CAIR Issue No. 41 - May 2006 by Leah Dupuis

INTERVISTAS ’ CANADIAN AVIATION INTELLIGENCE REPORT

In this issue… Features Columns: • UK Traveller Overview (p.1) • Proposed Changes to the Canada Transportation Act (p.3) • Tweaking US Airline Foreign Ownership Restrictions (p.14)

Regular Reports: • Airline Data-Canada (p.7) • Airline Data-U.S. (p.8) • Airport Data (p.9) • Industry News (p.10) • Washington Report (p.16) • Ottawa Report (p.17) • InterVISTAS News (p.18)

UK OUTBOUND TRAVEL MARKET 10 May 2006

Traffic on the rise Since 2000, UK residents have steadily increased their visits and spending abroad, although not all destinations have seen an equivalent increase in UK travellers. Total overseas visits by UK residents have increased from 56.8 million in 2000 to 66.5 million in 2005 – this is equivalent to an average annual growth of 3.6%. Consistent economic growth is believed to be the primary force behind this growth, as GDP per person increased in every year between 2000 and 2005, averaging 3.8% per annum. UK travellers have also increased their average spend abroad during this period, from £427 (C$957) per person in 2000 to £484 (C$970) in 2005. Figure 1 illustrates the growth in overseas travel and expenditures by UK residents.

70000

£35,000

Project Research Analyst

60000

£30,000

50000

£25,000

40000

£20,000

30000

£15,000

20000

£10,000

10000

£5,000

All visits (thousands)

Kahlil Philander

£0

19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04

Expenditures (millions)

Figure 1: Total Outbound Travel and Expenditures from the United Kingdom1

Visits Abroad

Spending Abroad

Travel by region Western Europe is by far the number one destination for UK travellers, capturing 76% of visits from UK residents in 2005. North America was the number two travel destination with 4.9 million visits to the continent during 2005. This figure represents 7.4% of UK travel and a 5.9% increase in traffic from 2000 (a sharp 9/11 related drop in volume occurred between 2000 and 2001, from 4.7 million visitors to 4.2 million visitors). Combined, visits to other parts of the world totalled 11.3 million in 2005 (17% of total). Although there were fewer visits to countries outside of Europe and North America, the nights spent in these countries was the lengthiest, averaging 22 to 25 nights per visit between 2000 and 2004. North American visits averaged 14 to 15 nights during this same period, while European visits averaged eight nights.

Source: (UK) National Statistics Page 1 May 2006 1

UK OUTBOUND TRAVEL MARKET – CON’T Traffic to Canada has only recently returned to its pre-9/11 levels. In 2005, Canadian inbound traffic from the UK totalled 921,000 visitors. This was up 8.7% from the 847,000 visitors in 2004, but only 0.8% higher than the 914,000 travellers during 2000.2

Seasonal traffic peaks during the summer Visits abroad by UK residents tend to occur most frequently in the third quarter of each year (June to August), and least often during the first quarter (January to March). The third quarter characterises the UK summer months and has close to double the number of trips as in the first quarter. Figure 2 illustrates the seasonally and non-seasonally adjusted growth in the UK outbound travel market. Figure 2: Number of UK Outbound Visits (by Quarter)

Millions

20 15 10 5

20 00 -1 20 00 -3 20 01 -1 20 01 -3 20 02 -1 20 02 -3 20 03 -1 20 03 -3 20 04 -1 20 04 -3 20 05 -1 20 05 -3

Not seasonally adjusted UK residents going abroad Seasonally adjusted UK residents going abroad

Holiday visits on the rise, business visits decline In the period from 2000 to 2004, holiday visits by UK residents increased 17%, from 36.7 million to 42.9 million. This is equivalent to an average annual increase of 4%. Despite this overall growth, there was a 1% decline in holiday travel to North America during this period – however, between 2003 and 2004, there was a 16% increase in visits to the region, indicating a possible recovery from past declines. Visits for business purposes by UK travellers decreased from 8.9 million in 2000 to 8.1 million in 2004, although this too saw a rise between 2003 and 2004 (3% increase). Visits to friends or relatives rose from 7.2 million in 2000 to 9.8 million in 2004; passing business related trips as the second highest purpose of visit. Visits for miscellaneous purposes declined from 4.1 million to 3.3 million during the same period.

PROPOSED CHANGES TO THE CANADA TRANSPORTATION ACT 10 May 2006

On 4 May 2006, Bill C-11 amending the Canada Transportation Act was introduced to the House of Commons by Lawrence Cannon, Minister of Transportation, Infrastructure and Communities. Some amendments apply to all modes of transportation and others contain specific changes to air or rail. In addition to the Canada Transportation Act, the Railway Safety Act is also amended to account for a transfer in some legislative arrangements to the latter Act.

Josh Drury Senior Analyst

Many of the amendments in the Bill are identical or substantially similar to those included in Bill C-44, introduced by the previous government in March 2005 but not passed before the January 2006 election. However, C-11 contains some key differences compared to C-44, especially in the area of rail transport. Specifically, the new bill excludes the creation of a VIA Rail Canada Act, changes to the Competitive Line Rates and changes to final offer arbitration provisions. However, it is expected the government will shortly introduce another bill, which will introduce a set of pro-shipper changes to the rail section of the Canada Transportation Act. The table below summarises selected differences between the current legislation and proposed amendments from the old Bill C-44 and the new Bill C-11. Subject

Existing Canada Transportation Act (May 1996)

Bill C-44 (March 2005)

Bill C-11 (May 2006)

General Provisions National Transportation Policy Statement

Page 3 May 2006

Lengthy statement

Statement has been simplified.

Objective is a safe, economic, efficient, and adequate network of viable and effective services accessible to persons with disabilities that makes best use of all modes of transport at the lowest total cost.

Retains economic, efficient and safe; adds competitive (as first item), secure and respect the environment; drops adequate, viable and effective. Drops accessible (though it is added back in later), and use of all modes at the lowest total cost.

Purpose is to serve transportation needs of shippers and travelers, including persons with disabilities, and maintain economic well-being and growth of Canada and its regions.

Replaces “shippers and travelers, including persons with disabilities,” with “users.” Switches focus from “Canada and its regions” to “Canadians” and refers to enabling competitiveness and

Largely the same as C44. The same as C-44, except it adds back in “makes use of all modes of transportation at the lowest total cost.

Same as C-44.

Subject

Existing Canada Transportation Act (May 1996)

Bill C-44 (March 2005)

Bill C-11 (May 2006)

economic growth in urban and rural areas.

Lists several conditions by which the objectives are to be achieved.

Retains reference to competition and market forces being the prime agents. Drops • highest practicable safety standards • recognition of transportation as key to economic development

Same as C-44, except it adds a section that rates & conditions should not be obstacles to rail interswitching or movement of goods through Canadian ports.

• mode/carrier bear fair share of real costs of resources • mode/carrier receive fair compensation for imposed public duties • rates do not disadvantage traffic beyond inherent disadvantages, impede mobility of persons or exchange of goods between points in Canada, or discourage development of primary or secondary industry or exports or movement of commodities through Canadian ports • each mode is economically viable Expands use of economic regulation only when necessary to also include “strategic public interventions.” Moves the objective of accessibility, without undue obstacles to persons, including those with disabilities, to this list. Adds that governments and private sector work together for an integrated system. Page 4 May 2006

Subject

Existing Canada Transportation Act (May 1996)

Bill C-44 (March 2005)

Members of CTA

Seven

Five

Data and Reporting Requirements

Parties required to provide information include carriers and transportation or grain handling undertakings

Parties required to provide information include carriers, transportation or grain handling undertakings, providers of services related to transportation, and intermediaries involved in transportation movements

Information may be required for annual reporting, policy development, planning, safety or subsidy programs, infrastructure requirements, monitoring grain handling, and administration of the Act. Minister shall prepare a report on state of transportation every year.

Mergers and Acquisitions

Information may be required for annual reporting, policy development, planning, safety or subsidy programs, infrastructure requirements, monitoring grain handling, administration of the Act, and security programs.

Bill C-11 (May 2006) Same as C-44

Largely same as C-44

Minister shall prepare a report on state of transportation every three years.

Minister of Transportation has the power to review mergers and acquisitions in air transport only

Minister of Transportation has the power to review mergers and acquisitions in all transportation undertakings. The section specific to air transport is removed and replaced with similar provisions for all transportation

Largely same as C-44

Air Transport Airfare Advertising

Carriers not required to include in prices all costs to be collected by the carrier

Minister given power to make regulations requiring carriers to include all costs in prices

Largely same as C-44

Air Travel Complaints

Air Travel Complaints Commissioner established as a temporary measure in 2000

Air travel complaints functions formally integrated into the normal business of the CTA

Largely same as C-44

Rail Transport Passenger Rail Service

VIA Rail Canada Page 5 May 2006

No provisions for dispute resolution between public passenger service providers and railways

CTA given the authority to decide matters such as use of rail facilities and compensation when a public passenger service provider (i.e., VIA Rail) and railway are unable to resolve such matters

Largely same as C-44

Not included

Act created formally

Not included

Subject

Existing Canada Transportation Act (May 1996)

Act

Discontinued Rail Lines

Rail Noise Complaints

Rail Competitive Line Rates (CLR)

Bill C-44 (March 2005)

Bill C-11 (May 2006)

conferring on VIA statutory status as a crown corporation and defining its mandate, structure and powers Discontinued rail lines to be offered to federal, provincial, and municipal governments

Discontinued rail lines to be offered to federal government, provincial governments, urban transit authorities (where applicable), and municipal governments

No provision

CTA authorised to review noise complaints, and if necessary, to order rail companies to make changes to reduce noise

No federal body is mandated to address railway noise

Largely same as C-44

Replaced with new section on “competitive connection rates” revising the conditions and mechanism under which rates can be set

Same as existing Act

Final Offer Arbitration limited to charges or rates for movement of goods, and to a single shipper

Final Offer Arbitration extended to include incidental services, may apply to a single shipper or group of shippers, and must apply equally to the entire group where applicable

Same as existing Act

Railway Revenue Cap on Grain Movement

Formula based on tonnes and length of haul, adjusted for costs of obtaining and disposing of hopper cars

Formula based on tonnes and length of haul, adjusted for costs of obtaining and disposing of hopper cars and of changes in maintenance costs

Largely same as C-44

International Bridges and Tunnels

Not included

Section added regarding special provisions and regulations for international bridges and tunnels

A separate bill (C-3) has been introduced to deal with international bridges and tunnels

Penalties for Contraventions of the Transportation Act

Penalties may be assessed but no provision to be reviewed

Penalties may be assessed but may be appealed to the Tribunal for a review

Rail Final Offer Arbitration (FOA)

Existing provisions for setting competitive line rates

Largely same as C-44

Proposed amendments in C-44 deleted in C-11

* This table is not intended to provide legal advice.

Page 6 May 2006

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

Air Carrier

Revenue Passenger Kilometres

% Change over 2005

% Change from 2004

+7.9%

+1.0%

+2.0%

-6.2%

-1.8%

-3.1%

Jazz

+77.8%

+108.1%

International & Charter

+8.2%

+30.4%

Air Canada3

+3.0%

CanJet: not reported

Domestic (Mainline)

WestJet

Change over 2005 +1.7 pts (to 82.2%)

Change from 2004 +4.5 pts (from 77.7%)

-4.7%

-2.6 pts

+2.4 pts

+75.9%

+78.3%

+0.8 pts

+10.2 pts

+13.3%

+2.6%

+5.0%

+4.3 pts

+6.2 pts

+76.1%

+14.4%

+47.0%

+9.7 pts (to 78.5%)

+13.0 pts (from 65.5%)

Analysis: •

•

Load Factor

% Change over 2005

OTHER CARRIERS: LOAD FACTORS

% Change from 2004

Capacity

Available Seat Kilometres

Air Canada Domestic Mainline 10%

Air Canada domestic traffic dropped more than domestic capacity during April 5% 2006, causing load factor to drop 2.6 0% points. Domestic capacity continues to -5% be transferred to Air Canada Jazz, but this was only the second year-over-year -10% drop in domestic load factor in more than two years. Air Canada RPK growth was led by transborder and transatlantic traffic during April. The two regions’ traffic figures increased 15% and 11% respectively. A modest 3% growth in international capacity allowed international load factor to rise 4.3 points over April 2005.

Jazz data is not included in this graph

Apr- May Jun 05

Jul

Aug Sep

Dom RPK

WestJet recorded a seventh consecutive year-over-year increase in load factor during April 2006, rising nearly 10 points to 78.5%. April traffic increased by 30% and capacity increased by 14%, both led in part by expanded transborder service.

Dec Jan- Feb 06

Mar

Apr

Air Canada International 12% 10% 8% 6% 4% 2% 0% May05

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan06

Feb

Jan06

Feb

Mar

Apr

Int'l ASK

WestJet 35% 30% 25% 20% 15% 10% 5% 0% May05

Jun

Jul

Aug

Sep

Oct

RPK

Nov

Dom ASK

Int'l RPK

•

Oct

Nov

Dec

Mar

Apr

ASK

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

Page 7 May 2006

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

(ASMs – millions)

2,028

2,369

85.6%

Ç24.8%

Ç27.2%

È1.7 pts

758

1,018

74.4%

Ç17.1%

Ç9.9%

Ç4.6 pts

5,733

7,470

76.7%

Ç19.3%

Ç7.3%

Ç7.6 pts

7,494

9,086

82.5%

Ç17.3%

Ç10.2%

Ç5.0 pts

9,811

11,856

82.8%

Ç8.4 pts

Ç4.9%

Ç2.7 pts

11,935

14,606

81.7%

Ç5.5%

0.0%

Ç4.3 pts

9,423

12,148

77.6%

È5.9%

È7.3%

Ç1.2 pts

6,044

7,116

84.9%

È4.6%

È8.8%

Ç3.7 pts

5,453

6,647

82.0%

È6.8%

È12.4%

Ç4.9 pts

331

411

80.7%

È33.9%

È48.2%

Ç17.5 pts

Notes:

1. 2.

Sources:

Carrier traffic reports.

Page 8 May 2006

Capacity

Traffic (RPMs – millions)

Load Factor

Mainline operations only. Load factor includes scheduled service only.

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

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

+8.2% +7.5% +3.9% +5.5% +4.0% +4.5% +3.4% +2.7% +2.6% +2.9% +4.3% +5.2% +0.5% +3.2%

MontréalTrudeau +5.5% +7.7% +5.7% +3.6% +7.5% +5.6% +4.0% +1.5% +7.4% +4.1% +3.7% +4.1% +4.3% +4.0%

+17.5% +13.7% +3.5% +12.2% +10.1% +8.6% +11.2% +12.7% +7.9% +10.7% +7.1% +12.1% +10.3% +9.8%

+12.5% +10.0% +5.5% +12.0% +13.9% +10.4% +11.7% +8.8% +13.5% +11.2% +16.7% +10.7% +4.9% +10.4%

+7.3% +8.4% +0.1% +5.5% +3.4% +3.1% +4.8% +4.4% +7.1% +5.4% -0.7% -2.5% -3.5% -2.2%

+9.7% +10.0% +4.3% +8.0% +2.9% +5.0% +4.5% +4.6% +6.6% +5.1% +6.4% +6.2% +5.4% +6.0%

+7.1% +6.3% -0.2% -4.5% -0.5% -1.8% -9.7% -6.4% +0.3% -5.6% -0.7% +3.0% +5.6% +2.4%

+15.4% +9.3% +2.6% +5.8% +6.8% +5.1% +1.2% +5.2% +2.9% +3.1% +3.1% +8.5% +3.8% +4.9%

+19.5% +16.0% +18.8% +26.3% +22.7% +22.6% +15.9% +26.4% +16.1% +19.6% +16.1% +24.0% +19.1% +19.6%

+19.2% +15.7% +6.0% +13.5% +10.9% +10.2% +5.2% +10.3% +12.9% +9.3% +11.8% +18.0% +12.2% +13.9%

+22.2% +13.3% +3.8% +5.7% +12.4% +7.3% +10.9% +2.4% +13.9% +8.8% +12.8% +15.6% +9.5% +12.5%

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

+4.6%

+4.4%

+5.4%

+10.6%

+10.5%

+3.6%

+6.5%

-0.4%

+5.5%

+19.3%

+12.3%

+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%

+10.1%

+4.4%

+9.7%

February

-0.5%

+1.5%

+2.1%

+8.7%

+10.5%

+0.2%

-0.6%

+1.2%

+1.4%

+11.0%

+3.0%

-2.8%

+7.0%

March +3.1% +3.5% +6.6% +9.0% Quarter +1.3% +1.3% +3.6% +8.7% Sources: Transport Canada and individual airports’ traffic reports.

+13.6% +11.8%

+3.9% +1.8%

+2.0% +1.4%

+4.8% +3.8%

-3.5% +0.9%

+15.4% +15.5%

+0.1% +4.4%

-3.8% -0.8%

-7.8% +2.0%

Toronto

Vancouver

March Quarter April May June 2nd Quarter July August September 3rd Quarter October November December 4th Quarter

+10.2% +11.2% +4.0% +6.7% +6.3% +5.7% +3.6% -1.1% +4.5% +2.2% -0.1% +0.6% -0.6% +0.0%

Full Year

1st

2005 2006

1st

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 9 May 2006

NEWS ARTICLES AIR CANADA UPDATE

AIR CANADA REMOVES TANGO FARES FROM GDS

AIR CANADA SIMPLIFIES FARE STRUCTURE ON MORE INTERNATIONAL ROUTES

On 2 May, Air Canada removed its Tango fares from all global distribution systems (GDS) in Canada and the U.S. These fares are now only available for purchase on Air Canada’s website.

Air Canada has expanded the number of international destinations where it offers its simplified fare structures. Passengers travelling to or from Amsterdam, Copenhagen, Dublin, Oslo and Stockholm on Air Canada or code-share flights can now select from one of five fare types.

AIR CANADA JAZZ LAUNCHES EDMONTON-LOS ANGELES SERVICE

On 1 May, Air Canada Jazz launched daily year-round service between Edmonton and Los Angeles. The flights are operated on 75-seat CRJ-705 aircraft and offer same-day connections to Grande Prairie and Fort McMurray.

ACTS ANNOUNCES 10-YEAR MAINTENANCE AGREEMENT WITH JETBLUE

Air Canada Technical Services (ACTS) announced on 25 April that it has secured a 10year, US$200 million agreement for component maintenance of JetBlue’s Airbus A320 fleet. Work will be performed at ACTS’ Montréal component facility.

AIR CANADA OFFERS DISCOUNT FOR TRAVELLING LIGHT ON TANGO FARES

On 26 April, Air Canada introduced its new ‘GO Discount’ on its Tango class travel fares for customers that do not carry checked baggage and do not change their plans. Eligible customers choosing the discount will save $10 (US$8) one-way or $20 (US$16) round trip.

Page 10 May 2006

ACE REPORTS FIRST QUARTER INCOME OF $118 MILLION

ACE Aviation Holdings (ACE), Air Canada’s parent company, announced on 11 May that first quarter net income increased from a loss of $77 million in 2005 to a gain of $118 million in 2006. ACE posted an operating loss of $62 million during the quarter, but was able to report positive net income due to non-operating revenue that included the initial public offering (IPO) of Air Canada Jazz. The Jazz IPO and subsequent over-allotment issue raised net proceeds of approximately $232 million for ACE.

AIR CANADA INSTALLS NEW AIRPORT KIOSKS

Air Canada has installed new IBM N2 kiosks with passport readers and two-dimensional barcode scanners in Toronto Terminal 2, Ottawa, Edmonton, and Winnipeg airports. The IBM N2 kiosks are expected to eventually replace the current Express Check-In boxes.

WESTJET UPDATE WESTJET ANNOUNCES RECORD PROFITS FOR FIRST QUARTER

On 27 April, WestJet released its first quarter results, with record profits for the first quarter of 2006. Net earnings increased to $12.9 million, up from a loss of $9.6 million for the same period in 2005. Capacity for the period increased 10.2% to 2.9 billion available seat miles (ASMs), while revenue passenger miles (RPMs) increased 18.9% to 2.3 billion. Load factors were up 5.8 percentage points to 79.4%.

NEWS ARTICLES OTHER CANADIAN AIRLINE NEWS HARMONY ADDS NEW YORK AND SAN FRANCISCO SERVICES Harmony Airways will add two new U.S. destinations from its Vancouver base starting in June 2006. Twice weekly non-stop services from Vancouver to Oakland International Airport will start 22 June, while once daily non-stop flights to JFK International Airport will begin 29 June.

AIR TRANSAT LAUNCHES NEW FLIGHTS FROM TORONTO AND MONTREAL TO MADRID Air Transat announced on 8 May that it would be offering up to two Toronto-Montreal-Madrid flights per week. The seasonal service is a result of Transat collaborating with tour operator Nolitours, and will end 30 October.

HARMONY AND CANJET PARTNER TO OPERATE COAST TO COAST NETWORK CanJet and Harmony Airways have announced that beginning 1 June, the two carriers will begin a marketing partnership that offers coast to coast service across Canada. Harmony and CanJet will offer connecting service to one another’s flights through Toronto Pearson airport. Harmony currently offers 17 weekly Vancouver-Toronto flights, while CanJet offers service between Toronto and several eastern Canadian and Maritime destinations.

Page 11 May 2006

CANADIAN AIRPORTS HANDLEX OPENS NEW BASE AT VANCOUVER Handlex, Transat A.T.’s ground handling and air service subsidiary, announced on 2 May that it is opening a new base at Vancouver International Airport, resulting in the hiring of 80 employees. Handlex will serve Air Transat initially but expects to expand to serve other carriers at Vancouver in the near future. The company already operates at Montréal-Trudeau, Montréal-Mirabel, and Toronto Pearson airports.

WINNIPEG AIRPORT SHOWS INCREASED REVENUES, PASSENGER TRAFFIC IN FIRST QUARTER

Winnipeg Airports Authority released its first quarter results on 3 May, showing modest increases in revenues, costs, and passenger traffic. Revenues were $15.1 million for the first quarter an increase of 4.8% over the same period for 2005, while revenues before expenses, taxes and amortisation were up 5.0% to $7.3 million. Passenger traffic for the first 3 months was up 1.7%, while commercial aircraft movements decreased 4.1%.

GTAA IMPROVES PERFORMANCE IN FIRST QUARTER RESULTS

The Greater Toronto Airports Authority (GTAA) released its first quarter results on 5 May, showing increased revenues and passenger activity and decreased losses compared to the same period for 2005. Revenues were up 7.5% to $248 million while operating expenses increased 2.8% to $139 million. Accounting for total revenues less operating expenses, debt services and amortisation, revenues under expenses were $32.9 million, compared to $40.2 million for the first three months of 2005. Passenger traffic on the year is up 1.4%.

NEWS ARTICLES but was up 2.7% to date for the fiscal year, which runs from 1 September to 31 August.

CARGO CARGOJET REPORTS GROWTH IN TRAFFIC, REVENUES FOR FIRST QUARTER OF 2006

Cargojet Income Fund released its first quarter results on 26 April, showing doubledigit growth in revenues compared to the same period last year. Revenues increased 14.6% to $31.4 million, while expenses grew 21.0% to $25.4 million, largely as a result of increased fuel expenses. Traffic carried rose 6.8% to 530,000 pounds per operating day.

CARGOJET AGREEMENTS TO INCREASE REVENUE BY $1.6 MILLION Cargojet has announced that recent changes to agreements with its major contractors will increase revenue by $1.6 million per annum. The deals will result in additional cargo carried on domestic overnight flights.

PEOPLE REED NAMED OPERATIONS VP IN MONTEGO BAY

Rick Reed has been named Vice President Operations for YVR Airport Services at Sangster International Airport in Montego Bay, Jamaica. Reed is currently General Manager at Abbotsford International Airport; he will be replaced by Mike Pastro as acting GM at Abbotsford.

OTHER NAV CANADA RELEASES FEBRUARY TRAFFIC FIGURES

On 18 April, NAV CANADA released its traffic figures for February and fiscal year-to-date for 2006, measured in weighted charging units. Traffic for February was flat compared to the same month the previous year, Page 12 May 2006

NAV CANADA RELEASES REVENUENEUTRAL SERVICE CHARGE PROPOSAL

NAV CANADA released on 4 May a proposal to eliminate its current temporary two percent base adjustment and increase its base rates by the same amount. The adjustment had been added to eliminate a deficit in the Rate Stabilization Account created following the decline in traffic since September 2001, and increase the account up to a target balance of $50 million. As the account has reached this target ahead of schedule, NAV CANADA is proposing to eliminate the adjustment effective 1 September 2006. The increase in the base rate is necessary to address an anticipated budget shortfall in 2007, primarily due to an increase in pension costs.

ATA AIRLINES MOVES FROM SAN FRANCISCO TO OAKLAND ATA Airlines has moved operations on its Hawaii-bound flights from San Francisco to Oakland International Airport. The move follows ATA’s codesharing agreement with Southwest Airlines, which does not operate out of San Francisco. ATA operates non-stop flights from Oakland to Hilo, Honolulu and Maui.

ACI PACIFIC AND ASIA REGIONS TO MERGE

Airports Council International (ACI) announced on 9 May that ACI-Pacific and ACI-Asia will merge to create the largest geographical entity in the organisation. The new grouping will comprise 478 airports located in Vancouver, San Francisco, Hawaii, Oceania, Northeast and Southeast Asia, Indo-Pakistan, the former CIS States and the Middle East.

NEWS ARTICLES BOEING MD-11 FLEET CONTINUES CONVERSION TO FREIGHTERS

OTHER – CON’T SINGAPORE’S FIRST A380 UNDERGOES TEST FLIGHT The first Airbus A380, scheduled to be delivered to Singapore Airlines by the end of the year, took its first test flight out of Toulouse Blagnac Airport. The aircraft underwent a 2 hour 15 minute flight, then returned to the airport. Singapore Airlines will deploy the plane first on the London-Singapore-Sydney route.

GOL PLANS TO ADD BASES IN ALL SOUTH AMERICAN CAPITALS

Brazilian Airline GOL has announced plans to establish bases in all capitals of continental South America. GOL also flies to Argentina, Bolivia, Uruguay and Paraguay, and has recently won approval to offer 21 weekly flights to Santiago, Chile.

UNITED TO LAUNCH NEW SERVICE TO CANADA United Airlines has announced plans to offer two new transborder services, beginning 6 September. Service from San Francisco to Toronto will be operated with an Airbus 319, while double daily Los Angeles – Vancouver flights will be serviced with a CRJ700.

Page 13 May 2006

Boeing has announced that more that 80% of the MD-11 fleet will be converted to freighters by the end of 2008. Aircraft converted for freight currently accounts for approximately 60% of this fleet.

AIR PACIFIC ORDERS FIVE 787S, THREE ADDITIONAL PURCHASE RIGHTS Air Pacific, Fiji’s national airline, has ordered five Boeing 787-9s and taken three additional purchase rights. The order is part of a plan to replace Air Pacific’s 747s and 767s on long-haul routes. The first plane is scheduled for delivery in 2011 and will be used on flights from Nadi, Fiji to Australia, New Zealand, North America and Japan. Air Pacific currently serves Vancouver.

ATLAS TO CUT OLD 747 FREIGHTERS

Atlas Air Worldwide Holdings announced plans on 15 May to remove older Boeing 747 aircraft from its fleet. The decision came after a reduction in military charter business helped contribute to a first quarter net loss of $3.7 million. Atlas sold one 747-200 in April and plans to stop use of five more by mid-year. Atlas’ last 747-100 will be retired and replacement aircraft are not expected until next year. Atlas is the largest operator of 747 freighters.

TWEAKING US AIRLINE FOREIGN OWNERSHIP RESTRICTIONS May 2006

Amending US Foreign Ownership Restrictions. The US Department of Transportation (DoT) has issued a Supplemental Notice of Proposed Rulemaking (SNPRM) regarding how it will interpret “actual control” of US airlines. A change to how foreign ownership restrictions is important as it will affect the ability of US air carriers to attract foreign investment, particularly from strategic investors. Moreover, it will also affect whether or not the European Union (EU) will ratify the so-called “first stage comprehensive air services agreement” that was reached on 18 November 2005.1 Robert Andriulaitis Vice President, Transportation and Logistics Studies

Traditional US Foreign Ownership Restrictions. Airlines operating within the US, or operating international services to/from the US under a designation by the US, need to be citizens of the US. For an airline corporation, being a US citizen means: •

Being incorporated under the laws of the US or a state, territory or possession of the US;

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Having the president and at least two-third of the board of directors and managing officers citizens of the US;

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Having at least 75% of the voting interest owned or controlled by US citizens; and

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Being under the actual control of US citizens.

This narrow definition has increasingly been seen as out of step with the globalized nature of air transportation, with its increasing integration of global carriers, moves by other countries towards allowing higher foreign ownership levels, and with the start of a movement towards instituting ICAO’s recommended “principal place of business” clauses in international air bilaterals in place of traditional “owned and controlled by” clauses.

The Notice of Proposed Rulemaking (NPRM). In response to concerns that US foreign ownership restrictions made US airlines unattractive to foreign strategic investors, the DoT issued an NPRM to clarify how it would interpret “actual control.” It is important to note that the DoT argued it was not changing the legislative rules (which it cannot do) but was merely clarifying administrative procedures to give more certainty to the industry and potential foreign investors. Some opponents, Continental in particular, have strongly indicated their belief that DoT was going beyond the bounds of its authority and was in violation of the Constitution.

The US and EU are looking towards the possibility of a North Atlantic Common Aviation Area similar to what exists between Australia and New Zealand, and within the EU. Since such a concept includes politically sensitive issues such as right of establishment and cabotage, it is recognized that this is a longer term objective. The so-called “first stage agreement” was designed to preserve the individual open skies agreements the US already has with fifteen European states, expand open skies to the remaining 10 EU states, have the US recognize the concept of EU carrier, and establish a Joint Committee to work towards further liberalization. See Canadian Aviation Intelligence Report for December 2005 for a discussion of the proposed US-EU agreement.

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TWEAKING US AIRLINE FOREIGN OWNERSHIP RESTRICTIONS – CON’T

The DoT argued in the original NPRM that allowing foreign investors to be given decision-making powers over certain aspects of the airline would not harm US interests and would provide reasonable protections for minority foreign shareholders, thereby increasing access to foreign capital and lowering the cost of capital for US air carriers.2 Closer marketing and operational ties with foreign strategic partners could also enable US carriers to better meet the demands of the global marketplace. The more liberal interpretation of foreign ownership restrictions would be limited to countries with open skies agreements and which provide similar investment opportunities to US investors.

Reaction to the NPRM. There were many supporters of the proposed interpretation (e.g., ACI-North America, ACI-Europe, IATA, Association of European Airlines, Air Carrier Association of America, Atlas/Polar, Delta, FedEx, and United). However, there were also a number of dissenting parties. Opponents included a number of airlines (Alaska, Continental, US Airways, the National Air Carrier Association) as well as organized labour. More critically, there were concerns from DHS and the FAA, and strong opposition from a number of influential members of Congress. Thus the DoT took the step of revisiting the issues and releasing the Supplementary NRMP to clarify its position and to address these concerns. Major Changes to the NPRM included in the SNRPM. There are a number of changes in the DoT’s approach. •

Delegation of permissible decision-making to foreign investors is revocable by the board of directors or the voting shareholders. This will ensure that even where decision-making is delegated, control clearly remains in US hands.

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Decision-making on safety and security matters remains in US hands, and has been expanded from implementation of FAA and TSA safety and security regulations to cover all safety and security decisions.

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Exclusive US decision-making regarding military matters has been expanded from CRAF (Civil Reserve Air Fleet) to cover all national defence airlift commitments.

As with the original NPRM, control over organizational documents (any documents that define structure and governance) remains solely in US hands.

Next Steps. Interested parties have 60 days to provide comments on the SNPRM. It is worth noting that although the NPRM and SNPRM are not part of the pending US-EU “open skies” agreement, the EU has made it very clear the two are related. Thus this delay means that the EU may be unlikely to ratify the pending agreement in the near term. The New York Times even indicated that an unidentified EU spokesman suggested ratification would not happen at all this year. Decision making powers concerning organizational structure and governance, safety, security, and CRAF participation are still reserved only to Americans.

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WASHINGTON REPORT 11 May 2006

TSA Begins Roll Out of Registered Traveler Program The Transportation Security Administration (TSA) announced plans to launch the Registered Traveler (RT) Program at 1020 airports this summer, possibly expanding the program nationwide by next year. The RT program allows for registered passengers to benefit from an expedited security screening process. The private sector, rather than the government, will manage the program.

Venezuela Elevated to Category 1 Status Jon Ash President InterVISTAS-ga2 Consulting Inc. Washington, D.C.

After a reassessment of Venezuela’s civil aviation authority, the Federal Aviation Administration (FAA) has elevated Venezuela’s safety rating to Category 1 from Category 2 status. The announcement has averted a ban that would have blocked most U.S.-based airlines from operating services to Venezuela. The FAA had not assessed the country since 1995.

Passenger Airline Employment Down According to the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS), employment with U.S. scheduled passenger airlines during February 2006 fell by 6% to 404,000 fulltime equivalent employees (FTE), compared to February 2005. Network carrier employment fell by 8%, low-cost by 4% and regional by 1%. Among the network carriers, US Airways experienced the most significant declines in employment (down 42%), followed by United Airlines (down 32%). Among the low-cost carriers, JetBlue’s employment levels increased by 283%, while ATA experienced a decline in employment of 55%.

Domestic Passenger Traffic Up close to 1% in First Two Months of 2006 In a preliminary report released by the U.S. Department of Transportation Statistics (BTS), U.S. airlines carried 96.2 million passengers during the first two months of 2006, up 0.6% from 95.6 million during the same period in 2005. Revenue passenger miles increased 2.1%, while available seat miles were down 2.8%, resulting in passenger load factor growth of 3.6 load factor points. Southwest Airlines carried 13.7 million passengers and emerged as the top ranked carrier for enplanements during January-February 2006.

Airlines Sign New Global Distribution System (GDS) Agreements Galileo International, a GDS, has signed 5-year agreements with United Airlines and US Airways. Similarly, Delta Airlines signed a 7-year agreement with Sabre. This 7-year agreement is the longest contract between a GDS and a major air carrier since GDS deregulation. Amadeus signed KLM and Worldspan signed similar pacts with Continental and American Airlines.

FAA Approves A320 Family for ETOPS The Federal Aviation Administration (FAA) has granted Airbus approval for extended range twinengine operations (ETOPS) for most A320 models. The A319, A320, and A321 have all received approval from the FAA for routes that are up to 180 minutes from the nearest airport. Airbus expects the A318 to receive approval in the second half of 2006.

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OTTAWA REPORT May 2006

Canada and U.K. Conclude “Open Skies” Air Transport Agreement On 21 April, the governments of Canada and the United Kingdom announced an “Open Skies” Air transport agreement between the two countries. The agreement significantly liberalises access by each country’s air carriers to the other country and beyond. Passenger and cargo carriers from both countries will be permitted virtually unlimited 5th freedom flights to and from third countries via the other country and will face no restrictions on pricing for such flights. The agreement follows a similar agreement between Canada and the U.S., announced in November 2005, and both agreements will take effect on 1 September 2006.

Sam Barone Regional Vice President Ottawa, ON

Federal Budget Confirms Commitment to Urban Transit The federal budget, presented on 2 May, has received positive feedback from the Canadian Urban Transit Association (CUTA) for measures including increased infrastructure investment and tax credits for transit use. The budget includes an increase of up to $1.3 billion in support for public transit infrastructure, and a personal tax credit of 15.5% of the cost of monthly or annual transit passes.

NEXUS Air Program to be Expanded The federal budget also included an additional $25 million to expand the NEXUS air program to enhance secure passenger facilitation on flights between Canada and the U.S. The program has been tested successfully at Vancouver International Airport since 2004, allowing simplified and expedited processing for pre-cleared, low-risk air passengers. The Canadian Airports Council (CAC) welcomed the expansion as a way to maintain security for travel between the two countries without stifling transborder trade.

Edmonton Designated for International Air Cargo Transshipment Program On 20 April, an international air cargo transshipment program was launched at Edmonton International Airport by Lawrence Cannon, Minister of Transport, Infrastructure, and Communities. Edmonton becomes the sixth airport in Canada with special designation for international transshipment, following Montréal Mirabel, Hamilton, Windsor, Gander and Winnipeg. The program allows air cargo that is originating in and destined for points outside Canada to be moved through Canada, and stored temporarily, before being shipped to its final destination by air, road, or rail.

Federal Government to Retain Ownership of Grain Hopper Car Fleet On 4 May, Lawrence Cannon, Minister of Transport, Infrastructure, and Communities, announced that the Government of Canada will retain ownership of its grain hopper car fleet. An agreement-inprinciple to lease the fleet to the Farmer Rail Car Coalition (FRCC) for five years, and transfer ownership at the end of this period, had been reached in November 2005, but a final agreement had not been concluded. The Government states that amendments to the Canada Transportation Act, introduced the same day, will provide benefits to farmers as the Canadian Transportation Agency will be able to adjust revenue caps to account for maintenance of rail cars in regulated service, estimated to save up to $2 per tonne. The FRCC is continuing to press for the conclusion of the lease agreement.

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INTERVISTAS NEWS May 2006

Robert Andriulaitis Appointed as Vice President, Transportation & Logistics Studies InterVISTAS is pleased to announce that Robert Andriulaitis has been appointed as Vice President, Transportation & Logistics Studies. Mr. Andriulaitis will be responsible for the management of studies and services to clients in transportation policy, cargo economics and marketing, foreign trade zone development and business logistics.

Mark Haneke Appointed as Vice President, Network and Strategic Planning InterVISTAS is pleased to announce that Mark Haneke has been appointed as Vice President, Network and Strategic Planning. Mr. Haneke will continue to provide support to InterVISTAS-ga2 clients and along with Martin Copeland and Nigel Brownlow, Mr. Haneke will assist in building InterVISTAS’ airline practice in North America and overseas.

InterVISTAS Upcoming Speaking Engagements •

Mr. Robert Beynon, Director, Airport Marketing Pan Canadian Community Futures Conference: Whistler, BC – 30 May 2006 Mr. Beynon will deliver a presentation on Building Strategic Partnerships.

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Dr. Michael Tretheway, Executive Vice President Airline Finance Conference: Toronto, ON – 6 June 2006 Dr. Tretheway will be delivering the luncheon presentation titled, “Overcoming Turbulence: Recovery of the Airline Industry.”

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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.

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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 airports and airlines are met.

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Mr. Solomon Wong, Vice President, Security & Planning AVSEC: Sydney, Australia -- 17-19 October 2006 Mr. Wong will be delivering a presentation titled, “Border and Aviation Security: The Complexity of the Challenge.” InterVISTAS’ Canadian Aviation Intelligence Report is a collection of information gathered from public sources, such as press releases, media articles, etc., information from confidential sources, and items heard on the street. Thus some of the information is speculative and may not materialise. To inquire about advertising opportunities or to provide comments/feedback on the InterVISTAS’ Canadian Aviation Intelligence Report, please contact Rob Beynon at rob_beynon@InterVISTAS.com or 1-604-717-1864. To subscribe, please send an email to subscribe@InterVISTAS.com To unsubscribe, please send an email to unsubscribe@InterVISTAS.com

Page 18 May 2006