CAIR Issue No. 39 - March 2006 by Leah Dupuis

INTERVISTAS ’ CANADIAN AVIATION INTELLIGENCE REPORT

In this issue… Features Columns: • Economic Outlook: Consumer Expectations (p.1) • India’s Outbound Travel Market (p.3) • Avian Flu Update: Continued Spread Across Asia, Europe, Africa & the Middle East (p.4) • Future of the Canadian Dollar: Topped Out? (p.12)

Regular Reports: • Airline Data-Canada (p.6) • Airline Data-U.S. (p.7) • Airport Data (p.8) • Industry News (p.9) • Washington Report (p.14) • Ottawa Report (p.15 • InterVISTAS News (p.16)

ECONOMIC OUTLOOK: CONSUMER EXPECTATIONS 15 March 2006

Measures of consumer confidence and expectations can be a useful indicator of consumer expenditures in the near future. While not necessarily accurate in predictions of economic performance as a whole, the relationship between expectations and spending means that changes in expectation can nonetheless have an effect on the economy overall.

Jan-06

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Mar-05

Jan-05

Feb-05

Dec-04

Oct-04

Nov-04

Sep-04

Canada. Canadian consumer confidence measures include the Canada - Consumer Sentiment and Expectations present situation index and 115 expectations index, measured by Present Situation Index TNS Canadian Facts. The trend in 110 Expectations Index the present situation index has been generally upward over the 105 last two years, with some dips including a sharp monthly decline 100 from August to September 2005. However, this decline was from a 95 generally healthy level of consumer confidence, and has rebounded 90 well over the last several months, reaching its highest level since the Source: TNS Canadian Facts measure has been tracked in July 2004. The consumer expectations index has been relatively stable overall but has also suffered declines, falling to its lowest level ever in September, with a one-month drop from 100.9 to 94.4. Expectations began to rise in October and have since reached highs, though the rise has been less pronounced than for the present situation index. These high levels of consumer expectations bode well for maintaining strong consumer expenditures in the near future. Jul-04

Transportation Specialist

Aug-04

Josh Drury

Consumer expectations in both the U.S. and Canada declined sharply at the end of last summer, when Hurricanes Katrina and Rita devastated much of the U.S. Gulf Coast and crippled oil and gas refining, resulting in economic shocks across both countries. As the initial shocks have abated and recovery in the region has begun, these measures have rebounded to near or above pre-hurricane levels. Perhaps not surprisingly, consumer expectations in the U.S. reacted more sharply and have recovered less quickly and completely than in Canada.

The U.S. Several measures of consumer confidence in the U.S. are collected including the longrunning University of Michigan Consumer Sentiment Index, which includes measures for consumer sentiment (reflecting current conditions) and consumer expectations. While Canadian and U.S. measures are not directly comparable, the trends in the U.S. have been more pessimistic than in Canada.

Page 1 March 2006

ECONOMIC OUTLOOK:

CONSUMER EXPECTATIONS – CON’T

Jan-06

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Page 2 March 2006

Aug-06

Both U.S. indices were on a U.S. - Consumer Sentiment and Expectations downward trend but showed 100 signs of improvement in the summer of 2005, before declining sharply in August and September 90 2005. Consumer sentiment and consumer expectations bottomed 80 out in October at 74.2 and 63.2 respectively, the lowest levels seen since 1992. Since October Consumer Sentiment 70 Consumer Expectations the measures have rebounded, but still remain below levels seen 60 in July 2005, and have again started to decline in recent months. These numbers indicate Source: University of Michigan Consumer Sentiment Index a generally more cautious consumer climate in the U.S., and may represent a trend in weakening consumer spending, which has been a key driver in recent U.S. economic growth.

INDIA’S OUTBOUND TRAVEL MARKET Growth of India’s Outbound Market India’s outbound travel market has been growing steadily over the past few years, with the exception of a temporary SARS related decline in 2003. As illustrated in Figure 1, over the past 10 years, the outbound travel market has doubled from 2.7 million outbound travelers in 1994 to 5.4 million in 2004. The World Tourism Organisation predicts that outbound travel from India will reach 50 million by 2020. The primary driver of India’s outbound travel market is strong economic growth driven in part by government reforms that were implemented in the 1990s, including liberalisation of regulations on industry, imports, foreign direct investment, financial systems and civil aviation. Figure 1: Total Outbound Travel from India 8

Sushma Narayan Number of Travellers (millions)

Senior Project Analyst

SARS outbreak and war in Iraq

4 2.7

3.1

3.5

3.7

3.8

4.1

4.4

4.6

4.9

5.4 4.5

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: Travel and Tourism in India (Euromonitor Report-April 2005).

India’s Travel Market Characteristics Market Origin. The top outbound originating markets from India include Mumbai (33%), New Delhi (21%) and Chennai (13%). Residents of these three cities have higher levels of disposable income relative to people from other parts of India. The higher number of outbound travellers from these cities is also partly driven by the business travel that originates from these markets (e.g., Mumbai is the business centre of India, New Delhi is the government centre). Seasonality of Travel. The peak travel season for outbound leisure travel from India includes the school summer holidays (mid April to end of June), the Diwali festival holiday (from the end of October/early November for three weeks), 1 and the traditional Christmas and New Year’s holidays (two weeks in December/January).

Page 3 March 2006

INDIA’S OUTBOUND TRAVEL MARKET – CON’T Top Outbound Destinations. Canada is currently not among the top destinations visited by Indians. During 2004, 5.4 million Indians travelled to other countries. Among the top five countries visited, Singapore experienced 440,000 visits, representing 8% of the total outbound trips made by Indians. The United Arab Emirates experienced 314,000 Indian visitors, representing 6% of the total Indian outbound trips. The U.S. (296,000 visitors), Thailand (254,000 visitors), and the UK (246,000 visitors) each represent approximately 5% of the total Indian outbound market. The remaining countries among the top 10 were China (173,000 visitors), Hong Kong (170,000 visitors), Malaysia (163,000 visitors) and France (146,000 visitors). All these destinations accounted for approximately 3% each of the total outbound Indian travel in 2004. Canada currently represents only a marginal percentage of the total outbound Indian travel market. Air Access. Air service to Canada from India is limited. As illustrated in Table 1, there are currently no non-stop direct services between India and Canada. In October 2005, Air Canada cancelled its thrice weekly New Delhi-Toronto non-stop service. It currently offers a daily one-stop service from New Delhi to/from Toronto via Zurich. Air India operates a daily service on a peculiar routing from Amritsar to Birmingham to Toronto. Current air service levels between India and Canada are underdeveloped, relative to the international air bilateral agreement. According to the bilateral agreement, air carriers from Canada and India can each operate up to 35 flights per week for a total of 70 weekly flights in each direction between India and Canada. Currently, Air Canada and Air India are only offering a combined 10 flights per week between India-Canada. Table 1: Direct Air Services between India and Canada (2006) Origin-Destination Carrier Weekly Frequency

Weekly Capacity

New Delhi-Amritsar-Birmingham-Toronto

Air India

876

New Delhi-Zurich-Toronto

Air Canada

1,540

2,416

Total

Source: Air carrier websites (on-line flight schedules for week of February 2006).

Implications. The World Travel & Tourism Council predicts that India will be the second fastest growing outbound travel market in the world during 2005-2014, averaging 8.8% growth in travellers per year, second only to China. This further reinforces that the outbound Indian travel market will be a significant global tourist market in the future.

Page 4 March 2006

AVIAN FLU UPDATE: CONTINUED SPREAD ACROSS ASIA, EUROPE, AFRICA & THE MIDDLE EAST Poultry Cases Increase…

Angelica Sparolin Research Manager

Since the beginning of February 2006, the H5N1 virus has been found in wild or domestic birds in 17 new countries in Asia, Africa, the Middle East and Europe. The virus has also been detected in domestic cats in Germany and Austria. While these new cases have received much attention in the media, threat to humans remains low and human-to-human transmission has not been detected. The World Health Organization (WHO) is not recommending any travel restrictions to countries with H5N1 outbreaks at this time, nor is it recommending screening of travellers coming from H5N1 affected areas.

…But Minimal Impact on Tourist Volumes to Date To date, there has been very little reported impact of H5N1 on travel and tourism volumes. Only Turkey, which experienced 12 human cases and 4 human deaths in Source: BBC early 2006, has reported some impact. Tourism visits were down 5% in January 2006 versus January 2005 and resort operators are reporting significant declines in advance sales for the summer (declines between 10% and 30%). However, not all of the declines are being attributed to the bird flu outbreak; some is also being attributed to protests in the region over the publication of the Prophet Mohammad cartoons. In response to these declines, the Turkish Tourism Ministry is launching a campaign to encourage Turks to spend their vacations in their homeland, and some operators are offering significant price reductions to foreign visitors. Looking back at the impact that SARS had on global tourism, the UN-World Tourism Organization is strongly encouraging both governments, through their travel advisories, and the media, through their coverage, to act responsibly in preventing unwarranted decreases in tourism, especially to developing nations. However, unlike advance emergency preparations for SARS, which were limited prior to its outbreak, preparations for a human influenza pandemic are already well underway within international organizations, government and private industry. IATA has said that the aviation industry has never been better prepared for an epidemic, and is currently working with the WHO to develop guidelines for airport staff, cabin crew and cleaners, as well as with wider tactical plans. Some airlines are already training staff on how to respond to an outbreak and are stocking masks, goggles and gloves on planes. Despite these preparations, the impact of a pandemic flu outbreak on travel and tourism may be significant depending on the severity and geographic location of an outbreak. As IATA's Director General and CEO Giovanni Bisignani stated, “Avian Flu is the wild card for 2006.” Page 5 March 2006

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

OTHER CARRIERS: LOAD FACTORS CanJet: not reported

Air Carrier

Capacity

Revenue Passenger Kilometres

Load Factor

Available Seat Kilometres

% Change % Change over 2005 from 2004

% Change over 2005

% Change from 2004

Change over 2005 +0.8 pts (to 78.7%)

Change from 2004 +6.1 pts (from 72.6%)

Air Canada2

+1.6%

+3.2%

+0.5%

-4.8%

Domestic (Mainline)

-4.8%

-6.7%

-7.3%

-13.4%

+2.0 pts

+5.6 pts

Jazz

+84.0%

+110.3%

+81.2%

+72.6%

+1.1 pts

+13.0 pts

International & Charter

+4.1%

+7.3%

+3.5%

-1.3%

+0.4 pts

+6.3 pts

+21.7%

+70.2%

+41.9%

+7.9 pts (to 80.8%)

+13.4 pts (from 67.4%)

WestJet

+9.7%

Analysis:

Air Canada domestic traffic continued to slide during February 2006, amid the continued transfer of capacity to Air Canada Jazz. Jazz traffic increased 84% during the month. Air Canada International traffic and capacity continued to grow during February, albeit at a slower pace than in previous months. Transatlantic traffic and capacity achieved the highest growth of all international regions, increasing 11.3% and 13.4% respectively over February 2005. WestJet load factor increased to 80.8% during the month, 7.9 percentage points higher than in February 2005. This is the first time that WestJet load factor has surpassed 80% since August 2005. WestJet has also surpassed Air Canada as the load factor leader.

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

Jazz data is not included in this graph

Feb- Mar 05

May

Jun

Jul

Dom RPK

Aug

Sep

Oct

Nov

Dec Jan- Feb 06

Dom ASK

Air Canada International 15% 10% 5% 0% -5% -10% Feb05

Mar

Apr

May

Jun

Jul

Int'l RPK

Aug

Sep

Oct

Nov

Dec

Jan06

Feb

Int'l ASK

WestJet 60% 50% 40% 30% 20% 10% 0% Feb- Mar 05

Apr

May

Jun

Jul

RPK

Aug

ASK

Sep

Oct

Nov

Dec Jan- Feb 06

Air Canada consists of all Air Canada operations with the exception of Jazz.

Page 6 March 2006

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

Notes: Sources:

Page 7 March 2006

1. 2.

Load Factor

Traffic (RPMs – millions)

(ASMs – millions)

75.0%

9,862

13,141

Ç2.8 pts

Ç2.7%

È1.2%

70.0%

637

911

Ç5.8 pts

Ç21.0%

Ç11.1%

70.9

265

375

Ç12.5 pts

È49.4%

È58.3%

76.0%

7,925

6,019

Ç2.1 pts

Ç9.9%

Ç13.0%

74.3%

7,742

10,415

Ç3.3 pts

È8.6%

È12.7%

83.4%

1,685

2,021

È0.1 pts

Ç25.3%

Ç25.1%

81.8%

5,080

6,211

Ç4.2 pts

È7.6%

È12.4%

68.5%

4,689

6,849

Ç5.2 pts

Ç17.3%

Ç8.5%

76.9%

8,243

10,725

Ç2.1 pts

Ç4.4 pts

Ç1.7%

75.7%

4,434

5,861

Ç4.9 pts

È8.7%

È14.5%

Capacity

Mainline operations only. Load factor includes scheduled service only. Carrier traffic reports.

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

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Regina

+9.8%

MontréalTrudeau +14.4%

+13.2%

+9.6%

+12.9%

+13.6%

+7.0%

+4.7%

+12.4%

+9.7%

St. John’s +11.9%

+8.7%

+4.5%

+3.8%

+10.2%

+7.8%

+5.5%

+7.0%

+4.8%

+7.1%

+15.8%

+8.5%

+1.5%

+10.2%

+8.2%

+5.5%

+17.5%

+12.5%

+7.3%

+9.7%

+7.1%

+15.4%

+19.5%

+22.2%

+19.6%

Quarter

+11.2%

+7.5%

+7.7%

+13.7%

+10.0%

+8.4%

+10.0%

+6.3%

+9.3%

+16.0%

+13.3%

+11.5%

April

+4.0%

+3.9%

+5.7%

+3.5%

+5.5%

+0.1%

+4.3%

-0.2%

+2.6%

+18.8%

+3.8%

+9.8%

Toronto

Vancouver

January

+15.0%

February March 1st

2005 2006

May

+6.7%

+5.5%

+3.6%

+12.2%

+12.0%

+5.5%

+8.0%

-4.5%

+5.8%

+26.3%

+5.7%

+8.5%

June

+6.3%

+4.0%

+7.5%

+10.1%

+13.9%

+3.4%

+2.9%

-0.5%

+6.8%

+22.7%

+12.4%

12.4%

2nd Quarter

+5.7%

+4.5%

+5.6%

+8.6%

+10.4%

+3.1%

+5.0%

-1.8%

+5.1%

+22.6%

+7.3%

+10.3%

July

+3.6%

+3.4%

+4.0%

+11.2%

+11.7%

+4.8%

+4.5%

-9.7%

+1.2%

+15.9%

+10.9%

+14.0%

August

-1.1%

+2.7%

+1.5%

+12.7%

+8.8%

+4.4%

+4.6%

-6.4%

+5.2%

+26.4%

+2.4%

+8.9%

September

+4.5%

+2.6%

+7.4%

+7.9%

+13.5%

+7.1%

+6.6%

+0.3%

+2.9%

+16.1%

+13.9%

+8.9%

3rd

+2.2%

+2.9%

+4.1%

+10.7%

+11.2%

+5.4%

+5.1%

-5.6%

+3.1%

+19.6%

+8.8%

+8.0%

October

-0.1%

+4.3%

+3.7%

+7.1%

+16.7%

-0.7%

+6.4%

-0.7%

+3.1%

+16.1%

+12.8%

-0.9%

November

+0.6%

+5.2%

+4.1%

+12.1%

+10.7%

-2.5%

+6.2%

+3.0%

+8.5%

+24.0%

+15.6%

+5.0%

December

-0.6%

+0.5%

+4.3%

+10.3%

+4.9%

-3.5%

+5.4%

+5.6%

+3.8%

+19.1%

+9.5%

+7.9%

4th Quarter

+0.0%

+3.2%

+4.0%

+9.8%

+10.4%

-2.2%

+6.0%

+2.4%

+4.9%

+19.6%

+12.5%

+3.6%

Full Year

+4.6%

+4.4%

+5.4%

+10.6%

+10.5%

+3.6%

+6.5%

-0.4%

+5.5%

+19.3%

+10.6%

+8.2%

January

+1.1%

-1.7%

+1.4%

+9.1%

+10.7%

+1.0%

+2.8%

+5.4%

+6.2%

+20.3%

+4.4%

+9.7%

Quarter

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 Page 8 February 2006

NEWS ARTICLES AIR CANADA UPDATE AIR CANADA EXPANDS TRANSBORDER SERVICE FROM TORONTO Air Canada announced on 7 March that it will introduce daily non-stop service from Toronto to Salt Lake City and San Diego. The Salt Lake City flights begin 2 June, and will be operated with Bombardier CRJ-705 aircraft. The San Diego service begins 1 July and will use Airbus A319 aircraft. AIR CANADA INAUGERATES CALGARYNEW YORK NON-STOP FLIGHTS Air Canada inaugurated daily non-stop service between Calgary and New York on 1 March. The Calgary flights will service John F. Kennedy Airport. AIR CANADA RESUMES EDMONTONMONTREAL SERVICE On 2 March, Air Canada launched non-stop daily service between Edmonton and Montreal. The year-round service will be serviced with Embraer E190 aircraft. AIR CANADA AND UNITED SEEK U.S. DOT APPROVAL FOR MEXICO SERVICE United Airlines and Air Canada are seeking U.S. Department of Transportation approval for blind-sector code sharing to allow Air Canada to hold out Canada-Mexico service. Air Canada needs the specialised authority to permit Air Canada passengers, arriving from points in Canada, to connect with United flights from Denver, Los Angeles, and San Francisco destined for various Mexican locations. JAZZ LOSES COURT BID FOR ACCESS TO TORONTO CITY CENTRE Air Canada Jazz was denied a court order that it hoped would permit the regional airline to continue using the downtown Toronto airport. Jazz was seeking a court injunction after it received a 30-day eviction notice from City Centre Aviation Ltd. on 31 Page 9 March 2006

January. Jazz has suspended all flights from the airport.

OTHER CANADIAN AIRLINE NEWS WESTJET ANNOUNCES SCHEDULE ENHANCEMENTS On 8 March, WestJet announced numerous enhancements to its schedule, including new seasonal non-stop services and added frequencies. The new daily non-stop seasonal flights include service between Edmonton and Hamilton (24 June – 28 October), and between Toronto and Abbotsford (13 June – 28 October). New non-stop daily service between Vancouver and Ottawa will launch 22 August and daily Vancouver to Hamilton service will commence 1 May. In addition to these new flights, WestJet has also added additional service between Toronto and Calgary, and Edmonton and Vancouver, Winnipeg, Victoria, and Hamilton. TRANSAT TO ACQUIRE THOMAS COOK Transat A.T. announced on 13 March that it will acquire Canadian travel agency network Thomas Cook Travel for $7.4 million. Included in this acquisition is the Thomas Cook network of 190 travel agencies, as well as 22 foreign exchange offices. HARMONY ANNOUNCES VANCOUVERCALGARY SERVICE Beginning 14 May, Harmony Airways will operate six-day a week service between Vancouver and Calgary. The flights are scheduled to connect Calgary travelers through to various transpacific Vancouver flights to Asian destinations on partner air carriers Japan Airlines and China Eastern.

TRANSAT 1ST QUARTER PROFIT UP Transat A.T. has announced that first quarter profits ended 31 January 2006 are up $7 million to $5.2 million, from a loss of $1.8 million in 2005. The profit was posted despite revenues falling 1.2% from 2005, down to $581.6 million.

CARGO AIR CANADA RECEIVES CARGO LICENSE Air Canada has obtained a license from the Canadian Transportation Agency (CTA) to operate an all-cargo service using Canadian aircraft and crew. Air Canada was criticised by the CTA for previously using American cargo planes to operate domestic flights, but still managed to receive the license. CARGOJET RECEIVES NEW FREIGHTER CargoJet recently took possession of its 11th freighter. Another 727-200 Advanced, this particular one has winglets, slightly differentiating it from the others in the fleet. The aircraft will join in regular rotation in the CargoJet schedule. CARGOLUX TO RECEIVE TWO 747-400S BEFORE 747-8 DELIVERIES Cargolux has been identified by Boeing as the previously unidentified customer of two 747-400 freighters. Cargolux is to receive the freighters in 2007 and 2008. Cargolux also has 10 firm orders and 10 options for the 747-8 freighters, which are scheduled to begin delivery in 2009.

CANADIAN AIRPORTS GTAA TO LAUNCH REGISTERED TRAVELLER PROGRAM AT PEARSON On 13 March, the Greater Toronto Airports Authority signed an agreement with Verified Identity Pass Canada to develop a registered traveller program at Toronto Pearson International Airport. The program would allow enrolled passengers to have their security check-in process expedited, Page 10 March 2006

but they first would have to undergo a scrutinous background check and submit biometric data.

PEOPLE IN THE NEWS ATA NAMES VP SKED ATA Airlines has appointed Josef Loew as senior VP of scheduled service. ATA has two divisions, scheduled service and military/charter service. Previously Loew was with SITA-Canada and has an MBA from the University of Calgary. WESTJET CFO TO LEAVE IN JUNE WestJet announced on 8 March that their current Executive Vice-President of Finance and CFO, Alexander Campbell, would be leaving the company as of 15 June. Mr. Campbell has been with WestJet since 1996 and has held the CFO position since 1997. Mr. Campbell plans to assist WestJet in finding his replacement. PORTER AIRLINES ANNOUNCES SENIOR MANAGEMENT TEAM On 28 February, Robert Deluce, President of REGCO Holdings Inc., announced the senior manage team for REGCO’s wholly owned subsidiary, Porter Airlines. James Morrison, former VP and General Manager of Execaire, will serve as VP and COO. D. Paul Moffat was named as VP and CFO. Mr. Moffat last served as CFO and Chief Compliance Officer of Prudential of America Life Insurance. Finally, Michael Deluce was announced as Executive VP – Corporate Strategy and Contracts.

OTHER GLOBAL PA UP 6% IN 2005 On 14 March, Airports Council International reported that worldwide passenger traffic increased 6% to 4 billion during 2005. The highest growth rates were in the Latin America/ Caribbean and Middle East regions, each increasing 10% in 2005. International passenger travel grew 8% to 1.6 billion. Worldwide cargo traffic grew 3% to 78.7 million metric tons during 2005, while international freight grew 3% to 42.7 million tons.

FRONTIER/HORIZON ADDS DENVERCALGARY

Frontier has announced its first route into Canada, Denver-Calgary, beginning 25 May. The route will be operated double daily for Frontier by Horizon with a CRJ-700. UNITED ADDS SERVICES TO CANADA Beginning 8 June, United Airlines has announced plans to offer daily service from Denver to Toronto and from Washington D.C. to Halifax. Also, the airline will offer daily flights from Vancouver to Washington from June to September.

Page 11 March 2006

DELTA TO SERVE ATLANTA-CALGARY Delta Air Lines has announced that it will inaugurate non-stop service between Atlanta and Calgary. The four times weekly flights commence 8 June. DELTA TO ADD SUMMER BOSTON-QUEBEC CITY SERVICE Beginning 15 June, Delta Air Lines has announced that it will offer summer service between Boston and Quebec City. The service will operate daily. DESTINA.CA ENDS OPERATIONS Effective 22 March, online travel site Destina.ca, will cease service. Destina.ca is owned and operated by Destina eCommerce Group LP, an affiliate of Air Canada.

FUTURE OF THE CANADIAN DOLLAR: TOPPED OUT? 2 March 2006

As you can see in Figure 1, from the University of British Columbia, the Canadian dollar is on the threshold of moving from a 14 year high to a 28 year high. However, the dollar may be topping out, as the following passage from FXstreet (known for its technical analysis of markets) shows: "On balance, this scenario allows for some weakening of the Canadian Dollar versus the US Dollar, at least on a temporary basis. The technical picture of the Canadian Dollar itself also suggests a skewing of probabilities in favor of a decline versus the US Dollar. For instance, Canadian Dollar futures have been unable to generate the same strong momentum on their most recent push to new highs as was generated during the early and middle stages of the advance, between 2003 and 2005." –FXstreet

Michael Tretheway

Figure 1: Monthly Average Exchange Rates USD per CAD (January 1971 – March 2006)

Executive Vice President

Technical Analysis Suggests Dollar Has Peaked The Canadian dollar moves, to a large extent, with commodity prices (oil, copper, gas, lumber, paper, etc.) While some commodity prices are still strong, others are showing signs of reversing. Oil markets have been attempting to drop, potentially dramatically, for some months now. Copper is similarly showing weakness. Nevertheless, while some downward adjustment in commodities appears imminent, markets are unlikely to return to the ultra low (real) price levels of 3-5 years ago. It is difficult to forecast future prices, of course, but the evidence seems to be pointing to the Canadian dollar topping out, but also not declining precipitously. FXstreet (known for its technical analysis of markets) seems to be suggesting an 84 cent floor to the dollar.

Page 12 March 2006

FUTURE OF THE CANADIAN DOLLAR: TOPPED OUT? - CON’T Slow U.S. Economy May Help Keep CAD Elevated Also contributing to a "end-of-rise-but-no-big-fall" scenario for the Canadian dollar is the continuing sluggish U.S. economy, which seems unable to adjust to the new market realities. While new Federal Reserve Chairman, Ben Bernanke, needs some time to settle in, his opening remarks to the U.S. Congress leave a 1974 déjà vu sense. In 1974, the U.S. was gradually pulling out of the 1971 recession, when U.S. President Ford and the Federal Reserve decided to beat back on inflation. (Beating back on inflation seems to be the essence of Bernanke's recent comments.) The result was that the U.S. was driven into a second recession, during which the Canadian dollar maintained its strength. Unlike the U.S., Canada has a strong positive trade position, government budget surpluses and declining government debt (declining total debt and an even bigger decline in debt as a percent of GDP), and increasing oil production. As well, Canada is emerging as a world leader in alternate energy with emerging fuel cell and high efficiency rail locomotive enterprises.

Past Conservative Agendas Have Lifted Dollar A political interpretation of the course of the Canadian dollar might be that the political agendas of Trudeau and Chrétien manifested themselves in a weak Canadian dollar, while the dollar strengthened with the Conservative agendas of Mulroney and Martin (small c conservative).

The Near Term Looks to be in the 80’s In any event, whether looked at from a technical analysis point of view, a political viewpoint, or on the basis of economic fundamentals, it seems highly unlikely that we will see a 62 cent or 72 cent dollar in the near future. A Canadian dollar at par with the U.S. dollar is possible, but the probability of this is also declining. The dollar will continue to be volatile, but for the near future technical analysis seems to be indicating it will be in an 80 cent to 90 cent range.

Page 13 March 2006

WASHINGTON REPORT 10 March 2006

Authorities Investigate Price Fixing by Cargo Airlines The U.S. Department of Justice, along with the European Union and other national authorities, are examining possible price fixing by cargo airlines. The alleged co-operation involves agreements regarding fuel and post-9/11 security surcharges, which have taken place since 2000. Numerous air carriers were raided or requested for information regarding the probe, including American Airlines, United Airlines, and Polar Air Cargo.

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

U.S. Signs Open Skies Treaty with Cameroon The United States has reached an open skies agreement with Cameroon that permits unrestricted air service by airlines of both countries between and beyond the other’s country. There are no restrictions to frequencies, prices of fares, or aircraft type in the treaty. This agreement will allow cargo carriers to fly between the other nation and third countries without directly connecting through their own country.

Domestic Passenger Traffic Up 4.1% from 2004 On 16 March 2006, the U.S. Department of Transportation’s Bureau of Transport Statistics (BTS) released preliminary traffic data. The BTS reported that airlines carried 660 million domestic passengers in 2005, up 4.1% from 635 million in 2004. Revenue passenger mile growth of 4.5% exceeded 0.9% growth in available seat miles, resulting in a 2.7 point growth in load factor.

Homeland Security Requests Doubling of Airline Ticket Fees The Department of Homeland Security has made a $31 billion budget request for fiscal 2007. Included in the request is a proposal to raise an additional $1.3 billion by doubling airline security fees from $2.50 to $5.00 per non-stop flight. Congress rejected a similar proposal to raise security fees last year.

Steinberg Nominated Assistant Secretary of Transportation President Bush has nominated Andrew Steinberg to be Assistant Secretary of Transportation for Aviation and International Affairs. Steinberg is the currently holds the position of FAA Chief Counsel, and has previously served in positions at Travelocity, Sabre and American Airlines.

$13.7 Billion Requested in Budget for FAA President Bush has requested $13.7 billion for the Federal Aviation Administration in his $2.8 trillion budget plan sent to Congress for fiscal year 2007. The funds are proposed for hiring safety inspectors and air traffic controllers, and for the Airport Improvement Program. The budget contains $65.6 billion for the Department of Transportation (DOT), but the DOT is seeking an additional $50 million to fund the essential air service program and $122 million for the Next Generation Air Transportation System.

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OTTAWA REPORT 10 March 2006

Transport Canada Cancels NexJet’s Operator Certificate On 8 March, Transport Canada announced the cancellation of NexJet Aviation’s air operator certificate. The decision was made due to NexJet’s numerous suspensions, notices of suspension, regulatory offences, and an inability to demonstrate operational control. NexJet was also found not to be operating under the conditions for which its certificate was issued. NexJet is a charter air service provider and cannot provide commercial air services without an air operator certificate.

Labrador Coast Airstrips to Receive $1.2 Million in Upgrades Sam Barone Regional Vice President

Ottawa, ON

Federal Minister of Fisheries and Oceans, Loyola Hearn, announced on the behalf of Lawrence Cannon, Minister of Transport, Infrastructure and Communities, that the Canadian Government will contribute $1.2 million to restore facilities at airstrips in Hopedale, Black Tickle, and Postville. The restorations are to take place during 2006-2007 and include upgrades to runway maintenance equipment, snow removal, and installation of a Precision Approach Path Indicator System.

NAV CANADA Announces January Traffic Up 1.2% On 7 March, NAV CANADA, the country’s provider of civil air navigation services, announced traffic figures for January 2006. Compared to the same month in 2005, January traffic was up 1.2%. Air traffic is calculated by weighted charging units, which reflect the number of flights, aircraft size, and distance flown in Canadian airspace.

NAV CANADA Postpones New Charging System NAV CANADA has delayed the introduction of a new charging system, citing the need for more time to review comments made in submissions from stakeholders. The revenue neutral system, designed to better balance charges between large and small aircraft, better reflect the introduction of new technology and better absorb the financial impacts of fluctuations in air traffic, was to have been introduced 1 March. NAV CANADA expects to make a decision on the proposed system in April.

NAV CANADA Reaches Labour Deals with Flight Service Specialists and Financial Administrators NAV CANADA announced on 9 March and then on 10 March that it had reached tentative collective agreements with its flight service specialists and its financial administrators respectively. The flight service specialist agreement is for four years, expiring 30 April 2010. The financial administrator contract expires 7 November 2009.

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INTERVISTAS NEWS March 2006

Tretheway Delivers Kunz Lecture Dr. Michael Tretheway, InterVISTAS Executive Vice President, delivered the Martin Kunz Memorial Lecture at the Hamburg Aviation Conference in February. Dr. Tretheway reviewed the major lessons learned about airline economics in the 30 years since U.S. airline deregulation. He pointed out that many of the key aspects of airline economics are under appreciated in some jurisdictions for the enforcement of competition law. Economics requires that airline consolidation be allowed to cross national frontiers, something being advocated by the industry. As well, he reviewed the role of differential pricing in the achievement of economic efficiency, and pointed out that academic models of the airline industry, and competition authorities have both failed to understand this vital dimension of airline policy. Dr. Tretheway's presentation is available at http://www.hamburg-aviation-conference.de/.

Kincaid Presents Paper on Airport Benchmarking Ian Kincaid and Michael Tretheway delivered a paper on airport benchmarking to the German Aviation Research Society workshop in February. A key aspect of the paper was that benchmarking must be linked to objectives. If the objective is judging the performance of airport management, then different measures should be benchmarked than for assessing the performance of public policy. Kincaid and Tretheway were especially critical of the airport benchmarking 'residual productivity' measure published by the Air Transport Research Society. This measure is based on unstable statistical analysis which saw Newark Airport go from the 4th most productive in the world in one year to being the second worst performer in the next year. They observed that such a result is implausible and more likely reflects deficiencies in the ATRS statistical analysis and model specification than actual performance of an airport.

InterVISTAS Upcoming Speaking Engagements

Mr. Robert Beynon, Director, Airport Marketing ACI-NA Cargo Conference: Oakland, CA – 29 & 30 March 2006 Mr. Beynon will be speaking on the Future Demand of the Air Cargo Industry.

Mr. John Weatherill, Director, Airline Planning World Low Cost Airline Congress (Americas): Miami, FL -- 26 June 2006 Mr. Weatherill will lead a workshop for airline planners and airport marketing personnel. The workshop will educate participants on how to evaluate and structure incentive programs to ensure the objectives of both airport and airlines are met.

Mr. Martin Copeland, Senior Vice President, Airline Marketing & Planning World Low Cost Airline Congress (Americas): Miami, FL -- 27 June 2006 Mr. Copeland will participate in a panel discussion with low cost airline route planning personnel. 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

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