CAIR Issue No. 33 - September 2005

INTERVISTAS ’CANADIAN AVIATION

INTELLIGENCE REPORT

In this issue…

Features Columns: Regular Reports:• Impact of Hurricane Katrina (p.1)• Record High Fuel Prices (p.2)• New Passenger ID Requirements (p. 12)

• Economic Outlook (p.3)• Airline Data (p.5)• Airport Data (p. 7)

• Fuel Prices-Long Term Threat? (p. 15) • Industry News (p.9)• Washington Report (p.13)• Ottawa Report (p.14)• InterVISTAS’ News (p. 16)

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

THE IMPACT OF HURRICANEKATRINA ON AIR SERVICES20 September 2005

Impact on New Orleans International AirportAmong the impacts of Hurricane Katrina has beenthe damage and disruption of service at airports inthe affected region. Most notably, New OrleansInternational Airport (MSY) experienced significantinfrastructure damage, and was closed to scheduledtraffic beginning 29 August. In recent days,Northwest Airlines and Continental Airlines haveresumed limited services, while Southwest Airlinesresumed its Houston-New Orleans service on 20September. American Airlines began its Dallas-NewOrleans service on 21 September.

New Orleans International Airport is the largest airport in the region, handling 9.7 million enplaned anddeplaned passengers in 2004. The airport ranks 40th in the U.S. in terms of enplaned passengervolumes. The airport is not a hub for any major U.S. carrier, so there are limited effects on connectingpassengers-mitigating the impact of the closure. The airport has only modest cargo volumes.

Impact on airline revenuesThe closure of MSY to scheduled traffic could result in millions of dollars in lost revenue to the airlinesoperating at the airport. Aviation Daily reports that the largest operator at the airport, SouthwestAirlines, accounts for nearly a quarter of passenger revenue at MSY and could lose in excess ofUS$700,000 for each day the airport is closed. Other carriers most affected are Delta Airlines,American Airlines, Continental Airlines, and United Airlines, each with over 10% of the total passengerrevenue at the airport. In total, revenue losses are approximately US$2.9 million per day according toAviation Daily. The only Canadian carrier affected is Air Canada, which had operated a daily flightfrom Toronto using a CRJ. Air Canada’s revenue exposure is minimal compared to the major U.S.operators.

Impact on other regional airportsWhile MSY is experiencing the largest magnitude of impacts from Katrina, it is by no means the onlyairport affected. Gulfport-Biloxi International Airport, while much smaller (860,000 enplaned/deplanedpassengers in 2004) was also closed for an extended period of time, though commercial flights haverecently resumed on a limited basis. More broadly, the hurricane temporarily affected many moreairports in Florida, Louisiana, Mississippi and Alabama, which experienced cancellations and delaysas the hurricane passed through the area. In total, the impact of Katrina on the U.S. aviation industryhas been estimated at US$500 million over the next year, due to airport closures and the loss of trafficto airports in the affected areas.

Josh Drury

Transportation Analyst


RECORD HIGH FUEL PRICES26 September 2005

Crude oil prices surpass $70 per barrel in August 2005…In late August, crude oil prices surpassed the $70 mark in intraday trading before settling to close justbelow the new price level. Similar to previous months, futures contracts for December 2011 remainhigh at a price of $60.48, up 7% from July 2005.

Impact of Hurricane Katrina and Hurricane RitaHurricane Katrina impaired almost all crude oil production in the Gulf of Mexico, which accounts forapproximately 25% of all U.S. crude oil output. The hurricane also affected about 10% of U.S.refining capacity, located in Louisiana and Mississippi.

Initial forecasts had Hurricane Rita packing an even bigger punch than Katrina, but luckily for the stateof Texas, Rita weakened substantially and did not inflict as much damage to the region than wasoriginally feared.

Impact on AviationDue to increasing world oil prices, International Air Transport Association (IATA) was forced to makeits fourth revision to its estimated loss for the world aviation industry in 2005. IATA now predicts thatthe global industry will lose US$7.4 billion for the year, based on an average crude oil price of $57 perbarrel. The biggest losers are expected to be the North American air carriers, with European carriersbreaking even and Asian carriers expected to make a small profit for the year.

…. Futures prices continue skywardDue in part to short term global shocks, futures prices have continued to increase to higher and higherlevels in 2005. The price of a barrel of crude oil contracted in the current month for delivery in March2006 is US$67, up over 8% from July’s price of $62.

Crude Oil Futures Prices

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

$55.00

$60.00

$65.00

$70.00

Jan-

03

Apr

-03

Jul-0

3

Oct

-03

Jan-

04

Apr

-04

Jul-0

4

Oct

-04

Jan-

05

Apr

-05

Jul-0

5

Oct

-05

Jan-

06

Apr

-06

Jul-0

6

Oct

-06

Jan-

07

Apr

-07

Jul-0

7

Oct

-07

Jan-

08

Apr

-08

Jul-0

8

Oct

-08

Month of Delivery

US

$ P

er B

arre

l

May 2003 August 2003 December 2003 April 2004 June 2004

January 2005

September 2004

FuturesPrices - - - - -

Crude Oil Prices for Near Term

Delivery

February 2005

April 2005

June 2005

July 2005

September 2005

Doris Mak

Senior Project Manager


Historicaldata

Forecastdata

Source: Bureau of Economic Analysis for historical data; TDEconomics for forecast data. Note forecast data does not accountfor effects of Katrina.

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Q1

20

01

Q1

20

02

Q1

20

03

Q1

20

04

Q1

20

05

Q1

20

06

Real U.S. GDP (Annualised Quarterly % Change)

ECONOMIC OUTLOOK – U.S.20 September 2005

The U.S. Economy –continued solidgrowth in advance ofKatrina. The U.S.economy continued togrow steadily in thesecond quarter of 2005,with preliminaryestimates of GDPgrowth of 3.3% on anannualised basis. Thisis down slightly from the3.8% growth in the firstquarter of 2005, andsomewhat less thanannual growth in 2003and 2004. Growth wasexpected to pick up inthe last half of the year,with most projections forGDP growth in 2005 asa whole of 3.5% ormore. However, theseprojections did not anticipate the effects of a disaster such as Hurricane Katrina.

Negative impacts. The devastating effects of Hurricane Katrina on the U.S. Gulf Coast have led tosubstantial and ongoing economic impacts on the region and on the U.S. economy as a whole. Thehurricane and resultant flooding have affected the economy in several ways:

• Loss of life and property. The total extent of casualties and damages will not be known forsome time, but are substantial. Estimates of losses to the private insurance industry alone areestimated at US$30 billion.

• Disruption of employment, production, and spending. The displacement of hundreds ofthousands of evacuees, and damage and destruction of businesses means that employment,production and spending will be greatly reduced in the affected areas for months. Employmentlosses are estimated at 400,000 through to the end of the year.

• Spiking of oil and gas prices. This region is responsible for approximately 30% of domestic oilproduction, 20% of gas production, and 50% of refining capacity; a large portion of this capacitywas lost or damaged due to Katrina. Oil imports via Gulf Coast ports have also been disrupted.It is expected that this impact will be temporary as facilities are repaired and come back on line inthe next few weeks.

Josh Drury

Transportation Analyst


ECONOMIC OUTLOOK – CON’T• Disruption of transport. Damage from the hurricane has disrupted the flow of goods and

passengers in and around the affected area. Major roads, bridges and highways (includingInterstate 10) were rendered impassable, and airports including those at New Orleans andGulfport-Biloxi were closed to scheduled service. The port facilities in New Orleans – includingthe Port of South Louisiana, the largest port by volume in the U.S. – are damaged and are closedto shipping, though this should resume as facilities are repaired. In the meantime, activity isdiverted to nearby ports such as Baton Rouge.

While these impacts are substantial, the strong position of the economy before Katrina means theimpacts will not be enough to trigger a recession. The U.S. Congressional Budget Office (CBO)anticipates that economic impacts will be concentrated in the second half of 2005, with the potentialfor overall GDP growth to be reduced by between one-half and one percentage point on anannualised basis. Based on previous forecasts, this would still leave GDP growth in excess of 2.5%for the last two quarters of 2005, and over 3% for the year. Growth is expected to increase again in2006 as rebuilding continues.


Air Canada Domestic Mainline Air Canada Domestic Mainline

-15%

-10%

-5%

0%

5%

10%

Aug-04

Sep Oct Nov Dec Jan-05

Feb Mar Apr May Jun Jul Aug

Dom RPK Dom ASK

Jazz data is not includedin this graph

AIRLINE DATA – CANADATraffic and Load Factors on Canada’s Major Air CarriersAugust 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 +5.5% +15.8% +2.9% +9.5% +2.1 pts(to 85.3%)

+4.7 pts(from 80.6%)

Domestic(Mainline)

+4.1% +4.3% -0.5% -6.4% +3.8 pts +8.8 pts

Jazz +55.3% +64.5% +44.0% +44.6% +5.2 pts +8.7pts

International& Charter

+6.1% +21.7% +4.4% +18.3% +1.4 pts +2.4 pts

WestJet +22.3% +49.0% +16.9% +47.9% +3.7 pts(to 83.5%)

+0.6 pts(from 82.9%)

Analysis:

• Air Canada reported a load factor of85.3% in August 2005, the highest everfor the air carrier in any month. Althoughmainline domestic traffic increased,capacity was reduced. In comparison,Jazz’s traffic and capacity increased bydouble digits, albeit load factor wasrelatively lower at 72%.

• Air Canada’s international traffic andcapacity continued to increase in August2005. The growth of traffic outpaced theaddition of capacity, resulting in animproved load factor. Capacity wasadded in all international sectors with theexception of services to the U.S.

• WestJet continued to report traffic andcapacity increases in August 2005. Theincrease in traffic outpaced the addition ofcapacity, resulting in a higher load factor.

• Although both Air Canada and WestJetincreased fares in mid-August as a resultof higher fuel prices, this did not result ina decrease in traffic.

1Air Canada consists of all Air Canada operationswith the exception of Jazz.

OTHER CARRIERS:LOAD FACTORS

CanJet: not reported

-10%-5%0%5%

10%15%20%

Aug-04



Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

0%

10%

20%

30%

40%

50%

60%

Aug-04



RPK ASK

WestJetWestJet


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

Traffic Data – August 2005

Airline Load FactorTraffic

(RPMs – millions)Capacity

(ASMs – millions)

81.5%

á3.1 pts

12,653

á3.8%

15,509

â0.1%

70.6%

á2.1 pts

724

á25.0%

1,027

á21.3%

81.1%

á1.9 pts

674

â45.0%

831

â46.3%

184.3%

á1.8 pts

3,716

á25.8

4,410

á3.5%

80.0%

á1.3 pts

11,286

á6.8%

14,112

á5.1%

90.1%

á0.8 pts

1,986

á29.8%

2,205

á28.7%

84.8%

á1.5pts

6,957

á0.7%

8,203

â1.0%

76.1%

á1.0pts

5,671

á13.7%

7,453

á12.2%

284.8%

á1.0 pts

10,438

â4.4%

12,305

â5.6%

277.3%

â1.8pts

3,534

â6.0%

4,571

â3.8%

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

July +17.1% +10.4% +18.7% +5.0% +0.8% +5.7% +8.6% +10.5% +4.7% -0.5% +5.5% +1.4% +10.6%

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%

2005

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%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


Expanded Origin & DestinationMarket Data for all Top Markets

Inbound & outbound travel agencydata is now available for Canadiandomestic and top international airmarkets.

InterVISTAS’ market data is supportedby a number of sources including IATAtravel agency ticket sales. Travelagency sales represent approximately80% scheduled international air ticketsissued worldwide. The databaseincludes more than 7 million air ticketsissued in Canada and several milliontickets destined to Canada annually.

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

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

InterVISTAS Consulting,

in conjunction with the

International Air Transport

Association and other

suppliers, is offering a

unique, and newly enhanced

data product that provides

passenger market sizes,

travel routings and fare

profile data

for domestic, transborder and

international 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]

New!

New!


NEWS ARTICLESAIR CANADA UPDATEAIR CANADA STARTS HAMILTON-MONTREAL AND HAMILTON-OTTAWASERVICESAir Canada Jazz has launched four daily non-stop flights between Hamilton and Montreal, andthree daily non-stop flights between Hamiltonand Ottawa. The flights are operated with 50-seat Canadair regional jets.

AIR CANADA CREATES TASK FORCETO REDUCE AIRCRAFT WEIGHT

In an effort to saveon increasingly

expensive jet fuel, Air Canada has created aspecial task force of employees to investigateways to make its aircraft lighter and reduce fuelconsumption. The task force will investigate awide range of possibilities for reducing weight,including aircraft interiors, fuel carriage, and on-board product.

AIR CANADA INTRODUCES “NORTHAMERICA UNLIMITED PASS”On 13 September, Air Canada launched itsNorth America Unlimited Pass, which it claims isthe airline industry’s first-ever unlimited flightsubscription. Holders of the pass will be able tofly to over 100 destinations in Canada and thecontinental U.S. served by Air Canada and AirCanada Jazz, as often as they wish over a two-month period. The pass will cost $6,998 plusGST (and QST for Quebec residents) and willbe effective between October 1 to November 30.

OTHER CANADIAN AIRLINENEWSWESTJET IMPLEMENTS FUEL RISKMANAGEMENT STRATEGY

On 8 September,WestJet announced

a fuel risk management strategy to guardagainst the impacts of future price volatility. Thestrategy involves buying forward a portion of jetfuel in the coming months at a fixed price,corresponding to its share of advance ticketsales.

WESTJET BOOSTS CHARLOTTETOWN-TORONTO SERVICEStarting 17 October 2005, WestJet will extendits Charlottetown-Toronto service to six flightsper week.

WESTJET COMMENCES TORONTO-LASVEGAS FLIGHTSOn 5 September, WestJet commenced serviceto Las Vegas with its initial daily service fromToronto. Additional non-stop services will beadded in the coming months, with twice weeklyservice to be added from Kelowna and Winnipegon 6 October, and from Calgary and Edmontonon 3 November. All flights will be operatedusing WestJet’s 737-700 aircraft.

WESTJET TO LAUNCH VANCOUVER-HONOLULU AND VANCOUVER-MAUISERVICESBeginning 9 December 2005, WestJet willlaunch non-stop services between Vancouverand Honolulu, five times per week. From 17December 2005, the carrier will also operate twoflights per week between Vancouver and Maui.

CANJET ADDS SERVICES TO FLORIDACanJet Airlines announced new services to fiveFlorida destinations for the 2005/06 fall andwinter season. Services will operate non-stopfrom Halifax, Moncton, Toronto, Ottawa andMontreal to St. Petersburg, Orlando, Sarasota,Fort Lauderdale and West Palm Beach. Theflights will be introduced on a staggered basisbetween November 2005 and February 2006,and will continue until the end of May 2006.

TRANSAT A.T. REPORTS HIGHERREVENUE, LOWER NET INCOME IN 3RD

QUARTERTransat A.T., parent of Air Transat, announcedits third quarter results on 8 September. Higherpassenger volumes increased revenues for thethird quarter to $553 million, representing an11% increase over the third quarter of 2004.Expenses, largely driven by rising fuel costs,rose more rapidly, driving net income down to$1.0 million in the third quarter, compared to $13million the previous year.


Russ Hall

Don Bell

Arthur Scace

Hugh Bolton

NEWS ARTICLESCANADIAN AIRPORTSCONTINENTAL AIRLINES TO LAUNCHMONCTON-NEWARK SERVICESBeginning 2 May 2006, Continental Airlineswill launch daily non-stop services betweenMoncton, New Brunswick and Newark. Theflight will be operated with an Embraer regionaljet.

CARGO NEWSAN-124 FREIGHTER PRODUCTIONREVIVED BY VOLGA-DNEPRAGREEMENTThe Volga-Dnepr Group andVnesheconombank, a Russian financialinstitution, have signed a co-operationagreement that will result in the revival of AN-124 freighter production. Volga-Dneprannounced that it plans to acquire five AN-124aircraft, with delivery scheduled for 2008.

AIRBRIDGE MOVES EUROPEAN HUB TOAMSTERDAM

AirBridge Cargohas moved itsEuropean hub from

Luxembourg to Amsterdam, and will beincreasing service from Amsterdam to fourflights per week by the end of September 2005.The move was made to increase interlinecapabilities, which AirBridge felt were lacking atLuxembourg.

UPS SELECTED AS LOGISTICSSPONSOR FOR 2008 OLYMPICS

UPS has been selected as theofficial Logistics and ExpressDelivery Service for the 2008Olympic Games in Beijing. Theselection follows announcements

that UPS will commence service to China in2005 and will develop a major hub in Shanghaiby 2007. UPS will provide express delivery toevent venues at the Olympics, and will provideconsultation in developing the logistics operatingplan for the Games.

PEOPLE IN THE NEWSOn 6 September, WestJetannounced the appointmentof Russ Hall to the position ofExecutive Vice President,Guest Services andInformation Technology. Hallwas previously the presidentof AGTI

Consulting Services, abusiness and IT consultingfirm. WestJet alsoannounced the expansion ofDon Bell’s role to ExecutiveVice President, Culture andAirports.

On 7 September, WestJetannounced the appointmentsof Arthur Scace and HughBolton to its Board ofDirectors. Scace is currentlynon-executive Chairman of theBank of Nova Scotia, and hasserved on the boards ofcompanies including TheCanada Life AssuranceCompany and GerdauAmeristeel. Bolton is thecurrent non-executive Chair ofEPCOR Utilities and Matricon,and is on the boards ofCanadian National Railway,Teck Cominco and TD BankFinancial Group.


NEWS ARTICLESPEOPLE IN THE NEWS – CON’T

AIR CANADA TECHNICAL SERVICESDECENTRALISES EXECUTIVEFUNCTIONS

Air Canada TechnicalServices (ACTS), thecarrier’s maintenance and

repair unit, decentralised its chief operatingofficer functions on a regional basis in August.Vice President and Chief Operations Officer RonEldvidge becomes VP-Western Operations.Mark Swearingin, formerly of Midwest Airlines,UPS and US Airways, becomes VP-Easternoperations. Ray Poulin retains his position asDirector-Central Operations. ACTS performsmaintenance and repair for Air Canada as wellas outsourcing to other carriers including Delta,JetBlue, and Lufthansa.

OTHERDELTA, NORTWEST FILE FORBANKRUPTCY PROTECTIONOn 14 September, Delta Air Lines andNorthwest Airlines each filed for Chapter 11

bankruptcy protection,suffering the effects of high

fuel costs, labourexpenses, and risingdebts. The twoairlines, the third and fourth largest in the U.S.respectively, join United Airlines and USAirways as major U.S. carriers currently underbankruptcy protection.

RUSSIA GROUNDS IL-96-300SOn 22 August, Russian regulators ordered theimmediate grounding of all Ilyushin 96-300aircraft, following the discovery of problems withthe widebody’s braking system. Aeroflot, whichoperates six of the aircraft, was forced to cancelmany of its long-haul flights (including those toToronto and Washington) after the aircraft weretaken out of service.

SOUTHWEST ANNOUNCES NEWFLIGHTS AT PITTSBURGH ANDPHILADELPHIA

Southwest Airlinesannounced it will beadding new flights at

Pittsburgh and Philadelphia beginning inOctober and November. Destinations includeTampa, Orlando, Chicago, Phoenix, and LasVegas, as well as flights between the twoPennsylvania cities. The new flights will use thelast new Boeing 737s the airline will takedelivery of in 2005.

NORTHWEST’S OPERATIONS SUFFERDURING MECHANICS STRIKEMechanics at Northwest Airlines went on strike20 August, leading to a number of maintenance-related cancellations and delays. On-timeperformance fell as low as 48% and completionfactor as low as 92% at the beginning of thestrike, but performance has since improved asthe carrier has used replacement workers.

NAV CANADA CONTROLLERS RATIFYNEW CONTRACT

In August, controllers atNAV CANADArepresented by theCanadian Auto Workers

and Canadian Air Traffic Control Associationratified a new four-year contract deal. The dealwill provide a wage increase of 12% and will bein effect until the end of March 2009.

EXECUTIVE JET MANAGEMENTAUTHORISED FOR COMMUTERSERVICE

In August, the U.S.Department ofTransport (DOT)

authorised Executive Jet Management (EJM)to operate as a scheduled commuter passengercarrier using business jets. EJM plans tooperate using small aircraft (10 seats or less) onroutes between New York, Chicago, and LosAngeles.


NEW PASSENGERIDENTIFICATION REQUIREMENTS14 September 2005

Checking the identity of passengers is a challenging practice for aircarriers, border and security agencies to accomplish. The split-second review of the government-issued photo ID card or passportis typically used today. In an age when ID theft, and fraudulentdocuments are dramatically increasing, airport practices are soon tobe updated.

Several initiatives are under way to further enhance the capability to verify the identity of an individualwith impacts on Canadian airports.

U.S. Western Hemisphere Travel Initiative (WHTI)After the 9/11 Commission reported its findings in 2004, Congress acted upon recommendationsthrough the Intelligence Reform and Terrorism Protection Act. Contained within this are changes tothe Western Hemisphere Exemption – which currently allows certain individuals (e.g., Canadiancitizens, returning U.S. Citizens) to enter the U.S. with a birth certificate/driver's license. The newproposal mandates the use of passports or a "secure travel ID". While the latter has yet to bedefined, a future Nexus card is a likely candidate to fulfil the "secure travel ID" requirement. TheWHTI has caused significant concerns in the travel industry due to its impacts on the cost of travel(e.g. family of four will need an additional $300 in new expenditure for passports). Significant work isneeded to ensure the WHTI is operationally sound at airports, and does not alter the travel market.

U.K. Identity CardsThe U.K. Home Office is in the planning stages for a biometric ID card. This card would bemandatory when an individual applies for "designated documents" including passports. With thiscard, however, the individual would be free to travel anywhere in Europe. This has a number ofadvantages over the WHTI approach: the UK is basically pre-determining the form of "secure travelID" and ensuring its broad availability.

Canada's Biometric PassportsCanada has pursued a "biometric passport" to be launched in 2005. This document is to integrate theexisting passport with a memory chip, which contains biometric information. No additional details onroll-out or additional costs for passports are advanced. With over 13 million individuals with Canadianpassports, in five years time the passport will be the largest type of biometrics in use in the country.

The Challenge: CompatibilityPrograms like the Canadian biometric passport, UK identity cards and US Western HemisphereTravel Initiative aim to augment the passenger identification capabilities. Technologies like biometricswill provide some functionality to reduce the risk of fraudulent ID.

The real challenge remains in compatibility and questions on separate approaches used in isolation ofcommon standards. Can these three programs work with each other? Will the biometric passport inCanada open up possibilities for use in other applications? Can CATSA or TSA use these documentsto improve programs like Passenger Protect and Secure Flight? These and other similar questionsdemand an improved multi-lateral framework to deal with identity verification.

Solomon Wong

Director, Security & Planning


WASHINGTON REPORT20 September 2005

U.S. Airline Employment Down 3%The U.S. DOT reported that employment at U.S. scheduledcarriers was down 3.4% in June 2005 over the same monthlast year. Employment levels at network carriers were downalmost 7% for the month, while low cost carrier employmentdecreased by less than 1% from previous year. On theupside, U.S. regional carriers increased employment by 10%for the month of June 2005.

GAO Suggest Federal Government Play Role in IntermodalDevelopmentA report by the Government Accountability Office (GAO) lists strategies to develop intermodalcapabilities at U.S. airports. The GAO cites benefits that include reductions in road congestion andshort haul air services. Air passenger traffic in the U.S. is expected to grow to one billion by 2015 andmost U.S. airports have direct connections to local bus or rail services rather than nationwide bus orrail systems. Major barriers to developing intermodal projects include securing funding, disincentivesfor airport support such as reductions in airport parking revenue, land constraints and limitations ofthe existing nationwide rail system. The GAO advocates for nationwide transportation planning anddevelopment and a fundamental shift in decision-making from local to federal government in order todevelop a more integrated transportation system.

TSA Considers Lifting Ban on Some Restricted Items in Carry-OnLuggageEdmund Hawley, the new head of TSA, is looking for ways to upgrade airport security and reduce theamount of time that passengers spend waiting in line for security processing. Some changes underconsideration include lifting the ban on carry-on items such as scissors, razor blades and smallknives. Also under the proposed changes, it is suggested that most passengers would not have toremove their shoes prior to entering the security inspection lines. The TSA is also suggestingminimising the number of security pat-downs and exempt certain passengers from the screeningprocess such as pilots, members of Congress and Cabinet, Federal judges, high-ranking militaryofficers and people with top secret security clearance.

Congress to Resolve TSA BudgetWhen Congress returns from its August recess, negotiations on the final FY2006 budget will becompleted prior to sending the bill to the President. The House approved a US$5.7 billion budget(US$4.6 billion for aviation security. The Senate agreed to a US$5.1 billion budget (US$3 billion foraviation security).

Charles Chambers

Senior Vice PresidentInterVISTAS-ga2 Consulting Inc.

Washington, D.C.


OTTAWA REPORTSeptember 2005

Canada Concludes Transportation Mission to ChinaTransport Minister Jean LaPierre completed his transportation mission toChina, which lasted from September 1-7. The Minister was accompaniedon the mission by a business delegation of more than 30 executivesrepresenting Canadian airports, ports, airlines, railways and transportation-related associations. The mission included stops in Beijing, Shanghai and Hong Kong and coveredaviation, rail and marine issues as well as trade and tourism. Key issues discussed include the recentCanada-China bilateral air services agreement, and the ongoing talks regarding China’s ApprovedDestination Status. When both agreements are signed it is expected flights between the twocountries, and volume of Chinese visitors to Canada, will triple in the near future. Discussions ontrade and marine issues, including an agreement to review the existing Bilateral Agreement onMaritime Transport, were aimed at increasing trade in goods and using Canada as a gateway to theNorth American market.

Canada, U.S. Sign Agreement to Improve Efficiency in FreightTransportationOn 14 September, Natural Resources Canada (NRCan) and the U.S. Environmental ProtectionAgency (EPA) announced the signing of an agreement to co-operate and share information onresearch, development, and projects to improve fuel efficiency and reduce emissions of greenhousegases in the freight and shipping industries. The agreement is expected to allow for the developmentof more fuel-efficient technologies and other measures, such as training and awareness programs, toreduce fuel consumption and emissions. The two organisations have already developedcomplementary programs with similar aims. NRCan’s FleetSmart program is an education andtraining-based program to encourage fuel-efficient driving, while EPA’s SmartWay TransportPartnership is focused on implementing innovative fuel-saving technologies in rail and heavy-dutyfleets.

Funding Announced for Safety Improvements at Sydney AirportOn 31 August, Mark Eyking, Parliamentary Secretary to the Minister of International Trade, andRodger Cuzner, Member of Parliament for Cape Breton-Canso, announced funding for safetyimprovements at Sydney Airport. The Government of Canada is providing $378,000 through theAirports Capital Assistance Program (ACAP) for the replacement of fire hydrants and the associatedwater distribution system. Sydney Airport is the main airport for Cape Breton Island, and receivesdaily scheduled service from Air Canada Jazz and cargo service from Prince Edward Air, as well asseasonal service from Air St. Pierre.

NAV CANADA Releases July Traffic FiguresNAV CANADA announced its traffic figures for July 2005, as measured in weighted charging units(reflects the number of flights, aircraft size and distance flown in Canadian airspace). Trafficincreased by 3.9% compared to the same month last year. Fiscal year-to-date traffic was up 5.1%relative to 2003-2004. NAV CANADA’s fiscal year is from September 1 to August 31.

Sam Barone

Regional Vice PresidentOttawa, ON


Michael Tretheway

Executive Vice President

AIRLINE FUEL PRICES-NOT A LONG TERM THREAT?15 September 2005

Much attention has been given in the short term to high airline fuel prices. In inflation adjusted terms,oil prices are approaching their former high (in inflation adjusted terms) of $85 per barrel reached in1980. As described by Doris Mak in the August 2005 issue of InterVISTAS’ Canadian AviationIntelligence Report, current market conditions are contango, meaning that the forward price of oil (aguaranteed price for delivery in the future) is higher than the spot price. There is no question thathigh prices are going to cause significant industry pain to the industry, possibly with a toll in terms ofbankrupt carriers and decreased shareholder values of the survivors.

A key question is whether these high fuel prices will be permanent. There are two views.

• One camp is of the view that the world is running out of oil supply and demand is increasing, andthus fuel prices will permanently remain high. The recent book Twilight in the Desert is a goodexample of this view, and I recommend reading it.

• The other camp claims that today’s high oil prices will result in a) increased supply (e.g.,increased investment in oil recovery from Canada’s vast oil sands deposits, or investment in oldfields to increase production by water injection), b) greater conservation (e.g., high oil prices willresult in consumers favouring more fuel efficient vehicles and airlines retiring older, less efficientaircraft), and c) energy substitution (e.g., electric utilities switching from oil to gas or coal) whichwill free up oil products for higher value uses such as aviation and autos. Steven Forbes recentlypredicted that oil will be at $35 per barrel within 18 months due to these factors.

It may be that a combination of these views will prevail. There is definitely a permanent increase in oildemand from China and India, which will support higher long term prices than prevailed in the 1990s.(In fact, in inflation adjust terms, oil prices in the 1990s were only slightly higher than those in the1950s and 1960s.) As well, increased supply may only partially offset declining production in Saudi,Alaska, North Sea and other oil fields.

However, the economic response mechanism is definitely at work. The Athabasca oil sands, forexample, are currently producing 1 million barrels to day with investment underway to go to 2 millionbarrels. However, at an oil price of $24, production can be ramped up to 5 million barrels, andaccording to one expert I talked to can go to perhaps 15 million barrels in 15 years. Alberta has twoother oil sands fields as do other western states and provinces.

It should also be pointed out that air transport is already down to similar fuel consumption perpassenger kilometre as the family automobile. The 787 will deliver a further 20% improvement in fueleconomy. Higher fuel prices may result in somewhat reduced travel overall, but not necessarily resultin a shift from air to auto. The fuel cost alone of a 1,500 kilometre trip (two ways) at $1.25 per litre isroughly $400, which compares very favourably with airline ticket costs, even without accounting forother auto costs and extra lodging and meal costs. It may be that the net impact of somewhat higherfuel prices will be to reduce the aviation rate of growth somewhat, but with long term growthcontinuing nonetheless.


INTERVISTAS NEWS September 2005

Cindy Lee joins InterVISTAS Consulting Inc. as Manager, BusinessPlanning

InterVISTAS Consulting Inc. is pleased to announce that Cindy Lee has joinedthe firm as Manager, Business Planning. She will be located in the Vancouveroffice.

“Ms Lee greatly enhances our capabilities in financial and business planning,”said Gerry Bruno, President and CEO of the InterVISTAS Group. “She hasextensive experience in the airline and telecommunications industries and hasalso worked in venture funding.

Ms Lee has extensive experience in the airline, telecommunications and leisure industries. Herexperience includes development of annual business plans, financial forecasting and analysis,performance and benchmarking analysis, and the development of investment and divestiturestrategies. She has completed all three levels of the Chartered Financial Analyst program, holds anMBA degree specialising in finance, and an undergraduate degree focussed on transportation andlogistics.

InterVISTAS Upcoming Speaking Engagements

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

• 23 February 2006: 9th Annual Hamburg Aviation Conference, Hamburg, GermanyDr. Mike Tretheway, Executive Vice-PresidentMartin Kunz Memorial Lecture – Topic to be determined.

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.

CAIR Issue No. 33 - September 2005

Documents

Transcript of CAIR Issue No. 33 - September 2005