CAIR Issue No. 71 - May 2009

CANADIAN AVIATION INTELLIGENCE REPORT

In this issue…

Features Columns: Regular Reports: • CEO Update (p.1) • Spread of Influenza A (H1N1) (p.2) • Environment Report (p.10) • Caribbean Report (p.11) • Asia Report (p.12) • Europe Report (p.13) • Ottawa Report (p.14) • Washington Report (p.16) • Airport Revenue Opportunity

Supporting the Electric Car (p.18)

• Airline Data - Canada (p.4 ) • Airline Data – U.S. (p. 5) • Selected Canadian Airport Data

(p.6) • News (p.7) • InterVISTAS News (p.20)

InterVISTAS’ Canadian Aviation Intelligence Report May 2009 Copyright ©2009 InterVISTAS Consulting Inc., all rights reserved. Page 1

Gerry Bruno CEO

CEO UPDATE May 2009

Welcome to InterVISTAS Consulting Inc.’s May 2009 edition of the Canadian Aviation Intelligence Report (CAIR).

2009 Annual Can Am Border Trade Alliance Conference As a member of the Executive Board, I was pleased to open the annual Can Am Border Trade Alliance 2009 Ottawa Conference in May and present an award to the Honourable Peter Van Loan, Minister of Public Safety, who was one of our keynote speakers. In my opening remarks, I focused on three key themes:

1) Where are we going with Preclearance (including northbound preclearance from U.S. airports),

2) Redefining “thickening of the border”, particularly in light of the Secretary of Homeland Security Napolitano’s views on the Canadian border; and,

3) Security and Coordination initiatives being advanced between Canada and the U.S.

InterVISTAS Project Update The InterVISTAS Group is currently working on a large number of consulting assignments for a broad range of clients throughout the world, particularly:

• Canadian Aviation Maintenance Council Airport Sector Labour Market Study InterVISTAS has been retained by the Canadian Aviation Maintenance Council (CAMC) to conduct a labour market airport sector study to determine the need and skill requirements for the large variety of airport occupations throughout Canada. CAMC is the federally-appointed sector council for the development of aviation and aerospace careers by the Government of Canada. They receive federal funding to conduct labour market studies, implement certification programs and support professional development in these fields. This exciting study marks the first formal and comprehensive effort to catalogue and analyze the extent and development requirements for the numerous airport careers in Canada.

The May CAIR Line-Up This month’s publication line-up includes columns covering the Environment, an update on the impact of H1N1 flu globally, and a feature by Dr. Tretheway about airport revenue opportunities in support of the electric car.

Our regular columns include:

▪ Caribbean Report ▪ Asia Report ▪ Europe Report

▪ Ottawa Report ▪ Washington Report

I hope you enjoy this month’s publication!


Eugene Chu Senior Project Manager

SPREAD OF INFLUENZA A (H1N1) May 2009

On 24 April 2009, the World Health Organization (WHO) confirmed cases of influenza A (H1N1) – also known as swine flu, in humans in the United States and Mexico. Since then, the number of reported cases and related deaths has risen, and has spread to other parts of the world. This column examines the spread of influenza A (H1N1), characteristics of the influenza, WHO’s assessment of the current situation, and an outlook.

Continuous Spread of Influenza A (H1N1). As of 3 June 2009, the World Health Organization (WHO) has reported 19,273 laboratory confirmed cases of influenza A (H1N1) infection in humans, including 117 deaths. The influenza outbreak has spread to 66 countries around the world, including destinations in the Americas, Europe and the Asia Pacific region.

Countries reporting the largest number of confirmed cases include the U.S. (10,053), Mexico (5,029), Canada (1,530), Australia (501), Japan (385), the U.K. (339), Chile (313), Spain (180), Panama (155), and Argentina (131). Together, these countries account for approximately 97% of the total number of confirmed cases. Influenza A (H1N1) related deaths have been reported in four countries including Mexico (97), the U.S. (17), Canada (2) and Costa Rica (1).

WHO Assessment of the Current Situation. In view of the threat posed by the outbreak of influenza A (H1N1), the World Health Organization convened a High-Level Consultation for all Member States as part of its 62nd World Health Assembly to provide a platform to share experiences and lessons learned, and to highlight the challenges facing the world community.

Confirmed Cases of Influenza A(H1N1) and Related Deaths

Source: World Health Organization (WHO).

Confirmed Cases of Influenza A(H1N1) and Related Deaths

Source: World Health Organization (WHO).


SPREAD OF INFLUENZA A (H1N1) – CON’T May 2009

It has been found that the influenza A (H1N1) virus transmits easily enough from person-to-person to sustain institutional and community outbreaks and to spread regionally. Most cases of the influenza infection seem to be relatively mild and do not require hospitalisation. However, severe illness and death has been reported in a small proportion of cases. Also, unlike seasonal influenza where the majority of severe illness and death occur in persons of 65 years of age or more, the influenza A (H1N1) virus has caused severe illness and death among youth and previously healthy adults (although some of the deaths were also among people with pre-existing medical conditions).

The WHO utilizes a six phased approach to evaluate the different stages of an influenza outbreak and the corresponding recommended programs and response. In general, a higher phase of alert signifies increased threat of the influenza to the world community. On April 29, the Director-General of WHO raised the level of influenza pandemic alert to Phase 5 – where it currently remains.

Impact on Air Traffic and Capacity. The influenza A (H1N1) outbreak, combined with the current global economic downturn, has caused serious challenges for the global aviation industry. Based on statistics reported by IATA, worldwide air traffic decreased by -3.1% (RPKs) in April 2009 compared to the same month in 2008. Meanwhile, total capacity declined by -2.5% (ASKs). This is the first time worldwide traffic and capacity has declined in the month of April since 2003 (outbreak of SARS).

Uncertain Outlook. According to the WHO, there is still a lot of uncertainty surrounding influenza A (H1N1), which is a new virus. It remains uncertain how fast the new influenza will continue to spread around the world, and whether it will become even more widely established. It is also uncertain whether the infectivity and virulence of the new influenza will change over time. However, the WHO is already in discussions with pharmaceutical companies and drug manufacturers to develop a vaccine for use against influenza A (H1N1). In the meantime, the global aviation industry will be faced with yet another continuing challenge.


AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers April 2009

Passenger Traffic Revenue Passenger

Kilometres Capacity

Available Seat Kilometres Load Factor Air Carrier

% Change over 2008

% Change from 2007

% Change over 2008

% Change from 2007

Change over 2008

Change from 2007

Air Canada1 -3.2% -2.2% -1.9% -1.3% -1.1pts (to 82.4%)

-0.8pts (from 83.2%)

Domestic (Mainline) -4.6% -2.9% -1.5% -0.5% -2.6pts -2.0pts

Jazz -13.6% -14.6% -5.0% -7.2% -6.8pts -5.9pts International & Charter -2.7% -2.0% -2.1% -1.6% -0.5pts -0.4pts

WestJet +5.5% +27.2% +7.2% +29.8% -1.3pts (to 81.2%)

-1.6pts (from 82.8%)

Analysis: • Air Canada Mainline’s domestic sector traffic

decreased 4.6% in April 2009 over April 2008, which contributed to a system-wide decline in passenger traffic of 3.2% in the same period. The carrier’s domestic load factor declined from 85.2% in April 2008 to 82.6% in April 2009, a result of domestic traffic decreasing at a greater rate than domestic capacity.

• Air Canada Mainline’s international sector experienced declines in both traffic (-2.7%) and capacity (-2.1%) in April 2009 over April 2008. During the period, Pacific-region traffic and capacity decreased by 11.1% and 15.2%, respectively, while growth in the Transborder region remained negative but eased compared to previous months. Traffic and capacity in this region decreased by 4.8% and 2.4%, respectively, in year-over-year results.

• WestJet reported a drop in its system-wide load factor of 1.3 percentage points to 81.2% in April 2009 over April 2008. The decreased load factor was due to a greater increase in capacity (+7.2%) over passenger traffic (+5.5%) during the period.

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

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

10%

Feb-08

Mar Apr May June July Aug Sep Oct Nov Dec Jan-09

Feb Mar AprDom RPK Dom ASK

Air Canada Domestic Mainline Air Canada Domestic Mainline

Jazz data is not included in this graph

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

10%

Feb-08


Feb Mar AprDom RPK Dom ASK

Air Canada Domestic Mainline Air Canada Domestic Mainline

Jazz data is not included in this graph

-20%

-15%

-10%

-5%

0%

5%

10%

Feb-08


Feb Mar AprInt'l RPK Int'l ASK

Air Canada InternationalAir Canada International

-20%

-15%

-10%

-5%

0%

5%

10%

Feb-08


Feb Mar AprInt'l RPK Int'l ASK

Air Canada InternationalAir Canada International

0%

5%

10%

15%

20%

25%

Feb-08


Feb Mar Apr

RPK ASK

WestJetWestJet

0%

5%

10%

15%

20%

25%

Feb-08


Feb Mar Apr

RPK ASK

WestJetWestJet


AIRLINE DATA – U.S. U.S. Airlines Release April 2009 Traffic Figures

Airline Traffic (RPMs – millions)

Capacity (ASMs – millions) Load Factor

2,222 ↓2.7%

2,757 ↓4.0%

80.6% ↑1.1 pts

644

↓5.5% 887

↓7.8% 72.6% ↑1.8 pts

6,517 ↑4.1%

8,463 ↓1.9%

77.0% ↑4.4 pts

1 7,566 ↓3.4%

9,188 ↓6.8%

82.3% ↑2.9 pts

2 9,389 ↓8.7%

11,750 ↓8.7%

79.9% 0.0 pts

10,283 ↓4.7%

12,644 ↓6.1%

81.3% ↑1.2 pts

15,414 ↓7.7%

18,944 ↓7.1%

81.4% ↓0.5 pts

2 4,988 ↓3.0%

5,884 ↓4.8%

84.8% ↑1.6 pts

1,513 ↑0.3%

1,882 ↓7.9%

80.4% ↑6.5 pts

700

↓17.5% 874

↓16.1% 80.1% ↓1.4 pts

Notes: 1. Mainline operations only. 2. Load factor includes scheduled service only. Sources: Carrier traffic reports.

InterVISTAS’ Canadian Aviation Intelligence Report May 2009 Copyright ©2009 InterVISTAS Consulting Inc., all rights reserved.

Page 6

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

Source: Transport Canada and individual airports’ traffic reports. Note: Subject to revision.

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

John’s February +7.7% +12.8% +9.8% +7.7% +10.2% +8.3% +7.4% +8.6% +7.9% +10.3% +9.1% +8.3% +4.3%

March +6.2% +8.0% +2.2% +8.1% +8.2% +6.8% +4.7% +20.4% +2.5% +0.7% +19.0% +15.8% +5.8% 1st Quarter +6.2% +9.9% +5.3% +6.9% +8.6% +7.2% +5.5% +11.2% +5.4% +5.0% +12.2% +7.6% +2.7%

April +5.5% +6.2% +3.1% +3.6% +5.3% +10.0% +4.6% +9.2% +3.2% +0.1% +1.9% +3.4% +2.5% May +5.1% +6.7% +1.4% +3.1% +5.9% +7.6% -2.1% +12.1% +3.3% +1.0% +3.5% +5.3% +5.2% June +6.4% +5.1% -2.7% +2.4% +5.2% +8.5% -1.4% +6.6% +7.6% +0.5% +6.1% +2.2% +6.4%

2nd Quarter +5.7% +6.0% +0.5% +3.0% +5.5% +8.7% +0.2% +9.3% +4.7% +0.5% +3.9% +3.6% +4.8% July +3.0% +0.7% -2.1% +1.9% +7.2% +9.1% -1.4% -3.9% +5.6% +2.7% +8.8% -1.5% +0.3%

August +3.0% +0.3% -0.9% +1.2% +4.1% +9.9% -4.8% +2.0% +6.7% +4.8% +8.1% +6.9% +3.0% September -1.6% -6.0% -5.1% -5.7% +4.9% +6.9% -2.4% -4.1% +3.5% +2.0% +14.9% +4.7% +2.5% 3rd Quarter +1.6% -1.4% -2.6% -0.7% +5.4% +8.6% -2.9% -1.8% +5.4% +3.2% +10.5% +3.2% +1.9%

October -4.8% -3.2% -4.0% -3.2% +6.1% +1.0% -3.7% -1.0% +3.5% +2.4% +12.3% +10.3% +2.7% November -3.2% -5.9% -4.6% -0.1% +2.7% -5.6% -1.3% -8.5% +3.2% -1.1% +7.4% +0.6% +4.3% December -1.1% -6.7% -3.3% +0.8% +6.8% +3.5% -0.9% -4.9% -7.1% -3.1% +15.1% +5.3% +3.8% 4th Quarter -3.1% -5.3% -4.0% -0.9% +5.2% -0.3% -2.0% -4.5% -0.1% -0.7% +11.6% +5.4% +3.5%

Full Year +2.6% +2.0% -0.1% +2.0% +6.1% +6.1% +0.1% +3.2% +3.8% +2.1% +9.6% +5.0% +3.2% January -4.0% -9.6% -2.7% -4.2% -1.7% -0.9% -1.0% -7.5% +1.1% -8.8% +10.5% +7.1% -0.1% February -5.9% -11.3% -7.0% -3.5% -3.2% -8.0% -3.5% -11.3% -2.8% -8.5% +6.5% +0.8% -5.9%

March -8.8% -11.3% -5.7% -7.7% -3.7% -4.1% -5.2% -14.3% -1.2% -5.5% -0.1% -5.1% -4.1%

2009

1st Quarter -6.3% -10.7% -5.3% -5.2% -2.9% -4.4% -3.3% -11.5% -1.0% -7.6% +5.7% +0.9% -3.4%


NEWS AIR CANADA UPDATE LOW PRICE POLICY

On 1 May 2009, Air

Canada (AC) introduced its Lowest Fare Guarantee, an initiative to ensure passengers receive the lowest price available. Some of the highlights of the Lowest Fare Guarantee include:

• Program availability to all customers and travel agencies that purchase AC and Jazz tickets on the Canadian edition of aircanada.com;

• A $50 travel credit for customers that find a less expensive fare on the same flight from a competitive Canadian online travel retailer within 24 hours of purchase, plus the price difference between both fares to be used for future travel;

• The ability of customers and travel agencies to notify AC of the lower fare, without being required to purchase the lower fare, and;

• Travel coverage within Canada, or between Canada and the U.S., on flights marketed and operated by both AC and Jazz.

NEW SERVICE AC inaugurated daily seasonal non-stop service between Toronto and Sydney, Nova Scotia on 1 May 2009. The carrier plans to offer six daily flights to/from Sydney throughout the summer, including five daily flights to Halifax along with the new daily flight to Toronto.

ONGOING UNION NEGOTIATIONS AC commented on 4 May 2009 that the airline is in ongoing discussions with its Canadian unions regarding the benefit pension plans. The focus of the discussions has been on gaining union support for a moratorium on funding its pension deficit, with the goal of establishing financial certainty in the next several years. AC also stated that the objective of the discussions is to maintain the airline’s defined benefit plans as currently stated, without changing the pension’s formula. To date, an agreement has not been reached between AC and its Canadian-based

unions.

$400 MILLION NET LOSS IN Q1 2009 AC announced an operating loss of $188 million in the first quarter of 2009 compared to a loss of $12 million in the same quarter of 2008. Passenger revenue decreased by 13%, or $300 million, in the first quarter of 2009 over Q1 2008 due to a decrease in traffic and a decline in yield of 2.3%. A net loss of $400 million was reported for the quarter, of which a fourth ($101 million) was losses on foreign exchange.

WESTJET UPDATE NEW SERVICES

WestJet began seasonal non-stop

Edmonton-Yellowknife service and Toronto-Sydney, NS service on 4 May 2009 and 5 May 2009, respectively. The Edmonton-Yellowknife service operates once daily, while the Toronto-Sydney, service operates three times weekly on Tuesday, Thursday, and Sunday.

$37.4 MILLION IN NET EARNINGS FOR Q1 2009 On 5 May 2009, WestJet announced first quarter revenue of $579.3 million in 2009, a decrease of slightly over 3% compared to the $599.3 million generated in the same quarter last year. Quarterly net earnings decreased almost 29% from $52.5 million in the first quarter of 2008 to $37.4 million in the first quarter of 2009. Similarly, yield in the first quarter of 2009 decreased over 8% from 17.99 cents per revenue passenger mile to 16.54 cents.


NEWS – CON’T WESTJET – CON’T CODESHARE WITH SOUTHWEST DELAYED

On 25 May 2009, WestJet announced that the codeshare

agreement it signed with Southwest Airlines will be delayed. Southwest made the decision to delay the codeshare program in order to redirect resources toward other critical objectives such as increasing the carrier’s revenues. Both carriers remain committed to the partnership as WestJet continues with the implementation of a reservation system necessary for codesharing to begin in the fourth quarter of 2009. WestJet also confirmed that the cargo program with Southwest Airlines remains on schedule, despite Southwest’s action to delay the codeshare.

OTHER CANADIAN AIRLINES TRANSAT TEMPORARILY CANCELS SERVICE TO MEXICO

On 8 May 2009, Transat A.T. announced the

cancellation of flights from Canada to Mexico effective 1 June 2009 due to the H1N1 influenza virus. The tour operator plans to resume the service on 19 June 2009, unless the situation in Mexico worsens.

FLAIR AIR TO EXPAND FLEET Kelowna-based charter carrier Flair Air announced its intention to add a Boeing 737-400 on 12 May 2009, a move that would bring its fleet total to three aircraft. Flair Air recently expanded its fleet to two aircraft in March 2009 by adding a 737-400, and anticipates requiring a third plane to keep up with business growth. The cargo and passenger charter carrier offers services throughout North America and the Caribbean.

U.S. AIRLINES CONTINENTAL OFFERS NEW SERVICES

Continental Airlines launched daily seasonal non-stop

service between Cleveland and London-Heathrow on 2 May 2009, and announced non-stop service between Jacksonville and Gulfport-Biloxi on 5 May 2009. The new Cleveland-London route replaces last year’s seasonal service, which operated from Cleveland to London Gatwick. The Jacksonville-Gulfport service, scheduled to begin 1 June 2009, will operate three days a week on Wednesday, Friday, and Sunday.

HAWAIIAN AND KOREAN AIRLINES EXPAND CODESHARE

On 12 May 2009, Hawaiian Airlines and Korean Airlines

announced a newly-expanded

codeshare agreement that will permit Hawaiian passengers to fly non-stop between Hawaii and Korea, and connect onward from Korea to five other destinations in Asia. Specifically, the agreement will allow Hawaiian to place its code on Incheon-Honolulu and South Korea-Honolulu flights operated by Korean, and on flights between Incheon and Busan, as well as destinations in Japan, Malaysia, and Thailand. The original codeshare signed by both airlines in 2007 was limited to Korean putting its code on Hawaiian’s flights among the islands of Hawaii and between the mainland U.S. and Hawaii. The carriers anticipate the new codeshare agreement to begin 15 June 2009.


NEWS – CON’T CARGO DELTA REINTRODUCES ALL-CARGO SERVICES

On 20 May 2009, Delta announced that it will re-enter the cargo

business through a 10-year joint venture with Air France-KLM. The announcement came only weeks after Delta grounded its fleet of ex-Northwest freighters. Delta clarified that the cargo agreement will not result in a cargo subsidiary, but a working group that manages air freight through joint branding and marketing on certain routes.

PEOPLE GREGG SARETSKY JOINS WESTJET

Gregg Saretsky was appointed Vice President of WestJet Vacations on 21 May 2009. A former Executive Vice President of Flight Operations and Marketing at Alaska Airlines, Mr.

Saretsky began his aviation career at Canadian Airlines in 1985 as a route development planner. The WestJet appointment takes effect 1 June 2009.

SHEILA OWENS JOINS ACI-NA Sheila Owens was appointed Vice President of Communications and Marketing at Airports Council International – North America (ACI-NA) on

27 May 2009. Mrs. Owens joins ACI-NA from the Newspaper Association of America (NAA) where she was Vice President of Strategic Communications. Prior to arriving at the NAA in 2002, Mrs. Owens held positions at the Freedom Forum/Newseum, International Food Information Council, and Gannett Company/USA Today.

JOHN B. GIBSON APPOINTED PRESIDENT AND CEO AT PGAA On 21 May 2009, the Prince George Airport Authority (PGAA) announced the appointment of

John B. Gibson to President and Chief Executive Officer effective 1 July 2009. Prior to accepting the position, Mr. Gibson was Vice President of Marketing at the Hamilton

International Airport since 2001. Mr. Gibson also held positions at Pacific Western Airlines and Canadian Airlines International and was Chair of the Canadian Airports Council Cargo Subcommittee.

AIRPORTS UPDATE EDMONTON CONTINUES EXPANSION

On 11 May 2009, the Edmonton International Airport (EIA) announced it is continuing with its $1

billion expansion scheduled to come online in 2012. Terminal expansion includes additional gates, and more efficient airline technologies, as well as restaurants, shops, and services. A $5 increase in Airport Improvement Fees effective 1 September 2009 will provide funding for the project. According to EIA, the airport is currently operating 20% over capacity and handled nearly 6.5 million passengers in 2008.

OTHER AIRBUS CUTS A380 PRODUCTION Airbus revised its delivery schedule for the A380 on 6 May 2009, reducing expected deliveries from 18 aircraft to 14 in 2009. Airbus also released a delivery target of more than 20 aircraft in 2010. The aircraft manufacturer cited the existing economic downturn and aviation crisis for increased numbers of deferrals it had received for the A380. Production cuts were also confirmed for the A320, as Airbus plans to follow through on its announcement in February 2009 to reduce output from 36 to 34 per month. Regardless of the production cuts, Airbus anticipates delivering the same number of aircraft in 2009 as it did in its 2008 record year of 483 deliveries.


Laura Patrick Associate Consultant,

Environmental Services

THE ENVIRONMENT REPORT May 2009

Sustainability: Managing environmental and social risks Financial institutions, government agencies, boards of directors, and communities routinely demand that environmental and social risks be identified and managed. Laws and guidance vary with each jurisdiction. Through the Equator Principles, businesses can find excellent guidance to identify and manage most environmental and social risks. Local laws and regulations generally add additional details. The IFC’s Health and Safety Guidelines are well written and can be easily understood by accountants and financial officers.

The definition of environment has always included social aspects. These social aspects have only become better defined through the Equator Principles and IFC Performance Standards. Many businesses shudder at the thought of addressing social issues. However, they need not be intimidating. Labour and working conditions, community health, safety and security, land acquisition and involuntary resettlement, indigenous people and cultural heritage must be evaluated to define a project’s impact. The concept of the “circle of influence” clearly applies here which should give those holding the financial strings some peace of mind that these issues can be contained.

Management of environmental and social risks should not be seen any differently than any other business risk. This is what sustainability is all about. In business talk it is about making informed decisions. We are heading into a new era of lending. Transparency is necessary and will likely be regulated. No one will be able to borrow infrastructure funds without going thorough due diligence. Any downsides to a loan must be analyzed and mitigated. A good sustainable business model should include evaluating all business decisions against financial, environmental and social criteria.

Businesses should be moving away from dealing with an infrastructure project as a “one off.” If you read the IFC Performance Standards, you will see that the majority of the requirements can be addressed through business culture and practice. By setting and publicly reporting on performance standards that include environmental and social criteria, businesses can move in a sustainable direction. The Global Reporting Initiative is an excellent place to start and a topic of another article.

Circle of Influence

The level of influence a company has to make change becomes less as it moves away from its direct staff and activities

to its contractors, suppliers and tenants to its customers to its neighbours and

regulators.


Jacqueline Clarke Manager,

Strategic Development

THE CARIBBEAN REPORT May 2009

JetBlue Airways further expands in the Caribbean JetBlue followed through on plans to increase capacity in the Caribbean to 20% of its total this year with the addition of two new Eastern Caribbean destinations to the Fall 2009 schedule. The airline will offer daily non-stop service from New York's John F. Kennedy International Airport (JFK) to Barbados, effective 1 October 2009. The route will provide Barbados with 54,600 additional seats annually from the U.S. The inaugural date for the St. Lucia service has not yet been determined as the airline is awaiting government approval. The carrier anticipates a fall start date for the three-times-per-week service from JFK. Both destinations will be served by the airline’s 150-seat Airbus A320 aircraft. The new announcements come on the heels of JetBlue’s inaugural service to Jamaica on 21 May 2009.

Boost in air service for Bonaire Two airlines will increase Bonaire’s airlift capacity in the coming months. Delta is adding a second service between Atlanta, Georgia and the Dutch Caribbean island, effective 2 October 2009, to be operated by a 160-seat B737-800 aircraft. Insel Air will commence a new weekly non-stop service between Mimi, Florida and Bonaire effective 4 July 2009. The service will be operated by a 152-seat, all-economy MD82 or MD83 aircraft.

Virgin Atlantic introduces service to San Juan Virgin Atlantic announced plans to commence service to San Juan, Puerto Rico on 7 November 2009. The carrier will operate a weekly winter service from Gatwick, via Antigua for six months. The service will support the carrier’s sister company, Virgin Holidays Cruises which offers a cruise program from San Juan.

Airlift increases for Jamaica Several airlines will be adding capacity to Jamaica for the Summer and Fall 2009 schedules. Funjet will add two additional flights per week from St. Louis and Apple Vacations will add flights from Chicago this summer. From Canada, WestJet will offer four flights weekly between Toronto and Montego Bay. Transat will add one additional flight from Toronto and one from Vancouver and Calgary. There will be two charter flights from Spain and one from Portugal for the summer with discussions underway for increased winter service from Rome and Milan.

Trinidad International Airport upgrades runway lighting Piarco International Airport upgraded its airfield lighting with solar-powered LED airfield lights from Victoria BC-based Carmanah Technologies. The airport replaced the runway edge lights, approach lights and threshold lights, as well as A702 taxiway lights, mounting hardware and wireless handheld radio remote-control equipment. Piarco is Caribbean Airlines’ home-base and accommodates nearly three million travelers annually.

Air Jamaica returns to Barbados for summer A week after cutting Barbados from its itinerary, Air Jamaica has announced a resumption of services for the summer months. The carrier will operate a twice weekly service between New York and the Caribbean island from 2 July 2009 to 20 August 2009.


Doris Mak Director,

Special Projects

THE ASIA REPORT May 2009

Partnership aims to expand Chengdu Airport. On 28 May 2009, Air China, Sichuan airport group, and the Chengdu municipal government agreed to a strategic partnership with the goal of building Chengdu as the largest airport hub in western China. The cooperative agreement is aimed at accelerating airport infrastructure construction, attracting additional direct international services, and expanding domestic and international networks with the objective of increasing the airport’s capacity to 40 million passengers, 1 million tonnes of cargo per year, and 20 direct international flights by 2015. If successful, Chengdu will be the fourth largest hub in China after Beijing, Shanghai and Guangzhou airport.

CASA addresses safety issues On 23 May 2009, Australia’s Civil Aviation Safety Authority (CASA) agreed to correct faults in its aviation safety oversight system. The shortcomings, identified by the International Civil Aviation Organisation (ICAO) during its universal safety oversight audit programme, include a lack of technical expertise necessary to carry out all functions, inadequate training of specialists, and poor record keeping and inspections. ICAO also discovered that CASA failed to effectively manage contractors it hired to do inspections on its behalf. CASA promised to correct the faults by the end of the year.

ACCC investigates Cathay Pacific for alleged price fixing The Australian Competition and Consumer Commission (ACCC) instituted proceedings against Cathay Pacific Airways on 1 May 2009. The ACCC alleges that, between 2000 and 2006, Cathay Pacific Airways entered into more than 70 arrangements with other international cargo carriers with the purpose of fixing the price for fuel surcharges, security surcharges, and other rates for air cargo transported by the carrier. The alleged countries where the arrangements were reached include Hong Kong, India, Indonesia, Italy, Japan, Singapore, and the United Arab Emirates. Although no penalties have been ordered against Cathay Pacific to date, the ACCC is seeking declarations, injunctive relief, and costs for the alleged price fixing activities. On 21 May 2009, Australia’s federal court dismissed a similar price fixing case against Singapore Airlines on the grounds that the ACCC failed to properly specify material facts in support of the allegations. The ACCC is allowed to re-file an amendment statement of claim, which would effectively launch a new prosecution, within a 28-day period.

Hong Kong International Airport Announces Relief Package On 1 May 2009, the Hong Kong International Airport Authority announced a HK$450 million relief package for its airlines and operators that have been affected by the global economic crisis. Approximately HK$200 million will be offered to airlines operating at Hong Kong International in the form of a 10% reduction in landing and parking charges through 2009. An additional HK$250 million in deferred rental payments for airlines lounges, office premises, counters, and storage areas will be offered for up to one year with interest free repayment occurring from April 2010 onward. The Airport Authority hopes that landing and parking fee reductions will reduce airlines’ operating costs, while deferred rental payments will address the liquidity issues of the airport’s business partners.


Ian Kincaid Director,

Economic Analysis InterVISTAS – EU

UK Office

THE EUROPE REPORT May 2009

BAA appeals Competition Commission ruling The British Airports Authority (BAA) announced on 19 May 2009 that it will appeal the Competition Commission's ruling to sell both London Gatwick and Stansted airports, as well as either Edinburgh or Glasgow International. BAA claims that the Commission’s decision was biased and failed to consider the existing economic climate. BAA has asked the Commission Appeal Tribunal to reevaluate the March 2009 ruling on the premise that a link existed between a Competition Commission panel member and an organization interested in purchasing the airports BAA must sell. Only speculation exists as to the Competition Commission individual identified by BAA as having a special interest in the airports sale. EC identifies carriers known to mislead customers On 15 May 2009, the European Commission (EC) published a list of 12 airlines that it contends failed to respond to concerns about misleading customers on Internet ticket prices, thereby breaching European Union (EU) regulations. The concerns voiced by EC officials include the advertising of very low fares by carriers to attract potential customers, even if the advertised fares are not available, disguising charges until the end of the booking process, and posting fare prices in various currencies in order to confuse consumers. The list of 12 carriers includes Emirates, Northwest Airlines, and Turkish Airlines, among others.

EP accepts new slot rules The European Commission (EC) proposal to suspend the use-it-or-lose-it slot rule at airports within the European Union (EU) was accepted by the European Parliament (EP) on 8 May 2009. The suspension was sought by members of the Association of European Airlines who feared losing their slot holdings during the economic downturn. The new slot rules are to be implemented immediately due to urgent adoption procedures. Should the EC propose to renew the slot rules for the 2010-11 winter schedule, a full impact assessment would be required to analyze the effects on both competition and consumers.

UK and Ireland identify combined airspace initiatives Following the United Kingdom-Ireland decision to form a functional airspace block in June 2008, navigation services from both countries identified 30 efficiency initiatives aimed at addressing safety and cost benefits on 19 May 2009. Among improvements listed in the three-year plan include the adoption of straighter eastbound routes across UK and Irish airspace during quieter night hours and the removal of certain air traffic routes from Shannon upper airspace. Removing service routes from this airspace will allow aircraft to realize substantial fuel savings for North Atlantic flights due to more direct routes. Moreover, interface between domestic and oceanic airspace will be improved, along with processes to monitor safety and manage traffic-flow. The combined airspace is expected to save US$16 million from reduced delays by 2013.

Lufthansa expresses interest in AAG The Lufthansa Group (LH) notified the European Commission (EC) of its interest in acquiring the Austrian Airlines Group (AAG) on 12 May 2009, setting a 17 June 2009 deadline for completion of the first phase. LH launched a public offer in March 2009 to buy 41.56% of AAG from OIAG, Austria’s state holding company, for almost US$500,000 plus a performance-based earn-out option worth as much as US$223 million. LH’s offer is dependent on antitrust clearance from the EC, as well as other authorities, by 31 July 2009 and approval for over US$600 million in restructuring aid from OIAG to AAG. Concerned about the price offered by LH, the EC opened a formal investigation in February 2009 evaluating the privatization and restructuring of AAG.


Fred Gaspar Regional Vice President,

InterVISTAS Ottawa Office

THE OTTAWA REPORT May 2009

Bill S-2: Amendments to the Customs Act As reported previously in this space, this important piece continues to make significant progress through the Parliament.

The bill was first introduced in the Senate of Canada on January 29, 2009 and completed its 3rd reading on April 23rd, 2009. On May 27th, it was reported back to the House of Commons from the Standing Committee on Public Safety and National Security without significant amendment. The bill now awaits votes at second and third readings, hopefully to occur before the expiry of the spring session of Parliament.

The bill is important to airports in that it seeks to amend the Customs Act in a number of important ways:

• formalizing requirements in customs controlled areas;

• amending provisions respecting the determination of value for duty; and,

• modifying advance commercial reporting requirements.

Of these, the Customs Controlled Area regulations offer the most substantive development for Canadian airports. Once promulgated, the act and the regulations to follow will ostensibly empower CBSA officers to intercept individuals in designated areas of the airport environment who may be participating in conspiracies related to their area of responsibility.

Once passed, it is expected to help enable many passenger processing innovations related to traffic flows as well as air service and ancillary economic development tools such as transfer departure facilities and a possible Arrivals Duty Free regime.

U.S. Secretary of Homeland Security, Janet Napolitano Visits Ottawa Following a number of controversial public statements concerning challenges with the Canadian border, U.S. Secretary of Homeland Security, Janet Napolitano visited Ottawa for meetings with Canada’s Public Safety Minister, Peter van Loan.

Although much of the coverage of the meeting focused on Napolitano’s views regarding the relative security of the northern border, significant milestones were achieved that could lead to smoother transborder travel experiences for some travelers.

Napolitano committed to involve Canadians in conducting risks assessments on the border, which had been sought for some time by Canada. This joint effort is the first such formal and explicit initiative to include Canada on sensitive security considerations at the border and could lead to better integration and harmonization of several cross-border security measures.


THE OTTAWA REPORT – CON’T May 2009

Growing Federal Deficit…But Slow Infrastructure Spending Political Ottawa has been gripped by the news that the federal deficit will be over $50 billion this fiscal year, despite having been announced at $34 billion in January’s budget.

Federal Finance Minister Jim Flaherty attributed the growth to rising unemployment claims, declining federal tax revenues and one-time stimulative investments (e.g. auto-sector support).

Notably, however, despite a ballooning federal deficit, communities and stakeholders anticipating benefit from direct infrastructure spending have yet to see the impacts Recent press reports indicate a sample of projects representing some of the $462 million in infrastructure spending set aside for this year have yet to even go out to tender as a result of bureaucratic requirements.

As election speculation heats up, it is widely expected that the Government of Canada will increase efforts to launch projects that have been announced but not yet initiated since the budget was unveiled.


Steve Martin Senior Vice President,

InterVISTAS – ga2 Consulting Inc. Washington, D.C.

THE WASHINGTON REPORT May 2009

Senate confirms Babbitt as newest FAA Administrator The U.S. Senate confirmed Randolph Babbitt, an aviation consultant and former president of the Air Line Pilots Association, as the newest Administrator of the Federal Aviation Administration. Babbitt now takes on two of the major challenges that have vexed many of his predecessors – resolving ongoing labor disputes between the agency’s management and its air traffic controllers and funding the continued upgrade to the U.S. air traffic management system, commonly referred to as NextGen.

During his confirmation hearings, Babbitt also faced congressional concern on the safety of regional airlines. His hearings were held immediately following other public hearings by the National Transportation Safety Board into the February fatal crash of a Continental Connections Q-400 near Buffalo, New York.

Concerning the air traffic controllers, Babbitt will have the assistance of former FAA Administrator Jane Garvey, who will oversee two mediators responsible for solving the contract dispute between the FAA and the National Air Traffic Controllers Association.

House passes FAA reauthorization The House of Representatives passed its version of the FAA reauthorization bill, setting the stage to revisit the basic disagreement with the Senate over how to finance the agency that arose during the preceding Congress. The House bill includes authorization to increase fuel taxes for non-commercial aviation, but otherwise maintains the same basic mechanism to fund FAA. The Senate has previously been more supportive of user fees applied to commercial and non-commercial operations as a replacement for the existing ticket tax mechanism. [Separately, the Obama Administration has signaled its interest in user fees as a funding mechanism for FAA by including language to that effect in its early budget proposals for the next fiscal year.]

The House bill is largely the same as the one it passed last year, but includes a number of amendments that have been controversial. These measures involve new rules on the inspection of foreign repair stations and requiring airline antitrust immunity to be sunsetted and reviewed. The House bill would also nullify the terms of compensation for FAA’s air traffic controller workforce, restore the terms and conditions of the last agreement, and require the agency to re-open negotiations. If agreement could not be reached within 45 days, the situation moves to mediation and possibly arbitration. The bill allows an increase in Passenger Facility Charges from a maximum of $4.50 to $7.00. Finally, the bill includes a provision that restates the House’s definition of what constitutes “U.S. citizenship” with respect to air carriers – a provision that puts the House of Representatives directly at odds with European interests in air service liberalization matters.

Before it would become law, the legislation still must pass the Senate, which allowed a similar bill to die in the previous Congress. Afterwards, any differences between the House and Senate versions must be reconciled in a legislative conference, before the bill would be forwarded to the President for signature.


THE WASHINGTON REPORT– CON’T May 2009

Key House Committee adopts cap-and-trade climate change proposal The House of Representatives’ Energy and Commerce Committee voted generally along party lines to approve a "cap and trade" climate change proposal supported by President Obama as one of the his top legislative priorities. The "Waxman-Markey” cap-and-trade system (named after its primary sponsors) is intended to gradually reduce the amount of greenhouse gases from utilities, oil refineries, steelmakers and other companies by requiring them to have permits for emitting key pollutants. The bill – nearly 1,000 pages in length -- would cut U.S. greenhouse gases that contribute to global warming by 17 percent below 2005 levels by the year 2020 and 83 percent by 2050.

Advocates of the bill support the use of market forces to encourage companies to reduce pollution. Companies that pollute above their limit would have to buy permits, encouraging firms to reduce their existing levels of pollution which may allow them to sell their permits to others. Initial permits would be issued by the federal government at no charge.

Critics – largely but not exclusively Republicans – contend that such a plan would further harm the already-sagging economy. Consumers would face rising energy bills. They also argue that raising energy prices would further encourage energy-intensive manufacturers to move to lower-cost countries in Asia.


AIRPORT REVENUE OPPORTUNITY SUPPORTING THE ELECTRIC CAR May 2009

Plug in Hybrids and All Electrics. The coming of the electric car and the plug in hybrid is creating both a revenue opportunity for airports and a headache for those who are unprepared, especially in Canada.

It seems that over the next few years, the auto industry will introduce a plug in hybrid electric vehicle (PHEV), and potentially an all electric car. If so, this will shift a much greater energy load into electric power, as a growing share of total auto energy is sourced from plug in power.

Hybrids are already available for sale from several manufacturers. These recharge a battery based on recovering vehicle momentum during stops and from recharging via an on-board a gasoline engine. Because the gas engine is linked to the drive train, vehicles such as the Toyota Prius are classified by the Society of Automotive Engineers as hybrids. A plug in hybrid adds the option of recharging the car’s battery from a conventional 120/240 volt electric outlet. This reduces the need to burn gasoline to produce power.

The promised Chevy Volt, however, is not a hybrid. Its drive train is expected to only be connected to an electric engine. The battery running the engine will be recharged from recovered vehicle momentum and from plugging the vehicle into a conventional 120/240 volt electric outlet. Apparently an extended range Chevy Volt will have a small gasoline engine to recharge the battery, but apparently that engine will not be connected to the drive train.

In the 1990s, there were experiments by the manufacturers with pure electric vehicles, sold via leases in California. But the 1990s “EV1” cars in California were designed with unique electric power receptacles. One could only recharge them at home or a handful of specially equipped recharge stations. In contrast, the new cars, both the PHEVs such as the Toyota/Honda plug in hybrids, and the non-hybrid Chevy Volt types will utilise conventional electric outlets.

Airport Revenues. For airports, this could eventually become a significant revenue source. Selling access to an electric power outlet could be the equivalent of adding the sale of a few litres of gas to many parking transactions. Such sales are a revenue opportunity that also support the attractiveness of buying an electric car. Airport power sales could be to both passenger vehicles as well as the cars of employees. Many airports already buy bulk power at favourable rates and resell to tenants, making a profit. Adding parking uses to such resale could be an interesting source of net revenue for airport operators. The amount may be modest at first, but as the auto fleet is gradually penetrated by electric and hybrid vehicle types, the magnitude of sales will grow.

Plug in Power is not the Same as Engine Block Heater Power! For those from Canada's North and some of the northern U.S. states, you will be aware that many airports sell electric power access for engine block heaters. Such power is not good for recharging an auto battery! The power outlets for engine blocks typically are timed to turn on for say 30 minutes, then off for 30 minutes, then back on, ... (My thanks to Winnipeg Airport CEO Barry Rempel for reminding me of this.) Such interruptible power is about the worst way to recharge a battery. Steady power is required if one wants to maximise battery life.

Michael Tretheway President &

Chief Operating Officer


AIRPORT REVENUE OPPORTUNITY SUPPORTING THE ELECTRIC CAR – CON’T May 2009

Canadian and Northern U.S. airports may decide to offer a choice of electric power to parkers. The mechanics of this may be challenging. One approach might be to have a separate area of the lot or parkade with no power, an area with power only for engine block heaters, and a third area with full power. Depending on which lot one parks in, a different fee is paid. Another solution may be smart power systems, where the use of a receptacle is tagged to a specific vehicle or parking lot ticket, hence to a specific power charge upon exit from the lot. I suspect that the power charge for hybrid recharging would be invariant to length of stay in the lot, since only one recharge per stay is required, but I leave that to the scientists to figure out.

In any event, airports need to start thinking about this now. Some forecasts are that the Volt will appear on the road in November 2010. (Wikipedia, at least, still claims this.) Plug in hybrids are expected to go on sale soon with some manufacturers, and retrofit kits are already available. Almost immediately thereafter airports could face demand from customers for recharging power. Only a small number of parking stalls equipped with recharging power may be required at first, but a plan would be needed to prevent non-recharging cars from utilising these parking spaces.

Educate Regarding the Potential Battery Damage of Interruptible Power. More important, for those airports currently offering engine block heater outlets, a plan for education and signage needs to be developed immediately. Unsuspecting users may complain, or worse sue, for interruptible power damage to the batteries on their new Volt or plug in hybrid.

Volts and Amps. A final comment. For those in Europe, the Volt is expected to be known as the Vauxhall Ampera or Opel Ampera. This raises the question as to whether one buys both a Chevy Volt and a Vauxhall Ampera they can be multiplied together to get a GM Watt.


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

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INTERVISTAS NEWS InterVISTAS Upcoming Speaking Engagements Dr. Mike Tretheway, President & Chief Operating Officer • Canadian Aviation Maintenance Council: Halifax, NS – 22 October 2009.

Dr. Tretheway will be a keynote speaker at the conference, delivering a presentation titled “Economic Outlook.”

Martin Copeland, Senior Vice President, Aviation • Low Cost Airlines World Americas: Coral Gables, FL – 29 June 2009-1 July

2009. Mr. Copeland will be delivering an expert address about the survival of the fittest and the evolving low cost carrier model, particularly snagging every possible last bit of revenue, market opportunities, future WS/WN code-sharing, and how the survivors of the fuel ‘crisis’ will capitalize on new opportunities.

Kevin Schorr, Vice President, Air Service Development • AAAE Southwest Chapter 2009 Summer Conference: San Diego, CA – 20-21

July 2009. Mr. Schorr will be delivering a presentation titled “Airline Industry Overview.”

Nigel Brownlow, Vice President, Commercial Intelligence • Airline Information – Ancillary Revenue and Frequent Flier Programs: Los

Angeles, CA – 22-23 October 2009. Mr. Brownlow will be delivering a presentation titled “Integrating Ancillary Revenue and Revenue Management” and will be participating in a panel discussion on the integration of Frequent Flyer Programs and Ancillary Revenue objectives.

Rob Beynon, Vice President, Development Economics • Federation of Canadian Municipalities: Whistler, BC – 7 June 2009.

Mr. Beynon will be delivering a presentation titled “Regional airport viability and alternative revenue sources.”

CAIR Issue No. 71 - May 2009

Documents

Transcript of CAIR Issue No. 71 - May 2009