CAIR Issue No. 45 - October 2006 by Leah Dupuis

CANADIAN AVIATION INDUSTRY REVIEW

In this issue… Features Columns: • U.S. Travel to Canada (p.1) • EU and US Reach a New Deal on Airline Passenger Data (p.2) • Air Canada’s International Seat Capacity Fall/Winter 2006/2007 (p.3) • Harmonizing the Skies (p.14)

Regular Reports: • Canadian Airline Data (p.7) • U.S. Airline Data (p.8) • Canadian Airport Data (p.9) • Industry News (p.10) • The Ottawa Report (p.16) • The Washington Report (p.17) • InterVISTAS News (p.18)

U.S. TRAVEL TO CANADA – WHERE HAVE THE AMERICANS GONE? October 2006

The U.S. is one of the largest outbound travel markets in the world, and the largest source of visitors to Canada. This column examines the pattern of U.S. outbound travel over the last decade, and Canada’s relative performance in terms of U.S. visitor arrivals.

Growth of U.S. Outbound Travel. Between 1995-2005, the total volume of overnight U.S. outbound travellers (all modes) increased by nearly 24%, reaching a peak of 63.5 million in 2005. Although most of this growth occurred prior to 2000, it is evident that the U.S. outbound travel market has recovered from the negative affects of September 11 in 2001 and SARS in 2003. Eugene Chu Senior Analyst

Slow Growth in Travel to Canada, Increase in Overseas Travel. Over the last 10 years, the average annual growth of U.S. visitor travel to Canada has lagged behind that of U.S. travel to overseas destinations. As a result of this, Canda’s share of the U.S. outbound market has declined. This is significant as a 1% difference in U.S. travel represents roughly US$650 million in potential tourism receipts for Canada. Outbound Visitor Travel from the U.S. Destination

1995-2005 Average Annual Growth

1995 Share

2005 Share

2005 Visitors (millions)

Canada

1.2%

25%

23%

14.4

Mexico

0.8%

38%

32%

20.3

Overseas

4.4%

37%

45%

28.8

Total

2.2%

100%

63.5

Source: U.S. Office of Travel and Tourism Industries (OTTI). Notes: Travel to Canada and Mexico includes all modes. Travel to Overseas destinations includes air only.

Shift in Travel Mode. Data from Statistics Canada (19952004) shows that during this time, U.S. travel to Canada by automobile increased by 1.1%, while U.S. travel to Canada by air increased by 4.2%. Between 1995-2004, the share of U.S. arrivals to Canada by aircraft has increased from 21% to 26% of total U.S. visitors. Future Growth Prospects. The UNWTO forecasts the total number of U.S. outbound travellers to grow at an average annual rate of 2.7% per year between 1995-2020, reaching 123 million by 2020.

Page 1 October 2006

EU AND US REACH A NEW DEAL ON AIRLINE PASSENGER DATA October 2006

In early October, the US and European Union (EU) reached a new agreement on the handling of data collected on airline passengers. An earlier deal was struck down by the European Court of Justice, requiring the resumption of transatlantic talks.

Background

Christian Hansen Manager, Security & Trade Policy

In May of 2004, the US and EU reached an agreement on the transfer of airline passenger data after long and difficult negotiations. The US insisted on the collection of a wide variety of data that some European stakeholders considered sensitive. For their part, the EU was concerned that any deal allowing for data sharing should be compliant with the European Commission’s Data Protection Directive (widely seen as the strongest privacy regime in the world). Despite their disparate views, the parties were eventually able to hammer out a compromise. Some in the European Parliament remained opposed to the deal, however, and took the Commission to the European Court of Justice. The Court decided in May of this year that the Commission did not have the appropriate legal basis to sign the agreement with the US, and ordered the negotiation of a new agreement. This decision has the potential to undermine the deal Canada struck with the EU on passenger data, which was similar to the EU-US agreement.

What’s New? The US and EU struggled to meet the Court’s September 2006 deadline for a new deal. On October 5 the parties agreed on a new text, which will be valid until July of next year. The new deal differs from the old one in that US authorities will now have to request (“pull”) data from European based carriers rather than simply receiving it as a matter of course (having the data “pushed”). The deal also gives U.S. Customs and Border Protection the ability to share data with other federal agencies on a case by case basis related to terrorist and related offenses (i.e., should there be a specific threat perceived for U.K.-U.S. flights, then passenger data on flights within that market could be shared with the Federal Bureau of Investigation). Besides these changes in practice, much of the deal is the same as agreed in 2004, with the exception that a new “legal basis” has been found to allow the EU to satisfy its own privacy rules. It’s important to recognise that the EU and US no longer disagree about the collection of airline passenger data. Rather, they disagree on how the data should be collected, stored and manipulated. The European Commissioner for Justice and Home Affairs (Franco Frattini) is on record as a supporter of an EU system for airline passenger data collection. With the EU developing its own system for airline passenger data collection, it is reasonable to expect that the long term trend will be toward multilateral efforts to adopt an international system of data collection. The European Commission is openly advocating such a system, while the US seems to prefer a network of bilateral arrangements.

So, what does all this mean? For airlines and airports, the signing of this new US-EU deal is good news in that it eliminates uncertainty, at least in the short term. For an unacceptable period of close to a week, European based carriers faced US fines if they did not share passenger data, and sanctions in Europe if they did. As this new deal expires in just ten months, negotiators will have to be back at the table working on a new arrangement in the very near future. Hopefully this next deal will provide clarity for the industry and settle this long running dispute once and for all. Page 2 October 2006

AIR CANADA’S INTERNATIONAL SEAT CAPACITY FALL/WINTER 2006/2007 October 2006

When Air Canada emerged from bankruptcy protection over two years ago, it stated that it would place a stronger focus on international services. However, while total international capacity has grown this year, it continues to grow at rates below other sectors, and currently represents a smaller share of total seat capacity than in previous years.

Air Canada’s Total Seat Capacity Angelica Sparolin Senior Research Specialist Economic & Transportation

Air Canada’s total fall/winter seat capacity has been steadily increasing over the past few years, and currently stands at 9.2 million seats for the three months ending January 2007. This is up from 8.2 million seats during the same period in 2006 and up from 7.6 million seats from the same period in 2005. The largest growth is observed for the domestic sector, up close to 750,000 seats (+12%) for the three month period, compared to 2006. Transborder seats are up over 200,000 seats (+15%), while international seats are up by only 30,000 seats (+4%). Individual overseas markets which have experienced growth versus the same three month period in the previous year period include: Mexico City, London, Frankfurt, Tokyo and Nassau (Bahamas). Overseas markets which experienced declines in the period include: Sao Paulo, Barbados, Rome, Santo Domingo (Dominican Republic) and Israel. Table 1: Air Canada’s Total Seat Capacity (Non-Stop Departures from Canada) Volume of Total Seat Capacity Change 2007 vs 2006 Three Month Period

Three Months Ending January 2007

Three Months Ending January 2006

Three Months Ending January 2005

Three Months Ending January 2004

Canada

6,724,319

5,980,853

5,470,712

5,917,510

+ 743,466

USA (incl. Hawaii)

1,601,020

1,389,756

1,351,427

1,521,065

+211,264

Asia

192,956

185,987

200,071

185,264

+ 6,969

Europe

372,904

361,398

320,712

352,644

+11,506

Latin America

286,247

273,788

251,340

236,648

+ 12,459

11,236

12,720

12,508

13,992

-1,484

863,343

833,893

784,631

788,548

+29,450

9,188,682

8,204,502

7,606,770

8227,123

+ 984,180

Destination

Middle East International Overseas Grand Total

Source: OAG Max. Notes: Includes Air Canada mainline and Jazz.

Page 3 October 2006

AIR CANADA’S INTERNATIONAL SEAT CAPACITY FALL/WINTER 2006/2007 – CON’T Figure 1: Air Canada Capacity by Market (Three Months Ending January 2007)

International Overseas Seat Capacity Share For the past three years, Air Canada’s international overseas seat capacity had held constant at approximately 10% of total seats for the three month period ended January 31st. However, for this period in 2007, total international capacity is down slightly to 9% of total seats. The capacity shares of individual regions (Asia, Europe, Latin America and Middle East) have each declined slightly; however, the only region which experienced a decrease in absolute seat capacity is the Middle East, down 12% from last year.

Latin America 3.1% Europe 4.1%

Asia 2.1%

Middle East 0.1% Canada 73.2%

United States 17.4%

Table 2: Air Canada’s Seat Capacity Share (Non-Stop Departures from Canada) Share of Total Seat Capacity Three Months Ending January 2007

Three Months Ending January 2006

Three Months Ending January 2005

Three Months Ending January 2004

Canada

73.2%

72.9%

71.9%

USA (incl. Hawaii)

17.4%

16.9%

17.8%

18.5%

Asia

2.1%

2.3%

2.6%

2.3%

Europe

4.1%

4.4%

4.2%

4.3%

Latin America

3.1%

3.3%

2.9%

Middle East

0.1%

0.2%

9.4%

10.2%

10.3%

9.7%

100.0%

Destination

International Overseas Grand Total

Source: OAG Max. Notes: Includes Air Canada mainline and Jazz.

Page 4 October 2006

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continued...

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AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers September 2006 Passenger Traffic

Air Carrier

Capacity

Revenue Passenger Kilometres

% Change over 2005

% Change from 2004

Change over 2005

Change from 2004

+8.3%

+0.5%

+7.8%

-0.7% (to 79.7%)

+0.5% (from 79.2% )

-4.3%

-0.4%

-3.0%

-1.1%

-1.2%

+0.5%

Jazz

+45.5%

+145.3%

+40.0%

+126.6%

+2.6pts

+5.4pts

International & Charter

+1.2%

+12.2%

+1.9%

+11.7%

-0.6%

+0.4%

+24.5%

+46.3%

+17.2%

+38.7%

+4.3pts (to 75.2%)

+3.9pts (from 71.3%)

OTHER CARRIERS: LOAD FACTORS

Air Canada

-0.4%

CanJet: not reported

Domestic (Mainline)

WestJet

% Change from 2004

Air Canada Domestic Mainline

Analysis:

Load Factor

Available Seat Kilometres

Air Canada Mainline’s domestic traffic and capacity continued to slide during the month of September, down 4.3% and 3.0% respectively. With Air Canada Mainline continuing to transfer capacity to Jazz, Jazz experienced a capacity expansion of 40% for the month of September.

10%

Jazz data is not included in this graph

5% 0% -5% -10%

Jul- Aug Sep Oct Nov Dec Jan- Feb Mar Apr May Jun July Aug Sept 05 06

Dom RPK

Dom ASK

Air Canada International 15%

During the month of September, Air Canada’s international and charter service traffic rose 1.2%. Due to strong U.S and Latin America capacity growth, Air Canada’s international capacity rose 1.9% - leading to an overall decline in load factor of 0.6 points in September. WestJet continues strong passenger growth in September with an 18% expansion in traffic. As a result, WestJet managed to increase load factor by 4.3 points, despite capacity growth of 17.2% over 2005.

10% 5% 0% -5% Jul- Aug Sep Oct Nov Dec Jan- Feb Mar Apr May Jun July Aug Sept 05 06

Int'l RPK

Int'l ASK

WestJet 35% 30% 25% 20% 15% 10% 5% 0% Jul- Aug Sep Oct Nov Dec Jan- Feb Mar Apr May Jun July Aug Sept 05 06

RPK

Page 7 October 2006

ASK

AIRLINE DATA – U.S. U.S. Airlines Release September 2006 Traffic Figures Traffic Data - September 2006 Airline

Traffic (RPMs – millions)

(ASMs – millions)

1,643

2,264

72.6%

Ç8.2%

Ç15.8%

È5.1 pts

697

1,000

69.7%

Ç3.1%

Ç2.4%

Ç0.5 pts

5,196

7,732

67.2%

Ç9.8%

Ç10.1%

È0.2 pts

6,904

8,834

78.2%

Ç11.5%

Ç9.9%

Ç1.2 pts

9,252

11,637

79.5%

Ç1.3 %

Ç2.3%

È0.7 pts

10,595

14,029

75.5%

È1.4%

È0.5%

È0.5 pts

9,077

12,170

74.6%

È3.4%

È5.4%

Ç1.5 pts

6,169

7,584

81.3%

È5.5%

È7.1%

Ç1.3 pts

4,763

6,595

72.2%

È4.8%

È4.2%

È0.5 pts

297

399

74.5%

È37.6%

È40.6%

Ç3.6 pts

Notes:

Capacity

Load Factor

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

Source: Carrier traffic reports.

Page 8 October 2006

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

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

+2.7%

MontréalTrudeau +1.5%

+12.7%

+8.8%

+4.4%

+4.6%

-6.4%

+5.2%

+26.4%

+10.3%

+2.4%

St. John’s +8.9%

+4.5%

+2.6%

+7.4%

+7.9%

+13.5%

+7.1%

+6.6%

+0.3%

+2.9%

+16.1%

+12.9%

+13.9%

+8.9%

+2.2%

+2.9%

+4.1%

+10.7%

+11.2%

+5.4%

+5.1%

-5.6%

+3.1%

+19.6%

+9.3%

+8.8%

+8.0%

Toronto

Vancouver

August

-1.1%

September 3rd

Quarter

2005

October

-0.1%

+4.3%

+3.7%

+7.1%

+16.7%

-0.7%

+6.4%

-0.7%

+3.1%

+16.1%

+11.8%

+12.8%

-0.9%

November

+0.6%

+5.2%

+4.1%

+12.1%

+10.7%

-2.5%

+6.2%

+3.0%

+8.5%

+24.0%

+18.0%

+15.6%

+5.0%

December

-0.6%

+0.5%

+4.3%

+10.3%

+4.9%

-3.5%

+5.4%

+5.6%

+3.8%

+19.1%

+12.2%

+9.5%

+7.9%

4th Quarter

+0.0%

+3.2%

+4.0%

+9.8%

+10.4%

-2.2%

+6.0%

+2.4%

+4.9%

+19.6%

+13.9%

+12.5%

+3.6%

Full Year

+4.6%

+4.4%

+5.4%

+10.6%

+10.5%

+3.6%

+6.5%

-0.4%

+5.5%

+19.3%

+12.3%

+10.6%

+8.2%

January

+1.1%

-1.7%

+1.4%

+9.1%

+10.7%

+1.0%

+2.8%

+5.4%

+6.2%

+20.3%

+10.1%

+4.4%

+9.7%

February

-0.5%

+1.5%

+2.1%

+8.7%

+10.5%

+0.2%

-0.6%

+1.2%

+1.4%

+11.0%

+3.0%

-2.8%

+7.0%

March

+3.1%

+3.5%

+6.6%

+9.0%

+13.6%

+3.9%

+2.0%

+4.8%

-3.5%

+15.4%

+0.1%

-3.8%

-7.8%

Quarter

+1.3%

+3.6%

+8.7%

+11.8%

+1.8%

+1.4%

+3.8%

+0.9%

+15.5%

+4.4%

-0.8%

+2.0%

April

+1.2%

+4.3%

+6.2%

+19.5%

+20.4%

+3.8%

+0.7%

+6.1%

+4.2%

+17.9%

+9.5%

+13.9%

+13.1%

May

+4.8%

+3.2%

+7.6%

+16.3%

+20.3%

+0.3%

+6.4%

+8.4%

+10.3%

+13.2%

+7.7%

+23.3%

+15.2%

1st 2006

June

+2.8%

+2.7%

+4.5%

+9.7%

+12.9%

+1.8%

+4.1%

+0.7%

+8.6%

+13.4%

+5.3%

+12.5%

+3.7%

2nd Quarter

+4.5%

+3.3%

+6.3%

+14.6%

+17.8%

+1.9%

+3.8%

+5.2%

+7.8%

+14.7%

+7.4%

+16.3%

+10.3%

July

+2.2%

+4.8%

+2.2%

+7.0%

+13.8%

-2.1%

+4.9%

+8.5%

+7.4%

+14.4%

+5.9%

+7.1%

+13.2%

August

+6.8%

+3.9%

+3.4%

+10.0%

+19.0%

+2.2%

+8.5%

+7.1%

+11.3%

+12.2%

+5.8%

+15.9%

+11.5%

Source: Transport Canada and individual airports’ traffic reports.

Page 9 October 2006

NEWS ARTICLES AIR CANADA UPDATE AIR CANADA LAUNCHES ‘LONDON PLUS’ MULTI-TRIP PASSES

On 11 October 2006, Air Canada launched the ‘London Plus’ multi-trip passes. The passes, priced starting at $5,398 from Eastern Canada and $6,098 from Western Canada, including all airport fees, taxes and surcharges, are valid for 6 prepaid one-way trips with a one-year usage period. The pass allows travellers to fly between Canada and London Heathrow. The pass can be purchased via Air Canada’s web site or through travel agents.

AIR CANADA REPLACES RESERVATION SYSTEM

Air Canada has signed an agreement with ITA software to replace its current RES III reservations system. The new system will include reservations, inventory control and seat availability, check-in and airport operations modules. The new system will be in operation by the end of 2007 and it will continue to support Air Canada’s participation in the Star Alliance.

AIR CANADA TAKES OVER ZOOM’S MAINTENANCE PROGRAM

Air Canada Technical Services has signed a five-year deal with Zoom Airlines to maintain Zoom’s four Boeing 767-300s and to manage Zoom’s total maintenance program including fleet reliability, engine trend monitoring and air regulatory compliance issues.

TRANSPORT MINISTER CANNON DESIGNATES AIR CANADA TO FLY TO ALGERIA On 22 September 2006, the Federal Minister of Transport, Infrastructure and Communities announced the designation of Air Canada as a scheduled international carrier for Algeria. This will be the first scheduled air service between the two countries by a Canadian air carrier. Air Canada intends to offer code-share services with Lufthansa to Algeria. Page 10 October 2006

AIR CANADA PILOTS FAIL TO STOP ACE PAY OUT

Air Canada’s pilots have asked the court to block ACE Aviation Holdings Inc., parent company of Air Canada, from paying out up to C$2 billion of distribution to shareholders. The pilots, who became creditors of Air Canada due to outstanding pension obligations, claim that the distribution could risk their pension funds. The Quebec Superior Court has ruled in favour of ACE. ACE expects the initial distribution to shareholders to be completed by the end of 2006.

AIR CANADA LAUNCHES NON-STOP SEASONAL FLIGHTS BETWEEN MONTREAL AND ROME Air Canada will launch daily non-stop seasonal service between Montreal and Rome beginning on 1 June, 2007 until 30 September, 2007. The service will be operated using 207-seat Boeing 767-200ERs.

AEROPLAN LAUNCHES FLEXIBLE CLASSICPLUS REWARD SEATS On 16 October, Aeroplan introduced ClassicPlus Flight Rewards which allows its members to gain unrestricted access to any unsold seats across the Air Canada and Air Canada Jazz networks in both Economy and Executive Class.

AEROPLAN’S NEW MILEAGE EXPIRY POLICY ANGERS MEMBERS

Aeroplan members who have not accumulated or redeemed any Aeroplan Miles in the 12 months prior to 1 July 2007 will risk losing all of their accumulated Aeroplan Miles. Also, effective 1 January 2007, all accumulated Aeroplan Miles must be redeemed in seven years following the accumulation date. Aeroplan Miles accumulated prior to 1 January 2007 are “date stamped” as 31 December 2006 and will expire on 31 December 2013.

NEWS ARTICLES WESTJET UPDATE

CARGO NEWS

WESTJET INTRODUCES NON-STOP FLIGHTS BETWEEN EDMONTON AND COMOX THREE TIMES WEEKLY

EMIRATES ORDERS TEN 747-8 FREIGHTERS

WestJet will launch non-stop service between Edmonton and Comox three times weekly. The service will begin on 4 December. The service will be operated using Boeing 737 aircraft.

WESTJET LAUNCHES ONCE WEEKLY NON-STOP HALIFAX-ORLANDO FLIGHTS

WestJet has announced the introduction of nonstop services between Halifax and Orlando. The new once weekly service will begin on 14 February. This is WestJet’s eleventh transborder city.

OTHER CANADIAN AIRLINE NEWS PORTER GETS OPERATOR CERTIFICATE

Porter Airlines has received its air operator certificate from the Canadian Transportation Agency to operate domestic and non-scheduled international services using medium size aircraft. The airline has ordered ten Bombardier Q400s and four of the aircraft will be used to operate air services to/from the Toronto City Centre Airport.

CANJET TO FLY CHARTERS

Although CanJet Airlines has discontinued all its scheduled operations since 10 September, the carrier will focus instead on offering charter air services this fall and winter from various Canadian cities to Cuba, Mexico, the Dominican Republic, the Bahamas and Jamaica.

Page 11 October 2006

Emirates announced that it has ordered ten Boeing 747-8Fs and has secured purchase rights for ten similar aircraft. The new order is valued at approximately $2.8 billion and the carrier is to receive the first delivery in 2010. Together with the ten 747-8F that Emirates ordered at the Farnborough Air Show, the total value of the twenty aircraft is approximately $5.6 billion.

FEDEX OPENS FACILITY IN WINNIPEG

On 27 September, the mayor Sam Katz announced that FedEx will construct a new package handling and shipping facility at Winnipeg. The facility will cost approximately $5 million and it will be FedEx’s second facility in Winnipeg. Construction for the 3,000 square metre facility is expected to start immediately and to be opened in July 2007. Federal Express currently has a 3,250 square metre facility at the Winnipeg International Airport.

FEDEX REPLACES 727 FLEET WITH MORE EFFICIENT 757-200S

FedEx announced that it will invest $2.6 billion to replace its fleet of 727-200 freighters with 757-200s. Relative to the 727 aircraft, the 757 has approximately 20% more payload capacity but 25% less in operation cost per pound. FedEx plans to acquire or modify up to ninety 757-200s. The new aircraft is expected to begin operations over the 2008-2016 periods. This fleet renewal program only applies to U.S. based aircraft. The Canadian 727 fleet operated by Morningstar Airlines are unaffected.

NEWS ARTICLES PEOPLE IN THE NEWS NAV CANADA WINS PERSON OF THE YEAR

The Minister of Transport, Infrastructure and Communities has announced the President and CEO of Nav Canada, Mr. John W. Crichton, as the 2006 Transportation Person of the Year. Mr. Crichton has contributed to the expansion of air travel both nationally and internationally through his career. Mr. Crichton spent 24 years in commercial aviation and was the Executive Vice President of First Air prior to joining ATAC.

BOEING COMMERCIAL APPOINTS CEO

Boeing Commercial Airplanes has named Mr. Scott Carson its new President and CEO. The position was previously held by Mr. Alan Mulally who recently joing the Ford Motor Company as its new CEO. Mr. Carson remains as an executive vicepresident with the Boeing Company.

ATAC ANNOUNCES NEW PRESIDENT AND CEO

The ATAC has announced the appointment of Mr. Sam Barone as the new President and CEO. Mr. Barone has over 25 years of experience in transportation working in the public, private and not-for-profit sector. Mr. Barone formerly held the position as Regional Vice President at InterVISTAS Consulting Inc. Mr. Barone’s position is in effect 16 October, 2006.

Page 12 October 2006

AIRBUS NAMES LOUIS GALLOIS THE NEW CEO

Airbus has named Mr. Louis Gallois as the new CEO for the company effective 10 October following the resignation of Mr. Christian Streiff. Mr. Gallois will remain as EADS co-CEO for Airbus in addition to assuming his new CEO responsibilities. Mr. Gallois was formerly the chairman and CEO for Snecma.

OTHER NEWS MY WAY ORDERS NINETEEN BOMBARDIER CRJ-900S

Italy’s My Way Airlines has ordered nineteen CRJ-900s from Bombardier. The carrier plans to use the aircraft for domestic operations. The value of the order is in the range of US$700 million. This deal has increased Bombardier’s CRJ-900s orders from 52 to 71 for the year.

EGYPTAIR ORDERS SIX EMBRAER 170S FOR REGIONAL SUBSIDIARY

EgyptAir Holding, parent company of EgyptAir, has ordered six 76-seat Embraer 170s for the launch of its Regional subsidiary EgyptAir Express. The first aircraft will be delivered in April 2007, prior to the launch of EgyptAir Express operations in second quarter 2007.

JAL INTERNATIONAL AND JAL DOMESTIC MERGER

JAL International and JAL Domestic will merge to become Japan Airlines International effective 1 October 2006. The carrier hopes the merger will result in greater efficiency and cost reduction, as well as better internal communications for the company.

NEWS ARTICLES OTHER NEWS – CON’T NORTHWEST ORDERS 72 REGIONAL AIRCRAFT FOR COMPASS

Northwest Airlines has ordered 36 CRJ-900s and 36 Embraer 175s for its regional subsidiary Compass Airlines. Compass will operate the 175s as Northwest Airlink. Northwest has not announced the operator of the CRJ-900s.

AIRBUS A380 DELAY

Airbus announced that it would postpone deliveries of the A380. This is the third delay announcement in 16 months for the aircraft. Airbus has not received new A380 orders for more than a year. Emirates and Singapore Airlines are reviewing their options and seeking compensation for the delays respectively. It is believed that Boeing has been benefiting from Airbus’ delay announcements. The Boeing 7478 has been considered an alternative to the A380. Boeing claims its 747-8 costs 21% less to operate and it is priced approximately $10 million less than the A380.

DELTA LAUNCHES NON-STOP SERVICE BETWEEN SALT LAKE CITY AND WINNIPEG Delta Air Lines will launch twice daily nonstop service between Salt Lake City and Winnipeg. The service will begin on 8 January 2007. The service will be operated Delta’s connection carrier SkyWest Airlines.

EMBRAER LOWERS DELIVERY FORECAST FOR 2006

Embraer lowered its delivery forecast for the year from 145 to 135 airplanes. The revised forecast stems from supply problems for its E170 and E190 Jetliners. However, Embraer expects its delivery forecast for 2007 to increase by 10 units to at least 160 aircraft to compensate delays in 2006. Excluding an order of 36 airplanes by Northwest Airlines, Embraer has an order for backlog of 414 commercial aircraft as of the 30 September 2006.

TORONTO PEARSON ANNOUNCES AIF CHANGE

On 26 September, the Greater Toronto Airports Authority approved raising the Airport Improvement Fee (AIF) at Toronto Pearson effective 1 January 2007. The fee for departing passengers will increase from the current $15 per passengers to $20. The fee for connecting passengers will remain at $8.

Page 13 October 2006

HARMONISING THE SKIES

LIQUIDS, GELS AND AEROSOLS AND THE NEW AVIATION REALITY October 2006

The restrictions placed on carry-on items put into effect following the events that took place in the UK on 10 August 2006 had immediate impacts on air carrier and airport operations on both sides of the Atlantic. While the full ban on carry-on items created havoc in UK airports, the ban on liquids, gels and aerosols from carry-on items in North America also created similar problems in Canada and the US, albeit on a smaller scale.

Marcel Champagne Manager, Operations Planning

Regardless of the point of origin, in North America or the UK, the new restrictions contributed to significantly extending queues at check-in and Pre-Board Screening checkpoints, and greatly increasing the volume of checked baggage being processed by airport baggage systems and transported by air carriers. (Initial estimates indicate average increases in the volume of checked baggage have ranged between 20 and 30%.) For airport operators, considerable reductions in retail revenues in secure areas of airport terminals were also reported immediately following the adoption of the new restrictions.

The ban on liquids and gels put into effect considerably extend Pre-Board Screening queues at airports in Canada, the US and the UK.

For the travelling public, the lack of consistency between various national regulations was often difficult to grasp. For example, while carry-on items were permitted in North America, they were not on connecting flights through UK airports, creating significant challenges for passengers originating in North America and transiting through a UK airport en-route to their final destination. Even more confusing was the absence of measures against liquids and gels in a large number of European and Asian countries1, as well as in Australia, with the exception of additional screening of passengers bound for the US in some countries. For airport operators and international air carriers, the disparities also proved challenging to manage.

Moving Towards Harmonisation While the UK continued to prohibit liquids and gels in carry-on items2, an initial move towards harmonisation was made on 25 September when TSA and CATSA officials announced that a partial relaxation of the ban on liquids and gels would take effect the following day. The new regulations now enable the carriage of limited quantities of certain liquids, gels and aerosols as long as individual containers do not exceed 90 ml and that the containers easily fit in a separate clear plastic re-sealable bag no more than 1 L in volume. These new regulations also re-authorised the sales of liquids, gels and aerosols in secure areas of air terminal buildings, along with their transport onto commercial flights.

In Europe, only France, Greece, Italy and Switzerland imposed full restrictions on liquids, gels and aerosols from carry-on baggage. 2 The UK government has however eased the limitations on the size of carry-on items to permit one item per passenger the size of a standard small roller suitcase. 1

Page 14 October 2006

HARMONISING THE SKIES

LIQUIDS, GELS AND AEROSOLS AND THE NEW AVIATION REALITY – CON’T That same week, in a move to standardise regulations across the European aviation system, EU member States agreed to follow suit and for the first time announced similar restrictions. The new measures also govern the maximum size of carry-on baggage permitted on aircraft departing EU airports, requiring them to conform to IATA’s maximum size of 56 cm X 45 cm X 25 cm, and matching the newly permitted size in the UK along with that of most North American air carriers. With the new regulations taking effect on 6 November, the TSA, the EU and Canada have agreed towards a harmonized approach to liquids and gels.

Managing the Challenges During the few days following announcement of the new measures in North America, CATSA, TSA, airport operators and air carriers were proactive in facilitating implementation through set-up of ‘liquids and gels tables’ and distribution of plastic bags prior to screening checkpoint entrances. While it is still too early to determine the effects the new measures have had on improving check-in and Pre-Board Screening throughput, on-site observations indicate that the initiatives put in place during the early days of implementation likely minimised further disruptions to operations, beyond those impacts from the original restrictions.

Transport Canada’s flyer aimed at explaining the ‘yes’ and ‘no’s’ of liquids on commercial aircraft.

It remains clear however that operational challenges will continue to persist, notably due to the increased volumes of hold baggage and increased passenger screening requirements. This new operational reality will, in a manner similar to the operational and technological shifts that have occurred since 2001, likely result in new requirements for facility standards and guidelines that will provide the necessary framework for future airport development planning and operational management. Key to this process will be the ability of aviation bodies on both sides of the Atlantic to further harmonise existing measures, and for those outside the Americas and Europe to adopt greater harmonised and standardised processes that will be necessary to ensuring the overall efficiency of the commercial aviation system and the effectiveness of related processing infrastructure.

Page 15 October 2006

THE OTTAWA REPORT October 2006

Prime Minister Announces Asia-Pacific Gateway and Corridor Initiative On 11 October 2006, Prime Minister Harper announced that the federal government will provide $591 million in funding toward the Asia-Pacific Gateway and Corridor Initiative in support of Canada’s economic growth. The funds will be allocated over a dozen Pacific Gateway projects and $321 million has been committed to infrastructure, transportation technology and border security projects in Western Canada. The private sector has committed an additional $3 billion in capital investment in Asia-Pacific Gateway and Corridor-related projects for the year 2004 to 2010.

Carry-On Rules Eased at Canadian Airports

Martin Copeland Senior Vice President Aviation

On 25 September, the Minister of Transport, Infrastructure and Communities, announced that in addition to prescription medicine and baby formula, baby food or milk for travelling children aged two or under, passengers at Canadian airports will be permitted to bring liquids, gels and aerosols that are 90 millilitres/90 grams or less. The total amount of liquids, gels and aerosols carried per passenger must be less than the capacity of a 1-litre bag (see Harmonising the Skies article on page 1).

Transport Minister Cannon Designates Sunwing to Fly to the Dominic Republic On 26 September, the Federal Minister of Transport, Infrastructure and Communities announced the designation of Sunwing as a scheduled international carrier for the Dominican Republic. The new designation allows the carrier to operate between Canada and the Dominican Republic with no limit on flight frequency.

NAV CANADA Announces 4.9% July Traffic Increase NAV CANADA announced that traffic for the month of July has increased by an average of 4.9% compared to July 2005. Fiscal year-to-date (1 September to 31 July), traffic has increased 3.4% compared to the same period last year.

Transport Canada Amends Airport Emergency Response Transport Canada has proposed amending the requirements for all certified Canadian airports for the development and evaluation of emergency response plans. The proposed amendments would require all certified Canadian airports to outline potential emergency scenarios and how emergencies will be handled, as well as to identify assisting organisations for different emergency situations. Airports would also be required to make aircraft crash charts available for each aircraft type that operates at the airport. The proposed amendments are published in the Canada Gazette, Part I on 7 October, 2006. The Canada Gazette is the “official newspaper” of the Government of Canada which includes new statutes and regulations, proposed regulations, decisions of administrative boards and an assortment of government notices.

Transport Canada Upgrades its Fleet Transport Canada has awarded an $8 million contract to Mid-Canada Mod Centre for avionics systems upgrades to the nine Cessna Citations in Transport Canada’s fleet and simulator. The upgrades include airborne collision avoidance systems and terrain awareness warning systems to the fleet and reconfiguration cockpit of the Cessna Citation simulator. The airborne collision avoidance systems alert flights crews when the aircraft is on a course to collide with another aircraft while the terrain awareness warning systems alert flight crews when the path of the aircraft may collide with terrain. This contract supports Transport Canada’s mandate to support safe and secure air transportation. The upgrades will be completed in two years. Page 16 October 2006

THE WASHINGTON REPORT October 2006

U.S.-E.U. Reach Passenger Name Record Agreement The Department of Homeland Security (DHS) and the European Union (EU) have reached an agreement that allows Passenger Name Record data (PNR) to be shared between the U.S. and the E.U. for the purpose of counter-terrorism. The U.S. Secretary of Homeland Security, Michael Chertoff, claims that the sharing of PNR data could result in more precise targeted screening which in turn reduces the questioning and searches of innocent travellers and improves privacy. The PNR data will be available to agencies within DHS as well as to the Department of Justice, the FBI, and other agencies with counter-terrorism responsibilities.

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

FAA Caps Flights at LaGuardia The Federal Aviation Administration (FAA) has proposed to limit the number of aircraft operations at New York LaGuardia at the current level of 75 flights per hour to combat delays at the airport. LaGuardia currently handles approximately 1,300 flights per day and approximately one-third of the flights are delayed due to congestion. The FAA would also like major carriers to increase their aircraft size at LaGuardia to help reduce the number of daily flights at the airport. Currently, approximately half of the flights at LaGuardia are operated using 50-seat regional airplanes.

U.S.-Kuwait Sign Open-Skies Agreement The U.S. and Kuwait have reached an open skies agreement that permits both countries to designate airlines to operate commercial flights between the two countries. United Airlines has received approval to offer non-stop service between Washington Dulles and Kuwait City starting October 2006 using Boeing 777 combi aircraft.

Senate Lifts Cap on Airport Screeners The Senate voted to remove the cap on the number of security screeners at federal airports, currently set at 45,000. The appropriate number of screeners needed at federal airports will be determined by the TSA. The Chairman of the Senate Commerce Committee does not expect the amendment to the port security legislation to have a negative effect since screener employment is approximately 4,000 below the 45,000 limit. The screener provision is not yet included in the port security bill.

DOT Rejects Changes to the Fare Advertising Rule The Department of Transportation (DOT) has rejected the Air Transport Association of America’s proposal to permit airlines to exclude fuel charges when advertising fares. DOT insists that the current practice helps consumers to compare prices. Currently, airlines may only exclude government imposed taxes, fees and other charges that are collected on a per-passenger basis, rather than on a percentage of the ticket price basis, in their advertisements.

Page 17 October 2006

INTERVISTAS NEWS October 2006

Rob Beynon Appointed as Vice President, Development Economics InterVISTAS is pleased to announce that Rob Beynon has been appointed as Vice President, Development Economics. Mr. Beynon has worked in China and Japan and has experience in establishing Canada’s first foreign trade zone prior to joining IVC in 2000. Mr. Beynon plays a key role in business development in the areas of marketing services to airport clients, airport planning projects, market research, strategic planning and regional economic development initiatives.

Karen Payjack Joins InterVISTAS’ Winnipeg Office InterVISTAS is pleased to announce that Karen Payjack has joined InterVISTAS’ Winnipeg office as a Project Analyst. Karen has a Bachelor of Commerce (Hons.) degree at the University of Manitoba, where she was awarded with the Trans X Leadership Award in Logistics and Supply Chain Management. Karen is responsible for providing research support on economic development projects and in the transportation and tourism sectors.

InterVISTAS Launches REVUP – Revenue Management for Today’s Airlines! InterVISTAS Consulting Inc. is please to announce the launch of REVUP, a full function revenue management system designed to address today’s revenue management challenges. InterVISTAS REVUP fulfils an urgent industry need for affordable and effective revenue management that can deliver results in the current dynamic market. To learn more about REVUP or arrange a product demonstration contact: Nigel Brownlow, Vice President, Airline Business Development by phone at 1-604-717-1840, by fax at 1-604-717-1818, or by email at Nigel_Brownlow@InterVISTAS.com.

Page 18 October 2006

INTERVISTAS NEWS – CON’T October 2006

InterVISTAS Upcoming Speaking Engagements

Dr. Mike Tretheway, Executive Vice President CD Howe Institute Conference: Competition Policy in Regulated Industries: Toronto, ON – 6 November 2006 Dr. Tretheway will be a discussant on the topic of competition policy for the airline industry.

Mr. Solomon Wong, Vice President, Security & Planning Passenger Terminal EXPO 2006 USA Conference, Fort Lauderdale, FL – 6-8 December 2006 Mr. Wong will be delivering a presentation titled, “Open and Secure Skies.”

Mr. John Weatherill, Director, Airline Planning Africa Airports 2007: Johannesburg, South Africa – 27-28 February 2007 Mr. Weatherill will be delivering a presentation titled, “Effectively Marketing Africa’s Airports.” World Regional Airports Congress: London, United Kingdom – 16-17 April 2007 Mr. Weatherill will be delivering a presentation titled, “Understanding and Applying E.U. Guidelines on Start-up Aid for Airlines at Regional Airports.”

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 19 October 2006