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INTERVISTAS ’CANADIAN AVIATIONINTELLIGENCE REPORT

In this issue…Features Columns: Regular Reports:• Economic Outlook: Consumer Expectations (p.1)• India’s Outbound Travel Market (p.3)• Avian Flu Update: Continued Spread Across Asia,

Europe, Africa & the Middle East (p.4)• Future of the Canadian Dollar: Topped Out? (p.12)

• Airline Data-Canada (p.6)• Airline Data-U.S. (p.7)• Airport Data (p.8)• Industry News (p.9)• Washington Report (p.14)• Ottawa Report (p.15• InterVISTAS News (p.16)

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

Canada - Consumer Sentiment and Expectations

90

95

100

105

110

115

Jul-0

4

Aug

-04

Sep-

04

Oct

-04

Nov

-04

Dec

-04

Jan-

05

Feb-

05

Mar

-05

Apr

-05

May

-05

Jun-

05

Jul-0

5

Aug

-05

Sep-

05

Oct

-05

Nov

-05

Dec

-05

Jan-

06

Present Situation Index

Expectations Index

Source: TNS Canadian Facts

ECONOMIC OUTLOOK:CONSUMER EXPECTATIONS15 March 2006

Measures of consumer confidence and expectations can be a useful indicator of consumerexpenditures in the near future. While not necessarily accurate in predictions of economicperformance as a whole, the relationship between expectations and spending means that changes inexpectation can nonetheless have an effect on the economy overall.

Consumer expectations in both the U.S. and Canada declined sharply at the end of last summer,when Hurricanes Katrina and Rita devastated much of the U.S. Gulf Coast and crippled oil and gasrefining, resulting in economic shocks across both countries. As the initial shocks have abated andrecovery in the region has begun, these measures have rebounded to near or above pre-hurricanelevels. Perhaps not surprisingly, consumer expectations in the U.S. reacted more sharply and haverecovered less quickly and completely than in Canada.

Canada. Canadian consumerconfidence measures include thepresent situation index andexpectations index, measured byTNS Canadian Facts. The trend inthe present situation index hasbeen generally upward over thelast two years, with some dipsincluding a sharp monthly declinefrom August to September 2005.However, this decline was from agenerally healthy level of consumerconfidence, and has reboundedwell over the last several months,reaching its highest level since themeasure has been tracked in July2004. The consumer expectations index has been relatively stable overall but has also suffereddeclines, falling to its lowest level ever in September, with a one-month drop from 100.9 to 94.4.Expectations began to rise in October and have since reached highs, though the rise has been lesspronounced than for the present situation index. These high levels of consumer expectations bodewell for maintaining strong consumer expenditures in the near future.

The U.S. Several measures of consumer confidence in the U.S. are collected including the long-running University of Michigan Consumer Sentiment Index, which includes measures for consumersentiment (reflecting current conditions) and consumer expectations. While Canadian and U.S.measures are not directly comparable, the trends in the U.S. have been more pessimistic than inCanada.

Josh DruryTransportation Specialist


ECONOMIC OUTLOOK:CONSUMER EXPECTATIONS – CON’TBoth U.S. indices were on adownward trend but showedsigns of improvement in thesummer of 2005, before decliningsharply in August and September2005. Consumer sentiment andconsumer expectations bottomedout in October at 74.2 and 63.2respectively, the lowest levelsseen since 1992. Since Octoberthe measures have rebounded,but still remain below levels seenin July 2005, and have againstarted to decline in recentmonths. These numbers indicatea generally more cautiousconsumer climate in the U.S., and may represent a trend in weakening consumer spending, which hasbeen a key driver in recent U.S. economic growth.

U.S. - Consumer Sentiment and Expectations

60

70

80

90

100

Jul-0

4

Aug

-06

Sep-

06

Oct

-06

Nov

-06

Dec

-06

Jan-

06

Feb-

06

Mar

-06

Apr

-06

May

-06

Jun-

06

Jul-0

6

Aug

-06

Sep-

06

Oct

-06

Nov

-06

Dec

-06

Jan-

06

Feb-

06

Consumer Sentiment

Consumer Expectations

Source: University of Michigan Consumer Sentiment Index


INDIA’S OUTBOUND TRAVELMARKETGrowth of India’s Outbound MarketIndia’s outbound travel market has been growing steadily over the past few years, with the exceptionof a temporary SARS related decline in 2003. As illustrated in Figure 1, over the past 10 years, theoutbound travel market has doubled from 2.7 million outbound travelers in 1994 to 5.4 million in 2004.The World Tourism Organisation predicts that outbound travel from India will reach 50 million by 2020.The primary driver of India’s outbound travel market is strong economic growth driven in part bygovernment reforms that were implemented in the 1990s, including liberalisation of regulations onindustry, imports, foreign direct investment, financial systems and civil aviation.

Figure 1: Total Outbound Travel from India

Source: Travel and Tourism in India (Euromonitor Report-April 2005).

India’s Travel Market Characteristics

Market Origin. The top outbound originating markets from India include Mumbai (33%), New Delhi(21%) and Chennai (13%). Residents of these three cities have higher levels of disposable incomerelative to people from other parts of India. The higher number of outbound travellers from thesecities is also partly driven by the business travel that originates from these markets (e.g., Mumbai isthe business centre of India, New Delhi is the government centre).

Seasonality of Travel. The peak travel season for outbound leisure travel from India includes theschool summer holidays (mid April to end of June), the Diwali festival holiday (from the end ofOctober/early November for three weeks), 1 and the traditional Christmas and New Year’s holidays(two weeks in December/January).

1 Diwali means the Festival of Lights, a religious festival in India.

2.73.1

3.5 3.7 3.8 4.1 4.4 4.6 4.94.5

5.4

0

2

4

6

8

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Numb

er o

f Tra

velle

rs (m

illion

s)

SARS outbreakand war in Iraq

Sushma NarayanSenior Project Analyst


INDIA’S OUTBOUND TRAVELMARKET – CON’TTop Outbound Destinations. Canada is currently not among the top destinations visited by Indians.During 2004, 5.4 million Indians travelled to other countries. Among the top five countries visited,Singapore experienced 440,000 visits, representing 8% of the total outbound trips made by Indians.The United Arab Emirates experienced 314,000 Indian visitors, representing 6% of the total Indianoutbound trips. The U.S. (296,000 visitors), Thailand (254,000 visitors), and the UK (246,000 visitors)each represent approximately 5% of the total Indian outbound market.

The remaining countries among the top 10 were China (173,000 visitors), Hong Kong (170,000visitors), Malaysia (163,000 visitors) and France (146,000 visitors). All these destinations accountedfor approximately 3% each of the total outbound Indian travel in 2004. Canada currently representsonly a marginal percentage of the total outbound Indian travel market.

Air Access. Air service to Canada from India is limited. As illustrated in Table 1, there are currentlyno non-stop direct services between India and Canada. In October 2005, Air Canada cancelled itsthrice weekly New Delhi-Toronto non-stop service. It currently offers a daily one-stop service fromNew Delhi to/from Toronto via Zurich. Air India operates a daily service on a peculiar routing fromAmritsar to Birmingham to Toronto.

Current air service levels between India and Canada are underdeveloped, relative to the internationalair bilateral agreement. According to the bilateral agreement, air carriers from Canada and India caneach operate up to 35 flights per week for a total of 70 weekly flights in each direction between Indiaand Canada. Currently, Air Canada and Air India are only offering a combined 10 flights per weekbetween India-Canada.

Table 1: Direct Air Services between India and Canada (2006)Origin-Destination Carrier Weekly

FrequencyWeekly

CapacityNew Delhi-Amritsar-Birmingham-Toronto Air India 3 876

New Delhi-Zurich-Toronto Air Canada 7 1,540

Total 10 2,416Source: Air carrier websites (on-line flight schedules for week of February 2006).

Implications. The World Travel & Tourism Council predicts that India will be the second fastestgrowing outbound travel market in the world during 2005-2014, averaging 8.8% growth in travellersper year, second only to China. This further reinforces that the outbound Indian travel market will be asignificant global tourist market in the future.


AVIAN FLU UPDATE: CONTINUED SPREADACROSS ASIA, EUROPE, AFRICA & THE MIDDLEEAST

Poultry Cases Increase…Since the beginning of February 2006, theH5N1 virus has been found in wild ordomestic birds in 17 new countries in Asia,Africa, the Middle East and Europe. Thevirus has also been detected in domesticcats in Germany and Austria. While thesenew cases have received much attention inthe media, threat to humans remains lowand human-to-human transmission has notbeen detected. The World HealthOrganization (WHO) is not recommendingany travel restrictions to countries withH5N1 outbreaks at this time, nor is itrecommending screening of travellerscoming from H5N1 affected areas.

…But Minimal Impact onTourist Volumes to DateTo date, there has been very little reportedimpact of H5N1 on travel and tourismvolumes. Only Turkey, which experienced12 human cases and 4 human deaths inearly 2006, has reported some impact.Tourism visits were down 5% in January 2006 versus January 2005 and resort operators are reportingsignificant declines in advance sales for the summer (declines between 10% and 30%). However,not all of the declines are being attributed to the bird flu outbreak; some is also being attributed toprotests in the region over the publication of the Prophet Mohammad cartoons. In response to thesedeclines, the Turkish Tourism Ministry is launching a campaign to encourage Turks to spend theirvacations in their homeland, and some operators are offering significant price reductions to foreignvisitors.

Looking back at the impact that SARS had on global tourism, the UN-World Tourism Organization isstrongly encouraging both governments, through their travel advisories, and the media, through theircoverage, to act responsibly in preventing unwarranted decreases in tourism, especially to developingnations. However, unlike advance emergency preparations for SARS, which were limited prior to itsoutbreak, preparations for a human influenza pandemic are already well underway within internationalorganizations, government and private industry. IATA has said that the aviation industry has neverbeen better prepared for an epidemic, and is currently working with the WHO to develop guidelines forairport staff, cabin crew and cleaners, as well as with wider tactical plans. Some airlines are alreadytraining staff on how to respond to an outbreak and are stocking masks, goggles and gloves onplanes.

Despite these preparations, the impact of a pandemic flu outbreak on travel and tourism may besignificant depending on the severity and geographic location of an outbreak. As IATA's DirectorGeneral and CEO Giovanni Bisignani stated, “Avian Flu is the wild card for 2006.”

Angelica SparolinResearch Manager

Source: BBC


AIRLINE DATA – CANADATraffic and Load Factors on Canada’s Major Air CarriersFebruary 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 Canada2 +1.6% +3.2% +0.5% -4.8% +0.8 pts(to 78.7%)

+6.1 pts(from 72.6%)

Domestic(Mainline) -4.8% -6.7% -7.3% -13.4% +2.0 pts +5.6 pts

Jazz +84.0% +110.3% +81.2% +72.6% +1.1 pts +13.0 ptsInternational& Charter +4.1% +7.3% +3.5% -1.3% +0.4 pts +6.3 pts

WestJet +21.7% +70.2% +9.7% +41.9%+7.9 pts

(to 80.8%)+13.4 pts

(from 67.4%)

Analysis: Air Canada domestic traffic

continued to slide duringFebruary 2006, amid thecontinued transfer of capacity toAir Canada Jazz. Jazz trafficincreased 84% during themonth.

Air Canada International trafficand capacity continued to growduring February, albeit at aslower pace than in previousmonths. Transatlantic traffic andcapacity achieved the highestgrowth of all internationalregions, increasing 11.3% and13.4% respectively overFebruary 2005.

WestJet load factor increased to80.8% during the month, 7.9percentage points higher than inFebruary 2005. This is the firsttime that WestJet load factor hassurpassed 80% since August2005. WestJet has alsosurpassed Air Canada as theload factor leader.

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

OTHER CARRIERS:LOAD FACTORSCanJet: not reported

Air Canada Domestic Mainline Air Canada Domestic Mainline

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

Feb-05

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-06

Feb

Dom RPK Dom ASK

Jazz data is not includedin this graph

-10%-5%0%5%

10%15%

Feb-05


Feb

Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

0%10%20%30%

40%50%60%

Feb-05


Feb

RPK ASK

WestJetWestJet


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

Traffic Data – February 2006

Airline Load Factor Traffic(RPMs – millions)

Capacity(ASMs – millions)

75.0%

2.8 pts9,862

2.7%13,141

1.2%

70.0%

5.8 pts637

21.0%911

11.1%

70.9

12.5 pts265

49.4%375

58.3%

176.0%

2.1 pts7,925

9.9%6,019

13.0%

74.3%

3.3 pts7,742

8.6%10,415

12.7%

83.4%

0.1 pts1,685

25.3%2,021

25.1%

81.8%

4.2 pts5,080

7.6%6,211

12.4%

68.5%

5.2 pts4,689

17.3%6,849

8.5%

276.9%

2.1 pts8,243

4.4 pts10,725

1.7%

275.7%

4.9 pts4,434

8.7%5,861

14.5%

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

Sources: Carrier traffic reports.

InterVISTAS’ Canadian Aviation Intelligence ReportFebruary 2006 Copyright ©2006 InterVISTAS Consulting Inc., all rights reserved.Page 8

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

John’sJanuary +15.0% +9.8% +14.4% +13.2% +9.6% +12.9% +13.6% +7.0% +4.7% +12.4% +9.7% +11.9%February +8.7% +4.5% +3.8% +10.2% +7.8% +5.5% +7.0% +4.8% +7.1% +15.8% +8.5% +1.5%

March +10.2% +8.2% +5.5% +17.5% +12.5% +7.3% +9.7% +7.1% +15.4% +19.5% +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% +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% +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% +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% +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% +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% +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% +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% +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% +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% +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% +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% +9.5% +7.9%4th Quarter +0.0% +3.2% +4.0% +9.8% +10.4% -2.2% +6.0% +2.4% +4.9% +19.6% +12.5% +3.6%

2005

Full Year +4.6% +4.4% +5.4% +10.6% +10.5% +3.6% +6.5% -0.4% +5.5% +19.3% +10.6% +8.2%

2006 January +1.1% -1.7% +1.4% +9.1% +10.7% +1.0% +2.8% +5.4% +6.2% +20.3% +4.4% +9.7%

Source: 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

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

NEWS ARTICLESAIR CANADA UPDATEAIR CANADA EXPANDS TRANSBORDERSERVICE FROM TORONTO

Air Canadaannounced on7 March that it

will introduce daily non-stop service fromToronto to Salt Lake City and San Diego. TheSalt Lake City flights begin 2 June, and will beoperated with Bombardier CRJ-705 aircraft.The San Diego service begins 1 July and willuse Airbus A319 aircraft.

AIR CANADA INAUGERATES CALGARY-NEW YORK NON-STOP FLIGHTSAir Canada inaugurated daily non-stop servicebetween Calgary and New York on 1 March.The Calgary flights will service John F.Kennedy Airport.

AIR CANADA RESUMES EDMONTON-MONTREAL SERVICEOn 2 March, Air Canada launched non-stopdaily service between Edmonton and Montreal.The year-round service will be serviced withEmbraer E190 aircraft.

AIR CANADA AND UNITED SEEK U.S. DOTAPPROVAL FOR MEXICO SERVICEUnited Airlines and Air Canada are seekingU.S. Department of Transportation approval forblind-sector code sharing to allow Air Canadato hold out Canada-Mexico service. AirCanada needs the specialised authority topermit Air Canada passengers, arriving frompoints in Canada, to connect with United flightsfrom Denver, Los Angeles, and San Franciscodestined for various Mexican locations.

JAZZ LOSES COURT BID FOR ACCESS TOTORONTO CITY CENTRE

Air Canada Jazz wasdenied a court order that ithoped would permit the

regional airline to continue using the downtownToronto airport. Jazz was seeking a courtinjunction after it received a 30-day evictionnotice from City Centre Aviation Ltd. on 31

January. Jazz has suspended all flights from theairport.

OTHER CANADIAN AIRLINENEWSWESTJET ANNOUNCES SCHEDULEENHANCEMENTS

On 8 March,WestJet

announced numerous enhancements to itsschedule, including new seasonal non-stopservices and added frequencies. The new dailynon-stop seasonal flights include servicebetween Edmonton and Hamilton (24 June – 28October), and between Toronto and Abbotsford(13 June – 28 October). New non-stop dailyservice between Vancouver and Ottawa willlaunch 22 August and daily Vancouver toHamilton service will commence 1 May. Inaddition to these new flights, WestJet has alsoadded additional service between Toronto andCalgary, and Edmonton and Vancouver,Winnipeg, Victoria, and Hamilton.

TRANSAT TO ACQUIRE THOMAS COOKTransat A.T. announced on13 March that it will acquireCanadian travel agencynetwork Thomas Cook Travel

for $7.4 million. Included in this acquisition is theThomas Cook network of 190 travel agencies, aswell as 22 foreign exchange offices.

HARMONY ANNOUNCES VANCOUVER-CALGARY SERVICE

Beginning 14 May,Harmony Airways willoperate six-day a week

service between Vancouver and Calgary. Theflights are scheduled to connect Calgarytravelers through to various transpacificVancouver flights to Asian destinations onpartner air carriers Japan Airlines and ChinaEastern.


TRANSAT 1ST QUARTER PROFIT UPTransat A.T. has announced that first quarterprofits ended 31 January 2006 are up $7million to $5.2 million, from a loss of $1.8million in 2005. The profit was posted despiterevenues falling 1.2% from 2005, down to$581.6 million.

CARGOAIR CANADA RECEIVES CARGO LICENSEAir Canada has obtained a license from theCanadian Transportation Agency (CTA) tooperate an all-cargo service using Canadianaircraft and crew. Air Canada was criticised bythe CTA for previously using American cargoplanes to operate domestic flights, but stillmanaged to receive the license.

CARGOJET RECEIVES NEW FREIGHTERCargoJet recently tookpossession of its 11th

freighter. Another 727-200 Advanced, thisparticular one has winglets, slightlydifferentiating it from the others in the fleet.The aircraft will join in regular rotation in theCargoJet schedule.

CARGOLUX TO RECEIVE TWO 747-400SBEFORE 747-8 DELIVERIES

Cargolux has been identified byBoeing as the previouslyunidentified customer of two747-400 freighters. Cargolux is

to receive the freighters in 2007 and 2008.Cargolux also has 10 firm orders and 10options for the 747-8 freighters, which arescheduled to begin delivery in 2009.

CANADIAN AIRPORTSGTAA TO LAUNCH REGISTEREDTRAVELLER PROGRAM AT PEARSON

On 13 March, the GreaterToronto Airports Authoritysigned an agreement withVerified Identity Pass Canada to

develop a registered traveller program atToronto Pearson International Airport. Theprogram would allow enrolled passengers tohave their security check-in process expedited,

but they first would have to undergo a scrutinousbackground check and submit biometric data.

PEOPLE IN THE NEWSATA NAMES VP SKEDATA Airlines has appointed Josef Loew assenior VP of scheduled service. ATA has twodivisions, scheduled service and military/charterservice. Previously Loew was with SITA-Canadaand has an MBA from the University of Calgary.

WESTJET CFO TO LEAVE IN JUNE WestJet announced on 8March that their currentExecutive Vice-President ofFinance and CFO, AlexanderCampbell, would be leaving the

company as of 15 June. Mr. Campbell has beenwith WestJet since 1996 and has held the CFOposition since 1997. Mr. Campbell plans toassist WestJet in finding his replacement.

PORTER AIRLINES ANNOUNCES SENIORMANAGEMENT TEAMOn 28 February, Robert Deluce, President ofREGCO Holdings Inc., announced the seniormanage team for REGCO’s wholly ownedsubsidiary, Porter Airlines. James Morrison,former VP and General Manager of Execaire, willserve as VP and COO. D. Paul Moffat wasnamed as VP and CFO. Mr. Moffat last servedas CFO and Chief Compliance Officer ofPrudential of America Life Insurance. Finally,Michael Deluce was announced as ExecutiveVP – Corporate Strategy and Contracts.

OTHERGLOBAL PA UP 6% IN 2005On 14 March, Airports Council Internationalreported that worldwide passenger trafficincreased 6% to 4 billion during 2005. Thehighest growth rates were in the Latin America/Caribbean and Middle East regions, eachincreasing 10% in 2005. International passengertravel grew 8% to 1.6 billion. Worldwide cargotraffic grew 3% to 78.7 million metric tons during2005, while international freight grew 3% to 42.7million tons.


FRONTIER/HORIZON ADDS DENVER-CALGARY

Frontier has announced its first route intoCanada, Denver-Calgary, beginning 25 May.The route will be operated double daily forFrontier by Horizon with a CRJ-700.

UNITED ADDS SERVICES TO CANADABeginning 8June, United

Airlines has announced plans to offer dailyservice from Denver to Toronto and fromWashington D.C. to Halifax. Also, the airlinewill offer daily flights from Vancouver toWashington from June to September.

DELTA TO SERVE ATLANTA-CALGARYDelta Air Lines hasannounced that it will

inaugurate non-stop service between Atlanta andCalgary. The four times weekly flightscommence 8 June.

DELTA TO ADD SUMMER BOSTON-QUEBECCITY SERVICEBeginning 15 June, Delta Air Lines hasannounced that it will offer summer servicebetween Boston and Quebec City. The servicewill operate daily.

DESTINA.CA ENDS OPERATIONSEffective 22 March,online travel site

Destina.ca, will cease service. Destina.ca isowned and operated by Destina eCommerceGroup LP, an affiliate of Air Canada.


FUTURE OF THE CANADIAN DOLLAR:TOPPED OUT?2 March 2006

As you can see in Figure 1, from the University of British Columbia, the Canadian dollar is on thethreshold of moving from a 14 year high to a 28 year high. However, the dollar may be topping out,as the following passage from FXstreet (known for its technical analysis of markets) shows:

"On balance, this scenario allows for some weakening of the Canadian Dollar versus the USDollar, at least on a temporary basis. The technical picture of the Canadian Dollar itself alsosuggests a skewing of probabilities in favor of a decline versus the US Dollar. For instance,Canadian Dollar futures have been unable to generate the same strong momentum on theirmost recent push to new highs as was generated during the early and middle stages of theadvance, between 2003 and 2005." –FXstreet

Figure 1: Monthly Average Exchange Rates USD per CAD (January 1971 – March 2006)

© 2006 by Prof. Werner Antweiler, University of British Columbia, Vancouver, BC, Canada.

Technical Analysis Suggests Dollar Has PeakedThe Canadian dollar moves, to a large extent, with commodity prices (oil, copper, gas, lumber, paper,etc.) While some commodity prices are still strong, others are showing signs of reversing. Oilmarkets have been attempting to drop, potentially dramatically, for some months now. Copper issimilarly showing weakness. Nevertheless, while some downward adjustment in commoditiesappears imminent, markets are unlikely to return to the ultra low (real) price levels of 3-5 years ago. Itis difficult to forecast future prices, of course, but the evidence seems to be pointing to the Canadiandollar topping out, but also not declining precipitously. FXstreet (known for its technical analysis ofmarkets) seems to be suggesting an 84 cent floor to the dollar.

Michael TrethewayExecutive Vice President


FUTURE OF THE CANADIAN DOLLAR:TOPPED OUT? - CON’TSlow U.S. Economy May Help Keep CAD ElevatedAlso contributing to a "end-of-rise-but-no-big-fall" scenario for the Canadian dollar is the continuingsluggish U.S. economy, which seems unable to adjust to the new market realities. While new FederalReserve Chairman, Ben Bernanke, needs some time to settle in, his opening remarks to the U.S.Congress leave a 1974 déjà vu sense. In 1974, the U.S. was gradually pulling out of the 1971recession, when U.S. President Ford and the Federal Reserve decided to beat back on inflation.(Beating back on inflation seems to be the essence of Bernanke's recent comments.) The result wasthat the U.S. was driven into a second recession, during which the Canadian dollar maintained itsstrength. Unlike the U.S., Canada has a strong positive trade position, government budget surplusesand declining government debt (declining total debt and an even bigger decline in debt as a percent ofGDP), and increasing oil production. As well, Canada is emerging as a world leader in alternateenergy with emerging fuel cell and high efficiency rail locomotive enterprises.

Past Conservative Agendas Have Lifted DollarA political interpretation of the course of the Canadian dollar might be that the political agendas ofTrudeau and Chrétien manifested themselves in a weak Canadian dollar, while the dollarstrengthened with the Conservative agendas of Mulroney and Martin (small c conservative).

The Near Term Looks to be in the 80’sIn any event, whether looked at from a technical analysis point of view, a political viewpoint, or on thebasis of economic fundamentals, it seems highly unlikely that we will see a 62 cent or 72 cent dollar inthe near future. A Canadian dollar at par with the U.S. dollar is possible, but the probability of this isalso declining. The dollar will continue to be volatile, but for the near future technical analysis seemsto be indicating it will be in an 80 cent to 90 cent range.


WASHINGTON REPORT 10 March 2006

Authorities Investigate Price Fixing by CargoAirlinesThe U.S. Department of Justice, along with the European Unionand other national authorities, are examining possible pricefixing by cargo airlines. The alleged co-operation involvesagreements regarding fuel and post-9/11 security surcharges,which have taken place since 2000. Numerous air carriers wereraided or requested for information regarding the probe,including American Airlines, United Airlines, and Polar AirCargo.

U.S. Signs Open Skies Treaty with CameroonThe United States has reached an open skies agreement with Cameroon thatpermits unrestricted air service by airlines of both countries between and beyondthe other’s country. There are no restrictions to frequencies, prices of fares, oraircraft type in the treaty. This agreement will allow cargo carriers to fly betweenthe other nation and third countries without directly connecting through their own country.

Domestic Passenger Traffic Up 4.1% from 2004On 16 March 2006, the U.S. Department of Transportation’s Bureau of TransportStatistics (BTS) released preliminary traffic data. The BTS reported that airlinescarried 660 million domestic passengers in 2005, up 4.1% from 635 million in 2004.Revenue passenger mile growth of 4.5% exceeded 0.9% growth in available seatmiles, resulting in a 2.7 point growth in load factor.

Homeland Security Requests Doubling of Airline TicketFeesThe Department of Homeland Security has made a $31 billion budget request forfiscal 2007. Included in the request is a proposal to raise an additional $1.3 billionby doubling airline security fees from $2.50 to $5.00 per non-stop flight. Congressrejected a similar proposal to raise security fees last year.

Steinberg Nominated Assistant Secretary of TransportationPresident Bush has nominated Andrew Steinberg to be Assistant Secretary ofTransportation for Aviation and International Affairs. Steinberg is the currently holdsthe position of FAA Chief Counsel, and has previously served in positions atTravelocity, Sabre and American Airlines.

$13.7 Billion Requested in Budget for FAAPresident Bush has requested $13.7 billion for the Federal Aviation Administration inhis $2.8 trillion budget plan sent to Congress for fiscal year 2007. The funds areproposed for hiring safety inspectors and air traffic controllers, and for the AirportImprovement Program. The budget contains $65.6 billion for the Department ofTransportation (DOT), but the DOT is seeking an additional $50 million to fund theessential air service program and $122 million for the Next Generation AirTransportation System.

Jon Ash

PresidentInterVISTAS-ga2 Consulting Inc.

Washington, D.C.


OTTAWA REPORT10 March 2006

Transport Canada Cancels NexJet’s OperatorCertificateOn 8 March, Transport Canada announced the cancellation of NexJetAviation’s air operator certificate. The decision was made due to NexJet’snumerous suspensions, notices of suspension, regulatory offences, and aninability to demonstrate operational control. NexJet was also found not to beoperating under the conditions for which its certificate was issued. NexJet is acharter air service provider and cannot provide commercial air services withoutan air operator certificate.

Labrador Coast Airstrips to Receive $1.2 Million in UpgradesFederal Minister of Fisheries and Oceans, Loyola Hearn, announced on thebehalf of Lawrence Cannon, Minister of Transport, Infrastructure andCommunities, that the Canadian Government will contribute $1.2 million torestore facilities at airstrips in Hopedale, Black Tickle, and Postville. Therestorations are to take place during 2006-2007 and include upgrades torunway maintenance equipment, snow removal, and installation of a PrecisionApproach Path Indicator System.

NAV CANADA Announces January Traffic Up 1.2%On 7 March, NAV CANADA, the country’s provider of civil air navigationservices, announced traffic figures for January 2006. Compared to thesame month in 2005, January traffic was up 1.2%. Air traffic is calculatedby weighted charging units, which reflect the number of flights, aircraft size,and distance flown in Canadian airspace.

NAV CANADA Postpones New Charging SystemNAV CANADA has delayed the introduction of a new charging system, citing the need for more timeto review comments made in submissions from stakeholders. The revenue neutral system, designedto better balance charges between large and small aircraft, better reflect the introduction of newtechnology and better absorb the financial impacts of fluctuations in air traffic, was to have beenintroduced 1 March. NAV CANADA expects to make a decision on the proposed system in April.

NAV CANADA Reaches Labour Deals with Flight Service Specialistsand Financial AdministratorsNAV CANADA announced on 9 March and then on 10 March that it hadreached tentative collective agreements with its flight service specialists and itsfinancial administrators respectively. The flight service specialist agreement isfor four years, expiring 30 April 2010. The financial administrator contractexpires 7 November 2009.

Sam BaroneRegional Vice President

Ottawa, ON


InterVISTAS’ Canadian Aviation Intelligence Report is a collection of information gathered from publicsources, such as press releases, media articles, etc., information from confidential sources, and itemsheard on the street. Thus some of the information is speculative and may not materialise.

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INTERVISTAS NEWSMarch 2006

Tretheway Delivers Kunz LectureDr. Michael Tretheway, InterVISTAS Executive Vice President, delivered theMartin Kunz Memorial Lecture at the Hamburg Aviation Conference in February.Dr. Tretheway reviewed the major lessons learned about airline economics in the30 years since U.S. airline deregulation. He pointed out that many of the keyaspects of airline economics are under appreciated in some jurisdictions for theenforcement of competition law. Economics requires that airline consolidation beallowed to cross national frontiers, something being advocated by the industry. Aswell, he reviewed the role of differential pricing in the achievement of economicefficiency, and pointed out that academic models of the airline industry, and

competition authorities have both failed to understand this vital dimension of airline policy. Dr.Tretheway's presentation is available at http://www.hamburg-aviation-conference.de/.

Kincaid Presents Paper on Airport BenchmarkingIan Kincaid and Michael Tretheway delivered a paper on airport benchmarking tothe German Aviation Research Society workshop in February. A key aspect of thepaper was that benchmarking must be linked to objectives. If the objective isjudging the performance of airport management, then different measures shouldbe benchmarked than for assessing the performance of public policy. Kincaid andTretheway were especially critical of the airport benchmarking 'residualproductivity' measure published by the Air Transport Research Society. Thismeasure is based on unstable statistical analysis which saw Newark Airport go

from the 4th most productive in the world in one year to being the second worst performer in the nextyear. They observed that such a result is implausible and more likely reflects deficiencies in theATRS statistical analysis and model specification than actual performance of an airport.

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

ACI-NA Cargo Conference: Oakland, CA – 29 & 30 March 2006Mr. Beynon will be speaking on the Future Demand of the Air Cargo Industry.

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 marketing personnel.The workshop will educate participants on how to evaluate and structure incentive programs toensure the objectives of both airport and airlines are met.

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 route planning personnel.

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