INDUSTRY REVIEW
Page 1 May 2003
TradePort International Market Intelligence Report InterVISTAS Consulting Inc. Š
ARE YOU READY FOR THE B OOM? 10 August 2003
Re-capitalised Air Carriers. At the moment, all the news is about air carriers in bankruptcy or skirting the courts by re-organising on a ‘voluntary’ basis. Traffic and profit reports are even more negative than they were after 9/11. But it is time to start looking ahead. You might be surprised with what you will see.
Michael Tretheway Vice President & Chief Economist
US Airways is the first of the air carriers to emerge from bankruptcy and serves as a good lesson. It now has cash, lots of it. With refinancing, its cash position is so strong it placed an order for 170 aircraft. It has a new business plan, one that will aggressively pursue new regional jet markets. Its cost structure is greatly reduced. To put it bluntly, while it was bankrupt in March, today it is a financially healthy carrier. This is not to say that it has solved its long run problems. Indeed, the challenge it faces from Southwest and JetBlue, among others, is formidable, and its cost reductions still leave them as a relatively expensive operation. But for the time being, it is alive, kicking and seeking new markets. It has enough cash to allow it to survive for two or more years. Other carriers are similarly being re-capitalised. United and Air Canada are following US Airways through the court protected bankruptcy re-organisation. They are likely to emerge with lower costs and a wad of cash, enough to order new planes (for delivery much later in the decade). American, Northwest, Continental and Delta are all undergoing cost reduction and financial renewal. What does this mean for airports? The restructured network air carriers might best be viewed by airports as new air carriers. It will not be business as usual for them. They are all developing new business plans. The actual plan they will follow is not necessarily what the press has reported. Some will drop existing hubs (US Airways is threatening to close Pittsburgh) and re-orient their networks to be more connected, and less hub-like. Some believe that in domestic markets, carriers such as Air Canada and Delta will attempt to execute route structures similar to their low cost carrier rivals. They are already adopting the LCC fare policies, eliminating Saturday stayover and offering heavily discounted one way fares. Next, they may begin to seek to connect smaller centres on new non-stop routes. WestJet, for example, years ago launched non-stop service from Kelowna to Edmonton. As neither Air Canada or Canadian offered non-stop service, this was a tremendous success. The lesson has not been lost. The low fare subsidiaries of carriers such as Air Canada (Zip), Delta (Song), United (something), etc, could acquire significant capacity from their parents and make major expansions. Airport marketers should view services from the major network carriers as under threat. Our advice is to consider making professional presentations on what must be retained and where new opportunities lie. Most important, it is necessary to develop professional intelligence on the actual new strategies the network carriers will be pursuing.
Page 1 August 2003
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MARKET CAPITALISATION:
THE TALE OF TWO BUSINESS MODELS 15 August 2003
Industry Downturn The airline industry has been hit hard since the September 11 th terrorist attacks in 2001. The U.S. economy had already been slowing and the attacks resulted in deep financial losses for airlines. As the industry began to rebuild, the onset of war in Iraq and the SARS outbreak threw the industry into crisis again. This storm of events in the past two years has forced some full-service carriers (FSC) to seek bankruptcy protection in order to restructure their services to better compete with low cost carriers (LCC).
Geneva Tretheway Project Analyst
Impact on Market Capitalisation The impact these events have had on the airline industry is quite striking. While many airlines were able to recover slightly in the early half of 2002 from 9/11, it is evident that by mid-year, FSCs were not going to be financially viable without significantly decreasing their operating costs. Conversely, LCCs have continued to be financially successful during these difficult times due to a lean operating structure. Investors have supported the LCCs and rewarded them with high share prices resulting in ballooning market capitalisations. In the past year, United Airlines, US Airways, Air Canada, and Hawaiian Airlines have all filed for bankruptcy protection and are attempting to restructure themselves through cost and service reductions (US Airways has since emerged from Chapter 11 this past March). Diverging Financial Results: LCC vs. FSC Since 9/11, low cost carriers WestJet and Air Tran’s market capitalisations have grown 101% and 288% respectively. Comparatively, United Airlines and American Airline’s market caps have dropped 94% and 41% during the same time period. However, a few full-service carriers have made gains in the past two years. British Airways and Alaska Airlines’ market caps having increased 23% and 26% respectively compared to September 21, 2001. In general, LCCs have been able to increase their market cap through strict fiscal responsibility while FSCs are lagging and falling into bankruptcy due to a high cost structure. The low-cost structure of the LCCs has allowed them to absorb much of the effects of the world crises and still retain the ability to turn a profit. Their lower fares are more attractive to passengers who are willing to give up some services (like complimentary meals and beverages) to get the best prices during a slow economy.
Page 2 August 2003
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MARKET CAPITALISATION CON’T
Market Capitalisations from September 21, 2001 to 21 July 2003 LCC Vs. FSC (in millions) Low Cost Carriers Air Tran WestJet Frontier Air Southwest JetBlue Ryanair*
Full Service Carriers Alaska British Airways Continental KLM Transat American Delta Air Canada Hawaiian Airlines United
Change from Change from 10 Sep 01- 21 21 Sep 0110-Sep-01 21-Sep-01 10-Oct-01 22-Jul-02* 21-Jul-03 Jul 03 21 Jul 03 $ 408 $ 211 $ 273 $ 272 $ 818 100% 288% $ 745 $ 634 $ 868 $ 1,356 $ 1,275 71% 101% $ 340 $ 192 $ 292 $ 182 $ 372 9% 94% $ 13,512 $ 10,382 $ 12,092 $ 9,160 $ 13,226 -2% 27% n/a n/a n/a $ 2,811 $ 2,735 n/a n/a n/a n/a $ 3,999 $ 5,086 n/a
$ $ $ $ $ $ $ $ $ $
10-Sep-01 795 4,115 2,188 566 258 4,632 4,553 583 94 1,674
Change from Change from 10 Sep 01- 21 21 Sep 0121-Sep-01 10-Oct-01 22-Jul-02* 21-Jul-03 Jul 03 21 Jul 03 $ 479 $ 580 $ 523 $ 606 -24% 26% $ 2,405 $ 2,658 $ 2,461 $ 2,955 -28% 23% $ 802 $ 982 $ 686 $ 937 -57% 17% $ 374 $ 383 $ 500 $ 424 -25% 13% $ 182 $ 175 $ 233 $ 148 -43% -19% $ 2,764 $ 3,206 $ 1,747 $ 1,639 -65% -41% $ 2,765 $ 3,341 $ 1,780 $ 1,541 -66% -44% $ 319 $ 204 $ 525 $ 107 -82% -67% $ 74 $ 82 $ 81 $ 23 -76% -69% $ 925 $ 1,006 $ 551 $ 57 -97% -94%
* 2002 price based on ISE Historical exchange prices, converted to USD with July 22, 2002 rate of 1.00968 USD/Euro Notes: 1. 2002 market caps based on historical stock prices (July 22, 2002) and on July 21, 2003 outstanding shares 2. 10 Sept 2001 market caps based on 21 Sept 2001 Outstanding Shares
Page 3 August 2003
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AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers – July 2003 Passenger Traffic Capacity
Air Carrier
NEW CARRIERS: LOAD FACTORS Jetsgo: Zip: CanJet:
71% not reported not reported
Revenue Passenger Kilometres
% Change over 2002
% Change from 2001
Load Factor
Available Seat Kilometres
% Change over 2002
% Change from 2001
% Change over 2002
% Change from 2001
Air Canada 1
-13.4%
-14.0%
-15.4%
-15.5%
+1.9 pts (to 78.1%)
+1.3 pts
Domestic (Mainline)
-2.5%
-6.6%
-6.7%
-4.9%
+3.3 pts (to 74.7%)
--1.3 pts
Jazz
+7.3%
n/a
-7.1%
n/a
+8.4% (to 62.3%)
n/a
International & Charter
-18.2%
-17.5%
-19.7%
-20.5%
+1.5 pts (to 80.1%)
+2.9 pts
-2.6 pts -4.9 pts (to 78%) Note: n/a – As Jazz was not reported in 2001, a percentage change from 2001 could not be calculated. WestJet
+42%
+108%
+46%
+122%
Analysis: • Air Canada traffic changes continue to linger in negative territory although the declines are becoming less negative. This may be an indication that the short term impacts of SARS and the Iraq war are diminishing. • Air Canada's load factors have improved while the air carrier's traffic and capacity have declined. The airline appears to be better matching its seat capacity with passenger traffic levels through its restructuring efforts. Air Canada International
Air Canada Domestic Mainline 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25%
•
30% 20%
Jazz data is not included in this graph
10% Dom RPK Dom ASK
0%
Int'l RPK Int'l ASK
-10% -20% -30% -40%
Aug- Sep Oct Nov Dec Jan- Feb Mar Apr May Jun 02 03
Jul
Aug- Sep 02
WestJet continues to grow with strong 80% increases in passenger traffic (+42%) and 70% available capacity (+46%). However, the 60% airline's load factor has been on the decline 50% since the beginning of the year, but this has 40% 30% not prevented the airline from sustaining 20% profitability. WestJet reported its 26th 10% consecutive quarter of profits, beating 0% Aug- Sep analyst estimates and as a result were 02 rewarded by shareholders who supported the company’s share price to a new 52-week high.
Oct Nov Dec Jan- Feb Mar Apr May Jun 03
Jul
WestJet WestJet
RPK ASK
Oct Nov Dec Jan- Feb Mar 03
Apr May
Jun
Jul
§ 1
Air Canada Mainline consists of all Air Canada with the exception of Jazz. Page 4 August 2003
© InterVISTAS Consulting Inc.
AIRLINE DATA – U.S. U.S. Airlines Release 2nd Quarter 2003 Financial and July 2003 Traffic Figures – Financial Data – Second Quarter 2003 2003 Q2 Net Income (US$ - Millions)
Airline
1
$75 LOSS $43
3
2
Notes:
2002 Q2 Net Income (US$ - Millions)
Traffic Data – July 2003 Load Factor
Traffic
Capacity
(RPMs – millions)
(ASMs – millions)
$495 LOSS
81.0%
11,968
14,775
+ 5.3 pts
- 0.4%
- 6.9%
$55
84.3% 2
1,421
1,771
PROFIT
LOSS
+ 0.3 pts
+ 18.7%
$79
$139
84.5%
6,022
7,129
PROFIT
LOSS
+ 5.0 pts
+ 5.6%
- 0.7%
$184
$186
82.7%
9,452
11,435
PROFIT
LOSS
- 4.9 pts
- 2.7%
- 8.5%
$38
$15
90.6%
1,150
1,270
PROFIT
PROFIT
+ 2.8 pts
+ 79.2%
+ 73.7%
$227 PROFIT
$93 LOSS
83.7%
6,708
8,019
+ 3.2 pts
- 3.9%
- 7.5%
$246 PROFIT
$102 PROFIT
77.5%
4,750
6,126
+ 4.3 pts
+ 9.8%
+ 3.6%
$623 LOSS
$341 LOSS
82.9%
9,913
11,951
+5.6 pts
-5.7%
-12.2%
$13 PROFIT
$248 LOSS
82.2%
3,789
4,611
+ 5.1 pts
- 3.5%
- 9.5%
+ 19.7%
Includes American Airlines and American Eagle. Net loss includes Special Items factor includes scheduled service only 3. Does not include Express Jet 1.
2. Load
Source: Carrier financial and traffic reports
Page 5 August 2003
© InterVISTAS Consulting Inc.
. Summary of Total Year-Over-Year Passenger Traffic Performance at Selected Airports Montreal -Dorval
Calgary
Edmonton
Ottawa
Winnipeg
Halifax
Victoria
Kelowna
Saskatoon
Regina
St. John’s
June
-7.7%
-9.8%
-4.0%
-7.0%
-12.3%
-6.0%
-1.2%
-7.4%
-8.8%
-9.7%
-13.2%
-16.8%
2nd Quarter
-9.0%
-10.9%
-3.8%
-6.7%
-12.3%
-6.9%
-6.0%
-6.3%
-6.1%
-8.7%
-11.1%
-11.9%
July
-7.6%
-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%
+22.5%
+20.1%
+7.6%
+23.7%
+16.4%
+26.1%
+13.2%
+11.8%
+12.6%
+10.5%
+20.0%
3rd Quarter
-2.6%
-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%
+5.7%
+0.1%
-1.4%
+0.2%
+1.2%
-2.3%
+8.2%
+4.3%
+7.8%
+7.1%
+11.7%
+6.3%
+15.2%
+8.1%
+1.4%
+4.3%
+1.5%
+3.2%
+2.2%
n/a
+7.2%
+9.7%
+7.6%
+6.9%
-5.1%
+8.9%
+7.3%
+0.5%
+3.0%
+1.1%
+3.0%
-0.3%
Full Year
-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
+5.7%
+2.8%
+7.2%
+6.3%
+3.5%
+6.2%
+13.0%
+4.5%
+2.9%
+4.0%
+6.8%
-0.3%
-5.8%
February
+4.6%
-0.6%
+3.7%
+5.6%
+3.0%
+3.9%
+12.7%
+13.8
+7.5%
+2.0%
+6.0%
+8.8%
-2.0%
March
+0.4%
-1.4%
-1.8%
+3.7%
-0.4%
+2.2%
+5.1%
n/a
+0.2%
+5.0%
-3.7%
-4.2%
-3.1%
+2.0% +1.1% -5.3% -0.4% -1.6%
+4.0% -7.6% -1.5% +2.5% -2.1%
+10.1% +4.4% -0.5% +5.0% +3.0%
+10.0% +6.1% -1.2% +4.1% +2.9%
+3.3% -0.9% +0.4% +0.6% +0.0%
+3.7% -0.6% -1.0% -0.5% -0.7%
+3.1% -3.9% -5.3% +1.4% -2.6%
+1.3% -1.6% -1.6% +7.0% +1.3%
-3.7% -1.7% +4.5% +17.8% +7.1%
2002
December 4th Quarter
2003
1st Quarter +3.4% +0.2% +2.9% +5.2% April -15.1% -13.6% -10.2% +1.6% May -17.3 -13.5% -7.4 -1.4% June n/a -9.9% n/a +1.9% 2nd Quarter n/a -12.2% n/a +0.7% Note: Toronto traffic levels derived from Statistics Canada data. Page 6 August 2003
CANADIAN AIRPORTS
Vancouver
Toronto
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RUN-UP IN FUEL PRICES The price of crude oil has hit a 4-month high… In recent weeks, the price of crude oil has risen to levels not seen since the start of the Iraq War. Concerns over global (especially U.S.) oil supplies and fuel inventories have impacted crude oil prices in the market. Other factors such as the slow return of Iraqi crude to the world markets and uncertainty in Venezuela have also contributed to the rise in crude oil prices. Tight Commercial U.S. Oil Supplies In November 2001, President Bush decided to fill the country’s Strategic Petroleum Reserve (SPR) to maximum capacity. As crude oil enters the U.S., a greater volume of oil is diverted to the SPR than to commercial inventories. The SPR is the U.S.’s first line of defense against any disruptions in oil supplies. With U.S commercial crude oil supplies at record low levels coupled with other global concerns, this has pushed oil prices higher.
Political Uncertainty in Venezuela The general strike in Venezuela at the end of 2002/early 2003 was due to public protest against President Hugo Chavez. The strike crippled the country’s oil industry for several weeks. Later this year, the ruling government faces the prospect of a recall vote resulting in further political uncertainty that may disrupt the country’s crude oil production.
…But lower prices in the future Steadily Declining “Futures” Prices The futures market shows the price of crude oil falling to below $25 per barrel by late 2005. On August 8, 2003, the futures price of a barrel of crude oil for delivery in November 2005 is $24.98, approximately 29% lower than the current spot price of $32.22 per barrel. The futures market is pointing to higher fuel prices in the next 24 months, leading to increased fuel costs for the aviation sector. Crude Oil Futures Prices As of August 8, 2003 $35.00
Crude oil prices expected to fall below $25 by late 2005.
$30.00 $25.00
December 2009
December 2007
June 2006
November 2005
September 2005
July 2005
May 2005
March 2005
January 2005
November 2004
September 2004
July 2004
May 2004
March 2004
January 2004
$15.00
November 2003
$20.00
September 2003
Senior Market Analyst
US$/Barrel
Doris Mak
Iraqi Oil Production With the end of the Iraq War declared in May, oil shortly began to flow from Iraqi pumps. Prior to the U.S.-led invasion of Iraq, approximately 2.8 million barrels of oil were extracted each day. However, today, Iraq has only been able to achieve half that rate. Iraq’s lower production volumes have affected prices.
Month of Delivery
Page 7 August 2003
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SARS – THE RECOVERY BEGINS 15 August 2003
The Recovery! The SARS outbreak that began in March took the airline industry by surprise. With the disease effectively contained in all parts of Asia and Canada by the end of June, the airline and tourism industries moved into recovery mode. By mid-July, passenger traffic at Hong Kong International Airport was at 80% of pre-SARS levels. Airport officials did not expect passenger traffic to recover to these levels until the end of the year. The International Air Transport Association (IATA) also recently reported statistics that signal the post-SARS air travel recovery is under way. Preliminary June passenger traffic figures revealed only a 12% drop in international passengers from the prior year, compared to a 21% drop in May. Asia/Pacific air carriers reported a 36% drop in June, compared to a staggering 55% decline in May.
Doris Mak Senior Market Analyst
Pent-up Air Travel Demands. Airline bookings are returning to pre-SARS levels according to Abacus International, Asia’s largest air ticketing reservation company. Specifically, bookings on Asia to U.S. and intra-Asia routes show the greatest increases. For the week of June 9th, air travel bookings from Asia to the U.S. reached nearly 25,000, approximately 20% above the level experienced in March. Additionally, Intra-Asia weekly bookings have shown several weeks of steady growth, increasing from a low of 115,000 bookings to slightly over 475,000 bookings. Airline Seat Capacity Rebounds! Recovery in available seat capacity is under way. Many airlines are operating at or close to pre-SARS service levels. Some airlines have also introduced new services. • • • •
Source: Abacus International
Cathay Pacific: Currently operating at 90% of its pre-SARS passenger schedule, the airline anticipates improved performance in the second half of 2003. Malaysia Airlines: Recently announced that it will resume all SARS affected flights to Beijing, Xiamen, Guangdong, Shanghai and Hong Kong. China Airlines and Eva Air: Effective mid-September, China Airlines plans to introduce twiceweekly Brisbane-Taipei flights. Additionally, Eva Air plans on increasing frequency on the same route by introducing a third weekly flight in late October. Air Canada: Service to Hong Kong now back to daily and may increase to 10 flights per week in September. Service to Beijing was re-instated to daily on July 30th. Shanghai service back to daily. Seoul service back to daily and on July 1st the service was up-gauged to an A340, equivalent to a capacity increase of 12%.
It appears that the worst of SARS is behind us and the Asian market is starting to rebuild. However, there are continuing concerns that SARS is seasonal and may reappear in the fall. The road ahead is by no measure a smooth one, as the wounds left by SARS will take time to heal.
Page 8 August 2003
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NEWS ARTICLES AIR CANADA UPDATE AIR CANADA REACHES AGREEMENT WITH ILFC
On July 21, Air Canada reached an agreement with International Lease Finance Corporation (ILFC), the carrier’s second largest operating lessor, on restructured lease terms for 12 aircraft. The re-negotiated terms apply for the lifetime of leases for nine Airbus narrow-body aircraft as well as one A340 and two Boeing 767-300s.
AIR CANADA MANAGEMENT CUTS
Air Canada plans to eliminate 300 management jobs, among them five senior vicepresidents, bringing the total of non-unionized workers down to 1,100.
AIR CANADA SEEKS NEW INVESTORS
Air Canada is looking for new investors willing to inject C$700 million into the airline. This amount combined with the C$595 million debt financing provided by General Electric Capital Aviation Services will provide the necessary exit financing for Air Canada during the restructuring phase.
AIR CANADA VICTORIOUS, GLOBAL PAYMENTS INC. APPEAL DISMISSED
On July 25, the Ontario Court of Appeal dismissed an appeal made by Global Payments Inc., a credit card processing company that had sought to terminate its services to Air Canada. Global Payments argued that it was being forced to extend credit to Air Canada, without it having to post security.
AIR CANADA RECORDS 100% INCREASE IN ONLINE BOOKING
Air Canada’s bookings on aircanada.com has doubled in just two months since the airline introduced simple, low, permanent online fares in mid-May. The airline has also enhanced its website by offering customers the ability to make their own itinerary changes online and also introducing a new hotel booking tool that offers accommodation at very competitive rates.
Page 9 August 2003
AIR CANADA INTRODUCES DAILY NONSTOP SERVICE FROM HONG KONG TO TORONTO
Effective December 1, 2003, Air Canada will introduce daily non-stop service from Hong Kong eastbound to Toronto and a same plane westbound service via Vancouver. With the addition of this new service, Air Canada will offer customers two daily flights linking both western and eastern Canada with Hong Kong. Service on the new route will operate on a 282seat Airbus A340 aircraft.
AIR CANADA LAUNCHES WORLDWIDE TRAVEL SEAT SALE
Air Canada recently announced a “Windows of Opportunity” seat sale offering reductions of up to 40 percent throughout its international network. The sale runs until August 18, 2003 for travel beginning September 8th with a last departure date of December 4 th.
AIR CANADA AWARDED TECHNICAL CONTRACT FROM JETBLUE
Air Canada Technical Services has been awarded a contract from JetBlue for maintenance, repair and overhaul of JetBlue’s fleet of Airbus A320 aircraft. The contract extends for up to six years and represents approximately C$139 million of revenue for Air Canada Technical Services. The work will be done at Air Canada Winnipeg maintenance centre.
AIR CANADA ENDS FREE MEALS ON DOMESTIC FLIGHTS
As of August 1 st, Air Canada will no longer offer free meals on many of its domestic flights. Passengers on medium-haul flights of less than 3 ½ hours may purchase snacks and meals priced between $7-$12 prepared by Cara restaurant chains such as Swiss Chalet, Montana’s Cook House and Kelsey’s.
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NEWS ARTICLES AIR CANADA UNIONS WIN RIGHT TO TALK TO INVESTORS
Air Canada has reached an agreement with its unions that will allow all its unions to communicate with potential equity investors. Potential investors are not required to negotiate with the unions if they do not wish to. The airline has set September 15th as the deadline for submission of letters of intent from investors.
THREE AIR CANADA BONDHOLDERS TO BE ADDED TO UCC
On August 8, Justice James Farley indicated that Air Canada’s unsecured creditors committee (USC) should add three more members from the bondholder syndicate, which represent more than C$900 million in notes. The three bondholders should have control over C$75 million and will be given access to confidential financial information.
AIR CANADA REPORTS Q2 LOSSES
Compared to airlines such as Delta, Northwest and US Airways, which reported profits in Q2 2003 from losses the previous year, Air Canada seems to be heading in the opposite direction. The carrier has reported an operating loss of C$270 million before reorganization items compared to income of C$62 million last year. Operating revenues dropped to C$600 million, a drop of 24% from the same period the year before.
AIR CANADA FOUND ANTICOMPETITIVE
The Competition Tribunal has ruled that Air Canada performed anti-competitive acts between April 1, 2000 and March 5, 2001. Air Canada was found to have operated below its avoidable costs, which is an anti-competitive act on both the Toronto-Moncton and HalifaxMontreal routes. Phase 2 of the proceedings will determine whether Air Canada’s anticompetitive acts constitute an abuse of its dominant position. (See article in this issue)
flytango.com for travel effective October 1. It will offer new non-stop service between VancouverMontréal, Vancouver-Ottawa, CalgaryMontréal, Calgary-Ottawa, Edmonton- Montréal, and Edmonton-Ottawa. On October 1, Tango fares will be expanded to most Air Canada destinations and will become a permanent fare category on aircanda.com.
OTHER CANADIAN AIRLINES WESTJET POSTS Q2 PROFIT, UP 20%
WestJet reported net earnings for the 2nd quarter of C$14.7 million, a 19.5% increase from the same period in 2002. This is the carrier’s 26th consecutive quarter of profitability. Its capacity for the quarter increased 49% while revenue passenger miles increased 44%. Revenue for the quarter was up 25% to C$205 million. Shareholders applauded the airline’s performance as share price hit a fifty-two week high, gaining almost 20% on 1 day’s trading.
CANJET AIRLINES INTRODUCES NEW FLORIDA FLIGHTS AND ENHANCES DOMESTIC SERVICE
CanJet Airlines will add flights to Florida this fall and winter. CanJet plans on introducing new weekly non-stop service to Sarasota/Bradenton from both Toronto and Ottawa as well as new weekly non-stop service between West Palm Beach and Montréal beginning on November 1st, 2003. Effective September 8th, CanJet will operate two daily non-stop flights between Halifax and Montréal and Halifax and Ottawa. Additionally, the airline plans on adding a second daily non-stop service between Moncton and Toronto.
CANADIAN WESTERN BEGINS KAMLOOPS SERVICE
On August 1, Canadian Western Airlines began its new scheduled twice daily service between Kamloops and Vancouver.
TANGO OFFERS NETWORK WIDE LOW FARES
Beginning August 15, Tango will offer its low one way fares to 87 daily domestic fights at Page 10 August 2003
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NEWS ARTICLES EXCURSION AIR SERVES RURAL NEWFOUNDLAND
Excursion Air, a new airline based in Bonavista, will offer rural air service to the people and businesses of Newfoundland. Service will be provided between St. John’s and communities such as Clarenville, Marystown, Bonavista and Bay d’Espoir.
US & INTERNATIONAL AIRLINES AMERICA WEST TO LAUNCH EDMONTON SERVICE
Starting October 20, America West will begin a daily nonstop service between Phoenix and Edmonton. The route will be served with 64seat Canadair Regional Jets. The carrier also currently serves Calgary, Vancouver, and Toronto.
operate extra round-trip flights between Warsaw and Toronto on June 26, July 17, and August 14, 21 and 28. The bilateral limits flights to 5 per week and makes provisions to add flights on a temporary basis. Currently, Air Canada and Air Transat are the designated airlines to serve Poland; while AC did not object to the request, Air Transat did citing demand weakness due to SARS.
CARGO CALGARY SELECTED TO HOST AIR CARGO CONFERENCE
The International Air Cargo Association (TIACA) has selected Calgary as the host site for the 2006 International Air Cargo Forum and Exposition. Calgary won over Pittsburgh, Memphis and Monterrey.
U.S. DOMESTIC CARGO DROPS
Delta Air Lines has stopped paying quarterly common stock cash dividends to investors. Delta had previously paid a quarterly dividend of US$0.025 per common share. The move will save the carrier US$12 million annually.
U.S. Air Transport Association figures for June show a 3.3% decrease in revenue ton miles for domestic cargo and a 6.0% decrease in international cargo. Latin America trade experienced a significant drop of 14.3% in volume. Total freight traffic for the month decreased 4.6% from the previous year.
CONTINENTIAL REDUCES STAKE IN EXPRESSJET
U.S. CARGO CARRIERS GIVEN MORE ACCESS TO HONG KONG
DELTA ENDS DIVIDEND PAYMENTS
Continential plans on selling approximately US$200 million of shares of its ExpressJet common stock. This transaction will drop Continential’s ownership stake in ExpressJet from 53.1% to 37.5%.
ALASKA AIRLINES NOW CHARGING FOR BAGS OVER 50 POUNDS
Alaska Airlines and Horizon Air plan on changing their excess baggage policy by cutting the weight for the free baggage allowance. Effective October 1st, 2003, any bags weighing 51 to 70 pounds will be charged a US$25 fee. Bags weighing 71 pounds to 100 pounds will be charged US$50 and all baggage weighing more than 100 pounds will be shipped as cargo.
CTA DENIES LOT REQUEST
The Canadian Transportation Agency has denied the request of LOT Polish Airlines to Page 11 August 2003
The U.S. Transportation Dept. (DOT) has allocated the rights to 40 cargo routes from Hong Kong to Asian and European destinations to UPS and FedEx. The first 24 routes begin immediately and the remaining 16 are effective October 28th.
FEDEX ESTABLISHES SPACE IN TRADEPORT HONG KONG
FedEx will become the first express transportation company to establish facilities at the new 40,000m 2 facility at TradePort Hong Kong.
UPS POSTS STRONG Q2 RESULTS
UPS reported net income of US$692 million for the 2nd quarter ended June 30, a 13.3% increase from the same period last year. Revenue for the quarter totaled US$8.2 billion, a 7.1% increase from last year. © InterVISTAS Consulting Inc
NEWS ARTICLES AIRBORNE Q2 EARNINGS UP
Airborne Inc. earned US$3.8 million in the 2nd quarter, up from $457,000 from the same period last year. The growth in earnings is a result of the increase in domestic shipments and improved operating efficiency. Revenues for the company increased 2% to US$827 million.
DHL INCREASES PRICES
Beginning September 1, DHL will increase the price of all packages by a fee of EUR 0.08 which will be included as a separate item on bills. The increase in prices is a result of a government truck levy.
DHL OPENS THAILAND AIR EXPRESS FACILITY
On July 21, DHL unveiled a 1,500 m 2 DHL Hub at Bangkok International Airport, Don Muang. The 24/7 facility will consolidate inbound and outbound express shipments, and transhipments to the DHL network in Southern Asia and Indochina. The hub will accommodate 380 weekly flights and process 1.5 million documents and packages for express delivery.
DEUTSCHE POST WORLD NET PROFITS RISE
Consolidated group profits for Deutsche Post World Net for the first half of 2003 increased to EUR 650 million (US$747 million), from EUR 155 million (US$178 million) in 2002.
LUFTHANSA CARGO TERMINAL OPENS AT JFK
On July 18 , Lufthansa Cargo opened its new $161 million cargo terminal at John F. Kennedy International Airport. Lufthansa will occupy 53,600 m 2 of the terminal, including 10,400 m2 for its own offices and another 2,700 m2 for offices for sub-tenants. The carrier has a fiveyear term on its portion of the terminal. th
AIRPORTS YVR UNVEILS IRIS SCANNER
Vancouver International Airport has become the first North American airport to implement the iris-recognition technology for CANPASS-Air members. The system costs C$35 million.
GANDER AIRPORT EMPLOYEES RETURN TO WORK
Gander airport employees returned to work on Thursday, July 31st ending the longest airport strike in Canadian history. All issues were resolved except for wages, which was sent to binding arbitration.
GTAA RATINGS LOWERED
The Dominian Bond Rating Service (DBRS) and Standard and Poor’s Ratings Services (S&P) have both lowered their ratings on the Greater Toronto Airports Authority. The DBRS lowered the rating on GTAA’s revenue bonds and medium term notes to “A” from “A (high)” while S&P have lowered it to “A-” from “A”.
BAA FIRST FISCAL QUARTER PROFITS DOWN
Airport operator, BAA, experienced a drop of 6% in profits to US$240 million in the three months to June 30th. Traffic at the UK airports increased 2.2% to 32.7 million passengers while cargo dropped 1.5% to 416,000 metric tons.
A+ CREDIT RATING AFFIRMED FOR OTTAWA AIRPORT
Standard & Poor’s Rating Services has affirmed the A+ long term issuer credit and senior unsecured debt ratings to Ottawa Airport.
POLAR AIR CARGO LAUNCHES ASIAEUROPE SERVICE
Effective August 20th, Polar Air Cargo will begin a thrice-weekly service between Liége and Seoul and continue on to Taipei with Boeing 747-400 freighters. Both flights will originate and end in the U.S. Page 12 August 2003
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NEWS ARTICLES AIRCRAFT MANUFACTURERS BOEING CUTS 5,000 JOBS, REPORTS Q2 LOSSES
Boeing plans to cut 5,000 more jobs by the end of this year from its Commercial Airplane Division. These cuts are in addition to the 5,000 job losses announced by the company for 2003. Boeing also reported a net loss of US$192 million for the 2nd quarter, compared with net earnings of US$779 million in 2002. Deliveries for the quarter totalling 74 aircraft were down 34% from a year ago.
FUEL PRICES August 7, 2003 SPOT OIL PRICES INCREASING FUTURES PRICES LOWER Crude Oil Prices: Spot – US$32.39 (up 6% from July) Future – High for a year • 6 month - $29.95 (February 2004 delivery) • 12 month – $27.41 (August 2004 delivery) • 2 year - $25.14 (August 2005 delivery) • 5 year - $24.58 (August 2008 delivery)
Airbus parent EADS reported a net loss of EUR 66 million (US$76) million for the first half of 2003 ended June 30, compared to a net income of EUR 91 million (US$104 million) in 2002. Revenues declined 7% to EUR 13.1 billion (US$15 billion).
BOMBARIDER TO SELL 24 JETS TO MESA AIR
Bombardier is negotiating to sell 24 regional jets worth US$600 million to Mesa Air Group Inc.
PEOPLE IN THE NEWS STAPLES NEW DIRECTOR AT HIAA
Jerry Staples at Halifax International Airport Authority has been promoted from Manager to Director of Marketing and Business Development.
Monthly Spot Prices $40.00 $35.00 US$ per Barrel
AIRBUS HALF-YEAR PROFITS DOWN
$30.00
CATSA APPOINTMENTS
$25.00 $20.00 $15.00 Dec- Jan02 03
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Mike Weeks joins Canadian Air Transport Security Authority (CATSA) as a contract manager, after a number of years at Air Canada. Additionally, on August 5th, Clément Joly (FCA) was appointed to the board of directors.
NEW MANAGEMENT AT TERRACE AIRPORT
Laurie Brown joins Terrace airports, as the new airports manager.
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NEW MANAGEMENT AT ABBOTSFORD AIRPORT
Rick Reid joins Abbotsford airports, as the new airports manager.
BRENDA CALCE LEAVES SSM AIRPORT
Sault Ste Marie’s airport manager, Brenda Calce, has left the Airport Development Corporation on early retirement.
AIR CANADA ANNOUNCES MANAGEMENT REORGANIZATION
Ross MacCormack, Senior Vice President for International & Alliances Group is retiring after 32 years with Air Canada. The International & Alliances group will as of September 30th report to Montie Brewer, Executive Vice President, Commercial. Additionally, Steve Markey, Vice President for Government Relations & Regulatory Affairs plans on leaving the carrier to pursue other interests. Duncan Dee, Vice President for Corporate Affairs will assume responsibilities for the department.
POIRIER NEW CHAIRMAN OF ACI WORLD AIR CARGO SUB-COMMITTEE
Stephan Poirier of Calgary Airport Authority will replace Mike Gamo of Tokyo Narita Airport as the new chairman of the ACI Word Air Cargo Sub-committee.
GOVERNMENT AND REGULATORY NAV CANADA FEES UP 7%
Effective August 1, Nav Canada will increase its fees by 6.9% after announcing a C$14 million deficit in the three months ended May 31st. The deficit includes a C$22 million provision for charges not paid by Air Canada.
CANADA, VIETNAM CONCLUDE AIR PACT AGREEMENT
On July 30th, Canada and Vietnam reached their first air transport agreement. The agreement allows for the operation of code sharing services to and from any Canadian city and Vietnam. © InterVISTAS Consulting Inc
NEWS ARTICLES OTHER OTTAWA PROVIDES MINOR AIRLINE RELIEF
Ottawa announced short-term financial relief of more than C$80 million for Canada’s troubled airline industry. Effective July 1st, 2003, for a two-year period, larger Canadian airports will be able to defer a minimum of 10% of their rents, but airports are required to pay the deferred amounts over a period of 10 years, starting on January 1 st 2006.
U.S.-EU OPENSKIES TALKS TO BEGIN THIS YEAR
Beginning October 1st, the U.S. and the European Union will enter discussions regarding a transatlantic open-skies agreement. A second round of discussions will follow in December.
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EMIRATES : AN EMERGING POWERHOUSE 9 August 2003
An unknown carrier. Emirates is a well known carrier in Europe, Asia, Africa and now Australia/New Zealand, but it is almost unknown in the Americas. Well, its time to pay attention. Emirates is emerging as a global powerhouse that is a threat to carriers all over the world. And it is doing so on its own, without the help of any alliance. In 2003, when its sister network carriers all over the world were reeling and tasting bankruptcy, it placed the largest aircraft order in history. It now has 43 A-380s on order, and will emerge as the largest operator of this Goliath of aircraft. Its growth has been dramatic – it didn’t even exist prior to 1985.
Michael Tretheway Vice President & Chief Economist
Expansion Example: Australia/New Zealand. Emirates has started operating non-stop to Australia, with four daily flights, rivalling British Airways and Qantas. This month it begins to cross the Tasman Sea, connecting Australia to New Zealand with daily flights from each of Sydney, Melbourne and Brisbane to Auckland. With this and a few other service improvements, AKL will see its capacity increase by roughly 30%! Emirates can connect the four Australian cities (including Perth) to three destinations in the UK, and another 11 cities in Continental Europe on a one-stop basis. (See maps.) It has roughly three times the service to Europe that Singapore Airlines offers. It is the largest nonEuropean carrier operating to Europe. One stop from anywhere in the world. Emirates is beginning to take delivery of the A340-500, the long range aircraft which Air Canada ordered then cancelled. With the A340-500, Emirates can reach almost any city in the world non-stop. The only place it cannot reach with this aircraft is the far west coast of South America. As Emirates builds its network, it will be able to truly connect the world through its hub in Dubai. No other major airport in the world offers the one-stop connectivity that Dubai offers via Emirates. In many ways, Emirates is following the Singapore Airlines model. It hires labour from all over the world, for example, with flight attendants from roughly 60 countries. It operates modern aircraft with very high in-flight service, yet attractive air fares. Its steady expansion is profitable. Its home base is rated as one of the best airports in the world, and Dubai is emerging as a major tourism destination with its 60 story hotel and theme park. Next: North America? Looking at its extensive current network, and the aircraft on order, it would be logical for this carrier to deploy its new A340-500 fleet to North America. While it has not announced such plans, it seems a logical next step in its development. Major Canadian airports may want to pay attention and consider making a pitch to the carrier. This is an opportunity not to be overlooked.
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EMIRATES CON’T
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CARGO CAPERS 11 August 2003
A big win for air cargo in Canada! No – it isn’t that the federal government has finally provided us with the liberal international cargo policy we’ve been advocating – we’re still waiting for that. But in many ways, this win will provide some needed momentum to help set the stage for the open air cargo policy we will eventually enjoy. What is it? The July 31 announcement by the International Air Cargo Association (TIACA) that Calgary has been named the site for the 2006 International Air Cargo Forum and Exposition (ACF).
Robert Andriulaitis Director, Transportation & Logistics Studies
Canada joins the big leagues of international air cargo. The ACF is simply the best and most prestigious air cargo conference that there is. Held only every two years, it attracts the movers and the shakers of air cargo carriers, airports, government, and suppliers of every kind. This is the kind of conference where decisions are made and real progress to improve international air cargo is possible. By winning the bid over cargo giant Memphis as well as Pittsburgh and Monterrey, Calgary joins the ranks of such prestigious airport communities such as Hong Kong, Washington, and Dubai, hosts of the 2002, 2000, and 1996 ACFs respectively. Winning the bid instantly raises the profile of Calgary, of Alberta, and of Canada, and provides us with a legitimacy and presence in international air cargo that has in general eluded Canada to date. Calgary in particular, and Canadian airports in general, will be able to capitalize on this profile to more readily open doors. A key to the success of the “Calgary” bid was that it was not pitched as solely a Calgary bid, but rather was pitched as a Calgary/Alberta/Canada bid. Strong support from Canada’s other airports – unheard of in competitive environments such as this – was a key factor in the win. Support from Air Canada, as well as other cargo stakeholders – including the Government of Canada – showed the Canadian cargo community as a whole was behind the bid. The continued support of the Canadian cargo community will be important not only for the 2006 ACF – but for the upcoming 2004 ACF in Bilbao Spain, where a Team Canada marketing approach under the auspices of the Canadian Airports Council will be taken with the assistance of some PEMD funding from DFAIT. The cooperative effort leading to the Calgary win bodes well for the joint marketing efforts leading up to the 2004 ACF. So where do we go from here? Obviously Calgary and the airport communities participating in the CAC TIACA initiative have their work cut out for them for both the 2004 and 2006 conferences. It will be important to build on the momentum that will be created by the significant efforts of the Canadian airports and get other key stakeholders involved. In particular, the 2004 and 2006 initiatives will give ample opportunity for working closely with Transport Canada, and the possibility of using this as means to advocate for needed policy changes. Wouldn’t it be nice to convince Transport Canada that the 2004 ACF would be a great forum to announce Canada’s new Air Cargo Open Skies policy?
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COMPETITION TRIBUNAL DECISION ON PREDATION 7 August 2003
On 22 July 2003, the Canadian Competition Tribunal released its decision in Phase 1 of the hearings to determine whether Air Canada violated the Competition Act by its pricing and capacity actions against WestJet and separately against CanJet Airlines. In brief, the Tribunal found on virtually all points for the Commissioner of Competition and against Air Canada. However, this decision that Air Canada has performed anti-competitive acts does not mean that Air Canada engaged in an ‘abuse of dominant position’ as defined in the Competition Act. Sound confusing? Here I attempt to sort this out in plain language. Background. Air Canada acquired Canadian Airlines International in early 2000. The merger was announced and subsequently blessed by the Minster of Transport in December 1999, and the transaction completed in July 2000. The two carriers were finally amalgamated under the single name of Air Canada in January 2001. The resulting concentration of the airline industry resulted in what many would consider to be a dominant airline in the domestic market. (Whether Air Canada is ‘dominant’ under the meaning of the law is a complicated matter.) Robert Andriulaitis Director, Transportation & Logistics Studies
As a consequence of the merger, the government introduced some changes to the Competition Act. These were given Royal Assent on 29 June 2000. The Act empowered the Governor in Council (i.e., the Cabinet) to create regulations defining anti-competitive acts in the airline industry. On 23 August 2000, the government gazetted a small set of such regulations, including two which made it an anticompetitive act to operate or increase capacity on a route at fares which do not cover the avoidable costs of service. The Events. On 19 April 2000, WestJet announced it would enter the Hamilton-Moncton route. While Air Canada did not operate on this route, the Hamilton airport is in close proximity to Toronto’s Pearson International Airport, where Air Canada was the only carrier operating to Moncton. Air Canada almost immediately responded to WestJet’s announced service by announcing prices which met or undercut WestJet’s prices, and it increased capacity on the route. In September 2000, CanJet Airlines began service between Halifax and Montreal. Air Canada was the major carrier on the route, although there was some service by Royal Airlines. Air Canada matched CanJet’s price but did not increase capacity. CanJet subsequently further reduced its price and Air Canada did not match. A few months later, CanJet exited the industry by being acquired by Canada 3000, which itself exited the industry in late 2001 via bankruptcy. The Application by the Commissioner. In Canada, only the Commissioner of Competition may apply to the Tribunal for an order under the relevant section of the Competition Act. He filed an Application with the Competition Tribunal on 5 March 2001 alleging Air Canada breached the ‘abuse of dominance’ provisions of Section 79 of the Act, by breaching the recent regulations which defined operating or increasing capacity at prices below avoidable costs as an anti-competitive act. Note that it is abuse of dominance which is the illegal action. This is subtle, but while operating or increasing capacity at prices below avoidable cost constitutes an anticompetitive act, by itself it is not necessarily an abuse of dominance.
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COMPETITION TRIBUNAL CON’T Hearings began before the Competition Tribunal on 29 August 2001. These hearings were suspended on September 11, 2001 due to the terrorism acts in the U.S. For a variety of reasons, hearings did not begin again until November 2002, with a reconstituted Tribunal panel. The hearings concluded in March 2003. Two Phases. While the regulations specify avoidable costs as the appropriate measure to test for predation in the airline industry, there were fundamental differences between the Commissioner and Air Canada on how the test should be applied. In light of this, both Air Canada and the Commissioner agreed that it would be best to deal with the Commissioner’s application in two phases. Phase 1 would be confined to a factual determination of whether or not Air Canada offered or increased capacity at prices below avoidable costs. If it is found in Phase 1 that Air Canada did so, that is, that it had performed an anti-competitive act, then the parties would proceed to Phase 2. Phase 2 would determine whether this constituted a breach of Section 78 of the Competition Act, an abuse of dominance. While the legal issues are complex, Phase 2 will likely address three questions: i) based on factors such as market share and barriers to entry, was Air Canada dominant on the relevant routes? ii) were the operations below avoidable cost sufficient to constitute a practice of anti-competitive acts? and iii) did this conduct on the part of Air Canada result in a substantial prevention or lessening of competition? The Phase 1 decision. The July 2003 decision by the Tribunal concerned Phase 1. There were two broad issues. First, what constitutes the correct revenues to use in establishing prices, and second, what costs are avoidable. While the issues may seem straightforward in theory, the devil is in the details. The details are important, as Air Canada put forth a set of measures for revenue and costs which would have resulted in a finding that it did not operate or increase capacity at prices below avoidable costs, while the Commissioner put forth revenue and cost measures which would have resulted in a finding against Air Canada. The areas of contention were: •
Beyond revenues. The Commissioner proposed that revenues for connecting flights should not be included in the measure of revenues on the two routes in question. Air Canada proposed including revenues for connecting flight segments when assessing its prices (revenues) on either of the two routes in the proceeding. That is, revenues on its Toronto-Moncton services would include revenues on Toronto-Edmonton and other segments with passenger connections.
•
Redeployment and avoidability. Does redeployment of aircraft or labour make a cost avoidable? Air Canada claimed that redeploying an aircraft from one route to another does not make a cost avoidable on either the new or the previous route. The Commissioner claimed that costs should be attached to the route they are actually operated on.
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COMPETITION TRIBUNAL CON’T •
Routes vs. Flight. Air Canada claimed that the revenues (prices) and costs should only be compared to each other at the route level. The Commissioner claimed that doing so could conceal the use of a single flight to predate and thus each schedule flight should be assessed as to whether prices were below avoidable cost.
•
Time Period. Air Canada claimed that it needed a full year to properly determine whether prices were above or below avoidable costs. The Commissioner argued for a shorter period, roughly one quarter.
•
Which costs are avoidable? Air Canada and the Commissioner had different lists of which costs were avoidable vs. non-avoidable.
The Tribunal’s Findings. While there are some subtleties in its decision, essentially the Tribunal found in favour of the Commissioner on all five elements. Beyond revenues are not to be used in the calculations, costs follow the use of aircraft and labour, evaluation is to be at the flight and not only at the route level, and the final lists of avoidable costs look much closer to that proposed by the Commissioner than that proposed by Air Canada. In a surprise decision, the Tribunal determined that the time period for analysis is to be one month, even shorter than the Commissioner proposed. The result? Using the Tribunal’s rulings on the key issues, it found Air Canada offered or increased capacity at prices below avoidable costs on the two routes in question. Thus, it committed anticompetitive acts. It remains for Phase 2 to determine whether these anti-competitive acts constitute an abuse of dominant position. Next Steps. First, while the Tribunal released its decision, it also ordered a ‘stay of execution’ of its findings until Air Canada emerges from bankruptcy protection. Second, Air Canada could choose to appeal the Phase 1 findings. Third, the Commissioner and Air Canada would eventually be back before the Tribunal to put forth their arguments on the Phase 2 issues. It might be noted, that even if the Tribunal finds against Air Canada at Phase 2, the law prevailing at the time provides for no fines. All the Commissioner can obtain is an order against Air Canada to stop its practices. In 2002, the law was changed to provide for “administrative monetary penalties.” Canada vs. the U.S. Only a few weeks prior to the Tribunal’s decision, the U.S. Court of Appeals released its findings in a suit brought by the U.S. Dept. of Justice against American Airlines. The DOJ alleged that American engaged in predatory conduct against Vanguard Airlines (and others). The Appeals court upheld an earlier decision by the District Court which dismissed the DoJ’s case. Again, the issues are complex, but essentially the finding was that the DoJ had not convinced the Court that American had operated capacity at prices below an appropriate measure of costs. Some might say that the DoJ did not do a proper job of establishing what constituted avoidable costs. Why was the Commissioner successful in Canada at Phase 1 while the DoJ was not successful in the U.S.? The reasons are complex, but a major reason is that in Canada, the Commissioner undertook a detailed account by account examination of costs to determine what was avoidable or not avoidable. As well, the Canadian legislation and accompanying regulation specifying avoidable cost on a route as the appropriate test made the Commissioner’s job in Canada clearer.
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OTTAWA REPORT August 15, 2003
The House of Commons is currently on summer break which means that any new legislation awaits the return to the house in the Fall. However, Ministers are progressing various files to the house and this bureaucracy is still grinding along. Progress is particularly slow because of the impending change of Prime Minister and therefore cabinet. The Canadian Transportation Agency has issued a number of orders to Air Canada regarding their airfares, but these have all be stayed by Justice Farely due to the court protection given to Air Canada while the airline restructures its operations under CCAA protection. Additionally, the Competition Tribunal has announced its decision regarding the Air Canada predation case involving WestJet and Canjet (For more details on the decision, please refer to the column on the Competition Tribunal Decision in this publication).
Martin Copeland Vice President Airline Marketing & Planning
On the bilateral front, Canada has negotiated a new agreement with Vietnam for scheduled air services between the two countries. The signing of the agreement coincided with the 30th anniversary of Canada-Vietnam diplomatic relations. The bilateral itself has very liberal conditions regarding flight frequency, the setting of prices and code-sharing. As a result of this agreement, Air Canada and Vietnam Airlines plan to initiate code-sharing services between the two countries in the near future. The Minister of Transport announced short-term financial relief of more than $80 million for Canada’s aviation industry. Under this program, larger airports in Canada will be able to defer a minimum of 10% on their rents on a sliding scale depending on the amount of reduced traffic at their airport between April 2002 and April 2003. Deferred rents must be repaid to the government, interest free, over a period of 10 years beginning June 1, 2006. In addition, starting in 2003/2004, the National Airports System airports that do not yet pay rent will receive a two-year deferral of their outstanding payments for other assets they received upon the transfer of the airport. This short-term financial relief is separate from the long-term Rent Policy Review that is still ongoing.
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WASHINGTON REPORT
The following news stories are compiled by Global Aviation Associates (ga2) and are presented in their monthly Washington Aviation Newsletter. Update on Financial Status of U.S. Carriers. DOT BTS (Bureau of Transportation Statistics) reported for first quarter 2003 that only five (JetBlue, American Eagle, AirTran Airways, Southwest Airlines, and Spirit Airlines) of the large, major U.S. airlines’ were profitable. American Airlines and United Airlines reported the highest operating losses of $735 million and $608 million during the quarter, respectively. DHS Funding Approved. On June 24th the House approved the Department of Homeland Security Appropriations Act, 2004 (H.R. 2555) legislation and provided the Department of Homeland Security (DHS) funding worth $29.4 billion for fiscal year 2004. The bill has been sent to the Senate for consideration. This legislation includes: • • •
$5.2 billion for the Transportation Security Administration (TSA); $350 million for new identification technologies and; funding for commercial airlines and air cargo security on passenger flights.
TSA Plans to Fund EDSs. On July 7 th, TSA entered into agreements with three of the largest U.S. airports to assist with the payment of installing permanent explosive detection systems (EDSs), which are integrated with the airport’s baggage conveyor system. Dallas/Fort Worth, Boston Logan and Seattle-Tacoma are the first airports to enter into such arrangements with TSA. TSA expects similar financial arrangements will be made with other airports. TSA plans to pay 75% of the costs over a period of approximately 3-4 years. The airport is responsible for the remaining 25% of the total cost. TSA Plans to Arm Pilots. TSA announced on June 26th that it has fully implemented the Federal Flight Deck Officer Program with the purpose to train pilots to carry guns in the cockpit. Full-scale training of airline pilots who volunteer to carry guns commenced July 20th. The cost to train pilots for this fiscal year will total $8 million. TSA plans on requesting another $25 million to train pilots for fiscal year 2004. The training curriculum includes firearm instructions, information on how to transport service weapons and defensive tactics. Russell Chew – FAA’s first COO. DOT Secretary Norman Mineta recently announced Russell Chew as the first FAA Chief Operating Officer (COO). His main responsibilities include: • •
overseeing FAA’s research and acquisitions program and; supervision of the financial and operating performance of the air traffic control system.
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.
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