IVC MARKET INTELLIGENCE REPORT
AIR CANADA’S N EW B USINESS PLAN 14 September 2004
On 1 April 2003, Air Canada filed for bankruptcy protection under the Companies’ Creditors Arrangement Act (CCAA). As part of the restructuring process, the carrier has released its Plan of Arrangement, which outlines the business strategy Air Canada will implement once it emerges from bankruptcy protection. The carrier’s new business plan aims to stabilise its domestic market position and provide for growth in international markets. The four components of Air Canada’s business plan are outlined below.
Competitive Cost Structure. Air Canada has achieved cost reductions through the repudiation
Eugene Chu Project Analyst
and re-negotiation of contractual obligations including aircraft leases and collective labour agreements. The carrier also plans to reduce costs by increasing the use of regional jet aircraft, eliminating older and less efficient aircraft, increasing the use of the Internet as a sales distribution channel, and redesigning its on-board product offering. Air Canada has agreements in principle with Bombardier and Embraer to purchase 90 regional jets for approximately US$2.0 billion. The carrier expects to eliminate all B747-400 combi, B737-200, and BAE 146 aircraft from its fleet by 2005. The oldest of the Dash-8 aircraft in the Jazz fleet will also be removed.
Redesign of the Air Canada Network. In the domestic market, the carrier plans to maintain
frequency on key domestic and transborder markets, but reduce capacity through the use of smaller regional aircraft on the routes. Air Canada plans to increase services to international destinations, and has increased total international capacity by 12% in the first quarter of 2004 (although this is affected by the SARs related capacity reductions in 2003). New routes have been added to Western Europe, Latin America and Asia.
New Revenue Model. The model is based on simplified fares that customers can book on Air
Canada’s website. In May 2003, the carrier introduced its simplified fare categories in the domestic market, and expanded this fare structure to the U.S. market in February 2004. Air Canada reports that over 65% of the carrier’s domestic bookings are now completed on-line.
New Corporate Structure. The Air Canada group plans to operate under a new corporate
structure where its various business units are established as separate entities. Technical services, cargo and ground handling will all be operated as independent businesses or limited partnerships. Jazz, Destina.ca and Aeroplan are already separate entities. ACE Aviation Holdings Inc. will be the parent company of the group. Air Canada’s Plan of Arrangement was approved unanimously by its creditors and by the Ontario Superior Court overseeing the carrier’s restructuring process. Meanwhile, although initially Air Canada’s shares will be heavily owned by non-Canadians due to its use of shares with variable voting rights the Canadian Transportation Agency has ruled that Air Canada’s new corporate structure meets the Canadian ownership and control requirements of the Canada Transportation Act. Air Canada plans to emerge from CCAA protection on or about 30 September 2004.
Page 1 September 2004
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MORE TROUBLE AT US AIRWAYS 15 September 2004
For the second time in the past two years, US Airways has filed for Chapter 11 bankruptcy protection in a bid to transform itself into a low cost carrier. Shortly after the 9/11 terrorist attacks, US Airways was the first major U.S carrier to seek Chapter 11 bankruptcy protection. The airline emerged from its initial restructuring on 31 March 2003.
Why did the first restructuring fail?
When US Airways exited Chapter 11 protection in Spring 2003, it had $1.2 billion in liquidity, 1 and it had cut $2 billion in annual operating costs through the restructuring process. Although its costs were still higher than its low cost competitors, the airline had plans to add aircraft and expand its route network.
Doris Mak Senior Project Manager
By March 2004 – facing immense competition from low cost carriers such as Southwest and JetBlue, coupled with high fuel costs, US Airways management determined that further operating cost cuts would be required or the airline would not survive. As a first step, US Airways restructured the terms of its $900 million loan guarantee with the Air Transportation Stabilization Board (ATSB) that it received after 9/11. US Airway’s management later announced its proposed Transformation Plan that proposed further cuts of $1.5 billion in operating costs (including $800 million in labour costs). The airline stressed the need for these cuts in order to compete in the current low cost environment. However, the major stumbling block was that the airline could not negotiate a new labour agreement with its pilots. The airline was also dealing with a change in leadership. In April 2004, US Airways President, David Siegel resigned. The labour unions voiced their dissatisfaction with the airline's management team and were calling for Siegel's resignation shortly after the announcement that the airline was seeking additional cost cuts (including labour concessions). So, on 12 September 2004, the airline filed for Chapter 11 bankruptcy protection for a second time in as many years. The filing was also prompted by the airline’s obligation to make a pension plan payment of $110 million. It was also at risk of violating the terms of its aircraft-financing agreements.
Will US Airways be able to exit Chapter 11 bankruptcy protection a second time?
As the airline attempts to restructure under Chapter 11 bankruptcy protection, there is a concern as to whether the airline will be able to successfully exit the restructuring process or be forced to liquidate via Chapter 7 of the U.S. bankruptcy code. The main problem for the airline is that it has next to no borrowing capacity. In its first restructuring, the airline pledged most of its assets to the ATSB for the $900 million loan guarantee and to General Electric. With few unencumbered assets, US Airways will now be hard pressed to find the necessary funds to exit bankruptcy protection this time around. Although at the time of filing US Airways had $1.45 billion in liquid assets, the airline will essentially be operating on a cash basis while restructuring – this is a risky proposition as the airline could be forced to liquidate should funds run out.
The liquidity package included $900 million in loan guarantee by the ATSB, $75 million cash provided by Retirement Systems of Alabama Holdings (RSA), $25 million cash provided by Bank of America and $240 equity investment by RSA. Page 2 InterVISTAS Consulting Inc. Market Intelligence Report September 2004 ©InterVISTAS Consulting Inc. 1
THE IMPACT OF HIGH FUEL PRICES 15 September 2004
The price of crude oil rises close to $50 in August…
The price of crude oil continued to rise in August, hitting a high of $48.70 per barrel. Prices have since tempered somewhat, to a lower level of $43.87 per barrel on 13 September 2004. The spot price has risen 30% from the beginning of the year. To put these recent highs into perspective, current prices are still low, compared to inflation adjusted prices which prevailed during the oil crises of the 1970s and early 1980s. At the time, the price of a barrel cost between $60 to $80 in today’s dollars (after adjusting for inflation). Increasing Demand Requirements from Asia. Since the start of the global economic recovery in 2003, China and India have shown exceptional rates of economic growth that has resulted in significant demand for oil. China’s demand is expected to reach 10 million barrels per day over the next 10 years. In Japan, oil demand has also increased due to problems with nuclear power generation. As a result, Japan has increased its reliance on oil-fired electricity.
Doris Mak Senior Project Manager
Short term Supply Factors. Supply concerns continue to abound in the short term. A major concern is the continued unrest in Iraq. Terrorists have continually threatened to destroy oil installations, which would result in major disruption to the flow of oil. As Russia is the largest nonOPEC producer of oil in the world, the Yukos affair has also fuelled uncertainty about available supplies. Yukos, Russia’s largest oil producing firm, has encountered liquidity problems (frozen bank accounts) due to charges of tax evasion and (by the company’s CEO), which has brought uncertainty surrounding the firm’s ongoing operations.
…. Rising futures prices
The price of crude oil in the futures market has been increasing steadily over the past year. In August 2003, the futures price of a barrel of crude oil for delivery in September 2005 was at $25 per barrel. In September 2004, the futures price for that same barrel of crude oil is $40, up 60% from a year ago.
$45.00
$40.00
Airline Fuel Price Hedging. Some airlines have been able to lessen the impact of high fuel prices by hedging the price of fuel while airlines with poor credit ratings and low cash reserves are unable to engage in such activities and must purchase all of their fuel needs on the open market. Southwest Airlines has implemented a fuel priceCrude Oil Spot & Futures Prices Prices hedging program over the past few years. In 2004, the airline has hedged 80% of its projected fuel needs. Through its hedging activities, Southwest was able to lock in a price of $24 per barrel for the year. Other airlines such as Alaska Airlines and JetBlue have also undertaken price-hedging activities for approximately 30% of their projected fuel needs for the year. However, some of the major U.S. network carriers such as Delta, Northwest and US Airways have not hedged any portion of their fuel needs. Poor financial position has inhibited their ability to hedge future fuel prices, forcing them to purchase fuel for on the open market. September 2004 Futures
Spot Prices
$35.00
June 2004 Futures
April 2004 Futures
$30.00
December 2003 Futures
August 2003 Futures
$25.00
Page 3 September 2004
Nov-08
Jul-08
Sep-08
Mar-08
May-08
Jan-08
Nov-07
Jul-07
Sep-07
Mar-07
May-07
Jan-07
Jul-06
Nov-06
Sep-06
Mar-06
May-06
Jan-06
Nov-05
Jul-05
Sep-05
Mar-05
Jan-05
May-05
Nov-04
Jul-04
Sep-04
Mar-04
Jan-04
Nov-03
Jul-03
Sep-03
Mar-03
May-03
Jan-03
$20.00
May-04
May 2003 Futures
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AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers - August 2004 Passenger Traffic
Air Carrier
Revenue Passenger Kilometres
Capacity
Load Factor
Available Seat Kilometres
% Change over 2003
% Change from 2002
% Change over 2003
% Change from 2002
Air Canada 1
+9.8%
-5.4%
+6.5%
-6.8%
Domestic (Mainline)
+0.2%
-6.8%
-5.9%
LOAD FACTORS
Jazz
+5.9%
+14.2%
Zip:
not reported
International & Charter
+14.7%
CanJet:
not reported
WestJet Jetsgo
NEW CARRIERS:
•
•
Change from 2002
(to 83.2%)
+1.3 pts
-10.9%
+5.0 pts
+3.6 pts
+0.4%
-1.2%
+4.4 pts
+12.8 pts
-4.7%
+13.3%
-4.8%
+1.0 pts
+0.1 pts
+21.8%
+70.6%
+26.6%
+83.6%
+59.7%
+483.8%
+56.2%
+467.4%
Analysis: •
Change over 2003 +2.6 pts
Air Canada continued to reduce domestic capacity in August. Traffic was flat, resulting in an improved load factor. CEO Robert Milton has stated that the carrier can be expected to be in a position where revenue from domestic operations make up less than 20% of the total, as the focus turns to growing international services. Air Canada continued to record year-toyear increases in international traffic and capacity during the month of August, reflecting the world-wide recovery in demand for air travel. However, traffic is still below 2002 levels. Air Canada reported a doubling of traffic through its Vancouver hub as the number of passengers destined to Asia increased, showing a recovery from the effects of SARS in 2003. WestJet’s addition of capacity outpaced the growth of traffic in August, especially on eastern Canadian routes, resulting in a lower year-to-year load factor.
-3.1 pts (to 79.8%)
+1.9 pts (to 86.0%)
+2.4 pts
Air Canada Domestic Mainline 20% 15% 10% 5% 0% -5% -10%
Jazz data is not included in this graph
Aug- Sep 03
Oct
Nov
Dec
Jan- Feb 04
Dom RPK
Mar April May
Jun
July
Aug
Dom ASK
Air Canada International 40% 30% 20% 10% 0% -10% -20%
Aug03
Sep Oct
Nov
Dec Jan04
Feb
Int'l RPK
Mar April May
Jun July Aug
Int'l ASK
WestJet 60% 50% 40% 30% 20% 10% 0%
Aug- Sep 03
Oct
Nov Dec Jan04
Feb
RPK
Canada Jazz is not included. Page 4 September 2004
-6.1 pts
Mar April May Jun July Aug
ASK
1Air
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AIRLINE DATA – U.S. U.S. Airlines Release August 2004 Traffic Figures Traffic Data – August 2004 Airline
1
1
2
2
Notes:
Sources:
Load Factor
Traffic ( RPMs – millions)
(ASMs – millions)
78.4 %
12,194
15,536
â 1.1 pts
á 4.4%
á 5.8%
68.5%
580
846
á 0.0pts
á 29.7%
á 29.6%
79.2 %
1,226
1,548
â 0.6 pts
á 5.4%
á 6.2%
82.6%
6,277
7,600
á 0.4 pts
á 7.2%
á 6.8%
78.9%
10,205
12,942
â 1.2 pts
á 9.0%
á 10.7%
89.3%
1,530
1,713
â 2.3 pts
á 31.0%
á 34.3%
83.3%
6,902
8,289
á 0.7 pts
á 3.3%
á 2.5%
75.1%
4,986
6,642
á 1.9 pts
á 11.3%
á 8.6%
83.8%
10,915
13,031
á 1.3 pts
á 9.9%
á 8.3%
79.1%
3,760
4,751
â 1.6 pts
á 0.8%
á 2.9%
1.
Mainline
2.
Load factor includes scheduled service only
Capacity
Carrier traffic reports.
Page 5 September 2004
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Summary of Total Year-Over-Year Passenger Traffic Performance at Selected Canadian Airports Edmonton
Ottawa
Winnipeg
Halifax
Victoria
Kelowna
Saskatoon
Regina
+4.7%
+2.5%
+3.0%
+3.7%
+5.7%
+11.9%
+5.0%
+1.2%
+4.7%
St. John’s +21.1%
-7.6%
-1.2%
+2.0%
+1.4%
+0.3%
-7.0%
+0.4%
+4.1%
+9.8%
+0.5%
-4.8%
-2.2%
+22.5%
September
-5.9%
-3.0%
+2.3%
-1.8%
+8.6%
+1.6%
+1.5%
-0.6%
+10.8%
-0.7%
-2.4%
-0.2%
+12.3%
3rd
-6.6%
-2.8%
+2.4%
+1.6%
+3.4%
-0.9%
+1.8%
+3.3%
+10.8%
+1.7%
-2.0%
+0.7%
+19.0%
October
-2.3%
-3.1%
+2.7%
-0.7%
+10.4%
+1.4%
+7.4%
+2.5%
+15.4%
+1.1%
-1.7%
-1.3%
+9.4%
November
+0.1%
+2.2%
+9.0%
+8.0%
+7.2%
+6.5%
+5.8%
-0.05%
+13.7%
+9.6%
-0.3%
+19.8%
+9.4%
December
+1.9%
+2.8%
+8.5%
+5.4%
+4.9%
+6.0%
+6.0%
+2.9%
+16.1%
+9.1%
+0.8%
+2.0%
+13.9%
4th
-0.1%
+0.5%
+6.4%
+3.9%
+7.4%
+4.5%
+6.4%
+1.9%
+15.6%
+6.6%
-0.4%
+6.33%
+10.8%
Full Year
-4.6%
-3.7%
+1.3%
+2.7%
+2.9%
+1.3%
+5.1%
+4.2%
+7.3%
+2.9%
-0.5%
+2.4%
+9.4%
January
+1.6%
+1.5%
+10.1%
+3.9%
+7.7%
+3.5%
+6.4%
+3.2%
+12.4%
+5.9%
-2.2%
+8.3%
+12.8%
Vancouver
July
-6.0%
August Quarter
Quarter
February
+7.9%
+7.9%
+19.6%
+5.3%
+10.7%
+13.9%
+11.7%
+5.6%
+11.4%
+11.6%
+7.8%
+2.8%
+19.8%
March
+8.7%
+5.2%
+21.4%
+2.0%
+8.0%
+11.4%
+11.4%
+9.0%
+8.2%
+2.6%
-2.4%
+3.9%
+21.3%
+6.1%
+4.8%
17.1%
+3.7%
+8.6%
+9.7%
+9.9%
+6.1%
+10.5%
+ 6.5%
+1.1%
+5.0%
+18.0%
April
+30.1%
+20.5%
+31.7%
+11.5%
+8.6%
+20.8%
+11.3%
+16.9%
+12.7%
-0.3%
+10.9%
+2.6%
+20.1%
May
+30.6%
+20.8%
+26.2%
+5.5%
+7.5%
+7.6%
+8.8%
+19.4%
+8.0%
-1.3%
-0.3%
-5.5%
+15.2%
1st
Quarter
2004
June
+18.3%
+16.1%
+18.3%
+8.4%
+2.8%
+12.1%
+8.8%
+7.8%
+8.6%
+3.0%
+1.7%
-4.3%
+16.0%
2nd Quarter
+25.9%
+18.8%
+24.9%
+8.4%
+6.2%
+13.2%
+9.7%
+14.5%
+9.7%
+0.5%
+3.8%
-2.5%
+16.9%
July
+17.2%*
+10.4%
+18.7%
+5.0%
+0.8%
+5.7%
+8.8%
+10.5%
+4.7%
-0.5%
+5.5%
+1.4%
+10.6%
Sources: Airport passengers statistics Page 6 September 2004
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CANADIAN A IRPORTS
2003
Calgary
-4.5%
MontréalTrudeau +3.0%
Toronto
NEWS ARTICLES AIR CANADA UPDATE AIR CANADA’S RESTRUCTURING PLAN APPROVED FUEL PRICES 3 September 2004 SPOT OIL PRICES TREND UPWARDS FUTURES PRICES AT LOWER LEVELS
Air Canada’s creditors have unanimously accepted the carrier’s Plan of Arrangement as part of its restructuring under bankruptcy protection. The plan has also been approved by the Ontario Superior Court overseeing the company’s restructuring. Air Canada plans to emerge from bankruptcy protection by 30 September 2004.
CTA SAYS AIR CANADA IS CANADIAN
Crude Oil Prices: Spot – US $43.99 (down 1.8% from August) Futures • 6 month - $42.83 (February 2005 delivery) • 12 month - $40.48 (August 2005 delivery) • 2 year - $37.26 (August 2006 delivery) • 5 year - $34.13 (December 2009 delivery) Monthly Spot Prices
The Canadian Transportation Agency has ruled that Air Canada’s new corporate structure meets the ownership and control requirements outlined in the Canada Transportation Act. Under the Act, foreign investments in any Canadian carrier must not exceed 25% of voting shares. ACE Aviation Holdings Inc. will become the holding company for Air Canada when the carrier exits bankruptcy protection. It is expected that initially ACE will be 70% foreign owned, but foreign shareholders will have "variable" voting rights. A vote cast by foreign shareholders will be counted as a fraction, if necessary, so that they account for no more than 25% in aggregate.
ZIP OPERATIONS SHIFTED TO AIR CANADA MAINLINE
$45.00 $40.00 $35.00 $30.00 $25.00
Jul y Au Se gust pte mb er
$20.00 $15.00 Se pte mb er03 Oc to No ber vem b De er cem Jan ber uar y-0 4 Fe bru ary Ma rch Ap ril Ma y Jun e
US$ per Barrel
$50.00
Air Canada has shut down Zip, its Calgary based lowcost subsidiary, and shifted the carrier’s routes back to the mainline operation. Almost all of Zip’s 400 employees have been transferred to positions at Air Canada, while the subsidiary’s fleet of 12 aircraft will be returned to lessors. Air Canada announced earlier in the year that it would cease operation of Zip after reaching cost-cutting deals with its unions that brought mainline salaries to Zip levels.
Page 7 September 2004
CIBC TO ACQUIRE MINORITY STAKE IN RESTRUCTURED AIR CANADA
The Canadian Imperial Bank of Commerce (CIBC) has exercised its right to acquire more than 3.7 million voting shares of ACE Aviation Holdings Inc., the holding company of Air Canada, for CDN$74 million.
AIR CANADA CARGO TO OPERATE AS INDEPENDENT ENTITY
Air Canada Cargo plans to establish itself as an independent entity as part of the carrier’s courtapproved re-organisation plan. Initially, Air Canada Cargo will use Air Canada aircraft, and depend on the carrier to market its cargo services. Air Canada Cargo will also depend on All Canada Express to operate some services. However, the cargo company will hold its own economic license from the Canadian Transportation Agency. The carrier has also applied to the U.S. Department of Transportation for separate operating authority on Canada-U.S. services.
AIR CANADA RE-INTRODUCES TORONTO-ROME SERVICE
Beginning 4 April 2005, Air Canada will relaunch daily non-stop services between Toronto and Rome. The service will be operated with 198-seat B767-200 ER aircraft.
AIR CANADA EXPANDS WEB CHECK-IN TO ALL DOMESTIC FLIGHTS
Air Canada has expanded the online check-in service on its website to all domestic flights operated by the carrier. The online check-in service allows domestic travellers, with and without baggage, to check-in and print boarding passes from their home or office via the Air Canada website.
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NEWS ARTICLES CANADIAN AIRLINES WESTJET AND CATHAY PACIFIC DISCUSS POSSIBLE ALLIANCE WestJet Airlines and Cathay Pacific Airways are in discussions about a possible strategic alliance to allow passengers travelling to Hong Kong from smaller Canadian cities to board WestJet, and then connect to Cathay Pacific on the same booking. WestJet has not commented on Cathay’s disclosure.
CANJET TO LAUNCH WINNIPEGORLANDO SERVICES IN THE WINTER
Starting 9 February 2005, CanJet will launch WinnipegOrlando services for 16 weeks as part of its winter schedule.
CANJET INCREASES HALIFAX-OTTAWA AND HALIFAX-HAMILTON FREQUENCY, BOOSTS SERVICE TO FLORIDA
CanJet has increased services between HalifaxOttawa and Halifax-Hamilton to three flights daily in both directions from two flights per day. Service between Hamilton and Orlando will be doubled with the addition of a second weekly flight, starting on 8 February 2005, while new weekly service between Hamilton and St. Petersburg-Clearwater will be added on 5 November 2004.
JETSGO LAUNCHES WEB CHECK-IN
Jetsgo has introduced online check-in services via its website. The service allows travellers with no checked baggage to print their own boarding pass, and proceed directly to airport security for all flights on Jetsgo’s scheduled domestic network.
TRANSAT A.T. RECORDS THIRD QUARTER INCOME OF CDN$13 MILLION
Transat A.T. Inc., parent company of Air Transat, reported revenues of CDN$499 million in the third quarter of 2004, a year-to-year increase of 12%. The travel group posted a CDN$28 million margin and net income of CDN$13 million during the period, compared to a net loss of CDN$10 million in the third quarter of 2003.
TRANSPORT CANADA GRANTS WESTJET OPERATIONAL APPROVAL FOR RNP RNAV
Transport Canada has granted WestJet approval to operate RNP RNAV (advanced navigational procedures) throughout Canada. WestJet is the first carrier in the world to be granted approval for RNP 0.10 nm procedures, which provides for additional safety and improved access to the airports it serves, especially in poor visibility. Over the next 10 months, WestJet will work with Naverus to complete development of over 90 RNP procedures into the airports served by the carrier.
CANJET TO LEASE FOUR B737-500s
CanJet has completed an agreement to lease four B737-500 aircraft, with one aircraft scheduled to arrive this fall, and the remaining three before next summer. The B737-500 has a longer range than the B737-200s currently in CanJet’s fleet. These aircraft will enable the carrier to operate routes with increased stage length and additional non-stop services. CanJet will have five B737-500s and seven B737-200s in its fleet after the acquisition.
Page 8 September 2004
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NEWS ARTICLES U.S. AND INTERNATIONAL AIRLINES US AIRWAYS FILES 2ND TIME FOR BANKRUPTCY PROTECTION
US Airways has filed for Chapter 11 protection 18 months after emerging from bankruptcy protection. The carrier’s bankruptcy petition listed US$8.8 billion in assets (including US$2.5 billion in goodwill), and liabilities of US$8.7 billion. The carrier has approximately US$1.5 billion in cash, cash equivalents, and short-term investments.
UNITED EXPRESS TO LAUNCH OTTAWA-CHICAGO SERVICES
Beginning 31 October 2004, United Airlines will introduce three daily non-stop flights between Ottawa and Chicago via United Express carrier Air Wisconsin. It plans to operate the service with 50-seat regional jets. Altogether, United and Air Canada will operate six daily frequencies on the route.
DELTA PLANS TO CUT COSTS BY US$5 BILLION OVER TWO YEARS
Delta Air Line’s restructuring plan aims to reduce costs by US$5 billion through to 2006, with a reduction of US$2.3 billion by the end of 2004. The carrier plans to drastically reduce services from its Dallas/Fort Worth hub, effectively ending its hub operation at the airport. It will expand Song - its low cost unit. The carrier has warned that if it does not receive concessions from its pilots, it may have to file for Chapter 11 bankruptcy protection.
Page 9 September 2004
CONTINENTAL, KLM, AND NORTHWEST JOIN SKYTEAM, CHINA SOUTHERN TO FOLLOW
Continental Airlines, KLM Royal Dutch Airlines and Northwest Airlines have joined the SkyTeam alliance. The membership will allow passengers to collect frequent flyer miles on all nine SkyTeam carriers, and add to the network of the alliance. SkyTeam now includes Aeromexico, Air France, Alitalia, Continental Airlines, CSA Czech Airlines, Delta Air Lines, KLM, Korean Air, and Northwest Airlines. China Southern Airlines has completed an agreement for future membership in the alliance.
AIRPORTS EDMONTON INTERNATIONAL AIRPORT BEGINS COMMUTER ENHANCEMENT PROGRAM
Edmonton International Airport has opened Airport Express in the Visitor Information Centre of the World Trade Centre in downtown Edmonton, the first phase of the airport’s Commuter Enhancement Program. Airport Express offers travellers two self-serve Air Canada and WestJet check-in kiosks, baggage storage, airport and flight information, and scheduled shuttle services to the airport. The Commuter Enhancement Program was created to facilitate passenger check-in and improve transportation to and from the airport.
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NEWS ARTICLES AIRCRAFT MANUFACTURERS EMBRAER POSTS RECORD SALES IN SECOND QUARTER
Embraer reported US$924 million in sales during the second quarter, an increase of 63% year-to-year, and the highest in the manufacturer’s history. Second quarter deliveries totalled 43, compared to 23 in the first quarter. Embraer has set a delivery target of 160 aircraft for 2004.
CARGO TNT EXPRESS TO EXPAND EUROPEAN HUB
TNT Express will be investing US$44 million in the first phase of its expansion at its European hub at Belgium’s Liège airport. The hub sortation space will be doubling in size and additional office space will be added. It is expected to be completed by the end of 2005. The second and third phase of expansion is expected to cost US$71 million and be completed in 6 years.
COYNE AIRWAYS MOVES EUROPEAN HUB
To achieve faster deliveries across its Caspian network, Coyne Airways is moving its European hub from Brno, Czech Republic back to Vatry, France. In 2002, Coyne switched its hub from Vatry to Brno due to operation restrictions placed on its IL-76F flights. Coyne is now operating AN-12 flights from its Brno hub.
KUEHNE & NAGEL ACQUIRES NETHER CARGO SERVICES
Leading global logistics provider Kuehne & Nagel (K&N) acquired Nether Cargo Services. Nether is a specialist in the transport of perishables in Holland.
Page 10 September 2004
KOREAN AIR ORDERS TWO B747-400 FREIGHTERS
Korean Air Cargo has placed a US$400 million order for two B747-400 freighters for delivery in the second half of 2005. Korean Air Cargo currently has 21 aircraft including 17 B747-400 freighters. A B747-400 ERF is scheduled for delivery in August from a previous order.
KOREAN AIR ORDERS BOEING CONVERSION KITS
Korean Air Cargo has become Boeing’s third customer for the B747-400SF (Special Freighter). The carrier placed an order for up to 20 Boeing conversion kits used to change passenger aircraft to full-freighter aircraft. This will allow Korean Air to increase its cargo revenue while improving the residual value of existing aircraft. Delivery of the first aircraft will be in August 2006.
CHINA CARGO ORDERS TWO 747-400 FREIGHTERS
China Cargo ordered two new 747-400 freighters to be delivered in November 2005 and March 2006. Currently China Cargo has a fleet of one 747-400, four 747-200s and eight 747-400 “combi” aircraft.
SINGAPORE AIRLINES CARGO LOOKING TO CONVERT PASSENGER AIRCRAFT TO FULL FREIGHTERS
Singapore Airlines Cargo is in negotiations with Boeing to convert up to five passenger B747-400s to a full freighter configuration. The carrier is planning to convert four or five passenger B747-400s to freighters after they receive their 17th and last production freighter delivery in March 2006.
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NEWS ARTICLES CARGO – CON’T
REGULATORY/GOVERNMENT
CATHAY TO BUY EIGHT B747-400s
ADDITIONAL CARGO SERVICES BETWEEN U.S. AND CHINA
Cathay Pacific Airways will buy eight used B747-400 aircraft and convert four to freighters by the end of 2006. The additions bring Cathay’s fleet size to over 100 passenger and cargo aircraft.
VOLGA-DNPER TAKES DELIVERY OF ITS 10TH AN-124-100
Volga-Dnepr Airlines took delivery of its 10th AN-124-100 Ruslan heavy duty freighter. Volga-Dnepr and the International Finance Corporation (IFC) financed construction of the Ruslan aircraft. The new freighter has an expanded 150-tonne payload capacity and a take-off weight of 402 tonnes. Its range also increases from 4,750 to 6,500 kilometres when carrying up to 120 tonnes of cargo.
NEW AN124-100 FOR POLET CARGO AIRLINES
Polet Cargo Airlines of Russia has added a new Antonov AN124-100 to its fleet. The new addition will bring its allAntonov fleet up to eight aircraft.
CHANGES IN DHL’S NORTH AMERICAN HUBS
DHL will be investing US$350 million to make Ohio Air Park its main U.S. hub. Staff from the Cincinnati/Northern Kentucky International Airport will be moved to Ohio Air Park. DHL Danzas Air & Ocean is relocating and expanding its distribution centre to a new 90,000-ft2 facility in Mississauga.
Page 11 September 2004
On 3 September 2004, FedEx and UPS received tentative approval from the U.S. Transportation Department for 12 additional all-cargo weekly frequencies between China and the U.S. until the end of 2005. Northwest Airlines has been approved for 6 frequencies, and Polar Air Cargo was granted 9 weekly frequencies in the same period. Final approval for the services is expected to take place soon after an 11-day comment period expires.
PEOPLE CEO OF EDMONTON AIRPORTS ANNNOUNCES RETIREMENT
Scott Clements, President and CEO of Edmonton Airports Authority announced his plans to retire at the end of this year. During his 10 years of service, Clements oversaw important projects including a $265 million Air Terminal Redevelopment Project at Edmonton International Airport. The Board has not yet chosen his successor.
CEO OF GTAA RETIRES
Greater Toronto Airport Authority (GTAA) President and CEO Louis A. Turpen will be retiring as of 30 September 2004. The Board has a consulting arrangement with Turpen so that the GTAA can continue to benefit from his expertise. The Board has appointed current Chief Operating Officer, John Kaldeway to succeed Turpen.
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NEWS ARTICLES PEOPLE – CON’T
NEW DIRECTOR GENERAL FOR ACI EUROPE
Glenn Rice has been promoted to President of UPS Canada and will be responsible for the company’s Canadian operations.
Roy Griffins CB has been appointed Director General of ACI Europe as of 1 December 2004. Griffins will succeed Philippe Hamon, who was a director since 1991 when he launched ACI Europe.
NEW EXECUTIVE VICE PRESIDENT FOR TRANSAT TOURS CANADA
AAPA ANNOUNCES NEW DIRECTOR GENERAL
UPS CANADA NAMES PRESIDENT
Transat A.T. Inc. has appointed Nelson Gentiletti to the newly created position of Executive Vice President for Transat Tours Canada. Gentiletti will continue with his responsibilities as Transat A.T.’s Vice President of Finance and Administration, and Chief Financial Officer until a successor is appointed.
Andrew Herdman will be the new Director General of the Association of Asia Pacific Airlines (AAPA). Herdman was the former head of Cathay Pacific Cargo and is currently a Swire Pacific executive. He will be succeeding Richard Sterling.
CONTINENTAL AIRLINES ELECTS EXECUTIVE VICE PRESIDENT
Continental Airlines has elected Executive Vice President Jeffery Smisek as President. Smisek will be succeeding Larry Kellner who will be taking Chairman and Chief Executive responsibilities at the end of the year.
Page 12 September 2004
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ECONOMIC O UTLOOK 15 September 2004
Canadian Real GDP (Annualised Quarterly % Change)
Robust growth in Canada. Canadian real GDP grew at a very strong rate of 4.3% in the second quarter of 2004. Export growth was key to the second quarter economic expansion, growing at 22%, and accounting for three-quarters of the increase in Canada’s real GDP.
6 5 4 3 2 1 0
Sluggish consumer spending limits growth in the U.S. The U.S. economy grew at an annualised rate of 2.8% in the second quarter of 2004. This was a slowdown from the 4.5% first quarter real GDP growth, and only half the rate of growth in Canada.
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U.S. Real GDP (Annualised Quarterly % Change) 6 5 4 3 2
US Index of Consumer Sentiment (1966=100) 115 110 105 100 95 90 85
Source: University of Michigan
Page 13 September 2004
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0 Import growth, combined with lower -1 personal consumption spending and private -2 inventory investment growth, contributed to the second quarter slowdown in real GDP Source: U.S. Bureau of Economic Analysis growth. U.S. exports increased 6.1% in the second quarter, but were more than outpaced by imports (14.1%).
Q3 '02
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Ian Kincaid Manager, Economic Analysis
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-1 Economic growth would have been higher -2 had domestic demand not slowed. In the second quarter, domestic demand grew only Source: Statistics Canada 1.7% (annualised) after increasing 5.9% in the first quarter. Despite the minimal growth in domestic demand in the second quarter, the Canadian economy still experienced its highest quarterly economic growth since the second quarter of 2002. The record economic growth, combined with concerns about increasing “core” inflation, led the Bank of Canada to increase interest rates. On 8 September 2004, as many economists expected, the Bank raised the overnight rate a quarter of a percentage point to 2.25%, and indicated that it is likely to increase rates further.
Similar to Canada, personal consumption spending was weak, growing a mere 1.6% in the second quarter, compared to 4.1% in the first quarter. Economists have linked the minimal growth in consumer spending to rising fuel costs, and increasing interest rates. The U.S. index of consumer sentiment is generally trending upward, compared to 2003, but is still well below the levels of the 1990s and 2000.
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THE OTTAWA REPORT 14 September 2004
Canadian Transportation Agency Approves Air Canada’s Corporate Structure The Canadian Transportation Agency approved Air Canada’s new corporate structure as meeting the Canadian ownership and control requirements stipulated in the Canada Transportation Act. By law, foreign investment in any Canadian airline cannot exceed 25 percent of the voting interest. The agency’s decision allows Air Canada to proceed with its restructuring plan in an effort towards exiting creditor protection. Air Canada is expecting to exit creditor protection by 30 September 2004.
Sam Barone Regional Vice President Ottawa, ON
NAV CANADA Posts Third Quarter Financial Results NAV Canada posted revenues of $248 million for the third quarter. This is up 15% from $216 million in the same period last year. The increase in revenues can be attributed to increases in fees as well as an 8.1% increase in air traffic. Third quarter operating expenses were $186 million in 2004, which is significantly lower than 2003 operating expenses (2003 expenses were $208 million and included a $22 million bad debt expense from Air Canada). Despite an increase in revenue and decrease in expense, NAV Canada still posted a loss for the third quarter. Total expenses were $257 million, $9 million over total revenue. However, 2004 third quarter results have improved relative to 2003, which posted a loss of $14 million. Effective 1 September 2004, Nav Canada will be increasing customer service charges by 7.9%.
Transport Canada The ownership of Saint Hubert Airport was transferred from Transport Canada to Développement de l’aéroport Saint-Hubert de Longueuil on 13 September 2004. Saint Hubert Airport is a small airport located in Quebec. Transport Canada will also contribute $3.3 million to cover operating deficits and maintenance costs until 2006-2007. Currently, 125 of Canada’s 136 airports have been transferred from the federal government to local authorities or municipalities. All 26 of Canada’s national airports have already been transferred. 61 of the country’s 71 regional airports have also been transferred. In the small airports category, all but one have been transferred. Transport Canada still owns the Bonnechere Airport in Ontario. Local governments also own and operate 8 of Transport Canada’s Arctic airports.
Page 14 September 2004
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THE WASHINGTON REPORT 13 September 2004
FAA and Airlines Reach O’Hare Agreement The Federal Aviation Administration (FAA) and airlines reached an agreement that will limit the number of flights at Chicago O’Hare airport. In order to cut flight delays by 20%, domestic airlines have agreed to a limit of 88 flights per hour between 7 a.m. and 8 p.m. The agreement is effective from 1 November 2004 to 30 April 2005. United and American, operating 86% of O’Hare flights, have agreed to the largest reductions. Between noon and 8 p.m. the two airlines will cancel or move a total of 37 incoming flights to ease congestion at the crowded airport.
TSA to Test Secure Flight Program Charles Chambers Regional Vice President InterVISTAS Consulting Inc. AND Senior Vice President InterVISTAS-ga 2 Consulting Inc. Washington, D.C.
Responding to public objection, the Transportation Security Administration (TSA) will begin testing Secure Flight, a new passenger pre-screening program to replace CAPPS II (computer-assisted passenger pre-screening program). TSA will assume responsibility for conducting passenger prescreening on domestic flights from airlines. Passenger name records (PNR) will be checked against an expanded terrorist watch list not available to airlines, but PNR data will not be used for other law enforcement purposes as had been done under CAPPS II. Secure Flight will also include a redress system for passengers who believe they have been wrongly selected for additional screening.
ATA Urges Review of Fuel Prices on Airlines The Air Transport Association (ATA) says that the cost of fuel for U.S. airlines will be $6 billion more than the previous year and has urged Congress to review the impact of high fuel prices on airlines. The ATA wants the U.S. to stop acquiring oil for the Strategic Petroleum Reserve and release some reserves into supply.
Senate Panel Approves DOT Spending Bill The Senate Transportation/Treasury Appropriations Subcommittee approved its version of fiscal year 2005 spending bill, which includes funding for the FAA and the Airport Improvement Program (AIP). US$3.5 billion was allocated to AIP, $20 million of which is made available to the Small Community Air Service Development Program. The bill includes a provision that prohibits the FAA from requiring airports to provide space free of charge to the agency, and one that extends the war risk insurance program by one year to 31 December 2005.
This is a collection of information gathered from public sources, such as press releases, media articles, etc., information from confidential sources, and items heard on the street. Thus some of the information is speculative and may not materialize. Information contained herein is provided for the use of InterVISTAS Consulting Inc. only, and may not be distributed beyond the office. Prepared by InterVISTAS Consulting Inc. Page 15 September 2004
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