IVC MARKET INTELLIGENCE REPORT
SHIFTING FLEET SIZE AND CARRIER CAPACITY IN CANADA 15 October 2004
Over the last several years, Canadian carriers have adjusted their fleet sizes, resulting in shifts in the shares of seat capacity to/from and within Canada. This column will examine the fleet changes that have been made by Air Canada, WestJet, Jetsgo and CanJet between 2003 and 2004, and use the fleet seats to capacity ratios developed from 2003 data to provide an estimate of 2004 capacity shares.
Operating Fleet Size and Composition. As indicated in Table 1 below, the Air Canada family’s
fleet size is estimated to decrease between 2003 and 2004, while the low cost carriers are estimated to have increased their fleet size collectively by 39% to approximately 89 aircraft by the end of 2004. 1
Eugene Chu Project Analyst
Table 1: Carrier Fleet Size and Composition Number of Aircraft Typical Seat Configuration
2003
2004
Difference (2004-2003)
Air Canada Mainline A340-300 A340-500 A330-300 B747-400 B767-300 B767-200 A321-200 A320-200 A319-100 B737-200 CRJ-100 Air Canada Mainline Total
284 267 282 296 211 198 166 140 120 100 50 2,114
9 0 8 3 30 13 13 52 48 13 25 214
9 2 8 0 30 12 13 52 48 0 25 199
0 2 0 -3 0 -1 0 0 0 -13 0 -15
Air Canada Jazz CRJ-100/200 BAe 146-200 Dash 8-300 Dash 8-100 Air Canada Jazz Total Air Canada Family Total
50 77 50 37 214 2,328
10 10 26 48 94 308
22 3 26 42 93 292
12 -7 0 -6 -1 -16
120 136 256
19 25 44
18 36 54
-1 11 10
WestJet B737-200 B737-700 WestJet Total
It should be noted that Air Canada has purchase agreements with Bombardier and Embraer for up to 90 regional jets (including options), including CRJ-200s, CRJ-705s and ERJ-190s, these aircraft are not included in Table 1). Page 1 InterVISTAS Consulting Inc. Intelligence Report October 2004 ŠInterVISTAS Consulting Inc. 1
SHIFTING FLEET SIZE – CON’T Number of Aircraft Typical Seat Configuration
2003
2004
Difference (2004-2003)
Jetsgo MD-83 Fokker 100 Jetsgo Total
160 108 268
14 0 14
14 11 25
0 11 11
CanJet B737-200 B737-500 CanJet Total LCC Total Grand Total
120 120 240 764 3,092
6 0 6 64 372
7 3 10 89 381
1 3 4 25 9
Source: Air Canada 2003 Annual Report, Air Canada Plan of Arrangement, WestJet, Jetsgo and CanJet.
Share of Seat Capacity to/from and within Canada. Using the ratio of total fleet seats to total seat capacity for each carrier in 2003, 2 it is possible to estimate the total 2004 capacity offered by each carrier. Table 2 summarises the total fleet seats and estimated seat capacity for Air Canada, WestJet, Jetsgo and CanJet in 2004. Based on the estimated 2004 capacity for each carrier, the capacity shares are shown in Table 3.. Table 2: Ratio of Fleet Seats/Capacity in 2003 and Estimated 2004 Capacity Fleet Total Ratio Fleet Seats Seats Capacity (Total Capacity (2004) (2003) (2003) over Fleet Seats) Air Canada Mainline 32,352 33,565,948 1,038 30,500 Air Canada Jazz 4,346 10,107,445 2,326 4,185 Air Canada Family Total 36,698 43,673,393 1,190 34,685 WestJet 5,680 10,048,163 1,769 7,056 Jetsgo 2,240 1,912,650 854 3,428 CanJet 720 1,032,360 1,434 1,200 LCC Total 8,640 12,993,173 1,504 11,684 Grand Total 45,338 56,666,566 1,250 46,369
2004 Total Capacity (estimated) 31,644,455 9,733,009 41,277,771 12,482,366 2,927,038 1,720,600 17,570,860 57,955,181
Source: OAG Max 2003. Fleet information from carrier websites.
Estimated by multiplying the seat configuration for each aircraft by the number of that aircraft type in each carrier’s fleet. Page 2 InterVISTAS Consulting Inc. Intelligence Report October 2004 ©InterVISTAS Consulting Inc. 2
SHIFTING FLEET SIZE – CON’T Table 3: Estimated Share of Seat Capacity to/from and within Canada 2003 Share 2004 Share Difference of Capacity of Capacity (2004-2003) Air Canada Mainline 59.2% 54.6% -4.6% Air Canada Jazz 17.8% 16.8% -1.0% Air Canada Family Total 77.1% 71.2% -5.8% WestJet 17.7% 21.5% 3.8% Jetsgo 3.4% 5.1% 1.7% CanJet 1.8% 3.0% 1.1% LCC Total 22.9% 30.3% 7.4% Grand Total 100.0% 100.0% 0.0%
Observations. Between 2003-2004, it is estimated that the Air Canada family’s share of seat
capacity to/from/within Canada offered by Canadian domicile carriers will decrease by about 5.8% as total fleet size is reduced. The low cost carriers, which include WestJet, Jetsgo and CanJet, are expected to increase their share of seat capacity by 7.4% to approximately 30% of the total in 2004 as new aircraft are added to their fleets. Although the increase in the low cost carriers’ share of seat capacity to and from Canada can be attributed to additional aircraft, the 2003 fleet seats to capacity ratios indicate that on average, each of the low cost carriers’ aircraft also produce more seat capacity than each of Air Canada’s aircraft (although Air Canada Jazz does have a higher fleet seats to capacity ratio than the low cost carriers). In general, the low cost carriers have shorter average stage lengths compared to Air Canada.
Looking Ahead. Air Canada plans to increase the size of its fleet to 325 aircraft by December
2007, with nearly all of this growth coming from the addition of regional jets. Meanwhile WestJet may have up to 94 jets by 2008 (including options), while Jetsgo and CanJet each have aircraft on order that will increase their fleet size to about 32 and 12 aircraft respectively. The shift in the share of seat capacity to and from Canada is expected to continue as these carriers all deploy additional aircraft.
Page 3 October 2004
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AIRLINE COST CUTTING THROUGH TICKET DISTRIBUTION 8 October 2004
Ticket Booking Fees
Angelica Sparolin Research Manager
In their continued effort to lower operating costs, four major U.S. airlines have introduced booking fees for tickets purchased over the phone and at airport ticket counters. On August 24, Northwest Airlines announced the introduction of a service fee of $5 for bookings made over the phone and $10 at airport counters. American Airlines, Continental and US Airways all followed with the same fees. An additional fee that Northwest Airlines attempted to introduce was a $7.50 fee for tickets booked through travel agencies. The fee received a very negative response from travel agents and Sabre sued the carrier for breach of contract over the fee. Directly after implementation of the fee, both Sabre and Galileo reported that Northwest’s share of bookings fell and that the shift had occurred to other airlines rather than to online sales. None of the other carriers followed with a similar fee and Northwest cancelled the fee on September 2. The carriers claim that the new booking fees are necessary in order to bring their ticket distribution costs in line with those of low-cost carriers. American Airlines expects to bring in an estimated $25 million a year from the new fees. The other three carriers expect similar results. To date, no Canadian carriers have implemented similar fees. However, WestJet offers a $3 discount for all tickets booked over the Internet and a number of carriers, including Air Canada, offer some lowerpriced web-only fares.
Low-Cost Ticket Distribution System A further development in airlines’ efforts to reduce ticket distribution costs is the development of a new “low-cost” distribution network by G2 SwitchWorks. The new system, called TRUEconnect, will be aimed at travel agents and will compete with current Global Distribution Systems such as Sabre, Amadeus, Worldspan, etc. G2 SwitchWorks claims that the system will be “at a price point that is a fraction of the cost to distribute via the existing global distribution systems.” To date seven airlines have signed a letter of intent for the development of the new system: United, Delta, Continental, Northwest, US Airways, Alaska and one unnamed carrier. A release date for the system has yet to be announced.
Online Sales – U.S. and Global Update According to a study released in September 2004 by the Travel Industry Association of America, use of the Internet for travel planning has remained steady at close to 64 million Americans. However, the number of Americans booking travel has grown 6% from 2003 to 45 million people. 40% of those booking travel online now use it to purchase all of their travel requirements, up from 29% in 2003. A recent study by Airline Business magazine reported that 37% of total North American ticket sales now occur online. European airlines reported less than half that rate with only 16% sold online; Asian carriers reported 10%. The majority of online bookings occur directly on the airlines’ own websites versus other online channels. World Region North America Europe
Proportion of Tickets Sold Own Airline Website All Online Channels 30% 37% 15% 16%
Asia-Pacific
8%
10%
World Average (Weighted)
15%
21%
Source: “Airline IT Trends Survey 2004”, Airline Business, July 2004. Sample size = 112 airlines. Page 4 October 2004
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AER LINGUS: THE C ONTINUED T RANSFORMATION – PART II In the June Market Intelligence publication, Aer Lingus was highlighted as an airline that has transformed itself as a lower cost carrier. Recently, the airline has announced other initiatives to further its restructuring plans.
The First Phase: The Survival Plan…
Doris Mak Senior Project Manager
As part of the airline’s 2001 Survival Plan, Aer Lingus has cut costs by 30% or €344 million (approximately US$425 million) and has eliminated a third of its workforce (approximately 2,000 jobs). Prior to 2001, the airline was experiencing immense competition from low cost rivals (Ryanair and Easyjet), and as a result was suffering financially. The events of September 11th further propelled the airline into a crisis situation and the airline faced the prospect of bankruptcy. In an effort to survive, Aer Lingus developed a Survival Plan that would transform itself from a full service airline into a low cost competitor – aggressive cost cuts were the key to the air carrier’s Survival Plan. The airline indicated that continued cost monitoring was essential to its competitiveness and survival.
The Next Phase of Restructuring: The Redundancy Plan… In August 2004, Aer Lingus announced its next phase of restructuring – the airline intends to further eliminate 1,300 jobs over a three year time period. The airline put forth its voluntary Redundancy Plan by offering workers a minimum of €40,000 (approximately US$50,000) to a maximum of €70,000 (or US$87,500) in severance. However, the airline’s largest union, SIPTU, which represents over half of the airline’s 4,000 employees, has expressed displeasure over the airline’s latest plan. The union would like to preserve as many jobs as possible, ensure that the working environment for remaining employees is at an acceptable level and also limit the amount of outsourcing of processes by the airline. The airline has given a mid-October deadline for employees to sign up for the Redundancy Plan.
Other Aer Lingus Initiatives… The airline has also announced several plans in an effort to help it position itself as a lower cost airline. •
Availability of Low Fares on Transatlantic Routes. As part of its Survival Plan, Aer Lingus responded to its domestic low cost competition by reducing its fares. In September 2004, Aer Lingus took this initiative one step further by announcing the availability of low fares on transatlantic flights. Aer Lingus reduced its business and economy class fares and also began offering one-way economy fares for transatlantic routes.
•
Removal of Business Class seats. To streamline its domestic Europe services, the airline eliminated the availability of business class seating.
•
Possible Withdrawal from oneworld alliance. Aer Lingus has given preliminary signals that it might withdraw from the oneworld alliance in November 2004. The airline has cited compatibility issues with its low cost operations and other alliance members who operate the full-service model.
The Future… Aer Lingus has recognized that in order to be competitive, it must continue to aggressively cut its costs. Aer Lingus has taken risks with the implementation of a low fare pricing strategy for its transatlantic routes – it is the first low fare carrier to do so. Page 5 October 2004
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AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers September 2004 Passenger Traffic
Air Carrier
OTHER CARRIERS:
Revenue Passenger Kilometres
% Change over 2003
% Change from 2002
Capacity
Load Factor
Available Seat Kilometres
% Change over 2003
% Change from 2002
Change over 2003
Change from 2002
Air Canada 3
+9.5%
-4.1%
+1.5%
-9.8%
+5.8 pts (to 79.2%)
+4.7 pts
LOAD FACTORS
Domestic (Mainline)
+0.5%
-3.4%
-10.3%
-12.2%
+8.6 pts
+7.2 pts
Zip:
not reported
Jazz
+7.9%
+7.0%
-10.8%
-8.4%
+11.5 pts
+9.6 pts
CanJet:
not reported
International & Charter
+14.0%
-4.3%
+7.7%
-8.8%
+4.4 pts
+3.6 pts
WestJet
+32.0%
+76.7%
+26.4%
+83.8%
+3.0 pts (to 71.3%)
-2.9 pts
Jetsgo
+50.9%
+570.8%
+43.5%
+557.9%
+3.1 pts (to 63.9%)
+1.2 pts
Analysis: •
•
•
Continuing an earlier trend, Air Canada continues to reduce domestic capacity. This is a result of Zip being folded into the carrier’s mainline operations, and also reflects Air Canada’s strategy of deploying smaller regional jets on some domestic routes. Both domestic and international traffic increased in September, but are still below 2002 levels. Air Canada continues to post increases in international traffic and capacity in September, which are still below 2002 levels. Trans-pacific traffic increased by 74% year-to-year, reflecting a recovery from the impact of SARS in Asia during 2003. The carrier noted particularly strong traffic from Japan. WestJet’s growth in traffic outpaced the addition of capacity in September 2004, resulting in an improved load factor. This is a reflection of the carrier’s new services to the U.S., and possibly improved performance on Eastern Canadian routes.
Air Canada Domestic Mainline 20% 15% 10% 5% 0% -5% -10% -15%
Jazz data is not included in this graph
Sep- Oct 03
Nov Dec Jan04
Feb
Mar April May Jun
Dom RPK
Dom ASK
Air Canada International International 40% 30% 20% 10% 0% -10% -20%
Sep- Oct Nov 03
Dec Jan- Feb 04
Int'l RPK
Mar April May
Jun
July
Aug
Sep
Int'l ASK
WestJet 60% 50% 40% 30% 20% 10% 0%
Sep03
Oct
Nov Dec
Jan- Feb 04
RPK
3Air
July Aug Sep
Mar
April May Jun July
Aug Sep
ASK
Canada Mainline consists of all Air Canada with the exception of Jazz.
Page 6 October 2004
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AIRLINE DATA – U.S. U.S. Airlines Release September 2004 Traffic Figures Traffic Data – September 2004 Airline
1
1
2
2
Notes:
Load Factor
Traffic ( RPMs – millions)
(ASMs – millions)
73.4 %
9,849
13,417
á 7.1 pts
á 9.4%
â 0.5%
66.0%
535
811
á 5.9pts
á 43.2%
á 30.4%
70.7 %
862
1,220
á 8.5 pts
á 4.0%
â 8.5%
75.2%
5,060
6,729
á 2.9 pts
á 11.0%
á 6.8%
70.5%
8,384
11,900
á 2.7 pts
á 8.6%
á 4.6%
76.6%
1,161
1,516
â 3.6 pts
á 25.0%
á 30.9%
79.2%
5,747
7,261
á 1.8 pts
á 3.4%
á 1.1%
63.2%
3,980
6,297
á 2.8 pts
á 10.5%
á 5.7%
77.5%
9,266
11,957
á 2.6 pts
á 11.1%
á 7.3%
70.7%
2,990
4,231
á 4.0 pts
á 6.7%
á 0.7%
1.
Mainline
2.
Load factor includes scheduled service only
Capacity
Sources: Carrier traffic reports.
Page 7 October 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
+1.4%
+0.3%
-7.0%
+0.4%
+4.1%
+9.8%
+0.5%
-4.8%
-2.2%
St. John’s +22.5%
-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%
-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%
+8.6%
+3.9%
+7.7%
+3.5%
+6.4%
+3.2%
+12.4%
+5.9%
-2.2%
+8.3%
+12.8%
+11.4%
+11.6%
+7.8%
+2.8%
+19.8%
Vancouver
August
-7.6%
September 3rd
Quarter
Quarter
February
+7.9%
+7.9%
+18.0%
+5.3%
+10.7%
+13.9%
+11.7%
+5.6%
2004
March
+8.7%
+5.2%
+16.4%
+2.0%
+8.0%
+11.4%
+11.4%
+9.0%
+8.2%
+2.6%
-2.4%
+3.9%
+21.3%
1st Quarter
+6.1%
+4.8%
14.4%
+3.7%
+8.6%
+9.7%
+9.9%
+6.1%
+10.5%
+ 6.5%
+1.1%
+5.0%
+18.0%
April
+30.1%
+8.6%
+20.8%
+11.3%
+16.9%
+12.7%
-0.3%
+10.9%
+2.6%
+20.1%
May
+30.6%
+20.8%
+23.5%
+5.5%
+7.5%
+7.6%
+9.1%
+19.4%
+8.0%
-1.3%
-0.3%
-5.5%
+15.2%
June
+18.3%
+16.1%
+16.6%
+8.4%
+2.8%
+12.1%
+9.8%
+7.8%
+8.6%
+3.0%
+1.7%
-4.3%
+16.0%
2nd Quarter
+25.9%
+18.8%
+22.8%
+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%
+17.2%
+5.0%
+0.8%
+5.7%
+9.0%
+10.5%
+4.7%
-0.5%
+5.5%
+1.4%
+10.6%
August
+16.1%*
+4.9%
+16.4%
+1.9%
+2.2%
+6.2%
+7.9%
+6.9%*
-2.0%
-5.9%
+5.4%
+1.5%
+10.1%
+20.5%
+29.5%
+11.5%
Sources: Airport passenger statistics *Estimated 2004 totals
Page 8 October 2004
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CANADIAN A IRPORTS
2003
Calgary
-1.2%
MontréalTrudeau +2.0%
Toronto
NEWS ARTICLES AIR CANADA UPDATE FUEL PRICES 8 October 2004 SPOT OIL PRICES CONTINUE TO INCREASE FUTURES PRICES INCREASE Crude Oil Prices: Spot – US $53.31 (up 21% from September) Futures • 6 month - $50.99 (March 2005 delivery) • 12 month - $47.03 (September 2005 delivery) • 2 year - $42.61 (September 2006 delivery) • 5 year - $37.69 (December 2009 delivery)
Ju l Au y g Se ust pte mb er Oc tob er
Ap ril Ma y Jun e
Oc tob er No -03 vem b De er cem Jan ber ua ry-0 4 Fe bru ary Ma rch
US$ per Barrel
Monthly Spot Spot Prices Prices $60.00 $55.00 $50.00 $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00
AIR CANADA EXITS CCAA PROTECTION - EXPECTS CDN$235 MILLION THIRD INCOME
Air Canada has completed its restructuring under the Companies' Creditors Arrangement Act and implemented its Plan of Arrangement. The carrier has reduced its net debt and capitalised operating lease obligations from about CDN$12 billion to roughly CDN$5.0 billion. Air Canada has raised CDN$1.1 billion in new equity capital, and has approximately CDN$1.9 billion in cash as of 30 September 2004. Shares of ACE Aviation Holdings Inc., parent holding company of Air Canada, have started trading on the Toronto Stock Exchange. The corporation expects to record an estimated CDN$235 million of unaudited consolidated operating income (before re-organisation and restructuring items) for the third quarter of 2004. As of 6 October 2004, its market capitalization was $2.0 billion, slightly in excess of WestJet’s $1.7 billion.
AIR CANADA PURCHASES BOMBARDIER AND EMBRAER RJS
Air Canada has signed a purchase agreement with Bombardier for the firm order of 15 CRJ700 aircraft and 15 CRJ200 aircraft. The agreement also includes 15 other CRJ200 aircraft which may be cancelled without penalty, and options for an additional 45 aircraft. Deliveries of the 50-seat CRJ200 are scheduled to start in October 2004, while the 75-seat CRJ700 are scheduled for delivery beginning in May 2005. Both Bombardier models will be operated by Air Canada Jazz.
AIR CANADA INTRODUCES “FLY CITY PASSES”, EXPANDS “LATITUDE PASS”
Air Canada has launched seven “Fly City Passes”, a discount air pass for frequent fliers on domestic and transborder routes. The city passes are available for services from Vancouver, Calgary, Winnipeg, Toronto, Ottawa, Montreal and Halifax. Air Canada has also expanded its “Latitude Pass for the West” discount air pass to include 17 non-stop routes across Western Canada. The pass was first introduced on the VancouverCalgary and Vancouver-Edmonton routes earlier in the spring. The air passes allow passengers to purchase credits for 10 or 20 one-way trips, and use them on any flight operated by Air Canada and Jazz on the specified routes. The pass offers a 30% discount from the Latitude fare and increased booking flexibility.
AIR CANADA COMPLETES FOUR-YEAR DEAL WITH GALILEO INTERNATIONAL
Air Canada has signed a new four-year distribution agreement with Galileo International, a global distribution system. Effective 15 October, Air Canada will give travel agencies connected with Galileo access to all published fares in exchange for lower booking fee rates.
Air Canada has also completed a purchase agreement with Embraer for the firm order of 45 Embraer 190 aircraft, with options for an additional 45. Deliveries of the 93-seat aircraft are scheduled to begin in November 2005. Air Canada will operate the Embraer 190 on domestic and transborder routes. Page 9 October 2004
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NEWS ARTICLES OTHER CANADIAN AIRLINES WESTJET CONVERTS OPTION INTO 737600 FIRM ORDER, ACCELERATES DELIVERY OF THREE B737-600S
WestJet will convert one of its 12 purchase options with Boeing into a firm B737-600 order for delivery in January 2006. The carrier will also accelerate delivery of three B737-600 aircraft by four months, for March, April and May 2006 delivery.
JETSGO DOUBLES SERVICES FROM TORONTO TO QUEBEC CITY AND MONCTON
Beginning 28 October, Jetsgo will add one daily flight between Toronto and Quebec City, for a total of two flights per day. One additional flight will also be added to the carrier’s Toronto-Moncton services beginning 16 December, for a total of two flights daily.
CANJET LAUNCHES WEB CHECK-IN SERVICES
CanJet Airlines has launched web check-in services, applicable to all of its Canadian domestic flights. The service allows customers to check-in online via the CanJet website, print their boarding pass, and proceed directly to airport security.
CANJET TO INCREASE TORONTO-NEW YORK SERVICES Starting 31 October, CanJet Airlines will increase its non-stop service between Toronto and New York LaGuardia from six flights per week to 11 flights weekly.
U.S. AND INTERNATIONAL AIRLINES IATA ESTIMATES US$4.0 BILLION INDUSTRY LOSS
The International Air Transport Association (IATA) is forecasting an industry loss of US$4.0 billion in 2004 due to high oil prices. IATA estimates that every US$1/barrel increase in the price of oil results in an additional US$1.0 billion in cost for the airline industry. The IATA membership includes 277 air carriers worldwide, accounting for over 95% of global scheduled air traffic.
AMERICA WEST IN TALKS TO ACQUIRE ATA
America West Airlines is in discussions with ATA Airlines to acquire all or part of the carrier. Based in Indianapolis, ATA is debt heavy and has a market value of approximately US$31 million. Other carriers, including AirTran Airways have also had preliminary talks with ATA.
CANJET TO DOUBLE SERVICES BETWEEN MONCTON AND TORONTO
Beginning 29 November, CanJet will double its Moncton-Toronto services with the addition of a second daily flight. The carrier first launched Moncton services on 4 July 2002.
CANJET TO LAUNCH ST. JOHN’STORONTO SERVICES
CanJet Airlines will launch non-stop service between St. John’s and Toronto starting 29 November 2004. The service will be operated six days per week on B737-500 aircraft.
Page 10 October 2004
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NEWS ARTICLES U.S. AND INTERNATIONAL AIRLINES – CON’T PROPOSED QANTAS-AIR NEW ZEALAND ALLIANCE APPROVED IN AUSTRALIA, REJECTED IN NEW ZEALAND
The Australian Competition Tribunal has approved the
proposed alliance between Qantas and Air New Zealand. However, the merger was rejected in New Zealand. The two carriers had appealed earlier decisions by the Australian Competition and Consumer Commission and New Zealand Commerce Commission that rejected the alliance. Qantas stated that it will continue to seek ways to work with Air New Zealand, but will not appeal the New Zealand High Court decision. Under the proposal, Qantas would have taken a 22.5% stake in Air New Zealand for about US$375 million.
AIRCRAFT MANUFACTURERS AIRBUS CONSIDERS A350 TO RIVAL BOEING’S 7E7
Airbus is studying the feasibility of a new model, dubbed the A350, to compete against Boeing’s 7E7. The A350 would use technologies already developed for the manufacturer’s A380 aircraft, and have more seats than the 7E7. Boeing’s 240 seat 7E7 is scheduled to be launched in 2008.
Page 11 October 2004
BOMBARDIER TO REDUCE CRJ-200 PRODUCTION
Bombardier will reduce production of the 50-seat CRJ-200 regional jet to align with current delivery schedules. Production of the CRJ-200 will shift from the current three-day cycle to one jet every four days, for about 98 deliveries this Fiscal Year and 68 deliveries in 2005-2006. Bombardier expects to deliver approximately 78 CRJ700s/900s this fiscal year and 77 in 20052006.
AIR NEW ZEALAND TO PURCHASE 17 BOMBARDIER DASH 8S
Air New Zealand plans to purchase 17 Dash 8 Q300 aircraft from Bombardier to replace its current fleet of Saab 340A aircraft. Delivery is scheduled to begin in July 2005, with one aircraft joining the carrier’s fleet every six weeks, completing the delivery in two years.
OTHER NAV CANADA AND FAA PARTNERS TO IMPROVE SATELLITE-BASED AIRPORT APPROACHES NAV CANADA and the U.S. Federal Aviation
Administration (FAA) have reached an agreement to extend the FAA’s wide area augmentation system (WAAS) into Canada, including the construction of four monitoring stations at Gander, Winnipeg, Goose Bay and Iqaluit. The system will improve the GPS (global positioning system) navigational performance of satellite-based approaches in Canada and the northern U.S. The system is scheduled to be implemented by late 2005.
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NEWS ARTICLES CARGO TRAFFIC INCREASE GREATER THAN CAPACITY INCREASE IN AUGUST
International freight tonne kilometres (FTKs) was up 14% in August 2004 compared to August 2003, as reported by the International Air Transport Association (IATA). Available tonne kilometres (ATKs) grew 11% in the same period. The Middle East is showing the most growth with a 24% and 21% increase in FTKs and ATKs respectively.
US CARGO TRAFFIC UP IN AUGUST
According to the Air Transport Association (ATA), total cargo traffic in August 2004 is up 5.6% from August last year. ATA members transported 2 billion revenue ton miles (RTMs) in August. Freight and Express RTMs increased while mail RTMs fell. Mail RTMs currently make up less than 5% of total cargo RTMs.
MARTINAIR CARGO ADDS DALLAS AND TORONTO TO ITS NETWORK
Martinair Cargo will add Dallas and Toronto to its network effective 11 October 2004. Service to the two cities will be twiceweekly from Amsterdam.
NEW CARGO SERVICE FOR BC AND ALBERTA
Local Edmonton carrier, Globemaster Air Cargo, has introduced a scheduled all-cargo service across northern Alberta and BC. Globemaster operates a twin-engine turbo prop Beech 1900 out of Edmonton International Airport to Fort McMurray, Grande Prairie, Fort St. John, Fort Nelson and Calgary.
Page 12 October 2004
TRANSMILE AIR SERVICES TO LAUNCH SERVICE TO LOS ANGELES Malaysia’s Transmile Air Service will launch freighter service 5 times a week between Kuala Lumpur and Los Angeles via Hong Kong.
ARROW, EVERGREEN, GEMINI OBJECT TO POLAR SELECTION FOR CHINA Arrow, Evergreen, and Gemini objected to the U.S. Department of Transportation’s (DOT) decision to award cargo designation to China to Polar. The three cargo carriers have asked the DOT to reconsider their application. Breaking precedence, the DOT did not select a backup carrier for the designation. With Polar’s current bankruptcy status, the three carriers want the DOT to choose a backup in case Polar is unable to launch the service within the specified 90-day time frame.
CATHAY APPLIES FOR CARGO SERVICES TO SHANGHAI
Cathay Pacific has submitted an application to the Hong Kong government for cargo services to Shanghai. Hong Kong and China agreed to increase passenger and cargo services in early September.
SINGAPORE AIRLINES CARGO ADDS NEW FREIGHTER
Singapore Airlines Cargo took delivery of a new B747-400 freighter, bringing its fleet to 14 aircraft.
MASKARGO ORDERS TWO B747-400FS
MASkargo ordered two B747-400Fs for delivery in February and April 2006. The freighters have a list price of US$200 million each.
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NEWS ARTICLES BOEING PREDICTS 6% ANNUAL GROWTH IN AIR CARGO
CARGO – CON’T AMERICAN AIRLINES CARGO, KOREAN AIR CARGO, LUFTHANSA CARGO RAISE FUEL SURCHARGES American Airlines’ Cargo division has increased its fuel surcharge by 2 cents per pound for domestic shipments and 5 cents per kilogram for international shipments. The new surcharges will be 12 cents and 30 cents respectively.
On 16 October 2004, Korea Air and Asiana Airlines will also increase air cargo surcharges up to US$0.30 per kilogram. Lufthansa Cargo will increase its fuel surcharge from US$0.37 to US$0.43 per kilogram on 25 October 2004.
UPS TO ACQUIRE MENLO WORLDWIDE FORWARDING
UPS has agreed to acquire Menlo Worldwide Forwarding for US$150 million. The deal is expected to close by the end of the year. Menlo Worldwide Forwarding, a global freight forwarder, is a subsidiary of CNF. CNF’s other subsidiaries, Menlo Worldwide Logistics, Menlo Worldwide Technologies, Vector SCM and Con-Way Transportation Services are not included in the deal.
Page 13 October 2004
Boeing predicts that the world air cargo traffic will grow 6% annually during the next 20 years. Asian air cargo markets are expected to show the greatest growth. Boeing also predicts that the world freighter fleet will double, growing from approximately 1,800 to 3,500 airplanes.
PEOPLE NORTHWEST AIRLINES NAMES NEW CEO
Northwest Airlines named President Douglas M. Steenland its CEO on 1 October 2004. Steenland will be replacing Richard H. Anderson, who is leaving the company to become the Executive Vice President of UnitedHealth Group. Anderson will remain on the Northwest Board.
SONG PRESIDENT RETIRES
John Selvaggio has retired as President of Delta’s lowcost carrier Song to “pursue other interests.” Selvaggio has been president of the carrier since it was created a year and a half ago.
QANTAS RENEWS CEO CONTRACT
Geoff Dixon’s contract as CEO of Qantas was renewed until 1 July 2007. His existing contract was due to expire in December 2005.
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NEWS ARTICLES PEOPLE – CON’T GLOBAL INSTITUTE OF LOGISTICS NAMES NEW CHAIRMAN Kenneth B. Ackermann has been named Chairman of the Global Institute of Logistics. He succeeds the late Robert Delaney.
GOVERNMENT AND REGULATORY RVSM FOR U.S., CANADA AND MEXICO
A Reduced Vertical Separation Minimum (RVSM) will be introduced in U.S., Canadian, and Mexican airspace. RVSM reduces the vertical separation above flight level so that new flight levels can be added, increasing airspace capacity.
U.S. LAUNCHES CASE AGAINST EU OVER AIRBUS SUBSIDIES
The U.S. filed a case with the World Trade Organization alleging that European government loans helped Airbus surpass Boeing as the world’s largest civil aircraft manufacturer. The U.S. and EU signed a bilateral pact in 1992 which limits government subsidies for Airbus and Boeing. Under the agreement, Airbus is allowed to receive 33% of production costs for new models, including US$3.2 billion for the new A350. The U.S. alleges that Airbus illegally received another US$3.3 billion. The EU launched a counterclaim saying that Boeing received US$23 billion in U.S. subsidies since the 1992 pact, which includes US$3.2 billion in tax breaks to develop the new 7E7.
CANADA ONE STEP CLOSER TO NEW INTERNATIONAL AVIATION AGREEMENTS
Canada introduced new legislation that will bring it closer to the ratification of the Convention on International Interests in Mobile Equipment and the Protocol on Matters Specific to Aircraft Equipment. The agreements, better known as the Cape Town Convention and Protocol, will facilitate the purchasing and leasing of large commercial aircraft.
Page 14 October 2004
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ONLINE CHECK-IN EXPANDS FOR CANADIAN FLIGHTS 12 October 2004
Air Canada and Jetsgo recently announced that web check-in would be available for all flights within Canada. While U.S. carriers have issued boarding passes on the web for several years, these announcements mark the first major deployment of this capability by Canadian air carriers.
Streamlining Passenger Processes, Greater Staff Efficiencies From www.aircanada.com or www.jetsgo.com, passengers can print a boarding pass from an online interface. After verification of flight information and seat selection, much like on self-serve check-in kiosks, the boarding pass is printed from the passenger’s computer.
Solomon Wong Director, Security & Planning
The availability of online check-in varies among air carriers. Air Canada requires passengers checking in online to do so between 1 to 12 hours before flight time. Jetsgo allows for a full 24 hours before flight time, but cuts off online check-in 90 minutes before departures. The airport process for online boarding passes is similar to self-serve check-in. Passengers without luggage can proceed directly to pre-board screening; while those with checked baggage proceed to the bag drop-off that passengers using self-serve check-in kiosks already use.
For air carriers, the web check-in process is an integral part of achieving increased workforce efficiencies. Air Canada’s September 2004 Strategic Review outlined an objective to “increase web use to drive distribution efficiency” for sales and check-in process. In 2003, about 23% of the Canadian domestic market used the web for bookings. For 2006, Air Canada projects use to reach as high as 92%.
Proof of Post-Security Access The dramatic expansion of boarding pass issuance from home computers presents an interesting challenge to pre-board screening officers responsible for validating boarding passes. In the past, boarding passes printed from special air carrier paper stock were used to authenticate the presence of an individual before entering restricted areas. Now boarding passes can be printed from a large variety of computers and printing technologies. The output from desktop printers can have highly variable ink and colour capabilities, as well as different paper stock. CATSA screening officers are being asked to make a split second decision in order to validate the authenticity of a boarding pass. Page 15 October 2004
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ONLINE CHECK-IN EXPANDS FOR CANADIAN FLIGHTS – CON’T Further compounding this problem is the relative ease of being able to modify the information that appears on the boarding pass with readily accessible graphic editors such as PhotoShop or CorelDRAW.
The Future of Boarding Passes These challenges highlight some questions about the future use of hardcopy boarding passes. To further streamline the passenger process, a review of the industry standard of boarding passes is needed together with security organizations such as CATSA and the TSA. For transportation security agencies, boarding passes are limited in usefulness because they: • can be easily manipulated and reproduced; • are not tied to the identity of the individual; and • do not really provide proof of travel. Furthermore, for air carriers and security agencies alike, hardcopy boarding passes are ill-suited to serve as a platform for a future paperless environment.
Integration with Registered Traveller Concepts? One of the concepts that is being actively evaluated in the U.S. is removing boarding passes in their entirety. The TSA Registered Traveller pilot, launched in 2004, will continue to be developed through 2005 to allow frequent travellers to be authenticated with biometrics at pre-board screening.
Pre-board Screening: Entrance to TSA Registered Traveller Pilot Project While this program is currently being maintained for select travellers, there continues to be evaluation of whether to integrate this program into a broader “Secure Flight” initiative. This would then enable 100% of passengers to be authenticated to airline databases for flights taking place during the day. This electronic check would then allow for conventional airline check-in processes to be replaced by a transaction at pre-board screening. Similar concepts have not been advanced in Canada to date, and would likely require considerable protections for privacy and data sharing to be in place before any proposals can be formulated. Should an integrated approach be realized between air carriers and transportation security agencies, considerable benefits will be gained by passengers in terms of eliminating one of the steps in the airport departures process. Page 16 October 2004
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THE OTTAWA REPORT 14 October 2004
The Speech from the Throne The Speech from the Throne, made by the Governor General on 5 October 2004, officially opens every new session of Parliament and sets out goals and directions of the government. The Speech from the Throne re-emphasises the agenda laid out by the Liberal party during the spring election campaign. Canada’s five-point economic strategy Economic policy was one of the main focus points of the Speech from the Throne. The government will follow a five-point strategy to create a competitive Canadian economy: • The first initiative will be investing in people through educational and employment programs. •
The second element deals with improving Canada’s ability to generate new ideas.
Sam Barone
•
The third element aims to make it easier for businesses to do business in Canada.
Regional Vice President Ottawa, ON
•
The fourth strategy involves regional and sectoral development. This includes support of aerospace and other manufacturing sectors.
•
The final strategy is to promote trade and investment focussing on North America and emerging markets.
Canada – U.S. Relations The Canadian government is committed to strengthening its relationship with the U.S. for both economic and security reasons. Canada is planning to build on the Smart Borders program to develop a more sophisticated relationship with business and government officials in the U.S. Transportation Regarding Transportation, the Speech from the Throne did not mention any specific initiatives relating to airlines, airports, ports, passenger rail, or highways.
Open Skies with the U.S. Now that Air Canada has exited bankruptcy protection, the Minister of Transport has indicated that he is interested in liberalizing aviation policies with the U.S. The Transport department will be producing an outline of “Open Skies” with the U.S. that will be presented to cabinet later this month. Minister Lapierre also suggested that the Transport Committee study the possibility of “Open Skies” for both passenger and cargo traffic although nothing has been confirmed. The U.S. and Canada signed a previous “Open Skies” agreement in 1995, allowing Canadian and American airlines to fly transborder routes between any pair of cities between the two countries.
Canada and Vietnam Sign Transport Agreement Canada and Vietnam signed its first air transport agreement for scheduled air services between the two countries on 28 September 2004. The agreement includes code-sharing services to and from Canada and Vietnam. Air Canada plans to begin codeshare services from Vancouver and Toronto to Ho Chi Minh City, with a stopover in Hong Kong.
Page 17 October 2004
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WASHINGTON REPORT 13 October 2004
Registered Traveller Program in Full Swing The latest and last test of the Registered Traveller Pilot program is in place at Washington Reagan National Airport with American Airlines' frequent fliers. The pilot at DCA, like the first four that began in July and August, will last 90 days and is testing biometric technologies in airport screening processes. Under the program, approved travellers use a designated checkpoint lane that reduces extensive secondary screening. Other test airports are Minneapolis-St. Paul, Los Angeles, Houston Bush Intercontinental, and Boston Logan. The TSA has spent $10 million on the project this year and has budgeted $15 million for the fiscal year starting 1 Oct 2004. About 2,000 passengers are participating at each test airport.
U.S. Airlines Sued for Negligence in 9/11 Attacks Charles Chambers Regional Vice President InterVISTAS Consulting Inc. AND Senior Vice President InterVISTAS-ga 2 Consulting Inc. Washington, D.C.
Just before the statute of limitations deadline, a suit has been filed against American, United and other airlines by insurers for some of the World Trade Center buildings, alleging the airlines’ negligence in security allowed the hijackings of 9/11 to occur. The suit is seeking over US$300 million from American and United each and various other amounts from defendant claims for property damage and other losses linked to World Trade Center buildings 1, 2, 4 and 5 and nearby structures. The suit is expected to be merged with a pending master case against airlines, airport security firms, and the World Trade Center owners by people or representatives of people who were injured, killed or experienced loss due to the 9/11 attacks.
U.S. Regionals Top Domestic Performers in Second Quarter According to a DOT report, during the second quarter of 2004 the seven largest regional airlines showed the largest domestic operating margins of any selected carrier group. The seven largest regional carriers in the U.S. had a 9% operating profit margin compared to 7.2% for the seven largest low-cost carriers and -2.8% for the seven largest network carriers. The DOT also reported that all U.S. airlines carried 308 million domestic passengers during the first half of 2004, compared to 284 million in the first half of 2003. The seven largest regional carriers also had the highest unit revenues at 14.9 cents per available seat mile (ASM) and the highest unit costs at 13.5 cents per ASM.
FAA Funds Cabin Air Quality Research The Federal Aviation Administration (FAA) is making US$2 million available for the creation of the “Air Transportation Center of Excellence for Airliner Cabin Environment Research.” A consortium of universities, headed by Auburn, will conduct research on the quality of aircraft cabin air quality and an assessment of biological and chemical threats in airliners. $1 million will be made available in the first year and $500,000 in both the second and third years, with matching funds from the private sector.
Page 18 October 2004
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CARGO CAPERS 15 October 2004
Air cargo aircraft developments. There are three air cargo developments that I’d like to focus on this month: the A380, the AN-124, and the IL-76. The A380. Everyone is talking about the tremendous cargo capacity of the A380. Indeed, the freighter version’s payload of 150 tonnes is unsurpassed except by some variants of the AN-124 (and the one and only copy of the AN-225). The lower deck capacity of the passenger variants of the A380 also seems impressive – 36 to 38 LD3s or 12 to 13 pallets.
Robert Andriulaitis Director, Transportation & Logistics Studies
MergeGlobal, however, has been doing some playing with their aircraft models and shared the results with us. They speculate that after loading 440 passengers and their luggage, we might be looking at only 8 tonnes of capacity available for freight. This is a downright miserly number that suggests widespread use of the passenger version of the A380 instead of aircraft such as the 747-400, 777 or 7E7 will actually increase the need for dedicated freighters. This of course bodes well for Canadian airports serving as gateways to the NAFTA marketplace, so the A380 might actually wind up benefiting Canadian airports that it never visits! The AN-124. The AN-124 is a common visitor to some Canadian airports, particularly airports such as Gander and Winnipeg that play a role as technical stops for these range-limited aircraft. The use of these aircraft has been growing steadily, to the point where the main operators have been looking at ways of increasing the numbers of AN-124s. A few models have been produced recently, but these were built from spare parts. Of the 56 built, 23 are in the hands of commercial operators; the rest belong to the military. Volga Dnepr and Polet, two of the main commercial AN-124 operators, recently came to terms with the Russian military and the Ministries of Transportation and Industry on a plan to produce the first new AN-124 airframes in a decade. The plan calls for up to 80 new aircraft, with the first to be completed by 2008, and two or three per year for the next decade or more. More of these behemoths in the air bode well for Canadian tech stops centrally located between the Americas and Asia/Europe. The IL-76. The Stage 2 IL-76 had long been a critical air cargo workhorse in Russia and Eastern Europe. But with the recent expansion of the European Union, the Stage 3 noise restrictions now encompass former IL-76 bases such as Brno, driving the IL-76 out of Europe. With the exception of Gander, the IL-76 had already been banned from North American airports, although airports continued to receive occasional visits by special exemptions, generally for military and humanitarian purposes. Volga Dnepr, however, is moving ahead with a program to re-engine the IL-76 and upgrade the avionics to make it comply with western requirements. The IL-76 may be an admirable cargo workhorse in many ways, but range is not one of them. Tech stops are critical for these aircraft, promising future business for Canadian airports.
Page 19 October 2004
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INTERCONTINENTAL LCCS? 8 October 2004
For and Against. I have been asked as to whether low cost carriers will fly intercontinental services. Those who believe LCCs will fly across the oceans claim that a) as they run out of market opportunities in domestic markets, LCCs will seek growth in intercontinental markets, b) the same cost advantage they have at home will continue in intercontinental service, c) People Express and Laker both flew intercontinental services in the 1980s, and d) ATA already flies intercontinental charters.
Mike Tretheway Vice President & Chief Economist
In the other corner, are those who say a) the LCCs have years of opportunities in domestic and transborder markets; b) the LCC cost advantages from rapid turns and no-frills are of minor importance on intercontinental services where the aircraft would turn once (at best) and where passengers are unlikely to be content with only pretzels; c) People Express and Laker tried it and failed, and d) ATA started out as an intercontinental carrier and only later become a domestic LCC (and in any event is currently financially challenged). Aircraft. Some argue that the single aircraft type is essential to the LCC model, and that they will not embrace another aircraft type. There are some interesting fact to consider here, however. First, JetBlue has already embraced operating two aircraft types: the A320 and the ERJ-190. Second, the A320 has a 2600 nautical mile range, just a bit short of Boston-Dublin. However, the A319LR can do 3700 nm. A belly tank option for the A319/321 can extend range, although at the cost of cargo and/or 737-700 passenger lift. The 737-700 could do a market such as Boston-Berlin, as shown in Boeing’s diagram at right. An even more interesting long term option is the Boeing 7E7. This aircraft (7E7-8) is expected to have a slightly smaller seat capacity than the 757/767 (217 seats) and a range of 8500 nm. Another version being offered for sale, the 7E7-3, has 289 seats and a range of 3500nm. Operating costs per seat may be up to 25% below the 767. While the production run is sold out to 2010, this may be a long term growth aircraft for the LCC industry. The verdict? One knowledgeable colleague told me that “United is unlikely to face competition from Southwest on the Atlantic anytime soon.” Another said that “I do think we will see some type of intercontinental LCC activity within five years.” I think the court will have a split decision on this for some time to come. It does not seem to be an imminent development, but at least one LCC may attempt the model in the medium term. 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 Airport. Prepared by InterVISTAS Consulting Inc. Page 20 October 2004
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