CAIR Issue No. 16 - April 2004

6

IVC MARKETINTELLIGENCE

REPORT

InterVISTAS Market Intelligence ReportApril 2004 ©InterVISTAS Consulting Inc. Page 1

WHY THE HIGH COST OF FUEL?14 April 2004

The price of crude oil rises close to $40/barrel in mid March…In recent months, oil prices have continued to increase to a high above $38/barrel on 17 March,before settling down to $36.68/barrel on 14 April. A year ago, oil prices spiked to similar levels due tothe war in Iraq. The following factors have contributed to the current rise in oil prices:

Recent OPEC Output CutsIn February of this year, OPEC announced that member countries were again reducing their outputquotas by 1.5 million barrels per day (bpd). On 1 April, OPEC members agreed to cut a further 1million bpd to reduce the effect of the seasonal downturn in demand during the second quarter.However, it is apparent that only Saudi Arabia has adhered to the reduced output quotas while otherOPEC countries have continued to produce above the quota. Therefore, planned OPEC productioncuts are not likely a contributing factor to the current high price of oil.

IEA Forecast Shows Rise in Oil ConsumptionThe International Energy Agency (IEA) has forecasted that world oil consumption will rise faster thanexpected in 2004. Unexpectedly strong demand is likely what is driving the high price of oil. The IEApredicts that global gasoline consumption will rise by 1.7 million bpd to almost 80.3 million barrelsdaily, the largest increase since 1997. The two forces impacting the increase in oil consumption arethe recovery of the U.S. economy and the increase in oil demand in China. In 2003, China surpassedJapan as the second-largest oil consumer, after the U.S., mainly due to rising automobile sales andthe increased use of oil to power manufacturing plants. The IEA predicts that the Chinese demandwill increase by 13% this year to 6.2 million bpd.

Increased Speculation from Energy TradersThe recent oil price run-up may also be due in part to increased speculation by energy traders. Theincreased trading in oil could be due to poor investment options currently available, as interest ratesare still at low levels and the stock market has not performed well of late. As more buyers enter theoil market, prices are destined to remain at high levels.

…Somewhat lower oil prices expected in the future,but futures prices are now higher than a few months agoThe futures market shows that the price of crude oil will remain above the $30 per barrel range untillate 2006 and then decrease to $28 per barrel thereafter. As of 14 April 2004, the a barrel of crude oilfor delivery in November 2005 cost $31.21 compared to a futures price of $26.89 as quoted in theFebruary Industry Review. In the span of two months, futures prices have risen 16%.

Doris Mak

Senior Market Analyst

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Crude Oil Spot & Futures PricesAs of April 14, 2004

SpotPrices

Futures PricesDecreasing


CANADIAN CARRIERS’ SHARE OFDOMESTIC SEAT CAPACITY14 April 2004

Air CanadaIn 2004, the Air Canada family (including Jazz and Zip) is offering 61% of Canada’s domestic seatcapacity, with 25 million seats. Jazz and Zip have 18% and 5% of domestic seat capacityrespectively. Combined, Jazz and Zip account for a total of 9 million seats, or 38% of Air Canada’stotal domestic capacity offering.

Low Cost Carriers and Domestic Charter ServicesLow cost carriers, which include WestJet, Jetsgo, and CanJet Airlines make up 26% of domestic seatcapacity in 2004. Combined, the three carriers are providing 11 million seats. These carriers arecontinuing to expand their seat capacity. For example, Jetsgo has recently announced the launch ofhourly weekday (7am-7pm) Toronto-Montreal shuttle services starting 19 April. Canadian charteroperators such as Air Transat and Skyservice Airlines account for 1% of domestic seat capacity.

Combined, low cost carriers and domestic charter services make up 27% of domestic seat capacity inCanada.

Other AirlinesOther airlines, which are mainly small regional operations such as Air North, Hawkair, and PacificCoastal Airlines, make up the remaining 12% of domestic seat capacity in Canada.

Source: OAG, April 2004

Share of Domestic Capacity

38%

18%5%

26%

1%

12%Air CanadaJazzZipLCCsDomestic CharterOther Airlines

Eugene Chu

Project Analyst


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70%

Mar-03

Apr May Jun Jul Aug Sep Oct Nov Dec Jan-04

Feb Mar

RPK ASK

WestJetWestJet

-40%

-30%

-20%

-10%

0%

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Feb Mar

Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

AIRLINE DATA - CANADATraffic and Load Factors on Canada’s Major Air CarriersMarch 2004

Passenger TrafficRevenue Passenger Kilometres

CapacityAvailable Seat Kilometres

Load FactorAir Carrier % Change

over 2003% Changefrom 2002

% Changeover 2003

% Changefrom 2002

% Changeover 2003

% Changefrom 2002

Air Canada1 +6.6% -4.2% +3.8% -2.0% +2.0 pts(to 76.3%) -1.8 pts

Domestic(Mainline)

+6.9% -6.2% +1.7% -5.7%+3.7 pts

(to 75.6%)-0.4 pts

Jazz +8.3% +9.1% +5.4% -2.9%+1.6 pts

(to 61.8%) +6.8 pts

International& Charter +6.4% -3.4% +4.7% -0.3%

+1.3 pts(to 76.6%) -2.4 pts

WestJet +31.5% +96.4% +29.8% +105.2% +0.9 pts(to 67.7%) -3.1 pts

Jetsgo +169.8% N/A +160.8% N/A +2.6 pts(to 76.2%) N/A

Analysis:§ Air Canada's domestic and international

traffic each recorded their secondmonth of year over year growth. Inlarge part this reflects recovery from theSARS crisis and Iraq war one year ago.However, the traffic recovery still hassome ground to cover. While March2004 traffic increased by roughly 9%relative to a year ago, March 2003 haddropped by just over 10% relative to2002.

§ For the sixth consecutive month,WestJet’s growth in traffic exceeded theincrease in capacity. The carrier’s loadfactor increased slightly to 67.7%.

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

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

-5%0%5%

10%15%

Mar-03


Feb Mar

Dom RPK Dom ASK

Air Canada Domestic Mainline Air Canada Domestic Mainline

Jazz data is not includedin this graph

OTHER CARRIERS:

LOAD FACTORS

Jetsgo: 76.2% (Mar)

Zip: not reported

CanJet: not reported


AIRLINE DATA – U.S.U.S. Airlines Release March 2004 Traffic Figures

Traffic Data – March 2004

Airline Load Factor Traffic(RPMs – millions)

Capacity(ASMs – millions)

75.1 %

á 3.6 pts

11,072

á 10.9%

14,734

á 5.6%

67.6%

á 5.6pts

504

á 31.0%

743

á 20.2%

273.9 %

â 2.6 pts

1,348

á 5.2%

1,952

á 3.8%

175.8%

á 4.2 pts

5,438

á 10.7%

7,174

á 4.5%

75.5%

á 3.2 pts

9,058

á 9.5%

11,992

á 4.7%

83.4%

á 1.1 pts

1,239

á 38.6%

1,485

á 36.6%

81.6%

á 6.1 pts

6,307

á 5.3%

7,734

â 2.6%

73.6%

á 6.3 pts

4,676

á 15.2%

6,352

á 5.4%

280.1%

á 6.4 pts

9,697

á 10.3%

12,099

á 1.5%

277.5%

á 4.1 pts

3,475

á 8.5%

4,485

á 2.7%

Notes: 1. Mainline

2. Load factor includes scheduled service only

Sources: Carrier traffic reports.


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

Toronto Vancouver Montréal-Trudeau

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

January +5.7% +2.8% +6.0% +6.3% +3.5% +6.2% +13.0% +4.5% +2.9% +4.0% +6.8% -0.3% -5.8%February +4.6% -0.6% +0.4% +5.6% +3.0% +3.9% +12.7% +13.8 +7.5% +2.0% +6.0% +8.8% -2.0%

March +0.4% -1.4% +0.1% +3.7% -0.4% +2.2% +5.1% N/A +0.2% +5.0% -3.7% -4.2% -3.1%1st Quarter +3.4% +0.2% +2.1% +5.2% +2.0% +4.0% +10.1% +10.0% +3.3% +3.7% +3.1% +1.3% -3.7%

April -15.1% -13.6% -+9.0% +1.6% +1.1% -7.6% +4.4% +6.1% -0.9% -0.6% -3.9% -1.6% -1.7%May -17.3% -13.2% -7.4% -1.4% -5.3% -1.5% -0.5% -1.2% +0.4% -1.0% -5.3% -1.6% +4.5%June -9.0% -9.8% -0.7% +1.9% -0.4% +2.5% +5.0% +4.1% +0.6% -0.5% +1.4% +7.0% +17.8%

2nd Quarter -13.7% -12.1% -5.5% +0.7% -1.6% -2.1% +3.0% +2.9% +0.0% -0.7% -2.6% +1.3% +7.1%July -6.0% -4.5% +3.0% +4.7% +2.5% +3.0% +3.7% +5.7% +11.9% +5.0% +1.2% +4.7% +21.1%

August -7.6% -1.2% +2.0% +1.4% +0.3% -7.0% +0.4% +4.1% +9.8% +0.5% -4.8% -2.2% +22.5%September -5.9% -3.0% +2.3% -1.8% +8.6% +1.6% +1.5% -0.6% +10.8% -0.7% -2.4% -0.2% +12.3%3rd Quarter -6.6% -2.8% +2.4% +1.6% +3.4% -0.9% +1.8% +3.3% +10.8% +1.7% -2.0% +0.7% +19.0%

October -2.3% -3.1% +2.7% -0.7% +10.4% +1.4% +7.4% +2.5% +15.4% +1.1% -1.7% -1.3% +9.4%November +0.1% +2.2% +9.0% +8.0% +7.2% +6.5% +5.8% -0.05% +13.7% +9.6% -0.3% +19.8% +9.4%December +1.9% +2.8% +8.5% +5.4% +4.9% +6.0% +6.0% +2.9% +16.1% +9.1% +0.8% +2.0% +13.9%4th Quarter -0.1% -0.5% +6.4% +3.9% +7.4% +4.5% +6.4% +1.9% +15.6% +6.6% -0.4% +6.33% +10.8%

2003

Full Year -4.6% -3.7% +1.3% +2.7% +2.9% +1.3% +5.1% +4.2% +7.3% +2.9% -0.5% +2.4% +9.4%January +1.6% +1.5% +10.7% +4.2% +8.1% +3.5% +6.5% +3.2% +12.4% +5.9% -1.8% +8.3% +12.8%2004

February +7.9% +7.9% +20.1% +5.8% +10.5% +13.9% +11.5% +5.6% +11.4% +11.6% +7.8% +2.8% +19.8%

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NEWS ARTICLESAIR CANADA UPDATEAIR CANADA REPORTS $1.9 BILLIONLOSS FOR 2003

Air Canada reporteda record net loss of

$1.9 billion for the year ended 31 December2003. This includes $1.1 billion in restructuringand reorganisation expenses. Passengerrevenue decreased by 16% year over year to$6.8 billion. The carrier had a cash balance of$910 million as of 1 April 2004.

AIR CANADA TO PURSUEALTERNATIVES TO TRINITYINVESTMENTAir Canada’s equity investor, Trinity TimeInvestments, announced that it will not extendits investment agreement beyond 30 April 2004.As a result, the carrier has begun to pursuealternative equity financing arrangements.Trinity stated that investment in Air Canada isstill possible if circumstances related to pensionschange sufficiently.

COURT APPROVES EXTENSION OF AIRCANADA’S BANKRUPTCY PROTECTIONThe Ontario Superior Court overseeing AirCanada’s bankruptcy protection has extendedthe carrier’s stay under creditor protection to 21May. The original stay period expired on 1 April.

CHIEF RESTRUCTURING OFFICERCALIN ROVINESCU RESIGNSAir Canada announced that Calin Rovinescu,Executive Vice President and ChiefRestructuring Officer, has resigned as of 7 April.Mr. Rovinescu’s responsibilities will be handledby CEO Robert Milton, Paul Brotto, ExecutiveVice President of Planning & Cost Management,and Ernst & Young, the court appointed monitoroverseeing Air Canada’s restructuring.

AIR CANADA FILES CLAIM AGAINSTWESTJETAir Canada has filed a statement of claimagainst WestJet with the Ontario Superior Courtof Justice. The carrier claims that WestJet andtwo of its employees illegally accessedconfidential data about Air Canada through anemployee website that contained informationabout the carrier’s passenger traffic, and route-by-route load factors.

GTAA IN DISPUTE WITH AIR CANADAOVER TERMINAL TWO GATESThe Greater Toronto Airports Authority(GTAA) has filed a motion against Air Canadato force the carrier to relinquish three gates inTerminal Two. The GTAA states that AirCanada had agreed to vacate all 22 gates inTerminal Two once it moved its operations to thenew Terminal One. However, the carrier hasinformed the GTAA that it would only relinquish19 gates. The filing states that 12 of the 22gates are to be demolished when the secondphase of the airport expansion begins, while theremaining 10 gates will be common use.

AIR CANADA CHANGES AIRBUSORDERSAir Canada has received court approval topurchase two ultra-long range A340-500s, whilecancelling two Airbus A321 deliveries. Thedelivery of three A340-600s will be deferred to2010.

AIR CANADA INCREASES FARESAir Canada has increased fares for travel on AirCanada, Jazz, Zip and Air Canada codeshareflights, stating higher fuel prices as the cause.The carrier is increasing fares by $10 each wayon short haul (up to 1286km) flights within NorthAmerica, $15 each way on long haul flightswithin North America (1286km and over), and$20 each way on international flights to and fromCanada. The fare increase on internationalflights is subject to regulatory approval from theCanadian Transportation Agency. Air Canadaincorporated its fuel surcharge into its base farein January 2004.

FUEL PRICES

15 April 2004

SPOT OIL PRICES CONTINUETO INCREASEFUTURES PRICES INCREASE

Crude Oil Prices:

Spot – US$37.57(up 3.8% from March)

Futures

• 6 month - $36.24(August 2004 delivery)

• 12 month -$33.39(March 2005 delivery)

• 2 year - $30.74(March 2006 delivery)

• 5 year - $28.44(December 2009 delivery)

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

Apr-03

May Jun Jul Aug Sep Oct Nov Dec Jan-04

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Monthly Spot PricesMonthly Spot Prices


NEWS ARTICLESAIR CANADA BOOSTS LATIN AMERICASERVICEStarting in June 2004, Air Canada will beginnon-stop flights between Toronto and Caracas,Venezuela, and Bogotá, Colombia three timesweekly. Service between Toronto and Lima,Peru will be launched in November 2004, threetimes per week. In addition, Air Canada willboost its non-stop service between Toronto andHavana, Cuba to daily services starting 1 July.

ZIP TO LAUNCH REGINA SERVICEZip will introduce daily non-stop services from Regina to

Vancouver and Calgary starting 5 July.

AIR CANADA OFFERS OTTAWA-MONTREAL-TORONTO PASSAir Canada has launched a discount pass aimedat business travellers in the Toronto-Montreal-Ottawa triangle. The pass will allow users topurchase 10 or 20 one-way ticket vouchers at adiscount of up to 25% on the Latitude air fareclass. The pass also includes free upgrades tobusiness class if space is available and up to50,000 Aeroplan points for signing up by acertain date.

OTHER CANADIAN AIRLINESWESTJET PLANS STOCK SPLIT

WestJet Airlines willpropose a three-for-two

stock split to its shareholders at the company’sannual general meeting on 28 April. If approved,the carrier’s shares would begin trading on asplit basis on 5 May. WestJet’s shares haverisen five-fold since the carrier went public in1999 and have been split twice: in February2000 and February 2002.

FIDELITY INVESTS $25 MILLION INJETSGO

Boston-based FidelityInvestments has invested C$25

million in Jetsgo, acquiring 2.5 million shares ofthe carrier at $10 per share.

JETSGO TO LAUNCH QUEBEC CITYFLIGHTSStarting 25 June, Jetsgo will introduce dailynon-stop service between Toronto and QuebecCity. A second weekday flight and weekendservice will be introduced in the fall.

JETSGO TO ADD TORONTO-LAX, BOOSTSERVICEJetsgo will launch a three per week Toronto-LosAngeles year-round service on 30 July. Thecarrier will also boost service on their Toronto-New York (EWR) route, adding a Saturday flighton 26 June, and a Sunday flight on 1 Aug. Thecarrier currently operates three daily weekdayflights on the route.

JETSGO LAUNCHES TORONTO-MONTRÉAL SHUTTLEStarting 19 April, Jetsgo will launch a discountshuttle service between Toronto and Montréal.The service will be operated weekdays everyhour on the hour from 7a.m. to 7p.m, for a totalof 12 daily flights each way. During July andAugust, the frequency will decrease to eight dailyflights each way, with the full schedule reinstatedon 7 September.

JETSGO INCREASES VANCOUVERSERVICEOn 3 May, Jetsgo will launch its third daily flightbetween Vancouver and Toronto. The newmorning flight will connect with the carrier’srecently announced Toronto-Montréal shuttleservice.

HMY TO LAUNCH HAWAII SERVICEStarting 25 June,Vancouver-based HMY

Airways will operate three weekly flightsbetween Vancouver and Honolulu, and one flightper week between Vancouver and Maui. Duringthe winter peak season, starting 12 December,the Honolulu service will be offered daily whilethe Maui flights will be operated three timesweekly.


NEWS ARTICLESCANJET TO LAUNCH ORLANDOSERVICE FROM HAMILTON

CanJet will launch weeklySaturday services between

Hamilton International Airport and Orlando,Florida starting 19 June. The flights will beoperated with Boeing 737 aircraft.

ZOOM AIRLINES TO LAUNCH PARISSERVICE FROM TORONTO ANDMONTRÉAL

Ottawa based Zoom Airlineswill launch two weekly flights

from both Toronto and Montréal to ParisCharles de Gaulle International Airport,starting in June 2004. The service will beoperated with B767-300 aircraft.

TRANSAT COMPLETES JONVIEWACQUISITION

Transat A.T., parentcompany of Air Transat,

has completed the acquisition of the remaining50% of the Jonview Corporation in partnershipwith Solidarity Fund QFL. Transat A.T. willinvest $9.1 million for 80% ownership of the touroperator. Jonview designs Canadian vacationproducts sold to tour operators in Europe, SouthAmerica, Australia, New Zealand, and Asia.

U.S. AND INTERNATIONALAIRLINESSPIRIT ORDERS 35 AIRBUS AIRCRAFT

Spirit Airlines has placed afirm order for six A321s and29 A319s, with options for

an additional 60 Airbus aircraft. The carriercurrently has a fleet of 32 MD-80s, which will bereplaced when the Airbus deliveries begin inMarch 2005.

EMIRATES TO LAUNCH DUBAI-NEWYORK FLIGHTSEmirates will launch daily non-stop servicebetween Dubai and New York KennedyInternational Airport on 1 June. The flight willbe operated with A340-500s.

BANKRUPTCY COURT ISSUESJUDGEMENT ON UNITED AIRLINESSPECIAL FACILITIES LEASES

On 30 March 2004, theBankruptcy Court for the

Northern District of Illinois issued a decisionregarding the dispute in the United Airlinesbankruptcy process concerning thecharacterisation of bonds issued to financeconstruction of airport improvements to benefitUnited Airlines at SFO, JFK, LAX and DEN. Thecourt ruled that as to the first three airports, therelationship could be characterised as amortgage rather than as a lease. At Denver, thecourt concluded that the applicable agreementsshould be treated as a lease. The distinction isimportant because if United is treated as amortgagor, according to the court it may retainthe property by paying the mortgagee no morethan the current value of the property; anyadditional amounts owing on the mortgage aretreated as an unsecured claim.

CANADIAN AIRPORTSTORONTO PEARSON AIRPORT OPENSNEW TERMINAL ONEThe Toronto Pearson International Airportopened its new Terminal One for operations on 6April. The new $3.6 billion terminal will replacethe old Terminal One. The facility will eventuallybe expanded to double the airport’s capacity by2015. In 2003, the Toronto airport handled 24.7million passengers.


NEWS ARTICLESREGULATORY/GOVERNMENTCANADA AND RUSSIA RESOLVEAIRSPACE RIGHTS, SIGN AGREEMENTCanada and Russia have signed a new bilateralagreement allowing for more flexibility for airlinesof both countries. The agreement definespermitted destination countries and overallfrequency of overflights. A dispute involvingoverflight rights stalled talks late last year, withboth countries restricting each other’s airlinesfrom entering their respective airspace.

U.S. PENSION RELIEF BILL LEAVES OUTLOW-COST AIRLINESThe U.S. senate passed a pension relief actwhich will help legacy carriers with traditional,defined benefit plans save US$1.3 billion inpension payouts over two years. Small and low-cost airlines, who do not qualify for the pensionrelief, object to the payout, saying that the largeairlines could use it to gain a competitiveadvantage. Other opponents to the bill areconcerned that it only defers the pensionshortfall the larger airlines are facing. Thecarriers eventually have to cover the shortfalls.

EUROPEAN COMMISSION APPROVESAIR FRANCE – ALITALIA ALLIANCE

After both airlinessurrendered 42 daily take-off and landing slots on 7

key routes, the European Commission approvedthe alliance between Air France and Alitalia.As part of the alliance, each airline will take atwo percent stake in the other and createcodesharing agreements on France - Italyroutes. The alliance had been planned longbefore the Air France – KLM merger.

CARGOFEDEX POSTS A 3RD QUARTER PROFIT

FedEx’s Q3 profitsincreased 41% to US$207

million (68 cents a share) due to a strongperformance in the company’s international

priority service and improvements in its Expressservices. Revenue grew 9% to US$6 billion andoperating profit jumped 38% to US$372 million.

THAI AIRWAYS TO LAUNCH SEPARATECARGO AIRLINEThai Airways plans to launch a separate cargoairline pending approval by the Thai AirwaysBoard. The new airline will begin operations withtwo B747Fs and an A300-600F, which will comefrom either Thai's fleet, be purchased on themarket or leased. The carrier will have its owngoverning board and will be 49% owned by Thai.The carrier is seeking strategic partners to ownthe remaining 51%.

FIRST ALL-CARGO AIRLINE LAUNCHEDIN INDIACrescent Air Cargo Services will be launchedat the end of March, becoming the first all-cargoairline in India. The carrier will begin operationswith three Fokker 70 turboprops, with thecapacity to carry 6.9 tonnes. The Chennai-based airline will begin with daily operations toColombo, Male, Bangalore, and Mumbai.

AEROFLOT ALLIANCE BID WELCOMEDAeroflot’s bid to join theSkyTeam Cargo Alliancehas been approved by the

Alliance. The Russian carrier’s membership ispending the Russian government’s approval andthe fulfilment of the Alliance’s quality and safetystandards.

ALITALIA TO JOIN SKYTEAM CARGOUSA ALLIANCE

Alitalia Cargo is expected tojoin the SkyTeam Cargo

joint venture in the second quarter of 2004. Thiswill give the Italian carrier more capacity on U.S.-Italy routes and will give the joint venture betteraccess to Alitalia’s strong position in southernEurope and India.


NEWS ARTICLESNEW ZEALAND CARGO SECURITY TAXPROPOSED

The New Zealand government isproposing to introduce a tax on 1

July to recover $20 million in increased securitycosts related to air and sea cargo shipments.The tax will apply to import cargo, export cargoand to transhipments.

PEOPLESandy Morrison was appointed Chairman of theBoard of Nav Canada on April 15, 2004.Morrison, ex-Air Canada VP Governmentrelations, replaces Louis Comeau, who servedas Chairman since November 1997.

Air Canada announced that Calin Rovinescu,Executive Vice President and ChiefRestructuring Officer, has resigned as of 7 April.Mr. Rovinescu’s responsibilities will be handledby CEO Robert Milton, Paul Brotto, ExecutiveVice President of Planning & Cost Management,and Ernst & Young, the court appointed monitoroverseeing Air Canada’s restructuring.

Peter Bouw, Chairman of the Board of SwissInternational Air Lines will replace Andre Doséas CEO. Dose had resigned followinginvestigations by the Office of the ProsecutorGeneral of the Swiss Confederation into theNovember 2001 Crossair crash.

Arturo Barahona resigned as CEO ofAeroMexico. He will be succeeded by RogelioGasca-Neri.


U.S. REGISTERED TRAVELLERPROGRAMThe U.S. Transportation Security Administration (TSA) is mandated in legislation to evaluate a“Registered Traveller Program”. The program marks an important shift from the 100% screeningmodel that evolved in the late 1960’s to one with a reduced level of scrutiny for pre-approved frequenttravellers. Key data is anticipated in Summer 2004, when the TSA will test its program on 5,000-10,000 passengers at 3-5 airports.

Enrolment Requirements for the PassengerSimilar to expedited solutions for border control, the registered traveller will be a voluntary participantwho submits to a pre-approval process that includes biometric registration (iris and/or finger).Criminal and intelligence checks are anticipated in order to assess the ability for the individual toparticipate in the program. A schedule of user fees has not been outlined to date.

Risk Management for Transportation SecurityAt pre-board screening, the passenger will be biometrically authenticated to confirm their acceptancein the program. Confirmation of the registered traveller status would allow the passenger to access afaster screening process, which may include queuejumping, or a lower level of scrutiny.

The specifics of a reduced level of screening has yet to befully defined. Early tests by KLM in Chicago evaluated useof lower referrals to secondary screening for both hold-baggage and pre-board screening. This would, forexample, exempt registered travellers from quotas ofrandom screening, but not additional measures required inthe event of a metal detector alarm.

Through this program, the TSA has outlined the frameworkfor integrating a risk management approach into securityprocesses. A companion program Computer Assisted Passenger Pre-Screening System II (CAPPSII) will differentiate passengers between “enhanced” and “regular” screening. The RegisteredTraveller Program will funnel registered passengers to a reduced level of screening scrutiny.

Marketing Challenges and OpportunitiesThe market size for the Registered Traveller Program is large. According to the NFO PlogResearch’s American Traveller Survey, business travellers who fly more than 3 times annuallyaccount for 25% of all flights taken in the United States. To attract potential participants, the TSA hasalready identified partnerships with airports and airlines as critical to the success of the program.

However, there is a degree of unpredictability in the Registered Traveller Program that may make itsbenefits unclear to participants. With the exception of queue jumping, passengers will find thatsometimes the security process will be no different than other passengers. It will not be until a fullyear of travel that passengers will be able to realize a faster average processing time.

The success of the Registered Traveller Program requires packaging with other travel benefits. At theminimum, this could involve integrating existing US/Canada Nexus programs. Furthermore,development of comparable programs in Canada with CATSA could result in a continent-wideadoption of transportation security management practices for low-risk travellers.

CAPPS IICleared

Passengers

RegularScreening

RegisteredTravellers

"Lite"ScreeningProcesses

CAPPS IIFlagged

EnhancedScreening

TSA’s Risk ManagementApproach

Solomon WongDirector,

Security & Planning


Charles ChambersSenior Vice President

GA2

AND

Regional Vice PresidentInterVISTAS Consulting Inc.

Washington, D.C.

THE WASHINGTON REPORT15 April 2004

U.S.-Visit Extended to Visa Waiver CountriesOn 2 April 2004 the Department of Homeland Security (DHS) and theDepartment of State had asked Congress to pass legislation toextend for two years, the 26 October 2004 deadline for Visa WaiverProgram countries to issue machine readable passports containingbiometric identifiers, and for DHS to have readers for these biometricpassports at all ports of entry. In relation to this announcement, DHSwill begin enrolling visa waiver travellers through the U.S. Visitor and Immigrant Status IndicatorTechnology (US-VISIT) Program at all airports and seaports by 30 September 2004.

FAA Announces Air Traffic Oversight GroupOn 25 March 2004, U.S. Secretary of Transportation Norman Mineta announced the establishment ofthe Air Traffic Safety Oversight Service (ATSOS) to provide independent safety oversight of the FAAAir Traffic Organization. The primary role of the group is to ensure the safety of changes to air trafficstandards and procedures. The establishment of the ATSOS follows a recommendation of the 1997National Civil Aviation Review Committee. Dave Canoles, a FAA veteran in accident investigationand emergency operations, will head the ATSOS.

FAA Announces New Delay Reduction ProceduresOn 24 March 2004, U.S. Secretary of Transportation Norman Mineta announced new steps that theFAA will take to reduce gridlock and delays. These steps include the implementation of “expresslanes” within U.S. airspace as well as providing improved weather information and procedures to re-route aircraft. Also, Mineta announced the combination of Canadian and FAA weather radars toprovide more accurate and timely information allowing for faster aircraft re-routing.

Congress Introduces MANPADS BillOn 30 March 2004, three members of Congress introduced The Commerical Aviation MANPADSDefense Act of 2004. The bill will provide interim protections for commerical aircraft from shoulder-fired missiles or Man Portable Air Defense Systems (MANPADS) and to speed up certification of newprotective technology. The bill has four features:

§ It encourages the President to pursue strong international diplomatic and cooperative efforts tolimit the proliferation of MANPADS.

§ It requires the FAA to expedite certification of missile defense systems.

§ It encourages the President to continue programs to reduce the number of MANPADS worldwide.

§ It requires DHS to report to Congress on vulnerability assessments it is conducting at U.S.airports.

U.S.-EU DiscussionsThe U.S. has completed the most recent round of air bilateral talks with the European Union (EU).The next round of discussions is slated for the week of May 10 in Washington, D.C. Although bothsides had reported progress on security, safety and environment issues, they were still indisagreement on the topic of cabotage. The EU continues to insist on cabotage, while the U.S.maintains that it is not prepared at the moment to support cabotage.


THE OTTAWA SCENE15 April 2004

Federal Budget Gives Some Relief to Air Travellers, But Not to VIA RailThose disappointed in the minimal transportation focus in the Speech from the Thronewill find that the Federal Budget of March 2004 contains modest suggestions that the linkbetween economic development and transportation has been made in this government.

Pursued relentlessly by the aviation industry, this budget announces a modest reductionin the Air Travel Security Charge (ATSC). It proposes to reduce the ATSC for travel

within Canada to $6 for one-way travel and to $12 for round-trip travel. For transborder air travel, thecharge will be reduced to $10 (roundtrip) and, for other international air travel, the charge will bereduced to $20 (roundtrip). While the reduction will not likely result in stimulating much new airlinetravel demand, it is a signal that the government may reduce the charge further in the future, once thenew air transport security initiatives are implemented and paid for.

One high-profile item that was axed was the last government’s eleventh hour $680 million allocationto VIA Rail. In a nod to fiscal prudence, and the vocal discontent of Caucus, Budget 2004 forgoesVIA’s capital expansion.

Zoom Airlines Designated to Operate Between Canada and FranceOn 24 March 2004, Zoom Airlines Inc., an Ottawa based airline offering both scheduled and charterservices, was designated by Transport Minister Tony Valeri to provide scheduled international airservice between Canada and France, one of Canada's largest air travel markets. Zoom plans tobegin operating a Toronto-Montréal-Paris scheduled service in June 2004.

Projects Announced for Airports Capital Assistance ProgramNew projects to enhance safety at Canadian airports under the 2004-2005 Airports Capital AssistanceProgram (ACAP) were announced March 12 by Transport Minister Tony Valeri.

Established in 1995, ACAP assists eligible airports by financing capital projects related to safety,asset protection and operating cost reduction. In order to be eligible for funding consideration, anairport must have year-round regularly scheduled passenger service, meet airport certificationrequirements and not be owned by the Government of Canada.

ACAP is an integral part of the National Airports Policy, which provides Canadians with acomprehensive framework that clearly defines the Government of Canada's role regarding airports."This program embodies the Government of Canada's commitment to strong social foundations whileinvesting in a vibrant economy for the 21st century," said Mr. Valeri. "These investments will helpdirect infrastructure resources to where they are most needed and enhance the safety and economicpotential of these facilities." There were 38 projects selected for funding this year. The total proposedACAP delegation for new projects starting in 2004-2005 is over $32 million.

Transport Minister Issues Statement on Recent Air Canada DevelopmentsOn April 2 Transport Minister Tony Valeri said the following, in response to the statement from TrinityTime Investments Limited about the possibility of walking away from its investment in Air Canada:"Today's developments underscore the need for the unions, the company and the investors to re-examine their positions and redouble their efforts…They all have a vested interest in seeing AirCanada succeed… We continue to have confidence that Air Canada will be able to serve Canadiansnow and find a long-term private sector solution."

Sam BaroneRegional Vice President

Ottawa


A TALE OF TWO LIQUIDATIONS16 April 2004

As concerns about Air Canada’s future swirl about in the media, it is useful to look at other cases of‘severe restructuring.’

Ansett Australia. On 12 September 2001, Ansett Airlines filed for bankruptcy and was liquidated.The timing of the Ansett bankruptcy was unrelated to the tragic events of 9/11, and was widelyanticipated in the week prior to filing. Ansett simply was not able to find a viable business plan in theface of competition from Qantas and low cost carrier Virgin Blue. By the 14th, all flights weresuspended. While attempts were made to find a new investor, these failed and the carrier wasliquidated. There are some interesting elements of Ansett’s liquidation, however.

Early on, it was recognised that Ansett’s regional carriers could have a financially viable life on theirown. By 23 September 2001, only 11 days after filing, Ansett’s regionals were being put back intoservice. They obtained new funding and survive to this day, operating under the brand RegionalExpress (REX). Thus, not all of Ansett’s capacity was lost. Regional services survive, and in factseem to be thriving.

Swissair. On 1 October 2001, Swissair filed for bankruptcy and all flights ended the next day.However, 3 days prior, on 29 September, its 70% owned regional subsidiary, Crossair, was sold to agroup of bank investors. Thus when Swissair entered bankruptcy, regional services continued,largely uninterrupted.

But Crossair had a larger destiny. Three weeks after Swissair stopped flying, a plan was unveiledwhereby Crossair would acquire 52 of the 75 aircraft Swissair had operated, including long haul A340aircraft. It began to hire former Swissair pilots and other employees, received additional funds fromits investors and changed its name to Swiss International. Some refer to this as a reverse take-over,whereby a subsidiary acquires a parent. This was not quite a reverse take-over in that Crossair wasno longer a subsidiary of Swissair, and it did not acquire Swissair, only some of its assets. SwissInternational is not out of the woods yet. It is still struggling financially, but it is hoping to complete analliance with, and investment from British Airways which will provide a platform for a stronger future.

Life after bankruptcy. In both cases, the lesson is that regional airlines can survive the bankruptcyof the parent, and there is even scope for the regional carrier to be the vehicle for how the assets of abankrupt carrier can be redeployed.

This is a collection of information gathered from public sources, 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 notmaterialize. Information contained herein is provided for the use of InterVISTASConsulting Inc. only, and may not be distributed beyond the Airport.

Prepared by InterVISTAS Consulting Inc.

Michael TrethewayVice President &Chief Economist

CAIR Issue No. 16 - April 2004

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Transcript of CAIR Issue No. 16 - April 2004