Page 6 February 2003

INDUSTRYREVIEW

Page 1 InterVISTAS Consulting Inc.March 2003

Doris Mak

Senior Market Analyst

WestJet System-Wide Yield

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2000Q2

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Air Canada Domestic Yield

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AIRLINE YIELDS – NOT THEEXPLANATION OF POOR AIRLINEPROFITSAir Canada’s recent poor financial performance is not due to poor yields.1 In fact, in 2002, its yield fordomestic services rose. In contrast, WestJet has been able to stay profitable while its yields havefallen.

Air Canada’s Domestic YieldsThe graph at the right shows Air Canada’s2002 domestic yields. As is well known, in2000, the year after the merger took place,AC’s domestic yields rose significantly. Thiswas reversed in 2001, when yields declined,even prior to September 11, with the onset ofnegative economic growth in the first quarter.Trends at AC reversed again in 2002, whenyields rose in every quarter. It should benoted that the AC data include its low-costbrands, Tango and Zip. With their low fareformat, it suggests that yields for mainlineservices rose even more than the graph shows.

WestJet System-Wide YieldsIn contrast to Air Canada, which hadincreasing yields in 8 of the last 12 quarters,WestJet’s system-wide yield has ben on adownward trend in the last three years. Itsyields declined in 8 of the last 12 quarters.Fourth quarter yields in 2002 were 17%below the same quarter in 2000. In spite ofthis, the carrier has remained profitable.

Conclusions: What does this mean?

• Air Canada’s deteriorating financial situation is not due to declining yields in 2002. To thecontrary, its yields rose every quarter. The source of its trouble lies elsewhere.

• WestJet has been on a near continuous downward yield trend, yet it remains profitable.It is interesting to note that in early 2000, WJ’s yields were slightly above AC’s domestic yields, butthey are now well below. WJ’s shift to longer haul flying, where yields are lower, may be a factor.

1 Yield is measured here as revenue per revenue passenger mile. Data source: WestJet- quarterlyfinancial reports. Air Canada, various presentations to investment community, available on AC website.

Page 2 InterVISTAS Consulting Inc.March 2003

0%

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Mar-02

Apr May Jun Jul Aug Sep Oct Nov Dec Jan-03

Feb

RPKASK

WestJetWestJet

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25%

Mar-02

Apr May Jun Jul Aug Sep Oct Nov Dec Jan-03

Feb

Int'l RPKInt'l ASK

Air Canada InternationalAir Canada International

-15%-10%

-5%0%5%

10%15%20%25%

Mar-02

Apr May Jun Jul Aug Sep Oct Nov Dec Jan-03

Feb

Dom RPKDom ASK

Jazz data is not includedin this graph

Air Canada Domestic Mainline Air Canada Domestic Mainline

AIRLINE DATA - CANADAAir Canada has changed the reporting of its traffic data. In the past, monthly traffic data reportedby Air Canada excluded Jazz. Beginning with February 2003, AC’s monthly traffic report includesJazz, although its results are reported separately and not integrated with AC Mainline. The tablebelow shows both AC mainline and Jazz.Traffic and Load Factors on Canada’s Major Air Carriers – February 2003

Passenger Traffic

Revenue Passenger Kilometres

Capacity

Available Seat Kilometres

Load FactorAir Carrier

% Changeover 2002

% Changefrom 2001

% Changeover 2002

% Changefrom 2001

% Changeover 2002

% Changefrom 2001

Air Canada2 -7.9% -5.2% -4.1% -9.9% -3.6 pts(to73.2%)

+3.1 pts

Domestic(Mainline) -11.2% -10.8% -7.6% -11.1% -3.0 pts

(to 75.2%) +0.3 pts

Jazz+9.5% n/a -7.9% n/a +6.6 pts

(to 63.2%) n/a

International& Charter -9.2% -8.2% -4.8% -6.3% -3.7 pts

(to 75.3%) -1.6 pts

WestJet +49% +124% +58% +141% -4.0 pts(to 66.8%)

-5.1 pts

Note: n/a – As Jazz was not reported in 2001, a percentage change from 2001 could not becalculated.

Analysis. A number of interesting observationscan be made from the February traffic data:• WestJet continues to grow at a 50% year

over year basis.• However, WestJet’s capacity continues to

grow faster than traffic. Its load factorcontinues to decline, and now is down to the65% range.

• Air Canada’s domestic traffic continues todecline, even relative to the depressed levels of early 2002.

• Traffic for Jazz, however, is growing strongly, even as capacity is reduced somewhat; but loadfactor for Jazz is 12 points below domestic mainline services.

• Air Canada’s international traffic declined for the first time since August 2002.

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

NEW CARRIERS:LOAD FACTORS

Jetsgo: 73.6%Zip: not reportedCanJet: not reported

Page 3 InterVISTAS Consulting Inc.March 2003

AIRLINE DATA – U.S.US AIRLINES 2003 TRAFFIC FIGURES

Airline Load FactorTraffic

(RPMs – millions)Capacity

(ASMs – millions)

168.8%

á1.2 pts

8,359

á0.4%

12,156

â1.3%

65.9% 3

â5.3 pts

1,017

á6.7%

1,680

á21.9%

2 68.9%

â3.2 pts

3,963

â6.6%

5,754

â2.3%

68.6%

á1.9 pts

6,905

â1.1%

10,059

â3.8%

79.5%

á0.5 pts

0.71

á78.1%

0.89

á77.1%

73.3%

â1.1 pts

5,099

á1.1%

6,956

á2.6%

62.5%

á1.3 pts

3,363

á6.6%

5,382

á4.4%

70.2%

á0.5 pts

7,430

á0.3%

10,584

â0.4%

3 67.1%

no change

2.5

â15.5%

3.7

â15.5%

Notes.1 Includes American Airlines and American Eagle2 Includes Continental Express.3 Load factor includes scheduled service only.

Source: Carrier traffic reports.

Page 4 InterVISTAS Consulting Inc.March 2003

CHANGES TO WESTJET FLEET PLANWestJet Airlines periodically releases its multi-year fleet plan, which outlines a) the number of 737-700 jets it will take delivery of, by month; b) the number of 737-200 jets it plans to retire, by month;and c) the number of 737-700 options it may exercise, by year. In January 2003, WestJet releasedan update to its previous plan, released in May 2002. The revised plan increases the number ofaircraft it plans to operate over the next several years.

WestJet has established a firm delivery schedule for its new 737-700 jets. Although these deliverydates can be adjusted, there has been no change between May 2002 and January 2003. Allrevisions have been adjustments to the estimated retirement dates of 737-200 aircraft.

Since May 2002, WestJet decided to accelerate the retirement of two 737-200s, removing them fromthe fleet in Q4 2002, rather than Q1 2003. As a result, WestJet operated two fewer aircraft at year-end 2002 than originally planned.

WestJet will retire two additional jets in 2003, as planned; however the retirement date for the first ofthese planes has been postponed from March to August, allowing its use through much of the peaktravel season.

WestJet had originally indicated that four aircraft would be retired in 2004. However, three of theseretirements have been deferred to later years. As a result, WestJet’s total fleet capacity at year-end2004 will be 6% higher than originally planned.

These changes are summarised below, and an updated delivery calendar is included on the followingpage.

WestJet Fleet Plan

May 2002 January 2003YearEnd

737-200 737-700 Total 737-200 737-700 Total

NetAdjustment

Aircraft

NetAdjustment

Capacity

2002 23 14 37 21 14 35 -2 -5%

2003 19 25 44 19 25 44 - -

2004 15 34 49 18 34 52 +3 +6%

*WJ does not plan to convert any options until 2005.

John Weatherill

Senior Airline Analyst

Note:

Unless otherwise specified, all deliveries are 737-700 jets; all retirements are 737-200 jets.* Indicates addition/removal of 737-800s on temporary lease.Source: WestJet Airlines, effective January 1, 2003. Retirement dates are estimates only.

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

2005

2002

2003

2004

xx

xx

x

*

**

*

x x

x x x x

Page 6 March 2003

Summary of Total Year-Over-Year Passenger Traffic Performance at Selected Airports – 2002 -2003

VancouverMontreal-

Dorval Calgary Edmonton Ottawa Winnipeg Halifax Victoria Kelowna Saskatoon Regina St. John’s

January -10.3% -15.2% -4.3% -11.8% -11.4% -20.1% -5.6% -12.1% -3.0% -4.0% -8.4% -9.3%

February -9.2% -12.4% +1.1% -12.0% -10.1% -17.2% -16.4% -6.8% -0.1% -8.5% -6.2% -9.8%

March -7.0% -13.1% -2.0% -11.4% -12.9% -12.4% -17.2% -6.5% -3.0% -7.6% -7.8% -11.8%

1st Quarter -8.8% -13.6% -1.8% -11.7% -11.5% -16.5% -13.6% -8.4% -2.1% -6.7% -7.5% -10.3%

April -9.2% -13.5% -5.2% -8.1% -13.1% -9.3% -12.3% -6.4% -5.7% -13.4% -12.6% -11.0%

May -9.3% -9.5% -2.3% -4.9% -11.4% -5.7% -4.7% -5.1% -3.8% -3.0% -7.2% -7.3%

June -7.4% -9.8% -4.0% -7.0% -12.3% -6.0% -1.2% -7.4% -8.8% -9.7% -13.2% -16.8%2nd Quarter -8.6% -10.9% -3.8% -6.7% -12.3% -6.9% -6.0% -6.3% -6.1% -8.7% -11.1% -11.9%

July -7.2% -8.3% -3.6% -9.4% -6.6% -5.1% +4.4% -13.1% -6.3% -9.5% -13.0% -7.0%

August -7.7% -7.9% -2.3% -7.5% -8.8% -2.8% +7.5% -8.8% -1.7% -13.6% -10.5% -8.0%

September +12.6% +22.4% +20.1% +7.6% +23.7% +16.4% +26.1% +13.2% +11.8% +12.6% +10.5% +20.0%

3rd Quarter -2.5% -0.2% +2.9% -4.4% +0.50% +1.2% +11.2% -4.8% +0.2% -5.4% -5.8% -0.8%

October +12.5% +15.3% +14.3% -0.1% +6.4% +5.9% +7.9% +0.1% +5.7% +1.7% +4.4% -0.7%

November +4.7% +5.3% +0.6% +9.4% +3.0% +5.7% +5.7% +0.1% -1.4% +0.2% +1.2% -2.3%

December +4.3% n/a +6.9% +11.7% +6.3% +15.2% +8.1% +1.4% +4.3% +1.5% +3.2% +2.2%

4th Quarter +7.2% n/a +7.5% +6.9% -5.1% +8.9% +7.3% +0.5% +3.0% +1.1% +3.0% -0.3%

2002

Full Year -3.9% n/a +1.2% -4.1% -5.1% -3.8% +0.1% -4.8% -1.3% -5.1% -5.5% -5.7%

January n/a n/a +6.3% +3.5% +6.2% +13.0% +4.5% +2.9% +4.0% +6.8% -0.3% -5.8%

2003

February n/a n/a n/a n/a +3.9 n/a n/a n/a n/a n/a n/a n/a

Notes: Toronto does not report monthly or quarterly traffic levels.

Page 7 March 2003

Page 8 March 2003

NEWS ARTICLESAIR CANADA UPDATEAIR CANADA RAISES FUELSURCHARGEStarting March 11,Air Canada and itssubsidiaries (Tangoand Jazz) will increase its fuel surcharge ondomestic long haul flights. A C$25 surcharge,up from C$10, will be applied each way toflights over 300 miles. The surcharge for shorthaul services will remain at C$15.

AIR CANADA SUED BY TRAVELAGENTSAir Canada, along with American, United,Delta, Continental and Northwest, areamong the airlines in a class action lawsuitfiled jointly by travel agencies in Montreal andToronto and an association representing travelagents. The lawsuit claims that starting inFebruary 1995, the airlines conspired to drivedown and eliminate commissions paid toCanadian travel agents. The allegations haveyet to be proven and the lawsuit has yet toreceive certification from the Federal Court ofCanada.

AIR CANADA NEEDS TO SAVE $650MA document prepared by Air Canada statesthat it must cut labour costs by at least 20% or$650 million to remain competitive with itsdiscount rivals. Air Canada has asked flightattendants to accept concessions equaling$143 million and have asked pilots to take a15% pay cut and forgo raises and bonuses.

TANGO SEAT SALE UP TO 50% OFF,NEW NON-STOP TORONTO-ST.JOHN’S SERVICEOn March 5, Tango launched a seat saleending March 10, with discounts of up to 50%.The airline will also begin a new summer non-stop service between Toronto-St. John’s.

OTHER CANADIAN AIRLINESWESTJET RAISES TICKET PRICESIn response to increasing fuel costs, WestJethas increased its ticketprices by up to $20 forround-trip tickets.

WESTJET BEGINS SERVICE TOHALIFAXOn February 27, WestJet launched a new fourflight daily non-stop service between Halifax-Hamilton.

CANJET INTRODUCES REDUCEDFARE STRUCTUREEffective immediately, CanJet will reduce allregular fares by 40%. The fare reduction is aresponse to the overwhelming success of itsJanuary “Winter Sizzler Seat Sale.”

JETSGO ADDS CALGARY &EDMONTON TO NETWORKJetsgo has expanded itsnetwork to includeCalgary and Edmonton.The carrier will add:• daily weekday Calgary-Toronto service on

April 16 with Sunday and Saturday flightson May 4 and 24, respectively;

• daily Edmonton-Toronto service on June7;

• non-stop Montreal-Vancouver Saturdayservice on March 22; and

• weekly non-stop Montreal-Calgary serviceon May 25.

Page 9 March 2003

NEWS ARTICLESNEW QUEBEC REGIONAL AIRLINEQuebecair Express, a small Quebec City-based regional airline is expected to beginoperations in mid-March. The airline is backedby Guy Marcoux, former owner of RegionnairInc. The carrier will connect several Quebeccities including Montreal, Quebec City, BaieComeau, Rimousky, Sept-Iles and Gaspe.

HMY SET TO EXPANDDavid Ho, owner ofHMY Airways plans toexpand internationallyand is looking at non-stop flights fromVancouver to Macau. Currently, Ho is in theprocess of acquiring new Boeing 767s and777s and intends to place an order within thenext few months. In the summer, he plans toincrease focus on domestic and transborderdestinations including Toronto, Los Angelesand other US cities.

US & INTERNATIONALAIRLINESAIRLINES IMPOSE FUEL SURCHARGEON DISCOUNTED FARESNorthwest Airlines has imposed a US$10each-way fuel surcharge on all its publisheddiscount fare types systemwide. Thesurcharge applies to its discounted businessfares and all domestic and international leisurefares. American Airlines will also add a US$20charge on round-trip domestic tickets to coverthe rising cost of fuel. Other airlines areexpected to follow suit.

COURT RULES TERMINATION OF USAIRWAYS PILOT PENSION PLANThe US Bankruptcy Court has ruled that USAirways has met the “financial standards for adistress termination” of the defined benefitpension plan for its pilots. This rulingcompletes the requirements for the PensionBenefit Guaranty Corporation to begin theprocess to terminate the pension plan byMarch 31, 2003.

UNITED EXPRESS TO OFFER NEWSERVICESOn April 6, UnitedExpress will offer thrice-daily non-stop servicebetween Montreal-Chicago using CanadairCRJs. On May 5, the carrier will offer fourdaily Montreal-Washington service.

ASIANA TO BECOME STAR MEMBEROn March 1, Korean carrier Asiana becamethe 15th member of Star Alliance. The additionof Asiana to the networkmeans that member airlineswill be serving 18destinations in China with almost 600 flightsand a total capacity offering more than160,000 seats per week.

Page 10 March 2003

NEWS ARTICLES CARGOUS CARGO INCREASESUS Air Transport Association figures forJanuary show a 45% increase in revenue tonmiles for domestic cargo and a 10% increasein international cargo. Total freight volume forthe month increased 7% from the previousyear.

AIRLINES RAISE FUEL SURCHARGESBeginning in March, several airlines willincrease fuel surcharges.• Northwest Airlines, Cargolux, KLM,

Martinair, Lufthansa and BritishAirways will raise their fuel surcharges to$0.15/kg, up from the current rate of$0.10/kg.

• American Airlines increased its fuelsurcharge to US$0.15/kg for most USorigin international shipments and$0.06/lb for US domestic shipments onFebruary 24.

PILOT AIR FREIGHT REPORTSSTRONG 2002 FOURTH QUARTERTransportation and logistics service providerPilot Air Freight reported fourth quarterrevenues of $60.7 million and an increase of16% from last year in total number ofshipments. For the year, Pilot Air reportedtotal revenues of $217 million.

DEUTSCHE POST WORLD NETLAUNCHES STARDetusche PostWorld Net haslaunched Star, a group-wide valueenhancement program aimed to ensure thecomplete integration of the three whollly-owned companies DHL, Danzas-AEI andDeutsche Post Euro Express. The followingwill result from the integration:• DHL will act as single brand for all Group

Express and Logistics activities.

• Danzas-AEI will be renamed DHL DanzasAir and Ocean

DHL CANADA ACQUIRES LOOMISDHL Canada is now the third largest expressdelivery provider in Canada following itsacquisition of Mayne Logistics Loomis.

TNT IMPROVES EUROPE-US-CHINASCHEDULETNT Express has madeimprovements to itsschedule Europe-US-China schedule throughcooperative agreements with Polar Air Cargoand China Southern Airlines. TNT will:• Take one-fifth of the capacity on Polar’s

six-weekly transatlantic flights

• Take space on China Southern’s twice-weekly service from Shanghai to Liege

PANALPINA BUYS 12% STAKE INLUXAIRPanalpina, provider of airfreight services, hasacquired a 12% stake in Luxair allowingPanalpina to optimize its airfreight hub inLuxembourg. Luxair would be the operator ofPanalpina’s new logistics centre at Cargo CitySouth at Frankfurt Airport.

ATLAS AIR DEFERS 747-400FDELIVERYAtlas Air Worldwide Holdings has reachedan agreement with Boeing on the deferral of aB747-400F delivery from October 2003 untilSeptember 2006. The company is also intalks with lessors to reduce or defer operatinglease payments on five 747-200Fs and one747-300F.

ARROW ACQUIRES AGIMiami based Arrow Airhas acquired Air GlobalInternational, a majorB747 freighter operator, which offers B747-200 freighter services to Brazil, Chile,Colombia and Ecuador.

FUEL PRICES

March 5, 2003

SPOT OIL PRICES RISINGFUTURES PRICES STILL LOW

Crude Oil Price:Spot – US$36.80Increasing(up 4.8% from February)

Future:• 6 month - $30.70

(September 2003 delivery)• 12 month - $27.48

(March 2004 delivery)• 2 year - $24.21

(March 2005 delivery)• 5 year - $23.82

(March 2008 delivery)

Page 11 March 2003

AIRPORTSOTTAWA TERMINAL TO OPEN EARLYOttawa International Airport will open its newterminal complex on October 12, 2003, sixmonths earlier than expected. The C$310million complex will feature:• Two-level access roadway system

• 15 new aircraft gates

• New de-icing facility

• Combined Service Building

• Four-level parking structure

AIRCRAFTMANUFACTURERSBOMBARDIER SLASHES 3,000 JOBSAs a result of declining orders for corporateand regional jet and turboprop aircraft,Bombardier Aerospace plans to cut itsworkforce by another 3,000 employees. Thecuts will take place over the next 12 months atfacilities in Montreal, Toronto and Belfast.

EADS POSTS US$330 MILLION LOSSAirbus parent EADS reported a net loss ofUS$330 million for 2002. Revenues dropped3% to US$33 million and earnings beforeinterest and tax fell 16% to US$1.55 billion.

ROLLS ROYCE PROFITS DOWN 46%Rolls Royce reported 2002 pre-tax profits ofUS$403.5 million, down 46% from 2001.Deliveries in 2002 fell to 856 compared to1,362 in 2001.

GOVERNMENT ANDREGULATORYAIR SECURITY TAX CUT $5 ONDOMESTIC FLIGHTSFinance Minister John Manley announced cutsto the Air Travellers Security Tax of $5 ondomestic flights. The surcharge will drop to $7from $12 for each one-way ticket purchasedafter March 1 for travel within Canada. Thesurcharge for international travel will remain at$12. The lower charge was justified based on

a) allowing depreciation of investments, ratherthan single year expensing of equipment, andb) revising forecasts of air traffic. The principlethat air transport users have to pay the entirecost of aviation security has not changed.

NATS SIGNS OCEANIC AGREEMENTU.K National Air Traffic Services has signedan agreement to use and adapt Nav Canada’sGander Automated Air Traffic System at thePrestwick center under the name of ShanwickAutomated Air Traffic System. The system willbe operational in three years and will replacethe U.K.’s existing system, the Oceanic FlightData Processing System.

PEOPLE IN THE NEWSWAA WELCOMES NEW CFORichard Ball, CGA andpast president of CeridianCanada Ltd. andpreviously withPriceWaterhouseCoopers has joinedWinnipeg Airports Authority Inc. as the newVice President and Chief Financial Officer.Ball brings with him extensive experience instrategic planning, financial management,mergers, divestitures, human resourcedevelopment and continuous processimprovement.

MAY JOINS WAAPeggy May will be joining the WinnipegAirports Authority Inc. in April as the Directorof Marketing. She will have responsibility forairline, concession and land marketing andpromotion.

WAA ANOUNCES PROMOTION OFTATARYNShelley Tataryn was promoted to DirectorPeople Services, with responsibility for payroll,HR, staff planning and corporateadministration.

Page 12 March 2003

NEWS ARTICLESOTHERGAO STUDY SHOWS OLDER ENGINESEMIT LESS NITROGEN OXIDEIn an assessment released bythe US General AccountingOffice (GAO), data revealedthat newer engine designs areemitting up to 47% more nitrogen oxides ontakeoffs and landings than older models. Forexample, an older Boeing 737 powered byPratt & Whitney JT8Ds and CFM InternationalCFM56-3B/Cs emit on average 12.1 pounds ofnitrogen oxide compared with 17.8 pounds ona newer 737.

IRREGULARITY IN AIRSPACEBOUNDARIES DATAJeppesen,supplier of flightinformation, has discovered an irregularity insome of the records in the Jeppesen NavData. The irregularity will affect special useand controlled airspace boundaries. Thecompany is currently working to resolve thesituation.

Page 13 March 2003

ECONOMIC OUTLOOK:Exchange Rates and Their Implications for Airports

In the past two months, the Canadian dollar has recovered almost 10% against the US dollar.While it was 62 US cents per dollar a year ago, in recent days it has been trading above 68 UScents. What are the reasons behind this and what does it mean for airports?

Its not that the Canadian dollar is strengthening, its the US dollar which is weakening. TheUS dollar has been weakening against most of the world’s major currencies. The plot at rightshows the Euro-US exchange rate (Euro per USDollar).3 As can be seen, even beforeSeptember 11, 2001, the US dollar has been indecline. It has fallen in three stages, with themost recent beginning in October of last year.

A number of analysts viewed a decline in theU.S. dollar as inevitable. Their outlook wasbased, in part, on research showing thatcountries that have persistent and large (as apercent of GDP) net outflows of payments forgoods and services, ultimately experience currency depreciation. Such a currency outflow wassustained in the U.S. throughout the last half of the 1990s. This set the stage for a falling U.S.dollar. In the last few months, the additional impacts of rising unemployment, rock bottom interestrates and uncertainty re armed conflict also put downward pressure on the dollar.

The Canadian dollar followed the US dollardown in 2001 & 2002. The Canadian dollar fellagainst the Euro (and other currencies), just asthe US dollar did, as shown in the graph at theleft. The fall also began in the summer of 2001.

In 2003, while the US dollar continued to fallagainst the Euro, the Canadian dollar hasnot. The past few months have been different.The C$ has not experienced the same degreeof fall against the Euro and other currenciessince October 2002. This has resulted in theCanadian dollar strengthening against the US$,as we see at the right. Higher Canadian interestrates is one reason.

3 Source: Prof. Werner Antweiler, University of British Columbia.

Allison PadovaManager

Economic Services

Page 14 March 2003

The impact will not necessarily be negative for Canadian airports. What does all this mean forairports? A stronger C$ will generally result in reduced tourism. But air travel is bi-directional.Canadian airports will lose some inbound U.S. traffic, but more Canadians are likely to fly south totake advantage of the favorable exchange rate. While the tourism industry has anxiety regardingexchange rates, in some ways, airport traffic doesn’t really depend on value of the dollar.American tourists are replaced with Canadian sun seekers, but both pay AIFs.

There will be differences between airports. Those that are strong inbound tourism markets, maysee a greater reduction in inbound tourism than is offset by greater southbound traffic. On the otherhand, Canadian communities with limited inbound aviation dependent tourism, such as a numberof prairie communities, may see a positive net impact of a weaker Canadian dollar.

Page 15 March 2003

INTEGRATED APPROACH TO NEXUS

DEVELOPMENT IS NEEDEDA key initiative of the Canada-US SmartBorder Accord is the development ofexpedited border-crossing programs for low-risk, pre-approved travellers. The programswill not only increase security, they will providea "carrot" of a faster means of travellingthrough border points.

Nexus-Land. The first of these is a landcrossing program, Nexus. It is jointlymanaged by the Canada Customs & RevenueAgency (CCRA), Citizenship and ImmigrationCanada and the US Bureau of Customs andBorder Protection. Since it was launched insummer 2002, Nexus has expanded to include6 land border crossings in Ontario and B.C.Participants use an identification card, whichallows them access to special dedicated lanes,a system for faster customs declaration andpayment of duties via a pre-authorized creditcard.

Citizens and permanent residents of the U.S.or Canada can apply for a Nexus card for anCA$80 application fee. Applicants are subjectto a customs and immigration check, followedby a 20-minute interview. During theinterview, a digital photograph and 2-printfinger biometric are recorded, followed by theissuance of a card. The program has receivedinterest from an estimated 30,000 participantsto date.

Not integrated with upcoming Nexus-Air.However, the current program is challenged inseveral areas that would be relevant to afuture deployment of Nexus-Air at CanadianAirports:

§ Re-registration will be needed forNexus-Air program: Nexus-Air woulduse a full biometric technology toauthenticate an individual travellingthrough a border point. Presently, onlythe finger biometric and some facialinformation is recorded for the Nexus-Land program. Current users would needto be re-registered to participate in theNexus-Air program.

§ Card technology not machinereadable: While identity information isprinted on the card, the technology useddoes not include common barcode,PDF417, magstripe or other means ofstoring information. If the Nexus card is tobe used in an airport kiosk environment,the current set of cards will need to beupgraded to a machine readableinternational standard.

The challenge: Integration. These andother challenges will ultimately impact themarket size for expedited border clearanceprograms. Improvements are needed tointegrate Nexus programs for air and othermodes of transport. As well, it would bedesirable if it could be integrated with otherapplications such as security screening.

Solomon WongDirector

Security & Planning

Page 16 March 2003

CARGO CAPERS10 March 2003

The Minister’s Vision for Air Cargo Transportation in Canada. The long-awaited“Transportation Blueprint” was released on February 25, 2003. Entitled Straight Ahead - A Visionfor Transportation in Canada, the appropriately named document outlines a vision that does notstray from the path that Transport Canada has followed foryears. The result is reminiscent of the Clint Eastwoodclassic The Good, the Bad, and the Ugly.

A warning – don’t strain your eyes looking for the air cargovision – there isn’t one! The term “air cargo” appears oncein the document, in relation to the “scheduled economy,”then disappears from sight. Apparently the Minister, atleast when it comes to viewing air cargo, is in dire need ofthe aid of an optometrist.

The Good. The vision recognizes transportation’sfundamental role in Canada’s prosperity and our quality oflife. It recognizes the importance of competitiveness andadopts market-based system efficient as a “lastingprinciple.” It also addresses a number of other issues thatfew could argue with: safety and security; respect for the environment; removal of undue obstaclesfor persons with disabilities; partnerships among jurisdictions and with the private sector; andresearch and skills development.

The Bad. The Minister obviously feels that the current direction in air policy is the correct one.Key elements that remain in place: Canadian air carriers as symbols of our national identity;avoidance of change that might have an impact on incumbents; no right of establishment; nounrestricted access for foreign air carriers; and a gradual liberalization of air bilateral agreementswhere there is a net benefit for Canada (i.e., Canadian air carriers). The Minister fails to recognizethe differences between cargo and passenger needs, and thus ignores the potential for differentialtreatment in policy and in air bilateral agreements. In effect, Canada’s policy remains to nurtureCanadian air carriers and leave shippers to function as best they can in a restrictive environment.

The Ugly. The Minister uses terms such as “proper” and “appropriate” that hint at a greater degreeof government control. He notes the need for users to assume a larger share of the full cost oftransportation, which suggests he does not recognize that aviation users already more than covertheir costs, or that he believes aviation should remain a cash cow for the federal government.

The Air Cargo Challenge. The Minister’s Vision fails to address pressing air cargo issues. Thechallenge then is to find ways to achieve liberalization despite Straight Ahead. One opportunity isfor airports to take Transport Canada up on its invitation for comments on the blueprint and to “fill inthe gaps” concerning air cargo. Another possibility is to press for inclusion of air cargo under theGeneral Agreement on Trade in Services. Straight Ahead leaves this door open (undoubtedlyinadvertently) when it notes how Canada’s economy is one of the most open, and that asglobalization progresses, Canada and its trading partners will have to harmonize theirtransportation industries’ safety and regulatory regimes. Another opportunity is to work with otherairports globally to push for a multilateral agreement on air cargo. Canadian airports need toadvance the cause of air cargo by taking up the role of optometrist and helping correct the currentdeficient vision.

Robert Andriulaitis

Director,Cargo and Logistics Studies

Page 17 March 2003

Roland DorsayRegional Vice President

Ottawa

THE OTTAWA SCENE14 March 2003

The Feds have been active on a number of transportation fronts this month.

Budget. The Budget on February 18 earmarked new funds for future infrastructure and forsustainable development, some of which is expected to go to high-speed inter-city rail. Any use ofinfrastructure funds for aviation is unclear.

The Budget also reduced the Air Transportation Security Charge for domestic flights from $12 to $7each way in response to industry concern that the security charge was unduly harmful to air traveldemand. However, the principle that air travelers must pay the full cost of security remains.International, including transborder, continues to pay a $12 charge.

“Straight Ahead” Blueprint: On February 25, Transport Canadapresented its long awaited visioning blueprint document entitled“Straight Ahead”. It calls for no fundamental change to TransportCanada’s so-called “Made in Canada” air policy; including noliberalization of foreign ownership rules; no provision for new “rightof establishment” domestic air carriers; no provision for cabotage;and no change in approach to negotiating 5 th Freedom traffic rightson a case by case basis. Air cargo issues are ignored. This is inmarked contrast to developments in Europe, where the EuropeanCommission came out the following day with new plans toliberalize access to international traffic rights for all EU carriers fromany airport in the EU, regardless of the EU carriers’ nationality andto negotiate more liberal arrangements with the USA and others.

Bill C-26. On February 25th, the Minister also tabled Bill C-26. The Bill proposes to amendment tothe Canada Transportation Act and the Railway Safety Act. It will also enact a Via Rail Canada ActThe House Transport Committee has not yet given notice of when it will take up its consideration ofthe Bill.

Bill C-26 introduces new measures to improve transparency in advertising airfares by requiring airservice providers to indicate the total amount to be paid by the purchaser. Airport fees andcharges; security charges, and federal/provincial taxes can continue to be set out separately.Similar transparency requirements were not introduced for other competing modes such as rail andinter-city bus.

Bill C-26 also introduces new measures to enhance competition in the domestic airline industry. Itempowers the Canada Transportation Agency (the CTA) to require domestic air carriers undercertain conditions to enter into commercial agreements on such matters as Frequent FlierPrograms and Inter-line and Prorate agreements. How the Agency would perform these newregulatory functions remains far from clear.

Data. In Straight Ahead, the Minister indicated he would address the problem of the lack of dataon the aviation sector, and Bill C-26 amends section 50 of the Act to allow the Minister to collectdata. However, the Bill does not empower the Minister to make such data available. He isrequired to produce a report on the transport industry every two years, but this is unlikely todisclose much needed information, such as traffic and fare data on individual markets.

Page 18 March 2003

VIA. VIA Rail finally gets a parliamentary mandate. It has been operating since 1977 with nolegislative basis. The new Act will make it possible for VIA to borrow funds in its own right. Thiswill be important should it pursue investment in high speed rail.

The Canada Airports Act, which will set out new governance rules for the larger airports is still tocome, likely around March 17-20.

Preclearance: President Bush has signed into law new legislation that enables the US to giveCanada reciprocal treatment under the Preclearance Agreement of 2000. As a result , themodernized preclearance agreement is expected to finally come into effect when President Bushvisits Ottawa in May

This is a collection of information gathered from public sources, such as press releases, mediaarticles, etc., information from Confidential sources, and items heard on the street. Thus some of theinformation is speculative and may not materialize.

Prepared by InterVISTAS Consulting Inc.