CAIR Issue No. 55 - September 2007 by Leah Dupuis

CANADIAN AVIATION INDUSTRY REVIEW

In this issue… •

Features Columns:

South Korea’s Outbound Travel Market (p.1) • Overnight Trips to Canada by Americans (p.2) • Aircraft Deployment to North America in 2012 – Higher Capacity, Lower Yields? (p.9) • Arrivals Duty Free – A Considerable Retail Opportunity for Airports (p.10)

• • • • • • • •

•

Regular Reports: Airline Data - Canada (p.3) Airline Data – U.S. (p.4) Selected Canadian Airport Data (p.5) Industry News (p.6) The Asia Report (p.12) The Europe Report (p.13) The Ottawa Report (p.15) The Washington Report (p.17) InterVISTAS News (p.18)

SOUTH KOREA’S INBOUND TRAVEL MARKET September 2007

More Visitors to South Korea, But Spending Less Inbound Travel to South Korea has increased significantly over the past decades. With nearly 6.2 million visitors to the country in 2006, South Korea’s inbound travel market has grown by more than five-fold since 1980. With the exception of the SARS outbreak that took place in Asia in 2003, South Korea’s inbound travel market has sustained more than 5 million annual visitors since 2000. Figure 1: Total Inbound Visitors to South Korea 7,000,000 6,000,000

Project Analyst

5,000,000

Inbound Visitors

Connie Chang

4,000,000 3,000,000 2,000,000 1,000,000

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

Source: Korea Tourism Organization

Other Asian Countries Accounts for 74% of South Korea’s Inbound Travel Nearly three-quarters of total inbound travellers to South Korea originated from other countries in Asia in 2006, with Japan making up 38% of total visitors to South Korea alone. Visitors from the United States and Europe each make up roughly 9% of total visitors to South Korea in 2006. Visitors originating from Canada represent 1.5% of South Korea’s Inbound Travel Market in 2006.

60% of South Korea’s Inbound Travel is for Leisure Purposes Leisure was the primary purpose of travel to South Korea for the month of January 2006, making up 60% of total inbound visitors. For the same period, 15% of travellers arrive in South Korea for business purposes, 9% visit friends and relatives in South Korea, and the remaining 16% travel to South Korea for other purposes.

Europe, 8.6%

Other, 9.0% Japan, 38.0%

United States, 9.0%

Country of Origin

Other Asia, 21.4%

China, 14.6%

Source: Korea Tourism Organization Other 16% VFR 9%

Purpose of Travel Business 15%

Pleasure 60%

Source: Korea Tourism Organization

Page 1 September 2007

OVERNIGHT TRIPS TO CANADA BY AMERICANS September 2007

The first quarter of 2007 was met with a sharp decline in the number of U.S. travelers to Canada from the year before; meanwhile, the number of Canadians travelling to the U.S grew. Canadian tourism from the U.S. decreased more steadily in this period than the overall rate of decline from 2005 to 2006. The rising value of the Canadian dollar is likely one major factor leading to this widening travel deficit. The number of Canadians traveling to the U.S. for overnight stays was higher than any other first-quarter since 1993, amounting to 3.7 million trips and $3.1 billion spent. This resulted in an increase of 4.8% from the same period last year.

Karen Payjack Project Analyst

The majority of trips by Canadians were for leisure, accounting for 59% of all trips in the period, an increase of 9.3% over 2006. Business trips represented 27% of Canadian travel to the U.S., increasing 2.2%. Canadian travel to overseas destinations also went up this year, setting the record for first-quarter travel, with 2.5 million trips. This represented an increase of 11.4% from the first quarter of 2006, which formerly held the record. While trips to Europe declined, likely due to the rising value of the Euro, Caribbean locations including the Dominican Republic, Mexico and Cuba, attracted the most Canadian tourists. Change in Overnight Trips To and From Canada 10% 8% 6% 4% 2%

F rom C anada

To C anada

‐2%

2005‐06

2006‐07 (firs t quarter)

2005‐06

2006‐07 (firs t quarter)

‐4% ‐6%

U.S .

O ther C ountries

‐8%

Source: Statistics Canada

Meanwhile, Canada’s international travel deficit narrowed in the second quarter of 2007. This was due to a rapid rise in demand for Canadian tourism from overseas markets. The difference between Canadian travel spending abroad and international tourism to Canada was $1.7 billion in the second quarter, down $131 million from last year’s first quarter. The top overseas country of origin was the United Kingdom, followed by France, with a combined total of nearly 200,000 overnight trips to Canada. A total of $930 million was spent on overnight trips to Canada in the first quarter of 2007, an increase of 6.4% in the same period a year prior. Page 2 September 2007

AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers August 2007 Air Carrier

Passenger Traffic Revenue Passenger Kilometres % Change % Change over 2006 from 2005

Capacity Available Seat Kilometres

Load Factor

% Change over 2006

% Change from 2005

Change over 2006

Change from 2005

+3.9%

+3.8%

+3.9%

+4.9%

+0.0pts (to 84.4%)

-0.9pts (from 85.3%)

Domestic (Mainline)

+6.9%

+3.7%

+6.9%

+5.2%

+0.0pts

-1.2pts

Jazz

+7.0%

+64.8%

+4.1%

+53.6%

+2.1pts

+5.3pts

International & Charter

+2.6%

+3.9%

+2.7%

+4.7%

+0.0pts

-0.7pts

+19.6%

+42.8%

+14.8%

+35.5%

+3.5pts (to 88.0%)

+4.5pts (from 83.5%)

Air Canada 1

WestJet

Analysis: •

•

August 2007 marks the second highest load factor ever achieved by Air Canada Mainline and Jazz combined, recorded at 83.8%.

10%

Air Canada Domestic Mainline

5% 0% Jazz data is not included in this graph

-5%

The dramatic growth of Jazz, as it phased in the new CRJ fleet, has now attenerated, with capacity growing less in August than of Air Canada Mainline. Air Canada’s international load factor remained fairly constant in August 2007 over 2006, with passenger traffic growth nearly matching seat capacity expansion. The Atlantic and Pacific regions were the largest contributors to international traffic growth for this time period, increasing by 5.2% and 5.0% respectively, which offset declines in U.S. traffic. WestJet recorded an all-time high load factor of 88.0% for August 2007, up 3.5 percentage points from the previous year. This is due passenger traffic growth of 19.6% exceeding the expansion in seat capacity of 14.8% for the same period.

-10%

Jun- July Aug Sept Oct 06

Nov Dec Jan- Feb 07

Dom RPK

Mar Apr May Jun

Jul

Aug

May Jun

Jul

Aug

Apr May Jun

Jul

Aug

Dom ASK

Air Canada International 6% 5% 4% 3% 2% 1% 0% -1% -2% Jun- July Aug Sept Oct 06

Nov

Dec Jan- Feb 07

Int'l RPK

Mar

Apr

Int'l ASK

WestJet 35% 30% 25% 20% 15% 10% 5% 0% Jun- July Aug Sept Oct 06

Nov Dec Jan- Feb 07

RPK

Mar

ASK

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

Page 3 September 2007

AIRLINE DATA – U.S. U.S. Airlines Release August 2007 Traffic Figures

Notes:

(RPMs – millions)

(ASMs – millions)

Capacity

Load Factor

2,514 ↑13.4%

2,909 ↑9.8%

86.4% ↑2.7 pts

815 ↑2.9%

1,058 ↓0.7%

77.0% ↑2.7 pts

6,995 ↑12.1%

8,746 ↑8.1%

80.0% ↑2.9 pts

9,075 ↑8.1%

10,635 ↑4.4%

85.3% ↑2.9 pts

10,842 ↑2.3%

12,565 ↓1.0%

86.3% ↑2.8 pts

12,525 ↑0.4%

14,736 ↓3.1%

85.0% ↑3.0 pts

11,906 ↑8.8%

14,118 ↑3.1%

84.3% ↑4.4 pts

7,136 ↑1.3%

8,144 ↓0.7%

87.6% ↑1.7 pts

5,748 ↑4.3%

6,760 ↓1.9%

85.0% ↑5.0 pts

537 ↑35.2%

589 ↑29.64%

91.3% ↑3.8 pts

1,744 ↑34.6%

2,069 ↑20.4%

84.3% ↑8.9 pts

955 ↑23.6%

1,098 ↑11.9%

87.0% ↑8.2 pts

Traffic

Airline

1. Mainline operations only. 2. Load factor includes scheduled service only.

Sources: Carrier traffic reports.

Page 4 September 2007

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

Vancouver

July

+2.2%

+4.8%

MontréalTrudeau +1.9%

2006 2007

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

+7.4%

+13.8%

-2.1%

+4.9%

+8.5%

+7.4%

+14.4%

+5.9%

+7.1%

St. John’s +13.2%

August

+6.8%

+3.9%

+3.5%

+10.2%

+18.2%

+2.2%

+8.5%

+7.1%

+11.3%

+12.2%

+5.8%

+15.9%

+11.7%

September

+2.2%

3rd

+2.1%

+2.6%

+10.0%

+13.1%

0.0%

+8.8%

+4.9%

+6.9%

+16.6%

+6.9%

+10.4%

-0.5%

+3.8%

+3.7%

+2.7%

+9.2%

+15.1%

+0.1%

+7.3%

+6.9%

+8.6%

+14.3%

+6.2%

+11.1%

+8.7%

October

+2.6%

+2.3%

+3.9%

+9.9%

+18.4%

+2.3%

+7.7%

+6.2%

+8.9%

+13.7%

+7.1%

+6.2%

+1.7%

November

+3.9%

+3.7%

+8.6%

+14.1%

+15.4%

+3.0%

+8.3%

+0.6%

+2.7%

+14.5%

+2.7%

+3.7%

+0.2%

December

+6.4%

+6.2%

+8.7%

+11.4

+18.2%

+3.8%

+3.4%

-2.4%

-0.1%

+14.5%

+3.7%

+10.2%

-1.1%

4th

Quarter

+4.3%

+4.1%

+7.0%

+11.7

+17.4%

+3.0%

+6.4%

+1.7%

+3.9%

+14.3%

+4.5%

+6.7%

+0.3%

Full Year January February March 1st Quarter April May June 2nd Quarter July

+3.5% +3.0% +2.0% +1.5% +2.2% +0.7% +0.3 +1.3% +0.8% -0.4

+3.1% +5.5% +2.7% +3.6% +3.9% +4.2% +2.3% +1.8% +2.7% +0.3%

+4.7% +10.2% +7.0% +8.9% +8.7% +8.9% +6.3% +8.6% +7.9% +10.8%

+11.1 +10.8% +10.4% +9.5% +10.2% +11.9% +8.6% +7.6% +9.3% +5.1%

+15.5% +18.3% +18.3% +17.1% +17.9% +18.8% +17.5% +21.7% +19.3% +17.8%

+1.7% +5.9% +8.3% +4.9% +6.3% +8.0% +7.3% +7.6% +7.6% +9.0%

+4.8% +3.2% +6.8% +5.4% +5.1% +12.2% +8.7% +7.5% +9.3% +3.9

+4.6% +2.3% +2.0% -1.2% +0.9% +0.5% 0.0% +3.4% +1.2% +4.4%

+5.4% +4.7% +4.0% +7.9% +5.6% +9.6% +6.2% +1.9% +5.8% +6.7%

+14.7% +15.2% +12.9% +15.6% +14.6% +20.8% +17.8% +12.5% +17.0% +7.4%

+5.6% +6.6% +10.9% +5.7% +7.8% +12.1% +11.6% n/a n/a n/a

+8.0% +18.8% +24.2% +8.2% +17.0% +6.1% +9.9% +8.0% +8.4% +13.6%

+6.0% -4.6% +0.0% -1.1% -1.9% -4.8% -10.1% -6.9% -7.3% -10.7%

Quarter

Source: Transport Canada and individual airports’ traffic reports. N/A: not available at press time.

Page 5 September 2007

NEWS ARTICLES AIR CANADA UPDATE

WESTJET UPDATE

AIR CANADA EXPANDS EASTERN CANADA SERVICES

WESTJET ORDERS 20 ADDITIONAL 737700 AIRCRAFT

Air Canada announced winter schedule enhancements for Ottawa, including St. John’s and Cancun.

WestJet recently ordered an additional 20 737-700s, with 14 aircraft scheduled for delivery in 2012 and the remaining six in 2013. WestJet indicated that their order is in response to the results of a recently conducted analysis on aircraft replacement needs that showed that the market for 737 next-generation aircraft is particularly strong.

Air Canada will add two new sun destinations from Montréal in December 2007. Weekly nonstop service to Turks and Caicos will commence on 22 December. Weekly service to Santa Clara, Cuba will begin the 23 December. The Maritimes will also gain with daily non-stop flights between St. John’s and Moncton, business day service from Fredericton to Ottawa and one-stop daily service between St. John’s and Calgary, Edmonton and Fort McMurray.

AIR CANADA INCREASES WESTERN CANADA FLIGHT FREQUENCIES Beginning in December 2007, Air Canada will offer daily non-stop flights from Vancouver to Yellowknife and Sydney, Australia. Weekly flights between Vancouver and Ixtapa and Los Cabos will be offered seasonally. Air Canada will also continue to offer daily, nonstop flights from Edmonton to London Heathrow and from Calgary to Halifax and Prince George this upcoming winter.

AIR CANADA EXPANDS SUN PASS DESTINATIONS

Air Canada’s Sun Passes now include over 40 destinations in the United States, Mexico and the Caribbean from all 63 airports it serves across Canada. Consumers can choose from single person passes, companion passes and family passes.

CANADIAN GALILEO AGENTS TO HAVE DESKTOP ACCESS TO AIR CANADA PRODUCTS Air Canada’s flight passes and a-la-carte products will be made available on the desktops of all Galileo agents in Canada by the fourth quarter of 2007. Page 6 September 2007

WESTJET ADDS MAZATLAN AND SAN JOSE DEL CABO SERVICE Beginning in December 2007 and January 2008, WestJet will offer seasonal non-stop flights from Calgary, Edmonton and Vancouver to 2 new destinations in Mexico. Flights between Calgary and San Jose del Cabo will occur twice weekly, with a weekly Calgary-Mazatlan flight. Passengers will have the option of flying out of Edmonton to San Jose del Cabo or Mazatlan once weekly. WestJet will also offer VancouverSan Jose del Cabo flights on Saturdays.

OTHER CANADIAN AIRLINES NEWS PORTER AIRLINES TO CONTINUE HALIFAX FLIGHTS After the successful completion of a summer program on 4 September, Porter Airlines announced that it will continue offering weekend flights between Halifax and Ottawa. Scheduled service to Toronto City Center via Ottawa will continue twice per weekend.

PORTER AIRLINES EXPANDS TORONTO CITY CENTRE TERMINAL To accommodate its increasing passenger levels and expansion of services, Porter Airlines is growing its operations base at Toronto City Center Airport. Construction on the extended terminal is scheduled for completion by 31 December 2007 and will include three new arrival and departure gates.

NEWS ARTICLES CARGOJET EXPANDS FLEET WITH B757-200ER FREIGHTER ADDITION

U.S. AIRLINE NEWS CONTINENTAL ADDING TWO CANADIAN DESTINATIONS Continental will begin twice daily non-stop service between Cleveland and Ottawa on 30 September. The airline will also be offering nonstop service from New York to Mont-Tremblant on 14 December.

AMERICAN EAGLE ADDS YUL-JFK

American Eagle is offering 3 times daily service (except Sunday) between Montréal and JFK with Embraer 135/140 aircraft.

CARGO NEWS FEDEX MOVES TO COLOGNE DUE TO BAN OF NIGHT FLIGHTS AT FRANKFURT FedEx is moving its central Germany base from Frankfurt to Cologne. FedEx indicated that this is in response to an expected ban on night operations at FRA, as its 4th runway begins operations. FedEx operates 30 weekly departures at FRA and is estimated to account for over 200,000 tonnes of cargo annually.

LUFTHANSA CARGO MOVES TO LEIPZIG-HALLE Lufthansa Cargo is moving 21 weekly flights from CologneBonn to Leipzig-Halle. This is a result of further integration of the Lufthansa-DHL Express partnership.

VOLGA-DNEPR PURCHASES NEW IL-76S Volga-Dnepr Group has ordered three IL-76TD90VD freighters for delivery in 2008, and obtained an option for 10 additional aircraft. This new model of the IL-76 meets is Chapter 4 noise compliant and has an increased payload, giving it a total 50 tonne capacity. Page 7 September 2007

Cargojet plans to expand its fleet with the addition of a B757200ER freighter aircraft in the second half of 2008. Cargojet will become the first Canadian air cargo carrier to operate this aircraft model.

GREAT WALL INTRODUCES SHANGHAIATLANTA CARGO SERVICE Great Wall Airlines was approved by the U.S. Department of Transportation to operate cargo charters between Shanghai and Atlanta, using Boeing 747-400F aircraft. This once weekly cargo service will commence in March 2008.

PEOPLE IN THE NEWS GTAA ANNOUNCES NEW CFO

Brian Gable was announced as the Greater Toronto Airports Authority’s new CFO on 20 July. He assumed his new role on 10 September.

CLIVE BEDDOE STEPS DOWN AS WESTJET CEO

On 4 September, Clive Beddoe left his position as WestJet’s Chief Executive Officer. He will retain his position as executive chairman. Beddoe is replaced by Sean Durfy.

HIAA ANNOUNCES INTERIM CEO Current CFO Joyce Carter has been named interim Chief Executive Officer of the Halifax Airport Authority. A formal search to fill the position permanently will begin in the fall.

NEWS ARTICLES PEOPLE IN THE NEWS – CON’T MORRIS APPOINTED DIRECTOR OF SALES Tourism Richmond announced the appointment of Gayle Morris as Director of Sales on 15 August.

YVES DUGUAY MOVES TO CATSA

After seven years at Air Canada as the airline’s Senior Director, Security, Yves Duguay has accepted the position of Vice President of Operations at CATSA.

OTHER

TOURISM TORONTO STEPS UP MEDIA RELATIONS AND SALES PROGRAM Tourism Toronto announced resource expansions to its media relations program in the U.S. Top destination publicist, Michelle Revuelta, became Toronto’s media representative in September. Justine Palinska was promoted to Travel Media Associate. Key sales staff additions include Maria Riviera as Regional Citywide Director for Washington D.C., Debbie Miller to the post of Corporate Account Director, Eastern U.S. and Meghan Bowness as Client Services Manager. Tourism Toronto has also opened its first overseas sales office with the appointment of David Sage as Account Director for the U.K. meetings and incentive traveller market.

ICELANDAIR TO OFFER YEAR ROUND HALIFAX SERVICE Under the new Blue Sky agreement between Canada and Iceland, Icelandair will add winter service to Halifax in 2008. Flight frequency has not yet been determined. Service to additional Canadian airports is under consideration.

CANADIAN GOVERNMENT INVESTS OVER $1 MILLION IN QUÉBEC AIRPORTS

The contracts for various repairs to Eastmain and Wemindji airports in Northern Québec have been awarded. The majority of the work will consist of replacing primary cables, transformers and signal supports along runways and taxiways, modifying the ARCAL system and replacing wind direction indicators.

SEAN MENKE RETURNS TO FRONTIER AS CEO Former Frontier executive Sean Menke returns to the airline as Chief Executive Officer. He replaced Jeff Potter on 6 September.

Page 8 September 2007

AIRCRAFT DEPLOYMENT TO NORTH AMERICA IN 2012 -HIGHER CAPACITY, LOWER YIELDS? September 2007

In each of the past two years, both Boeing and Airbus booked orders for more than 1000 aircraft. 2007 is on track for each manufacturer to sell another thousand. The numbers of aircraft to be delivered this year are roughly 450 each. This is up from roughly 300 each in the past few years. The gap between orders and deliveries points to large numbers of aircraft coming into the global fleets in the coming years. While some deliveries will be replacement aircraft, there will be major net increases in global capacity in the next five years.

Mike Tretheway Executive Vice President

Some of the fastest capacity growth will be in the Middle East, where carriers such as Emirates, Etihad and Qatar have major numbers of aircraft on order. Emirates, for example, has 55 A380s on order plus additional orders for other Boeing and Airbus products. Much of this will be deployed on routes from the Middle East to Southeast Asia/Australia/New Zealand, and to Europe. This means that there will be a huge increase in Middle East connecting capacity between Asia and Europe, and this is likely to dramatically impact both the Asian and European air carriers. Capacity growth that outstrips demand will erode yields, possibly sufficient to severely depress carrier profitability. The European and Asian carriers will have to respond to the huge capacity of the Middle East carriers and the erosion of yields on the Eurasia intercontinental routes. Just as the North American carriers have been redeploying capacity to international routes from the domestic markets where they face capacity competition from low cost carriers, part of the response of the Eurasian carriers is likely to be to redeploy aircraft into markets where they won’t face the competition and capacity of the Middle East carriers. That is likely to mean redeployment of long haul capacity share to North America. Let’s look ahead to the industry in 2012. Globally, there will likely be excess capacity sloshing around. Load factors and yields will be dropping. Carriers will respond with global strategies. For the European and Asian carriers, this is likely to result in redeploying capacity share to North America. The end result may well be stronger than expected capacity growth on trans-Pacific and trans-Atlantic routes and great bargains for consumers. The lesson is that we have a global marketplace, and capacity decisions on routes in the Middle East can affect trans-Pacific and trans-Atlantic routes. There is an opportunity to this as well. Anticipating that European and Asian carriers may be pressed to find more profitable uses for their aircraft than intercontinental Eurasian services, North American airport marketers should be developing route profitability analyses and pitching their communities to the European and Asian carriers. Operations planners should anticipate that the number of travellers requiring a border clearance may increase faster than current trends might suggest.

Page 9 September 2007

ARRIVALS DUTY FREE: A CONSIDERABLE RETAIL OPPORTUNITY FOR AIRPORTS September 2007

Stan Tse Senior Project Manager

Why Arrivals Duty Free? Given the current aviation environment, the Arrivals Duty Free (ADF) concept is a potential source of retail revenues for airports. In response to a terrorist threat that occurred at London’s Heathrow airport on 10 August 2006, new security measures related to carry-on items were implemented in numerous countries around world. In North America, the U.S. Transportation Security Administration (TSA) and Canadian Air Transport Security Authority (CATSA) have both implemented regulations limiting the amount of liquids, gels and aerosols permitted as carry-on items to 100mL (3oz) per item. These newly implemented security regulations have negatively impacted airport duty-free sales, as passengers can no longer purchase certain types of goods (i.e. liquor and perfume) before boarding their flight. Since the introduction of the new security measures, duty-free sales have decreased by as much as 40%. As duty-free sales contribute to non-aeronautical revenues, airports are under increased pressure to find alternative sources of revenue. One potential solution to the decline in traditional departures duty-free sales caused by increased security measures is the introduction of ADF.

Travis Archibald Senior Analyst

What is ADF? The ADF concept involves the placement of a duty-free retail operation for internationally arriving passengers to make purchases after deplaning but before the border clearance process. Airports with ADF have varying deployments from a mobile cart with a limited number of items to entire stores offering a full selection of offerings. With ADF, passengers would be able to purchase liquids, gels, or aerosols such as liquor and perfume in quantities greater than 100mL or 3oz since they are arriving passengers. Who has ADF? 54 countries worldwide have successfully implemented ADF at their airports. This number is growing with several others seeking to provide the offering for travelers. Airports without ADF risk losing significant retail and non-aeronautical revenue opportunities.

Page 10 September 2007

ARRIVALS DUTY FREE – CON’T How will ADF benefit airports? As liquids, gels and aerosols regulations are not expected to be removed, the introduction of ADF would help offset the decline in duty-free sales that has occurred since the regulations were first introduced in 2006. However, some concerns have been raised about the potential loss of sales that could occur if ADF were introduced. Critics have argued that without ADF, travelers would purchase these goods from domestic retailers, so the government would be losing out on tax dollars. Several case studies from other jurisdictions have indicated otherwise and that the availability of retail goods upon arrival, in fact, stimulates domestic sales. The numbers of airports offering ADF is growing around the world. ADF should be pursued as another source of potential revenue to recapture sales lost to other countries with ADF and to counter the decline of departures duty-free since the implementation of liquids, gels, and aerosols security regulations. If approval is sought for the operation of an ADF retail store, facilities planning should make allowance for this capability in the future.

Page 11 September 2007

THE ASIA REPORT September 2007

China Blocks New Airlines Until 2010 The Civil Aviation Administration of China (CAAC) has announced that it will not accept any new airline applications until 2010, resulting in no new airlines operating in China until 2011. China’s airline industry has experienced unprecedented growth with domestic air traffic up 17% during the first six months of 2007. However, it appears that the CAAC’s announcement contains loopholes that may allow new carriers to enter the Chinese market. The CAAC will allow new cargo airlines at night and also airlines that will offer services to under-served markets in central and western China.

Dragonair Joins oneworld Global Airline Alliance

Doris Mak Manager, Special Projects

On 1 November 2007, Hong Kong based Dragonair will join the oneworld global airline alliance. The airline’s addition to the global airline alliance is expected to be completed before other airline alliances are able to bring their Chinese airline members elect on board. Dragonair serves 19 points in China offering 400 weekly flights. Dragonair brings 12 new destinations in China to the alliance, with airline’s addition to the alliance, this brings a total 22 destinations in China served by air carriers in oneworld.

HKIA Voted the World’s Best Airport by Skytrax Survey Hong Kong International Airport has been voted the world’s best airport for the 6th time in 7 years by the annual Skytrax survey (a London, UK based air transport research organisation). Nearly 8 million people participated in the survey. Ease of use of the airport and short waiting times were top priorities for passengers who participated in the survey. Seoul Incheon and Singapore Changi airports tied for second place, while Munich Airport and Kuala Lumpur International Airport ranked fourth and fifth.

India’s Jet Airways Eyes Hotel in Brussels and MRO in India Jet Airways recently made Brussels its European hub in an attempt to provide seamless travel between India and the west. Jet Airways chairman, Naresh Goyal, is now in talks with Belgian companies to set up a hotel at Brussels airport. In addition, Goyal is also looking at operating a pilot training academy and also setting up an MRO facility in India. Brussels airport welcomed Jet Airways’ decision to make it the airline’s European hub, which has resulted in major job creation and also a potential increase in Indian tourists.

India Air Passenger Levels Increase 27% Since the Indian Government decision to allow more foreign airlines to operate flights to India has seen air passenger traffic levels increase 27%. In addition, domestic India air traffic has also grown by 32%.

Page 12 September 2007

THE EUROPE REPORT September 2007

Routes and the Future of ASD Conferences This month, Stockholm hosts the 13th annual World Route Development Forum (Routes), the world’s largest air service development event. As airports from around the globe prepare for the conference, it is worthwhile to consider realistic expectations for Routes and similar events.

John Weatherill Regional Vice President, InterVISTAS-E.U. UK Office

The Format Routes, like JumpStart and Network in North America, brings airports and airlines together to discuss new route opportunities. Meetings are prearranged (typically 5-10 per airport), providing airports with a 25-minute window in which to introduce their market to each airline network planner. Contrary to claims by some conference organisers, new route decisions are rarely, if ever, made at events like Routes – the process is far more complex than can be accommodated in half an hour. That said, such events can be a useful initial step in the air service development process, as they offer an easy way to build and maintain airline relationships. To make the most of a Routes experience, InterVISTAS offers several recommendations: 1. Don’t Present Too Much Information There can be a temptation to provide an airline planner with all of the available information about your airport and market at Routes, but this is neither necessary nor desirable. The 25-minute meeting really provides less than 20 minutes of productive discussion time after introductions and small talk are taken care of, and some of this will be spent by the airline planner. It is recommend that airports use the limited time available to present and discuss three critical points, including: •

Introducing your market location, catchment area boundaries, and top-level demographics;

•

Presenting origin/destination market size information, at the city pair level that airline planners require to gauge demand; and

•

Presenting preliminary, but sophisticated route analysis to demonstrate that the proposed route(s) can be viable.

This will help to separate your airport from those who simply come equipped with a “wish list” of new routes, unsupported by quantitative evidence. 2. The Goal is an Airline Headquarters Meeting At events like Routes, airline planners will conduct meetings with 20-30 airports each over a two day period. Even the most intriguing airport’s details will become lost among the hundreds of statistics each planner will hear by the end of the conference. The goal for Routes therefore, should not be to sell the airline on initiating new flights to your airport, but to determine whether the airline/airport fit is appropriate, and if so, generate interest to the point that the airline will agree to a follow up meeting at their headquarters. A headquarters meeting will provide the opportunity to present the full business case for new air services at your airport, to appropriate decision makers, when you have the airline’s undivided attention. This is the environment required to progress new route discussions.

Page 13 September 2007

THE EUROPE REPORT – CON’T 3. Learn from the Airlines In addition to informing the airlines about your market, airports should use events such as Routes as an opportunity to learn more about the airline. Ask questions about future fleet plans, network expansion strategies and target markets, and any other topic that will assist in future analysis and discussions. Use the information gained as a guide for developing the new route business cases for follow-up meetings, to ensure that your market fills a strategic need for the airline, and to improve your likelihood of securing the new air service. Airports that attend ASD forums expecting to make a new service announcement will generally return disappointed. However, by focussing on providing critical information, securing a follow up headquarters meeting with appropriate airlines, and learning as much as possible about each airline’s expansion strategy, most airports will find these conferences productive and successful. Future Route Development Conferences – At What Point Saturation? Route development conferences continue to grow in popularity. Beginning in the 1990s with Routes in Europe and JumpStart in North America, there are now perhaps a dozen similar events each year. In the Americas alone, large events are scheduled for Monterrey (December), Cancun (February), San Diego (March) and Pittsburgh (June), while regional events will take place in Halifax and elsewhere. Network will introduce a Latin America event this year, in addition to it’s USA conference. Routes itself has introduced sub-events, and will run Regional Routes forums in Asia, Africa, Europe and the Americas, in addition to it’s flagship conference. Of course, it is not necessary nor practical for airports and airlines to attend each of these events. Attendees must choose which events to participate in; many airports and airlines have begun to attend either Network or JumpStart, but not both. Still others have chosen to avoid such events altogether, and instead concentrate on airline headquarters meetings. The danger for attendees and organisers alike is a splitting of the market, which will devalue all of the events, and will mean some cannot achieve the critical mass required to continue.

Page 14 September 2007

THE OTTAWA REPORT September 2007

Canada and New Zealand Reach Blue Sky Agreement On 7 September 2007, Lawrence Cannon, Minister of Transport, Infrastructure and Communities along with David Emerson, Minister of International Trade announced an Open Skies agreement between Canada and New Zealand. The agreement will allow any number of air carriers from either country to operate passenger and all-cargo scheduled air services between any points in the two countries with an unlimited number of frequencies. The agreement also allows 5th freedom services (i.e., air carries can pick-up traffic in each other’s countries and then transport that traffic onward to a third country as part of their service to or from their home country). 7th freedom cargo services are also allowed under this new agreement. Once the agreement is ratified, it will replace the agreement from 1985.

Brian Kelly Executive Consultant

Canada and Jordan Finalise New Air Bilateral Agreement On 7 September 2007, The Honourable Lawrence Cannon, Minister of Transport, Infrastructure and Communities, and the Honourable David Emerson, Minister of International Trade, today announced a new air transport agreement with Jordan. This is not a Blue Sky agreement. Under the terms of the new agreement, an unlimited number of carriers from both countries are allowed to serve up to two destinations of their choice and to operate scheduled air services between the two countries. Air carriers also have the option of operating code-share services. Currently, Royal Jordanian and Air Canada operate scheduled air services between the two countries.

Passenger Protect Program Extends Exemption and Review of ID Requirements for Travellers Under 18 Beginning 18 September 2007, Transport Canada will not require travelers between the ages of 12 and 17 to present identification (ID) prior to being allowed to board an aircraft. The Honourable Lawrence Cannon, Minister of Transport, Infrastructure and Communities, stated that the exemption to the Passenger Protect program announced in June will be modified and extended to March 31, 2008, pending regulatory consultations on ID requirements for air travelers under the age of 18.

NAV Canada Announces Reduction of Service Charges by 4% Effective 1 August 2007, NAV Canada announce that it would be reducing its customer service charges by 4%. NAV Canada estimates that customers will save an estimated $50 million in fiscal 2008. This is the second consecutive year that NAV Canada has reduced its charges.

Page 15 September 2007

THE OTTAWA REPORT – CON’T Minister Cannon Announces Outcome of Canadian Air Transport Security Authority Act Review On 4 September 2007, the Honourable Lawrence Cannon, Minister of Transport, Infrastructure and Communities, announced the initial round of decisions to strengthen aviation security, resulting from the Canadian Air Transport Security Authority (CATSA) Act review. A three-member advisory panel reviewed the CATA Act and made over 40 recommendations. The report was tabled in Parliament on December 12, 2006. Some recommendations will be implemented immediately, while others with legislative and budgetary implications will require additional time and effort over the next three years. The following major decisions were announced on 4 September 2007, as outlined directly in the CATSA press release:

Responsibility for aviation security will continue to fall with the Minister of Transport, Infrastructure and Communities.

CATSA will continue as a Crown Corporation to allow it to retain greater administrative flexibility, close ties with industry partners, and governance oversight by a board of directors, while still reporting to Parliament through the Minister of Transport, Infrastructure and Communities.

CATSA's activities will be focused on its core aviation security-screening role: the effective and efficient screening of persons who access aircraft or restricted areas through screening points, the property in their possession or control, and the belongings or baggage that they give to an air carrier for transport.

The administration of the Canadian Air Carrier Protective Program, which assigns RCMP officers on board selected domestic and international flights, will be transferred to the RCMP as of April 1, 2008.

The Airport Policing Contribution Program, which ensures that Class 1 airports have protective policing and security arrangements for key areas, will be transferred to Transport Canada as of April 1, 2008.

CATSA will retain responsibility for the Restricted Area Identity Card Program, due to the operational nature of the program, while Transport Canada will remain responsible for defining the requirements of the program and ensuring overall regulatory compliance.

Page 16 September 2007

THE WASHINGTON REPORT September 2007

House Passes FAA Reauthorization Bill On 20 September 2004, the House passed the FAA Reauthorization Bill. The passing of the bill would keep the FAA active until 2011; however, the agency’s budget is still not finalized, with the White House and the Senate proposing very different approaches for the FAA’s financing. There has been pressure on lawmakers to pass a budget as the FAA looks to implement solutions to combat congestion and flight delays. The NextGen program is expected to cost between $15 billion to $22 billion. Supporters of the House bill say that the bill would provide record funding for the U.S. air system, while maintaining the current tax and financing structure. Under the terms of the House bill, general aviation fuel tax would increase from 21.8 cents per gallon to almost 36 cents per gallon, while commercial costs would rise from 19.3 cents per gallon to 24.1 cents per gallon. Passenger facility charges would also be allowed to increase from $4.50 per passenger to $7 per passenger.

Jon Ash President InterVISTAS-ga2 Consulting Inc. Washington, D.C.

Revised Proposal for Secure Flight Program Addresses Privacy Concerns Transportation Security Administration (TSA) has proposed a new version of the Secure Flight Program which is designed to be used to screen air passengers. The new version of the program has now been stripped of its data mining, which spurred privacy concerns and led Congress to block earlier versions of the program from implementation. The newest version of the program is open for public comment and will be tested prior to implementation in 2008. The proposed new program will require passengers to provide their full names when booking reservations (either in person, by telephone or online). Passengers will also be asked if they are willing to provide their date of birth and gender (to reduce the chance of false-positives when matching names on watch lists). There will also be a limit on the length of time that records can be kept, in the case where a check that produces no match – the record will be kept for 7 days, a false positive match will be kept in the system for 7 years and a confirmed match will be kept in the system for 99 years.

Vietnam Airlines Applies to DOT for Exemption and Foreign Air Carrier Permit Vietnam Airlines has applied to the U.S. Department of Transportation for an exemption and foreign air carrier permit. The airline is planning to begin weekly flights in October 2008 on its Ho Chi Minh City – Osaka – Los Angeles routing.

FAA Teams to Study Runway Safety at 20 Airports Teams of regulators, airline and airport personnel will be deployed to study runway safety at 20 airports in the U.S. with the most runway problems. Recent runway incidents, including the predawn crash of Comair jet on 27 August 2006 in Lexington, KY when the airplane took off from the wrong runway which was too short to commercial flights and all but one of the 50 people on board survived the incident. The FAA has been studying 117 reports submitted over the past decade from pilots and flight crew that reported some confusion while taxiing. The FAA is still compiling the list of airports that will be studied.

Page 17 September 2007

INTERVISTAS NEWS September 2007

InterVISTAS Publishes AVIATION AND TOURISM RESOURCE, 2008 InterVISTAS has published the 144 page, Aviation and Tourism Resource, 2008. This volume is a collection of data, graphs, articles, and other information to assist planners and marketers in the aviation and tourism sectors. Included are glossaries of aviation/tourism/security terms. Fleet plans for major North American carriers are provided. A series of articles profiling key inbound tourism markets, including the rapidly growing China and India outbound markets. A feature essay by Dr. Joe Kelly profiles carbon impacts of air travel, the economic impact of air travel and tourism is discussed. This volume is attractively priced and aggressive quantity discounts are available. The book can be ordered on-line at www.store.intervistas.com, or by contacting Doris Mak at 1-604-717-1800.

John Weatherill Appointed as Regional Vice President, Europe InterVISTAS is pleased to announce that John Weatherill has been appointed as Regional Vice President, Europe, for InterVISTAS-EU, effective 1 October 2007. Since relocating to London last Fall to establish our London office, John has successfully created a market presence for InterVISTAS in Europe. As Regional Vice President, we expect that John will continue to develop new business, manage those and other projects, feed analytical support work to both Vancouver and Washington offices and build the Europe practice.

Nigel Brownlow Appointed as Vice President, Market Research and Analysis InterVISTAS is pleased to announce that Nigel Brownlow has been appointed as Vice President, Market Research and Analysis, as part of the Strategic Planning and Analysis business unit, effective 1 August 2007. He has more than twenty years of airline and aviation experience in financial control, fleet and network planning, marketing, revenue management and distribution systems. Formerly, he has held positions as Product Development Manager with Air Canada, President of Sherpa Decision Systems, and most recently, Vice President of Airline Business Development at InterVISTAS. Nigel will continue to lead the development of InterVISTAS revenue management services.

Page 18 September 2007

INTERVISTAS NEWS – CON’T T

Ian Kincaid Relocates to InterVISTAS’ UK Office InterVISTAS is pleased to announce the expansion in our branch office in Europe, InterVISTAS-EU, with the relocation of Ian Kincaid in late October 2007. He will continue to serve the InterVISTAS Group as Director, Economic Analysis. He is a transportation economist with fifteen years of experience in aviation, marine, rail and urban public transportation. Mr. Kincaid holds a Masters degree in Operations Research from the London School of Economics.

Aline Tabet Joins InterVISTAS’ Vancouver Office InterVISTAS is pleased to announce that Aline Tabet has joined InterVISTAS’ Vancouver office as Senior Analyst for the Consumer Strategy group of the Strategic Planning & Analysis business unit, effective 20 August 2007. She has recently completed her Masters degree in Statistics (with an application in Econometrics) at the University of British Columbia. Prior to earning her Masters, Aline held marketing roles for companies in Québec and BC, where she was also responsible for designing and generating company-wide market research and consumer research. She previously earned a Bachelor of Arts degree in Statistics and Marketing Research from Concordia University in Québec. Ms. Tabet is fluent in English, French, Spanish and Arabic.

Laura Foran Appointed as Project and Graphic Design Assistant InterVISTAS is pleased to announce that Laura Foran has been appointed as Project and Graphic Design Assistant, effective 1 October 2007. Laura takes on a unique and newly created position which covers duties in research assistance, graphic design support and administrative support. Ms. Foran has a degree in Sociology (Dean's honour list) including training in statistics and survey research. She also has experience as a teacher of English as a foreign language (Taiwan, Korea, Saudi Arabia) and has basic knowledge of Mandarin and Spanish.

InterVISTAS Upcoming Speaking Engagements Steve Martin, Senior Vice President, Government Relations and Policy Analysis • Northwest Chapter AAAE annual conference: Kalispell, Montana – 4 October 2007 Mr. Martin will be delivering a presentation titled, “Air Service Development at Small Communities: A Project on Behalf of the US TRB”. Paul Ouimet, Executive Vice President, Business and Strategic Planning • Caribbean Tourism Organization 30th Annual Caribbean Tourism Conference: San Juan, Mexico – 23 October 2007 Mr. Ouimet will be delivering a presentation titled, “Caribbean Air Service – Building for the Future”. Dr. Joe Kelly, Director, Strategic Services • Travel and Tourism Research Association Canada Conference 2007: Charlottetown, PEI – 18-20 October 2007 Mr. Kelly will be delivering a presentation titled, “Consumer Attitudes Toward Carbon Offsetting in Tourism”.

Page 19 September 2007

INTERVISTAS NEWS – CON’T Dr. Mike Tretheway, Executive Vice President and Chief Economist • University of South Australia 2007 Trade Practices Workshop: Adelaide, South Australia – 19/20 October 2007 Dr. Tretheway will be delivering a presentation titled, “What’s Next in Airline Competition Assessment?” • Tourism Industry Association of Canada Annual Conference: Victoria, BC – 6 November 2007 Dr. Tretheway will be delivering a presentation titled, “Air Access Issues and their Importance for Tourism”. • Westac Conference: Maximizing Value in Supply Chains: Vancouver, BC – 14 November 2007 Dr. Tretheway will be delivering a presentation titled, “The Intermodal Terminal Opportunity at Prince George”. • Centre for European Economic Research: Manheim, Germany – 27 November 2007 Dr. Tretheway will be delivering a presentation on competition in transport markets. John Weatherill, Regional Vice-President, InterVISTAS-E.U. • Low Cost Carriers Evolving Business Models Conference: Cologne, Germany – 6/7 November 2007 Mr. Weatherill will be delivering a presentation titled “Adapting Airport Route Development Strategies to Reflect Changing LCC Business Models”. Solomon Wong, Senior Vice President, Security and Planning • 9th Annual Border Regions in Transition: Victoria, BC / Bellingham, WA – 12-15 January 2008 Mr. Wong will be delivering a presentation titled, “Security Gateways and Corridors: Policy Implications for Emerging Gateways”.

InterVISTAS’ Canadian Aviation Intelligence Report is a collection of information gathered from public sources, such as press releases, media articles, etc., information from confidential sources, and items heard on the street. Thus, some of the information is speculative and may not materialise. To inquire about advertising opportunities or to provide comments/feedback on the InterVISTAS’ Canadian Aviation Intelligence Report, please contact Rob Beynon at rob_beynon@InterVISTAS.com or 1-604-717-1864. To subscribe, please send an email to subscribe@InterVISTAS.com To unsubscribe, please send an email to unsubscribe@InterVISTAS.com

Page 20 September 2007