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INTERVISTAS ’CANADIAN AVIATION

INTELLIGENCE REPORT

In this issue…

Features Columns: Regular Reports:

• Government Response to SCoT InterimReport (p. 1)

• Global Distribution Systems: A CurrentSnapshot (p. 3)

• Inbound Travel Market to China (p. 5)• Canada – U.S. Cargo Open Skies: A

Balanced Opportunity for DomesticCanadian Cargo Carriers (p. 15)

• Airline Data (p. 6)• Airport Data (p. 8)• Industry News (p.10)• Airport Best Practices (p.14)• Ottawa Report (p.17)• Washington Report (p.18)• InterVISTAS’ News (p. 19)

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

GOVERNMENT RESPONSE TO THESTANDING COMMITTEE’S INTERIMREPORTOctober 2005

In May 2005, the Standing Committee on Transport (SCoT) released an interim report entitled AirLiberalisation and the Canadian Airports System, containing a number of recommendations on airportrents and charges and funding for government services. The federal government reviewed theserecommendations and in September issued its response. The response will be disappointing toCanadian airports and other stakeholders that had been consulted, as it effectively dismisses allrecommendations put forward by the Committee. The responses to the individual recommendationsare summarised below.

• Airport Rent. The Committee recommended that the federal government immediately reducerent by 75%, that airports with less than two million passengers per year pay no rent, and that therent be reinvested in the Canadian Airports system. The Committee stated it appreciated that thegovernment finally acted on rent, but that the federal response “falls far short of what is required.”The government, on the other hand, sees no need for further rent reduction, arguing that therevised formula met the objectives of the rent review, in that it is “equitable, consistent, andresponsive to market conditions” as it is based on a progressive rate scale. With respect to theapplication of rent and the use of collected revenues, the government states that it is consistentwith their real property policy, in that it represents a fair return on public assets leased to privateor commercialised entities. The government further states that dedicating this revenue to theairport system would be inconsistent with this approach, and that they already provide financialassistance to airports (albeit non-NAS airports) for capital projects.

• Airport Capital Assistance Program (ACAP). The Committee recommended that the federalgovernment ensure airport rent revenues be used to increase funding to ACAP, that fundingshould be long term and stable, and application for funding should be simpler and less costly.The government position is that ACAP funding is sufficient for addressing airports’ safety relatedcapital projects, and that funding is secured through March 2010 at near current levels. Theirposition regarding the application process is that it is necessary to ensure projects meet thecriteria, and note that the costs can be claimed as part of the funding requested (if the applicationis successful). The government pointed to two evaluations of the program conducted in 2000and 2004, stating they both concluded the program was meeting its objectives. Notably,however, the most recent report indicated that some eligible projects were not being funded –including groundside safety-related projects – and indicated a future demand for funding that wasin excess of that which is planned.

• Security Charges. The committee recommended that the federal government remove the AirTravellers Security Charge (ATSC) and pay for security out of general revenues, noting that in noother mode are transport users required to pay for security measures. The Committee statedthat the application to air transportation is “arbitrary and wrong.” The government position is thatair passengers are the primary beneficiaries of air transport security and that the ATSC is fair andreasonable. They did not address the inconsistency with other modes.

Josh Drury

Transportation Analyst


GOVERNMENT RESPONSE TO THESTANDING COMMITTEE’S INTERIMREPORT – CON’T• Customs Services. The Committee recommended that the federal government pay for CBSA

services at airports that can demonstrate they have regular transborder or international services.The Committee noted that the requirements to pay for services were not applied consistently forall airports, with some required to pay for some services while others are not. The governmentcountered that charging for services has been government policy for decades and meets theTreasury Board’s charging policy that has existed since 1989; specifically, the federalgovernment should not bear all costs where an identifiable recipient receives a benefit from theservice. However, they did not address the issue of inequitable application of these charges.

• Regulatory Burden. The Committee recommended that the federal government ensure that ifdownloading regulations onto smaller airports results in a significant increase to costs, thegovernment will bear such costs. The government position is that, as a rule, they do not providefunding for costs arising from compliance of airport safety and security requirements. They viewthis as a return to subsidies and counter to the objectives of the NAP. In response to the burdenof costs these present, the government notes that regulations are developed in consultation withstakeholders, that they are working on developing ‘smart’ regulations which will allow operatorsflexibility in determining the method of compliance, and that the ACAP provides assistance forstart-up capital costs related to meeting regulatory requirements, though not ongoing costs. Theyalso note that they are in the process of revising rescue and fire-fighting regulations, which willlessen the burden on less busy airports.

• Government Exemptions. The Committee recommended that the government end its policyand repeal statutes where certain government departments and agencies receive free servicesfrom airport authorities. The government response is that they agree unreasonable demandsshould not be placed on airport authorities, but disagree with this recommendation. They arecurrently examining options for the accommodation of departments and agencies in terminalbuildings. The response did not contain a specific justification on why airport services shouldcontinue to be provided free of charge.

In addition to the issues covered in these recommendations, the Committee is also investigatingissues concerning the liberalisation of international air transport policy, indicating in its interim reportthat these required further study before making concrete recommendations. The Committee’s finalreport containing recommendations on all issues discussed will be released following further study,though an exact timeline has not been specified.


Angelica Sparolin

Research Manager

GLOBAL DISTRIBUTION SYSTEMS:A CURRENT SNAPSHOT

Despite the increase in ticket sales via the Internet, Global Distribution Systems (GDSs) continue toplay a significant role in the distribution of airline tickets and other travel services. Airlines currentlyspend an estimated US$5.5 billion in GDS booking fees per year, and together the four largest GDSs(Sabre, Amadeus, Galileo and Worldspan) accounted for 1.2 billion air bookings in 2004. Thefollowing table provides an overview of these four GDSs.

GDS Original Owners # AgencyLocations

# Airlines &Hotels

2004Bookings

Air France, Iberia,Lufthansa 65,250

469 airlines58,000 hotels

381 million

American Airlines,IBM 56,000


343 million

Delta, Northwest,Transworld 16,000


190 million

11 airlines, incl.UA, BA, KLM, AC 44,000


250 million

Source: “Carrying the load: How deregulation will impact the GDS heavyweights,” Tourism, Hospitality & LeisureReview. Deloitte, 2004 and “Online Plays,” Airline Business. March 2005

The following map provides anoverview of the major players ineach of the world regions. Themarket shares vary significantlywith Sabre dominating in Northand South America, Amadeusdominating in Europe andChina-based TravelSkydominating in Asia. On a globalbasis, Amadeus captures thelargest market share at 26%,followed by Sabre at 24%,Galileo at 22% and Worldspanat 14%.

While airlines have been struggling financially in recent years, the GDSs have all been performingwell. In 2004, all the major GDSs reported profits, each reporting increases over 2003.

Worldspan28%

Sabre42%

Galileo21%

Amadeus9%

Sabre4% Amadeus

15%

TravelSky35%

Other8%

Galileo15%

Worldspan4%

Abacus19%

Amadeus37%

Sabre49%

Worldspan6%Galileo

8%

Sabre13%

Galileo31%

Worldspan8%

Amadeus48%

Source: Star Alliance In-depth press briefing “GDS Alternatives”,Nagoya, June 2005.


GLOBAL DISTRIBUTION SYSTEMS:A CURRENT SNAPSHOT – CON’T

GDS 2004 Revenue 2004 Net Profit

US$2.56 billion US$259 million

US$2.30 billion US$190 million

US$503 million US$63 million

US$1.79 billion for travel distribution(US$10.9 billion Cendant total)

n/a for travel distribution(US$2.1 billion Cendant total)

Source: “Online Plays,” Airline Business. March 2005.

Despite their profitability, the GDSs are facing a number of market threats including:

• Changing patterns of consumer behaviour. Online bookings have continued to grow andairlines continue to encourage the use of these channels by passengers and travel agencies.Some GDSs have responded by purchasing stakes in online agencies. For example, Cendantspent US$2.7 billion to purchase Orbitz, Gullivers Travels (which owns octopustravel.com) andebookers. Sabre currently owns Travelocity and Amadeus purchased a majority stake in Opodo.Worldspan has taken a different approach; instead of owning online agencies, it provides thebooking engines behind a number of online agencies including Expedia, Orbitz and Priceline.

• Pressure from airlines to lower booking costs. Air carriers have also been applying pressureto GDSs to lower booking fees, which remain around US$4 per travel segment. Fees increasedby approximately 3% per year prior to 2002, when a number of GDSs entered into agreementswith carriers to freeze or reduce per-segment fees in exchange for access to fares, previouslyonly available online. For those airlines not under such agreements, booking fees havecontinued to rise (e.g., in 2004, Sabre increased booking fees by 2.3%). Many of the newagreements were for a three year term and are set to expire in 2006. Some carriers are lookingto negotiate new contracts with alliance partners and use their collective volume to achieve betterterms. Other carriers no longer use GDSs. Ryanair, for example, which started out on all fourGDSs, gradually built online sales until it stopped using GDSs completely.

• New entrants and new technologies. A number of new technologies are being developed tocreate a lower-cost version of the GDS. These new companies have been called “Global NewEntrants” or GNEs and include G2 SwitchWorks (developed by one of the creators of Orbitz) anda yet unnamed product being created by ITA Software. These companies hope to reduce theper- segment booking costs to 40¢. Other technologies are being developed to bypass GDSsaltogether. One such example includes a pilot project by SAS to link companies with very largevolumes of travel directly into an airline’s fare inventory.

Another relevant change for GDSs is their 2004 deregulation in the United States. Regulation wasoriginally put in place in 1984 to prevent anticompetitive behaviour among GDS-owning airlines (e.g.,biasing search results in favour of the airline which owned the GDS). GDS regulations are currentlyunder review in Canada and in Europe.

With these market and regulatory changes, GDSs will be forced to continue adapting and evolving inthe coming years, but they are also expected to remain an important part of travel distribution into theforeseeable future.


Eugene Chu

Project Analyst

INBOUND TRAVEL MARKET TOCHINA14 October 2005

In the August 2005 issue of the InterVISTAS Canadian Aviation Intelligence Report (China’sOutbound Travel Market, p. 3), the outbound travel market from China was examined. This columnwill assess the inbound travel market to China, and the current air services that serve the Canada-China market.

Growth of Inbound Travel to China. As shown in the graph below, international travelto China (excluding visitors from Hong Kong, Taiwan and Macau) has nearly doubled from 5.9 millionin 1995 to 11.4 million in 2003. The growth in visitors is a result of policy changes and aggressivemarketing by the China National Tourism Administration (CNTA). Note that the growth in inboundvisitors to China was tempered by the SARS outbreak in 2003. The World Tourism Organisationforecasts that China will receive 62 million international visitors in 2010, and 130 million by 2020, withan average annual growth rate of 7.8% between 1995-2020.

China Inbound MarketCharacteristics. Based on 2003 datapublished by the National Bureau of Statisticsof China, about 40% of the visitors were onleisure/visiting friends and family, 25% of thevisitors were travelling on business, while theremaining 35% were travelling for otherpurposes. Top markets of origin includeJapan, South Korea, Russia and the U.S.,accounting for 56% of total internationalvisitors. In 2003, over 230,000 Canadiansvisited China, an increase of 79% from 1995.

Air Services between Canadaand China. Currently, Air Canada and Air China both offer daily flights between Vancouver andBeijing. Daily service between Vancouver and Shanghai is operated by both Air Canada and ChinaEastern Airlines, while Air Canada offers Toronto-Beijing service five times per week.1 In April 2005,Canada completed a new air service agreement with China. The agreement allows for a three-foldincrease in the number of weekly air passenger services between Canada-China, and permits up tonine additional cities in each of Canada and China to be served.2 Air Canada has already announcedplans to increase services to China under the new agreement (including a new Vancouver-Guangzhou route in 2007), while Harmony Airways has received designation to serve the Canada-China market.

Implications. The growth of both the outbound travel market from China and inbound market toChina from Canada helps to ensure healthy demand for air services in both directions, facilitating thecontinued growth of Canada-China air services.

1 Source: Air Canada, Air China and China Eastern Airlines websites.2 Cities to be named by Canada and China.

5,8906,740

7,430 7,110

8,430

10,16011,230

13,440

11,400

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1995 1996 1997 1998 1999 2000 2001 2002 2003

Num

ber o

f Tra

velle

rs ('

000s

)

International Inbound Travel to China

Notes: Excludes visitors from Hong Kong, Macau and Taiwan.

Source: China Statistical Yearbook 2004 - National Bureau of Statistics of China.


-10%

-5%

0%

5%

10%

15%

Sep-04

Oct Nov Dec Jan-05

Feb Mar Apr May Jun Jul Aug Sep

Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

0%

10%

20%

30%

40%

50%

60%

Sep-04

Oct Nov Dec Jan-05


RPK ASK

WestJetWestJet

AIRLINE DATA – CANADATraffic and Load Factors on Canada’s Major Air CarriersSeptember 2005

Passenger TrafficRevenue Passenger Kilometres

CapacityAvailable Seat Kilometres Load Factor

Air Carrier % Changeover 2004

% Changefrom 2003

% Changeover 2004

% Changefrom 2003

Changeover 2004

Change from2003

Air Canada1 +8.8% +19.2% +7.2% +8.8% +1.2 pts(to 80.4%)

+7.0 pts(from 73.4%)

Domestic(Mainline)

+4.1% +4.6% +1.9% -8.6% +1.7 pts +10.3 pts

Jazz +68.6% +81.9% +61.8% +44.4% +2.8 pts +14.3pts

International& Charter

+10.9% +26.4% +9.6% +18.0% +1.0 pts +5.4 pts

WestJet +17.6% +55.2% +18.3% +49.5% -0.4 pts(to 70.9%)

+2.6 pts(from 68.3%)

Analysis:

• Air Canada reported its eighteenthconsecutive month of record load factorsin September 2005. Domestic traffic rosefaster than the addition of capacity,resulting in an improved load factor for themonth.

• Following a previous trend, Air CanadaJazz continues to post double digit growthin traffic and capacity. Over the lastseveral months, Jazz, which serves bothdomestic Canada and the transbordermarket, has outpaced WestJet in trafficand capacity growth.

• In September 2005, Air Canada’sinternational traffic and capacity posted thestrongest increase since the beginning ofthe year. Traffic and capacity increased inall major sectors including the U.S.,Atlantic, Pacific and Latin America.

• WestJet’s traffic and capacity recordeddouble-digit growth in September 2005. Forthe first time all year, load factor declined asthe addition of capacity outpaced trafficgrowth.

OTHER CARRIERS:LOAD FACTORS

CanJet: not reported

Air Canada Domestic Mainline Air Canada Domestic Mainline

-15%

-10%

-5%

0%

5%

10%

Sep-04

Oct Nov Dec Jan-05


Dom RPK Dom ASK

Jazz data is not includedin this graph


AIRLINE DATA – U.S.U.S. Airlines Release September 2005 Traffic Figures

Traffic Data – September 2005

Airline Load FactorTraffic

(RPMs – millions)Capacity

(ASMs – millions)

76.2%

á2.8 pts

10,743

á9.1%

14,095

á5.0%

69.2%

á3.2 pts

676

á26.2%

977

á20.4%

70.9%

á0.2 pts

477

â44.6%

672

â44.8%

177.0%

á2.5 pts

6,192

á9.8%

8,043

á6.3%

73.1%

á2.6 pts

9,397

á8.0%

12,863

á4.2%

77.7%

á1.1 pts

1,519

á30.7%

1,955

á28.9%

81.0%

á1.8 pts

6,005

á4.5%

7,412

á2.1%

67.4%

á4.2 pts

4,734

á18.9%

7,021

á11.5%

280.2%

á2.7 pts

9,130

â1.5%

11,380

â4.8%

272.6%

á1.9 pts

2,870

â4.0%

3,950

â6.6%

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

Sources: Carrier traffic reports.


Toronto Vancouver Montréal-Trudeau

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

August +16.0% +4.9% +18.1% +1.9% +2.2% +6.2% +7.4% +6.9% -2.0% -5.9% +5.4% +1.5% +10.1%

September +16.1% +11.5% +13.2% +13.0% +6.3% +7.9% +8.8% +8.6% +8.3% +12.1% +5.3% -0.6% +13.4%

3rd Quarter +16.4% +8.7% +16.7% +6.2% +2.9% +6.6% +8.2% +8.6% +3.3% +1.1% +5.4% +0.8% +11.2%

October +14.3% +7.0% +10.7% +10.7% -4.0% +11.9% +1.1% +3.7% -1.4% +9.1% +7.9% +1.9% +18.2%

November +13.3% +6.2% +17.6% +9.6 +4.7% +11.4% +4.4% +8.3% +0.3 +5.1% +8.0% -11.1% +9.9%

December +14.2% +6.8% +20.9% +8.9% +8.4% +11.0% +5.1% +8.0% +2.1% +3.9% +8.1% +3.6% +6.8%

4th Quarter +14.0% +6.7% +16.1% +9.7% +3.1% +11.4% +3.5% +6.4% +0.3% +5.9% +8.0% -2.1% +11.9%

2004

Full Year +15.7% +9.6% +18.6% +7.0% +5.1% +10.2% +7.7% +9.1% +5.7% +3.6% +5.6% +0.3% +14.0%

January +15.0% +9.8% +14.4% +13.2% +9.6% +12.9% +13.6% +7.0% +4.7% +12.4% +17.7% +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% +10.4% +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% +19.1% +22.2% +19.6%

1st Quarter +11.2% +7.5% +7.7% +13.7% +10.0% +8.4% +10.0% +6.3% +9.3% +16.0% +15.6% +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% +5.9% +3.8% +9.8%

May +6.7% +5.5% +3.7% +12.2% +12.0% +5.5% +8.0% -4.5% +5.8% +26.3% +13.4% +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% +11.0% +12.4% 12.4%

2nd Quarter +5.7% +4.5% +5.7% +8.6% +10.4% +3.1% +5.0% -1.8% +5.1% +22.6% +10.2% +7.3% +10.3%

July +3.6% +3.4% +3.8% +11.2% +11.7% +4.8% +4.5% -9.7% +1.2% +15.9% +5.1% +10.9% +14.0%

2005

August -1.1% +2.7% +1.5% +12.7% +8.8% +4.4% +4.6% -6.4% +5.2% +26.4% +10.1% +2.4% +8.9%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


Origin & Destination Market Data forall Transborder Markets

InterVISTAS recognises the need for asolid base of market knowledge tosupport air service development. Ourmarket research team specialises inquantifying origin/destinationpassenger markets, travel patterns,and drive diversion for airports.

InterVISTAS’ transborder market datarelies on a number of sources includingtravel agency ticket sales, whichrepresent one of the mostcomprehensive and detailed sources ofair travel data between Canada and theUnited States. By combining air ticketsales data with other aviation datasources and years of industryknowledge, InterVISTAS offers customreporting on transborder air markets.

Identify True Origin & DestinationFlows

• Quantify city-pair market sizes for airservice development initiatives

Analyse Hub Activity & Routings

• Identify key routing patterns to supportair service proposals

Understand Competition withinAirport Catchment Areas

• Quantify traffic leakage to determinetrue market sizes

For more information, contact:

Nancy KeenMarket Research & AnalysisInterVISTAS Consulting Inc.

Telephone: 1-604-717-1822Email: [email protected]

U.S. Passenger Market Data for AirportsAccurate and Timely Marketing Data:A Key to Air Service Development

InterVISTAS Consulting

specialises in developing

origin/destination passenger

market sizes, travel routings and

fare profile data for domestic,

transborder and international

city-pair markets.

InterVISTAS Consulting Inc.550-1200 West 73rd Avenue,

Vancouver, BC, V6P 6G5Canada

Telephone: 1-604-717-1800Facsimile: 1-604-717-1818

E-mail: [email protected]


NEWS ARTICLESAIR CANADA UPDATEAIR CANADA AND ACPA REACHAGREEMENT ON PROCESS TORESOLVE ISSUES ON BOEING ORDER

On September 23,Air Canada

announced that it had reached an agreementwith the Air Canada Pilots Association (ACPA)on a process to resolve all issues related to thecarrier’s previously announced acquisition ofBoeing 777 and 787 aircraft. Followingresolution of the issues, Air Canada will re-engage Boeing to finalise the agreement onacquisition of the aircraft.

ACE COMPLETES PLANNEDINVESTMENT IN MERGED US AIRWAYS-AMERICA WESTACE Aviation Holdings, parent company of AirCanada, announced on September 27 that ithad completed its planned investment of US$75million in the merged US Airways-America Westentity. The move coincided with US Airways exitfrom bankruptcy proceedings.

AIR CANADA JAZZ LAUNCHES DIRECTTORONTO-SASKATOON ANDTORONTO-REGINA CRJ SERVICE

On October 3, Air Canada Jazzcommenced new direct airservices between Toronto and

Saskatoon, and between Toronto and Regina.Both services are operated using 75-seat CRJ-705 aircraft and will operate three times dailythrough the winter, plus one additionalfrequency for Saskatoon-Toronto through theend of October. The new services replaceshared circle routes that included stops in bothcities as well as Toronto.

ACE SHELVES PLANS TO SPIN OFFJAZZACE Aviation Holdings is putting on hold plansto spin off Air Canada Jazz into an incometrust, indicating current conditions in the trustmarket were not favourable. ACE has statedthey will proceed with the plans as marketconditions warrant.

AIR CANADA EXPANDS SERVICE TOINDIAAir Canada announced that starting October30th, it will be expanding service to India througha codeshare arrangement with SWISSInternational Airlines. Air Canada will offer itsown flights daily from Toronto to Delhi viaZurich, on which SWISS will sell seats on acodeshare basis. In addition, SWISS will offerdaily flights from Zurich to Mumbai and fromMontreal to Zurich, codesharing with Air Canadaon both flights.

OTHER CANADIAN AIRLINENEWSWESTJET COVERTS 737-700 OPTIONINTO FIRM DELIVERY

WestJet Airlinesannounced on October6 that its Board of

Directors had approved the purchase of anadditional 737-600 aircraft by converting apurchase option into a firm order. The aircraftwill be delivered in December 2006.

ZOOM TO START TORONTO-HONOLULUSERVICE

Zoom Airlines announced plansto operate weekly service thiswinter between Toronto and

Honolulu. The service will run Saturdays fromDecember 17, 2005 to April 29, 2006, using767-300 aircraft.

WESTJET COMMENCES SERVICE TOFORT MYERSOn October 13, WestJet commenced its non-stop service operating between Toronto andFort Myers, Florida. The service operates fourtimes weekly using 737-700 aircraft.


NEWS ARTICLESOTHER CANADIAN AIRLINENEWS – CON’T

WESTJET EXTENDS FUEL HEDGINGWestJet announcedon October 12 that it is

expanding the fuel hedging strategy it hadannounced in October. The strategy usesfinancial instruments to protect the carrieragainst volatile fuel prices, which represent arisk where tickets are purchased in advance andfuture fuel costs are uncertain. WestJet hashedged approximately 50% of its fuel costs inOctober, 25% in November, and 12.5% inDecember.

CANADIAN AIRPORTSVANCOUVER AIRPORT AWARDS DUTYFREE CONTRACTVancouver International Airport Authorityannounced on October 13 that it has awardedthe duty free concession contract at VancouverInternational Airport to Aldeasa, a Madrid-basedcompany that is the fourth largest airport retailerin the world. The contract is for eight years plusa two-year option.

VANCOUVER AIRPORT LAUNCHESCOMMON-USE CHECK-IN KIOSKSOn September 27, Vancouver InternationalAirport Authority officially launched common-use self service (CUSS) check-in kiosks at twoDelta hotels in Vancouver and Richmond. Thenew kiosks allow guests at the hotels to check infor flights departing from the airport beforeleaving the hotel. Currently the service appliesto WestJet flights, with more airlines to join theprogram later this year.

VANCOUVER INTERNATIONAL AIRPORTAUTHORITY FORMS PROJECTMANAGEMENT COMPANYVancouver International Airport Authorityannounced the establishment of YVR ProjectManagement, a wholly owned subsidiary, tooversee major projects at the airport. The initialfocus of the subsidiary will be the expansion ofthe International Terminal Building, valued at$420 million.

CARGO NEWSMORNINGSTAR CESSNA 208 CRASHESIN WINNIPEGOn October 6, a Morningstar Cessna 208Caravan carrying cargo for Federal Expresscrashed in central Winnipeg, killing the pilot butcausing no other fatalities or significant damageon the ground. The Transportation Safety Boardis investigating the cause of the crash, and it isbelieve weather may have been a factor.

CARGO 2000 TO RELEASE MORE DATACargo 2000, an IATAorganisation of 30 majorairlines, freight forwarders

and ground handling agents, began publishingjoint airline/forwarder data on “flown/received asplanned” performance data on its website in aneffort to improve service levels on the cargosupply chain. Starting in January 2006, Cargo2000 will also publish data on booking qualitylevels from forwarder to airline. The new datawill indicate responsibilities for service failures.By the end of 2006, all shipments betweenmembers will be measured globally, whereasnow it is measured only on specific routes.


Barry Rempel

Bryan LaBrecque

NEWS ARTICLESCARGO NEWSAIR CANADA SIGNS MARKETINGAGREEMENT WITH AIRBRIDGE CARGO

Air Canada andAirBridge Cargo havesigned an exclusive

marketing agreement on scheduled and charterB747F services to and from Frankfurt andAmsterdam from Russia, CIS and Asia. Theagreement, which will run until 31 March 2007,will support the oil and gas industry in WesternCanada by linking Air Canada’s MD-11Fservices into Frankfurt and Amsterdam withAirBridge Cargo’s B747F services to Moscow,Krasnoyarsk, and Yuzhno-Sakhalinsk, with moredestinations to be added.

FREIGHT CAPACITY INCREASE HIGHERTHAN DEMAND INCREASE IN AUGUSTWorld air freight traffic, as measured in freighttonne kilometres (FTKs), grew 2.8% in August2005 over the previous year. Capacity grew4.9%, according to the International AirTransport Association.

PEOPLE IN THE NEWSVANCOUVER INTERNATIONAL AIRPORTAUTHORITY ANNOUNCES NEWDIRECTORS

On October 12,VancouverInternational

Airport Authority announced the appointment ofthree new directors to its board. Peter Dhillon isthe CEO of the Richmond Group of Companiesand serves on a number of boards including aschairman of the Audit Committee for theVancouver 2010 Organizing Committee. PhillipOwen is a former Mayor of Vancouver (servingfrom 1993-2003) and is active in a number ofcommunity organisations. Ronald Stern is thepresident and CEO of large paper mills inCanada and the U.S., and chairman of anumber of companies including FP CanadianNewspapers.

MILTON NAMED TO US AIRWAYSBOARDRobert Milton was namedto the board of USAirways Group inSeptember after ACEAviation announced thecompletion of itsinvestment in the carrier.US Airways recentlyemerged from bankruptcy protection andmerged with America West Airlines. Milton isChairman of Air Canada, which itself emergedfrom bankruptcy protection in September 2004.

REMPEL NAMED TO ACI-NA BOARDBarry Rempel, President andCEO of Winnipeg AirportsAuthority, has been elected tothe board of directors of AirportCouncil International-NorthAmerica (ACI-NA). He willbegin a three-year term on theboard in 2006.

COUTU APPOINTED TOTRANSPORTATION APPEAL TRIBUNALOn October 5, TransportMinister Jean Lapierreannounced the appointmentof Dr. Pierre Coutu and Dr.John Saba to theTransportation AppealTribunal of Canada. Dr.Coutu is President ofAviation Strategies International, an internationalnetwork of aviation advisors, while Dr. Saba issecretary–general of the Institute of Air & SpaceLaw Association.

Bryan LaBrecque hasbeen named President andChief Operating Officer ofAtlantic Southeast Airlines(ASA). Before joiningASA, LaBrecque served asdirector of the DeltaConnection program for

Delta Air Lines. ASA was recently sold by Deltato Skywest, Inc. for US$425 million (C$500million).

Robert Milton

Pierre Coutu


NEWS ARTICLESPEOPLE IN THE NEWS - CONT

Brian Anderson hasbeen appointed to the

board of directors of the Canadian TourismCommission. Since 2003 he has been theDeputy Minister of Tourism and Parks for theGovernment of New Brunswick and brings over20 years of public sector experience.

OTHERU.K. TO GRANT 5TH FREEDOM RIGHTSFOR REGIONAL AIPORTS

The United Kingdom’sDepartment for Transport(DfT) announced in September

a change in policy in favour of allowing fifthfreedom rights for both passenger and cargoservice for foreign carriers operating at regionalairports in the UK. The new policy reflects therecommendations made in a study by thecountry’s Civil Aviation Authority (CAA) on theimpacts of such services.

AIRBUS LAUNCHES A350 PROGRAMOn October 6, Airbusannounced that it hadreceived approval from

its shareholders and formally launched its newlong-range widebody A350 aircraft. The aircraftwill be similar in appearance to the A330 andA340 on which it is largely based and will sharethe same pilot rating, but will have newcomponents including more efficient enginesand a new wing. The aircraft is expected tocompete with Boeing’s 787 as a fuel-efficient,long-range, mid-sized widebody aircraft. Airbushas received 140 firm commitments for theaircraft.

RUSSIA LIFTS BAN ON IL-96-300FLIGHTSOn October 3, Russia’s TransportationMinistry ruled that IL-96-300 could resumeflights. The aircraft type had been grounded inAugust due to faulty components in the brakingsystem.

SAS INTRODUCES CHECK-IN USINGMOBILE PHONESScandinavia Airlines System (SAS)introduced a service, SAS MobilePortal, to allowpassengers to check in for flights using theirmobile phones. SAS claims to be the first airlineto offer such service via mobile phone. Thesystem has been launched in Sweden and willfollow in the other Scandinavian countries laterthis fall.

GAO REPORT – BANKRUPTCY ASYMPTOM OF STRUCTURAL ISSUESThe U.S. General Accounting Office (GAO)released a report in September regarding airlinebankruptcies and pension issues, finding thatbankruptcy is endemic to the industry due tohigh capital costs, strong competition, andcyclical demand. The study found mixed resultsin terms of airlines being able to significantlyreduce costs through bankruptcy, though mostwere able to, and found no clear evidence thatbankruptcy harms the industry.


AIRPORT BEST PRACTICESOctober 2005

Thunder Bay: Entrepreneurial Get Up and Go

Traditionally airports have served air carriers, aviation (including cargo)and passenger related business. In exchange for these services,airports have received per-use fees, rents and concession revenue(money made by allowing a company such as a duty-free operation aconcession to operate in the terminal building). Airport subsidiariesthat operated other airports was a major, post-NAS innovation inCanada, although they have existed in Europe for years.

The Thunder Bay International Airports Authority has taken these entrepreneurial innovations a stepfurther. Although one of the smaller NAS airports, at 600,000 enplaned-deplaned passengers peryear, it has a number of subsidiaries including:

• An IT company;

• A consulting/airport management operation; and

• A distributor (sales, support & leasing) of snow removal equipment.

In cooperation with a local IT company, Aviation Intertec, the airport offers a fully Internet-based flightinformation display system (FIDS) solution, known as iFIDS. The system is based on Internet datatransfer. An airline installs and sends data to iFIDS to distribute to airport customers. This airportsubsidiary also offers Aileron, an airport billing and lease management solution.

The airport services subsidiary operates Red Lake Airport on a five-year agreement, which the TBIAAhopes to renew for another five years. Red Lake Airport serves approximately 8,000 passengersannually. This subsidiary also offers airport firefighting training to other NAS airports.

A third subsidiary has an exclusive North American marketing and support agreement with BoschungAG, a European manufacturer of airport runway maintenance systems. The airport purchased asweeper-like piece of equipment from Boshung called a JetBroom. After negotiations, the authorityentered into an agreement to provide training, technical support and sales of the equipment.

Revenue Generation. In 2004, these initiatives provided 12 percent of the airport authority’srevenue. While it has varied year to year, the TBIAA has consistently showed positive revenue fromits outside operations.

As airports increasingly seek alternative sources of revenue in response from air carriers for lowcosts, Thunder Bay may prove a model for entrepreneurial airport innovation.

Rob Beynon

Director, Airport Marketing


CANADA-U.S. CARGO OPEN SKIES:A BALANCED OPPORTUNITY FOR DOMESTICCANADIAN CARGO CARRIERSOctober 2005

Balanced Benefits – the missing element. While the domestic Canadian air cargocarriers strongly oppose Canada-U.S. Cargo Open Skies due to the potential loss of a small amountof domestic connections to the U.S. couriers’ transborder flights, they overlook the balancingopportunity to increase their domestic carriage by moving cargo to new fifth freedom gateways.

Domestic benefits from fifth freedom opportunities. The provision of fifthfreedom rights opens the door to an opportunity for Canadian domestic air carriers to increaseCanadian domestic cargo carriage by moving Canadian overseas courier traffic from Canadian pointsto fifth freedom gateways – traffic currently carried by U.S. integrators from the Canadian gateways toU.S. hubs.

To illustrate this, consider Asian bound Canadian cargo. Today cargo from a point such as Winnipegdestined for China is likely going on a routing such as Winnipeg-Omaha-Anchorage-China. However,if UPS had fifth freedom rights, and could fly from the U.S. to China via a point such as Vancouver,Winnipeg originating packages would likely be routed Winnipeg-Vancouver on a Canadian carrier andthen onto the UPS flight for delivery to China. UPS benefits as this is one less route segment and ashorter distance to travel. A Canadian carrier such as CargoJet would benefit from the increase in itsWinnipeg-Vancouver traffic base.

An often-cited example of the co-terminalisation risk to Canadian carriers is in the Edmonton market.However, in a similar fashion to the example above, Edmonton-Vancouver-Asia traffic could offset co-terminalisation losses. In other words, even though the Edmonton transborder courier traffic would nolonger be carried by Canadian air carriers (and trucks) from Calgary, those carriers would gain theEdmonton-Vancouver leg for the Asia service connection. Edmonton gains the co-terminalisationflight, Vancouver gains the fifth freedom traffic, and Canadian air carriers swap the Calgary-Edmontonco-terminalisation traffic in exchange for the domestic fifth freedom feeder service to Vancouver.

Small risks from courier co-terminalisation. As noted above, there is a risk that co-terminalisation would result in some lost “domestic” traffic for Canadian carriers. In other words, U.S.originating traffic to points beyond the gateway communities of Vancouver, Calgary, Winnipeg,Hamilton/Toronto, Ottawa, Montréal and Halifax that already receive direct service by one or moreU.S.-based integrated carriers are potentially at risk. Right now, the U.S. carriers are forced to sub-contract with Canadian carriers (air or truck); with co-terminalisation, they would have the option ofoffering services to beyond communities themselves.1 InterVISTAS Consulting Inc. has estimated

1 It has been claimed that the “scope clauses” in the collective agreements of FedEx and UPS mean that trafficwould necessarily be lost under co-terminalization and thus this restriction is necessary to force the U.S. carriersto move their product on Canadian carriers. Using trade restrictions to address provisions of U.S. collectivebargaining agreements Canadian carriers do not like, however, is inappropriate and could lead to retaliation.

Robert Andriulaitis

Director, Transportation& Logistics Studies


CANADA-U.S. CARGO OPEN SKIES:A BALANCED OPPORTUNITY FOR DOMESTICCANADIAN CARGO CARRIERS – CON’Tthis volume to be no more than 6% of the total domesticweekly cargo capacity of Canadian carriers.2 The reasonfor such a low number stems in large part from the verynarrow band of markets that are both large enough towarrant co-terminalisation services by large U.S. jets,yet small enough to not justify non-stop services. Whiletraffic losses could be expected, the potential volume issimply not that large.

Conclusion: a balance of opportunities.All in all, Canada-U.S. Open Skies looks like a balanceof opportunities for Canada's domestic cargo carriers.Coupled with the clear benefits to passengers, shippers,airports, the tourism industry, export/import industriesand Canadian passenger air carriers, Open Skies isclearly in Canada’s best interests.

2 The Economics of Cargo Co-Terminalization, prepared by InterVISTAS Consulting Inc. for Aéroports deMontréal, The Greater Toronto Airport Authority, and Vancouver International Airport Authority, 30 June 2005.


OTTAWA REPORT12 October 2005

Canada and the European Union Sign Agreement on Passenger DataTransferCanada and the European Union signed an agreement on October 3 that willrequire European carriers flying to Canada to share selected passengerinformation with Canadian authorities. Under the agreement, carriers willneed to share with the Canada Border Services Agency (CBSA) informationincluding names, contact and credit card information. The informationsharing is expected to contribute to anti-terrorism measures. The EUconcluded a similar agreement with the U.S. in May 2004. The EU-Canadaagreement involves the transfer of less information and higher levels ofprotection than the EU/U.S. agreement.

National Highway System Expansion Announced

On September 22, The Council of Ministers responsible for Transportation and Highway Safetyagreed on a recommended expansion of the National Highway System. The expansion will addapproximately 4,500 km of feeder routes and 5,900 km of remote and northern routes to the system.The National Highway system was established in 1988 and currently consists of about 24,500 km ofhighways providing key interprovincial and international links. Most of the current system will beclassified as core routes, which is one of three classifications of routes along with feeder routes andremote and northern routes. The expanded system will encompass 38,021 km of roads in total.

Pickering Airport Zoning Regulations Come Into Force

Transport Canada Announced on September 26th that the zoning regulations at the Pickering Airportsite had come into effect, protecting the lands for development for future transportation needs. Theregulations apply to lands adjacent to and in the vicinity of the federal lands comprising the site. Thezoning regulations do not imply that the government has made a decision on development of theairport, which would function as a regional and reliever airport complementing Pearson and HamiltonAirports in the Greater Toronto Area. This decision will not be made until at least 2009 following theresults of future studies, planning, and due diligence review.

Canadian Transportation Award Winners AnnouncedTransport Minister Jean Lapierre and David Johnstone, President of the Canadian TransportationAgency, announced on September 22 the winners of the 2005 Canadian Transportation Awards. Theawards recognise achievement, leadership, and excellence across all modes of Canadiantransportation. The Transportation Person of the Year was awarded to Dan Doyle of Burnaby, B.C.,who recently retired as Deputy Minister of B.C.’s Ministry of Transportation. The Award of Excellencewas awarded to two individuals: Dan Di Tota of Ottawa, the national director of Operation Lifesaver, apublic education program aimed at reducing railway crossing accidents, and John Lawson, also ofOttawa, a respected transportation economist who retired this year following a long career withTransport Canada. The Award of Achievement was conferred on Milton Carrasco of Richmond, B.C.,the president of Transoft Solutions Inc., responsible for the development of vehicle simulationsoftware that revolutionised the way engineers design intersections, roundabouts, and loadingfacilities.

Sam Barone

Regional Vice PresidentOttawa, ON


WASHINGTON REPORT14 October 2005

TSA Won’t Use Commercial Data inSecure Flight ProgramThe U.S. Transportation Security Administration (TSA) saidthat it will not use commercial data in its Secure Flightprogram, (to be launched later this year). The commercialdata, which TSA had arranged to be compiled by a privatedata contractor during the test phase of the Secure Flightsystem, would have come from multiple sources including credit card information. TSA sent a list ofPNR (Passenger Name Records) to the contractor who checked the passenger’s identity, then thepassenger was checked against TSA’s terrorist watch list. TSA cited privacy concerns in its decisionto not use commercial data for Secure Flight.

Mexico and U.S. Expand Air Bilateral

Mexico and the U.S. have updated their air bilateral agreement forthe first time since 1999. Under the new agreement, each countrymay designate three airlines per city pair between any U.S. point and

14 points in Mexico. The previous agreement allowed two airlines from each country to operate percity pair. Airlines from either country are also allowed to enter codeshare agreements with airlinesfrom third countries. The agreement also increases from four to ten the number of U.S. and Mexicancarrier codes that may be carried in each city pair. Any number of all-cargo carriers will be allowed tooperate scheduled services between Mexico and the U.S. (previously limited to five), and three all-cargo carriers will be allowed to operate on each city pair (previously limited to one).

FAA Proposes New Security Devices

FAA has proposed that commercial aircraft be equipped with equipment that will allow the flight crewto monitor the area outside the cockpit door. The FAA has also made other suggestions for cabincrew to notify pilots of suspicious activity or any security breaches in the cabin of the aircraft. Theproposed changes address post 9/11 recommendations by the aviation industry, the U.S. governmentand ICAO.

GAO Report: Gap in Air Crew Security TrainingA recent GAO report cites continuous oversight of security training of flight and cabin crew aboardcommercial aircraft. The GAO reports that TSA has not established performance goals for securitytraining, lacks internal controls for properly assessing training of flight crew and lacks writtenprocedures for reviewing training programs. In addition, TSA has not assessed the quality ofclassroom instruction and follow-up with airline employees and has not established performancemeasures on whether a self-defense training program developed in 2004 is effective. Federal lawrequires that TSA monitor and review airline training programs to ensure that crew members areprepared for potential threats to safety.

Charles Chambers

Senior Vice PresidentInterVISTAS-ga2 Consulting Inc.

Washington, D.C.


INTERVISTAS NEWSOctober 2005

Doug Wilson joins InterVISTAS-ga2 Consulting, Inc. as Director,Transportation Research, Forecasting & Planning

InterVISTAS-ga2 Consulting, Inc. is pleased to announce that Doug Wilson hasjoined the firm as Director, Transportation Research, Forecasting & Planning.He will be located in the Washington, DC office.

“Mr. Wilson greatly enhances our capabilities in air cargo, forecasting and airportplanning,” said Jon Ash, President of InterVISTAS-ga2 Consulting. “He has 27years of experience in the transportation sector, including both air and railtransport.”

During his consulting career, Doug has done work in the areas of air traffic forecasting, air servicesprogram development, international aviation policy and bilateral agreements, econometrics, air cargodevelopment, airport capacity planning, aviation databases/modeling and airline economics.

Mr. Wilson had previously worked for Air Canada, CP Limited (holding company that owned CP Rail,CP Air, CP Trucks, various other firms), Sypher Mueller and Edwards Kelsey. He has experience inairline, airport and rail transportation. He has a Masters Degree in Economics from the University ofWisconsin.

InterVISTAS Upcoming Speaking Engagements

• 19 October 2005: AIM BC Workshop at 67th Annual BCAC Conference, Whistler, BCRob Beynon, Director, Airport Marketing”Airports and Tourism”

• 21 October 2005: 3rd Annual Air Access Forum, Halifax, NSJohn Weatherill, Manager, Airline Planning” Data Collection: The Challenges, Reliability and Business Case Needs”

• 23 February 2006: 9th Annual Hamburg Aviation Conference, Hamburg, GermanyDr. Mike Tretheway, Executive Vice-PresidentDr. Tretheway has been honoured by being selected to give the Martin Kunz Memorial Lecture

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 thestreet. Thus some of the information is speculative and may not materialise.

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

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

Prepared by InterVISTAS Consulting Inc.

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