IVC MARKET INTELLIGENCE REPORT
GROWTH OF LOW COST CARRIERS May 2004
No-frills, low cost carriers (LCC) are increasing their presence around the world by expanding their networks and adding new aircraft at rapid rates. The LCC business model is one that has proven to be profitable and is popular among passengers. The LCC model is based on the following fundamentals that drive an LCC’s day-to-day operations:
Sushma Narayan Project Analyst
§
A single passenger class and single type of aircraft.
§
A simple fare structure and unreserved seating.
§
Direct point-to-point short-haul flights with fast turnaround times.
§
Service to economical secondary airports.
LCC activity at an airport is an important generator of traffic. To see how Winnipeg fares, a comparison of the share of LCC domestic seat capacity at Winnipeg International Airport (YWG), Ottawa International Airport (YOW), Edmonton International Airport (YEG), and two Midwest U.S. airports (Columbus, Ohio and Milwaukee, Wisconsin) with similar population levels as Winnipeg is undertaken. The following table provides a comparison of the five airports according to their census metropolitan area population, ACI’s 2002 enplaned and deplaned passenger volumes, and the low cost carriers that currently serve them. Airport, City, Province/State
Est. 2002 Population
2002 Enp/Dep Passengers
YWG, Winnipeg, Manitoba
693,200
2,675,335
YEG, Edmonton, Alberta
978,600
3,773,800
YOW, Ottawa, Ontario
1,119,800
3,216,886
CMH, Columbus City, Ohio
725,200 (city) 1,540,157 (MSA) 1
6,741,354
MKE, Milwaukee City, Wisconsin
590,900 (city) 1,689,572 (MSA) 1
5,613,824
As per April 1, 2000 U.S. Census Bureau data. Page 2 May 2004
Low Cost Carrier and Share of Inbound Seat Capacity WestJet (44%) Zip (20%) Jetsgo (4%) May 2004 Total LCC Share (68%) WestJet (47%) Zip (14%) Jetsgo (2%) May 2004 Total LCC Share (63%) WestJet (19%) Jetsgo (11%) CanJet (8%) Zip (3%) May 2004 Total LCC Share (41%) Southwest (18%) America West (5%) May 2004 Total LCC Share (23%) AirTran (5%) America West (2%) Frontier (2%) ATA (2%) May 2004 Total LCC Share (11%)
1
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
GROWTH OF LOW COST CARRIERS CONTINUED
Seat Capacity Share of LCCs: Between May 2000 and May 2004, the low cost carriers had experienced double-digit growth at the Canadian airports in this analysis. In comparison, the two Mid-West U.S. airports had either experienced a decrease (CMH) or very slight increase (MKE). The following pie chart compares the percentage share of LCC domestic seat capacity at all five airports during May 2004 vs. May 2000. YWG experienced the greatest increase in LCC seats as the LCC share grew 46 percentage points (ppts), followed by YOW up 36 ppts and YEG with an increase of 33 ppts. WestJet’s increasing seats share at YWG and YEG was the main factor for the substantial increase in LCC capacity share at these two airports. Jetsgo, CanJet and Zip added LCC seats to the YOW market in addition to WestJet. WestJet’s presence at YOW is not nearly as substantial as at YWG and YEG.
% Share of LCC Domestic Non-Stop Seat Capacity by Arriving Airport 70% 60%
68%
63%
50% 40%
41%
30%
10% 0%
31%
30%
20%
22% 10% 11% MKE
23%
5% YEG
YOW May-00
YWG
CMH
May-04
Source: Official Airline Guide (OAG) data, May 2000 disk, and May 2004 disk.
Page 3 May 2004
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
HAS P ASSENGER TRAFFIC FULLY RECOVERED FROM 9/11? 15 May 2004
Over the past two and a half years, the airline industry has been hit hard by the tragedy of September 11th; the SARS travel crisis and the Iraq war. With some positive signs of late, we ask the question: have global air passenger volumes fully recovered to pre 9/11 levels?
Canadian Air Travel Total Canadian air traffic volumes were down almost 7% in 2003 from 2000. Travel to the U.S. continued to be weak, with traffic volumes down 16% compared to 2000. Both the domestic and other international travel sectors were down 3% and 6% in 2003 from 2000.
Annual Enplaned/Deplaned Passengers (000s) at Canada’s Top 30 Airports Doris Mak
Year
Domestic
2000 2001 2002 2003
48,487 48,393 46,588 47,047
Senior Market Analyst
% Change from 2000 -0.2% -3.9% -3.0%
Source: Transport Canada.
U.S.
% Change from 2000
Other Int’l
20,459 19,179 18,021 17,194
-6.3% -11.9% -16.0%
14,576 14,559 13,810 13,759
% Change from 2000 -0.1% -5.3% -5.6%
Total of All Sectors 83,522 82,131 78,419 78,000
% Change from 2000 -1.7% -6.1% -6.6%
A closer examination of overall traffic levels shows that there was a positive improvement in 4 th quarter 2003, and the trend has carried forward into 1 st quarter 2004. 1 st quarter 2004 is approximately 4% above 1 st quarter 2000 traffic levels.
U.S. Air Travel Similar to passenger traffic levels in Canada, U.S. air travel is well below 2000 levels, down 14%. Although many U.S. major airlines are reporting strong monthly growth rates in RPMs and passengers carried, this simply may be short-term recovery of traffic from SARS and the Iraq war during 2003. SARS greatly impacted the Asia Pacific travel sector, with 2003 traffic volumes down almost 20% from 2000.
Annual Enplaned Passengers (000s) Carried by ATA Member Airlines Only Year
Domestic
2000 2001 2002 2003
537,886 498,688 473,369 460,170
% Change from 2000 -7.3% -12.0% -14.4%
Source: Air Transport Association.
Int’l 55,532 52,055 51,948 51,024
% Change from 2000 -6.3% -6.5% -8.1%
Total 593,418 550,743 525,317 511,194
% Change from 2000 -7.2% -11.5% -13.9%
Pacific (Subset of Int’l) 13,245 12,130 11,511 10,676
% Change from 2000 -8.4% -13.1% -19.4%
However, similar to Canada, total system-wide U.S. traffic has shown improvement in 1 st quarter 2004. 1 st quarter 2004 traffic volumes are slightly higher than the same quarter in 2002 and 2003, but below 2000. Although traffic levels have not yet recovered to volumes seen in 2000, it is encouraging to see that results from the most recent quarter are showing positive gains. Page 4 May 2004
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
A NEW ERA FOR BOEING?
ALL NIPPON 7E7 ORDER LAUNCHES NEW AIRCRAFT FAMILY 17 May 2004
Boeing announced the launch of the 7E7 Dreamliner following an order for 50 aircraft from Japan’s All Nippon Airways (ANA) in April. The order marks a significant success for the manufacturer. An Efficient and Innovative New Aircraft
Marcel Champagne Senior Planner
Designed to save air carriers money on fuel and operating costs, the 7E7 builds upon technologies that were developed for the now defunct Sonic Cruiser project. Key to the new aircraft is the use of composite materials for the aircraft’s primary structure – including the fuselage and wings – a simplified system architecture, more efficient engines and production economies. The attractiveness of the 7E7 for air carriers is Boeing’s promise that it will use up to 20% less fuel than any other aircraft of its size. Boeing is marketing three versions of the 7E7:
The baseline version of 7E7 Dreamliner offers a range up to 8,500 nautical miles.
§
The long-range (baseline) version offering a range up to 8,500 nautical miles and seating between 200 and 300 passengers, depending on cabin configuration;
§
The short-range version offering a range up to 3,500 nautical miles and seating approximately 300 passengers in a two-class configuration; and
§
The stretch version offering a range similar to that of the long-range version but seating between 250 and 350 passengers, depending on cabin configuration.
Much like the ‘upper-bubble’ design of the 747, Boeing has also integrated new design elements that will allow passengers to easily distinguish the aircraft from existing products. From the outside, the aircraft will have more of a sleek design giving it a distinct and recognisable look. On the inside, Boeing is introducing a completely redesigned interior that will integrate sweeping arches, dynamic lighting, larger windows, and wider seats and aisles, to name a few. Based on initial media presentations and industry comments, the new interior is a crowd-pleaser and will be an important marketing element for the first carriers to operate the aircraft. New Life for Boeing?
Sweeping arches, dynamic lighting, larger windows, and wider seats and aisles, to name a few, will distinguish the aircraft’s interior.
ANA’s order could usher in a new era for Boeing, which has been struggling to inject some vigour in its order books and has been in a fierce battle with Airbus for aircraft sales. The manufacturer recently delivered the last 757-300 aircraft to Continental Airlines and confirmed the end of production of its sister aircraft, the 757-200, for October of this year – largely to be replaced by the 7E7. Questions exist around the future of the 767 program given the limited number of orders the aircraft has received from commercial airlines over the past few years and the review of a potential order for a tanker version of the aircraft from the U.S. Air Force. Attempts to improve the 747 to renew interest amongst air carriers have fallen flat, while orders for the existing 747-400 have also slowed to a trickle. Page 5 May 2004
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
A NEW ERA FOR BOEING?
ALL NIPPON 7E7 ORDER LAUNCHES NEW AIRCRAFT FAMILY (CON ’T) Although Boeing’s 737 and 777 continue to sell well, the manufacturer’s failure to launch the Sonic Cruiser a few years ago was seen by some as a sign that it could soon join the likes of McDonald Douglas and Lockheed. With the 7E7, however, the manufacturer may well have hit a homerun. The new aircraft possesses the capability to not only replace the 757 but also, in its stretch version, the 767. Using technological advances developed for the new aircraft, Boeing is also reportedly considering whether to attempt once again to revamp the venerable 747 and market a large aircraft that would be cheaper to fly than the Airbus A380. ANA’s recent order is a promising sign of a turn-around for Boeing. Already, considerable speculation exists surrounding an even larger order potentially coming from Chinese air carriers for delivery in advance of the 2008 Beijing Summer Olympics. Emirates, not unknown for bold and aggressive moves in the marketplace, is reportedly in discussion with Boeing regarding potential deployment of the stretch version on the carrier’s long thin routes. Lufthansa and Alitalia have also reportedly shown interest in the Dreamliner. Orders from North American carriers will also emerge over time, but likely not until the industry’s current financial situation is eased. As the 707 and the 747 ushered new eras in air travel, the delivery of the first 7E7 to ANA in 2006 may well have a similar effect – bringing in a much needed renewal to the industry.
Page 6 May 2004
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
AIRLINE DATA - CANADA Traffic and Load Factors on Canada’s Major Air Carriers - April 2004 Passenger Traffic
Air Carrier
Capacity
Revenue Passenger Kilometres
% Change over 2003
% Change from 2002
Load Factor
Available Seat Kilometres
% Change over 2003
% Change from 2002
% Change over 2003
% Change from 2002
Air Canada 1
+22.3
-4.9%
+9.5%
-8.8%
+3.1 pts
Domestic (Mainline)
+8.1 pts (to 77.7%)
+17.4%
-8.7%
+4.3%
-9.7%
+8.5 pts
+0.8 pts
Jazz
+12.5%
+1.5%
+6.3%
-10.2%
+3.4 pts
+7.0 pts
International & Charter
+24.5%
-3.2%
+11.8%
-8.4%
+7.9 pts
+4.1 pts
NEW CARRIERS: LOAD FACTORS Jetsgo:
79.1%(April)
WestJet
+31.1%
+83.5%
+31.3%
+101.9%
Zip:
not reported
Jetsgo
+154.5%
N/A
+133.7%
N/A
CanJet:
not reported Analysis: §
§
§
§
In April 2004, Air Canada’s domestic and international traffic recorded the largest year-over-year growth in 18 months. This reflects continuing recovery from the effects of SARS, the war in Iraq and the economic downturn last year. However, it should be noted that both passenger traffic and capacity remain below 2002 levels. Although Air Canada’s load factor in April 2004 increased compared to both 2003 and 2002, increased competition and high fuel prices continue to hurt yields. For the first time in seven months, WestJet’s increase in capacity outpaced traffic growth. However, capacity was added due to the launch of the airline’s enhanced schedule that features a 12% increase in total weekly departures. Load factor decreased marginally to 65.5%. As a result of additional services and aggressive price-cutting, Jetsgo’s traffic and capacity continues to post substantial year-over-year increases. The carrier recorded a load factor of 79.1% in April 2004.
-0.1 pts (to 65.5%) +6.5 pts (to 79.1%)
N/A
Air Canada Canada Domestic Domestic Mainline Mainline 20% 10% 0% -10%
Jazz data is not included in this graph
-20% -30%
Apr03
May
Jun
Jul
Aug Sep
Dom RPK
Oct
Nov Dec Jan- Feb 04
Mar
April
Dom ASK
Air Canada Canada International International 30% 20% 10% 0% -10% -20% -30% -40%
Apr- May 03
Jun
Jul
Aug
Sep
Int'l RPK
Oct
Nov
Dec
Jan- Feb 04
Mar April
Int'l ASK
WestJet 60% 50% 40% 30% 20% 10% 0%
Apr- May 03
Jun
Jul
Aug Sep
Oct
RPK
1Air
-6.6 pts
Nov
Dec Jan- Feb 04
Mar April
ASK
Canada Mainline consists of all Air Canada with the exception of Jazz. Page 7 InterVISTAS Market Intelligence Report May 2004 ©InterVISTAS Consulting Inc.
AIRLINE DATA – U.S. Traffic Data – April 2004 Airline
2
1
2
2
Notes:
1. 2.
Load Factor
Traffic ( RPMs – millions)
(ASMs – millions)
Capacity
74.9 %
10,823
14,433
á 4.4 pts
á 16.0%
á 9.1%
68.1%
514
754
á 4.9pts
á 34.9%
á 25.1%
76.1 %
1,281
1,802
á 1.3 pts
á 4.5%
â 2.8%
77.0%
5,389
6,995
á 4.6 pts
á 20.7%
á 13.4%
74.4%
9,013
12,112
á 3.9 pts
á 21.4%
á 15.0%
86.3%
1,284
1,489
á 2.2 pts
á 43.0%
á 39.4%
80.2%
5,854
7,298
á 8.3 pts
á 16.1%
á 4.1%
76.2%
4,689
6,150
á 9.6 pts
á 19.2%
á 4.1%
79.9%
9,453
11,833
á 8.5 pts
á 24.7%
á 11.6%
79.8%
3,481
4,360
á 5.7 pts
á 13.1%
á 4.9%
Mainline Load factor includes scheduled service only
Sources: Carrier traffic reports.
Page 8 May 2004
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
Summary of Total Year-Over-Year Passenger Traffic Performance at Selected Canadian Airports
+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% +1.6%
+2.8% -0.6% -1.4% +0.2% -13.6% -13.2% -9.8% -12.1% -4.5% -1.2% -3.0% -2.8% -3.1% +2.2% +2.8% +0.5% -3.7% +1.5%
February
+7.9%
+7.9%
+20.3%
+5.8%
+10.7%
+13.9%
+11.7%
+5.6%
+11.4%
+11.6%
+7.8%
+2.8%
+19.8%
March
+8.7%
+5.2%
+22.2%
+2.5%
+8.0%
+11.4%
+11.4%
N/A
+8.2%
+2.6%
+10.6%
+3.9%
+21.3%
1st Quarter
+6.1%
+4.8%
17.9%
+4.2%
+8.6%
+9.7%
+9.9%
N/A
+10.5%
+ 6.5%
+5.3%
+5.0%
+18.0%
2003 2004
Page 9 May 2004
Vancouver
Calgary +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% +4.2%
Edmonton
Kelowna
Saskatoon
Regina
+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% +12.4%
+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% +5.9%
+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% -1.8%
-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% +8.3%
St. John’s -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% +12.8%
Ottawa
Winnipeg
Halifax
Victoria
+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% +7.7%
+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% +3.5%
+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% +6.4%
+4.5% +13.8 +11.7% +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% +3.2%
CANADIAN A IRPORTS
January February March 1st Quarter April May June 2nd Quarter July August September 3rd Quarter October November December 4th Quarter Full Year January
MontréalTrudeau +6.0% +0.4% +0.1% +2.1% -9.0% -7.4% -0.7% -5.5% +3.0% +2.0% +2.3% +2.4% +2.7% +9.0% +8.5% +6.4% +1.3% +10.9%
Toronto
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
NEWS ARTICLES AIR CANADA UPDATE
FUEL PRICES 11 May 2004 SPOT OIL PRICES CONTINUE TO INCREASE FUTURES PRICES INCREASE Crude Oil Prices: Spot – US$40.06 (up 6.6% from April) Futures •
6 month - $38.68 (September 2004 delivery)
•
12 month -$35.24 (April 2005 delivery)
•
2 year - $32.18 (April 2006 delivery)
•
5 year - $28.35 (December 2009 delivery) Monthly Spot Prices Prices
AIR CANADA REPORTS $145 MILLION LOSS IN FIRST QUARTER Air Canada reported an operating loss, before reorganisation and restructuring expenses, of $145 million in the first quarter. This represents an improvement of $209 million over the same period last year. Operating revenues decreased by 4%, while operating expenses were reduced by 12%. Reorganisation and restructuring items totalled $132 million during the quarter. AIR CANADA REACHES REVISED AGREEMENT WITH DEUTSCHE BANK FOR $850 MILLION RIGHTS OFFERING Air Canada has reached an agreement in principle with Deutsche Bank to increase the stand-by rights offering from $450 million to $850 million. The deal is subject to several labour and pension conditions that must be met by 15 May (see related stories below), and also assurances from the Government of Canada that Air Canada will be subject to the same regulatory rules the other Canadian carriers upon exit from bankruptcy protection. The deal has been approved by the Ontario Superior Court.
$45.00
$35.00 $30.00 $25.00 $20.00
Ap r Ma y
Ma r
Fe b
Oc t No v De c Ja n-0 4
Se p
Ju l Au g
Ju n
$15.00 Ma y-0 3
US$ per Barrel
$40.00
AIR CANADA BEGINS SOLICITATION FOR NEW EQUITY PARTNER Air Canada has been authorised by the Ontario Superior Court to begin a second equity solicitation process. The carrier is now seeking $250 million from a potential investor, which is no longer a condition to emerge from bankruptcy protection.
Page 10 May 2004
GECAS EXTENDS AIR CANADA FINANCING DEAL Air Canada has reached an agreement with GE Capital Aviation Services (GECAS) to extend the terms of its Global Restructuring Agreement to 30 September. The deal addresses leases and other obligations on over 100 aircraft, outlines the terms of the $802 million in financing provided by GECAS upon the carrier’s exit from bankruptcy protection, and includes up to $1.3 billion in financing for the purchase of regional aircraft. AIR CANADA AND JAZZ REACH TENTATIVE AGREEMENTS WITH SEVERAL LABOUR UNIONS Air Canada has reached tentative agreements with the Air Canada Pilots Association (ACPA), Canadian Airline Dispatchers Association (CALDA), and the International Association of Machinists and Aerospace Workers (IAMAW), to reduce labour costs. Jazz has also reached tentative agreements with the Air Line Pilots Association (ALPA), CALDA, and Teamsters Canada. The deals are subject to membership ratification, and are part of the $200 million annual in labour cost reductions required in the Deutsche Bank Standby Purchase Agreement. Although not finalised, an agreement in principle has been reached with the Canadian Union of Public Employees (CUPE). Negotiations are ongoing with Air Canada’s remaining union, the National Automobile, Aerospace, Transportation and General Workers Union of Canada (CAW).
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
NEWS ARTICLES AIR CANADA REACHES AGREEMENT WITH OSFI ON PENSION FUNDING Air Canada has reached an agreement with the Office of the Superintendent of Financial Institutions (OSFI) on funding of its pension deficit. The agreement includes a Protocol under which the OSFI will recommend the Federal Government to adopt a regulation that allows the carrier to fund the pension over a 10-year period. Current regulation stipulates that the maximum funding period is five years. According to the Protocol, the deficiencies will be paid down in accordance with an agreed upon schedule of variable annual payments. Air Canada has agreed to remit $34 million, subject to court approval, in special payments to certain pension plans immediately. The Protocol is subject to several conditions, including Air Canada's emergence from CCAA by 31 December 2004, the amended regulations coming into effect, and consent from the pension plan beneficiaries. This agreement satisfies the funding relief condition in the standby purchase agreement with Deutsche Bank. AEROPLAN TO REBRAND Aeroplan, the loyalty program owned by Air Canada, plans to rebrand to place less emphasis on its relationship with the carrier. Approximately 35% of Aeroplan’s revenue comes from Air Canada. The company has also announced the elimination of blackout periods, and an increase in the number of seats available for reward tickets from four million to six million annually.
Page 11 May 2004
AIR CANADA CHANGES OPERATIONAL STRUCTURE Air Canada has split its operational structure into two groups: Customer Experience, and Operations, effective immediately. Steve Smith, formerly President, Zip Air, is now Senior VP of the Customer Service group. Rob Reid, Acting President and CEO, Air Canada Technical Services (ACTS) and VP System Operations Control (SOC) is appointed Senior VP, Operations. Bill Bredt, formerly VP, Network and Revenue Management will assume the position of President, Zip Air. AIR CANADA NAMES WELCH GM OF TORONTO Air Canada announced that effective 17 May, Michael Welch will become General Manager, Toronto Pearson International Airport for the carrier. Mr. Welch will be responsible for the carrier’s customer service and performance in Toronto. Previously, Mr. Welch was Managing Director, Operations, at Continental Airline’s Newark hub. AIR CANADA SETTLES GATE DISPUTE WITH GTAA Air Canada and the Greater Toronto Airports Authority (GTAA) have reached an out of court settlement over the allocation of three gates at Terminal 2 of Toronto Pearson International Airport. Under the agreement, the gates will be converted to common use, but Air Canada will be able to use them to accommodate overflow traffic from Terminal 1. AIR CANADA LAUNCHES ONBOARD RESTAURANT SERVICE ON 10 U.S. ROUTES Air Canada has expanded its onboard food service to ten U.S. routes including flights between Toronto and New Orleans, Tampa, Fort Lauderdale, Miami and Minneapolis, and Montréal-Miami, Montréal-Fort Lauderdale, Halifax-Orlando, Ottawa-Chicago, and Vancouver-Anchorage. The service is offered in co-operation with Cara Operations.
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
NEWS ARTICLES JETSGO TO INTRODUCE TORONTOABBOTSFORD SERVICE Starting 24 June, Jetsgo will launch non-stop services between Abbotsford, B.C., and Toronto, three times weekly. JETSGO TO LAUNCH TORONTO-LOS ANGELES FLIGHTS, BOOST NEWARK SERVICE On 30 July, Jetsgo will begin three times weekly services between Toronto and Los Angeles. In addition, service between Toronto and Newark will be increased with the addition of Saturday flights on 26 June, and a second Sunday flight starting 1 August. Jetsgo currently operates three daily weekday flights between Toronto and Newark. JETSGO TO LAUNCH SUMMER SERVICES AHEAD OF SCHEDULE Jetsgo’s non-stop flights between Victoria and Toronto will be launched 5 June, three weeks earlier than previously announced. Service will also be increased from three weekly flights to four flights per week. Service between Stephenville and Toronto will start 27 June, two times weekly. JETSGO LAUNCHES GOLD MASTERCARD Jetsgo has introduced a Gold MasterCard in co-operation with National Bank of Canada. The card allows customers to earn points for Jetsmiles, the carrier's frequent flyer program, and redeem for free flights on Jetsgo. Jetsmiles has no blackout periods, advance booking requirements, or booking fees, but security taxes and airport fees apply.
Page 12 May 2004
U.S. AND INTERNATIONAL AIRLINES PHILIPPINE LAUNCHES NEW SERVICE Philippine Airlines has inaugurated a trans-Pacific A340-300 service from Manila International Airport to Las Vegas, via Vancouver International Airport. The airline’s weekly service accommodates 264 passengers and 23 tons of cargo, and operates with 5 th freedom rights between Vancouver and Las Vegas. UNITED AIRLINES RECEIVES EXCLUSIVITY EXTENSION The bankruptcy court overseeing United Airline’s restructuring has approved an extension of the exclusivity period for the carrier’s reorganisation plan to 30 June. US AIRWAYS BECOMES OFFICIAL STAR ALLIANCE MEMBER U.S. Airways was invited to join the Star Alliance last year, but had to resolve technical issues to ensure that all its departments met the required standards. Star Alliance membership will allow U.S. Airways’ frequent flyers to accrue and redeem miles on any of the alliance’s 15 member carriers. VALUAIR LAUNCHES HONG KONG SERVICE Singapore-based Valuair has started daily services to Hong Kong with A320 aircraft. Valuair is the first low cost carrier to launch services to Hong Kong.
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
NEWS ARTICLES EMIRATES TO LAUNCH DUBAI-NEW YORK SERVICE Beginning 1 June, Emirates will introduce daily non-stop flights between Dubai and New York (JFK) with A340-500 aircraft. This is the first direct service offered by the carrier between Dubai and North America. Emirates currently serves 75 destinations in 52 countries. POSSIBLE CHAPTER 11 FILING FOR DELTA? In its Form 10-Q filing on May 10th, Delta Airlines stated: “If we cannot achieve a competitive cost structure, regain sustained profitability and access the capital markets on acceptable terms, we will need to pursue alternative courses of action intended to make us viable for the long-term, including the possibility of seeking to restructure our costs under Chapter 11 of the U.S. Bankruptcy Code.” In its filing, it noted its cost structure is materially higher than the LCCs, and that other full network carriers have significantly reduced costs through bankruptcy or the threat of bankruptcy. AIR BERLIN PROFITS INCREASE IN Q1 Air Berlin posted a 37% increase in its Q1 revenues, totalling €170 million (C$280 million). The airline also posted a 34% increase in passengers and an overall load factor of 75%. Air Berlin is the third largest low-cost carrier in Europe and also provides charter services. The airline is considering an IPO to fund expansion plans that will include an order for up to 70 new aircraft.
Page 13 May 2004
CANADIAN AIRPORTS YVR’S 7-ELEVEN WINS MOST INNOVATIVE CONCESSION AWARD ACI-North America has named the 7Eleven convenience store at Vancouver International Airport (YVR) as the “Most Innovative Concession” in its category. The store was opened in 2001, and provides 24-hour service to passengers and employees. HALIFAX AIRPORT AWARDED FOR MOST INNOVATIVE CONCESSION ADVERTISING Halifax International Airport has been recognised with the “Most Innovative Concession Advertising Award” by ACI-North America. The airport won in the small airport class for its work with Interspace Airport Advertising on its Air Terminal Building expansion in 2003.
CARGO UPS OPENS NEW YVR HUB FACILITY UPS has opened a new 125,000 sq. foot facility at Vancouver International Airport. The YVR hub is the first fully-integrated export, import and domestic air and ground operation in Canada. This is the country’s third-largest facility after Toronto and Montréal. ATLAS AIR FILES REORGANIZATION PLAN Atlas Air Worldwide Holdings, Inc. has filed a Debtors’ Joint Plan of Reorganisation and its Disclosure Statement in the U.S. Bankruptcy Court. Under the proposed Plan of Reorganisation, all equity interests of the company and its subsidiaries will be extinguished and will not be recoverable by existing equity holders. A hearing on confirmation of the plan is expected in July 2004.
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
NEWS ARTICLES CARGOJET DAYTIME FREIGHTER SERVICE ADDED Cargojet is expanding its domestic air cargo network with a new Hamilton-Calgary/Vancouver daytime flight effective 1 June. Edmonton will be served via expedited road feeder service. This move, which will improve aircraft utilization, may be in response to a reduction in daytime cargo capacity due to a continued move away from wide-body domestic service by Air Canada.
AIRCRAFT MANUFACTURERS BOEING DELIVERS LAST B757-300 TO CONTINENTAL Boeing delivered its last B757300 aircraft to Continental Airlines on 30 April. Launched in 1996, the B757-300 is the longest singleaisle twinjet ever produced. Boeing will build the final 757, a B757-200 in October 2004. The 757 series will be replaced by the 7E7 model.
REGULATORY/GOVERNMENT NAV CANADA REMOVES ASDE CHARGE AT TORONTO PEARSON Effective 1 May, Nav Canada has removed the temporary Airport Surface Detection Equipment (ASDE) service charge, implemented at Toronto Pearson Airport on 1 March 2000. The charge fees were used to cover the cost of replacing the old ASD equipment. The charge was implemented only at Toronto Pearson. NAV CANADA WARNS OF FEE HIKE Nav Canada has warned airlines and passengers that it will have to raise user fees in the coming fiscal year to break even following a deficit in its second-quarter results of $18 million. The fee increase is necessary for the organisation to break even and to hit its 5-year goal to have $50 million in its rate stabilisation account. Page 14 May 2004
FAA STUDY FORECASTS AIRPORT OVERCROWDING A study recently released by the Federal Aviation Administration (FAA) finds that many of the largest airports in the U.S. are overcrowded. Passenger numbers at U.S. airports are expected to grow by 50% by 2013 and infrastructure expansion at 43 airports in the U.S. is needed in order to accommodate projected passenger growth. The study found that Atlanta, Newark, Chicago O’Hare, Philadelphia, and LaGuardia airports are already overcrowded, while San Francisco, Las Vegas, Los Angeles, and Minneapolis-St. Paul will need more capacity by 2013. FAA AND AIRLINES TO CREATE “EXPRESS LANES” TO COMBAT WEATHER DELAYS The FAA plans to create air traffic “express lanes” to combat congestion and delays at major airports during the peak travel season this summer. The FAA and airlines will adjust routes throughout the airspace system using FAA and Canadian weather radar to provide more accurate information. Planes will be held briefly on the ground to free up vital air traffic lanes allowing for faster re-routing in the event of bad weather.
PEOPLE US Airways CEO, David Siegel resigned on 19 April 2004, citing an inability to win the confidence of the airline’s unions and to lower the struggling carrier’s costs. Bruce Lakefield, a former board member, was named as the new CEO of the airline. Siegel had been CEO for two years. Neal Cohen, Chief Financial Officer for US Airways, resigned at the beginning of May. Dave Davis, senior vice president of finance, has replaced Cohen.
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
NEWS ARTICLES Michael Palumbo has been named Executive VP and CFO of Delta Air Lines effective 11 May. Palumbo had previously worked for New York-based Airline Financial Services. He replaces Michelle Burns who resigned from Delta on 1 May. Swiss International Airlines has named Christoph Franz, Chief Executive Officer. He takes over from interimCEO Pieter Bouw. Franz had previously worked for Lufthansa and Deutsche Bahn. Roberto Palea, Alitalia board member representing Italian banks, has quit in protest over the slow recovery process the airline is experiencing.
James Hughes-Hallett, Chairman of Cathay Pacific Airways, will leave the airline at the end of the year. He will be replaced by current Deputy Chairman and CEO David Turnbull, pending board approval. Turnbull will be succeeded by Director and COO Philip Chen, who will in turn be succeeded by Tony Tyler, current Director-Corporate Development. Hughes-Hallett will become Chairman of John Swire & Sons, Ltd., Cathay’s major stakeholder.
Chief Executive of Alitalia, Marco Zanichelli, and Chairman Giuseppe Bonomi handed in their resignations 29 April, following the Italian government’s call for a new top manager. Giancarlo Cimoli, CEO of the state railways, was nominated and will assume both their roles. The Italian government is the majority shareholder of Alitalia.
Page 15 May 2004
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
THE OTTAWA SCENE 07 May 2004
Canadian Computer Reservation Systems Regulations For Air Travel On 7 May 2004, the Government of Canada announced it is amending its regulations for computer reservation systems for air travel to promote competition in the marketplace while protecting the interests of travellers. The Honourable Jim Karygiannis, P.C., M.P., Parliamentary Secretary to the Minister of Transport, announced the publication of the amended Computer Reservation Systems Regulations in the Canada Gazette, Part II.
Sam Barone Regional Vice President Ottawa
"These amendments reflect the Government of Canada’s desire to move to a more deregulated system that will protect the interests of air travellers and foster enhanced competition in the air industry," said Mr. Karygiannis. "They also recognize significant changes, such as the emergence of the Internet as an information and sales tool that have occurred since the original regulations were put in place in June 1995." The amendments seek to address the concerns of all sectors of the air travel industry by striking an important balance within the industry through a greater reliance on market forces. For example, airlines will no longer be required to participate in all computer reservation systems operating in Canada. Rather, they will be able to decide how best to distribute and sell their air services. They should be able to negotiate better commercial terms with computer reservation systems vendors to distribute their inventories, and thus lower their costs. At the same time, the regulations will continue to ensure that travel agents have access to neutral and non-discriminatory information on behalf of consumers and that no carrier is disadvantaged in computer reservation system displays.
Canada Mulls Bigger Foreign Airline Stake As Air Canada enters its second year under the Canadian bankruptcy protection laws, the National Post reported (23 April) that the Canadian government is considering a plan to let foreign investors take stakes of up to 49 percent in domestic airlines in a package designed to help insolvent carrier Air Canada. The proposal was part of a package presented to a cabinet committee by federal Transport Minister Tony Valeri. The foreign ownership cap is currently at 25 percent. "While the proposals would apply to the entire industry, they are aimed mostly at helping Air Canada," the paper said. The newspaper said a new 49 percent foreign ownership cap was one of three options presented to the committee, which also looked at lowering or eliminating the fuel-tax surcharge airlines pay or cutting the air security charge paid by passengers. Other possible options were for a 33 percent foreign ownership cap, or a 45 percent cap. The federal government is also believed to be considering lowering airport lease payments on the condition the savings be passed on to airlines. The National Post reported a potential savings of $125 million.
Page 16 May 2004
InterVISTAS Market Intelligence Report ŠInterVISTAS Consulting Inc.
THE WASHINGTON REPORT 15 May 2004
DOT to amend fare advertising policies: The Department of Transportation (DOT) announced on 21 April 2004 it was withdrawing its proposal to amend existing policies on fare advertising that require airlines and travel agents to disclose the full price for an airline ticket, including all airline surcharges and most government fees. The DOT withdrew its proposals to (1) apply the policy statement to Computer Reservation Systems (CRSs) and (2) to require travel agents to separately state the amount of any service fees charged by the travel agency. The DOT said it withdrew the proposals because the record does not persuasively show they are necessary or would be beneficial.
Charles Chambers Senior Vice President ga2 AND Regional Vice President InterVISTAS Consulting Inc. Washington, D.C.
FAA increases airline PFC share: On 1 May, the amount of the Passenger Facility Charge (PFC) that airlines can collect increased from US$0.08 to $0.11. The Federal Aviation Administration (FAA) said the increase is due to a statutory requirement that airlines be compensated for collecting and handling PFCs. On 19 April, the FAA issued a notice outlining the PFC-use extension criteria for airports, part of the Vision 100 – Century of Aviation Reauthorization Act. The extension was included in the act due to concerns that airlines would not be able to meet their debt obligations to airports, and outlines the use of PFC revenue for debt service. The FAA’s relevant indicators of an airport’s financial need include evidence of a change in passenger enplanements for a carrier, documentation of negative actions taken on the airport’s bond rating and an inability of the airport to meet bond payments and associated requirements. MANPADS Act approved: The Commercial Aviation MANPADS Defense Act of 2004 was approved by the House Aviation Subcommittee on 29 April 2004. The legislation is intended to provide interim solutions to the threat of “Man Portable Air Defense Systems” while the Department of Homeland Security conducts research and development of anti-missile defense equipment for commercial aircraft. The legislation must now be considered by the House Transportation and Infrastructure Committee. ATA releases CAPPS II privacy requirements: The Air Transport Association (ATA) has released seven passenger privacy principles it believes the U.S. government must adopt before implementing the TSA’s Computer Assisted Passenger Pre-screening System (CAPPS II). They include: §
CAPPS II only collects information from passengers that is relevant and necessary to the security purpose;
§
the information is recorded correctly;
§
passengers are informed why and how the information is collected and used;
§
data is used only for aviation security and not unrelated law-enforcement purposes;
§
passengers are provided access to information on CAPPS II security policies and to their personal information;
§
personal information is secure; and
§
CAPPS II is not used for international flights unless permitted by foreign data protection authorities.
Page 17 May 2004
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
THE WASHINGTON REPORT CONTINUED TSA to test Registered Traveller Program: The Transportation Security Administration (TSA) announced to Congress that it will conduct a 90-day test of the Registered Traveller Program this summer at selected airports. For a fee, passengers can volunteer to be screened by government background checks. Those not found as potential threats would be able to avoid random screening at carry-on bag checkpoints. Representatives of the Business Travel Coalition and the ATA said they favour the program.
Page 18 May 2004
InterVISTAS Market Intelligence Report ŠInterVISTAS Consulting Inc.
CARGO CAPERS 10 May 2004
Director, Transportation & Logistics Studies
Index: 2000 = 1.0
Robert Andriulaitis
Three cheers for the air cargo recovery! Well, the first quarter results are in from the U.S. and while some might quibble that a pronouncement of recovery is a tad premature, I think there is reason enough to celebrate. The figures for system-wide total air cargo tonmiles not only were 5.4% higher than last year’s Q1 results, they are within less than 2% of 2000’s record volumes. This is the first quarter since the downturn that we have been that close to 2000 performance – the previous three quarters were only between 91 and 94% of the 2000 volumes. The adjacent chart shows quarterly results for system-wide air cargo from the U.S. Air Transport Association (ATA), with quarterly volumes indexed to 2000 to remove seasonality. While it is clear from this chart why some have been Quarterly Air Cargo Results - U.S. ATA skeptical about claims of recovery, it also seems 1 clear that things haven’t 0.8 Q1 looked this good for some 0.6 Q2 time. We are at 110% of Q3 0.4 the volume of the late Q4 1990s, 130% of the 1995 0.2 volume, and a whopping 0 180% of the volume of the 2000 2001 2002 2003 2004 early 1990s. Looking at FedEx and UPS results, we see signs of growth in all sectors: express, deferred and ground; domestic and international. But what about mail? If you look at the two components of the ATA air cargo statistics (which in turn are based on U.S. Department of Transport definitions) it is painfully obvious that “freight and express” is performing far better than “mail.” Mail declined by 24% in 2001, dropped a further 35% in 2002, and just held its own in 2003.1
In contrast, Canada Post Corporation reports in its recently tabled Annual Report that in 2003, it handled 10.7 billion pieces, up almost 10% from the 9.8 billion pieces handled in 2002. Interestingly, the component of its market it refers to as “physical distribution” (i.e., courier, expedited delivery and parcels) actually declined in 2003, with “communications” (i.e., lettermail and electronic hybrid services) increased. Mail is not segmented out in the report. 1
Page 19 May 2004
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.
CARGO CAPERS - CONTINUED
Index: 2000 = 1.0
These results, however, are not directly comparable because of FedEx’s contract with the U.S. Postal Service (USPS). FedEx started providing lift for the USPS for Priority, First Class, and Express Mail back in August 2001. Since then, that product is included in the ATA (and DoT) statistics under "Freight and Express" rather than “Mail.” This not only explains a good part of the reason for mail’s apparent poor performance, it helps explain a small part of the recovery of freight and express. (The 1.3 billion mail ton miles that is “missing” since 2001 represents System-Wide Mail about 6% of current freight and 1 express ton miles.) The adjacent 0.9 0.8 chart shows clearly the impact of 0.7 the contract, which started in Q3 Q1 0.6 Q2 2001. 0.5 Q3 0.4
With air freight & express and 0.3 0.2 mail together reaching again 0.1 towards near-record levels in the 0 first quarter of 2004, and with the 2000 2001 2002 2003 2004 business section of the newspaper including positive stories, we are optimistic air cargo activity is poised to once again take off. Positive signs include: Q4
§
U.S. manufacturing posting gains in orders, production, shipments and exports, and forecasting the best year this decade, with an even stronger 2005;
§
U.S. service industry employment index reaching an all-time high;
§
3.5% U.S. productivity increase in Q1; and
§
trucking tonnage reaching a record high in the U.S. in March.
With much of the air cargo activity being driven by the U.S. and Asia, and to a lesser extent Europe, the push by Canadian airports at TIACA’s upcoming Air Cargo Forum to market themselves as gateways to North America comes as very timely. With strong indications of a more receptive environment in Ottawa, and signs that Canadian policy will play more of a facilitation role, the air cargo stars are finally beginning to align!
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 20 May 2004
InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.