in less market stimulationâ&#x20AC;Śbut with lower trip costs and higher yields, small jets such as the Embraer 190 can be viable in markets that are about 30% smaller than those required to support an A320.

Which Aircraft is Best for Low Cost Carriers? The choice of small aircraft depends on a number of variables, many of which are airline-specific. However, the smaller narrowbodies offered by Boeing and Airbus have relatively high trip costs, as they carry many of the same expenses (and weight) as the other family members. Smaller regional jets, such as the EMB 175 and CRJ 700, have relatively high unit costs, making their introduction into LCC fleets less likely in the short term. As a result, LCC fleet expansion is expected to occur in the 85-105 seat range, with the EMB 190 and CRJ 900 as the two main options. While the CRJ offers a lower trip cost, the combination of lower unit costs, higher revenue generating capacity and greater passenger comfort may lead a number of LCCs to the EMB 190.

Industry Implications: Winners and Losers The addition of smaller aircraft to low cost carrier fleets will have significant impacts on the aviation industry. LCCs will continue aggressive expansion to additional markets, while legacy carriers will face additional competitive pressures. Airports of all sizes will enjoy additional LCC service, both in terms of new markets and additional frequencies. However, legacy carrier hubs may be negatively affected as LCC non-stops divert connecting traffic from network feeder markets, and congested airports and air traffic regions will face even greater capacity pressures as new regional jets are deployed.

Understanding the Issues and the Opportunity: Order the Full Report InterVISTAS has undertaken a study which evaluates the economics of regional jets in a low cost business model, and which identifies the significant implications of this development for both airlines and airports. Industry stakeholders that can recognise this potential trend, and airports that can demonstrate their ability to support RJ services, stand to benefit the most. Page 16 March 2004

InterVISTAS Consulting Market Intelligence Report ÂŠInterVISTAS Consulting Inc.

REGIONAL JETS AT LOW COST CARRIERS? - CONTINUED This report will be of great value to airports seeking to attract low cost carrier service to their communities. Tourism organisations will also find it useful, as deployment of these aircraft have implications for the price of air access as well as for network connectivity. Financial analysts and government officials will want to understand the emerging economics of this segment of the industry. The full report on the economics of Regional Jets at Low Cost Carriers is available for $250 from InterVISTAS Consulting Inc. To obtain copies, please contact: John Weatherill, Manager Airline Planning, InterVISTAS Consulting Phone: 1 (604) 717-1865 Fax: 1 (604) 717-1818 Email: john_weatherill@intervistas.com Reports can be obtained in print or in electronic formats, and unlimited copies are authorised for circulation within your organisation.

Page 17 March 2004

InterVISTAS Consulting Market Intelligence Report ÂŠInterVISTAS Consulting Inc.

CANADA’S RJ REVOLUTION COMING SOON TO AN AIRPORT NEAR YOU 9 March 2004

Air Canada has recently ordered 45 Embraer 190 aircraft.

Canada’s skies are changing. Air Canada recently ordered 90 new regional aircraft from Bombardier and Embraer – 45 from each manufacturer. Potentially following the lead taken by JetBlue in the U.S., WestJet has also shown some interest in adding aircraft to its fleet. At first glance, these acquisitions may not create much of a stir for airport operators, but they will have subtle yet notable impacts to Canadian airport facility planning and development.

How important is this acquisition? Although details of Air Canada’s new Business Plan have

Marcel Champagne Senior Planner

yet to be released, the new aircraft orders will significantly shift the carrier’s fleet mix, and likely downsize the average size of aircraft deployed on the mainline carrier’s domestic and transborder routes. Once these aircraft deliveries are completed over the next few years, regional jets could comprise between one third to one half of Air Canada’s fleet – depending on whether the carrier downsizes or maintains its current aircraft inventory, and what proportion of RJs will be transferred to AC Jazz. 4

Where will these aircraft be deployed? At present, all bets are on as to the strategy Air Canada will adopt for RJ deployment. However, scenarios could include use of RJs for one or a combination of the following: §

Increased flight frequencies to hub airports such Toronto, Montréal, Calgary and Vancouver, including from medium size Canadian Airports;

New point-to-point services between medium size markets; and/or

Down-gauging of aircraft size on many routes.

Regardless of the strategy adopted, most medium and larger Canadian airports will see increasing RJ traffic over the coming years.

What does this mean for airport facilities? Increased RJ traffic could generate a number of new operational demands on existing or planned facilities.

The drive base that serves as a cantilever to apron drives does not always enable the bridge to descend to RJ aircraft doors.

Aircraft Bridge Capabilities. Aircraft bridge clearances are a function of the aircraft they are designed to serve. Regional jets have very low ground clearances and as a result are incompatible with most existing fixed aircraft bridges. While many smaller airports already possess apron drive bridges, or are replacing older fixed bridges with apron drives that could be adapted to RJ operations, these do not always enable the lower reach required to attain the doors of regional aircraft.

Air Canada and its pilots unions reached a tentative agreement on March 4, 2004 on the allocation of aircraft between the mainline carrier and AC Jazz. Details of the agreement have yet to be released, but it is believed that CRF aircraft will be flown by Jazz and the large ERJ fleet will be flown by mainline pilots. 4

Page 18 March 2004

CANADAâ&#x20AC;&#x2122;S RJ REVOLUTION - CONTINUED

Apron drives use a system similar to that of a cantilever that enables the head of the bridge to rise or descend to reach aircraft doors. The higher the connection point to the terminal building, the lower the ability the bridge has to descend to the height of an RJ given the position and the design of the drive base that serves as the cantilever. These characteristics can present challenges at airports where passenger holdrooms are situated on the second level of the terminal. Manufacturers such as Dewbridge and Jetway manufacture aircraft bridges specifically suited for regional aircraft. Apron Layouts. Increased RJ traffic will generate different apron management demands. In an attempt to maximize the efficiency of RJ operations, air carriers will prefer power-out operations over use of tractors for push-back. A number of airports already constrained for space have elected however to maximize apron space through layouts that prevent power-out movements. Airport operators could increasingly come under pressure from air carriers to reconfigure apron layouts to accommodate more independent operations. In some cases however, minor adjustments to aircraft parking stand alignments can enable existing stands to accommodate RJ power-out movements while at the same time continue to provide for movements of larger aircraft (such as the A-320 or B-737) in push-out mode. Terminal Traffic. RJ operations could increasingly occur at times when demand is thinner, or to increase frequency on routes also served at other times by larger single aisle jets. At airports where this scheduling will occur, hourly passenger traffic peaks will fluctuate and could generally flatten throughout the day. Theoretical facility sizing requirements could be driven down, while shifts in air carrier, concession and security staffing models could occur.

What should airport operators be doing today? Different RJ deployment models will likely

emerge in different markets. Regardless of the extent of RJ traffic to occur at individual airports, Canadian airports need to plan for and develop airport facilities that will meet the operational requirements of an increasing share of RJ traffic. Meanwhile, preserving the flexibility to eventually accommodate slightly larger aircraft when market conditions once again change will also be required to minimise potentially costly capital expenditures on facility redevelopment.

Page 19 March 2004

InterVISTAS Consulting Market Intelligence Report ÂŠInterVISTAS Consulting Inc.

CANADA’S NEW RESTRICTED AREA IDENTIFICATION CARDS 9 March 2004

The Canadian Air Transport Security Authority was given additional responsibilities in November 2002, on top of those outlined in the April 2002 CATSA Act. These include the screening of nonpassengers, launched last month, and enhancing the Restricted Area Pass program. Unlike the United States, Canada has screened and fingerprinted workers requiring access to secured areas through the Restricted Area Pass (RAP) program since 1987. CATSA is now ready to augment the credentialing capabilities of RAP through a new “Restricted Area Identification Card (RAIC)” program for 150,000 airport employees coast to coast. Starting with pilot projects in Vancouver, Montréal-Trudeau, Charlottetown, and Kelowna, biometrics (finger and potentially iris), and new smart cards will be used every day to authenticate individual identities and authorities to enter restricted areas. CATSA is targeting to roll out RAIC at 29 major airports in 2004.

Solomon Wong Director, Security & Planning

Key Advantages The biometrics selected for RAIC (Bioscrypt finger, LG Iris cameras) and the smartcards (HID) will significantly augment the fidelity of the restricted areas. The probability of an individual not authorized to enter a restricted area would be significantly diminished. Furthermore, the use of a central CATSA database will allow for a “national pass” system capability.

Major Deployment Considerations The deployment of RAIC in 2004 will face key challenges. Clear communications with airport workers and change management strategies are needed to successfully deploy RAIC to the Canadian airports environment. For instance, there continues to be a misconception amongst Canadians about the significance of biometrics cards and the privacy of biometric templates. Moreover, the deployment of a system that is a condition of employment may have implications for labour relations. One of the critical operational considerations is the speed for which someone accessing the restricted area can be cleared to proceed. In larger airports, for example, a 5 second transaction time could create a queue of nearly 10 minutes during morning peak periods. Furthermore, solutions and standards for anti-piggybacking have yet to be advanced to prevent 1 cardholder from allowing passage of multiple individuals into a restricted area.

What about Perimeter Fence Security? Airport operators are still responsible for maintaining the primary security line. CATSA’s RAIC program simply provides an advanced set of tools that are deployed nationally. Some of the possibilities include the deployment of readers at the perimeter fence for larger airports; however the choice of finger biometric may need to be modified in order to deal with freezing temperatures.

Integration with other initiatives? CATSA is not the only agency deploying biometric card systems. In past issues of the Industry Review, these have been detailed as Nexus-Air, Canpass-Air, and the potential national identity card. Of direct relevance to airport workers is the new Transportation Worker Identification Credential (TWIC) being advanced by the TSA. Whether RAIC will be interoperable with the TWIC card remains to be seen. This integration would be a positive step in streamlining the passage of flight crews from airports in the U.S. and Canada alike. Page 20 March 2004

THE OTTAWA SCENE 9 March 2004

Transport Minister Valeri Wins Nomination On 6 March 2004, the Honourable Tony Valeri, the Federal Minister of Transport won a hard fought nomination battle against Sheila Copps, for the right to represent the Liberal party in the next Federal election in the newly created riding of Hamilton East-Stoney Creek. With the nomination process now over, Minister Valeri will be focusing on substantive transportation policy issues leading up to the election, which is expected to be called for late spring 2004.

Transport Minister Issues Call For Proposals For Transportation Planning And Modal Integration Projects Sam Barone Regional Vice President, Ottawa

A call for proposals for projects that advance transportation planning and enhance integration and connections between modes of transport was announced by Transport Minister Tony Valeri on 26 February 2004. "The Government of Canada recognizes that a strong and efficient transportation system is vital to Canada's continued economic success. Improved transportation planning and modal integration will better position us to meet the challenges of the 21st century," said Mr. Valeri. "Today's call for proposals demonstrates our commitment to supporting innovative approaches that enhance the sustainability of the transportation system." The types of proposals eligible for funding include: § research studies that provide greater understanding of urban and multimodal transportation; § planning and feasibility studies and projects; § development and dissemination of information management tools, including traffic demand management; § infrastructure and technologies to improve connections between modes or modal integration; § initiatives to facilitate modal partnerships or cross modal/shipper partnerships; and § development of organizations to plan and manage passenger and freight transportation activities in urban areas. Provinces, municipalities, First Nations, registered not-for-profit organizations, private enterprises, public or private transportation authorities/agencies and academia may apply. Partnerships between two or more of these entities are encouraged.

Transport Minister Announces Updated Standards For Training Of Flight Crews On 24 February 2004, Transport Minister Tony Valeri announced new aviation security training standards, designed to assist flight crews in managing on-board security threats. In the fall of 2003, Transport Canada updated security guidance material for flight crewmember training. This confidential guidance material has now been formally adopted. It describes new procedures and training requirements for flight crewmembers to deal with, among other things, hijackers, chemical/biological threats, and the presence of aircraft protective officers on board aircraft.

Page 21 March 2004

THE WASHINGTON REPORT 10 March 2004

This month’s report has a European flavour…

European Commission and U.S. Department of Justice approve Air France/KLM “Merger”

The European Commission and the U.S. Department of Justice authorized the merger between Air France and KLM. As a condition of the approval, the airlines were required to address concerns about competition on the Paris – Amsterdam and other routes, and between Europe and the United States. Forty-seven daily slot pairs will be surrendered by the airlines to be made available to rivals in order to maintain competition. The Dutch and French governments are required to refrain from regulating prices on long-haul routes where other carriers offer competing, indirect services. They are also required to give traffic rights to other carriers wishing to stopover in Amsterdam or Paris enroute to the United States. The merger opens 90 new routes to KLM and 40 to Air France.

Charles Chambers Senior Vice President GA2 AND Regional Vice President InterVISTAS Consulting Inc. Washington, D.C.

European Union Passports to Contain Biometrics by 2005

European Union passports will have digital machine-readable photographs and contain chips with biometric data. Including fingerprints will be up to the individual E.U. states to decide. A database will also be established to store photos of all E.U. passport applicants. The United States will require biometric passports by 26 October 2004 for entry without a visa. The E.U. is seeking to extend the visa waiver to 2005.

European Airports: A Generator of Jobs

A study by Airports Council International (ACI) finds that for every 1 million passengers passing through European airports, nearly 6,500 people are supported in air travel related jobs at a national, regional, or local level. The study found that airports create jobs, generate inward investment, and increase prosperity for the regions they serve. ACI Europe’s 450 member airports registered 1 billion passengers, amounting to 6.5 million jobs. The study also found that regional and local airports played a similar role in their areas as do major airports acting as key drivers of national economies.

Senate Panel finds TSA had Role in Data-Mining Project

A Department of Homeland Security (DHS) audit found that 6 Transportation Security Administration (TSA) employees persuaded jetBlue airways to share personal passenger data with a Department of Defense (DOD) experimental anti-terrorism screening project, but did not violate privacy rules under the Privacy Act of 1974. The DHS has announced that it will set up clear rules for voluntary and compulsory data sharing with private sector companies to make sure the practice complies with the Privacy Act. The TSA has also instituted a plan to ensure the Agency complies with the Privacy Act.

U.S. Airline 2003 Losses Half of 2002 Losses

US$5.5 billion was lost by the ten major U.S. airlines in 2003, compared to $11 billion in 2002. Revenue totalled $81.8 billion, up 1.1% from 2002. Operating expenses declined 7% to $ 84.6 billion in 2003. 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. Information contained herein is provided for the use of InterVISTAS Consulting Inc. only, and may not be distributed beyond the Airport. Prepared by InterVISTAS Consulting Inc.

Page 22 March 2004