cair issue no. 41 - may 2006

INTERVISTAS ’CANADIAN AVIATIONINTELLIGENCE REPORT

In this issue…

Features Columns: Regular Reports:• UK Traveller Overview (p.1)• Proposed Changes to the Canada

Transportation Act (p.3)• Tweaking US Airline Foreign Ownership

Restrictions (p.14)

• Airline Data-Canada (p.7)• Airline Data-U.S. (p.8)• Airport Data (p.9)• Industry News (p.10)• Washington Report (p.16)• Ottawa Report (p.17)• InterVISTAS News (p.18)

InterVISTAS’ Canadian Aviation Intelligence ReportMay 2006 Copyright ©2005 InterVISTAS Consulting Inc., all rights reserved.Page 1

Kahlil PhilanderProject Research Analyst

UK OUTBOUND TRAVEL MARKET10 May 2006

Traffic on the riseSince 2000, UK residents have steadily increased their visits and spending abroad, although notall destinations have seen an equivalent increase in UK travellers. Total overseas visits by UKresidents have increased from 56.8 million in 2000 to 66.5 million in 2005 – this is equivalent toan average annual growth of 3.6%. Consistent economic growth is believed to be the primaryforce behind this growth, as GDP per person increased in every year between 2000 and 2005,averaging 3.8% per annum. UK travellers have also increased their average spend abroadduring this period, from £427 (C$957) per person in 2000 to £484 (C$970) in 2005. Figure 1illustrates the growth in overseas travel and expenditures by UK residents.Figure 1: Total Outbound Travel and Expenditures from the United Kingdom1

Travel by regionWestern Europe is by far the number one destination for UK travellers, capturing 76% of visitsfrom UK residents in 2005. North America was the number two travel destination with 4.9 millionvisits to the continent during 2005. This figure represents 7.4% of UK travel and a 5.9% increasein traffic from 2000 (a sharp 9/11 related drop in volume occurred between 2000 and 2001, from4.7 million visitors to 4.2 million visitors). Combined, visits to other parts of the world totalled11.3 million in 2005 (17% of total).

Although there were fewer visits to countries outside of Europe and North America, the nightsspent in these countries was the lengthiest, averaging 22 to 25 nights per visit between 2000 and2004. North American visits averaged 14 to 15 nights during this same period, while Europeanvisits averaged eight nights.

1 Source: (UK) National Statistics

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UK OUTBOUND TRAVEL MARKET– CON’TTraffic to Canada has only recently returned to its pre-9/11 levels. In 2005, Canadian inboundtraffic from the UK totalled 921,000 visitors. This was up 8.7% from the 847,000 visitors in 2004,but only 0.8% higher than the 914,000 travellers during 2000.2

Seasonal traffic peaks during the summerVisits abroad by UK residents tend to occur most frequently in the third quarter of each year(June to August), and least often during the first quarter (January to March). The third quartercharacterises the UK summer months and has close to double the number of trips as in the firstquarter. Figure 2 illustrates the seasonally and non-seasonally adjusted growth in the UKoutbound travel market.Figure 2: Number of UK Outbound Visits (by Quarter)

Holiday visits on the rise, business visits declineIn the period from 2000 to 2004, holiday visits by UK residents increased 17%, from 36.7 millionto 42.9 million. This is equivalent to an average annual increase of 4%. Despite this overallgrowth, there was a 1% decline in holiday travel to North America during this period – however,between 2003 and 2004, there was a 16% increase in visits to the region, indicating a possiblerecovery from past declines.

Visits for business purposes by UK travellers decreased from 8.9 million in 2000 to 8.1 million in2004, although this too saw a rise between 2003 and 2004 (3% increase). Visits to friends orrelatives rose from 7.2 million in 2000 to 9.8 million in 2004; passing business related trips as thesecond highest purpose of visit. Visits for miscellaneous purposes declined from 4.1 million to3.3 million during the same period.

2 Statistics Canada National Tourism Indicators: 13-009-XIB.

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PROPOSED CHANGES TO THECANADA TRANSPORTATION ACT10 May 2006

On 4 May 2006, Bill C-11 amending the CanadaTransportation Act was introduced to the House of Commonsby Lawrence Cannon, Minister of Transportation,Infrastructure and Communities. Some amendments apply toall modes of transportation and others contain specificchanges to air or rail. In addition to the CanadaTransportation Act, the Railway Safety Act is also amended toaccount for a transfer in some legislative arrangements to thelatter Act.

Many of the amendments in the Bill are identical orsubstantially similar to those included in Bill C-44, introducedby the previous government in March 2005 but not passedbefore the January 2006 election. However, C-11 containssome key differences compared to C-44, especially in the areaof rail transport. Specifically, the new bill excludes the creation of a VIA Rail Canada Act,changes to the Competitive Line Rates and changes to final offer arbitration provisions.However, it is expected the government will shortly introduce another bill, which will introduce aset of pro-shipper changes to the rail section of the Canada Transportation Act.

The table below summarises selected differences between the current legislation and proposedamendments from the old Bill C-44 and the new Bill C-11.

SubjectExisting Canada

Transportation Act(May 1996)

Bill C-44(March 2005)

Bill C-11(May 2006)

General Provisions

NationalTransportationPolicy Statement

Lengthy statement

Objective is a safe,economic, efficient, andadequate network of viableand effective servicesaccessible to persons withdisabilities that makes bestuse of all modes of transportat the lowest total cost.

Purpose is to servetransportation needs ofshippers and travelers,including persons withdisabilities, and maintaineconomic well-being andgrowth of Canada and itsregions.

Statement has beensimplified.

Retains economic, efficientand safe; adds competitive(as first item), secure andrespect the environment;drops adequate, viable andeffective. Drops accessible(though it is added back inlater), and use of all modesat the lowest total cost.

Replaces “shippers andtravelers, including personswith disabilities,” with“users.” Switches focusfrom “Canada and itsregions” to “Canadians” andrefers to enablingcompetitiveness and

Largely the same as C-44.

The same as C-44,except it adds back in“makes use of all modesof transportation at thelowest total cost.

Same as C-44.

Josh DrurySenior Analyst





Bill C-11(May 2006)

Lists several conditions bywhich the objectives are tobe achieved.

economic growth in urbanand rural areas.

Retains reference tocompetition and marketforces being the primeagents.

Drops• highest practicable safety

standards• recognition of

transportation as key toeconomic development

• mode/carrier bear fairshare of real costs ofresources

• mode/carrier receive faircompensation forimposed public duties

• rates do notdisadvantage trafficbeyond inherentdisadvantages, impedemobility of persons orexchange of goodsbetween points inCanada, or discouragedevelopment of primaryor secondary industry orexports or movement ofcommodities throughCanadian ports

• each mode iseconomically viable

Expands use of economicregulation only whennecessary to also include“strategic publicinterventions.”

Moves the objective ofaccessibility, without undueobstacles to persons,including those withdisabilities, to this list.

Adds that governments andprivate sector work togetherfor an integrated system.

Same as C-44, except itadds a section that rates& conditions should notbe obstacles to railinterswitching ormovement of goodsthrough Canadian ports.





Bill C-11(May 2006)

Members of CTA Seven Five Same as C-44

Data andReportingRequirements

Parties required to provideinformation include carriersand transportation or grainhandling undertakings

Information may be requiredfor annual reporting, policydevelopment, planning,safety or subsidy programs,infrastructure requirements,monitoring grain handling,and administration of theAct.

Minister shall prepare areport on state oftransportation every year.

Parties required to provideinformation include carriers,transportation or grainhandling undertakings,providers of services relatedto transportation, andintermediaries involved intransportation movements

Information may be requiredfor annual reporting, policydevelopment, planning,safety or subsidy programs,infrastructure requirements,monitoring grain handling,administration of the Act,and security programs.

Minister shall prepare areport on state oftransportation every threeyears.

Largely same as C-44

Mergers andAcquisitions

Minister of Transportationhas the power to reviewmergers and acquisitions inair transport only

Minister of Transportationhas the power to reviewmergers and acquisitions inall transportationundertakings. The sectionspecific to air transport isremoved and replaced withsimilar provisions for alltransportation


Air Transport

AirfareAdvertising

Carriers not required toinclude in prices all costs tobe collected by the carrier

Minister given power tomake regulations requiringcarriers to include all costsin prices


Air TravelComplaints

Air Travel ComplaintsCommissioner establishedas a temporary measure in2000

Air travel complaintsfunctions formally integratedinto the normal business ofthe CTA


Rail Transport

Passenger RailService

No provisions for disputeresolution between publicpassenger service providersand railways

CTA given the authority todecide matters such as useof rail facilities andcompensation when a publicpassenger service provider(i.e., VIA Rail) and railwayare unable to resolve suchmatters


VIA Rail Canada Not included Act created formally Not included





Bill C-11(May 2006)

Act conferring on VIA statutorystatus as a crowncorporation and defining itsmandate, structure andpowers

DiscontinuedRail Lines

Discontinued rail lines to beoffered to federal, provincial,and municipal governments

Discontinued rail lines to beoffered to federalgovernment, provincialgovernments, urban transitauthorities (whereapplicable), and municipalgovernments


Rail NoiseComplaints

No provision

No federal body ismandated to addressrailway noise

CTA authorised to reviewnoise complaints, and ifnecessary, to order railcompanies to makechanges to reduce noise


Rail CompetitiveLine Rates (CLR)

Existing provisions forsetting competitive line rates

Replaced with new sectionon “competitive connectionrates” revising theconditions and mechanismunder which rates can beset

Same as existing Act

Proposed amendments inC-44 deleted in C-11

Rail Final OfferArbitration (FOA)

Final Offer Arbitrationlimited to charges or ratesfor movement of goods, andto a single shipper

Final Offer Arbitrationextended to includeincidental services, mayapply to a single shipper orgroup of shippers, and mustapply equally to the entiregroup where applicable

Same as existing Act

Proposed amendments inC-44 deleted in C-11

RailwayRevenue Cap onGrain Movement

Formula based on tonnesand length of haul, adjustedfor costs of obtaining anddisposing of hopper cars

Formula based on tonnesand length of haul, adjustedfor costs of obtaining anddisposing of hopper carsand of changes inmaintenance costs


InternationalBridges andTunnels

Not included Section added regardingspecial provisions andregulations for internationalbridges and tunnels

A separate bill (C-3) hasbeen introduced to dealwith international bridgesand tunnels

Penalties forContraventionsof theTransportationAct

Penalties may be assessedbut no provision to bereviewed

Penalties may be assessedbut no provision to bereviewed

Penalties may beassessed but may beappealed to the Tribunalfor a review

* This table is not intended to provide legal advice.


0%5%

10%15%20%25%30%35%

May-05

Jun Jul Aug Sep Oct Nov Dec Jan-06

Feb Mar Apr

RPK ASK

WestJetWestJet

Air Canada Domestic Mainline Air Canada Domestic Mainline

-10%

-5%

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10%

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May Jun Jul Aug Sep Oct Nov Dec Jan-06

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Dom RPK Dom ASK

Jazz data is not includedin this graph

AIRLINE DATA – CANADATraffic and Load Factors on Canada’s Major Air CarriersApril 2006

Passenger TrafficRevenue Passenger Kilometres

CapacityAvailable Seat Kilometres Load Factor

Air Carrier % Changeover 2005

% Changefrom 2004

% Changeover 2005

% Changefrom 2004

Changeover 2005

Change from2004

Air Canada3 +3.0% +7.9% +1.0% +2.0% +1.7 pts(to 82.2%)

+4.5 pts(from 77.7%)

Domestic(Mainline) -6.2% -1.8% -3.1% -4.7% -2.6 pts +2.4 pts

Jazz +77.8% +108.1% +75.9% +78.3% +0.8 pts +10.2 pts

International& Charter +8.2% +13.3% +2.6% +5.0% +4.3 pts +6.2 pts

WestJet +30.4% +76.1% +14.4% +47.0% +9.7 pts(to 78.5%)

+13.0 pts(from 65.5%)

Analysis:• Air Canada domestic traffic dropped

more than domestic capacity during April2006, causing load factor to drop 2.6points. Domestic capacity continues tobe transferred to Air Canada Jazz, butthis was only the second year-over-yeardrop in domestic load factor in more than twoyears.

• Air Canada RPK growth was led bytransborder and transatlantic trafficduring April. The two regions’ trafficfigures increased 15% and 11%respectively. A modest 3% growth ininternational capacity allowedinternational load factor to rise 4.3points over April 2005.

• WestJet recorded a seventhconsecutive year-over-year increase inload factor during April 2006, risingnearly 10 points to 78.5%. April trafficincreased by 30% and capacityincreased by 14%, both led in part byexpanded transborder service.

3 Air Canada consists of all Air Canada operations with the exception of Jazz.

OTHER CARRIERS:LOAD FACTORS

CanJet: not reported

0%2%4%6%8%

10%12%

May-05

Jun Jul Aug Sep Oct Nov Dec Jan-06

Feb Mar Apr

Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International


AIRLINE DATA – U.S.U.S. Airlines Release April 2006 Traffic Figures

Traffic Data - April 2006

Airline Traffic(RPMs – millions)

Capacity(ASMs – millions) Load Factor

2,028

24.8%2,369

27.2%85.6%

1.7 pts

758

17.1%1,018

9.9%74.4%

4.6 pts

5,733

19.3%7,470

7.3%76.7%

7.6 pts

17,494

17.3%9,086

10.2%82.5%

5.0 pts

29,811

8.4 pts11,856

4.9%82.8%

2.7 pts

11,935

5.5%14,606

0.0%81.7%

4.3 pts

9,423

5.9%12,148

7.3%77.6%

1.2 pts

6,044

4.6%7,116

8.8%84.9%

3.7 pts

25,453

6.8%6,647

12.4%82.0%

4.9 pts

331

33.9%411

48.2%80.7%

17.5 pts

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

Sources: Carrier traffic reports.


Toronto Vancouver Montréal-Trudeau Calgary Edmonton Ottawa Winnipeg Halifax Victoria Kelowna Saskatoon Regina St.

John’sMarch +10.2% +8.2% +5.5% +17.5% +12.5% +7.3% +9.7% +7.1% +15.4% +19.5% +19.2% +22.2% +19.6%

1st Quarter +11.2% +7.5% +7.7% +13.7% +10.0% +8.4% +10.0% +6.3% +9.3% +16.0% +15.7% +13.3% +11.5%April +4.0% +3.9% +5.7% +3.5% +5.5% +0.1% +4.3% -0.2% +2.6% +18.8% +6.0% +3.8% +9.8%May +6.7% +5.5% +3.6% +12.2% +12.0% +5.5% +8.0% -4.5% +5.8% +26.3% +13.5% +5.7% +8.5%June +6.3% +4.0% +7.5% +10.1% +13.9% +3.4% +2.9% -0.5% +6.8% +22.7% +10.9% +12.4% +12.4%

2nd Quarter +5.7% +4.5% +5.6% +8.6% +10.4% +3.1% +5.0% -1.8% +5.1% +22.6% +10.2% +7.3% +10.3%July +3.6% +3.4% +4.0% +11.2% +11.7% +4.8% +4.5% -9.7% +1.2% +15.9% +5.2% +10.9% +14.0%

August -1.1% +2.7% +1.5% +12.7% +8.8% +4.4% +4.6% -6.4% +5.2% +26.4% +10.3% +2.4% +8.9%September +4.5% +2.6% +7.4% +7.9% +13.5% +7.1% +6.6% +0.3% +2.9% +16.1% +12.9% +13.9% +8.9%3rd Quarter +2.2% +2.9% +4.1% +10.7% +11.2% +5.4% +5.1% -5.6% +3.1% +19.6% +9.3% +8.8% +8.0%

October -0.1% +4.3% +3.7% +7.1% +16.7% -0.7% +6.4% -0.7% +3.1% +16.1% +11.8% +12.8% -0.9%November +0.6% +5.2% +4.1% +12.1% +10.7% -2.5% +6.2% +3.0% +8.5% +24.0% +18.0% +15.6% +5.0%December -0.6% +0.5% +4.3% +10.3% +4.9% -3.5% +5.4% +5.6% +3.8% +19.1% +12.2% +9.5% +7.9%

2005

4th Quarter +0.0% +3.2% +4.0% +9.8% +10.4% -2.2% +6.0% +2.4% +4.9% +19.6% +13.9% +12.5% +3.6%Full Year +4.6% +4.4% +5.4% +10.6% +10.5% +3.6% +6.5% -0.4% +5.5% +19.3% +12.3% +10.6% +8.2%January +1.1% -1.7% +1.4% +9.1% +10.7% +1.0% +2.8% +5.4% +6.2% +20.3% +10.1% +4.4% +9.7%February -0.5% +1.5% +2.1% +8.7% +10.5% +0.2% -0.6% +1.2% +1.4% +11.0% +3.0% -2.8% +7.0%

March +3.1% +3.5% +6.6% +9.0% +13.6% +3.9% +2.0% +4.8% -3.5% +15.4% +0.1% -3.8% -7.8%

2006

1st Quarter +1.3% +1.3% +3.6% +8.7% +11.8% +1.8% +1.4% +3.8% +0.9% +15.5% +4.4% -0.8% +2.0%Sources: Transport Canada and individual airports’ traffic reports.

If your airport is interested in providing InterVISTAS Consulting Inc. with its monthly passenger statistics, please email Doris Mak at [email protected].

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


NEWS ARTICLESAIR CANADA UPDATEAIR CANADA SIMPLIFIES FARESTRUCTURE ON MORE INTERNATIONALROUTES

Air Canada hasexpanded the

number of international destinations where itoffers its simplified fare structures. Passengerstravelling to or from Amsterdam, Copenhagen,Dublin, Oslo and Stockholm on Air Canada orcode-share flights can now select from one offive fare types.

AIR CANADA JAZZ LAUNCHESEDMONTON-LOS ANGELES SERVICE

On 1 May, Air CanadaJazz launched dailyyear-round service

between Edmonton and Los Angeles. Theflights are operated on 75-seat CRJ-705 aircraftand offer same-day connections to GrandePrairie and Fort McMurray.

ACTS ANNOUNCES 10-YEARMAINTENANCE AGREEMENT WITHJETBLUEAir Canada Technical Services (ACTS)announced on 25 April that it has secured a 10-year, US$200 million agreement for componentmaintenance of JetBlue’s Airbus A320 fleet.Work will be performed at ACTS’ Montréalcomponent facility.

AIR CANADA OFFERS DISCOUNT FORTRAVELLING LIGHT ON TANGO FARESOn 26 April, Air Canada introduced its new ‘GODiscount’ on its Tango class travel fares forcustomers that do not carry checked baggageand do not change their plans. Eligiblecustomers choosing the discount will save $10(US$8) one-way or $20 (US$16) round trip.

AIR CANADA REMOVES TANGO FARESFROM GDSOn 2 May, Air Canada removed its Tango faresfrom all global distribution systems (GDS) inCanada and the U.S. These fares are now onlyavailable for purchase on Air Canada’s website.

ACE REPORTS FIRST QUARTERINCOME OF $118 MILLIONACE Aviation Holdings (ACE), Air Canada’sparent company, announced on 11 May that firstquarter net income increased from a loss of $77million in 2005 to a gain of $118 million in 2006.ACE posted an operating loss of $62 millionduring the quarter, but was able to reportpositive net income due to non-operatingrevenue that included the initial public offering(IPO) of Air Canada Jazz. The Jazz IPO andsubsequent over-allotment issue raised netproceeds of approximately $232 million for ACE.

AIR CANADA INSTALLS NEW AIRPORTKIOSKSAir Canada has installed new IBM N2 kioskswith passport readers and two-dimensionalbarcode scanners in Toronto Terminal 2,Ottawa, Edmonton, and Winnipeg airports. TheIBM N2 kiosks are expected to eventuallyreplace the current Express Check-In boxes.

WESTJET UPDATEWESTJET ANNOUNCES RECORDPROFITS FOR FIRST QUARTER

On 27 April,WestJet

released its first quarter results, with recordprofits for the first quarter of 2006. Net earningsincreased to $12.9 million, up from a loss of $9.6million for the same period in 2005. Capacity forthe period increased 10.2% to 2.9 billionavailable seat miles (ASMs), while revenuepassenger miles (RPMs) increased 18.9% to 2.3billion. Load factors were up 5.8 percentagepoints to 79.4%.


NEWS ARTICLESOTHER CANADIAN AIRLINENEWSHARMONY ADDS NEW YORK AND SANFRANCISCO SERVICES

Harmony Airwayswill add two newU.S. destinations

from its Vancouver base starting in June 2006.Twice weekly non-stop services from Vancouverto Oakland International Airport will start 22June, while once daily non-stop flights to JFKInternational Airport will begin 29 June.

AIR TRANSAT LAUNCHES NEW FLIGHTSFROM TORONTO AND MONTREAL TOMADRID

Air Transat announcedon 8 May that it would beoffering up to twoToronto-Montreal-Madrid

flights per week. The seasonal service is aresult of Transat collaborating with tour operatorNolitours, and will end 30 October.

HARMONY AND CANJET PARTNER TOOPERATE COAST TO COAST NETWORKCanJet and Harmony Airways haveannounced that beginning 1 June, the twocarriers will begin a marketing partnership thatoffers coast to coast service across Canada.Harmony and CanJet will offer connectingservice to one another’s flights through TorontoPearson airport. Harmony currently offers 17weekly Vancouver-Toronto flights, while CanJetoffers service between Toronto and severaleastern Canadian and Maritime destinations.

CANADIAN AIRPORTSHANDLEX OPENS NEW BASE ATVANCOUVER

Handlex, Transat A.T.’sground handling and airservice subsidiary,announced on 2 May that

it is opening a new base at VancouverInternational Airport, resulting in the hiring of 80employees. Handlex will serve Air Transatinitially but expects to expand to serve othercarriers at Vancouver in the near future. Thecompany already operates at Montréal-Trudeau,Montréal-Mirabel, and Toronto Pearson airports.

WINNIPEG AIRPORT SHOWSINCREASED REVENUES, PASSENGERTRAFFIC IN FIRST QUARTER

Winnipeg Airports Authorityreleased its first quarter resultson 3 May, showing modestincreases in revenues, costs,

and passenger traffic. Revenues were $15.1million for the first quarter an increase of 4.8%over the same period for 2005, while revenuesbefore expenses, taxes and amortisation wereup 5.0% to $7.3 million. Passenger traffic for thefirst 3 months was up 1.7%, while commercialaircraft movements decreased 4.1%.

GTAA IMPROVES PERFORMANCE INFIRST QUARTER RESULTS

The Greater Toronto AirportsAuthority (GTAA) released itsfirst quarter results on 5 May,showing increased revenuesand passenger activity and

decreased losses compared to the same periodfor 2005. Revenues were up 7.5% to $248million while operating expenses increased 2.8%to $139 million. Accounting for total revenuesless operating expenses, debt services andamortisation, revenues under expenses were$32.9 million, compared to $40.2 million for thefirst three months of 2005. Passenger traffic onthe year is up 1.4%.


NEWS ARTICLESCARGOCARGOJET REPORTS GROWTH INTRAFFIC, REVENUES FOR FIRSTQUARTER OF 2006

Cargojet IncomeFund released its firstquarter results on 26April, showing double-

digit growth in revenues compared to the sameperiod last year. Revenues increased 14.6% to$31.4 million, while expenses grew 21.0% to$25.4 million, largely as a result of increased fuelexpenses. Traffic carried rose 6.8% to 530,000pounds per operating day.

CARGOJET AGREEMENTS TOINCREASE REVENUE BY $1.6 MILLIONCargojet has announced that recent changes toagreements with its major contractors willincrease revenue by $1.6 million per annum.The deals will result in additional cargo carriedon domestic overnight flights.

PEOPLEREED NAMED OPERATIONS VP INMONTEGO BAY

Rick Reed has been namedVice President Operations forYVR Airport Services atSangster International Airport in

Montego Bay, Jamaica. Reed is currentlyGeneral Manager at Abbotsford InternationalAirport; he will be replaced by Mike Pastro asacting GM at Abbotsford.

OTHERNAV CANADA RELEASES FEBRUARYTRAFFIC FIGURES

On 18 April, NAVCANADA released itstraffic figures forFebruary and fiscal

year-to-date for 2006, measured in weightedcharging units. Traffic for February was flatcompared to the same month the previous year,

but was up 2.7% to date for the fiscal year,which runs from 1 September to 31 August.

NAV CANADA RELEASES REVENUE-NEUTRAL SERVICE CHARGEPROPOSALNAV CANADA released on 4 May a proposal toeliminate its current temporary two percent baseadjustment and increase its base rates by thesame amount. The adjustment had been addedto eliminate a deficit in the Rate StabilizationAccount created following the decline in trafficsince September 2001, and increase theaccount up to a target balance of $50 million. Asthe account has reached this target ahead ofschedule, NAV CANADA is proposing toeliminate the adjustment effective 1 September2006. The increase in the base rate isnecessary to address an anticipated budgetshortfall in 2007, primarily due to an increase inpension costs.

ATA AIRLINES MOVES FROM SANFRANCISCO TO OAKLAND

ATA Airlines hasmoved operations on itsHawaii-bound flights

from San Francisco to Oakland InternationalAirport. The move follows ATA’s codesharingagreement with Southwest Airlines, which doesnot operate out of San Francisco. ATA operatesnon-stop flights from Oakland to Hilo, Honoluluand Maui.

ACI PACIFIC AND ASIA REGIONS TOMERGE

Airports Council International(ACI) announced on 9 May thatACI-Pacific and ACI-Asia willmerge to create the largestgeographical entity in the

organisation. The new grouping will comprise478 airports located in Vancouver, SanFrancisco, Hawaii, Oceania, Northeast andSoutheast Asia, Indo-Pakistan, the former CISStates and the Middle East.


NEWS ARTICLESOTHER – CON’T

SINGAPORE’S FIRST A380 UNDERGOESTEST FLIGHT

The first Airbus A380,scheduled to bedelivered to

Singapore Airlines by the end of the year, tookits first test flight out of Toulouse BlagnacAirport. The aircraft underwent a 2 hour 15minute flight, then returned to the airport.Singapore Airlines will deploy the plane first onthe London-Singapore-Sydney route.

GOL PLANS TO ADD BASES IN ALLSOUTH AMERICAN CAPITALS

Brazilian Airline GOL hasannounced plans to establishbases in all capitals ofcontinental South America.

GOL also flies to Argentina, Bolivia, Uruguayand Paraguay, and has recently won approval tooffer 21 weekly flights to Santiago, Chile.

UNITED TO LAUNCH NEW SERVICE TOCANADA

United Airlineshas announced

plans to offer two new transborder services,beginning 6 September. Service from SanFrancisco to Toronto will be operated with anAirbus 319, while double daily Los Angeles –Vancouver flights will be serviced with a CRJ-700.

BOEING MD-11 FLEET CONTINUESCONVERSION TO FREIGHTERS

Boeing has announcedthat more that 80% of theMD-11 fleet will beconverted to freighters by

the end of 2008. Aircraft converted for freightcurrently accounts for approximately 60% of thisfleet.

AIR PACIFIC ORDERS FIVE 787S, THREEADDITIONAL PURCHASE RIGHTS

Air Pacific, Fiji’snational airline, hasordered five Boeing

787-9s and taken three additional purchaserights. The order is part of a plan to replace AirPacific’s 747s and 767s on long-haul routes.The first plane is scheduled for delivery in 2011and will be used on flights from Nadi, Fiji toAustralia, New Zealand, North America andJapan. Air Pacific currently serves Vancouver.

ATLAS TO CUT OLD 747 FREIGHTERSAtlas Air WorldwideHoldings announcedplans on 15 May to

remove older Boeing 747 aircraft from its fleet.The decision came after a reduction in militarycharter business helped contribute to a firstquarter net loss of $3.7 million. Atlas sold one747-200 in April and plans to stop use of fivemore by mid-year. Atlas’ last 747-100 will beretired and replacement aircraft are not expecteduntil next year. Atlas is the largest operator of747 freighters.


TWEAKING US AIRLINE FOREIGNOWNERSHIP RESTRICTIONSMay 2006

Amending US Foreign Ownership Restrictions. The US Department ofTransportation (DoT) has issued a Supplemental Notice of Proposed Rulemaking (SNPRM) regardinghow it will interpret “actual control” of US airlines. A change to how foreign ownership restrictions isimportant as it will affect the ability of US air carriers to attract foreign investment, particularly fromstrategic investors. Moreover, it will also affect whether or not the European Union (EU) will ratify theso-called “first stage comprehensive air services agreement” that was reached on 18 November2005.1

Traditional US Foreign Ownership Restrictions. Airlines operating within the US,or operating international services to/from the US under a designation by the US, need to be citizensof the US. For an airline corporation, being a US citizen means:

• Being incorporated under the laws of the US or a state, territory or possession of the US;

• Having the president and at least two-third of the board of directors and managing officerscitizens of the US;

• Having at least 75% of the voting interest owned or controlled by US citizens; and

• Being under the actual control of US citizens.

This narrow definition has increasingly been seen as out of step with the globalized nature of airtransportation, with its increasing integration of global carriers, moves by other countries towardsallowing higher foreign ownership levels, and with the start of a movement towards instituting ICAO’srecommended “principal place of business” clauses in international air bilaterals in place of traditional“owned and controlled by” clauses.

The Notice of Proposed Rulemaking (NPRM). In response to concerns that USforeign ownership restrictions made US airlines unattractive to foreign strategic investors, the DoTissued an NPRM to clarify how it would interpret “actual control.” It is important to note that the DoTargued it was not changing the legislative rules (which it cannot do) but was merely clarifyingadministrative procedures to give more certainty to the industry and potential foreign investors. Someopponents, Continental in particular, have strongly indicated their belief that DoT was going beyondthe bounds of its authority and was in violation of the Constitution.

1 The US and EU are looking towards the possibility of a North Atlantic Common Aviation Area similar to whatexists between Australia and New Zealand, and within the EU. Since such a concept includes politicallysensitive issues such as right of establishment and cabotage, it is recognized that this is a longer term objective.The so-called “first stage agreement” was designed to preserve the individual open skies agreements the USalready has with fifteen European states, expand open skies to the remaining 10 EU states, have the USrecognize the concept of EU carrier, and establish a Joint Committee to work towards further liberalization. SeeCanadian Aviation Intelligence Report for December 2005 for a discussion of the proposed US-EU agreement.

Robert Andriulaitis

Vice President, Transportationand Logistics Studies


TWEAKING US AIRLINE FOREIGNOWNERSHIP RESTRICTIONS –CON’TThe DoT argued in the original NPRM that allowing foreign investors to be given decision-makingpowers over certain aspects of the airline would not harm US interests and would provide reasonableprotections for minority foreign shareholders, thereby increasing access to foreign capital andlowering the cost of capital for US air carriers.2 Closer marketing and operational ties with foreignstrategic partners could also enable US carriers to better meet the demands of the globalmarketplace. The more liberal interpretation of foreign ownership restrictions would be limited tocountries with open skies agreements and which provide similar investment opportunities to USinvestors.

Reaction to the NPRM. There were many supporters of the proposed interpretation (e.g.,ACI-North America, ACI-Europe, IATA, Association of European Airlines, Air Carrier Association ofAmerica, Atlas/Polar, Delta, FedEx, and United). However, there were also a number of dissentingparties. Opponents included a number of airlines (Alaska, Continental, US Airways, the National AirCarrier Association) as well as organized labour. More critically, there were concerns from DHS andthe FAA, and strong opposition from a number of influential members of Congress. Thus the DoTtook the step of revisiting the issues and releasing the Supplementary NRMP to clarify its position andto address these concerns.

Major Changes to the NPRM included in the SNRPM. There are a number ofchanges in the DoT’s approach.

• Delegation of permissible decision-making to foreign investors is revocable by the board ofdirectors or the voting shareholders. This will ensure that even where decision-making isdelegated, control clearly remains in US hands.

• Decision-making on safety and security matters remains in US hands, and has been expandedfrom implementation of FAA and TSA safety and security regulations to cover all safety andsecurity decisions.

• Exclusive US decision-making regarding military matters has been expanded from CRAF (CivilReserve Air Fleet) to cover all national defence airlift commitments.

As with the original NPRM, control over organizational documents (any documents that definestructure and governance) remains solely in US hands.

Next Steps. Interested parties have 60 days to provide comments on the SNPRM. It is worthnoting that although the NPRM and SNPRM are not part of the pending US-EU “open skies”agreement, the EU has made it very clear the two are related. Thus this delay means that the EUmay be unlikely to ratify the pending agreement in the near term. The New York Times evenindicated that an unidentified EU spokesman suggested ratification would not happen at all this year.

2 Decision making powers concerning organizational structure and governance, safety, security, and CRAFparticipation are still reserved only to Americans.


WASHINGTON REPORT11 May 2006

TSA Begins Roll Out of Registered TravelerProgramThe Transportation Security Administration (TSA) announcedplans to launch the Registered Traveler (RT) Program at 10-20 airports this summer, possibly expanding the programnationwide by next year. The RT program allows forregistered passengers to benefit from an expedited securityscreening process. The private sector, rather than thegovernment, will manage the program.

Venezuela Elevated to Category 1 Status After a reassessment of Venezuela’s civil aviation authority, the Federal Aviation Administration(FAA) has elevated Venezuela’s safety rating to Category 1 from Category 2 status. Theannouncement has averted a ban that would have blocked most U.S.-based airlines from operatingservices to Venezuela. The FAA had not assessed the country since 1995.

Passenger Airline Employment DownAccording to the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS),employment with U.S. scheduled passenger airlines during February 2006 fell by 6% to 404,000 full-time equivalent employees (FTE), compared to February 2005. Network carrier employment fell by8%, low-cost by 4% and regional by 1%. Among the network carriers, US Airways experienced themost significant declines in employment (down 42%), followed by United Airlines (down 32%).Among the low-cost carriers, JetBlue’s employment levels increased by 283%, while ATAexperienced a decline in employment of 55%.

Domestic Passenger Traffic Up close to 1% in First Two Months of2006In a preliminary report released by the U.S. Department of Transportation Statistics (BTS), U.S.airlines carried 96.2 million passengers during the first two months of 2006, up 0.6% from 95.6 millionduring the same period in 2005. Revenue passenger miles increased 2.1%, while available seatmiles were down 2.8%, resulting in passenger load factor growth of 3.6 load factor points. SouthwestAirlines carried 13.7 million passengers and emerged as the top ranked carrier for enplanementsduring January-February 2006.

Airlines Sign New Global Distribution System (GDS) AgreementsGalileo International, a GDS, has signed 5-year agreements with United Airlines and US Airways.Similarly, Delta Airlines signed a 7-year agreement with Sabre. This 7-year agreement is the longestcontract between a GDS and a major air carrier since GDS deregulation. Amadeus signed KLM andWorldspan signed similar pacts with Continental and American Airlines.

FAA Approves A320 Family for ETOPSThe Federal Aviation Administration (FAA) has granted Airbus approval for extended range twin-engine operations (ETOPS) for most A320 models. The A319, A320, and A321 have all receivedapproval from the FAA for routes that are up to 180 minutes from the nearest airport. Airbus expectsthe A318 to receive approval in the second half of 2006.

Jon Ash

PresidentInterVISTAS-ga2 Consulting Inc.

Washington, D.C.


OTTAWA REPORTMay 2006

Canada and U.K. Conclude “Open Skies” Air Transport AgreementOn 21 April, the governments of Canada and the United Kingdomannounced an “Open Skies” Air transport agreement between the twocountries. The agreement significantly liberalises access by each country’sair carriers to the other country and beyond. Passenger and cargo carriersfrom both countries will be permitted virtually unlimited 5th freedom flights toand from third countries via the other country and will face no restrictions onpricing for such flights. The agreement follows a similar agreement betweenCanada and the U.S., announced in November 2005, and both agreementswill take effect on 1 September 2006.

Federal Budget Confirms Commitment to Urban TransitThe federal budget, presented on 2 May, has received positive feedback from the Canadian UrbanTransit Association (CUTA) for measures including increased infrastructure investment and tax creditsfor transit use. The budget includes an increase of up to $1.3 billion in support for public transitinfrastructure, and a personal tax credit of 15.5% of the cost of monthly or annual transit passes.

NEXUS Air Program to be ExpandedThe federal budget also included an additional $25 million to expand the NEXUS air program toenhance secure passenger facilitation on flights between Canada and the U.S. The program hasbeen tested successfully at Vancouver International Airport since 2004, allowing simplified andexpedited processing for pre-cleared, low-risk air passengers. The Canadian Airports Council (CAC)welcomed the expansion as a way to maintain security for travel between the two countries withoutstifling transborder trade.

Edmonton Designated for International Air Cargo TransshipmentProgramOn 20 April, an international air cargo transshipment program was launched at EdmontonInternational Airport by Lawrence Cannon, Minister of Transport, Infrastructure, and Communities.Edmonton becomes the sixth airport in Canada with special designation for internationaltransshipment, following Montréal Mirabel, Hamilton, Windsor, Gander and Winnipeg. The programallows air cargo that is originating in and destined for points outside Canada to be moved throughCanada, and stored temporarily, before being shipped to its final destination by air, road, or rail.

Federal Government to Retain Ownership of Grain Hopper Car FleetOn 4 May, Lawrence Cannon, Minister of Transport, Infrastructure, and Communities, announced thatthe Government of Canada will retain ownership of its grain hopper car fleet. An agreement-in-principle to lease the fleet to the Farmer Rail Car Coalition (FRCC) for five years, and transferownership at the end of this period, had been reached in November 2005, but a final agreement hadnot been concluded. The Government states that amendments to the Canada Transportation Act,introduced the same day, will provide benefits to farmers as the Canadian Transportation Agency willbe able to adjust revenue caps to account for maintenance of rail cars in regulated service, estimatedto save up to $2 per tonne. The FRCC is continuing to press for the conclusion of the leaseagreement.

Sam BaroneRegional Vice President

Ottawa, ON


InterVISTAS’ Canadian Aviation Intelligence Report is a collection of information gathered from public sources, suchas press releases, media articles, etc., information from confidential sources, and items heard on the street. Thussome of the information is speculative and may not materialise.

To inquire about advertising opportunities or to provide comments/feedback on the InterVISTAS’ Canadian AviationIntelligence Report, please contact Rob Beynon at [email protected] or 1-604-717-1864.

To subscribe, please send an email to [email protected] unsubscribe, please send an email to [email protected]

INTERVISTAS NEWSMay 2006

Robert Andriulaitis Appointed as Vice President,Transportation & Logistics StudiesInterVISTAS is pleased to announce that Robert Andriulaitis has been appointed asVice President, Transportation & Logistics Studies. Mr. Andriulaitis will beresponsible for the management of studies and services to clients in transportationpolicy, cargo economics and marketing, foreign trade zone development andbusiness logistics.

Mark Haneke Appointed as Vice President,Network and Strategic PlanningInterVISTAS is pleased to announce that Mark Haneke has been appointed asVice President, Network and Strategic Planning. Mr. Haneke will continue toprovide support to InterVISTAS-ga2 clients and along with Martin Copeland andNigel Brownlow, Mr. Haneke will assist in building InterVISTAS’ airline practice inNorth America and overseas.

InterVISTAS Upcoming Speaking Engagements• Mr. Robert Beynon, Director, Airport Marketing

Pan Canadian Community Futures Conference: Whistler, BC – 30 May 2006Mr. Beynon will deliver a presentation on Building Strategic Partnerships.

• Dr. Michael Tretheway, Executive Vice PresidentAirline Finance Conference: Toronto, ON – 6 June 2006Dr. Tretheway will be delivering the luncheon presentation titled, “OvercomingTurbulence: Recovery of the Airline Industry.”

• Mr. Martin Copeland, Senior Vice President, Airline Marketing & PlanningWorld Low Cost Airline Congress (Americas): Miami, FL – 27 June 2006Mr. Copeland will participate in a panel discussion with low cost airline routeplanning personnel.

• Mr. John Weatherill, Director, Airline PlanningWorld Low Cost Airline Congress (Americas): Miami, FL – 26 June 2006Mr. Weatherill will lead a workshop for airline planners and airport marketingpersonnel. The workshop will educate participants on how to evaluate andstructure incentive programs to ensure the objectives of both airports and airlinesare met.

• Mr. Solomon Wong, Vice President, Security & PlanningAVSEC: Sydney, Australia -- 17-19 October 2006Mr. Wong will be delivering a presentation titled, “Border and Aviation Security: TheComplexity of the Challenge.”

cair issue no. 41 - may 2006

Documents

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uk traveller overview

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