cair issue no. 64 - july 2008

CANADIAN AVIATION INTELLIGENCE REPORT

In this issue…

Features Columns: Regular Reports: • North America Airline Capacity Cuts (p.1) • Cash Position of North American Airlines (p.3) • The Caribbean Report (p.12) • The Asia Report (p.13) • The European Report (p.14) • The Ottawa Report (p.15) • The Washington Report (p.16) • Flying Has Never Been Better (p.17)

• Airline Data - Canada (p.4) • Airline Data – U.S. (p.5) • Selected Canadian

Airport Data (p.6) • News (p.7) • InterVISTAS News (p.19)

InterVISTAS’ Canadian Aviation Intelligence Report July 2008 Copyright ©2008 InterVISTAS Consulting Inc., all rights reserved. Page 1

Geneva Tretheway Senior Analyst

NORTH AMERICAN AIRLINE CAPACITY CUTS July 2008

As a follow-up to last month’s column, North American Airline Capacity Cuts, here is an update for July 2008. The figure below shows the percentage change in airline seat capacity in July 2008 versus July 2007.

-10%-8%-6%-4%-2%0%2%4%6%8%

10%12%

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N/A N/A N/A

US Full Service US Low-Cost US Regional Canada

Airline capacity changes July 2008 vs July 2007

Source: OAG Schedules, July 2008 and July 2007.

In July 2008, we see most US Full Service carriers decreasing their year-over-year capacity, with only Northwest and Continental showing positive changes. US Low-cost carriers have continued to increase their seat capacity, although they have slightly slower year-over-year growth this month than in June. The US Regional carriers are showing the most dramatic changes this month. Midwest, who recently announced staff cuts of 40%, has had a significant decrease in capacity for July at -7.5%. The airline indicated that there will be schedule adjustments starting in September in addition to the staff cuts. This compares to Allegiant, which continues to grow but has slowed down to about half its June Y-O-Y increase.

As for the Canadian carriers, Air Canada dropped to nearly flat growth in July, while WestJet maintains its growth just above 10%. Jazz, regional carrier for Air Canada, announced its capacity would decrease by 5% as part of Air Canada’s previously announced capacity cuts for Q4 2008. As a result of this capacity reduction, Jazz stated it would cut 270 employees from its ranks in an effort to reduce its costs during the current high-priced fuel environment.


Geneva Tretheway Senior Analyst

NORTH AMERICAN AIRLINE CAPACITY CUTS – CON’T The table below summarises the changes in seat capacity for each carrier group. Capacity gains by the low-cost group are being outpaced by cuts made by the regional group, but all of this is overshadowed by the level of capacity cuts being made by the full service group of airlines. The overall effect of the full service group cuts however is small, less than -1% year-over-year. Canada is maintaining growth, though at a slow pace at the moment with +4.2% year-over-year.

Change in Seat Capacity Airline Group

July Y-O-Y June Y-O-Y

US Full Service -1.1 million -1.5 million

US Low-Cost +0.4 million +0.6 million

US Regional -0.6 million -0.5 million

Canada +0.2 million +0.3 million


Connie Chang Project Analyst

CASH POSITION OF NORTH AMERICAN AIRLINES July 2008

With the global struggle against surging fuel prices, the airline industry has been suffering from financial losses that threaten the viability of air carriers. As a result, it has become a crucial time for airlines to maintain a strong cash position, particularly with a tight credit market.

According to a press release from Air Canada, for every dollar increase in the price of a barrel of oil, Air Canada’s annual fuel expense increases by an estimated $26 million. Among the nine North American carriers reviewed, Air Canada experienced the largest percentage decline in level of cash, cash equivalents and short term investments during the first quarter of 2008 over the same period in 2007. This is accompanied by a net income loss of approximately US$296 million for the first quarter of 2008. WestJet, on the other hand, managed to achieve a positive net income of roughly US$54 million during the same period, as well as maintain a strong cash position over the year. The low cost carrier saw an overall increase in unrestricted cash, cash equivalents and short-term investments of 67.2% during the first quarter of 2008 over 2007.

Many of the major U.S. carriers also struggled to maintain their cash positions and positive levels of income during Q1 2008. Among the six US legacy carriers, American Airlines experienced the largest decline in cash, cash equivalents and short-term investments by 16.1% during the first quarter of 2008 over 2007. Similar to Air Canada, American Airlines also experienced an overall net loss as of 31 March 2008 (US$328 million). Southwest Airlines and Northwest Airlines (NWA) were the only US carriers included in the analysis that saw an improvement in its cash position during the first quarter of 2008 over 2007. However, NWA experienced a net income loss of $4.1 billion in Q1 2008.

However, despite the recent decline in cash positions for many North American air carriers, their cash positions are much stronger than those prior to the wave of bankruptcies from 2001 to 2003.

Table 1: Financial Position of Select North American Carriers, First Quarter 2008 Net Income

(millions US$) Cash, Cash equivalents and Short -Term

Investments (millions US$) Airline

Q1 2008 Q1 2008 Q1 2007 Percent Change

WestJet* 54 805 481 67.2% Southwest Airlines 34 3,122 1,933 61.5% Northwest Airlines (4,139) 3,227 3,034 6.4% US Airways (236) 2,070 2,174 -4.8% Continental Airlines (80) 2,500 2,640 -5.3% Delta Airlines (6,390) 2,600 2,900 -10.3% United Airlines (537) 2,924 3,369 -13.2% American Airlines (328) 4,519 5,383 -16.1% Air Canada* (296) 1,431 2,021 -29.2%

Source: Quarterly financial statements and press releases from individual carrier’s website. Notes: Unrestricted values were reported for all of the above carriers, except for Southwest Airlines, American Airlines and Air Canada, in which this was unspecified. Figures were reported in Canadian dollars and converted to US dollars using the March 2008 closing exchange rate of 1.0265, according to the Bank of Canada.


AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers June 2008

Passenger Traffic Revenue Passenger

Kilometres Capacity

Available Seat Kilometres Load Factor Air Carrier

% Change over 2007

% Change from 2006

% Change over 2007

% Change from 2006

Change over 2007

Change from 2006

Air Canada1 +2.8% +4.0% +3.3% +4.4% -0.3pts (to 83.1%)

-0.3pts (from 83.4%)

Domestic (Mainline) +5.3% +7.0% +5.7% +5.6% -0.3pts +1.0pts

Jazz -7.9% +4.2% -3.6% +5.1% -3.4pts -0.6pts International & Charter +1.8% +2.8% +2.2% +3.9% -0.4pts -0.6pts

WestJet +17.8% +43.1% +23.1% +44.1% -3.4pts (to 76.5%)

-0.6pts (from 77.1%)

Analysis:

• Air Canada Mainline’s domestic sector, which increased by 5.3% over June 2007, contributed to overall passenger traffic growth of 2.8%. Domestic seat capacity increased over June 2006 (+5.6%), contributing to a system-wide increase of 3.3% compared to last year. The carrier’s domestic load factor decreased slightly from 80.6% in June 2007 to 80.3% in June 2008.

• Air Canada Mainline’s international sector experienced moderate growth in both passenger traffic and seat capacity levels, augmenting by 1.8% and 2.2%, respectively, compared to June 2007. The “Latin America and Other” region continues to show strong capacity growth as the sector grew by 23.1% in June. This growth is most likely a residual effect of the increased frequencies to Cuba, Mexico, Jamaica, Hawaii, and St. Lucia introduced in April and May. International load factors declined slightly from June 2007 (84.7%) to June 2008 (84.3%).

• WestJet reported a 3.4 pt drop in its system-wide load factor from June 2007 to June 2008, a likely effect of the 23.1% increase in available seat capacity during the period. This is the third consecutive month that WestJet’s seat capacity increases have outpaced increases in traffic. However, the carrier reported consistent passenger traffic growth of 17.8% over June 2007 and 43.1% over June 2006.

1 Air Canada Mainline consists of all Air Canada operations with the exception of Jazz.

-2%-1%0%1%2%3%4%5%6%7%8%9%

Mar-07

May Jun Jul Aug Sep Oct Nov Dec Jan-08

Feb Mar Apr May June

Dom RPK Dom ASK

Air Canada Domestic Mainline Air Canada Domestic Mainline

Jazz data is not included in this graph

-2%-1%0%1%2%3%4%5%6%7%8%9%

Mar-07

May Jun Jul Aug Sep Oct Nov Dec Jan-08


Dom RPK Dom ASK

Air Canada Domestic Mainline Air Canada Domestic Mainline

Jazz data is not included in this graph

-2%-1%0%1%2%3%4%5%6%7%

Apr May Jun Jul Aug Sep Oct Nov Dec Jan-08


Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

-2%-1%0%1%2%3%4%5%6%7%



Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

0%

5%

10%

15%

20%

25%



RPK ASK

WestJetWestJet

0%

5%

10%

15%

20%

25%



RPK ASK

WestJetWestJet


AIRLINE DATA – U.S. U.S. Airlines Release June 2008 Traffic Figures

Airline Traffic (RPMs – millions)

Capacity (ASMs – millions) Load Factor

2,304 ↑2.3%

2,774 ↑3.2%

83.1% ↓0.7 pts

736

↓8.6% 980

↓2.3% 75.1% ↓5.2 pts

6,877 ↑0.7%

8,795 ↑5.7%

78.2% ↓3.9 pts

1 8,629 ↓0.1%

10,316 ↑2.5%

83.6% ↓2.1 pts

2 10,344 ↓3.6%

11,965 ↓0.6%

86.5% ↓2.6 pts

11,849 ↓3.1%

13,863 ↓1.2%

85.5% ↓1.7 pts

11,690 ↑0.2%

13,684 ↑0.7%

85.4% ↓0.5 pts

7,264 ↑4.4%

8,366 ↑5.9%

86.8% ↓1.2 pts

2 5,665 ↓0.5%

6,665 ↑0.4%

85.0% ↓0.8 pts

1,886 ↑15.5%

2,226 ↑13.0%

84.7% ↑1.8 pts

1,061 ↓1.3%

925 ↓1.1%

87.2% ↑0.2%

Notes: 1. Mainline operations only. 2. Load factor includes scheduled service only. Sources: Carrier traffic reports.

InterVISTAS’ Canadian Aviation Intelligence Report July 2008 Copyright ©2008 InterVISTAS Consulting Inc., all rights reserved.

Page 6

Source: Transport Canada and individual airports’ traffic reports. N/A: not available at press time. Note: Subject to revision.

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

John’s May +0.3 +2.4% +6.3% +8.6% +17.5% +7.3% +8.7% -2.5% +6.2% +17.8% +12.7% +9.9% -4.2% June +1.3% +1.8% +8.6% +7.6% +22.2% +7.6% +7.5% +3.4% +1.9% +14.7% +11.6% +8.0% -1.0% 2nd

Quarter +0.8% +2.7% +7.9% +9.1% +19.5% +7.6% +9.3% +0.4% +5.8% +17.7% +12.1% +8.4% -1.2%

July -0.4% +0.2% +10.9% +5.4% +17.8% +9.0% +3.9% +4.4% +6.7% +7.4% +4.6% +13.6% -6.5% August +0.7% +2.6% +10.4% +7.1% +17.1% +6.6% +5.0% +4.4% +5.4% +9.2% +9.0% 5.7% -5.8%

September +1.5% +3.6% +8.9% +7.9% +12.4% +3.7% +1.9% +4.2% +6.1% +9.6% +7.9% +10.5% -0.6% 3rd

Quarter +0.5% +2.1% +10.1% +6.8% +15.9% +6.4% +3.7% +4.3% +6.1% +8.7% +7.2% +9.9% -4.6%

October +3.7% +3.2% +8.4% +8.3% +13.9% +8.4% +3.5% +4.6% +8.0% +7.5% +7.2% +5.5% +5.2% November +5.0% +7.7% +6.1% +8.0% +15.9% +11.0% +5.7% +5.7% +10.8% +4.2% +8.4% +9.1% +0.8% December +2.8% +4.4% +8.1% +3.7% +8.2% +9.2% +3.8% +4.2% +8.1% +3.7% +7.5% +3.7% -5.5% 4th Quarter +3.8% +5.2% +7.3% +7.1% +12.4% +9.5% +4.0% +4.8% +8.9% +5.0% +7.7% +6.0% +0.5%

2007

Full Year +1.7% +3.3% +8.7% +8.5% +16.3% +7.4% +5.5% +2.7% +6.6% +11.3% +8.6% +10.2% -0.2% January +4.8% +9.2% +4.1% +4.9% +7.6% +6.4% +4.4% +2.2% +6.1% +7.8% +9.2% -0.3% -2.4% February +7.7% +12.8% +9.9% +7.4% +10.2% +8.3% +7.4% +8.6% +7.9% +10.3% +9.1% +8.3% +3.6%

March +6.2% +8.0% +2.2% +7.9% +8.2% +6.8% +4.7% +20.4% +2.5% +0.9% +19.0% +15.8% +5.8% 1st Quarter +6.2% +9.9% +5.2% +6.8% +8.6% +7.2% +5.5% +11.2% +5.4% +6.2% +12.2% +7.6% +2.5%

April +5.5% +6.2% +3.4% +2.4% +5.2% +10.0% +4.6% +9.2% +3.2% -0.8% +1.9% +3.4% +2.5%

2008

May +5.1% +6.7% +1.2% +2.9% +5.9% +7.6% -2.1% +12.1% +3.3% +1.0% +3.5% +5.3% +5.2%

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


NEWS AIR CANADA UPDATE AIR CANADA UNVEILS CAPACITY CONTROL PLAN

On 2 July 2008, Air

Canada (AC) identified eight routes being cancelled as part of its capacity control plan to combat surging fuel prices. The plan, which will curtail fourth-quarter capacity by 7% compared to last year, was initiated 2 June 2008 with the elimination of service between Calgary and Prince George, BC. Hamilton-Montreal and Hamilton-Ottawa services will be terminated 31 July 2008 and non-stop flights between Toronto and Port of Spain, Trinidad will end on 31 August 2008. Montreal-Dear Lake, Nfld and Calgary-Comox, BC will cease operation on 1 September 2008 and 2 September 2008, respectively. AC also plans to terminate Vancouver-Osaka, Japan service on 24 October 2008 and Vancouver-Sacramento, California service on 25 October 2008. The last round of cuts announced by AC will affect seasonal winter flights between Calgary and Palm Springs, California; Ottawa and Orlando, Florida; both Toronto and Kelowna, BC and Toronto and Rome, Italy; and Montréal and San Francisco, California.

JAZZ AIR ECHOES REDUCTIONS AT AIR CANADA

Jazz Air (QK) unveiled plans 3 July 2008 to reduce fourth-quarter

capacity by 5% and shrink its workforce by 270 employees from approximately 4,900 company-wide. As the contracted regional carrier of Air Canada (AC), QK is following suit of the 7% fourth-quarter capacity reduction and 2,000 staff abatement announced at AC last month. QK recently put a freeze on all hiring in order to offset the erratic price of fuel.

WESTJET UPDATE WESTJET ADDS CARIBBEAN AND WESTERN CANADA ROUTES

WestJet introduced two new Caribbean destinations and

two new Western Canada routes to its winter schedule on 25 June 2008. Four-times weekly service between Toronto and Bridgetown, Barbados and weekly service between Toronto and La Romana, Dominican Republic will commence 3 November 2008. Weekly Calgary-Kamloops, BC and Calgary-Grande Prairie, AB service will begin 2 November 2008 and 15 December 2008, respectively.

WINTER ROUTE EXPANSION On 25 June 2008, WestJet announced an increase in winter frequency to its existing route network. On 9 September 2008, Calgary-Las Vegas and Victoria-Las Vegas services will increase to two flights a day and three flights a week, respectively. The Saskatoon-Las Vegas route will increase twice per week on 10 September 2008. New services include: Daily Toronto-Montego Bay service, twice daily Toronto-Quebec City and Vancouver-Las Vegas service, and three-time weekly Toronto-Puerto Plata and Toronto-St. Lucia service will begin 2 November 2008. Lastly, service between Toronto and Punta Cana will increase to three flights a week on 5 November 2008.

SOUTHWEST AND WESTJET FORM CODESHARE PARTNERSHIP

Southwest Airlines announced plans

to enter into a codeshare partnership with WestJet on 8 July 2008. The codeshare agreement, which will permit the two airlines to sell seats on each others’ flights, will be put in place in late 2009.


NEWS – CON’TOTHER CANADIAN AIRLINES PORTER INTRODUCES YHZ + YQB FLIGHTS Porter Airlines flew its inaugural flight from Toronto City Center Airport (TCAA) to Quebec City and introduced a non-stop flight between Halifax and Quebec City on 27 June 2008. Both summer services run once daily until 2 September 2008.

PORTER AIRLINES REVISES TCAA-NEWARK SCHEDULE Porter Airlines announced a change in service between Toronto City Center Airport (TCAA) and Newark Liberty International Airport on 8 July 2008. Porter is adding a 6:30 p.m. TCAA departure and a 9 p.m. Newark departure to its existing schedule. In June 2008, Porter reduced its weekday service from seven daily flights to six and increased weekend service but expects to reinstate the seventh weekday flight in fall 2008 due to passenger demand.

PORTER EXERCISES OPTIONS FOR TWO BOMBARDIER AIRCRAFT Porter Airlines announced on 16 July 2008 that it is exercising two options for Bombardier Aerospace Q400 aircraft. Both aircraft are valued at US$52 million each and represent an order of 14 total aircraft from the original order of 10 firm and 10 options. Porter currently operates six Q400 aircraft, which will expand to twenty once the new orders are delivered in two years time.

NEW AIRCRAFT AND UNION AGREEMENT AT CANJET

On 27 June 2008, charter airline CanJet announced that it recently took

delivery of two next-generation Boeing 737 aircraft. The aircraft will be operated from Montréal to various sun destinations on behalf of one of CanJet’s tour operator partners in the summer and fall seasons. CanJet also reached a 4-year agreement with The Air Line Pilots Association.

U.S. AIRLINES US AIRWAYS AND AIR CHINA ENTER INTO CODESHARE AGREEMENT

On 23 June 2008, US Airways announced its new codeshare relationship with fellow

Star Alliance member Air China. The affiliation creates additional Asia-Pacific connection options and puts US Airways code on Air China service from Los Angeles, San Francisco, and JFK to Beijing. US Airway’s code will also be put on connecting flights to Shanghai through Air China’s Beijing hub beginning 25 June 2008. In reciprocation, Air China will put its code on US Airways flights from Los Angeles and San Francisco to Phoenix, Las Vegas, Charlotte, Philadelphia, and Pittsburgh.

VIRGIN AMERICA ADJUSTS FOURTH QUARTER SCHEDULE

California-based Virgin America (VX) revealed 17 June 2008 that it

will reduce capacity on low-demand routes and increase capacity on high-demand routes in fall 2008. Citing seasonal demand for air travel and high fuel prices as contributing factors, VX will operate at 10 per cent less capacity in the fourth quarter than it had previously projected. Despite the decreases in less profitable, off-peak flights, VX will increase daily frequency between San Francisco and Las Vegas and launch a non-stop daily flight between JFK and LAS on 4 September 2008. Pending government approval, VX also aspires to launch multiple daily flights from both LAX and SFO to Chicago O’Hare later this year.


NEWS – CON’TU.S. AIRLINES – CON’T CONTINENTAL AND UNITED ANNOUNCE COOPERATIVE PLAN

Continental Airlines and United Airlines

revealed a cooperative framework on 19 June 2008, detailing

a virtual merger that could eventually lead to a formal merger. In the U.S. domestic market, both airlines plan to initiate a broad code sharing program that will coordinate the reservations/ticketing and check-in processes, flight connections, and the transfer of baggage using complimentary information technology and procurement resources for both airlines. In terms of frequent flier program reciprocation, members of Continental’s OnePass and United’s Mileage Plus programs will be able to earn and redeem miles when traveling on either airline and both carriers’ airport lounges will be accessible to passengers through shared facility utilization. Additionally, Continental will join Star Alliance pending regulatory approval and the termination of its current contractual relationships. Continental’s existing partnerships, specifically its agreement with SkyTeam members, restricts participation in other global alliances.

SOUTHWEST INTRODUCES NEW SERVICES

Beginning 2 November 2008, Southwest Airlines will add roundtrip

flights between Ft. Lauderdale-Hollywood and Las Vegas, Kansas City, and Albany and service between Ft. Myers and St. Louis will be offered daily. Additionally, roundtrip services between Denver and Orange Country and Denver and Tulsa will commence at three flights a week and two flights a week, respectively.

CARGO FEDEX DECREASES SHIPPING RATES IN CHINA

Despite a nationwide increase in retail diesel and gasoline

prices of nearly 20 percent, FedEx Corp. lowered its rates in the Chinese market on 2 July 2008. Charges for FedEx First Overnight, the package delivery company’s fastest service, were cut by as much as 77%. FedEx began its domestic shipping service in China in June 2007.

CARGO LANDING FEES REDUCED AT TORONTO PEARSON

On 19 June 2008, The Greater Toronto Airports Authority (GTAA) announced a 25% reduction in cargo landing fees at Toronto Pearson. GTAA

anticipates that the reduction, scheduled to take effect 1 January 2009, will satisfy the needs of cargo carriers and increase the economic competitiveness of cargo business at YYZ. GTAA also expects the less expensive fee structure to discourage carriers from trucking their cargo to airports in New York and Chicago, removing as many as 40,000 trucks off Ontario roads per year.

CARGO INCREASES AT CARRIBEAN AIRLINES

Caribbean Airlines Cargo added a third cargo service to Trinidad from Miami, citing an increased demand for cargo

airlift between Trinidad and the United States. With the extra service, Caribbean Airlines Cargo now operates three services per week with leased wide bodied air-freighters, each with a capacity in excess of 40 thousand kilograms.


NEWS – CON’T AIRPORTS UPDATE COURT SETS GANDER PROPERTY ASSESSED VALUE AT $1 The Supreme Court of Newfoundland and Labrador settled a dispute between the Town of Gander and the Gander International Airport Authority by setting the assessed value of the airport at $1. The Gander airport is part of the National Airport System and is leased by the Federal Government to GIAA. The City had attempted to set an assessed value for the airport property which would have resulted in property taxes far in excess of previous grants in lieu of taxes. The Court accepted the view that the Airport Authority "has no real property interest to buy or sell in reality or hypothetically. It has no real property wealth to be the basis for municipal taxation." The court also ruled that "The assessor ought not to have relied on the affirmation of the Federal Government assessors in the use of a special formula for cost approach valuation of public facilities or amenities to determine Federal grants to municipalities in lieu of taxes. Their mandate is dictated by Federal legislation and does not focus on the fair market value which is the mandate of the assessor under the Act." InterVISTAS' Dr. Michael Tretheway served the court as an expert witness on the issues of the highest and best use of airport property and whether a market exists for the airport property.

OTTAWA INTERNATIONAL AIRPORT REDUCES TERMINAL FEES

The Ottawa International Airport Authority (OIAA) declared 23 June 2008 that it would reduce general terminal

fees by 5% in an effort to alleviate economic pressure on struggling airlines. YOW’s terminal fee reduction translates into a loss in revenue of approximately CDN$600,000 for the airport as it reported CDN$12 million in terminal fees last year. Landing fees will stay the same for the time being.

PEOPLE IN THE NEWS SAM BARONE APPOINTED PRESIDENT AND CEO AT CBAA

Sam Barone was appointed President and CEO of the Canadian Business Aviation Association (CBAA) effective 25 August 2008. Mr. Barone recently announced his resignation as President and CEO of The Air Transport

Association of Canada (ATAC) on 7 July 2008. Prior to joining ATAC, Mr. Barone was Regional Vice President of InterVISTAS Consulting Inc., President of Transportation Partners Management Consultants, and President and CEO of the Canadian Trucking Human Resources Council in Ottawa.

GENERAL ELECTRIC APPOINTS NEW PRESIDENT AND CEO OF AVIATION

David Joyce was appointed President and CEO of General Electric (GE) Aviation on 1 July 2008. Joyce is a 21-year veteran of the engine business at GE and held the position of Vice President of

Commercial Engines since 2003.

ROB REID RETIRES FROM AIR CANADA, BILL BREDT TO ASSUME POSITION

Air Canada (AC) announced the retirement of Chief Operating Officer Rob Reid on 27 June 2008. Reid joined AC in 1976, holding various positions of increasing responsibility before assuming his current role in May 2005.

Bill Bredt will succeed Mr. Reid as Executive Vice President and Chief Operating Officer on 11 August 2008. Prior to his appointment, Mr. Bredt served as Senior Vice President and Chief Operating Officer at Jazz Air for four years.

David Joyce

Sam Barone

Rob Reid


NEWS – CON’T PEOPLE CONT’D NAV CANADA TEMPORARILY APPOINTS BRIAN AITKEN AS VP-FINANCE, CFO, AND TREASURER

On 16 July 2008, NAV Canada announced the appointment of Brian Aitken as acting Vice

President of Finance, CFO, and Treasurer, pending a permanent replacement for the position. Aitken, who replaced the recently retired William Fenton, joined NAV Canada in 2002 as Director of Finance and was named Assistant VP of Finance in 2007.

OTHER L’AVION ACQUIRED BY BRITISH AIRWAYS

British Airways reached an acquisition agreement 3 July

2008 with L’Avion to integrate the business-class French carrier into its transatlantic subsidiary OpenSkies. The merger, which is contingent upon approval from relevant regulatory authorities, was settled for US$108 million. Once finalized, the combined carrier will operate up to three daily flights between Paris Orly and JFK and Newark. AIRBUS LAUNCHES A320 FREIGHTER CONVERSION

AerCap Holdings became the launch customer of the Airbus A320/321 passenger-to-freighter

conversion program on 17 July 2008. Airbus agreed to deliver 30 conversions to AerCap with the first aircraft scheduled to undergo certification in 2011. The remaining aircraft would be received by AerCap sometime between 2012 and 2015. Program-wide, Airbus

expects to convert 400 Airbus passenger aircraft to freighter from 2012 to 2026. RUSSIA’S IRKUT CORP. REVEALS PLANS FOR NEW AIRCRAFT

Russian aircraft manufacturer Irkut Corporation announced plans to develop a successor to its Tu-154

model on 3 July 2008. The MC-21, a 150-210 passenger aircraft, will be available in three models with certification planned for 2015. Irkut also produces component and subassembly parts for Airbus A320, A330/A340 and A380 and is a partner involved in the A320 passenger-to-freighter conversion program. TAP PORTUGAL LAUNCHES MOBILE ONAIR TRIAL

TAP Portugal premiered a six-month trial of

Mobile OnAir, an in-flight mobile phone and broadband service, on 3 July 2008. The service allows passengers on a single TAP A319 aircraft to use PDAs and other mobile devices to send/receive email, SMS, and voice calls. Mobile OnAir is the product of an Airbus/SITA join venture.


Jacqueline Clarke Manager,

Strategic Development

THE CARIBBEAN REPORT July 2008

Surinam Airways to resume flights to US The US Federal Aviation Authority (FAA) lifted a 16-year old ban on Surinam Airways (SLM) allowing the carrier to resume flights to the US. The ban was implemented after the airline failed to implement several aviation safety standards. Effective 25 August 2008, SLM will offer a twice weekly flight to Miami, Florida with a stopover in Aruba. SLM operates two aircraft and serves five destinations in the Caribbean, South America and Europe from its base in Paramaribo.

Airport development in the British Virgin Islands United Kingdom-based Halcrow Group Limited has been contracted to upgrade the airport on Virgin Gorda, a small island in the British Overseas Territory of the British Virgin Islands. The work will include widening and lengthening of the existing runway to accommodate 19-seater aircraft, the re-construction of the existing terminal building, enhanced accommodation for fire-fighting equipment, and accommodation for extra staff. The work is being undertaken to meet the projected increase in passenger arrivals to 34,900 by 2030.

Changes in service from the Canadian market WestJet announced the addition of seasonal non-stop service to two new destinations in the Caribbean - Bridgetown, Barbados and La Romana, Dominican Republic. Service to Bridgetown (four times weekly) and La Romana (once a week) starts 3 November 2008. The airline is also increasing frequencies from Toronto to Jamaica, St Lucia and the Dominican Republic. As part of its route rationalisation efforts, Air Canada announced that it will cease service to Port of Spain, Trinidad effective 1 September 2008. The carrier has served the route for more than 60 years. In an immediate response, Caribbean Airlines announced the introduction of an additional flight to Toronto from Port of Spain, increasing the carrier’s frequency to 11 weekly flights. The new weekly service will commence on 11 July 2008. On the charter front, after the conclusion of bi-lateral agreement negotiations between Barbados and Canada, Sunwing has been designated to operate scheduled international air services between the two countries.

Mexico pulls domestic carrier’s operating license The Ministry of Communications and Transportation suspended the operations of budget airline Magnicharters on 10 June 2008 after the carrier failed several inspections conducted by civil aviation authorities. Maintenance problems and inadequate staff training were cited as reasons for the suspension. Magnicharters has 90 days to resolve the problems identified and resume operations. Prior to its suspension, Magnicharters operated services on 16 domestic routes with a fleet of five Boeing 737s.

US Company to help Caribbean Airlines cut costs Caribbean Airlines has signed an agreement with Boeing to be included in the company’s 737 Component Services Programme (CSP), an inventory management system designed to help airlines reduce costs, enhance efficiency and improve spare parts availability. Boeing has promised to save the carrier as much as 30 per cent on inventory, repair and administrative costs. Caribbean Airlines operates a fleet of seven Boeing Next-Generation 737-800s.

Spirit cuts service to Northern Caribbean destinations Effective 1 August 2008, Spirit will suspend service to the Turks and Caicos Islands citing excessive local costs. Effective 2 September 2008, service to Grand Cayman and Punta Cana will only be operated on a seasonal basis.


Doris Mak Director,

Special Projects

THE ASIA REPORT July 2008

Australia Releases Draft Report Detailing Emissions Trading Scheme The Australian government-commissioned, independent Climate Change Review released its draft report on 4 July 2008, advocating the establishment of an emissions trading system by 2010. The report, which explicitly includes modes of transportation such as flight travel, recommends that emissions from aviation be incorporated against national limits. The Report also addresses the issue of carbon leakage, where carbon-emitting activities are shifted to countries that have no reduction scheme. Under this scenario, the Report states that aviation should be subjected to a comparable carbon tax and that emissions would be assigned to countries based on their purchase of fuel. The final report is slated for a late September 2008 release.

China Southern Commences Cross-Strait Operations China Southern Airlines was the first Chinese mainland carrier to operate a chartered flight across the Taiwan Strait on 4 July 2008. Taiwan-based China Airlines followed suit that same day, flying from Taipei to Shanghai. The Civil Aviation Administration of China (CAAC) expects 144 roundtrip flights across the Taiwan Strait this month as Air China, China Eastern Airlines, Hainan Airlines, Shanghai Airlines, Xiamen Airlines, Mandarin Airlines, TransAsia Airways, Uni Air and EVA Air were all chosen to begin operations.

Beijing Capital International Airport and Athens International Airport Ink Brotherhood Agreement A Brotherhood Agreement was signed on 9 July 2008, between Beijing Capital International Airport (BJS) and Athens International Airport (ATH). The Olympic Games was the catalyst for the partnership, as PEK hopes to acquire knowledge and insight from ATH’s experience of hosting the Summer Games in 2004. Furthermore, the brotherhood pledge aims to enhance quality of service for the Olympic Games, ameliorate flight connections between Beijing and Athens, exchange the expertise of stakeholders in airport management and technology, and cooperate efforts in the development of global projects. The Brotherhood Agreement was signed in the new Terminal 3 of the Beijing Capital International Airport.

China Reveals Plans to Merge Its Two Aerospace Divisions China recently approved the merger of its two state aerospace giants, China Aviation Industry I (AVCI) and China Aviation Industry II (AVCII), after a nine year split. The decision to re-establish a single entity, aptly named China Aviation Industry Group Corporation, was motivated in part to develop a large commercial aircraft. To this end, China approved the new company to oversee the development of a 150-passenger aircraft. The original holding company that was divided in 1999, China Aviation Industry Corporation, manufactured civil and military aircraft, aero-engines, missiles, automobiles, motorcycles, buses, textile machinery, and air conditioning equipment and boasted a workforce of 500,000 people. The new company is expected to be inaugurated sometime in July 2008.


Ian Kincaid Director,

Economic Analysis InterVISTAS- EU

UK Office

THE EUROPE REPORT July 2008

Aviation Formally Entered into the European Emissions Trading Scheme On the 8th July 2008, the European Parliament voted by 640 to 30 to include aviation in the European Emissions Trading Scheme (ETS). All airlines flying in, out and between the 27 member states will be subject to the ETS, including non-EU airlines, from 2012 onwards. As a formality, the measures will now be ratified by the 27 member states. Industries included in the ETS have to buy and sell permits that allow them to emit carbon dioxide into the atmosphere. Airlines will be given 85% of their permits free and will have to pay for the remaining 15%. Airlines will be required to reduce emissions by 3% in 2012, relative to 2003-2006 average emissions, and by 5% for 2013 onwards (subject to review).

The decision has been criticized by all sides of the debate. Environmentalists have complained that the emissions targets have not gone far enough, while airlines, IATA, AEA and other have argued that the ETS will greatly harm the competitive position of European carriers at a time when fuel costs are rising and the European industry faces strong competition from Middle Eastern carriers. The legality of the measure has also been questioned since it may violate the Chicago Convention, and goes against the Kyoto Protocol which placed the responsibility for aviation GHG emissions with ICAO. The U.S. government and others argue that aviation emissions should be addressed through a global schemed brokered by ICAO.

Straight Lines Coming to Europe? The European Commission (EC) adopted the second package of legislation for a Single European Sky (SES II) on the 25th June. These proposals aim to simplify the management and control of air space over the 27 member states. Currently, the air space over Europe is incredibly fragmented with air space over each member state being managed separately from over 60 air traffic control centres. This results in some flights taking inefficient zigzagged routes across Europe which increase flights times, fuel burn and emissions. For example, an EC report found that the existing route from Lyon to Frankfurt was 41% longer than necessary while Amsterdam to Milan was 23% too long.

The EC proposals would reduce the 27 air spaces to nine cross-border regions and involves changes to operating procedures, air traffic organisation, EU and national regulation and technology deployment. The SES II package is expected to bring about cost savings to the airlines of €2.4 million per year, reduce emissions by 10% (16 million tonnes of CO2 emissions per annum), reduce flight lengths by an average of 49 km, and greatly enhance the capacity of the European air traffic system providing benefits to both reliability and safety.

Clearer Airline Pricing On July 9th, the European Parliament approved a bill to prevent airlines posting advertisements for cheap flights that hide the true price by excluding additional charges such as taxes and booking fees. Under the legislation, all EU airlines will have to include “all applicable taxes, and charges, surcharges and fees which are unavoidable and foreseeable at the time of publication” in their advertised air fares. Optional items, such as travel insurance can be listed separately, but clearly, as add-ons. This means carriers such as Ryanair will no longer be able to advertise €1 or £1 fares unless they are the final fare to the customer (which would be loss making for the airline!). The EC has reported that one in every three consumers surveyed say that they have been misled over the cost of airfares.


Solomon Wong Senior Vice President,

Borders, Security & Planning

THE OTTAWA REPORT July 2008

Federal Grant to Explore Biofuels for Aviation As global sensitivity to the carbon footprint of commercial aviation increases, new solutions are being sought to reinvent the fuel for jet engines. This will assist in achieving an International Air Transport Association goal for a 25 percent emissions reduction per passenger by 2020.

In June, Foreign Affairs Minister, David Emerson, announced funding by International Science and Technology Partnerships Canada Inc. for a groundbreaking aerospace industry-university research effort to investigate the potential use of biofuels for small and medium size engine applications.

Pratt & Whitney Canada will lead a team including Infotech Enterprises Ltd., two major Indian oil companies, McGill University, Laval University, Ryerson University and National Research Council Canada along with the Indian Institute of Technology, Science and Petroleum.

The project will involve evaluating the feasibility of using "second generation" biofuels that originate from sources that do not compete with human food sources. These could include jatropha and algae derived biofuels, as well as biobutanol to power aircraft engines. The objectives for the four-year project include identifying and assessing appropriate biofuels, studying their effect on engine components such as combustors and fuel systems, developing appropriate technologies and design changes to accommodate them, and conducting tests comparing current jet fuels with first generation ethanol, as well as second generation biofuels.

CATSA Launches Pilot Project at Kelowna International Airport In June, CATSA launched a pilot project at Kelowna International Airport for what could potentially be a feature at pre-board screening checkpoints. The pilot involves testing whole body imaging technology on a voluntary basis. Also called millimetre wave, the new equipment will be integrated with existing screening capabilities at the Kelowna International Airport test site.

Since the 1970’s, pre-board screening checkpoints have relied upon magnetometer and hand-held scanners. With the commercialization of millimetre wave for airport applications, detailed images of the body are generated without physical contact between the screening officer and the passenger. The technology works by projecting low-level radio frequency (RF) energy over and around the passenger's body producing a three-dimensional image of the passenger. The images reveal objects, including weapons and explosives, which may be concealed under clothing. The image is monitored by a screening officer in a separate room, with no view of the actual passenger.

The pilot trial is strictly voluntary and passenger anonymity is paramount: the CATSA screening officer can not link the image to a particular passenger. Trials in other parts of the world have indicated that passengers prefer millimetre wave over pat-downs or more intrusive inspection for alarm resolution.

Following the trial period, CATSA will examine the data and present its recommendations to Transport Canada.

Source: www.jatropha.org

Jatropha, also known as Barbados Nut plant, could be evaluated as part of a second

generation biofuel study funded recently by the

federal government


Jon Ash President,

InterVISTAS – ga2 Consulting Inc. Washington, D.C.

THE WASHINGTON REPORT July 2008

U.S. Department of Labor Provides Aid to ATA Workers On 24 June 2008, the U.S. Department of Labor announced a grant of US$3.5 million to assist the 350 employees in Indianapolis, Indiana affected by the closure of ATA Airlines on 3 April 2008. The grant, which was awarded to the Indiana Department of Workforce Development, will provide ATA workers with career counselling, occupational skills training, and other re-employment services that will help workers transfer current skills to high-wage, high-growth jobs. Approximately US$1.4 million of the grant will be made available immediately with the residual amount contingent upon a demonstration, by the State of Indiana, that there is a continued need to serve the affected workers.

Five Airlines Plead Guilty in Criminal Antitrust Case Five airlines pleaded guilty in a conspiracy to fix air cargo rates on 27 June 2008. According to the U.S. District Court for the District of Columbia, Air France-KLM, Cathay Pacific Airways, Royal Dutch Airlines, Martinair, and SAS Cargo Group each acted to eliminate competition by charging fixed cargo rates for international air shipments. Of the $504 million fined by the Department of Justice, Air France-KLM agreed to pay the highest fine of $350 million for its involvement in the criminal act. All five airlines have been cooperative with the ongoing investigation of the Department of Justice.

U.S. Government Accountability Office Backs Boeing Protest The U.S. Government Accountability Office (GAO) supported Boeing’s protest on 18 June 2008, against the U.S. Air Force (USAF) awarding its lucrative tanker refuelling project to EADS and Northrop Grumman. The high-priority US$40 billion program is designed to replace an aging USAF fleet of aerial refuelling tankers that provide in-flight fuel to jets and cargo planes. Following the USAF’s decision to award the contract to EADS and Northrop Grumman in February 2008, Boeing launched a multimillion-dollar advertising and public relations campaign arguing that the decision-making process was flawed. The GAO found numerous errors perpetrated by the USAF throughout the competition, which it used in its recommendation for the USAF to re-visit the selection process. The USAF must reply to the GAO’s inquest within sixty days.

Airline and Pilot Associations Lobby Congress for Restrictions on Oil Speculation The Air Transport Association, Air Line Pilots Association, and Regional Airline Association joined forces on 11 July 2008 to push Congress to pass legislation that would put a limitation on oil speculation. The three associations argue that speculators in oil futures have inflated the per-barrel price of oil to a point that threatens the livelihood of the air transport industry and that speculation in commodities futures has resulted in a disconnect between the economic and physical market for oil. Stop Oil Speculation Now, a coalition formed by the three associations, aims to lobby Congress to mandate position limits on index speculative trades and impose reporting requirements for large-scale speculators. Despite the effort by Stop Oil Speculation Now, the act of oil speculation and its impact on the price of oil remain controversial.

US DOT Issues revised Policy Regarding Airport Rates and Charges The US Secretary of Transport announced an Amendment to its rates and charges policy. The amendment creates the ability of airports to implement two-tier pricing, and allows congested airports to establish landing fees that provide incentives to airlines to use the airport at less congested times, or to use alternate airports to meet regional air service needs.


FLYING HAS NEVER BEEN BETTER 15 July 2008

Recently I was interviewed by a reporter for one of the major weekly news magazines. She was doing a story on how inconvenient air travel has become and how much better flying was in the 1970s. The 1970s were described by her as the golden age of air travel. That statement was interesting, because I suspect that she wasn’t born until a decade later. In the end, she did not run any of my comments. She wanted to stick to her theme that flying today is a step backwards.

My view is the opposite – flying has never been better. Consider these points:

• Aircraft in the 1970s were filled with smokers, making cabin air unpleasant and noxious.

• Aircraft in the 1970s were very noisy - not only for communities but also in the cabin, especially for seats aft of the wings. There has been roughly an 18 decibel reduction in aircraft noise from stage 1 aircraft such as the 707 to the 777. Today’s aircraft produce less than one-third the sound energy of aircraft that were still flying in the 1970s.

• It is also a myth that first class was better in the 1970s. First class seats in the 1970s often had no leg support - they were simply wider plusher seats than economy. Today's business and first class seats on international service have leg support and may be lie flat or cocoon seats.

• More airlines are offering personal live TV or movie screens in all classes, with a range of viewing choices. In the 70s there was one movie and often it was uninteresting.

• Airline food in the 1970s had a well deserved negative reputation. Today you get a cheaper ticket since food is often not included. You buy or bring on board something of your own choice. You are not forced to pay for and eat hard baked lasagne with lima beans. Even the coffee makers on board aircraft are better today.

• While airlines still overbook flights from time to time, in the 1970s this practice was extremely common and disruptive for travellers.

We should also look beyond in cabin comfort at the economics of air travel.

• Airfares are MUCH cheaper today. In the early 1970s there really were no discount tickets. You had two choices - first class or coach. If you take the 1970s ticket prices and correct for inflation, a transcontinental flight would be about $6000 return, no seat sales or discounts. Among the many reasons for lower prices today are a) more efficient aircraft; b) higher load factors [Check the data - in 1970 and 1971, more than half the seats on US aircraft were unsold - load factors were under 50%!]; c) competition due to deregulation; d) lower maintenance costs - today's twin engine aircraft are phenomenally more reliable; and e) eliminating low value amenities.

• More direct flights: in the 1970s governments did things like forcing an airline to stop in Brandon Manitoba when flying from Calgary to Toronto. Today carriers fly where the market wants to go. This is more convenient, costs less and produces fewer emissions.

• Aircraft today use only 30% of the fuel per passenger-kilometre of the stage 1 jet aircraft and make only 30% of the emissions.

Michael Tretheway Executive Vice President &

Chief Economist


FLYING HAS NEVER BEEN BETTER – CON’T Most important, flying today is dramatically safer than in the past. While aviation was also the safest way to travel in the 1970s, airline accident and fatality rates today are ten to one hundred times lower. We now go many years without any commercial airline accidents in North America.

About the only good thing I can say about travel in the 1970s was that with such low load factors, there was a good chance that the seat next to you was empty.

I suspect that many of the people saying how much better travel was in the old days, never actually flew in the old days. If you encounter someone who longs for the good old days of air travel, ask whether he or she would rather fly on Air Canada or WestJet today, versus on an airline operating noisy, polluting aircraft, full of smokers, with hospital type food service, higher accident rates, an unnecessary stop en route and a price of $6000 to get to get across the country. Michael Tretheway

Executive Vice President & Chief Economist


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.

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INTERVISTAS NEWS Fred Gaspar joins InterVISTAS as Regional Vice President InterVISTAS is please to announce that Fred Gaspar will take on the position of Regional Vice President in the Ottawa office beginning in August 2008. Mr. Gaspar spent the previous three years as Vice President of Policy and Strategic Planning for the Air Transportation Association of Canada (ATAC) and has extensive experience in delivering advocacy strategies to improve the business climate for Canada’s commercial aviation sector. Prior to joining ATAC, Mr. Gaspar spent seven years at Air Canada as the Manager of Government Relations.

Dr. Mike Tretheway interview appears in MacLean’s magazine MacLean’s magazine recently interviewed Dr. Tretheway regarding the travel differences between Canadians and Americans. The article will run in the 14 July 2008 double issue.

InterVISTAS Upcoming Speaking Engagements John Weatherill, Vice President - Europe • World Low Cost Airline Congress: London, England – 22-23 September 2008

Mr. Weatherill will be leading a workshop on, “Route development covering ASD strategy, analysis and financial incentives” and will present “Building a New Route Business Case.”

• World Regional Airports Congress: London, England – 25 September 2008 Mr. Weatherill will be delivering a presentation titled, “Low Cost Long Haul and Regional Airports: Assessing the Opportunities.”

Solomon Wong, Senior Vice President, Borders, Security & Planning • Pacific Northwest Economic Region: Vancouver, Canada – 21July 2008

Mr. Wong will be delivering a presentation on the “Future of Borders and Aviation Security.”

cair issue no. 64 - july 2008

Documents

airline seat capacity

announced capacity cuts

level of capacity cuts

yearoveryear capacity

seat capacity airline

capacity reduction

capacity gains

service group cuts