CAIR Issue No. 6 - June 2003 by Leah Dupuis

INDUSTRY REVIEW

Page 1 June 2003

THE INTERNET AND AIRLINE TICKETING 10 June 2003

There has been considerable change in airline ticketing over the last several years. Consumers are becoming increasingly price-sensitive and seek speed and convenience when purchasing a ticket. As for airlines, they are determined to reduce operating costs in order to sustain their position in a highly competitive environment where new low cost entrants are beginning to dominate. As such, the introduction of the Internet has allowed both consumers and airlines to benefit.

Number of Users (millions)

Consumer Benefits The Internet has affected the way people purchase Global Internet Internet Useage goods and services. The number of Internet users is 1,200 estimated to grow to 1 billion by 2005 according to a study carried out by the Angus Reid Group. The study 900 indicates that U.S. and Canadian citizens lead the 600 world in Internet usage. In Canada, Internet access within the home has increased from 16% in 1997 to 300 49% in 2001. With increased access, a greater 0 number of consumers are turning to websites to 1995 2000 2005 research and purchase travel. In particular, travel websites such as Expedia, Travelocity and Orbitz Source: Computer Almanac, Angus Reid Group have emerged as primary sources for online bookings. By purchasing directly through a website, consumers are able to find the lowest possible fare without paying extra fees for travel agents to process a paper ticket.

Jennifer Tso Project Analyst

Airline Benefits With an increase in online airline ticket bookings, the Internet has become a more important distribution channel for airlines. As shown, low cost carriers have led the move towards cost-efficient distribution of tickets and tend to have a greater share of Internet bookings than major carriers. Tickets Booked Through the Internet Air Carrier % Tickets Booked Via Internet Scheduled Carriers: Air Canada1 Continental2 Delta3 Low Cost Carriers: Zip4 WestJet5 Jetsgo1

Page 1 June 2003

Less than 15% Less than 13% 24% More than 60% 50% 75% to 80%

ÂŠ InterVISTAS Consulting Inc.

THE INTERNET AND AIRLINE TICKETING – CON’T The average cost associated with the purchase, issue, delivery and processing of paper tickets is estimated to be between $15 to $25 per ticket.1 As airlines turn to the Internet as a lower distribution cost alternative, savings are reported in the range of $15 to $20 per ticket in travel agency commission and fees. As shown below, selling tickets via the Internet allows WestJet to realize major cost-savings. With Internet ticket distribution costs of just 32 cents per ticket, WestJet is able to save millions of dollars annually with its website sales. WestJet Distribution Costs Approx. Cost to WJ of Issuing $250 Ticket

Distribution Cost as % of Ticket Price

$26.00A

10.4%

$24.50 B

9.8%

WJ website

$22.82 C

9.1%

Passenger

WJ Reservations Centre (Telephone)

$12.00 D

4.8%

Passenger

WJ website

$0.32 E

0.1%

Purchaser Travel Agent Travel Agent

Distribution Channel Computer Reservation System WJ Reservations Centre (Telephone)

Travel Agent

Sources: 1 “Jetsgo gets off to a bumpy beginning”, Peter Fitzpatrick, The National Post, June 19, 2002 2 “Continental Goes to Zero on all Internet Bookings”, Travel Weekly, October 29, 2001 3 “Changing the rules”, Joan Feldman, Air Transport World, October 2002 4 “Disgruntled Tech Firms Gives Air Canada Zip”, Peter Fitzpatrick, The National Post, September 19, 2002 5 “Profit Soars at No-Frills WestJet”, Peter Fitzpatrick, The National Post, August 1, 2002 WestJet - Clive Beddoe presentation May 2002 A $13/return ticket CRS fee + 5% commission B $12/ticket cost through call centre + 5% commission C $0.32/ticket cost through website + 9% commission D $12/ticket through call centre E $0.32/ticket cost through website

Smartix International Page 2 June 2003

AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers – May 2003 Passenger Traffic Capacity Air Carrier

% Change from 2001

% Change over 2002

Air Canada 2

-26.4%

-23.4%

-21.5%

Domestic (Mainline)

-18.9%

-18.2%

-9.5% -29.9%

Jazz

76.3% not reported

CanJet:

not reported

International & Charter

Load Factor

Available Seat Kilometres

% Change over 2002

NEW CARRIERS: LOAD FACTORS Jetsgo: Zip:

Revenue Passenger Kilometres

% Change from 2001

% Change over 2002

% Change from 2001

-21.8%

-4.8 pts (to 71.6%)

-1.5 pts

-13.2%

-12.7%

-4.9 pts (to 69.6%)

--4.7 pts

n/a

-18.1%

n/a

+5.8 pts (to 60.6%)

n/a

-25.9%

-25.6%

-26.1%

-4.5 pts (to 72.8%)

+0.2 pts

-2.9 pts -3.9pts (to 72.2%) Note: n/a – As Jazz was not reported in 2001, a percentage change from 2001 could not be calculated. +43%

WestJet

+117.3%

+49%

+129%

Analysis: • Despite slight improvement from last month, Air Canada domestic traffic continues to .struggle • AC international traffic is continuing its downward trend. • The gap between WestJet’s growth in traffic and capacity is smaller at 6% than what it has been year-to-date, resulting in a load factor decrease less than the year to date result. Air Canada Canada Domestic Domestic Mainline 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25%

Air Canada International International 30%

Jazz data is not included in this graph

20% Dom RPK Dom ASK

10% 0%

Int'l RPK Int'l ASK

-10% -20% -30% Jun- Jul 02

Aug Sep

Oct Nov Dec

Jan- Feb Mar Apr May 03

-40%

Jun- Jul Aug Sep 02

Oct Nov Dec

Jan- Feb Mar 03

Apr May

WestJet

80% 70% 60% 50%

RPK ASK

40% 30% 20% 10% 0%

Jun- Jul 02

Aug Sep

Oct Nov Dec

Jan- Feb Mar 03

Apr May

Air Canada Mainline consists of all Air Canada with the exception of Jazz. Page 3 June 2003

AIRLINE DATA – U.S. U.S. Airlines Release May 2003 Traffic Figures Airline

Notes:

Load Factor

Traffic ( RPMs – millions)

(ASMs – millions)

Capacity

73.7%

9,845

13,367

á 4.1 pts

â 4.8%

â 10.1%

73.0%

1,224

1,790

á 1.2 pts

á 31.1%

á 33.1%

75.9%

4,824

6,357

á 2.4 pts

â 6.3%

â 9.2%

74.3%

7,842

10,561

á 2.6 pts

â 9.4%

â 12.5%

84.9%

927

1,092

á 2.3 pts

á 74.1%

á 69.3%

75.4%

5,338

7,075

â 3.4 pts

â 12.8%

â 8.9%

69.2%

4,189

6,049

â 0.5 pts

á 3.2%

á 3.9%

77.2%

7,920

10,261

á 4.0 pts

â 13.8%

â 18.3%

73.5%

3,223

4,388

â 0.1 pts

â 11.7%

â 11.5%

Includes American Airlines and American Eagle Does not include Express Jet 3. Load factor includes scheduled service only 1. 2.

Source: Carrier financial and traffic reports

Page 4 June 2003

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

Vancouver

MontrealDorval

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

St. John’s

-9.2%

-13.5%

-5.2%

-8.1%

-13.1%

-9.3%

-12.3%

-6.4%

-5.7%

-13.4%

-12.6%

-11.0%

May

-9.3%

-9.5%

-2.3%

-4.9%

-11.4%

-5.7%

-4.7%

-5.1%

-3.8%

-3.0%

-7.2%

-7.3%

June

-7.4%

-9.8%

-4.0%

-7.0%

-12.3%

-6.0%

-1.2%

-7.4%

-8.8%

-9.7%

-13.2%

-16.8%

2 Quarter

-8.6%

-10.9%

-3.8%

-6.7%

-12.3%

-6.9%

-6.0%

-6.3%

-6.1%

-8.7%

-11.1%

-11.9%

July

-7.2%

-8.3%

-3.6%

-9.4%

-6.6%

-5.1%

+4.4%

-13.1%

-6.3%

-9.5%

-13.0%

-7.0%

August

-7.7%

-7.9%

-2.3%

-7.5%

-8.8%

-2.8%

+7.5%

-8.8%

-1.7%

-13.6%

-10.5%

-8.0%

September

+12.6%

+22.4%

+20.1%

+7.6%

+23.7%

+16.4%

+26.1%

+13.2%

+11.8%

+12.6%

+10.5%

+20.0%

3rd Quarter

-2.5%

-0.2%

+2.9%

-4.4%

+0.50%

+1.2%

+11.2%

-4.8%

+0.2%

-5.4%

-5.8%

-0.8%

October

+12.5%

+15.3%

+14.3%

-0.1%

+6.4%

+5.9%

+7.9%

+0.1%

+5.7%

+1.7%

+4.4%

-0.7%

November

+4.7%

+5.3%

+0.6%

+9.4%

+3.0%

+5.7%

+0.1%

-1.4%

+0.2%

+1.2%

-2.3%

+8.2%

+4.3%

+7.8%

+6.9%

+11.7%

+6.3%

+15.2%

+8.1%

+1.4%

+4.3%

+1.5%

+3.2%

+2.2%

n/a

+7.2%

+9.7%

+7.5%

+6.9%

-5.1%

+8.9%

+7.3%

+0.5%

+3.0%

+1.1%

+3.0%

-0.3%

-7.5%

-3.9%

-4.3%

+1.2%

-4.1%

-5.1%

-3.8%

+0.1%

-4.8%

-1.3%

-5.1%

-5.5%

-5.7%

January

n/a

+3.8%

+7.2%

+6.3%

+3.5%

+6.2%

+13.0%

+4.5%

+2.9%

+4.0%

+6.8%

-0.3%

-5.8%

February

n/a

-0.6%

+3.7%

+5.6%

+3.0%

+3.9%

+12.7%

+13.8%

+7.5%

+2.0%

+6.0%

+8.8%

n/a

n/a -1.3% -1.8% +3.7% March st n/a +0.6% +2.9% +5.2% 1 Quarter n/a -13.5% -10.2% +1.7% April Note: Toronto traffic levels derived from Statistics Canada data Data not available for St. John’s due to labour strike. Page 5 June 2003

-0.3% +2.0% +1.1%

+2.2% +4.0% -7.6%

+5.1% +10.1% +4.4%

+11.6% +10.0% +6.1%

+0.2% +3.3% -0.9%

+5.0% +3.7% -0.6%

-3.7% +3.1% -3.9%

-4.2% +1.3% -1.6%

n/a n/a n/a

December 4th Quarter Full Year

CANADIAN AIRPORTS

2002

April

2003

NEWS ARTICLES AIR CANADA UPDATE AIR CANADA REACHES AGREEMENT WITH UNIONS

Air Canada has reached tentative agreements with all its unions. The deal with the Canadian Auto Workers will result in the loss of 827 ticketagents and call-centre jobs. The airline will save C$170 million annually from this agreement. The agreement with the International Association of Machinists and Aerospace workers will save the airline C$180 million a year and result in 1,400 job cuts. The final agreement with the Air Canada Pilots Association will allow Air Canada to achieve an overall labour cost of $1.1 billion a year. Recently however, efforts for restructuring are also threatened by a dispute over the seniority between pilots who had worked at Canadian Airlines and those who worked at Air Canada. On June 13, an arbitrator will produce a new seniority list integrating the pilots of the two airlines. Air Canada Jazz has also reached tentative agreements with its unions and has achieved total labour and management cost reductions of $110 million annually.

AIR CANADA TO REACH DEAL ON LEASES

Air Canada wants to reach an agreement with its aircraft lessors that would reduce its offbalance-sheet debt by C$3.2 billion. Air Canada hopes to conclude talks by June 30.

AIR CANADA FIRST TO OFFER ONLY E-TICKETS

Effective June 1, Air Canada will become the first full-service airline to offer only e-tickets for travel throughout North America. Travellers who prefer paper tickets will now have to pay an additional $30.

Amex’s Membership Rewards points program and the two companies will work together to develop co-branded charge cards for consumers and corporations. While the CIBC partnership with Air Canada continues, it is no longer an exclusive relationship.

TANGO CUTS SERVICE

Tango has announced that it will discontinue service to Regina, Saskatoon, Saint John and Fredericton. The airline will only serve nine destinations this summer, compared to 23 last year. Tango will continue to serve Vancouver, Calgary, Edmonton, Winnipeg, Toronto, Ottawa, Montréal, Halifax, and St. John’s.

ZIP INCREASES SERVICE AND LAUNCHES EDMONTON-VICTORIA

On June 8, ZIP increased the number of flights between Montréal-Winnipeg; Calgary-Victoria; and Winnipeg-Vancouver. Beginning July 6, Zip will introduce a daily non-stop service between Victoria and Edmonton.

OTHER CANADIAN AIRLINES WESTJET INCREASES SUMMER SERVICE

WestJet plans to add more flights this summer between Calgary-Victoria, Kelowna-Vancouver, Edmonton-Victoria, and Hamilton-Halifax. Also, starting July 21, the carrier will add 14 weekly flights from Montréal-Vancouver and 36 weekly flights from Montréal-Hamilton

CANJET EXPANDS FLEET

CanJet has acquired its sixth Boeing 737, representing a 50% increase in its fleet size in less than one year of operations.

AIR CANADA AEROPLAN PARTNERS WITH AMERICAN EXPRESS

Air Canada has signed a letter of intent with American Express to offer Aeroplan frequent flyer points to its card members. Under the arrangement, Aeroplan will become a partner in Page 6 June 2003

NEWS ARTICLES JETSGO INCREASES FLEET BY 50%

To mark its one-year anniversary, Jetsgo increased the size of its fleet by 50% to 12 aircraft. The four new MD-83s will be delivered over the next five months. The carrier will offer a special “1st Birthday $1 one-way flights for 1 month” promotion.

U.S. & INTERNATIONAL AIRLINES US AIRWAYS NEW MEMBER OF STAR ALLIANCE

On May 31, the Star Alliance approved the application of US Airways to become the seventeenth member of the alliance. The addition of US Airways increases the number of airports served by the alliance from 700 to 771 and expands the number of countries served from 128 to 133.

AMR CORP. REACHES AGREEMENT WITH CREDITORS

As the last piece of its US$4 billion costreduction effort, AMR Corp. reached an agreement with more than 100 suppliers, aircraft lessors and other key creditors that will save the company US$175 million annually. The company will issue up to 3 million shares of common stock in exchange for the creditors’ participation in its cost-reduction efforts.

DELTA UNVEILS US$2.5 BILLION COSTSAVING PROGRAM

Delta Air Lines unveiled a US$2.5 billion costsaving program intended to reduce unit costs by 15% by the end of 2005. The program focuses on redesigning the travel process, enhancing operational efficiency, redefining the product line, increasing productivity and reducing employment costs.

MIDWEST TO LAUNCH LOW FARE SERVICE

Midwest Airlines plans to launch a low-fare service in August. The service will not be a separate airline but will be part of one of two types of service offered by Midwest: Midwest Airlines Saver Service (low fares to leisure destinations) and Midwest Signature Service (service to business destinations).

MESA OFFERS CHARLOTTEMONTRÉAL FLIGHTS

On June 8, Mesa began a daily US Airways Express nonstop service between Charlotte and Montréal operating on 50-seat CRJ200s.

STAR ALLIANCE IN TALKS FOR UP TO 200 REGIONAL JETS

Lufthansa, Scandinavian Airlines, Air Canada and Austrian Airlines are in talks with Bombardier Inc., Embraer SA, Boeing Co. and Airbus SAS for a firm order for 100 regional jets, with up to 100 options in the fourth quarter this year. The estimated value of the order, including the options, is US$4.5 billion.

RYANAIR OFFERS PERSONAL LOANS

Ryanair introduced its latest finance product, Ryanair low cost personal loans to Irish and British customers. These personal loans are in partnership with an Irish personal finance institution, GE Capital Woodchester and the U.K.’s MBNA Europe Bank. Financial services have proved to be successful for the carrier with the introduction of its credit card back in February.

KLM TO JOIN SKYTEAM

KLM has decided to join the SkyTeam alliance. An official announcement is expected within the next 2-6 weeks.

ATLANTIC COAST AIRLINES OFFERS BOSTON-FREDERICTON SERVICE

Effective August 15, Atlantic Coast Airlines will offer twice daily Boston-Fredericton service. The service will be operated with Fairchild 328JET regional jets. Page 7 June 2003

NEWS ARTICLES CARGO U.S. DOMESTIC CARGO INCREASES

U.S. Air Transport Association figures for April show a 4.6% increase in revenue ton miles for domestic cargo and a 0.9% decrease in international cargo. Total freight traffic for the month increased 1.9% from the previous year.

WORLD AIR FREIGHT TRAFFIC UP 7.7% IN APRIL

Worldwide airfreight traffic increased 7.7% in April according to the International Air Transport Association. Freight traffic in AsiaPacific increased 10.6% last month compared to the same month last year, in contrast to the 45% drop in passenger traffic in the region. Carriers in North America reported an 11.2% drop in freight traffic in the first four months of 2003.

DHL AIRWAYS SOLD FOR $57M AND RENAMED ASTAR

DHL Worldwide Express will sell its DHL Airways unit to Chairman and CEO John Dasburg and two other investors for US$57 million. The transaction is expected to be completed by June 30 and is subject to approval by the U.S. Department of FUEL PRICES DHL Transportation. Effective immediately, Airways has launched a rebranding program 5, 2003Air Cargo and will change its nameJune to ASTAR Inc. SPOT OIL PRICES RISING FUTURES PRICES STILL LOW

AIRBORNE EXPRESS LOWERS FUEL Crude Oil Prices: SURCHARGE

Beginning June 9, Airborne Express will reduce its fuelSpot surcharge – US$30.82 from 5.5% to 4.5% for all express shipments. (up 20% from TheMay) surcharge currently applies to all U.S., Canadian and all International Express Shipments. Future – Still Stable • 6 month - $26.60 FEDEX TO REDUCE(December 14,000 JOBS 2003 delivery) FedEx Corporation plans to cut 14,000 jobs • 12 month – $25.16 from its largest operating unit, FedEx Express. (June 2004 delivery) The company will offer voluntary early • 2 year - $24.14 retirement and severance programs during (June 2005reductions delivery) will fiscal year 2004. The job • operating 5 year - $23.99 produce annual savings of US$150$190 million by 2005. (June 2008 delivery) Page 8 June 2003

WINNIPEG BECOMES MAIN HUB FOR CARGOJET

Winnipeg Airports Authority Inc. will be the primary hub of Cargojet’s network. All Eastern and Western Canadian flights will now pass through Winnipeg. With Winnipeg as the main hub, Cargojet will now operate 6 flights each business day, servicing Hamilton, Montréal, Vancouver, and Calgary directly.

AIRPORTS HALIFAX INTERNATIONAL RATED #1

The 2002 IATA Global Airport Monitor Report, which was released May 2003, has rated Halifax International Airport as number one in the world in the Service Delivery category of airports servicing 15 million passengers or less.

YVR RANKS #1 IN NORTH AMERICA

The IATA Global Airport Monitor has rated Vancouver International Airport (YVR) as the top airport in North America. YVR has been chosen as one of the top ten airports in the world for the past five years.

MONCTON INCREASES AIF

Beginning July 1, 2003, the Greater Moncton International Airport will increase its airport improvement and reconstruction fund from $10 to $15 per person.

ST. JOHN’S AIRPORT STRIKE COMES TO AN END

On June 3, unionized workers at St. John’s International Airport ended a three-month strike and voted in favour of a deal that gives them wage increases of 14-18% over four years. The Public Service Alliance of Canada indicated that the settlement was not as good as the tentative deal they had in November. It was noted that current conditions made the November agreement unattainable.

NEWS ARTICLES AIRCRAFT MANUFACTURERS BOMBARDIER, AIR CANADA SIGN DEAL TO MARKET CHARTER SERVICES

Bombardier Skyjet, and Air Canada Jetz have signed a commercial agreement to jointly market their air charter services. This partnership will provide customers with convenient access to a range of options for private air travel throughout North America.

FUEL PRICES June 5, 2003 SPOT OIL PRICES RISING FUTURES PRICES STILL LOW Crude Oil Prices: Spot – US$30.82 (up 20% from May) Future – Still Stable • 6 month - $26.60 (December 2003 delivery) • 12 month – $25.16 (June 2004 delivery) • 2 year - $24.14 (June 2005 delivery) • 5 year - $23.99 (June 2008 delivery) Monthly Monthly Spot Spot Prices Prices $40.00

US$ per Barrel

$35.00 $30.00

BOMBARDIER AEROSPACE PROFITS DOWN

Bombardier Aerospace reported revenues of C$2.4 billion, an 11% decline for the first quarter ended April 30. Pre-tax losses totalled C$7 million, compared with a pre-tax profit of C$158 million in the same quarter last year. The drop in revenues can be attributed to the decline in business aircraft deliveries and rise in the Canadian dollar. Aircraft sold in U.S. dollars now fetch less in Canadian dollar revenues. Aircraft deliveries totalled 63 compared to 65 in the first quarter of the previous year.

EMBRAER OBTAINS ORDER FROM JETBLUE

Embraer has obtained a US$3 billion order from JetBlue for 100 Embraer 190s. JetBlue has also taken options on 100 additional Embraer 190s, taking the potential worth of the contract to US$6 billion. Delivery of the first seven aircraft will begin in 2005, with the remainder expected to be delivered through 2011.

$25.00 $20.00 $15.00 Dec-02

Jan-03

Feb

Mar

Apr

May

Jun-03

GOVERNMENT & REGULATORY US DOT APPROVES AA-BA CODESHARE

Mexico. The two carriers, however, have not received approval to coordinate pricing and schedules.

PEOPLE IN THE NEWS NEW CAC PRESIDENT/CEO APPOINTED

Roland Dorsay has been appointed the new President/CEO of the Canadian Airports Council. Roland has been Vice President at InterVISTAS Consulting Inc., heading its Ottawa office. Previously, he had been in international relations at Canadian and Wardair.

REED JOINS ABBOTSFORD

Terrace airport manager Rick Reed has moved to Abbotsford as its new airport manager.

BROWN NEW TERRACE AIRPORT MANAGER

Former Victoria Airport Manager Laurie Brown is moving to Terrace.

OTHER AIR TRAFFIC CONTROLLERS REACH DEAL

On June 10, Nav Canada reached a tentative collective agreement with the Canadian Auto Workers and the Canadian Air Traffic Control Association representing air traffic controllers. Under the agreement, the controllers will get wage increases of 2.5%, 2.5%, 2.75%, and 3% over the next four years, retroactive to April 1, 2001. The 2,300 controllers have been without a contract since March 31, 2001.

NAV CANADA FEE HIKES

Due to a severe downturn in air traffic, NavCanada will increase its navigation fees charged to airlines by 7% starting August 7.

On May 30, US DOT issued a final approval for a codeshare arrangement between American Airlines and British Airways. The agreement allows American to place its code on as many as 110 destinations in the UK, continental Europe, Africa, the Middle East and Asia. British Airways will place its code on American’s flights to 187 destinations in the U.S. and Page 9 June 2003

SARS

THE GLOBAL AIR TRAVEL CRISIS C ONTINUES 10 June 2003

When it seemed that the SARS epidemic had peaked worldwide, new cases of the disease emerged. Taiwan continues to worsen, as six new probable cases have been reported, bringing its total number of SARS cases to 686. Currently, Taiwan is the third-worst hit international region after China and Hong Kong. The World Health Organization (WHO) has decided to keep the travel advisory for Taiwan. In Toronto, a new cluster of SARS outbreaks has been reported. The WHO may renew a travel advisory warning to the city if a resurgence of SARS is confirmed. To date there are over 8,400 SARS cases worldwide with the majority in China (63%), Hong Kong (21%) and Taiwan (8%). Airport Impact On May 25, Hong Kong’s Airport Authority unveiled a US$12.8 million SARS revitalization plan to stimulate air traffic and bring tourists back to the city. The WHO had lifted its travel advisory on Hong Kong during this time.

Doris Mak Senior Market Analyst Lifting of WHO Travel Advisory The WHO travel advisory remains in effect for Taiwan, Beijing and four other regions of China.

Airline Impact Weekly traffic statistics published by the U.S. Air Transport Association (ATA) reports that traffic to Asia-Pacific carried by U.S. carriers has shown a little improvement, rising to -35% during the week of May 18th compared to a year ago. System-wide capacity for ATA member airlines remains at 12% below last year's levels. Air Canada’s overall traffic for the month of May was down 26.4%. The airline’s Asia-Pacific traffic was down 68%.

Source: Air Transport Association

Cathay Pacific has seen a slight increase in passenger traffic since the WHO lifted its Hong Kong travel advisory. However, the carrier is still carrying only 1/3 the number of passengers that it carried last year. Cathay plans to restore approximately 170 flights per week beginning in July. The total number of weekly flights operated in July will total 700, up from 530 in April. To stimulate demand, carriers such as Qantas and Singapore Airlines are offering discounted fares for travel to Hong Kong, Singapore and other countries. Foreign tourist numbers in Singapore have dropped 70% compared to last year. Air Canada is also offering a C$1,400 return fare from Sydney across the Pacific to London. China Southern Airlines has seen passenger numbers fall 83% in May, compared to last year. Hong Kong International Airport has shown a decline in passenger traffic of 80% since the outbreak of SARS. Passenger numbers have fallen on average to 20,000 per day. Japan’s Narita Airport experienced a drop of 40% in passenger traffic during the period April 26-May 5.

Page 10 June 2003

ECONOMIC OUTLOOK 10 June 2003

Has the U.S. recovery stalled? No. Despite the level of unemployment in the U.S. being at a tenyear high, there are a number of signs that the U.S. economy is in for a solid recovery: §

The stock market has rallied 20% since March

Business confidence has recovered since the Iraq War

Business activity should rise due to a cheaper U.S. dollar, which makes U.S. firms more competitive in domestic and international markets

U.S. real GDP growth in Q1 2003 was 1.5%

The Jobs and Growth Tax Relief Reconciliation Act is expected to add one-half a percentage point to GDP growth late in 2003.

The Federal Reserve has expressed its intention to continue to keep interest rates low.

US Consumer Consumer Confidence Onset of Recession Recession

100 95

Expect more outbound Canadian leisure air traffic than usual in the medium term. With unemployment high and a falling currency, Americans may undertake less travel to Canada in the near future – at least for leisure purposes. But with the Canadian economy doing well and our dollar trading higher against the U.S. dollar in six years, it is likely we will see more Canadians travelling south for holidays.

Page 11 June 2003

90 85

Drop prior to recession

June

Feb

April

Dec

Oct

Jun

Aug

Apl

Feb

Oct

Dec

Aug

Jun

9/11 Apl

Feb

Manager Economic Services

Although the U.S. economy is achieving growth, there is little recovery in jobs, leading some observers to call this the “jobless recovery.” High unemployment is taking its toll on consumers, who appear less convinced of immanent recovery in the June reading of the consumer sentiment index.

Dec-00

Allison Padova

Source: University of Michigan

US$ per CDN$

OTTAWA SCENE SUMMER RECESS 10 June 2003

Democratic Deficit: The House of Commons will likely head into its traditional summer holiday period once Bill C-24, the controversial political financing legislation, is passed, as is expected later this week. Before the House adjourns it will also need to finalize this year’s Estimates and that means resolving the Transport Committee’s equally controversial decision to reject a 3% increase in the VIA Rail budget, ostensibly because it was unconvinced of the need for additional funding when VIA’s revenues are on the upswing.

Roland Dorsay Regional Vice President Ottawa

Underlying the Government’s recent difficulties in moving its legislative agenda forward is the question of the future role of Caucus and of Parliamentary committees. Backbench MP’s have long sought a greater decision-making role. The transition period in anticipation of a change of Liberal leadership has given MP’s a window of opportunity to show more independence than they have traditionally enjoyed. There is a growing expectation among MP’s that this is not just a temporary phenomenon. Parliamentary Committees expect in future to have an increasingly important role to play in shaping policy and legislation. Time will tell. Canada Airports Act (Bill C-27): The Bill remains stalled in Parliament. It likely will not get beyond second reading debate stage by the time the House rises for the summer. It is highly likely that it will even not have gotten to the Transport Committee for clause by clause consideration. Minister Collenette has indicated that he would support the Transport Committee’s traveling across Canada to hold hearings on the airport bill, which means that even if C-27 were to pass second reading in the Fall, there is in all likelihood not enough time to get this legislation passed before the November Liberal leadership convention. The prognosis for this legislation is that it will die on the order paper and that it will most likely be up to the Transport Minister in the next Government to decide whether to re-introduce it and if so with what changes, if any. The Canada Transportation Amendment Act (Bill C-26): is a little further ahead on the legislative calendar than the Canada Airports Act but it faces too much opposition among Transport Committee members to have any prospect of early passage, even in a Fall Parliamentary session. Canada Marine Act Review Panel Report: The Review Panel report, tabled in the House on June 4th, is a landmark document that has been widely welcomed by the Canadian port authorities and the maritime industry. Many of the Panel’s recommendations have merit for consideration with respect to Canada’s airports. For example, the Panel recommends that: • Port authorities be allowed to participate in any programs provided by the Government that are available to other Canadian companies. • The Government should consider financing alternatives for new port infrastructure investments, such as tax exempt bonds used widely in the USA. Consideration should also be given to permitting accelerated capital cost allowance write-downs for infrastructure facilities provided by the private sector within a port. • The stipend payable to the federal government should be calculated as a percentage of the port’s net income. • The Government rather than the marine transportation industry should bear the expense of implementing national security measures. Whether the Government adopts any of these provisions remains to be seem. Page 12 June 2003

CARGO CAPERS 9 June 2003

In previous columns I have addressed the international and U.S. air cargo industry recovery; this month, we take a look at what is happening on the Canadian scene. Canadian air cargo developments. Amid the continued gloomy headlines from the passenger side of the aviation industry (excepting of course the generally positive news concerning WestJet) the cargo side continues its increasingly strong recovery from the traffic decline that started in early 2001. Of course, in data-poor Canada, neither Transport Canada nor Statistics Canada can provide timely statistics to back up that statement. Nevertheless we can see evidence of air cargo industry expansion across the country, despite the recent bankruptcy filing by All Canada Express.

Robert Andriulaitis Director, Transportation & Logistics Studies

Airport cargo developments. In the west, Calgary expanded its cargo apron last year, and recently announced its selection by DHL as a western Canadian base through which it will serve Alberta, Saskatchewan, the Yukon and the NWT. Cargolux also recently increased its Calgary service to thrice weekly. Winnipeg is expanding its cargo apron, and had a carrier announcement of its own (see Cargojet item below). Edmonton opened its AirLINKS Cargo Park last year, and announced FedEx as its anchor tenant. Vancouver announced the construction of a new 125,000 square foot UPS regional sort facility. In central Canada, Air Canada completed its move to Pearson’s new infield cargo area last year, while Hamilton expanded its apron to accommodate cargo aircraft and Montréal dedicated Mirabel to cargo. In the east, Moncton (with 24,000 tonnes) and Halifax (with 30,000 tonnes) both set cargo records in 2002. Airports across the country also started marketing FTZ capabilities, and have agreed to work together to market Canadian airport capabilities in a Canadian Airports Council sponsored initiative that will lead to a common display area at the 2004 TIACA conference in Bilbao, Spain. Air Canada developments. Air Canada, despite its well-publicized difficulties, is following along in the footsteps of the combination carriers such as Lufthansa Cargo that are serious about cargo. Robert Milton announced earlier this year that Air Canada Cargo will be spun off as a separate business subsidiary. This will give Air Canada Cargo some much needed flexibility and independence from the passenger-dominated main operation, and should hopefully allow Air Canada Cargo to improve its services. Cargojet expansion. The big news, however, has to be Cargojet. With its recently signed contract with UPS (which was a key blow to fortunes of All Canada Express), Cargojet is in expansion mode, recently picking up its eighth 727 freighter and awaiting delivery of its ninth. Cargojet and the Winnipeg Airports Authority recently announced that YWG would be the primary hub for Cargojet’s national air cargo network. Service points in the west (Vancouver, Edmonton, Calgary, Saskatoon and Regina) will be linked to the eastern service points (Hamilton, Thunder Bay, Montréal, Moncton, Halifax and St. John’s) through Winnipeg, making it Cargojet’s busiest centre.

Page 13 June 2003

CARGO CAPERS – CONTINUED During the press conference, Ajay Virmani of Cargojet noted their decision was based in part on WAA’s people. In particular, he noted the extensive cargo background and understanding of WAA President and CEO Barry Rempel. He also noted the commitment shown by WAA in pursuing the Cargojet business, as well as its commitment to customers and partnerships. Finally, Ajay noted the cargo that was available in Winnipeg, the 24-hour operational status of the airport, and especially Winnipeg’s central location. He noted that YWG’s location allows them to most effectively serve their network. Ajay spoke about international potential, as well as the domestic network. He noted Cargjet’s alliances with British Airways World Cargo, Air France Cargo, and Swiss WorldCargo (a representative of Swiss WorldCargo attended the media event) would allow Winnipeg goods to flow throughout the world. A message for the Minister. Ajay Virmani also made a couple of points for the benefit of the federal government. He noted that Canada lacks an air policy for cargo, and that we need to have one in place. The federal government also needs to address high airport fees that stem from the excessive airport rents Airport Authorities pay to the federal government. Beyond that, the federal government needs to address fuel taxes, security charges and air navigation fees – all key issues which the Minister’s vision failed to address. Certainly this is not a new message, but it is one that still has not made an impact on Parliament Hill. If we want this nicely developing cargo recovery to continue, the federal government simply has to face up to the problems it created (or at least exacerbated) by its treatment of aviation and airports as cash cows. Airports, and indeed the industry as a whole needs to keep the pressure up for change.

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. Prepared by InterVISTAS Consulting Inc.

Page 14 June 2003