AIR Issue No. 7 - October 2011 by Leah Dupuis

CANADIAN AVIATION INTELLIGENCE REPORT OCTOBER 2011

IN THIS ISSUE: CEO Update – p 1 Through-the-Fence Agreements and Land Use Planning – p 2 Airline Data – p 3 Airport Data – p 6 News – p 7 Asia Report – p 14 European Report – p 15 Washington Report – p 16

InterVISTAS News – p 19

CEO UPDATE October 2011

Welcome to the October 2011 edition of InterVISTAS Consulting Inc.’s Canadian Aviation Intelligence Report (CAIR). The InterVISTAS Group continues to be active in delivering a diverse range of consulting projects around the world. Some new engagements that we are working on are listed below:

Gerry Bruno CEO

Due diligence services to CCR (Brazil) InterVISTAS has been selected to provide due diligence services to CCR (Brazil) as they investigate acquiring equity stakes for Caribbean, Central and South American airports. This project is a partnership between Motta and Fernades Rocha Advogados.

Porter Airlines’ 2011 crew pairings, bases and roster polices Porter Airlines awarded InterVISTAS a new project to review implementation of the 2011 crew pairings, bases and roster polices, and a repeat of the same analysis for 2012 cockpit and cabin crew optimisation.

Liberalisation of air travel in Mongolia InterVISTAS has been awarded a project for evaluating liberalisation of air travel in Mongolia. This project is driven by Eznis, a privately owned carrier, which InterVISTAS has previously worked with.

Route forecasts and business case presentations on potential new air services to Lethbridge County Airport Lethbridge Airport Enhancement and Marketing Initiative (Take Off Lethbridge), which is jointly funded by the City and County of Lethbridge, awarded InterVISTAS a project to provide a series of route forecasts and business case presentations demonstrating the viability of potential new air services to target airlines to Lethbridge County Airport.

The October 2011 CAIR Line-Up This month, we lead off with an article on Through-the-Fence (TTF) agreements and land use planning, followed by our regular monthly columns, which include: 

Asia Report



European Report



Washington Report

We hope you enjoy this issue.

Page 1 October 2011

THROUGH–THE-FENCE AGREEMENTS AND LAND USE PLANNING October 2011

Airports sometimes allow an off-site operator airside access to the airfield through the fence line. This type of agreement is called a Through-the-Fence (TTF) agreement. The agreement outlines the terms and conditions for off-site private landowners or businesses to access the airport. Two examples of this are:

Sam Sugita Senior Analyst

1. Off-airport ground vehicles driving airside for cargo delivery to an aircraft and/or 2. Access to and from the airfield for an aircraft via taxiways and aprons from properties outside the airport fence line. These types of agreements raise significant issues for airport operations. These issues can include safety/security concerns, equality between on-airport tenants and off-airport companies, and compliance with federal regulations.

Photo Credit: Paulhami

TTF operations are not common in North America. In Canada, for example, they were used during the Second World War to allow aircraft manufacturers to access airports, such as Toronto and Winnipeg. Some of these agreements have been grandfathered, while others lapsed. In Canada, two out of 26 National Airport System airports were known to have these agreements at the time of transfer, but one of these airports has ended the agreement. Specifically, the Boeing lands at Pearson International Airport have been absorbed back into the airport authority lands.

South of the border, the U.S. Federal Aviation Administration (FAA) recognizes 75 out of 3,300 airports with TTF agreements under the National Plan of Integrated Airport Systems, or less than 1%. The U.S. recently created standards to manage airports with TTF operations to help them maintain compliance with FAA regulations for federal grants. Despite this, the FAA now discourages TTF operations because of the complexity in regulating TTF activity and managing airports as public-use facilities. Part of this is because private ownership and a TTF operation can lead to incompatible land uses around airports, which could constrain future airport development. Managing land use and identifying long-term growth requirements will help the airport respond to future airport opportunities and contingencies. A planning exercise that considers compatible land uses at the airport and its vicinity could eliminate the need for TTF agreements and issues. A collaborative planning process that involves the airport authority, the community and interested stakeholders is essential for developing consensus within the airport community for supporting sustainable airport operations. This planning exercise should be documented and enacted by the community and the airport as an Airport Master Plan or Development Plan.

Page 2 October 2011

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

September 2011 Air Carrier

Passenger Traffic Revenue Passenger Kilometres % Change % Change over 2010 from 2009

Capacity Available Seat Kilometres

Load Factor

% Change over 2010

% Change from 2009

Change over 2010

Change from 2009

Air Canada1

+3.8%

+16.0%

+3.0%

+11.7%

+0.6pts (to 82.8%)

+3.1pts (from 79.7%)

Domestic

+2.2%

+5.9%

+1.1%

+2.7%

+0.8pts

+2.4pts

International & Charter

+4.5%

+20.7%

+3.8%

+16.0%

+0.5pts

+3.3pts

+6.9%

+16.2%

+8.0%

+20.9%

-0.8pts (to 74.7%)

-3.0pts (from 77.7%)

WestJet

Analysis: Air Canada reached a record system-wide load factor of 83% for the month of September (up +0.6 percentage points from last year). This is the third consecutive month that Air Canada has reached record load factor results. Air Canada’s domestic traffic (+2.2%) and capacity (+1.1%) experienced marginal increases yearover-year. Likewise, the carrier’s international traffic (+4.5%) and capacity (+3.8%) also grew in September 2011 compared to September 2010. Air Canada’s international traffic growth is mainly due to a rise in transborder traffic (+12.0%) over the same period. WestJet reported that capacity (+8.0%) increased slightly more than traffic (+6.9%) during the period, resulting in a drop of -0.8 percentage points in its system-wide load factor percentage points (at 75%) year-overyear. The increase in capacity is likely due to WestJet’s launch of services to Las Vegas from Prince George and Hamilton at the beginning of the month.

Air Canada Mainline consists of all Air Canada operations with the exception of Air Canada Express (formerly Air Canada Jazz). 1

Page 3 October 2011

AIRLINE DATA – U.S. U.S. Airlines Release September 2011 Traffic Figures Airline

1, 2

Notes:

Traffic

Capacity

(RPMs – millions)

(ASMs – millions)

2,368 7.6%

2,968 8.7%

79.8% 0.8 pts

796 9.2%

1,097 7.8%

72.6% 0.9 pts

16,843 1.7%

20,354 1.0%

82.8% 0.5 pts

10,244 1.9%

12,592 0.3%

81.4% 1.3 pts

15,960 0.9%

19,094 2.2%

83.6% 1.1 pts

4,866 0.9%

5,818 2.7%

83.6% 1.5 pts

7,929 6.4%

10,185 3.2%

77.8% 2.3 pts

Load Factor

1. Load factor includes scheduled service only. 2. Consolidated results for United Continental Holdings. 3. Results are combined traffic results for Southwest Airlines and AirTran.

Sources: Carrier traffic reports.

Page 4 October 2011

AIRLINE DATA – INTERNATIONAL International Airlines Release September 2011 Traffic Figures Traffic

Capacity

(RPKs – millions)

(ASKs – millions)

19,314 9.3%

22,662 7.5%

85.2% 1.5 pts

18,962 4.6%

23,677 8.0%

80.1% 2.5 pts

10,547 6.0%

12,722 5.3%

82.9% 0.5 pts

9,281 5.0%

11,827 6.4%

78.5% 1.1 pts

7,353 4.7%

9,242 5.8%

79.6% 0.7 pts

5,153 24.3%

6,947 23.3%

74.1% 0.9 pts

8,476 7.0%

10,636 9.8%

79.7% 2.1 pts

Airline

3, 4

Load Factor

1. Includes Martinair. 2. Includes Lufthansa Passenger Airlines, SWISS, Austrian Airlines, British Midland, and Germanwings. 3. Includes Qantas Domestic, QantasLink, Jetstar Domestic, Qantas International, Jetstar International, and Jetstar Asia. 4. Traffic results are for August 2011 as September 2011 results are not yet posted. 5. Includes Cathay Pacific and Dragonair.

Page 5 October 2011

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

Montréal

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

August

+4.7%

-0.3%

+5.5%

+1.1%

-1.1%

+6.7%

-2.5%

-1.6%

-2.6%

+4.1%

+3.0%

+6.3%

St. John’s +6.0%

September

+6.8%

+3.0%

+10.1%

+3.4%

+2.1%

+3.9%

+1.9%

-0.2%

-2.8%

-0.5%

+5.1%

+3.6%

+1.4%

3rd Quarter

+6.2%

+2.4%

+7.4%

+3.4%

+0.2%

+5.8%

+0.5%

+1.6%

-1.6%

+2.5%

+3.6%

+7.1%

+6.7%

October

+8.6%

+7.3%

+8.4%

+3.3%

-1.8%

+2.1%

-1.0%

+0.2%

-2.0%

+3.0%

+2.2%

+4.9%

+4.4%

November

+6.2%

+5.8%

+8.1%

+1.2%

+7.1%

+2.2%

+3.9%

-3.6%

-6.1%

+5.0%

+9.5%

+6.3%

December

+5.8%

+3.0%

+5.8%

+0.4%

-2.2%

+5.6%

-0.6%

+7.2%

-3.0%

+2.4%

+3.3%

+14.9%

+8.8%

4th

+6.9%

+5.3%

+7.4%

+3.8%

-1.0%

+4.9%

+0.1%

+3.5%

-2.8%

-0.2%

+3.5%

+9.8%

+6.3%

2010

Toronto

Quarter

+6.8%

+3.0%

+8.5%

+1.9%

+0.7%

+3.2%

-2.7%

+4.0%

+1.6%

-1.9%

-2.6%

+3.9%

+1.9%

+4.6%

-3.1%

+5.1%

-1.2%

+0.3%

+3.2%

-2.2%

+12.3%

+1.5%

+4.9%

-0.3%

+2.4%

+4.8%

March

+5.0%

+0.5%

+6.0%

-0.8%

+1.7%

+0.1%

-2.6%

+1.4%

-5.6%

-3.0%

+4.7%

+5.2%

N/A

1st Quarter

+5.4%

+0.1%

+6.5%

-0.1%

+0.9%

+2.1%

-2.5%

+5.4%

-1.2%

-0.2%

+0.4%

+3.8%

N/A

April

+6.1%

+0.5%

+6.9%

+2.2%

+3.1%

+2.7%

-1.4%

+3.4%

-5.5%

-3.1%

-0.6%

+6.2%

N/A

May

+5.3%

+1.5%

+5.6%

+1.5%

+2.5%

+1.8%

-2.4%

+0.3%

-1.4%

-1.6%

+0.9%

+3.7%

N/A

June

+4.6%

+1.1%

+5.7%

+0.2%

+1.8%

+0.2%

-0.6%

+1.1%

-3.4%

+1.7%

+0.7%

-2.1%

N/A

2nd Quarter

+5.3%

+1.1%

+6.0%

+1.3%

+2.5%

+1.5%

-1.4%

+1.6%

-3.4%

-1.0%

+0.4%

+2.6%

N/A

July

+6.1%

+1.8%

+7.4%

+1.1%

+4.0%

+4.9%

N/A

+0.7%

+1.3%

-0.1%

+4.3%

-1.7%

N/A

August

+4.9%

+3.3%

+4.9%

+2.7%

+3.3%

+2.6%

N/A

+0.3%

+1.4%

-2.5%

+1.4%

-3.3%

N/A

2011

January February

Source: Transport Canada and individual airports’ traffic reports. Note: Subject to revision. Passenger traffic for some airports was not yet available at the time of publication. Page 6 October 2011

NEWS AIR CANADA CHARGES BAGGAGE FEES ON TRANSBORDER FLIGHTS

AIR CANADA UPDATE TENTATIVE AGREEMENT BETWEEN AIR CANADA AND FLIGHT ATTENDANTS’ UNION NOT RATIFIED On 20 September 2011, Air Canada reached a tentative agreement with the union representing its flight attendants, the Canadian Union of Public Employees (CUPE). Negotiations between the two parties have been about wages, pensions, crew rest and working conditions. However, on 9 October 2011, CUPE advised Air Canada that the tentative agreement was not ratified by the union membership. The flight attendants already rejected a previous agreement that was reached by the union and the airline in August 2011. Because of this on 11 October 2011, Canada's Minister of Labour, the Hon. Lisa Raitt, announced that she is referring the impasse to the Canada Industrial Relations Board (CIRB), and that any strike action cannot take place until the CIRB has come to a decision on the matter. On 13 October 2011, Air Canada filed an unfair labour practice complaint against the union for failing to bargain in good faith. The carrier’s flights continue to operate as scheduled. AIR CANADA RANKS AMONG TOP FIVE MOST ATTRACTIVE COMPANIES TO WORK FOR IN CANADA According to a survey conducted by Randstad Canada and ICMA International, Air Canada ranks among the top five most attractive companies to work for in Canada. Approximately 7,000 Canadian jobseekers and workers participated in the survey that assesses the perceived attractiveness of the top 150 largest employers in the country. Other top five companies to receive the award are Research In Motion Limited, IBM Canada Ltd., McGill University and Bombardier Inc. The Randstad Award ceremony was held in Toronto on 29 September 2011. Page 7 October 2011

Air Canada announced that beginning 7 September 2011 a baggage fee will be levied on all transborder tickets purchased for travel on 11 October 2011 and onwards. With the new fee, passengers on flights between Canada and the U.S. will be charged $25 for their first checked-in luggage and $35 for their second checked-in luggage. Prior to the announcement, Air Canada’s transborder passengers were allowed to check-in one bag without any fee. In addition, baggage fees for second checked bags on the carrier’s international flights to Africa, the Middle East, Russia, Asia, Australia and South America increased by $20, from $50 to $70.

WESTJET UPDATE WESTJET EXPANDS WAIVER OF BAGGAGE FEES FOR MILITARY PERSONNEL On 19 October 2011, WestJet announced that it will be expanding its baggage fee waiver for military personnel. Last August 2011, the carrier announced that it would be waiving baggage fees for all military personnel traveling in uniform for duty. As per the new announcement, all military personnel will not be required to pay baggage fees when travelling for business or pleasure, whether they are in uniform or civilian clothing, on all of the carrier’s flights. WESTJET RESUMES NON-STOP SERVICE BETWEEN ALBERTA AND HAWAII On 6 October 2011, WestJet announced that it will be resuming its seasonal non-stop service to Honolulu from Calgary and to Maui from Calgary and Edmonton. The flights will be offered from 15 December 2011 until 22 April 2012. The service will be operated by a Boeing 757-200 aircraft leased from Thomas Cook Airlines.

NEWS WESTJET UPDATE – CON’T WESTJET LAUNCHES SERVICES TO LAS VEGAS FROM HAMILTON AND PRINCE GEORGE WestJet launched services to Las Vegas from Hamilton and Prince George on 9 and 10 September 2011, respectively. The service between Las Vegas and Hamilton will be operated twice weekly on Mondays and Fridays. The carrier’s flight between Las Vegas and Prince George will also be operated twice weekly on Wednesdays and Saturdays. Both transborder services to Las Vegas will be offered for an 11-week trial period. WESTJET SUPPORTS BEYOND BORDERS ECPAT CANADA On 16 September 2011, WestJet announced that it supports Beyond Borders ECPAT Canada, a non-profit organization that advocates children’s rights. In particular, Beyond Borders’ mission is to eliminate child prostitution, child pornography and the trafficking of children for sexual purposes. WestJet intends to help raise awareness of the issue through its website and inflight magazine, ―up!‖ WESTJET PRESENTS AT DAHLMAN ROSE & CO. GLOBAL TRANSPORTATION CONFERENCE On 7 September 2011, Vito Culmone, WestJet’s Executive Vice President, Finance and Chief Financial Officer, presented at the Dahlman Rose & Co. Global Transportation Conference. The fourth annual conference was held in New York, N.Y. and focused on the importance of the transportation industry in today’s global economy. Dahlman Rose & Company, LLC, is a leading investment bank that specializes in transportation and other industries in the global commodities supply chain.

Page 8 October 2011

U.S. AIRLINES UPDATE AMERICAN AIRLINES REPORTS THIRD QUARTER NET LOSS OF $162 MILLION On 19 October 2011, American Airlines’ parent company, AMR Corporation, reported a net loss of $162 million for the third quarter of 2011. In the same period last year, the carrier recorded a net profit of $143 million. According to AMR Corporation, the loss is primarily due to a 41% year-over-year fuel price increase, which led to an additional fuel expense of $653 million. In order to address near-term performance, American Airlines will be reducing its mainline capacity by 3% year-over-year in the fourth quarter. The carrier also intends to retire as many as 11 Boeing 757 aircraft by the end of 2012 to reduce maintenance and fuel expenses. HAWAIIAN AIRLINES EXPERIENCES A NET INCOME DECLINE OF 16% IN THIRD QUARTER Hawaiian Holdings, Inc., the parent company of Hawaiian Airlines reported a decline in net income of 16% year-over-year with a net income of approximately $26 million in the third quarter of 2011. For the three months ended 30 September 2010, the carrier stated a net income of nearly $31 million. Hawaiian Airlines’ total operating revenue for the third quarter increased 29.5% to $456 million and operating income rose 55.2% to $610 million compared to the same period last year. The carrier forecasts that the second half of 2011 will ―look considerably better‖ than the first, as long as the price of fuel does not increase and bookings continue to hold.

NEWS U.S. AIRLINES UPDATE – CON’T SOUTHWEST AIRLINES AND AIR TRAN REACH TENTATIVE AGREEMENT WITH AIRLINE PILOTS’ UNIONS On 22 September 2011, Southwest Airlines and Air Tran announced that they have reached a tentative agreement with the unions representing their airline pilots, the Southwest Airlines Pilots' Association and the Air Line Pilots Association. The tentative agreement is regarding the future integration of the carriers’ seniority lists. The directors and executive council members of the two unions have approved the tentative agreement, but it still has to be ratified by union members. DELTA AIRLINES INTRODUCES FLIGHTS BETWEEN HAVANA AND ATLANTA On 21 September 2011, Delta Air Lines announced that it will be introducing services between Havana and Atlanta beginning 7 December 2011. Flights to Cuba will be offered once weekly, and operated using a 158-seat Boeing 737-800 aircraft. According to Marazul, the Cuban travel agency partnering with Delta Air Lines to offer the charter services, only certain travellers with reasons such as academic, intellectual, cultural, scientific, humanitarian, and religious exchange will be eligible to book flights between Havana and Atlanta. Delta Air Lines and Marazul also launched services to Cuba from Miami on 1 October 2011, and will be launching services from New York on 6 November 2011.

Page 9 October 2011

UNITED AIRLINES TO RECEIVE FIRST B787 DREAMLINER FOR NORTH AMERICA United Airlines announced that it expects to receive the delivery of its first Boeing 787 Dreamliner sometime next year. It will be the first delivery of the aircraft to a North American carrier. Prior to their merger, United Airlines and Continental Airlines each placed an order for 25 new B787 aircraft, for a total of 50 aircraft. The newly merged carriers expect to receive six B787 aircraft next year. US AIRWAYS DECREASES DAILY SERVICES AT LAS VEGAS AIRPORT BY 40% On 2 September 2011, US Airways announced that it will be decreasing its daily services at McCarran International Airport. By early next year, the carrier expects to cut its daily flights from Las Vegas by 40%. US Airways currently offers 35 daily departures from McCarran airport. Nonstop destinations from Las Vegas affected by the decrease in services include Boston, DallasFort Worth, Los Angeles, San Francisco and Fresno, California. By decreasing daily services, the carrier hopes to increase profitability.

CARGO UPDATE U.S. CONGRESS PASSES FREE-TRADE AGREEMENT WITH SOUTH KOREA On 12 October 2011, the U.S. Congress passed a freetrade agreement between the U.S. and South Korea, with hopes to double American exports and increase Korea’s international trade. The house of Congress also passed separate freetrade agreements between the U.S. and Panama and Colombia. Together, the three free-trade agreements are expected to increase U.S. exports by $13 billion per annum.

NEWS CARGO UPDATE – CON’T AVIANCA PLACES ORDER FOR FOUR A330200 FREIGHTERS On 27 September 2011, Airbus announced that Avianca, a carrier based in Columbia, placed an order for four A330-200 freighter aircraft. The new freighters will be operated by Avianca’s cargo subsidiary, Tampa. The carrier intends to expand its international cargo business and increase fuel efficiency by using the new A330200 freighters. Avianca will be the first Latin American operator to receive the freighter aircraft. IRELAND’S SHANNON AIRPORT TO CONSTRUCT CARGO LOGISTICS CENTER On 23 September 2011, Dublin Airport Authority signed an agreement with Lynxs Group, a U.S. based international air cargo property developer, to develop a global airfreight hub at Shannon Airport. The agreement includes plans for the construction of a cargo logistics centre at the airport. The facility will be temperaturecontrolled, in order to attract more high-value goods. CARGOLUX REJECTS DELIVERIES OF B7478 FREIGHTER AIRCRAFT On 17 September 2011, Cargolux announced that its board of directors decided to reject the deliveries of two B747-8 freighter aircraft. The two freighters were to be delivered on 19 and 21 September 2011. The cargo airline cited unresolved contractual issues with Boeing as reasons for declining to receive the new aircraft. Cargolux has placed a total of 13 firm orders of the B747-8 freighters. The freight carrier and the airplane manufacturer are currently working together to resolve the issues regarding the contractual dispute.

Page 10 October 2011

UPS EXPANDS AIR HUB AT COLOGNE/BONN AIRPORT UPS will be expanding its air hub at the Cologne/Bonn Airport in Germany. The expansion will include an increase in the size of its current facilities and the use of new technologies in order to process larger shipments. UPS currently handles 110,000 parcels per hour, and the expanded hub will enable the logistics company to increase this to 190,000 parcels each hour. The total cost of the project is forecasted to be $200 million. The renovation is expected to be completed by the end of 2013.

PEOPLE IN THE NEWS MIYUKI SUZUKI APPOINTED AS NEW CEO OF JETSTAR JAPAN Miyuki Suzuki has been appointed as the new CEO of Jetstar’s new budget carrier, Jetstar Japan effective 1 December 2011. Ms. Suzuki has previously served as President and CEO at KVH, a Japanese telecommunications and IT services company. She has also held senior positions at Lexis Nexis Asia Pacific, Japan Telecom and Reuters Southeast Asia. Jetstar Japan aims to begin services by the end of 2012. PIERRE-HENRI GOURGEON, AIR FRANCE KLM CEO, STEPS DOWN On 17 October 2011, PierreHenri Gourgeon, CEO of Air France KLM, stepped down. Jean Cyril Spinetta, former Air France chairman was reappointed as chairman and CEO of the Air France KLM group, and Leo Van Wijk, former KLM president, was reappointed as deputy CEO of the airline group. Spinetta and Van Wijk were instrumental in the merger between the two carriers in 2004.

NEWS METROPOLITAN WASHINGTON AIRPORTS AUTHORITY SELECTS JOHN POTTER AS PRESIDENT AND CEO

PEOPLE IN THE NEWS – CON’T ANDREW DAVID APPOINTED AS NEW CEO OF TIGER AIRWAYS AUSTRALIA Tiger Airways Australia appointed Andrew David as the new CEO of the airline. Mr. David previously served as the Chief Operating Officer of Virgin Blue for five years until November 2010. His predecessor, Tony Davis, resigned in August 2011. SOUTHWEST PROMOTES BOB JORDAN TO EXECUTIVE VICE-PRESIDENT AND CHIEF COMMERCIAL OFFICER On 22 September 2011, Southwest promoted Bob Jordan to Executive VicePresident and Chief Commercial Officer. In his new role, he will be responsible for several departments, including Marketing, Revenue Management, Customer Relations & Rapid Rewards, Customer Support & Services, the Customer Experience, and Network and Corporate Planning. Prior to his promotion, Mr. Jordan held the position of Executive Vice President Strategy & Planning. He is also the President of AirTran, and will continue to oversee AirTran’s operations in his new role. AUSTRIAN AIRLINES NAMES JAAN ALBRECHT AS NEW CEO The supervisory board of Austrian Airlines announced on 22 September 2011 that it has named Jaan Albrecht as the new CEO of the carrier. Mr. Albrecht will assume his new position on 1 November 2011. He has served as CEO of Star Alliance for the past decade. The executive board of Star Alliance has begun a search process for a new CEO to determine a successor for Mr. Albrecht.

Page 11 October 2011

John Potter was selected as President and CEO of the Metropolitan Washington Airports Authority, which operates the Ronald Reagan Washington National and Washington Dulles International Airports, effective 18 July 2011. Previously, Mr. Potter held the position of Postmaster General of the Postal Service. He served in this position for 10 years and, under his management, the postal service was recognized as one of the best places to work in information and technology by Computerworld, an information technology magazine.

AIRPORTS UPDATE CANADA POST TO BUILD PROCESSING FACILITY AT VANCOUVER INTERNATIONAL AIRPORT On 21 October 2011, Canada Post announced that it will be building a new processing facility at Vancouver International Airport (YVR). Construction of the 700,000 square-foot facility and new equipment are expected to cost $200 million. Operations at the facility are scheduled to begin in 2014. TORONTO PEARSON INTERNATIONAL AIRPORT REDUCES AIRLINE FEES On 8 September 2011, the Greater Toronto Airport Authority announced that the airport authority has approved a reduction of airline fees at the Toronto Pearson International Airport (YYZ). Beginning 1 January 2012, the overall fees charged to passenger airlines at the airport will be reduced by 2.5%, while the overall fees charged to cargo carriers will be reduced by 6.9%. In doing so, the airport authority anticipates growth in passenger and cargo traffic at the airport. This will be the fifth year that the airport authority has announced a reduction of airline fees at YYZ.

NEWS AIRPORTS UPDATE – CON’T KELOWNA INTERNATIONAL AIRPORT BEGINS CONSTRUCTION OF BUILDING EXPANSION PROJECT Kelowna International Airport (YLW) has begun the construction of the first phase of its air terminal building expansion project. The initial phase includes the extension of the terminal for a screening area for international arrivals, construction of an additional one-story facility and replacement of airport life safety systems. All together, the renovations included in Phase 1 are projected to cost a total of $7.7 million. The expansion of the international arrivals area will cost $4.7 million and is expected to be completed by fall of 2012. The total project has a budget of $50 million. VANCOUVER INTERNATIONAL AIRPORT ACKNOWLEDGED FOR SECURITY AND BORDER CLEARANCE PROGRAMS On 8 September 2011, Vancouver Airport Authority received the award for Best Airport Security & Immigration Experience during the Future Travel Experience 2011 forum held in Vancouver. The airport authority was acknowledged by the global aviation industry for the improvements it has made to its pre-flight security and border clearance programs at YVR. In particular, the airport was recognized for two of its programs – the NEXUS program and the Automated Border Clearance (ABC) program.

Page 12 October 2011

EDMONTON INTERNATIONAL AIRPORT FINISHES IN SECOND FOR AIRPORTS COUNCIL INTERNATIONAL-NORTH AMERICA MARKETING AND COMMUNICATIONS AWARD Edmonton International Airport (YEG) finished a close second for the Peggy G. Hereford Overall Award for Excellence. The award is given by the Airports Council International-North America (ACI-NA) and named after an ACI-NA Marketing and Communications Committee founding member. It focuses on airport marketing and communications programs and teams, and ranks airports according to four categories. YEG finished first in 2008, 2009 and 2010. However, Miami International Airport (MIA) was selected to win the award for 2011, as it out-ranked YEG in the ―special events‖ category this year. A total of 44 airports participated in this year’s contest. VANCOUVER INTERNATIONAL AIRPORT TESTS NEW PASSENGER SCREENING PROCEDURE A new passenger screening procedure called behavioural pattern recognition (BPR) was tested at the Vancouver International Airport (YVR) between January and July 2011. BPR includes an electronic surveillance and a psychological analysis by security staff to determine whether travellers show signs of stress or nervousness. Transport Canada is currently looking into the results and effectiveness of the new screening process. The airport hopes to be able to identify potential security threats by using the new airport security protocol.

NEWS CANADIAN TRAVEL PLANS UNAFFECTED BY POST-9/11 SECURITY CHANGES

OTHER NEWS BOEING INCREASES PRODUCTION RATE OF NEXT-GENERATION 737 AIRCRAFT On 18 October 2011, Boeing announced that it will be increasing the production of its Next-Generation 737 aircraft from 31.5 airplanes per month to 35 airplanes per month, in order to meet worldwide market demand. The aircraft manufacturer intends for the production rate of the Next-Generation 737 to increase to 38 planes a month in the second quarter of 2013 and to 42 planes a month in the first half of 2014. Boeing has made improvements to the production of the aircraft, through the implementation of more efficient processes and the increase of capital investments, so as to reach the higher production rate. INTERNATIONAL AIR TRANSPORT ASSOCIATION REPORTS DECLINE IN TRAFFIC IN AUGUST 2011 According to the August 2011 Air Transport Market Analysis released by the International Air Transport Association (IATA) on 3 October 2011, both air passenger (-1.6%) and air cargo (-1.3%) traffic declined in August 2011 compared to July 2011. In particular, IATA reports that weak domestic markets in Japan, China and the U.S. are counterweighing the effect of slightly stronger international markets. PORTER AIRLINES AWARDED ADDITIONAL SLOTS AT TORONTO CITY AIRPORT On 22 September 2011, Porter Airlines announced that it has been awarded 16 additional take-off and landing slots at Billy Bishop Toronto City Airport (YTZ). With the additional slots, the carrier will have a total of 172 slots at the airport. Porter Airlines has yet to announce specific services that it will be offering from YTZ. Page 13 October 2011

According to a survey conducted by Ipsos Reid on behalf of Global Television and Postmedia News between 26 and 30 August 2011, travel plans of majority of Canadians are unaffected by security changes implemented after the 11 September 2001 terrorist attacks in the U.S. Poll results show that 80% of survey participants are accepting of the tighter security at airports and borders. In addition, majority of the respondents indicated that they feel safe when flying. BOINGO WIRELESS REPORTS SMARTPHONES AND TABLETS MORE COMMON THAN LAPTOPS IN AIRPORTS Boingo Wireless, the WiFi service provider of over 60 airports and locations globally, reported that the use of smartphones and tablets has become more common than the use of laptops in airports. In June 2011, approximately 59% of all devices used at airports were smartphones and tablets. In particular, 83% of smartphones and tablets users used the iOS operating system, the operating system of the iPad and the iPhone. Boingo also reports that over the last five years, the WiFi device market has grown five times in size. NAV CANADA REVIEWS COMMERCIAL FLIGHTS ENTERING OTTAWA AIRSPACE NAV Canada is currently reviewing commercial flights entering the Ottawa airspace, which include routes to Toronto, Ottawa and Montréal. The review will focus on updating commercial landing approaches that were designed in the 1980s. NAV Canada hopes to shorten flight time for passengers by a few minutes, reduce greenhouse gas emissions, and save an estimated $400 million in fuel costs. If the changes are implemented, operations at the airports of the airways under review will not be affected.

THE ASIA REPORT October 2011

Air New Zealand places order for seven ATR 72-600s On 19 October 2011, Air New Zealand announced that it has placed an order for seven ATR 72-600 turboprop airplanes, along with five options. The orders are estimated to have a total value of $270 million. The new aircraft are scheduled to be delivered to the carrier between October 2012 and December 2016. Currently, Air New Zealand has a fleet consisting of 11 ATR 72-500 that are operated by Mount Cook Airline, Air New Zealand’s subsidiary carrier.

Doris Mak Director, Special Projects

Singapore Airlines plans to launch Scoot Airlines in April 2012 On 11 October 2011, The Strait Times reported that Singapore Airlines plans to launch a new lowcost, long-haul budget carrier in April 2012 that is to be called Scoot Airlines. The carrier’s services will initially be operated with a Boeing 777-200 aircraft, and inflight Internet access will also be offered onboard the aircraft. By mid-2016, the carrier intends to increase its fleet size to 14 twin-aisle aircraft. According to the newspaper, the new airline intends to offer services to several destinations in Europe, the United States, Australia and New Zealand. Singapore Airlines first announced its intentions to establish an independently managed budget carrier in May 2011.

All Nippon Airways receives first delivery of Boeing 787 Dreamliner On 26 September 2011, the first Boeing 787 Dreamliner was presented to All Nippon Airways (ANA). The new aircraft is manufactured using composite materials and modern engines, allowing it to be more fuel efficient and to fly longer-range routes. According to Boeing, the advanced technology used in the design of the aircraft will enable airlines to lower operating costs by saving 20% in fuel expenses. Other features of the 787 Dreamliner include better cabin air and large electronically dimmable windows. Boeing currently has 821 orders for the new aircraft, 55 of which are from ANA. The Japanese carrier announced that it will be using the 787 Dreamliner to operate its regular domestic services from Haneda to Okayama beginning 1 November 2011. The new aircraft will also be used on ANA’s international routes, starting with the Haneda-Beijing route in December 2011 and followed by a new Haneda-Frankfurt route in January 2012.

New aircraft demand in China to reach up to 5,000 new aircraft by 2030 On 7 September 2011, Boeing announced that it predicts that the demand for new commercial aircraft in China will reach up to 5,000 airplanes by 2030. The additional new aircraft estimated by Boeing are valued at $600 billion. In particular, over 1,000 deliveries of small and intermediate twin-aisle aircraft is expected, while close to 4,000 deliveries of single-aisle aircraft is anticipated. This is an increase of nearly 700 airplanes over the projected figures released by the aircraft manufacturing company in November 2010. The increase in demand in China is said to be driven by strong economic growth, increasing personal wealth and market liberalization in the country. Air travel demand in China is growing at approximately 7.6% per annum.

Virgin Australia to begin codeshare agreement with Delta Air Lines Virgin Australia announced that it will launch its trans-Pacific codeshare agreement with Delta Air Lines in November 2011. Ticket sales for the codeshare service between Australia and Los Angeles began on 19 September 2011 for travel beginning on 6 November 2011. Together, the two carriers will be offering two daily codeshare flights between Los Angeles and Sydney, one daily codeshare flight between Los Angeles and Melbourne, and one daily codeshare flight between Los Angeles and Brisbane. The codeshare agreement allows Virgin Australia’s flight numbers to appear on Delta Air Lines’ flights and vice-versa. Passengers of the trans-Pacific codeshare services will benefit from smoother connections to Delta’s U.S. network and easy access to the new customs and immigrations facilities at Delta’s Terminal 5 at Los Angeles International Airport. Page 14 October 2011

THE EUROPEAN REPORT October 2011

Night flights at Frankfurt Airport banned by German court

Ian Kincaid Vice President, Economic Analysis

On 11 October 2011, a court in Hessen, Germany released a ruling that bans night flights at Frankfurt Airport (FRA) when the airport’s fourth runway is opened on 21 October 2011. In particular, carriers will not be allowed to operate between 11:00 p.m. and 5:00 p.m. A total of 17 movements, comprised mostly of cargo flights, will be affected by the court’s decision. Lufthansa Cargo is one of the carriers affected by the ban, and is expecting to incur a financial loss because of the ruling. The courts ruled to ban night flights in response to aircraft noise complaints from residents in the surrounding Russelsheim and Offenbach areas. The Federal Administration Court of Germany is expected to make a decision on the operation of night flights at FRA at the end of this year or in early 2012.

airberlin reduces current fleet size by 10% to improve earnings On 21 September 2011, airberlin announced that it intends to reduce its current fleet size by 10%, from 170 aircraft to 152 aircraft by the summer of 2012. In doing so, the carrier expects to improve earnings by €200 million (US$271 million). The reduction of its current fleet size is expected to increase productivity per aircraft by approximately 200 hours per year, while the carrier’s flight performance is anticipated to decrease by only 4%. This initiative is part of airberlin’s ―Shape and Size‖ program that focuses on increasing the airline’s efficiency and productivity. Other areas that the program will be examining include flight network, process organization, and marketing.

Air France KLM places orders for A350 and B787 aircraft On 16 September 2011, Air France KLM announced that it will be placing an order for 50 new aircraft, consisting of 25 Airbus A350-900s and 25 Boeing 787-9 Dreamliners. With the A350s and B787s listed at approximately $270 million and $220 million, respectively, the total orders are valued at over $12 billion. In addition, the group’s board has also given approval for the option of purchasing 60 more aircraft, composed of 35 additional Airbus A350-900s and 25 additional Boeing 787-9 Dreamliners. This is the first joint order by the group since the two airlines merged in 2004. The A350s and B787s will be replacing the older widebody aircraft in the carriers’ current fleet, and support growth. The use of the new aircraft will also reduce noise and gas emissions, and will decrease fuel consumption by more than 15%. KLM is expected to begin operating its services using the B787 aircraft in 2016, while the first A350 is expected to be delivered to Air France in 2018. Eventually, the two carriers will be operating both aircraft types.

Seven firms confirm interest in privatization of Madrid and Barcelona airports According to Spain’s airport operating authority, Aena Aeropuertos, seven groups of companies have confirmed their interest in the privatization of Madrid Barajas International Airport (MAD) and Barcelona El Prat Airport (BCN), two of the largest airports in Spain. Five of the seven groups that are bidding for both airports include a consortium led by Ferrovial Aeropuertos, GMR Infrastructure, a group led by Aeroports de Paris, an association led by FraportAg Frankfurt Airport Services Worldwide, and a group composed of Changi Airports International, FCC Construccion and Siemens Project Ventures. The two other business groups, led by Grupo San Jose and by Abertis Airports, are only bidding for MAD and BCN, respectively. On 13 September 2011, Aena Aeropuertos announced that all seven consortia have been accepted to continue with the second stage of the bidding processes. The groups have up to 31 October 2011 to submit their technical and financial offers. The privatization process of the two airports is expected to be finalized by the end of November 2011, and the selected group(s) is(are) expected take over the airports by February 2012.

Page 15 October 2011

THE WASHINGTON REPORT October 2011

Facing Federal Economic and Budgetary Challenges

Steve Martin Senior Vice President

In the last quarter of the calendar year, Washington will be consumed with little more than budgetary matters. Congress narrowly averted another shutdown of the U.S. government in late September when the Senate passed a compromise bill to fund the government through 18 November 2011. The House-passed measure was deemed ―dead on arrival‖ in the Senate because it cut over $1.5 billion from an Energy Department loan program for help in producing fuel-efficient vehicles and another $100 million in from a loan guarantee program for renewable energy projects. The House still needs to approve the Senate deal, but it can do so by unanimous consent. The possibility of a third government shutdown in less than a year emerged after the Democraticcontrolled Senate and the Republican-controlled House failed to agree on additional funding for the Federal Emergency Management Agency (FEMA) disaster relief program. FEMA had earlier thought that it would run out of money before the end of the fiscal year. When it re-estimated its accounting and determined that it had sufficient disaster assistance funds to last through September, that news alleviated the need for an immediate stopgap measure and for disputed spending offsets. Nevertheless, the events underscored the inability of the Congress to agree on almost any spending measure. The new seeming agreement will only keep the government running through midNovember. Attention then will turn to the Congressional ―Super Committee,‖ which is making a recommendation for at least $1.5 trillion in additional deficit reduction steps to be undertaken over a ten‐year period. The Super Committee must deliver its recommendations by 23 November 2011. The White House issued its latest proposal in mid-September that offered $3 trillion in savings over 10 years. The plan includes $580 billion in cuts and reforms to mandatory programs, of which $320 billion is savings from Federal health programs, such as Medicare and Medicaid. It includes $1 trillion in savings from drawing down military engagements in Iraq and Afghanistan. It also includes corporate and personal income tax reform. The Administration also included several proposals that directly affect aviation. These are summarized below. 1. Reform the Aviation Passenger Security Fee to more accurately reflect the costs of aviation security. In 2001, the Aviation and Transportation Security Act created the Aviation Passenger Security Fee, which was to be collected to offset the costs of the Transportation Security Administration’s (TSA’s) aviation security-related activities. The fee, in conjunction with a separate fee charged directly to air carriers, was put in place to ensure that the costs of aviation security were borne by the direct beneficiaries (e.g., air passengers, airlines) of aviation security services. The fee was originally intended to recover the full costs of aviation security. The fee has been statutorily limited to $2.50 per passenger enplanement with a maximum fee of $5.00 per one-way trip. Because the fee has remained unchanged while TSA’s costs have grown, the fee now recovers only 43 percent of TSA’s aviation security costs.

Page 16 October 2011

The Administration proposed to: • • •

Replace the current ―per-enplanement‖ fee structure with a ―per one-way trip‖ fee structure so that passengers pay the fee only one time when travelling to their destination. Remove the current statutory fee limit and replace it with a statutory fee minimum of $5.00, with annual incremental increases of 50 cents from 2013 to 2017, resulting in a fee of $7.50 in 2017 and thereafter. Set aside a specific amount of fee revenue to be returned to the General Fund for deficit reduction over 10 years.

The proposed fee would collect an estimated $8.8 billion in additional fee revenue over five years, and $24.9 billion over 10 years. The Administration’s proposal would direct $15 billion to be deposited into the General Fund for debt reduction, with any additional revenues in excess of this amount being applied as offsets to TSA’s discretionary appropriations. 2. Revise payments for air traffic services. Roughly two-thirds of the air traffic control system’s current costs are financed by aviation excise taxes. Most of the tax revenue is collected from commercial aviation through ticket taxes, segment fees, international head taxes, and fuel taxes. General aviation users currently pay a fuel tax. The Administration cited an example of a large commercial aircraft paying $1,300 to $2,000 in taxes for a flight from Los Angles to San Francisco while a corporate jet flying the same route and using the same Federal Aviation Administration (FAA) air traffic services paying about $60 in taxes. The Administration proposes to establish a new mandatory surcharge for air traffic services. This proposal would create a $100 per flight fee, payable to the FAA, by aviation operators who fly in controlled airspace. Military aircraft, public aircraft, recreational piston aircraft, air ambulances, aircraft operating outside of controlled airspace, and Canada-to-Canada flights would be exempted. The revenues generated by the surcharge would be deposited into the Airport and Airway Trust Fund. This fee would generate an estimated $11 billion over 10 years. Assuming the enactment of the fee, total charges collected from aviation users would finance roughly three fourths of airport investments and air traffic control system costs. 3. Make an immediate investment in our roads, rails, and airports. In order to jumpstart critical infrastructure projects and create hundreds of thousands of jobs, the President’s plan includes $50 billion in immediate investments for highway, highway safety, transit, passenger rail, and aviation activities—with one fifth of the funding advancing a transformation of how we finance transportation infrastructure and what we finance. Included in the proposal is: • •

Improving airports. The plan includes airport improvement grants of $2 billion to improve safety, add capacity, and modernize airport infrastructure across the country. Funding for innovative transportation. The plan includes $10 billion for innovative mechanisms to finance and invest in infrastructure. This includes $4 billion to develop highspeed rail corridors; $1 billion to support NextGen Air Traffic Modernization efforts, which will employ technology to make the National Airspace System safer and more efficient; and $5 billion for infrastructure finance programs.

Page 17 October 2011

4. Revise depreciation rules for corporate purchases of aircraft. Under current law, airplanes used in commercial and contract carrying of passengers and freight can be depreciated over seven years. Airplanes not used in commercial or contract carrying of passengers or freight, for example corporate jets, are depreciated over five years. The proposal would change depreciation schedules for corporate planes that carry passengers to seven years, effective for tax years after December 31, 2012. This would reduce the deficit by $5 billion over 10 years.

Page 18 October 2011

INTERVISTAS NEWS Marcus Lam joins InterVISTAS as Director, Network Design and Financial Planning InterVISTAS is pleased to announce that Marcus Lam joined InterVISTAS as Director, Network Design and Financial Planning on 1 September 2011. Marcus comes to InterVISTAS from Air Canada (AC) in Montréal, where he has been Manager, Capacity Planning / Network Planning for the past four years. Prior to AC, he worked for Bell Canada as Associate Director, Corporate Strategy / Strategic Planning (Finance). He brings an MBA in Strategic Management from the Rotman School of Management and a BASc in Electrical Engineering from the University of Toronto. In his new role, Marcus will be a key member of the Aviation Practice Group, leading the development of market analysis, market forecasting, and long term network design for airlines.

Dr. Paul Paflik joins InterVISTAS as Executive Contract Consultant InterVISTAS is pleased to announce that Dr. Paul Paflik has joined InterVISTAS as an Executive Contract Consultant. Dr. Paflik, a native of Austria, has an extensive international aviation background. Before his engagement as aviation consultant, he was with Austrian Airlines, member of the Lufthansa Group, for over 25 years in various top management positions. These positions included International Contract and Labor Law, Head of Government Affairs, Director Strategy & Planning, and Vice President Ground Operations, in which Paul was responsible for over 1,000 employees worldwide. From 2005 to 2009 Paul worked in New York as General Manager in charge of operations for Austrian Airlines in North and South America. He has worked with governments, airlines and airports around the globe. Paul makes an excellent addition to our growing Airline Business Services team.

Christopher Warren joins InterVISTAS as Executive Contract Consultant InterVISTAS is pleased to announce that Christopher Warren has joined InterVISTAS as an Executive Contract Consultant. Chris Warren joins InterVISTAS’ Airline Practice. With background in American Airlines, Transworld Airlines and Seabury APG, Chris will add senior airline experience to our growing Airline Practice. Chris will contribute to airline projects with his extensive background in airline planning and finance. He will also focus on developing airline projects in North America.

Page 19 October 2011

InterVISTAS Recent and Upcoming Speaking Engagements Dr. Mike Tretheway, President, InterVISTAS Consulting Inc., Executive Vice President and Chief Economist, InterVISTAS Group Canadian Council for Aviation & Aerospace: Winnipeg, MB – 20 October 2011 Dr. Tretheway will be providing an industry update. BC Hospitality Conference: Vancouver, BC – 9 November 2011 Dr. Tretheway will be giving a presentation entitled ―Hotel Industry vs. Airline Industry on Rate Parity, Integrity and Transparency. Who Has the Right Strategy to Win the Price War?‖ George Novak, Director, Safety, Borders & Security Airport Consultants Council 2011 Global Business Summit: Washington, DC – 30 November 2011 Mr. Novak will be participating on a panel on ―Doing Business Globally‖ with representatives from Parsons, Bechtel and C&S Companies.

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 Robert Andriulaitis at robert.andriulaitis@intervistas.com or 1-604-717-1807. To subscribe, please send an email to subscribe@InterVISTAS.com To unsubscribe, please send an email to unsubscribe@InterVISTAS.com Page 20 October 2011