CAIR Issue No. 12 - December 2003 by Leah Dupuis

INDUSTRY REVIEW

Page 1 December 2003

MARKET SHARE OF SECONDARY AIRPORTS 12 December 2003

Many secondary airports around the world have been experiencing a rapid increase in passenger traffic over the last several years. The main reason for the rise in secondary airports’ traffic volumes is the emergence of low cost carriers (LCCs). Many LCCs fly to secondary airports because of lower costs and higher productivity. Here we look at the market share of selected secondary airports.

Percentage of Total Passengers

North America – In North America, the strength of Hamilton International Airport Market Share Relative to YYZ low cost carriers has fuelled the growth of secondary 4% airports. This is evident in the Greater Toronto 3% metropolitan area. Passenger volume at the secondary Hamilton International Airport increased 2% substantially in year 2000, when WestJet selected 1% the airport as the hub for its Eastern Canadian 0% operations. Hamilton’s share of air passenger traffic 1998 1999 2000 2001 2002 relative to YYZ has increased from only 0.09% in Year 1998 to 3% in 2002. In the U.S., the secondary Providence airport, served by Southwest Airlines, accounted for 17% of the share in passenger traffic relative to Boston Logan International Airport. Europe – The rise of low cost carriers have also had London Stansted Airport Market Share Relative to LHR a positive impact on secondary airports in Europe. 16% In the U.K., passenger traffic at the secondary 14% 12% London Stansted Airport has been growing at a 10% steady pace, reporting double-digit growth in the last 8% 6% several years. In 2002, London Stansted Airport 4% accounted for 14% of total passengers using London 2% 0% airports, compared to 7% in 1998. At the secondary 1998 1999 2000 2001 2002 Prestwick and Hahn airports, both Ryanair hubs, Year passenger traffic has increased significantly. Prestwick accounted for 16% of passenger traffic in 2002 relative to Glasgow International Airport, compared to 8% in 2002, while Hahn’s share of passenger traffic in Frankfurt has grown from 0.07% in 1998 to 3% in 2002. Percentage of Total Passengers

Project Analyst

Source: ACI World Airport Traffic Report

Asia – In Asia, the launch of carriers such as Air Macau, Air Asia, Shenzhen Airlines, and Shanghai Airlines have all contributed to the growth of secondary airports. In 2002, the airports in Macau and Shenzhen accounted for 9% and 20% respectively, of the passenger traffic at Hong Kong area airports, compared to a combined 21% in 1998.

Macau and Shenzhen Airports Market Share Relative to HKG Percentage of Total Passengers

Eugene Chu

25% 20% 15%

Macau International Airport Shenzhen Baoan Airport

10% 5% 0% 1998

The growth of secondary airports is expected to continue as low cost and domestic carriers reduce the cost of air travel, and induce the demand for air services.

1999

2000

2001

2002

Year Source: ACI World Airport Traffic Report

Note: Market size calculated as sum of passenger traffic at the primary and secondary airports. Page 1 December 2003

RISING FUEL PRICES 15 December 2003

The price of crude oil has risen to close above $33… Crude oil prices have remained above the $30/barrel level for the past two months. Lately, oil prices have been affected mainly due to the following factors: Oil Supplies Remain Unchanged The Organisation of Petroleum Exporting States (OPEC), which controls half of the world’s crude oil exports, met in Vienna on December 4 to set its first quarter 2004 output policy. OPEC Members were concerned that rising supply from Iraq and Russia would offset growth in demand next year. OPEC members agreed to keep oil supplies steady at 24.5 million barrels per day, but indicated that the policy would be reviewed again on February 10, 2004. But a Weakening U.S. Dollar is Driving Up Oil Prices The continued weakening of the U.S. dollar is a cause of concern for OPEC since oil is traded in this currency. The dollar has declined 16% against the Euro this year. OPEC has made it clear that it will raise prices to offset the lost in purchasing power due to the decline in the U.S. dollar against other major currencies. The group is also considering trading oil in Euros or in a basket of other currencies to compensate for the decline in the U.S. dollar.

Doris Mak Senior Market Analyst

…Somewhat lower prices expected in the future The futures price of crude oil is approximately 19% lower than the current spot price of $33.04. However, futures prices have risen in the past month. As of December 12, 2003, the futures price of a barrel of crude oil for delivery in November 2005 is at $26.89. This is 7% higher than the futures price of $25.14 reported for a November 2005 deliver quoted in the October Industry Intelligence Report.

Crude Oil Spot & Futures Prices As of December 12, 2003 40 35

Spot Prices

Futures Prices Have Risen

15 10

Dec-10

Dec-08

Dec-06

May-06

Mar-06

Jan-06

Nov-05

Sep-05

Jul-05

May-05

Mar-05

Jan-05

Nov-04

Sep-04

Jul-04

May-04

Mar-04

Jan-04

Nov-03

Sep-03

Jul-03

May-03

Jan-03

Mar-03

US$/Barrel

Month of Delivery

Page 2 December 2003

SARS – “NOT LIKELY TO EVER RETURN” 15 December 2003

As of December 15, there have been no new reported cases of SARS anywhere in the world. According to Dr. Donald Low, the chief microbiologist at Toronto’s Mount Sinai Hospital, the SARS virus was a “one-off” event and is unlikely to return to Canada. Dr. Low’s views have received support from scientists at the World Health Organization. Airport Traffic Volumes Continue to Increase: According to IATA, October passenger traffic levels increased 2.5% compared to the same time last year. The Asia Pacific region continues to recover with traffic only 0.1% below last October’s results.

Doris Mak Senior Market Analyst

Passenger traffic at Asian airports continues to improve as well. For the month of October, total passenger traffic at Taipei Chiang Kai-shek International Airport totaled 1.6 million passengers, up 1.3% from the same month last year. Traffic at Hong Kong International Airport reached 2.9 million passengers, down only 5.2% from the previous year. Tourism Continues to Improve in some Markets: Visitor arrivals to Hong Kong for the month of October continue to recover. Total arrivals for the month were 1.7 million, up 7% from October 2002. This growth can be attributed to an increase of 31% or almost 880,000 in arrivals from mainland China during the country’s weeklong National Day holiday in early October. Hong Kong’s recovery has been supported in a large part by the influx of tourism from the mainland. But, comparatively, visitors to Singapore for YTD October 2003 are down 23.5%; however, the decline has slowed following the end of the SARS outbreak. The decline showed an improvement on the 25.2% drop seen between January to September. Air carriers continue to recover from SARS: • • •

China Eastern Airlines’ October domestic passenger traffic has reached pre-SARS levels, with traffic up 47% from the year before. Malaysian Airlines System has shown improvement in its second quarter reporting a net profit of US$27 million, compared with a net loss of US$43 million in the same quarter in 2002. International passenger load factors increased to 73% compared to 55% three months earlier. Vietnam Pacific Airlines resumed flights between Danang and Hong Kong on November 29, eight months after service was suspended. The service will run twice a week using an Airbus A320.

Page 3 December 2003

AIRLINE DATA – CANADA T RAFFIC AND LOAD F ACTORS ON CANADA’S M AJOR AIR CARRIERS NOVEMBER 2003 Passenger Traffic Capacity Revenue Passenger Kilometres Available Seat Kilometres Air Carrier

Load Factor

% Change over 2002

% Change from 2001

% Change over 2002

% Change from 2001

% Change over 2002

% Change from 2001

-2.4%

-1.9%

-5.3%

-3.9%

+2.1 pts (to 69.2%)

+1.4 pts

Domestic (Mainline)

+0.6%

-7.6%

-5.1%

-1.7%

Jazz

+3.3%

N/A

-3.6%

N/A

International & Charter

-3.8%

+1.1%

-5.5%

-4.8%

Air Canada 1

+3.9 pts (68.4%) +3.8 pts (57.1%) +1.2 pts (69.6%)

-4.4 pts N/A +4.1 pts

+1.6 pts -2.3 pts (to 64.1%) Note: N/A – As Jazz was not reported in 2001, a percentage change from 2001 could not be calculated. WestJet

+47.4%

+109.2%

+43.8%

+116.5%

Analysis: Air Canada International

Air Canada Domestic Mainline 5% 0%

Dom RPK Dom ASK

-5% -10% -15% -20%

Jazz data is not included in this graph

-25% Nov- Dec Jan- Feb 02 03

Mar

Apr May Jun

Jul

Aug Sep

10% 5% 0% -5% -10% -15% -20% -25% -30% -35%

Oct Nov

Int'l RPK Int'l ASK

Nov- Dec Jan- Feb Mar Apr May Jun 02 03

Jul Aug Sep Oct Nov

For the first time in over a year, Air Canada’s domestic traffic increased over the same month last year. Load factor for the month was the highest ever achieved for November. Air Canada’s international traffic levels have also shown improvement for November. For the second straight month, percentage growth in WestJet traffic has increased more than its growth in available seat capacity. Load factor in November increased from the same time last year.

WestJet 70% 60% 50% 40%

RPK ASK

30% 20% 10%

Jetsgo Monthly Load Factor - 2002/2003

Nov- Dec 02

Jan- Feb 03

Mar

Apr

May

Jun

Jul

Aug Sep

Oct

Nov

90% 80%

Jetsgo’s monthly load factor has remained relatively constant month to month since the airline began operations in 2002. This is because Jetsgo has been adding capacity at a rate similar to passenger growth, resulting in consistent load factors.

Load Factor

70% 60% 50% 40% 30% 20% 10% 0%

Jun- Jul-02 Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul-03 Aug- Sep- Oct- Nov02 02 02 02 02 02 03 03 03 03 03 03 03 03 03 03

1Air

Canada Mainline consists of all Air Canada with the exception of Jazz. Page 4 December 2003

AIRLINE DATA – U.S. U.S. Airlines Release November 2003 Traffic Figures Airline

Notes:

1. 2.

Load Factor

Traffic ( RPMs – millions)

(ASMs – millions)

Capacity

70.6%

9,383

13,283

á 3.1 pts

á 3.0%

â 1.6%

65.6%

423

645

á 5.7pts

á 21.4%

á 10.9%

63.4 %

1,091

1,755

â 1.2 pts

á 18.5%

á 21.2%

75.3%

4,745

5,302

á 5.5 pts

á 8.7%

á 0.7%

71.0%

8,023

11,297

á 2.7 pts

á 2.1%

â 1.8%

81.6%

985

1,207

á 2.3 pts

á 57.6%

á 53.2%

76.3%

5,210

6,827

á 5.2 pts

â 1.1%

â 7.9%

63.7%

3,761

5,903

á 3.2 pts

á 9.4%

á 3.9%

75.7%

8,474

11,198

á 6.5 pts

á 2.7%

â 6.1%

72.6%

3,025

4,169

á 6.7 pts

á 8.3%

â 1.6%

Mainline Load factor includes scheduled service only

Sources: Carrier traffic reports.

Page 5 December 2003

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

2003

January February March 1st Quarter April May June 2nd Quarter July August September 3rd Quarter October

Page 6 December 2003

Vancouver

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

St. John’s

N/A N/A

MontrealDorval

-7.5%

-9.0% +12.6% -2.6% +12.5% +4.7% +4.3% +7.2% -3.9%

-10.9% +22.5% -0.2% +15.3% +5.3% +7.8% +9.7% -4.3%

-3.8% +20.1% +2.9% +14.3% +0.6% +7.1% +7.6% +1.2%

-6.7% +7.6% -4.4% -0.1% +9.4% +11.7% +6.9% -4.1%

-12.3% +23.7% +0.5% +6.4% +3.0% +6.3% -5.1% -5.1%

-6.9% +16.4% +1.2% +5.9% +5.7% +15.2% +8.9% -3.8%

-6.0% +26.1% +11.2% +7.9% +5.7% +8.1% +7.3% +0.1%

-6.3% +13.2% -4.8% +0.1% +0.1% +1.4% +0.5% -4.8%

-6.1% +11.8% +0.2% +5.7% -1.4% +4.3% +3.0% -1.3%

-8.7% +12.6% -5.4% +1.7% +0.2% +1.5% +1.1% -5.1%

-11.1% +10.5% -5.8% +4.4% +1.2% +3.2% +3.0% -5.5%

-11.9% +20.0% -0.8% -0.7% -2.3% +2.2% -0.3% -5.7%

+5.7% +4.6% +0.4% +3.4% -15.1% -17.3% -9.0% -13.7% -6.0% -7.6% -5.9% -6.6% N/A

+2.8% -0.6% -1.4% +0.2% -13.6% -13.5% -9.9% -12.2% -4.5% -1.2% -3.0% -2.8% -3.1%

+7.2% +3.7% -1.8% +2.9% -10.2% -7.4% 0.0% -5.6% +2.9% -1.0% +1.7% +1.1% +4.0%

+6.3% +5.6% +3.7% +5.2% +1.6% -1.4% +1.9% +0.7% +4.7% +1.4% -1.8% +1.6% -0.7%

+3.5% +3.0% -0.4% +2.0% +1.1% -5.3% -0.4% -1.6% +2.5% +0.3% +8.6% +3.4% +10.4%

+6.2% +3.9% +2.2% +4.0% -7.6% -1.5% +2.5% -2.1% +3.0% -7.0% +1.6% -0.9% +1.4%

+13.0% +12.7% +5.1% +10.1% +4.4% -0.5% +5.0% +3.0% +3.7% +0.4% +1.5% +1.8% +7.4%

+4.5% +13.8 N/A +10.0% +6.1% -1.2% +4.1% +2.9% +5.7% +4.1% -0.6% +3.3% +2.5%

+4.0% +2.0% +5.0% +3.7% -0.6% -1.0% -0.5% -0.7% +5.0% +0.5% -0.7% +1.7% +1.1%

+6.8% +6.0% -3.7% +3.1% -3.9% -5.3% +1.4% -2.6% +1.2% -4.8% -2.4% -2.0% N/A

-0.3% +8.8% -4.2% +1.3% -1.6% -1.6% +7.0% +1.3% +4.7% -2.2% -0.2% +0.7% N/A

-5.8% -2.0% -3.1% -3.7% -1.7% +4.5% +17.8% +7.1% +21.1% +22.5% +12.3% +19.0% +9.4%

N/A N/A N/A +8.2% N/A

+2.9% +7.5% +0.2% +3.3% -0.9% +0.4% +0.6% +0.0% +11.9% +9.8% +10.8% +10.8% +15.4%

InterVISTAS Consulting Inc. ©

CANADIAN A IRPORTS

2002

2nd Quarter September 3rd Quarter October November December 4th Quarter 4th Full Year

Toronto

NEWS ARTICLES AIR CANADA UPDATE

FUEL PRICES December 3, 2003 SPOT OIL PRICES INCREASING FUTURES PRICES LOWER Crude Oil Prices: Spot – US$30.78 (up 3.2% from November) Future • 6 month - $30.22 (April 2004 delivery) • 12 month – $27.67 (November 2004 delivery) • 2 year - $26.10 (November 2005 delivery) • 5 year - $26.44 (November 2008 delivery) Monthly Spot Prices $40.00

US$ per Barrel

$35.00 $30.00 $25.00

AIR CANADA REPORTS CDN$263M LOSS IN THIRD QUARTER Air Canada posted a loss of CDN$263 million in the third quarter. This includes a CDN$273 million charge related to the carrier’s restructuring process. Revenue was CDN$2.2 billion, with a CDN$17 million operating profit. Operating costs were reduced by 14%, but yield also fell 8%. AIR CANADA RECEIVES COURT APPROVAL FOR TRINITY OFFER AND RIGHTS OFFERING-MIZUHO APPEALS The Ontario Superior Court has approved Trinity Time Investment’s (wholly owned by Victor Li) CDN$650 million bid for 31% of the equity in Air Canada. The decision leaves to the Air Canada board, the evaluation of a revised bid that has been received from Cerberus Capital Management. However, Mizuho International, a major Air Canada creditor, has filed for an appeal of the decision and stated that it will sue the Air Canada Board of Directors if it concludes that the Cerberus offer is superior and still rejected. If the new Cerberus offer is accepted, Li will receive a CDN$19.5 million break fee. The court also approved a CDN$450 million rights offering by Air Canada, to be backstopped by Deutsche Bank. The offering will allow creditors to acquire shares of the restructured carrier under the same terms as Li.

$20.00 $15.00 Jan- Feb 03

Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

AIR CANADA SEEKS TO CONTRIBUTE CDN$120M TO PENSION PLAN Air Canada will seek court approval to make a CDN$120 million contribution to its CDN$1.5 billion pension deficit. The contribution has been approved by the Board of Directors, the airline’s new equity partner Victor Li, and the carrier’s court appointed monitor, Ernst & Young. Air Canada has not made any contribution to its pension plan since filing for bankruptcy protection in April. Earlier this month, the carrier agreed to make a CDN$15 million payment to its Jazz pension. Page 7 December 2003

AIR CANADA MAY FACE LAWSUIT FOR US$100M LOAN Snecma SA, an aircraft manufacturer based in France, plans to sue Air Canada for its losses stemming from a US$100 million loan guarantee it provided the carrier in 1993. Snecma is claiming fraud and misrepresentation against Air Canada for failing to reveal that the carrier defaulted on loan agreements. Air Canada sold four aircraft to GE Capital Aviation Services that were collateral for the loan provided by Maple Leaf Funding Ltd. AIR CANADA RECEIVES CDN$6M INDEMNITY FROM FEDERAL GOVERNMENT Air Canada has received a CDN$6M indemnity from the federal government after it was forced to cancel its service from Montréal to Beirut, Lebanon. Ottawa withdrew Air Canada’s license to operate to Lebanon on June 1 for security reasons. Air Canada states that it remains interested in serving Lebanon. AIR CANADA SCHEDULED TO PAY US$101M TO LUFTHANSA Air Canada will have to pay US$101 million to Lufthansa over a six-year period for missing a US$195 million loan payment guaranteed by the German carrier. Lufthansa was ready to terminate its partnership with Air Canada, which includes 18 code share flights between the two carriers, sharing of information technology, and joint aircraft purchases to reduce costs. Air Canada will ask the court for approval of the pact. AIR CANADA AND CARA REACH MODIFIED AGREEMENT Air Canada has reached a new catering services agreement with Cara Operations Inc. Effective immediately, the new deal replaces the previous contract and provides significant cost savings for Air Canada. Earlier in November, Air Canada had repudiated its contract with Cara as part of its restructuring process to negotiate a deal with better terms. The new agreement expires November 2009.

NEWS ARTICLES AIR CANADA EXPANDS WINTER SCHEDULE - LAUNCHES NEW SERVICES TO LATIN AND SOUTH AMERICA Air Canada is expanding its winter schedule to include new services to Latin and South America. Services include three times weekly non-stop flights from Toronto to San Jose, Costa Rica, and Havana, Cuba with Airbus A319s, and three times a week non-stop services from Toronto to Santiago, Chile, with same plane service to Bueno Aires, Argentina, using Boeing 767-300 aircraft. Air Canada now offers nonstop services to Cuba on 15 routes, departing from Calgary, Toronto, London (ON), Ottawa, Montréal, Moncton and Halifax to Varadero, Holguin, Cayo Largo, Cayo Coco, and Havana. Air Canada is also introducing new services to Ixtapa and Cozumel, Mexico, Kona, Hawaii, and Aruba, Puerto Plata, Punta Cana and La Romana in the Dominican Republic.

CANJET EXPANDS FLEET CanJet Airlines has begun negotiations to acquire 20 new long range aircraft to expand its existing fleet of six Boeing 737s. The aircraft would be delivered between 2004-2006.

OTHER CANADIAN AIRLINES

NORTHWEST AIRLINES SUBSIDISES PASSENGERS FOR AIRPORT FACILITY CHARGES Northwest Airlines will begin to subsidise customers for some passenger facility charges (PFCs). This will reduce the cost of travel by US$9 roundtrip for many customers connecting in Minneapolis and Detroit.

WESTJET TEAMS UP WITH VIA RAIL WestJet and VIA Rail Canada have completed an agreement that will allow them to provide customers with multi-modal fares to destinations served by WestJet and VIA Rail. Tour operator, Brewster, will be the exclusive agent marketing these travel packages. Destinations will include Calgary, Edmonton, Vancouver, Toronto, Hamilton, Montréal, and Moncton, and packages will go on sale in January for 2004 winter tours. JETSGO NOVEMBER TRAFFIC QUADRUPLES Jetsgo carried four times as many passengers in November compared to the same time last year. Revenue passenger kilometres grew from 55.8 million to 228.4 million. Capacity increased by 307% to 328.3 million available seat kilometres. Load factor was 69.5% for the month, almost unchanged from last year.

Page 8 December 2003

CANJET LAUNCHES NEW BRUNSWICK TO FLORIDA SERVICE CanJet Airlines announced that it will be launching flights from Moncton, New Brunswick to Sarasota Brandenton, Florida via Toronto once per week. The new service will be offered from February 10, 2004 to April 13, 2004. CanJet indicated that non-stop services may be launched in the future if market response is postive.

U.S. & INTERNATIONAL AIRLINES

UNITED UNVEILS LOW FARE CARRIER TED United Airlines has officially announced the launch of Ted, its low fare carrier based in Denver. Ted will operate a fleet of A320s and begin services in February 2004. By April, Ted will operate 106 daily flights. ATLANTIC COAST AIRLINES TO LAUNCH INDEPENDENCE AIR Atlantic Coast Airlines (ACA) announced that it will launch Independence Air, a low cost carrier based at Washington Dulles, in the first half of 2004. The new carrier will operate ACA’s existing 87 Bombardier CRJ200s, and 25 Airbus A319s/320s currently on order.

NEWS ARTICLES AMERICA WEST LAUNCHES NEW SERVICES America West Airlines will be launching daily non-stop services from Las Vegas to Vancouver and Edmonton. The new services will begin March 1, 2004. QANTAS ORDERS 23 A320S FOR NEW LOW COST AIRLINE Qantas Airways announced that its new low cost domestic airline, Jetstar, will begin services in May. The carrier has ordered 23 A320s, with the first to be delivered in June. The new low cost carrier will begin selling seats in February, and initially use the 14 Boeing 717s operated by Impulse Airlines (QantasLink Brand). Jetstar will phase in the A320s in place of the Boeing 717s, and expects to be operating all 23 by mid-2005. EUROPEAN LOW COST CARRIERS TO FORM ASSOCIATION The low cost carriers in Europe are planning to form the European Low-Fare Airline Association (ELFAA) to represent their interests to governments and the European Commission. ELFAA will initially be comprised of Ryanair, Hapag-Lloyd Express, Volare Web, Sky Europe and Sterling Airways.

CARGO U.S. OCTOBER CARGO TRAFFIC DOWN The U.S. Air Transport Association (ATA) reported that domestic and international air cargo traffic for the month of October were down 2.9% and 10% respectively, from the same period last year. INTERNATIONAL FREIGHT TRAFFIC UP The International Air Transport Association (IATA) reported that international freight traffic was up 1.5% in October. The Middle East and Africa showed the highest increases with 23.1% each.

Page 9 December 2003

ATLAS AIR WORLDWIDE DEFERS BANKRUPTCY FILING Atlas Air Worldwide Holdings, parent company of Atlas Air and Polar Air Cargo, has deferred the anticipated date of its Chapter 11 bankruptcy filing from December 15, 2003 to February 1, 2004. Atlas is in negotiations with its lessors and creditors to obtain pre-negotiated agreements on its debt and aircraft leases, and minimise the impact of a bankruptcy filing on its operations. VOLGA-DNEPR REPORTS 2003 REVENUE INCREASE Volga-Dnepr Group has reported a 49% increase in revenues to US$172 million for the first nine months of 2003. The airline transported over 46,000 tonnes of cargo with its Antonov 124-100 freighter fleet for the period ended September 30, 2003, and reported a 51% share of the global market for outsize and super-heavy cargo transportation. This growth is attributed to the high level of demand from worldwide humanitarian and peace-making missions. NEW DHL FACILITIES IN INDIA AND NORTH CHINA DHL has opened a 2,400 m 2 express terminal at Indira Ghandi International Airport in Delhi. The terminal includes a custom bonded warehouse staffed with customs agents, allowing 24/7 customs clearance services. DHL is also building a 180,000 m 2 distribution centre in Jinzhou, Liaoning Province, in North China, due to open in May 2004. DHL COMPLETES NEW FLEET WITH 34TH B757 DHL has taken delivery of its 34th Boeing 757 Special Freighter, the last of its four-year €1 billion (CAD$1.6 billion) fleet renewal project. The new aircraft will allow DHL to meet international aircraft noise and emission standards. The new B757SFs replace DHL’s B727F fleet.

NEWS ARTICLES DHL TEMPORARILY SUSPENDS MID-EAST FLIGHTS DHL temporarily suspended flights to Afghanistan and Iraq from Nov. 23-27 following an emergency landing of one of its planes at Baghdad Airport. The Airbus A300, carrying mail to U.S. soldiers and aid packages to relief organisations, was headed to Bahrain Airport when its engine caught fire after takeoff. Baghdad Airport and U.S. army officials suggested the plane may have been hit by a surface-to-air missile. The cause of the fire is under investigation; none of the three people on board were hurt. TNT ADDS BANGKOK TO ASIAN HUBS TNT Express has upgraded its Bangkok station at Don Muang Airport to hub status, the fourth station in TNT’s Asian network to be given hub status. A 24-hour operation was opened at Bangkok in February 2003, which included advanced X-ray equipment for express services. TNT’s other Asian hubs are in Hong Kong, Singapore and the Philippines. LUFTHANSA CARGO TO INCREASE ASIAPACIFIC CAPACITY Lufthansa Cargo has announced plans to expand its AsiaPacific capacity in order to take advantage of the expanding export market in the region. The company expects double-digit growth in the Asia-Pacific, which currently accounts for 40% of its global sales. BRITISH AIRWAYS DEPLOYS BOEING 757F British Airways has deployed the Boeing 757F on routes within Europe. The 25 ton capacity freighters are chartered from DHL. Operations are from Heathrow, Luton, and East Midlands airports. The freighters are being deployed to replace Boeing 767 belly capacity on passenger flights as British Airways withdraws the 767s from passenger service in Europe.

Page 10 December 2003

AIRPORTS EDMONTON AIRPORTS CONSOLIDATION INCREASES NORTHERN SERVICE Edmonton Airports reported that northern air services have increased significantly since the consilidation of 97% of scheduled passenger service at Edmonton International Airport in 1996. The number of flights from Edmonton to Northern Canada have increased 49%, while the number of arriving/departing passengers from northern destinations (including northern Alberta, northern B.C., N.W.T., Yukon) have increased by 139%. There are now 11 carriers serving the north with 40 non-stop destinations, and average low fares to the north have been reduced by 15%-30%. Edmonton City Centre Airport will continue to serve the Capital Region, and the remaining 3% of scheduled passenger service will be moved to Edmonton International Airport by January 1, 2005. THERMAL SARS SCANNERS REMOVED FROM AIRPORTS The federal government announced that it will remove the thermal SARS scanners at the Vancouver and Toronto international airports. Federal Health Minister, Anne McLellan, stated that the threat from SARS has diminished and that the thermal scanners were ineffective in detecting SARS. Federal quarantine officers will remain at Toronto, Vancouver, Montréal, Calgary, Ottawa, Edmonton and Halifax international airports. SINGAPORE INVESTS US$26M INTO AIRPORT TO PREPARE FOR A380 The Civil Aviation Authority of Singapore (CAAS) is investing US$26 million to upgrade the facilities at Changi Airport to accommodate the A380. Singapore Airlines, which has 10 A380s on order and options for an additional 15, will begin commercial operation of the aircraft in March 2006.

NEWS ARTICLES AIRCRAFT MANUFACTURERS BOMBARDIER DELIVERS 1000 TH CRJ Bombardier has delivered its 1000th CRJ regional jet to Delta Connection carrier Comair. Comair operates the worldâ&#x20AC;&#x2122;s largest CRJ fleet and has 259 CRJ200 and CRJ700 aircraft. EMBRAER 170 RECEIVES PROVISIONAL FAA APPROVAL The Federal Aviation Administration (U.S.) has given provisional type certification to the Embraer 170. This means that U.S. carriers can begin crew training and route proving flights with the aircraft. Final certification is expected in early 2004.

GOVERNMENT AND REGULATORY CANADA AND RUSSIA REMOVE FLIGHT RESTRICTIONS AS TALKS CONTINUE Canada and Russia, who are in a dispute over air space, have temporarily removed the restrictions on Aeroflot and Air Canada, respectively. Canada has lifted the restriction on Aeroflot flights that limited Moscow-Toronto flights to two per week, and Russia has restored the right of Canadian carriers to use Russian airspace on flights to India. Further negotiations between the two countries are scheduled for December.

NEW EU CARGO SECURITY REGULATIONS The European Parliament and the Council of the E.U. have passed a regulation imposing new cargo security measures. The main focus of the new regulations is to prevent cargo shipments being used as a cover for terrorist attacks by establishing common basic standards in air transport. All industries involved in the cargo business will be affected by the regulations, which require companies to improve their own security systems, provide qualified staff, and perform random checks either by x-ray or by physically opening boxes. U.K. AND HONG KONG REACH NEW BILATERAL AGREEMENT The U.K. and Hong Kong governments have agreed on a new bilateral agreement that gives fifth-freedom rights to Virgin Atlantic on the London Heathrow-Hong Kong-Sydney route, and to Cathay Pacific Airways on the Hong Kong-London-New York route. The agreement also allows for unlimited capacity between Hong Kong and London, and enables Hong Kong carriers to codeshare beyond London, and U.K. carriers to codeshare beyond Hong Kong. The agreement is conditional on approval from the European Commission.

NEW TSA CARGO SECURITY PLAN The Transportation Security Administration (TSA) has announced a plan to increase cargo security. The TSA issued security directives requiring foreign all-cargo carriers to comply with the same security procedures required of domestic air carriers. The plan includes requirements for cargo carriers (both all-cargo and cargo-carrying passenger aircraft) to perform random inspections on all U.S. flights. The TSA will make sure that inspections are completed properly. Page 11 December 2003

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NEWS ARTICLES PEOPLE IN THE NEWS HAMILTON INTERNATIONAL AIRPORT APPOINTS NEW MANAGEMENT POSITIONS Hamilton International Airport (YHM), a fully owned subsidiary of TradePort International Corporation, has announced the following management changes: Tony Battaglia has resigned as CEO of YHM and will become Chairman of the Board of Directors, replacing Joe Mancinelli who will continue to serve as a Director. Richard Koroscil has been appointed CEO to replace Battaglia. Koroscil previously served as Vice President of Operations with YVR Vancouver Airport Services Ltd. WESTJET VICE PRESIDENT OF MARKETING AND SALES RESIGNS WestJet announced that Bill Lamberton, Vice President of Marketing and Sales, has stepped down. He will continue to provide the company with ongoing consulting services. Lamberton has been with WestJet since its inception 8 years ago. WINNIPEG AIRPORTS AUTHORITY ANNOUNCES NEW CHAIRMAN Winnipeg Airports Authority Inc. Chairman J.A. (Sandy) Hopkins’ term expired on November 30, 2003. He is replaced by Arthur Mauro, former President and CEO of Investors Group, and Chancellor of the University of Manitoba. Otto Lang, former Minister of Transportation for Canada, has been re-elected as Vice Chair. GTAA APPOINTS NEW OPERATIONS OFFICER The Greater Toronto Airports Authority (GTAA) announced that John Kaldeway will assume the role of Chief Operating Officer (COO), effective January 1, 2004. Kaldeway is currently Vice President of Transition Programs. Gordon Grant will take this position in January when Kaldeway becomes COO.

Page 12 December 2003

O’BRIEN RESIGNS FROM AIR CANADA BOARD OF DIRECTORS David P. O’Brien has resigned from Air Canada’s Board of Directors, stating additional responsibilities as the reason for his decision. O’Brien has been with the Air Canada board since 1998, and was also on the carrier’s Restructuring Committee. DELTA CEO RETIRES Delta Airlines announced that Chairman and CEO Leo Mullin, will retire on January 1, 2004, and step down as Chairman on May 1, 2004. Jack Smith will become Chairman, and Gerald Grinstein the new CEO. BOEING CEO RESIGNS Boeing announced the resignation of Chairman and CEO Phil Condit. Boeing’s Board of Directors has decided to implement a new leadership structure following Condit’s resignation. Lewis Platt has been appointed non-executive Chairman, and Harry Stonecipher as President and CEO. All position changes effective immediately.

OTHER PARSONS AWARDED WINNIPEG AIRPORT CONTRACT The Winnipeg Airports Authority has awarded Parsons a six-year, CDN$6 million contract to provide program management services for Winnipeg Airport’s Infrastructure Redevelopment Plan (AIRPlan). JACOBS CONSULTANCY ACQUIRES LEIGH FISHER ASSOCIATES Jacobs Consultancy Inc., a subsidiary of Jacobs Engineering Group Inc., will acquire Leigh Fisher Associates, an airport consulting firm near San Franciso, California. Leigh Fisher Associates provides physical planning, financial, and business advisory services to airports in the U.S. and around the world.

ECONOMIC O UTLOOK 13 December 2003

Canadian Employment, Monthly Figures 100

8.1

Unemployment Rate (seasonally adjusted)

7.9

7.7

7.5

7.3

7.1

-20

6.9 6.7 Oct-03

Jul-03

Apr-03

Oct-02

Jan-03

Jul-02

Jan-02

Jul-01

Oct-01

-40

Apr-02

Employment Growth (month on month change)

Apr-01

Transportation Specialist

Jan-01

Josh Drury

Q3 2003

Q2 2003

Q1 2003

Q4 2002

Q3 2002

Q2 2002

Q1 2002

Q4 2001

Q3 2001

Q2 2001

Q1 2001

Q4 2000

Q3 2000

Q2 2000

Q1 2000

Evidence that the Canadian Economy is Canadian GDP (Annualised Quarterly % Change) Softening. Recently released figures for 6 Gross Domestic Product do not show a 5 very encouraging picture of growth. In the 4 third quarter, GDP increased by a meagre 3 1.1% on an annualised basis, only slightly 2 up from the 0.7% decline in the second 1 quarter. This low growth has been largely 0 -1 attributed to temporary factors including -2 SARS, BSE, and the war in Iraq. More recently, the August blackout lowered output for the third quarter, as did a drawdown in inventories which decreased Source: Statistics Canada the demand for new manufactured goods and contributed to less than forecasted growth. Now that these setbacks have ended, do conditions exist for the Canadian economy to resume strong growth? Yes. But Signs of Underlying Strength. One area already displaying signs of a rebound is the labour market, where job creation has resumed the levels seen throughout 2002. From September to November, an estimated 166,000 jobs have been created, more than three times as many as in the first eight months of the year. Unemployment fell to 7.5% in November, down from a peak of 8% in August and September. Most of the recent growth has been in full-time employment. This increase in employment should bolster consumer spending in the future.

The Bank of Canada has been optimistic about the impending turnaround, and has held the overnight rate steady at 2.75% since early September. While low GDP growth, below-target inflation, and rapid appreciation of the dollar might otherwise induce a drop in rates, the Bank believes such a move is unnecessary as the economy is poised for growth â&#x20AC;&#x201C; recently forecasting growth in the fourth quarter to exceed four percent on an annualised basis. This growth will be fuelled largely on an increase in domestic demand and economic growth abroad, particularly in the United States. The high dollar will have somewhat of an offsetting effect on increased foreign demand, however the Bank has indicated that it may drop rates in the future if this effect is stronger than expected.

Page 13 December 2003

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THE OTTAWA SCENE 15 December 2003

The biggest news in Ottawa this month, of course, is the long-awaited transfer of power on December 12 from Prime Minister Chretien to the new leader of the federal Liberal party, Paul Martin. Prime Minister Martin appointed a 39-member cabinet after being sworn in. New Minister of Transport. The new Minister of Transport is the Honourable Tony Valeri. Tony Valeri (Hamilton-Stoney Creek) was first elected in 1993 and was re-elected in 1997 and 2000. He was appointed Chair of the National Caucus Economic Development Committee in October 1999. In June 2001, he was elected Chair of the non-partisan Parliamentary Steel Caucus. Mr. Valeri was Parliamentary Secretary to the Minister of Finance from 1997-99. He has served on five standing committees: Finance, Liaison, Industry, Environment and Sustainable Development, and as chair of Government Operations.

Sam Barone Regional Vice President, Ottawa

He also chaired the Liberal Caucus Task Force on Jobs and Small Business. Before entering federal politics, Mr. Valeri was President of Canadian Financial Group Ltd. He was also a member of numerous business organisations, including a term as Director of the Board of the Independent Brokers Life Insurance of Canada Association. Some of the files inherited by Mr. Valeri include the legislation covering Canadian Airports (Canada Airports Act), Canada Transportation Act amendments including new funding for VIA Rail, as well as managing the on-going restructuring at Air Canada. Transportation Security will also figure large in Mr. Valeriâ&#x20AC;&#x2122;s new challenges. Canada Border Services Agency (CBSA). In regards to border issues, the Canada Customs and Revenue Agency (CCRA) will no longer exist, but has been split off into CRA (Canada Revenue Agency) which would report to the new Minister of National Revenue, and the new Canada Border Services Agency (CBSA) which has just been established. This is part of the move to create a new integrated border agency similar to the Customs and Border Protection Bureau under Homeland Security in the U.S. The new CBSA has been in the works for some time and its final structure is still evolving.

New Minister of State of Infrastructure. Infrastructure is also a high priority for the new Prime Minister. He has appointed the Honourable Andy Scott (Fredericton NB) as the new Minister of State for Infrastructure. First elected to the House of Commons in 1993, Andy Scott was re-elected in June 1997 and again in November 2000. He is currently Chair of the Standing Committee on Justice and Human Rights and a member of the Standing Committee on Government Operations and Estimates. He is also a member of the following caucuses: Post-Secondary Education; Social Policy; CBC; Foreign Affairs and Defence; and Research and Development, where he is undertaking an inquiry as to the adequacy of federal research and development in Atlantic Canada. Following his re-election in 1997, Andy Scott was named Solicitor General of Canada, a position he held until November 1998. In 1996, he headed the federal Task Force on Disability Issues. Between 1981 and 1993, Mr. Scott served as the Executive Director of the New Brunswick Liberal Party, Senior Policy Adviser to Premier Frank McKenna, and Assistant Deputy Minister for Intergovernmental Affairs in New Brunswick. Page 14 December 2003

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IMPLEMENTING CHAPTER 4 N OISE STANDARDS IN THE U.S. ICAO Noise Standards The International Civil Aviation Organisation (ICAO) sets and administers international certification standards for aircraft, as contained in Annex 16. Each country is encouraged to adopt these standards in their aviation regulations. An aircraft certified as having met the ICAO standards may be used in any ICAO member country. In Canada, these standards are contained in the Aeronautics Act and administered by Transport Canada. In the U.S., they are defined under the Airport Noise and Capacity Act of 1990, and administered by the Federal Aviation Administration (FAA).

Marcel Champagne Senior Planner

Noise standards for jet aircraft designed before 1977, such as the Boeing 727-200, and DC-9, were defined in Chapter 2 of Annex 16. Subsequently, newer aircraft were required to meet the stricter standards contained in Chapter 3 of the Annex. Examples of Chapter 3 compliant aircraft include the Boeing 737-300/400, Boeing 767 and Airbus A319/320. Chapter 2 aircraft were completely phased out of commercial operation in the U.S. by December 31, 1999, while in Canada, they were phased out by April 1, 2002, with an exemption period extending to December 31 of this year. Chapter 4 Noise Standards In June 2001, on the basis of recommendations made by ICAO’s Committee on Aviation Environmental Protection (CAEP), a newer more stringent Chapter 4 noise standard was adopted. The new noise standards are intended to apply to any certification application for new aircraft type designs submitted on or after January, 2006. The new standards are based on Effective Perceived Noise level (EPNdb) measurements of flyover, lateral and approach noise. New aircraft design types will be Chapter 4 compliant when: • • •

None of the aircraft’s individual maximum noise levels (flyover, lateral and approach) exceed the maximum permitted for Chapter 3 aircraft;1 and The sum of all three maximum noise levels is at least 10 EPNdb below the maximum permitted noise levels specified in Chapter 3; and The sum of any two maximum noise levels is at least 2 EPNdb below the maximum permitted noise levels specified in Chapter 3.

The U.S. FAA is moving towards the adoption of these standards and has recently issued a notice of the proposed new ‘Stage 4’ rules for public comment. Canadian regulations have yet to be introduced, although Canadian Aviation Regulations were 1The

Aircraft Noise Footprints 727 Stage 1 727 Stage 2 727 Stage 3 Hushkit 727 Stage 3 Re-engine 757 Pure Stage 3

Noise standards have contributed to significantly reducing aircraft noise emissions

Chapter 3 standard allows levels exceeding the maximum for one of the 3 components, provided this is offset by a reduction in noise for another component. Page 15 December 2003 © InterVISTAS Consulting Inc.

amended in 2001 to enable Chapter 4 aircraft design-types to comply to Chapter 3 standards.2 Reaching Chapter 4 Compliance The adoption of the new noise standard for new aircraft designs is not intended to start a process aimed at phasing out the production or operation of Chapter 3 aircraft types. There is no schedule for phase out of such aircraft. Chapter 4 will only apply to new aircraft types. The phase out of Chapter 2 aircraft took 20 to 25 years to achieve in North America. While the Chapter 3 standards were established in 1977, an actual phase out schedule was not proposed until the early 1990s. FAA impact assessments of the new standards indicate that all but a few currently produced aircraft types meet the new Chapter 4 standards. Those that do not meet Chapter 4 standards have or will likely have derivative series that will comply. To a certain extent, the phase-out of Chapter 3 aircraft has already commenced. The recent industry downturn has forced most large North American air carriers to withdraw large numbers of older Chapter 2 aircraft that were hushkited to nominally meet the Chapter 3 standard. Examples are the Boeing 727 and DC-9 that are less efficient to operate, and would not necessarily meet Chapter 4 standards.

Without the amendment any future aircraft certificated to the new Chapter 4 standard would not have been considered a Chapter 3 aircraft. 2

Page 16 December 2003

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CARGO CAPERS 15 December 2003

Developments in Cargo Cabotage. An amendment to the U.S. FAA Reauthorization Act authorises a limited form of cabotage for air cargo moving between Alaska and the rest of the U.S. The amendment was originally proposed by the Senate and has now been passed by both the House and the Senate and has been presented to the President. Interestingly, the Conference that was established to reconcile the House and Senate versions of the Act was chaired by Rep. Don Young (R-Alaska), chairman of the Committee on Transportation and Infrastructure. Included in the Conference as a representative from the Senate was the President Pro Tempore of the U.S. Senate, Ted Stevens (R- Alaska) – yes that Ted Stevens – the one that Anchorage International Airport is named after.

Robert Andriulaitis Director, Transportation & Logistics Studies

Cabotage provisions in the U.S. It is widely believed that cabotage – the carriage of passengers or goods between points in a single country by a foreign aircraft – is not permissible in the U.S. In fact, while U.S. law generally does not allow cabotage, it does permit the Secretary of Transportation to issue temporary cabotage rights (passenger or cargo). Such rights were authorised, for example, during one of the fuel crises of the early 1970s. What’s New? The Senate amendment would provide an additional cabotage granting power to the Secretary for cargo moving from Anchorage (or any other airport in Alaska) and other U.S. states. The Act states that even if cargo is switched between two foreign aircraft in Alaska, the leg between Alaska and the lower 48 would be considered a continuation of the international movement, not a domestic one. Currently, the transhipment provisions at Anchorage and Fairbanks allow foreign air carriers to exchange cargo in Anchorage, for onward shipment to other countries, provided the cargo is not destined to the United States. For example, if Japan Airlines has Japanese originating cargo destined to Finland, it can fly it on its cargo flight to Chicago, and drop it off in Anchorage. Finnair can pick up the cargo the next time it comes through Anchorage heading home to Helsinki. The Senate amendment would extend transhipment to U.S. destined cargo. For example, Cathay Pacific would be able to bring to Anchorage any cargo destined from Hong Kong to Chicago (on its Hong Kong – Anchorage – Los Angeles route). It would drop the Chicago bound cargo in Anchorage where it would await a Nippon Cargo Airlines flight headed to Chicago. NCA would pick it up and carry it to Chicago. That last segment, the carriage of Hong Kong originating cargo on the domestic Anchorage-Chicago leg, is currently considered cabotage and NCA cannot carry it at present. The new provision would allow it to do so. It should be noted, however, that goods having both origin and destination within the U.S. are not eligible for transport by foreign carriers under this provision. So is this really cabotage? Now some might argue that this is not really cabotage – after all, the goods involved are not U.S. goods transported between two U.S. points – we are dealing with foreignoriginating or destined goods moving between two U.S. points on a foreign aircraft. There is some merit to such an argument. However, consider the so-called 6 th freedom operations many carriers engage in. A carrier brings passengers or cargo from a foreign point to its home Page 17 December 2003

country. Those passengers or cargo are then transported to a third country. So what differentiates this from a 5 th freedom movement directly between two foreign nations? Obviously the connection in the home base. But what does that really mean? The passengers and/or goods that arrive from a foreign point at the carrier’s home country are considered a 4 th freedom movement. In other words, the carrier has simply brought traffic from a nation to its home. As far as the originating country is concerned, that traffic is now in the other country. That is what then enables the carrier to take up this traffic, and move it to a third country. It is no longer traffic of the originating country – it is traffic of the carrier’s home country. If not, that would be a 5 th freedom move – taking up traffic in one foreign nation and delivering it to another foreign nation.

Eighth Freedom: Cabotage Extension Of International Service Cathay Pacific

Hong Kong

Nippon Cargo

Anchorage

Chicago

Same thing in the Alaska air cargo situation. Traffic that foreign carriers (or U.S. carriers for that matter) drop off in Alaska essentially becomes U.S. traffic. For a foreign carrier to then pick it up and transport it to a U.S. point is in fact cabotage, regardless of where the goods originated. So while it may not be conform to the typical view of cabotage (e.g. picking up U.S. produced supplies in Chicago and transporting it to Anchorage for consumption there), it is technically cabotage. Implications for Canada? Canada’s transhipment policy does not currently allow for domestic transhipment (unless the carrier has the underlying rights). The U.S. precedent sets the table for an approach to Ottawa to take the next step in the evolution of Canada’s own transhipment policy and allow foreign carriers transhipping at Gander, Hamilton, Montréal or Windsor to exchange goods bound for the entire NAFTA marketplace – not just the NAFTA marketplace that exists outside of Canada. Welcome to the 21st century!

Page 18 December 2003

TWO TYPES OF LOW COST CARRIER? 15 December 2003

The Successful Business Model. Over the past five or so years, the low cost carrier airline business model has come to dominate the industry in terms of financial success. From Malaysia to Brazil, Australia to Europe, and throughout North America, low cost carriers such as Air Asia, GOL, WestJet, Ryanair and Southwest are recording consistent profits, even in difficult times. But are the strategies pursued by these carriers similar? There are many similarities. They all focus on keeping costs down. They tend to operate a single aircraft type. Customers are offered a stripped down service, with limited flexibility and frills. Market Selection Differences. However, upon close inspection there seem to be two groupings of carriers based on different market selection strategies. The differences are best exemplified by Ryanair and EasyJet in Europe, although Southwest and JetBlue are U.S. carriers with differences in their strategies.

Michael Tretheway Vice President & Chief Economist

Ryanair focuses on serving a wide array of destinations. Its strategy is to serve as many cities Ryanair Route Network from STD as possible. Many destinations, such as Newquay in Cornwall are served only once per day. As the map shows, Ryanair has an extensive network of 88 cities. It serves these with only 133 non-stop routes, an average of 1.5 per city served. What is especially important about Ryanair is that it uses secondary airports whenever they are available: Skvasta rather than Stockholm, Nimes rather than Marseilles, Malmo rather the Copenhagen, Rome Campino rather than Rome’s main airport, … In contrast, EasyJet serves less than half the number of cities of Ryanair, 39. But most are connected to multiple destinations. Amsterdam, for example, is connected to 11 cities alone. Altogether, EasyJet serves 125 non-stop routes, or 3.2 per destination in contrast with Ryanair’s 1.5 per destination. Most important, EasyJet almost always serves the major airport in the metropolitan region. In the U.S., Southwest is a mix of the two strategies. It uses secondary airports, when available, but in some cases will serve major airports as well. In Los Angeles, it provides service to LAX as well as Ontario and other secondary airports. JetBlue might be thought of as the EasyJet of the U.S. It tends to serve major airports. However, this is not always the case. It uses Oakland rather than San Francisco, Ontario and Long Beach rather than LAX, Fort Lauderdale and West Palm Beach rather than Miami. Dead as a Dinosaur? Both strategies produce profits. However, we heard recently a claim that the Southwest strategy is “dead as a dinosaur.” This seems a premature statement. The most profitable airline in the world in terms of operating margin is Ryanair, with a 24% return, and was profitable almost from the beginning of its history as a low cost carrier. EasyJet has had a much more difficult struggle. In the U.S., JetBlue is currently earning more than Southwest, 19.7% versus 11.9%. But the latter is hardly a failure! Its market capitalisation is greater than all of the other U.S. carriers combined, including JetBlue! Page 19 December 2003

Break-even Load Factors 75% 70% 65% percent

What is more revealing is the break even load factors of the carriers. JetBlue requires an average 71% load factor in order to cover its costs. This is similar to the network carriers (prior to 911). Southwest has a better edge, with a 5% lower break even point. The world leader is, once again, Ryanair with a 54% break even load factor. These results do not seem to support a claim that the Southwest business model is dead as a dinosaur. If anything, the JetBlue model seems a bit more fragile although both are superior business models to that pursued by the network carriers.

60% 55% 50% 45% 40% Ryanair

WestJet

Southwest

JetBlue 31

Perhaps the speaker had forgotten that the dinosaurs are not dead. Instead, they evolved into a new species: birds! There are many species of birds and not a single set of plumage which is required for soaring flight.

This is a collection of information gathered from public sources, such as press releases, media articles, etc., information from Confidential sources, and items heard on the street. Thus some of the information is speculative and may not materialize. Prepared by InterVISTAS Consulting Inc.

Page 20 December 2003

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