cair issue no. 6 - june 2003

© InterVISTAS Consulting Inc.June 2003

INDUSTRYREVIEW


THE INTERNET AND AIRLINE TICKETING10 June 2003

There has been considerable change in airline ticketing over the last several years. Consumers arebecoming increasingly price-sensitive and seek speed and convenience when purchasing a ticket. Asfor airlines, they are determined to reduce operating costs in order to sustain their position in a highlycompetitive environment where new low cost entrants are beginning to dominate. As such, theintroduction of the Internet has allowed both consumers and airlines to benefit.

Consumer BenefitsThe Internet has affected the way people purchasegoods and services. The number of Internet users isestimated to grow to 1 billion by 2005 according to astudy carried out by the Angus Reid Group. The studyindicates that U.S. and Canadian citizens lead theworld in Internet usage. In Canada, Internet accesswithin the home has increased from 16% in 1997 to49% in 2001. With increased access, a greaternumber of consumers are turning to websites toresearch and purchase travel. In particular, travelwebsites such as Expedia, Travelocity and Orbitzhave emerged as primary sources for onlinebookings. By purchasing directly through a website, consumers are able to find the lowest possiblefare without paying extra fees for travel agents to process a paper ticket.

Airline BenefitsWith an increase in online airline ticket bookings, the Internet has become a more importantdistribution channel for airlines. As shown, low cost carriers have led the move towards cost-efficientdistribution of tickets and tend to have a greater share of Internet bookings than major carriers.

Tickets Booked Through the InternetAir Carrier % Tickets Booked Via InternetScheduled Carriers:

Air Canada1

Continental2Delta3

Less than 15%Less than 13%

24%Low Cost Carriers:

Zip4

WestJet5Jetsgo1

More than 60%50%

75% to 80%

0

300

600

900

1,200

1995 2000 2005

Num

ber o

f Use

rs (m

illio

ns)

Global Internet Global Internet UseageUseage

Source: Computer Almanac, Angus Reid Group

Jennifer Tso

Project Analyst


THE INTERNET AND AIRLINE TICKETING – CON’TThe average cost associated with the purchase, issue, delivery and processing of paper tickets isestimated to be between $15 to $25 per ticket.1 As airlines turn to the Internet as a lower distributioncost alternative, savings are reported in the range of $15 to $20 per ticket in travel agencycommission and fees. As shown below, selling tickets via the Internet allows WestJet to realize majorcost-savings. With Internet ticket distribution costs of just 32 cents per ticket, WestJet is able to savemillions of dollars annually with its website sales.

WestJet Distribution Costs

Purchaser Distribution Channel Approx. Cost to WJof Issuing $250 Ticket

Distribution Cost as %of Ticket Price

Travel AgentComputer Reservation

System $26.00A 10.4%

Travel AgentWJ Reservations Centre

(Telephone) $24.50 B 9.8%

Travel Agent WJ website $22.82 C 9.1%

PassengerWJ Reservations Centre

(Telephone) $12.00 D 4.8%

Passenger WJ website $0.32 E 0.1%

Sources:1 “Jetsgo gets off to a bumpy beginning”, Peter Fitzpatrick, The National Post, June 19, 20022 “Continental Goes to Zero on all Internet Bookings”, Travel Weekly, October 29, 20013 “Changing the rules”, Joan Feldman, Air Transport World, October 20024 “Disgruntled Tech Firms Gives Air Canada Zip”, Peter Fitzpatrick, The National Post, September 19, 20025 “Profit Soars at No-Frills WestJet”, Peter Fitzpatrick, The National Post, August 1, 2002

WestJet - Clive Beddoe presentation May 2002A $13/return ticket CRS fee + 5% commissionB $12/ticket cost through call centre + 5% commissionC $0.32/ticket cost through website + 9% commissionD $12/ticket through call centreE $0.32/ticket cost through website

1 Smartix International


-25%-20%-15%-10%

-5%0%5%

10%15%20%25%

Jun-02

Jul Aug Sep Oct Nov Dec Jan-03

Feb Mar Apr May

Dom RPKDom ASK

Jazz data is not includedin this graph

Air Canada Domestic Mainline Air Canada Domestic Mainline

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Jun-02


Feb Mar Apr May

Int'l RPKInt'l ASK

Air Canada InternationalAir Canada International

AIRLINE DATA – CANADATraffic and Load Factors on Canada’s Major Air Carriers – May 2003

Passenger TrafficRevenue Passenger

Kilometres

CapacityAvailable Seat Kilometres

Load FactorAir Carrier

% Changeover 2002

% Changefrom 2001

% Changeover 2002

% Changefrom 2001

% Changeover 2002

% Changefrom 2001

Air Canada2 -26.4% -23.4% -21.5% -21.8% -4.8 pts(to 71.6%)

-1.5 pts

Domestic(Mainline) -18.9% -18.2% -13.2% -12.7% -4.9 pts

(to 69.6%) --4.7 pts

Jazz -9.5% n/a -18.1% n/a +5.8 pts(to 60.6%) n/a

International& Charter -29.9% -25.9% -25.6% -26.1% -4.5 pts

(to 72.8%) +0.2 pts

WestJet +43% +117.3% +49% +129% -2.9 pts(to 72.2%)

-3.9pts

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

Analysis:• Despite slight improvement from last month, Air Canada domestic traffic continues to .struggle• AC international traffic is continuing its downward trend.• The gap between WestJet’s growth in traffic and capacity is smaller at 6% than what it hasbeen year-to-date, resulting in a load factor decrease less than the year to date result.

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

0%

10%

20%

30%

40%

50%

60%

70%

80%

Jun-02


Feb Mar Apr May

RPKASK

WestJetWestJet

NEW CARRIERS:LOAD FACTORS

Jetsgo: 76.3%Zip: not reported

CanJet: not reported


AIRLINE DATA – U.S.U.S. Airlines Release May 2003 Traffic Figures

Airline Load FactorTraffic

(RPMs – millions)Capacity

(ASMs – millions)

173.7%

á4.1 pts

9,845

â4.8%

13,367

â10.1%

273.0%

á1.2 pts

1,224

á31.1%

1,790

á33.1%

375.9%

á2.4 pts

4,824

â6.3%

6,357

â9.2%

74.3%

á2.6 pts

7,842

â9.4%

10,561

â12.5%

84.9%

á2.3 pts

927

á74.1%

1,092

á69.3%

75.4%

â3.4 pts

5,338

â12.8%

7,075

â8.9%

69.2%

â0.5 pts

4,189

á3.2%

6,049

á3.9%

77.2%

á4.0 pts

7,920

â13.8%

10,261

â18.3%

2 73.5%

â0.1 pts

3,223

â11.7%

4,388

â11.5%

Notes: 1. Includes American Airlines and American Eagle2. Does not include Express Jet3. Load factor includes scheduled service only

Source: Carrier financial and traffic reports

.

InterVISTAS Consulting Inc. ©June 2003

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

Toronto Vancouver Montreal-Dorval Calgary Edmonton Ottawa Winnipeg Halifax Victoria Kelowna Saskatoon Regina St.

John’sApril -9.2% -13.5% -5.2% -8.1% -13.1% -9.3% -12.3% -6.4% -5.7% -13.4% -12.6% -11.0%

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

June -7.4% -9.8% -4.0% -7.0% -12.3% -6.0% -1.2% -7.4% -8.8% -9.7% -13.2% -16.8%

2nd Quarter -8.6% -10.9% -3.8% -6.7% -12.3% -6.9% -6.0% -6.3% -6.1% -8.7% -11.1% -11.9%

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

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

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

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

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

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

December +8.2% +4.3% +7.8% +6.9% +11.7% +6.3% +15.2% +8.1% +1.4% +4.3% +1.5% +3.2% +2.2%

4th Quarter n/a +7.2% +9.7% +7.5% +6.9% -5.1% +8.9% +7.3% +0.5% +3.0% +1.1% +3.0% -0.3%

2002

Full Year -7.5% -3.9% -4.3% +1.2% -4.1% -5.1% -3.8% +0.1% -4.8% -1.3% -5.1% -5.5% -5.7%

January n/a +3.8% +7.2% +6.3% +3.5% +6.2% +13.0% +4.5% +2.9% +4.0% +6.8% -0.3% -5.8%

February n/a -0.6% +3.7% +5.6% +3.0% +3.9% +12.7% +13.8% +7.5% +2.0% +6.0% +8.8% n/a

March n/a -1.3% -1.8% +3.7% -0.3% +2.2% +5.1% +11.6% +0.2% +5.0% -3.7% -4.2% n/a1st Quarter n/a +0.6% +2.9% +5.2% +2.0% +4.0% +10.1% +10.0% +3.3% +3.7% +3.1% +1.3% n/a

2003

April n/a -13.5% -10.2% +1.7% +1.1% -7.6% +4.4% +6.1% -0.9% -0.6% -3.9% -1.6% n/aNote: Toronto traffic levels derived from Statistics Canada dataData not available for St. John’s due to labour strike.

CA

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IRP

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TS


NEWS ARTICLES

AIR CANADA UPDATEAIR CANADA REACHES AGREEMENTWITH UNIONSAir Canada has reachedtentative agreements with allits unions. The deal with the Canadian AutoWorkers will result in the loss of 827 ticket-agents and call-centre jobs. The airline willsave C$170 million annually from thisagreement. The agreement with theInternational Association of Machinists andAerospace workers will save the airline C$180million a year and result in 1,400 job cuts. Thefinal agreement with the Air Canada PilotsAssociation will allow Air Canada to achieve anoverall labour cost of $1.1 billion a year.Recently however, efforts for restructuring arealso threatened by a dispute over the senioritybetween pilots who had worked at CanadianAirlines and those who worked at Air Canada.On June 13, an arbitrator will produce a newseniority list integrating the pilots of the twoairlines. Air Canada Jazz has also reachedtentative agreements with its unions and hasachieved total labour and management costreductions of $110 million annually.

AIR CANADA TO REACH DEAL ONLEASESAir Canada wants to reach an agreement withits aircraft lessors that would reduce its off-balance-sheet debt by C$3.2 billion. AirCanada hopes to conclude talks by June 30.

AIR CANADA FIRST TO OFFERONLY E-TICKETSEffective June 1, Air Canada will become thefirst full-service airline to offer only e-tickets fortravel throughout North America. Travellerswho prefer paper tickets will now have to pay anadditional $30.

AIR CANADA AEROPLAN PARTNERSWITH AMERICAN EXPRESSAir Canada has signed a letter of intent withAmerican Express to offer Aeroplan frequentflyer points to its card members. Under thearrangement, Aeroplan will become a partner in

Amex’s Membership Rewards points programand the two companies will work together todevelop co-branded charge cards forconsumers and corporations. While the CIBCpartnership with Air Canada continues, it is nolonger an exclusive relationship.

TANGO CUTS SERVICETango has announced that it will discontinueservice to Regina, Saskatoon, Saint John andFredericton. The airline will only serve ninedestinations this summer, compared to 23 lastyear. Tango will continue to serve Vancouver,Calgary, Edmonton, Winnipeg, Toronto, Ottawa,Montréal, Halifax, and St. John’s.

ZIP INCREASES SERVICE ANDLAUNCHES EDMONTON-VICTORIAOn June 8, ZIP increased the number of flightsbetween Montréal-Winnipeg; Calgary-Victoria;and Winnipeg-Vancouver. Beginning July 6, Zipwill introduce a daily non-stop service betweenVictoria and Edmonton.

OTHER CANADIAN AIRLINESWESTJET INCREASES SUMMERSERVICEWestJet plans to add more flights this summerbetween Calgary-Victoria, Kelowna-Vancouver,Edmonton-Victoria, and Hamilton-Halifax. Also,starting July 21, the carrier will add 14 weeklyflights from Montréal-Vancouver and 36 weeklyflights from Montréal-Hamilton

CANJET EXPANDS FLEETCanJet has acquired its sixth Boeing 737,representing a 50% increase in its fleet size inless than one year of operations.


NEWS ARTICLESJETSGO INCREASES FLEET BY 50%To mark its one-year anniversary, Jetsgoincreased the size of its fleet by 50% to 12aircraft. The four new MD-83s will be deliveredover the next five months. The carrier will offera special “1st Birthday $1 one-way flights for 1month” promotion.

U.S. & INTERNATIONALAIRLINESUS AIRWAYS NEW MEMBER OF STARALLIANCEOn May 31, the Star Alliance approved theapplication of US Airways to become theseventeenth member of the alliance. Theaddition of US Airways increases the number ofairports served by the alliance from 700 to 771and expands the number of countries servedfrom 128 to 133.

AMR CORP. REACHES AGREEMENTWITH CREDITORSAs the last piece of its US$4 billion cost-reduction effort, AMR Corp. reached anagreement with more than 100 suppliers,aircraft lessors and other key creditors that willsave the company US$175 million annually.The company will issue up to 3 million shares ofcommon stock in exchange for the creditors’participation in its cost-reduction efforts.

DELTA UNVEILS US$2.5 BILLION COST-SAVING PROGRAMDelta Air Lines unveiled a US$2.5 billion cost-saving program intended to reduce unit costs by15% by the end of 2005. The program focuseson redesigning the travel process, enhancingoperational efficiency, redefining the productline, increasing productivity and reducingemployment costs.

ATLANTIC COAST AIRLINES OFFERSBOSTON-FREDERICTON SERVICEEffective August 15, Atlantic Coast Airlineswill offer twice daily Boston-Fredericton service.The service will be operated with Fairchild328JET regional jets.

MIDWEST TO LAUNCH LOW FARESERVICEMidwest Airlines plans to launch a low-fareservice in August. The service will not be aseparate airline but will be part of one of twotypes of service offered by Midwest: MidwestAirlines Saver Service (low fares to leisuredestinations) and Midwest Signature Service(service to business destinations).

MESA OFFERS CHARLOTTE-MONTRÉAL FLIGHTSOn June 8, Mesa began a daily US AirwaysExpress nonstop service between Charlotte andMontréal operating on 50-seat CRJ200s.

STAR ALLIANCE IN TALKS FOR UP TO200 REGIONAL JETSLufthansa, Scandinavian Airlines, AirCanada and Austrian Airlines are in talks withBombardier Inc., Embraer SA, Boeing Co.and Airbus SAS for a firm order for 100regional jets, with up to 100 options in the fourthquarter this year. The estimated value of theorder, including the options, is US$4.5 billion.

RYANAIR OFFERS PERSONAL LOANSRyanair introduced its latest finance product,Ryanair low cost personal loans to Irish andBritish customers. These personal loans are inpartnership with an Irish personal financeinstitution, GE Capital Woodchester and theU.K.’s MBNA Europe Bank. Financial serviceshave proved to be successful for the carrier withthe introduction of its credit card back inFebruary.

KLM TO JOIN SKYTEAMKLM has decided to join the SkyTeam alliance.An official announcement is expected within thenext 2-6 weeks.


FUEL PRICES

June 5, 2003

SPOT OIL PRICES RISINGFUTURES PRICES STILL LOW

Crude Oil Prices:

Spot – US$30.82(up 20% from May)

Future – Still Stable• 6 month - $26.60

(December 2003 delivery)• 12 month – $25.16

(June 2004 delivery)• 2 year - $24.14


(June 2008 delivery)

NEWS ARTICLESCARGOU.S. DOMESTIC CARGO INCREASESU.S. Air Transport Association figures forApril show a 4.6% increase in revenue ton milesfor domestic cargo and a 0.9% decrease ininternational cargo. Total freight traffic for themonth increased 1.9% from the previous year.

WORLD AIR FREIGHT TRAFFIC UP 7.7%IN APRILWorldwide airfreight traffic increased 7.7% inApril according to the International AirTransport Association. Freight traffic in Asia-Pacific increased 10.6% last month comparedto the same month last year, in contrast to the45% drop in passenger traffic in the region.Carriers in North America reported an 11.2%drop in freight traffic in the first four months of2003.

DHL AIRWAYS SOLD FOR $57M ANDRENAMED ASTARDHL Worldwide Express will sell its DHLAirways unit to Chairman and CEO JohnDasburg and two other investors for US$57million. The transaction is expected to becompleted by June 30 and is subject toapproval by the U.S. Department ofTransportation. Effective immediately, DHLAirways has launched a rebranding programand will change its name to ASTAR Air CargoInc.

AIRBORNE EXPRESS LOWERS FUELSURCHARGEBeginning June 9, Airborne Express willreduce its fuel surcharge from 5.5% to 4.5% forall express shipments. The surcharge currentlyapplies to all U.S., Canadian and allInternational Express Shipments.

FEDEX TO REDUCE 14,000 JOBSFedEx Corporation plans to cut 14,000 jobsfrom its largest operating unit, FedEx Express.The company will offer voluntary earlyretirement and severance programs duringfiscal year 2004. The job reductions willproduce annual operating savings of US$150-$190 million by 2005.

WINNIPEG BECOMES MAIN HUB FORCARGOJETWinnipeg Airports Authority Inc. will be theprimary hub of Cargojet’s network. All Easternand Western Canadian flights will now passthrough Winnipeg. With Winnipeg as the mainhub, Cargojet will now operate 6 flights eachbusiness day, servicing Hamilton, Montréal,Vancouver, and Calgary directly.

AIRPORTSHALIFAX INTERNATIONAL RATED #1The 2002 IATA Global Airport MonitorReport, which was released May 2003, hasrated Halifax International Airport as numberone in the world in the Service Deliverycategory of airports servicing 15 millionpassengers or less.

YVR RANKS #1 IN NORTH AMERICAThe IATA Global Airport Monitor has ratedVancouver International Airport (YVR) as thetop airport in North America. YVR has beenchosen as one of the top ten airports in theworld for the past five years.

MONCTON INCREASES AIFBeginning July 1, 2003, the Greater MonctonInternational Airport will increase its airportimprovement and reconstruction fund from $10to $15 per person.

ST. JOHN’S AIRPORT STRIKE COMESTO AN ENDOn June 3, unionized workers at St. John’sInternational Airport ended a three-month strikeand voted in favour of a deal that gives themwage increases of 14-18% over four years. ThePublic Service Alliance of Canada indicated thatthe settlement was not as good as the tentativedeal they had in November. It was noted thatcurrent conditions made the Novemberagreement unattainable.


$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

Dec-02 Jan-03 Feb Mar Apr May Jun-03

US$

per

Bar

rel

Monthly Spot PricesMonthly Spot Prices

FUEL PRICES

June 5, 2003

SPOT OIL PRICES RISINGFUTURES PRICES STILL LOW

Crude Oil Prices:

Spot – US$30.82(up 20% from May)

Future – Still Stable• 6 month - $26.60

(December 2003 delivery)• 12 month – $25.16



(June 2008 delivery)

NEWS ARTICLESAIRCRAFT MANUFACTURERSBOMBARDIER, AIR CANADA SIGN DEALTO MARKET CHARTER SERVICESBombardier Skyjet, and Air Canada Jetz havesigned a commercial agreement to jointlymarket their air charter services. Thispartnership will provide customers withconvenient access to a range of options forprivate air travel throughout North America.

BOMBARDIER AEROSPACE PROFITSDOWNBombardier Aerospace reported revenues ofC$2.4 billion, an 11% decline for the first quarterended April 30. Pre-tax losses totalled C$7million, compared with a pre-tax profit of C$158million in the same quarter last year. The dropin revenues can be attributed to the decline inbusiness aircraft deliveries and rise in theCanadian dollar. Aircraft sold in U.S. dollarsnow fetch less in Canadian dollar revenues.Aircraft deliveries totalled 63 compared to 65 inthe first quarter of the previous year.

EMBRAER OBTAINS ORDER FROMJETBLUEEmbraer has obtained a US$3 billion orderfrom JetBlue for 100 Embraer 190s. JetBluehas also taken options on 100 additionalEmbraer 190s, taking the potential worth of thecontract to US$6 billion. Delivery of the firstseven aircraft will begin in 2005, with theremainder expected to be delivered through2011.

GOVERNMENT &REGULATORYUS DOT APPROVES AA-BACODESHAREOn May 30, US DOT issued a final approval fora codeshare arrangement between AmericanAirlines and British Airways. The agreementallows American to place its code on as manyas 110 destinations in the UK, continentalEurope, Africa, the Middle East and Asia.British Airways will place its code on American’sflights to 187 destinations in the U.S. and

Mexico. The two carriers, however, have notreceived approval to coordinate pricing andschedules.

PEOPLE IN THE NEWSNEW CAC PRESIDENT/CEO APPOINTEDRoland Dorsay has been appointed the newPresident/CEO of the Canadian AirportsCouncil. Roland has been Vice President atInterVISTAS Consulting Inc., heading its Ottawaoffice. Previously, he had been in internationalrelations at Canadian and Wardair.

REED JOINS ABBOTSFORDTerrace airport manager Rick Reed has movedto Abbotsford as its new airport manager.

BROWN NEW TERRACE AIRPORTMANAGERFormer Victoria Airport Manager Laurie Brownis moving to Terrace.

OTHERAIR TRAFFIC CONTROLLERS REACHDEALOn June 10, Nav Canada reached a tentativecollective agreement with the Canadian AutoWorkers and the Canadian Air Traffic ControlAssociation representing air traffic controllers.Under the agreement, the controllers will getwage increases of 2.5%, 2.5%, 2.75%, and 3%over the next four years, retroactive to April 1,2001. The 2,300 controllers have been withouta contract since March 31, 2001.

NAV CANADA FEE HIKESDue to a severe downturn in air traffic,NavCanada will increase its navigation feescharged to airlines by 7% starting August 7.


SARSTHE GLOBAL AIR TRAVEL CRISIS CONTINUES10 June 2003

When it seemed that the SARS epidemic had peaked worldwide, new cases of the disease emerged.Taiwan continues to worsen, as six new probable cases have been reported, bringing its total numberof SARS cases to 686. Currently, Taiwan is the third-worst hit international region after China andHong Kong. The World Health Organization (WHO) has decided to keep the travel advisory forTaiwan. In Toronto, a new cluster of SARS outbreaks has been reported. The WHO may renew atravel advisory warning to the city if a resurgence of SARS is confirmed. To date there are over 8,400SARS cases worldwide with the majority in China (63%), Hong Kong (21%) and Taiwan (8%).

Airport ImpactOn May 25, Hong Kong’s Airport Authority unveiled a US$12.8 million SARS revitalization plan tostimulate air traffic and bring tourists back to the city. The WHO had lifted its travel advisory on HongKong during this time.

Airline ImpactWeekly traffic statisticspublished by the U.S. AirTransport Association(ATA) reports that traffic toAsia-Pacific carried by U.S.carriers has shown a littleimprovement, rising to -35%during the week of May 18th

compared to a year ago.System-wide capacity forATA member airlinesremains at 12% below lastyear's levels. Air Canada’soverall traffic for the monthof May was down 26.4%.The airline’s Asia-Pacific traffic was down 68%.

Cathay Pacific has seen a slight increase in passenger traffic since the WHO lifted its Hong Kongtravel advisory. However, the carrier is still carrying only 1/3 the number of passengers that it carriedlast year. Cathay plans to restore approximately 170 flights per week beginning in July. The totalnumber of weekly flights operated in July will total 700, up from 530 in April.

To stimulate demand, carriers such as Qantas and Singapore Airlines are offering discounted faresfor travel to Hong Kong, Singapore and other countries. Foreign tourist numbers in Singapore havedropped 70% compared to last year. Air Canada is also offering a C$1,400 return fare from Sydneyacross the Pacific to London. China Southern Airlines has seen passenger numbers fall 83% in May,compared to last year. Hong Kong International Airport has shown a decline in passenger traffic of80% since the outbreak of SARS. Passenger numbers have fallen on average to 20,000 per day.Japan’s Narita Airport experienced a drop of 40% in passenger traffic during the period April 26-May5.

Doris Mak

Senior Market AnalystLifting of WHO Travel Advisory

The WHO travel advisory remainsin effect for Taiwan, Beijing andfour other regions of China.

Source: Air Transport Association


ECONOMIC OUTLOOK10 June 2003

Has the U.S. recovery stalled? No. Despite the level of unemployment in the U.S. being at a ten-year high, there are a number of signs that the U.S. economy is in for a solid recovery:

§ The stock market has rallied 20% since March

§ Business confidence has recovered since the Iraq War

§ Business activity should rise due to a cheaper U.S. dollar, which makes U.S. firms morecompetitive in domestic and international markets

§ U.S. real GDP growth in Q1 2003 was 1.5%

§ The Jobs and Growth Tax Relief Reconciliation Act is expected to add one-half a percentagepoint to GDP growth late in 2003.

§ The Federal Reserve hasexpressed its intention to continueto keep interest rates low.

Although the U.S. economy is achievinggrowth, there is little recovery in jobs,leading some observers to call this the“jobless recovery.” High unemploymentis taking its toll on consumers, whoappear less convinced of immanentrecovery in the June reading of theconsumer sentiment index.

Expect more outbound Canadian leisureair traffic than usual in the medium term.With unemployment high and a fallingcurrency, Americans may undertake lesstravel to Canada in the near future – at leastfor leisure purposes. But with the Canadianeconomy doing well and our dollar tradinghigher against the U.S. dollar in six years, itis likely we will see more Canadianstravelling south for holidays.

Source: University of Michigan

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US Consumer ConfidenceUS Consumer ConfidenceOnset of Onset of

RecessionRecession

9/119/11

Drop prior Drop prior to recessionto recession

Allison PadovaManager

Economic Services

US$ per CDN$


Roland DorsayRegional Vice President

Ottawa

OTTAWA SCENESUMMER RECESS

10 June 2003

Democratic Deficit: The House of Commons will likely head into its traditional summer holidayperiod once Bill C-24, the controversial political financing legislation, is passed, as is expected laterthis week. Before the House adjourns it will also need to finalize this year’s Estimates and that meansresolving the Transport Committee’s equally controversial decision to reject a 3% increase in the VIARail budget, ostensibly because it was unconvinced of the need for additional funding when VIA’srevenues are on the upswing.

Underlying the Government’s recent difficulties in moving its legislative agenda forward is thequestion of the future role of Caucus and of Parliamentary committees. Backbench MP’s have longsought a greater decision-making role. The transition period in anticipation of a change of Liberalleadership has given MP’s a window of opportunity to show more independence than they havetraditionally enjoyed. There is a growing expectation among MP’s that this is not just a temporaryphenomenon. Parliamentary Committees expect in future to have an increasingly important role toplay in shaping policy and legislation. Time will tell.

Canada Airports Act (Bill C-27): The Bill remains stalled in Parliament. It likely will not get beyondsecond reading debate stage by the time the House rises for the summer. It is highly likely that it willeven not have gotten to the Transport Committee for clause by clause consideration. MinisterCollenette has indicated that he would support the Transport Committee’s traveling across Canada tohold hearings on the airport bill, which means that even if C-27 were to pass second reading in theFall, there is in all likelihood not enough time to get this legislation passed before the NovemberLiberal leadership convention. The prognosis for this legislation is that it will die on the order paperand that it will most likely be up to the Transport Minister in the next Government to decide whether tore-introduce it and if so with what changes, if any.

The Canada Transportation Amendment Act (Bill C-26): is a little further ahead on the legislativecalendar than the Canada Airports Act but it faces too much opposition among Transport Committeemembers to have any prospect of early passage, even in a Fall Parliamentary session.

Canada Marine Act Review Panel Report: The Review Panel report, tabled in the House on June4th, is a landmark document that has been widely welcomed by the Canadian port authorities and themaritime industry. Many of the Panel’s recommendations have merit for consideration with respect toCanada’s airports. For example, the Panel recommends that:

• Port authorities be allowed to participate in any programs provided by the Governmentthat are available to other Canadian companies.

• The Government should consider financing alternatives for new port infrastructureinvestments, such as tax exempt bonds used widely in the USA. Consideration shouldalso be given to permitting accelerated capital cost allowance write-downs forinfrastructure facilities provided by the private sector within a port.

• The stipend payable to the federal government should be calculated as a percentage ofthe port’s net income.

• The Government rather than the marine transportation industry should bear the expenseof implementing national security measures.

Whether the Government adopts any of these provisions remains to be seem.


CARGO CAPERS9 June 2003

In previous columns I have addressed the international and U.S. air cargo industry recovery; thismonth, we take a look at what is happening on the Canadian scene.

Canadian air cargo developments. Amid the continued gloomy headlines from the passenger sideof the aviation industry (excepting of course the generally positive news concerning WestJet) thecargo side continues its increasingly strong recovery from the traffic decline that started in early 2001.Of course, in data-poor Canada, neither Transport Canada nor Statistics Canada can provide timelystatistics to back up that statement. Nevertheless we can see evidence of air cargo industryexpansion across the country, despite the recent bankruptcy filing by All Canada Express.

Airport cargo developments. In the west, Calgary expanded its cargo apron last year, and recentlyannounced its selection by DHL as a western Canadian base through which it will serve Alberta,Saskatchewan, the Yukon and the NWT. Cargolux also recentlyincreased its Calgary service to thrice weekly. Winnipeg is expandingits cargo apron, and had a carrier announcement of its own (seeCargojet item below). Edmonton opened its AirLINKS Cargo Park last year, and announced FedEx

as its anchor tenant. Vancouver announced the construction of a new 125,000square foot UPS regional sort facility. In central Canada, Air Canadacompleted its move to Pearson’s new infield cargo area last year, whileHamilton expanded its apron to accommodate cargo aircraft and Montréaldedicated Mirabel to cargo. In the east, Moncton (with 24,000 tonnes) and

Halifax (with 30,000 tonnes) both set cargo records in 2002. Airportsacross the country also started marketing FTZ capabilities, and haveagreed to work together to market Canadian airport capabilities in aCanadian Airports Council sponsored initiative that will lead to a commondisplay area at the 2004 TIACA conference in Bilbao, Spain.

Air Canada developments. Air Canada, despite its well-publicized difficulties, is following along inthe footsteps of the combination carriers such as Lufthansa Cargo that are serious about cargo.Robert Milton announced earlier this year that Air Canada Cargo will be spun off as a separatebusiness subsidiary. This will give AirCanada Cargo some much neededflexibility and independence from thepassenger-dominated main operation, and should hopefully allow Air Canada Cargo to improve itsservices.

Cargojet expansion. The big news, however, has to beCargojet. With its recently signed contract with UPS (which wasa key blow to fortunes of All Canada Express), Cargojet is inexpansion mode, recently picking up its eighth 727 freighter and awaiting delivery of its ninth.

Cargojet and the Winnipeg Airports Authority recently announced that YWGwould be the primary hub for Cargojet’s national air cargo network. Servicepoints in the west (Vancouver, Edmonton, Calgary, Saskatoon and Regina)will be linked to the eastern service points (Hamilton, Thunder Bay, Montréal,Moncton, Halifax and St. John’s) through Winnipeg, making it Cargojet’s

busiest centre.

Robert Andriulaitis

Director, Transportation &Logistics Studies


CARGO CAPERS – CONTINUEDDuring the press conference, Ajay Virmani of Cargojet noted their decision was based in part onWAA’s people. In particular, he noted the extensive cargo background and understanding of WAAPresident and CEO Barry Rempel. He also noted the commitment shown by WAA in pursuing theCargojet business, as well as its commitment to customers and partnerships. Finally, Ajay noted thecargo that was available in Winnipeg, the 24-hour operational status of the airport, and especiallyWinnipeg’s central location. He noted that YWG’s location allows them to most effectively serve theirnetwork.

Ajay spoke about international potential, as well as the domestic network. He noted Cargjet’salliances with British Airways World Cargo, Air France Cargo, and Swiss WorldCargo (arepresentative of Swiss WorldCargo attended the media event) would allow Winnipeg goods to flowthroughout the world.

A message for the Minister. Ajay Virmani also made a couple of points for the benefit of the federalgovernment. He noted that Canada lacks an air policy for cargo, and that we need to have one inplace. The federal government also needs to address high airport fees that stem from the excessiveairport rents Airport Authorities pay to the federal government.Beyond that, the federal government needs to address fuel taxes,security charges and air navigation fees – all key issues which theMinister’s vision failed to address.

Certainly this is not a new message, but it is one that still has notmade an impact on Parliament Hill. If we want this nicelydeveloping cargo recovery to continue, the federal governmentsimply has to face up to the problems it created (or at leastexacerbated) by its treatment of aviation and airports as cashcows. Airports, and indeed the industry as a whole needs to keepthe pressure up for change.

This 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 andmay not materialize.

Prepared by InterVISTAS Consulting Inc.

cair issue no. 6 - june 2003

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