AIR Issue No. 12 - August 2012

IN THIS ISSUE:

CEO’s Message – p 1

Feature Articles – p 2

Regional Updates – p 7

Asia-Pacific Canada Latin America

Europe United States

Aviation News – p 12

Traffic Updates – p 21

InterVISTAS News – p 25

AUGUST 2012

World Economy – P.2

Beijing-Shanghai High Speed Rail – P.4

Aviation Intelligence Report Realizing the vision together Copyright © 2012 InterVISTAS Consulting Inc., all rights reserved.

August 2012

Gerry Bruno

Group Chief Executive Officer

CEO’S MESSAGE

Welcome to the August issue of the Aviation Intelligence Report.

This month, our Chief Economist, Dr. Mike Tretheway, puts the size of the world economy into perspective, and Wei Jin reviews the changes in airfare prices on the Beijing-Shanghai route when high-speed rail was added to the existing rail infrastructure.

In our Regional Reports section:

Doris Mak examines Myanmar’s new airport plans in anticipation of a tourism boom and the challenges for Singapore Airlines as competition increases for the airline;

Debra Ward provides an update on Canada’s Bill C-38, airport rent recommendations, and on the Beyond the Border initiative;

Ian Kincaid reports on the frustrations caused by the UK’s slow progress on the country’s aviation policy;

Kenneth Currie discusses the positive effects of the AviancaTaca merger, and Steve Martin explains the effect budget sequestration will have on the U.S. aviation sector.

We are also pleased to announce two new hires:

Kate Markhvida joined our Economics group in June; Chris Warren officially joined our Air Service Development group.

Their profiles appear in the InterVISTAS News section

We hope you enjoy this issue, which is also available on our website, www.intervistas.com.


August 2012

THE SIZE OF THE WORLD ECONOMY $74 Trillion. Almost every day the news will include something about the world economy. Yet few people know how big the world economy is. I thought it might be useful to provide a few quick figures.

Size of the world economy:1 $74 trillion Largest economy: U.S. at $15 trillion U.S. as percent of world: 20%

How Big is a Trillion Dollars? Now the concept of a trillion dollars is hard to grasp. I did a bit of math and found that if one laid enough $5 bills, end to end, to make up a trillion dollars, it would stretch around the equator roughly 57,000 times. (By the way, the height of a stack of 75,000 dollar bills is about that of a two story building).

The Biggest Economies. Now here are a few additional facts about the magnitude of the world economy:

Guess who the second largest economy in the world is… It’s China, at $11 trillion. Most people know China is growing but few appreciate that it is already 75% of the size of the U.S. economy and destined to become the largest economy in the world.

The third largest economy in the world is presently a toss-up between India, Japan and Germany. But within a few years India will have a solid lock on third place.

Europeans often want to compare the entire European Union economy to the U.S. On this basis, the EU is slightly larger than the U.S., at $15.8t vs. $15.1t.

But then we could add Canada to the U.S. and get an economy of $16.5t.2 Or we could add Mexico to get the size of the NAFTA economy at $18.2t.3

But then the Europeans will counter by wanting to add the non-EU countries (Switzerland, Norway, Russia, etc.) to their continent total, to get something around $20t, depending on how much of Russia you include.

If we get into the continent comparison, Asia will dwarf all. China, Korea and Japan, alone, exceed the size of either the U.S. or the EU. Asia overall amounts to $24t.

Latin America comes in at $6t. The largest is Brazil at $2.3t, followed by Mexico ($1.9t) and Argentina ($0.7t). Chile often gets a lot of attention ($0.310t) but Peru is actual larger ($0.320). Columbia ($0.520t) and Venezuela ($0.350t) are each larger than either of these.

Rounding out the figures, Africa comes in around $2t and Oceania at $1t.

1 Measured by GDP. Purchasing power parities, rather than exchange rates, are used to compare countries. PPPs are more stable than exchange rates. As the U.S., Canadian and Australian dollars are all roughly at parity, you can take your pick of which currency is used for the $74 trillion. 2 Canada is $1.4t. The rule of thumb Canadians use is that Canada is one-tenth the U.S. It looks like the exact number is bit closer to 9%. 3 Mexico’s GDP is higher than Canada’s, but they don’t have maple syrup or get to play hockey outside so it evens out.

Mike Tretheway

Chief Economist and President


August 2012

How Big are the Stock and Derivatives Markets. Here is where things get scary:

Stocks: The global stock market was worth around $37t in 2008, before the economic crisis. This is about half the world economy.

Derivatives: No one knows for sure, since figures are not reported, but estimates are that the total value of derivatives was just under $800t in 2008. That’s right, derivatives were twenty times larger than the world economy.4 And you were surprised that the derivatives led the market implosion in 2008! The good news is that as of 2011, there were fewer derivatives, only $600t.

Wealth and Debt. Now let’s turn to wealth and debt. We all know that annual income is not the same as wealth, or what we are worth. Wealth includes the value of various assets after we net out debt. Examples are the equity in your home, the value of your pension plan, the market value of your car, what you have in your bank account and the change in your pocket (and in your sofa). Total world wealth is estimated by Credit Suisse every year, and the 2011 number was $245t.

How about debt? The Economist has a global government debt clock. When I looked at it (it goes up every 5 seconds) it stood at just under $40t. So wealth exceeds government debt. If we add private debt, then the debt total comes to just under $100t. So global government and private debt is about 40% of global wealth. This is a bit of relief, as it indicates that the last 200,000 years of human existence has actually built a collective net worth. The global balance sheet seems to have $145t in retained earnings (about $21,000 per person). Where is this net worth?

It’s all around us in the homes we live in, our cars and bikes, the roads and railways we ride on, hospitals and clinics, hotels and resorts and the aircraft we use to get there, schools, works of art, museums, books, stored food supplies, pots and pans, and everything else. We just often forget to notice and appreciate it. And of course, some things in life are priceless.

4 Technical stuff: the derivatives total is based on exchange rates. On a purchasing power parity basis, things look a bit better with derivatives being only around 12 times the size of world economy.

Total world wealth is estimated at $245 trillion in 2011.

Global government and private debt stands at just under $100 trillion.

This is a bit of relief, as it indicates that the last 200,000 years of human existence has actually built a collective net worth.


August 2012

ChinaTourismMaps.com

BEIJING-SHANGHAI ONE YEAR AFTER THE START OF HIGH-SPEED RAIL In July 2011, the competition for travelers between China’s new high-speed rail (HSR) service and China’s airlines began on the Beijing-Shanghai route. These two cities make up China’s largest domestic route and the world’s seventh largest market pairing by passenger volume1. Chinese air carriers have long enjoyed a profitable market between the two cities because the speed and convenience provided by their services could not be matched by buses or conventional rail. The previously antiquated train service between Beijing and Shanghai took an arduous 10 hours versus a flight time of just two hours. The 1,318 kilometer trip by bus would require multiple transfers.

For time sensitive business travelers commuting between these two economic centers, paying a premium for the speed and ease of air travel was the only real option. With the advent of the new high-speed rail service, trains traveling up to 300 km per hour have greatly decreased travel times and have now become a significant alternative to air travel for journeys under 1,000 km.

High-Speed Rail Advantage — Speed Has Increased The new high-speed rail service travels at up to 300 kilometers per hour; this reduces the previous 10-hour journey to 5 hours. Although that is still considerably more than the two hour flight time by air, when door-to-door time is considered trips made by high-speed rail can be a very convenient alternative. This is because most train stations are located in the heart of the city while Beijing Airport (PEK) and Shanghai Pudong Airport (PVG) are situated in outlying areas due to noise restrictions. Additionally, pre-board times for trains are straightforward and security checks are much less time-consuming when compared to airport procedures.

Table 1: Travel Time Benchmark (number of minutes)2

Mode Terminal Pairings City to Airport

Pre-board

Travel Airport to City

Total (minutes)

Air Beijing PEK – Shanghai PVG 95 60 120 82 357

Air Beijing PEK – Hongqiao SHA 95 60 120 41 316

Rail Beijing South – Hongqiao Rail Station 25 15 300 41 381 Note: City to Airport/Airport to City travel times are from city centers.

High-Speed Rail Advantage — Prices are Cheaper Prices for the high-speed rail service between Beijing and Shanghai are much cheaper than comparable airfares. Rail services in China are state-run and often subsidized. At US $176, per return trip for a 2nd class seat on a 300 km/h train is less than half the price of an average economy class seat. In response to the new threat, China’s domestic airlines slashed roundtrip airfare in July 2011 from an average of US $400 to as low as US $2602. Coinciding with the drop in economy airfares was an uptick in average business class fares from US $550 in June 2011 to US $770 in July 20113.

1 The Economist Online - Top Flights (May 14th 2012) 2 Google Maps July 18th, 2012 3 CAPA-Centre for Aviation: Fares and Yields

Wei Jin

Project Analyst


August 2012

Table 2: High-speed Rail Pricing4

From To Currency 300 km/h (one way) 250 km/h (one way)

2nd Class

1st Class

1st Class Sight Seeing

2nd Class

1st Class

1st Class Sight Seeing

Beijing Shanghai RMB 555 935 1,750 410 650 1,220

Beijing Shanghai USD 88 149 278 65 103 194

Equivalent Yield Cents/Mile 13 22 42 10 15 29 Note: Exchange Rate: 6.3 RMB=1 USD.

Airline Response — Fares Dropped Briefly The drop in airfare between Beijing and Shanghai was not sustained. Starting in August 2011 economy class tickets returned to pre-HSR levels of around US $400 (roundtrip). Business class tickets which are less elastic to price adjustments increased from pre-HSR levels of US $550 to fluctuate between US $730 and US $850 (roundtrip).

Table 3: Airfare Trend – 30 Day Roundtrip Moving Averages, Jan 2011 - Jul 20125 Fare Class Currency Jan-11 Jul-11 Jan-12 Jul-12

Economy USD $377 $269 $416 $411

Business USD $548 $758 $781 $746

Airline Response — Capacity Increases Monthly airline seat capacity between Beijing and Shanghai has increased by 3% from a pre-HSR 12 month average of 761,801 to a post-HSR 12 month average of 786,329 seats. Departure counts have increased by 6% from a pre-HSR 12 month average of 2,855 to 3,042 for post-HSR 12 month average.

Future Strategies In May of 2012, Chinese airlines, specifically Shanghai-based China Eastern Airlines (MU) and Haikou-based Hainan Airlines (HU) have followed in the footsteps of their European counterparts. Both airlines started codeshare agreements with local high-speed rail service providers to integrate tickets for flights and rail. This move has several benefits. First, it will allow both airlines to leverage the high-speed rail service as a feeder network. Doing so, they can leave the less-profitable short distance domestic feeder routes for HSR and shift their focus to more profitable medium-haul and long-haul routes. Secondly, by using HSR as a feeder system, congested airports such as PEK, SHA and PVG can continue to grow passenger traffic without having to provide valuable landing slots that would be needed to receive these same passengers if they were to use air services. Furthermore, the cheaper pricing from high-speed rail could stimulate previously out-out-reach markets by allowing a reduced overall travel expense with a combined train-air ticket.

As high-speed rail gains acceptance among Chinese travelers, the competition with airlines will only intensify. Although airline capacity and pricing on the Beijing-Shanghai market suggests that airlines have coped well with their new challenge so far, it will be interesting to revisit this topic one year from now.

Table 4: Average Weekly Chinese Domestic Seat Capacity by Sector 6

4 English.Eastday.com-High-speed rail service ticket prices announced (June 14th, 2011) 5 CAPA-Centre for Aviation: Fares and Yields 6 OAG Schedule Data, China Domestic Market.

Sector Pre-HSR Post-HSR % Change

Long-haul >1,600km 1,055,736 1,203,020 +14%

Medium-haul 800km-1,600km 3,515,045 3,871,182 +10%

Short-haul <800km 2,020,731 2,154,682 +7%


August 2012

ASIA-PACIFIC REPORT Myanmar Plans Second Airport in Anticipation of Tourism Boom Myanmar is calling on local and foreign investors to help fund the construction of a second airport to serve the country’s largest city, Yangon. Myanmar is ramping up its tourism infrastructure in preparation for an influx of travelers in the wake of political reforms.

The Southeast Asian nation spent decades in economic isolation from the west, after its brutal military regime failed to recognize the country’s 1990 elections. Under reformist President Thein Sein, Myanmar has released political prisoners and allowed a measure of democracy, effectively reducing its international isolation. The U.S. has since normalized diplomatic relations with the country; removing economic sanctions and giving U.S. firms permission to invest in Myanmar.

As soon as the country opened up, travelers began flocking to the country. In the first quarter of this year, Myanmar saw a 30% year-over-year increase in arrivals to Yangon International Airport. With many more reforms on the agenda directly and indirectly drawing both business and leisure travelers into the country, it is reasonable to expect international arrivals this year will double 2011’s tourist volumes to 1.6 million.1

While Yangon International Airport has undergone several overhauls in recent years, the airport can handle only 2.7 million passengers annually and 17 parked planes at one time. The new Hanthawaddy International Airport will cover 9,000 acres and will be nine times the size of incumbent Yangon International Airport. Hanthawaddy International Airport will be the country’s fourth airport capable of handling international flights, after Yangon, Mandalay and Naypyitaw. It will be located 48 miles (77 kilometers) north of Yangon, near the city of Bago. Construction is set to start in June 2013 and to complete in 2016. It is envisaged that the new airport will be able to handle 10 million passengers annually.2

Singapore Airlines at a Crossroads Singapore Airlines has stuck to its luxury image, even as low cost carriers (namely AirAsia) have picked off passengers during a weak global economy. To make matters worse, on the high-end, Dubai’s Emirates is challenging Singapore Airlines for the title of top luxury carrier. As a result, Singapore Airline’s profits have suffered. The airline reported an unexpected loss in the January-March quarter 2012, its first since the 2009 global recession, which crushed demand for global air travel.

To date, Singapore Airlines’ approach has involved insulating profits by developing separate lower costs alternatives to off-set the shrinking demand for long-haul business travel. The airline launched long-haul budget carrier Scoot and is expanding capacity of regional carrier Silk Air. This strategy relies on long-haul premium travel bouncing back. While international passenger traffic has increased this year, growth in economy class traffic far outpaces premium class traffic. With Europe sliding into a recession and the U.S. still struggling, the future of long-haul premium travel is unclear.

1 http://www.bangkokpost.com/business/economics/300641/myanmar-the-next-investment-destination-for-global-hotel-chains 2 www.huffingtonpost.com/2012/07/02/myanmar-plans-second-airport_n_1642775.html

Doris Mak

Director, Special Projects


August 2012

Debra Ward

Executive Consultant

CANADA REPORT With Parliament in recess for the summer, the Canada Report reviews key government action: a budget bill that has implications that go beyond fiscal policies; a Senate report on air travel that calls for the end of airport rents, and several Beyond the Border initiatives that get on track. Bill C-38: the Jobs, Prosperity and Long Term Growth Act, received Royal Assent on June 29th. While elements such as changes to environmental legislation, Old Age Security and Employment Insurance made the headlines, the act also includes a provision that allows U.S. federal law enforcement officers to participate in cross-border operations to arrest Canadians on Canadian soil. It will take months to fully understand the implications of this complex legislation. The Future of Canadian Air Travel: Toll Booth or Spark Plug? Report, released in June, is the culmination of two years of hearings by the Standing Senate Committee on Transportation and Communications. Among many issues addressed, one that stood out was that the impact of taxes, fees and charges on passenger leakage to U.S. border airports and its repercussions. While its recommendations are not binding, the Committee suggested a number of key measures in support of “efficient and affordable services to travellers and business, which will generate increased economic activity benefitting all Canadians.” Recommendations include: That Transport Canada and the department of Finance bring all relevant stakeholders to the table

to establish a single, cohesive national air travel strategy, focussing on the needs of the industry and Canada going forward;

The National Airports System be revised and updated to support the goal of increasing air traffic in Canada, focus on the needs of the industry and consumers and treat airports equally, while taking into account their unique requirements;

That airport rents be phased out, and airport ownership transferred to airport authorities; Streamlined airport connections and transit be improved by a transit visa program and an

airport authority-led initiative to facilitate flight connections. The Committee also noted that in its view, the airport authority governance structure is working well, and should be maintained and supported. The Committee expects to be releasing one or more additional reports in the coming months covering different aspects of the Canadian airline industry, including the unique circumstances and challenges faced by small and regional airports. Beyond the Border Update With both Canadian Prime Minister Steven Harper and U.S. President Barak Obama leading the charge on implementing Beyond the Border, it is no surprise that a number of key initiatives are either already completed or underway. These include: The Canada Border Services Agency removing the three-year residency requirement for

Canadian citizens who wish to apply to NEXUS The release of the U.S.-Canada joint Statement of Privacy Principles, which reflect the

commitment of Canada and the United States to protecting personal privacy, and underscore the importance of information sharing to the security of both nations.

The establishment of Bi-national Port Operations Committees at eight Canadian airports that provide U.S. preclearance services.

A cohesive Northern Border Strategy released by the U.S. Department of Homeland Security.


August 2012

Ian Kincaid

Vice President, Economic Analysis

EUROPE REPORT Aviation Industry Calls for Action on U.K. Aviation Policy Aviation, business and union leaders are frustrated with the U.K. government’s lack of effective action in developing the country’s aviation policy. Members of the Aviation Foundation, including British Airports Authority (BAA), International Airlines Group (IAG, which owns British Airways), Virgin Atlantic and Manchester Airports Group, along with the Trades Union Congress and the Chamber of Commerce, are lobbying the government to implement a new aviation policy immediately. Members insist the government needs to advance a long-term policy to address capacity issues at the country’s main airports, or face the prospect of losing to European rivals.

As it stands, U.K. airports are facing significant capacity constraints. Adding a third runway at Heathrow (U.K.’s busiest airport) was proposed as a way to ease constraints; however, opposition from local residents and environmental campaigners caused issues. When the Conservative-led coalition government came into power in 2010, the prospect of a third runway at Heathrow was blocked as was the development of additional runways at London’s Gatwick and Stansted airports.

Aviation industry leaders believe the future economic well-being of the U.K. is at stake. According to BAA, Heathrow is falling behind rival European hubs, such as Paris and Frankfurt, in the battle for lucrative routes to emerging markets due to growth constraints. U.K. aviation is a significant creator of wealth and employment; collectively creating £50 billion in wealth and protecting 1 million British jobs.

While the government has since acknowledged the need for more runway capacity in south-east England, it remains opposed to a third runway at Heathrow. Instead, the government has turned its attention to alternatives, including: a high-speed rail link between Gatwick and Heathrow and a new airport in the Thames estuary.

Leading industry players are calling on the government to consider all options for solving the capacity issue, including the expansion of Heathrow. Britain will launch a consultation document on aviation next month.

Ryanair’s Bid for Aer Lingus: The Latest in the Fast-Consolidating Airline Industry Ryanair recently launched a surprise bid to take over rival Irish carrier, Aer Lingus. Ryanair offered €1.30 per share to secure at least 50 percent of the carrier. The bid values Aer Lingus at €694 million (US $883 million)3. Ryanair is already Aer Lingus’ largest shareholder, with a 30 percent stake. This most recent bid came a day after Britain’s anti-trust regulator announced plans to investigate Ryanair’s minority stake in Aer Lingus, due to concerns the share ownership could stifle competition. Ryanair’s recent bid will be subject to approval by the European Commission, which blocked the airline’s previous bid for the Irish carrier back in 2007.

This recent Ryanair bid for Aer Lingus is the latest in a number of mergers and acquisitions in the fast-consolidating airline industry. Faced with high operating costs (fuel prices) and a reduction in consumer spending, numerous airlines have been striking deals to remain profitable. For instance, in the U.S. there are murmurs of a merger between US Airways and American Airlines. AMR, the parent company of American Airlines, recently declared bankruptcy and is in the process of restructuring. While American Airlines could emerge a healthy, stand-alone airline, many believe that in order to compete with Delta and United, a merger with US Airways is ideal. Similarly, Michael O’Leary, CEO of Ryanair, believes his airline’s recent bid will help both Irish carriers compete with larger rivals.

3 http://dealbook.nytimes.com/2012/06/19/ryanair-offers-883-million-for-aer-lingus/


August 2012

Kenneth Currie

Executive Vice President, Finance and Privatisation

LATIN AMERICA REPORT AviancaTaca Benefits from Consolidation and Star Alliance Membership The merger of Colombia’s Avianca and El Salvador’s Grupo TACA into AviancaTaca has already yielded benefits to the combined airline, and recent entrance into the Star Alliance is expected to create additional value for consumers and shareholders.

AviancaTaca Chairman Roberto Krete recently noted that 60% to 70% of synergies anticipated by the merger have been achieved already. Within a year, 100% of targeted synergies will be achieved, and a further 30% improvement above target might be achievable.

AviancaTaca is focused on fleet modernization that will make the airline more fuel-efficient. The airline will replace its 10 Fokker 50’s with ATR or Bombardier turboprop equipment next year, and replace its five Boeing 767 freighters with four Airbus 330 freighters. For wide-body passenger operations, the airline will receive its first Boeing 787 in April 2014, followed by fourteen more over a five-year period. AviancaTaca announced orders for 18 Airbus 320 and 33 Airbus 320neo aircraft at the Paris Air Show.

Kriete expects Star membership to create a global awareness of the AviancaTaca brand. The airline is studying additional European services to Frankfurt or Paris depending on the price of fuel and economic conditions in Europe.

At the same time, the membership of AviancaTaca is expected to benefit the Star Alliance. Mark Schwab, Star Alliance CEO said, “With Avianca, TACA Airlines, and Copa Airlines, our customers now enjoy increased connectivity across the Americas by connecting through five new Star Alliance hubs right in the middle of the American continent [and it] strengthens our presence in the rapidly growing Latin American market.”

Delta and AeroMexico Enhance Partnership Delta Air Lines has invested US $65 million in AeroMexico in exchange for a 4.17% stake in the airline, and the two airlines have announced a joint venture to open a Maintenance, Repair, and Overhaul (MRO) facility in Mexico. The two airlines are both founding members of the SkyTeam Alliance. The investments follow similar moves Delta has made with its Brazilian partner, Gol Linhas Aereas Inteligentes to improve its competitive position in Latin America.

Under the terms of the MRO joint venture, each airline is expected to invest US $20 million. The location of the facility has not been announced, but Guadalajara, Monterrey, Queretaro, and Toluca are reportedly under consideration, the latter two being airports in the greater Mexico City area. Construction of the MRO is expected to commence in the third quarter of 2012, and be completed in the third quarter of 2013.

Delta’s enhanced relationship with AeroMexico is similar to a recent announcement of a long-term alliance with Gol including an investment of US $100 million by Delta in Gol. The alliance with Gol includes joint passenger market initiatives and code sharing as well as maintenance operations.


August 2012

Steve Martin

Senior Vice President

UNITED STATES REPORT Potential Budgetary Sequestration Has Civil Aviation Beginning to Worry As a result of an agreement to avoid defaulting on its debt in 2011 and barring an unexpected agreement between the Congress and the White House (unlikely in an election year), all federal agencies will experience significant budget reductions effective January 2, 2013. Budget analysts and industry officials are beginning to sort out the implications.

When Congress failed to settle on a new budget agreement last year, the Budget Control Act of 2011 (BCA; P.L. 112-25) triggered an automatic spending reduction process. It established caps on the amount of money that could be spent through the annual appropriations process for the next 10 years, which the Congressional Budget Office estimates will reduce federal spending by $917 billion. The bill also requires a process to cancel budgetary resources, called “sequestration.”. The process for deficit reduction involves several steps and calculations. Very generally, the spending reductions are to be made equally from defense spending and from all other spending (referred to as “non-defense spending”). The reductions required in each of these categories are divided proportionally between discretionary spending and mandatory spending.

The Bipartisan Policy Center (BPC) released a report stating “The full defense and non-defense sequester cuts for just next year could…reduce U.S. gross domestic product by roughly half a percentage point in 2013 and cause more than one million jobs to be lost over the course of two years.”

The BPC looked specifically at the possible implications for the Federal Aviation Administration (FAA) and concluded that “Sequestration would cut about $1.5 billion from the FAA budget, including possibly more than $900 million from the salaries of air traffic controllers. That would require a 10 percent to 12 percent cut in hours worked by controllers, forcing some reduction in takeoffs and landings. … It would be reasonable to expect a 10 percent reduction in hours worked to result in the cancellation of as many as 5,000 flights per day. How would that affect commercial airlines? Package delivery services such as FedEx or UPS? Or businesses whose sales forces rely heavily on air travel?”

The Aerospace Industries Association (AIA), which represents the nation's major aerospace and defense manufacturers, called the pending cuts “devastating” and “crippling,” but did not expect that the effect on FAA would be as drastic. AIA acknowledges that the FAA has never faced a budget cut of this magnitude. AIA cites figures from the Congressional Budget Office and the House Appropriations Committee’s Democratic staff and claims that “sequestration would cause the layoff of 1,200 air traffic controllers, the closure of almost 250 airport control towers and the loss of 600 safety inspectors and certification staff.” However, because AIA expects that senior officials will not allow FAA to lay off air traffic controllers because of the expected impact on the national economy, it believes that most of the reduction will be taken out of NextGen, which could lose 30-50 percent of its funding, not the 8 percent many believe.

The airports community is concerned about the potential effect on the FAA’s Airport Improvement Program (AIP) grants—the federal funding on which airports rely for capital improvement projects—and could jeopardize air traffic control modernization. However, ACI-NA’s VP for government affairs suggests that a 2009 amendment to the Balanced Budget and Emergency Deficit Control Act may exempt several categories of transportation funding from the automatic discretionary budget cuts, including “grants-in-aid” to airports.


August 2012

AVIATION NEWS ASIA-PACIFIC UPDATE AIR ASIA TO BUY BATAVIA AIR

Low-cost carrier Air Asia announced it is buying Indonesian budget carrier Batavia Air from its founder for US$80 million. The acquisition will advance Air Asia’s position in Indonesia’s lucrative air travel market. Indonesia has a growing population of 240 million and a burgeoning middle class.

AIR ASIA EARNS THE TOP SPOT Air Asia received the top score in Aviation Week’s Top-

Performing Airlines 2012 Report. The leading low-cost carrier beat established industry players like Singapore Airlines and Ryanair. Scoring was based on statistical analysis of airlines’ financial and operational performance.

BOEING TO WORK WITH INDONESIA TO DEVELOP ADVANCED TRAINING SOLUTIONS

Boeing signed a Memorandum of Understanding with the Indonesian Ministry of Transportation to establish advanced aviation training programs and training practices in the country. Under the terms of the MOU, Boeing Flight Services and Indonesian officials will seek opportunities to develop flight, technician, dispatch and air traffic control training. According to the Boeing Pilot & Technician Outlook, the Southeast Asia region, including Indonesia, will require more than 47,000 new commercial airline pilots and more than 60,000 new maintenance technicians over the next 20 years to support economic and air travel growth and new airplane deliveries.

TIGER AIRWAYS LAUNCHES $10 ONE-WAY BASE FARE TO MELBOURNE

Tiger Airways Australia officially launched its second Australian base with

a new Sydney to Gold Coast route and fares to Melbourne for as little as $10 one-way. The Singaporean-backed carrier will employ 150 people and ultimately base three aircraft in Sydney. Tiger Airways has been gradually ramping up service since it was forced to ground its planes last year due to safety concerns. The inability to fully use its local fleet of 10 aircraft combined with high fuel prices led to a AU$61 million operating loss for the airline last year.

JAPAN’S TWO MAIN AIRLINES TO LAUNCH WI-FI SERVICE

Japan's two main airlines will begin providing Wi-Fi on some international flights. Japan Airlines will start offering Wi-Fi through

from July 15 on flights between Tokyo and New York. In late August, Japan Airlines will be expand Wi-Fi to flights from Tokyo to Los Angeles and Chicago, and in October flights to Jakarta will also get Wi-Fi access. Wi-Fi access on Japan Airlines will be priced at US$11.95 / hour or US$21.95/ 24 hours. All Nippon Airways will launch Wi-Fi service in the middle of next year. Wi-Fi on passenger aircraft has yet to become mainstream, in part because of the cost. Outfitting a single aircraft for Wi-Fi service can cost up to US$100,000. Also, there is concern that passengers might tend to opt for free entertainment options available on board.


August 2012

CHINA EXPRESS CONFIRMS ORDER FOR SIX CRJ900 NEXGEN JETLINERS

Bombardier announced that China Express

Airlines confirmed its order for six CRJ900 NexGen regional jets. The order is worth approximately US$264 million. China Express will be the first to launch CRJ900 aircraft service in China. Bombardier is poised to play a key role in development of China's fleet of commercial aircraft. China is set to become the world’s second largest market for new aircraft deliveries (followed by the U.S.).

MORE PROBLEMS FOR INDIA’S KINGFISHER AIRLINES

Bangalore-based Kingfisher Airlines is facing a lawsuit from the operator of Mumbai

International Airport for unpaid airport fees. So far, Kingfisher Airlines has bounced approximately INR30 million in cheques this year. This is the first time an Indian airport operator has taken a struggling airline to court for unpaid dues. In addition, Kingfisher has not paid its employees in over four months and has failed to make a profit since its launch in 2009.

JAPAN AIRLINES EYEING AN IPO LATER THIS YEAR

Japan Airlines announced plans to re-list its shares in September after it

raised about ¥8 billion in an earlier initial public offering (IPO). The airline is looking to raise ¥600 billion – 700 billion, which would make it the seventh largest IPO in Japan ever. Japan Airlines reported a record operating profit of ¥204.9 billion at year end. Japan Airlines’ strong recovery out of its 2010 bankruptcy filing was helped by a state-backed capital injection, as well as a massive restructuring effort that cost 16,000 jobs, several routes and cuts to pension benefits.

SINGAPORE AIRLINES TO UP FLIGHTS Singapore Airlines has signaled out Australia as one of

the two markets it is targeting for growth in flights this year. Singapore Airlines plans to boost flights from Australia to 112 per week from its current schedule of 102 flights per week. The prospect of Singapore Airlines, which has a strategic alliance with Virgin Australia, increasing capacity on routes to Australia creates further challenges for rival Qantas, whose international operations are forecast to lose more than AU$450 million this year. Many airlines are focusing on bulking up capacity on routes to Australia and China due to the strengths of their economies and demand for premium travel.

CANADA UPDATE ST. JOHN’S INTERNATIONAL AIRPORT CONTINUES WITH RECORD GROWTH

St. John’s International Airport is poised for another record year of passenger traffic, with

an 8.4 percent increase in traffic compared to last year. The biggest bump in passenger traffic came in the first four months of the year, with each month from January to April seeing double-digit percentage increases. According to airport sources, the strong St. John’s economy is the reason for the increase, as more individuals are traveling for business and leisure. The airport is in the midst of a C$150 million expansion project, which is proceeding on schedule.


August 2012

UNITED AIRLINES TO OFFER DIRECT FLIGHTS FROM KELOWNA TO L.A.

After five years, it was finally announced that Kelowna International Airport will get a non-stop daily flight to Los Angeles via United Airlines beginning in December. This new service will open doors for business and holiday travelers and will contribute significantly to the Kelowna and larger Thompson Okanagan economy. In preparation for the new service, Kelowna’s planned airport expansion will include a new international arrivals area.

2011 A SUCCESFUL YEAR FOR CANADA’S AEROSPACE INDUSTRY

According to the Aerospace Industries Association of Canada,

aerospace industry revenue in 2011 reached C$22.4 billion, a 6.7 percent increase over 2010. The industry is beginning to bounce back after the global economic downturn. Exports accounted for C$16.4 billion in revenue, while domestic sales totaled C$6 billion. Industry leaders are anticipating growth in the market; as a result, a hiring increase of up to 15 percent is expected by 2016.

RESIDENCY RULE FOR CANADIAN NEXUS APPLICANTS LIFTED

Under the joint U.S./ Canadian Beyond the Border Action Plan for Perimeter Security and Economic Competitiveness,

the Canadian Border Services Agency (CBSA) said effective immediately the three-year residency requirement for Canadian citizens to apply for NEXUS membership has been lifted. With the new rules in place, Canadian citizens currently living abroad, or who have recently returned to Canada are now eligible for NEXUS membership. This same three-

year residency requirement was amended in the U.S. in 2009.

TORONTO PEARSON AIRPORT GETS DINING UPGRADE

The Greater Toronto Airports Authority (GTAA) announced

plans to open 13 high-quality restaurants in Toronto Pearson International Airport (YYZ). The restaurants will be managed by OTG Management, a third-party airport food and beverage operator. Two new Italian restaurants led by celebrity chef Massimo Capra could be opened in Terminal 1 this fall, with the rest opening next year. YYZ served 34 million travelers annually and a recent survey of 1,000 individuals revealed a desire for more high-quality food options in the airport.

CANADIAN CARRIERS ORDERED TO TREAT DELAYED CUSTOMERS BETTER

The Canadian Transportation Agency ordered three of the

country's largest carriers to increase compensation to passengers whose flights are delayed or canceled or who get bumped to a later flight for reasons within the airlines' control. The decision affects Air Canada, Air Transat and WestJet, the three airlines named in several complaints filed by Gábor Lukács, a former math professor who launched a crusade to get airlines to treat their customers better. Until recently, Canadian airlines have had the power to decide how, or if, to compensate passengers whose flights are distributed. The three airlines will now have to give travelers a choice: take a refund or rebook on a later flight. The new regulations do not apply to events outside the airline's control (i.e., weather or security issues). Porter and Sunwing are not required to comply, as they were not named in the original complaint.


August 2012

RUNWAY EXTENSION AT HALIFAX AIRPORT

Halifax Stanfield International Airport plans to extend the

length of its main runway from 2,640 meters to 3,150 meters. The intent of the C$28 million project is to see the Halifax region’s share of the air cargo market increase. In particular, the goal of the project is to capture more of the seafood market, as up to 80% of local seafood bypasses Halifax and is routed through other airports. The bulk of the work on the runway expansion is set to begin on July 30 and is expected to be complete by November 15th of this year.

EUROPE UPDATE AIR BERLIN TO LAUNCH BERLIN TO CHICAGO NON-STOP ROUTE

Air Berlin plans to begin non-stop flights between

Berlin and Chicago O'Hare starting in March of next year. The German carrier will be the first airline to offer scheduled non-stop service between the cities. Air Berlin will begin with three flights per week and increase to five per week next May. Chicago is the second largest hub for Air Berlin’s Oneworld partner, American Airlines.

TURKISH AIRLINES RETAINS TITLE AS EUROPE’S BEST AIRLINE

For the second year in a row,

Turkish Airlines has been named "Europe's Best Airline" by Skytrax, a leading global aviation research organization. Skytrax polled over 18 million business and leisure air travelers from 100 countries to determine the winners.

BRITISH AIRWAYS ADDS NON-STOP FLIGHT FROM PHOENIX TO LONDON

British Airways will add another

non-stop Phoenix-London flight starting December 5th, which will increase its service at Phoenix Sky Harbor International Airport from six to seven days a week. The last time British Airways operated a daily non-stop Phoenix-London flight was in 2003. Phoenix has been trying to draw more international flights to Sky Harbor, including non-stop flights to and from European destinations, because such flights generate millions of dollars in revenue to the airport, as well as millions of dollars in trade, tourism and commerce for the state.

LATIN AMERICA UPDATE AVIANCATACA AND COPA AIRLINES TO JOIN STAR ALLIANCE

The parent companies of AviancaTaca and Copa Airlines officially joined the Star Alliance, representing the latest in

an ongoing shakeup of partnerships between Latin American and overseas carriers. Star, SkyTeam and Oneworld, have each been trying over the past 18 months to gain or retain footholds in Latin America, particularly in Brazil, the region's largest market. While Star has gained two new members and SkyTeam has added a pair of its own, Oneworld is set to emerge as the winner with current and potential links with American Airlines and the newly merged LATAM Airlines.


August 2012

CHILE’S LAN AIRLINES COMPLETES TAKEOVER OF BRAZIL’S TAM AIRLINES

Chile's LAN Airlines completed

a takeover of Brazilian rival TAM Airlines, creating the world's second-largest airline by market value. The newly merged carrier, LATAM Airlines Group, will need to adopt strict cost cutting measures to boost profits in a challenging market tackling high operational costs and aggressive competition. Executives expect this deal will yield up to US$700 million in cost savings within four years. The newly formed carrier will focus on improving performance in Brazil, Latin America’s largest aviation market.

CHORUS AVIATION WORKING WITH URUGUAYAN GOVERNMENT ON RECAPITALIZATION OF PLUNA

Chorus Aviation (formerly Jazz) is working with the Uruguayan government on the recapitalization of

Pluna. In 2010, Chorus invested C$15 million to acquire a 25% stake in the national carrier, which connects the capital Montevideo to neighboring countries. After experiencing the region's highest growth over the past two years, Pluna went bankrupt due to a slowing economy, protectionist measures in Argentina and aggressive pricing. Chorus’ investment is now in limbo, as the South American government (25% equity interest in Pluna) seized control of the national carrier in order to allow it to continue to operate.

MIDDLE EAST / AFRICA UPDATE EMIRATES AIRLINE TO SERVE JFK WITH TWO DAILY FLIGHTS

Emirates Airline is set to become the first airline in the world to serve a U.S.

city with a second-daily A380 service. Emirates Airline was the first airline to offer an A380 commercial service to the U.S. in

2008. Now, the airline will increase capacity on one of its daily flights from Dubai to New York's John F. Kennedy International Airport (JFK), starting January 1, 2013. The service, currently operated by a Boeing 777-300ER, will be replaced by the ultra-modern A380 aircraft, offering almost 1,000 additional seats in both directions every week. So far this year, Emirates Airline has launched services to U.S. gateways in Dallas/Fort Worth and Seattle. Flights to Washington Dulles International Airport will start in September of this year.

ETHIAD AIRLINES POSTS SALES OF US$1.25 BILLION IN 2nd QUARTER

Fast-growing Gulf carrier, Etihad Airlines, announced it gene rated US$1.25 bln

in revenue in its second quarter, up from US$957 million during the same period last year. Passenger traffic during the quarter jumped 34% to 2.6 million as the carrier filled a bigger share of seats. The Abu Dhabi-based airline’s strategy of partnering with and buying stakes in overseas airlines helped boost its quarterly sales.

QATAR AIRWAYS PLANS SAUDI AIRLINE LAUNCH

Qatar Airways, the fast-growing Gulf

carrier, hopes to launch a new airline based in Saudi Arabia. Chief executive Akbar Al Baker has consulted with Prince Fahad bin Abdullah Al Saud about opportunities arising from the newly launched aviation liberalization policy. Under this policy, foreign airlines will be able to obtain licenses to fly domestic routes. Saudi Arabia represented a key growth market for Qatar Airways with an underserved market and need for greater domestic air services.


August 2012

NAMIBIA TO HOST AVIATION AND BUSINESS LEADERSHIP CONFERENCE

Namibia will host the prestigious Aviation and Business Leadership

Conference from September 2-4. The conference will bring together upwards of 280 industry delegates from all over the globe. Several African industry decision-makers from the public and private sector will be in attendance. The conference will focus on air transport growth and development in Africa, while seeking workable solutions for advancing practical improvements in the sector.

ZIMBABWE’S NATIONAL AIRLINE FACES WORLD BAN

Air Zimbabwe risks being banned from

using international airports and the air space in other countries if it fails to meet a 90-day International Air Transport Association (IATA) deadline to comply with global safety standards, and also risks losing IATA membership. AIR Zimbabwe has failed to comply with IATA audit requirements due to various financial challenges which have resulted in unpaid employee salaries and a lack of staff.

NIGERIA’S SECOND LARGEST AIRLINE GROUNDED OVER FINANCES

Nigeria has grounded its second largest air carrier

over financial concerns. The Nigerian Civil Aviation Authority is currently auditing Air Nigeria's finances as well as conducting safety checks. Nigeria's aviation industry has come under fire following the June 3rd Dana Air flight crash in Lagos that killed all 153 people on board and others on the ground.

UNITED STATES UPDATE HAWAIIAN AIRLINES TO OFFER NEW AUCKLAND & BRISBANE SERVICES

Hawaiian Airlines announced plans to

start service to Brisbane, Australia this Nov ember, adding to its existing Sydney service. In addition, the rapidly expanding airline will offer service to Auckland, New Zealand beginning in March 2013. As the only U.S. carrier to provide service to Auckland, Hawaiian Airlines will fly three times per week from Honolulu. Hawaiian tourism officials expect demand from New Zealand to be high, based on the steadily rising number of visitors from the South Pacific region.

UNITED AIRLINES ORDERS 150 BOEING 737S

The parent company of United Airlines announced plans to buy 150 Boeing 737 aircraft, refreshing its short-

haul fleet. The order includes 100 of the more fuel-efficient 737 Max aircraft, with deliveries starting in 2018. The order also includes 50 of the existing 737-900ER planes that will replace aging Boeing 757s on domestic routes, with deliveries starting next year. The airline still needs to secure a deal with its pilots before it can modernize its fuel-thirsty regional-jet operations.

SPIRIT SELLS WASHINGTON REAGAN SLOTS TO SOUTHWEST

Southwest is planning a new route from Washington Reagan National to St. Louis, using slots it has purchased from Spirit Airlines. Southwest is awaiting a green light from the Transportation Department to use the slots beginning September 6th.


August 2012

ATLANTA AIRPORT SEEKING APPROVAL FOR US$4 MILLION ART INSTALLATION

Hartsfield-Jackson International Airport

officials plan to spend US$4 million on a single “living forest” art installation in the underground airport walkway connecting Concourses A and B. The project has been on hold for nearly a decade and more than tripled in cost since its inception. The project is currently in limbo, while undergoing the City Council committee approval process.

OTG MANAGEMENT DEPLOYS 7,000 IPADS IN AIRPORTS

OTG Management has announced plans to deploy 7,000 iPads in

three airports in North America, including New York La Guardia, Minneapolis-St. Paul and Toronto Pearson. The stand-mounted iPads, along with USB and iPad dongles for charging, will occupy seats at OTG restaurants, as well as seats next to boarding areas. During a pilot program, OTG found that when used for ordering, the iPads have been shown to boost restaurant revenues by as much as 15-20 percent per patron.

ALASKA AIRLINES & ALLEGIANT AIR LAUNCH SEASONAL HAWAII SERVICE

Starting this November, both Alaska Airlines and Allegiant Air are launching new seasonal services between Maui, Hawaii, and Bellingham, Washington. The two airlines will compete head-to-head on this route. Customers across Western Washington and Southern British Columbia will now have more travel options.

DELTA TESTS SELF-SERVICE TURNSTILES

Delta Air Lines recently tested a

self-service turnstile that lets fliers scan their own boarding passes. If implemented, the device would make it possible to bypass all interaction with airline employees, from the time passengers enter the airport until they are on the plane. At least 17 airlines in Europe and Asia use self-boarding machines and several U.S. carriers are currently testing the devices. This new device represents a distinct opportunity for airlines to cut down on labor costs, which account for up to 23 percent of an airline’s operational expenses.

U.S. FINES VOLARIS FOR FAILING TO DISCLOSE BAGGAGE FEE

The U.S. Department of Transportation issued a US$130,000 fine against Mexican airline Volaris for failing to disclose baggage fees when

selling tickets. The civil penalty is the first assessed for the violation since the federal agency began requiring airlines to disclose extra taxes and fees starting in January. The rule applies to all airlines selling air transportation in the United States, including foreign carriers. Volaris operates nearly 40 flights per week from Los Angeles International Airport.

BOMBARDIER TAKING A BET ON PASSENGER PLANE MARKET

Bombardier is taking a major bet

on the passenger plane market. Bombardier plans to invest around US$3.5 billion in its new C Series aircraft (100-150 seats) in order to compete with established rivals like Boeing and Airbus.


August 2012

TSA LAUNCHES NEW DEVICE THAT TARGETS FAKE IDS

In order to better identify fake IDs, the

Transportation Security Administration (TSA) launched a new pilot project at three U.S. airports, including Houston’s George Bush Intercontinental Airport. The federal agency placed 30 automated machines at the head of security lines that are designed to efficiently ensure that the thousands of driver's licenses, passports and boarding passes checked every day are not counterfeit. There are close to 1,300 different types of government-issued IDs in the U.S. alone. The new technology is not designed to replace the TSA officer, but rather make it easier for the officer to validate the documentation.

PHOENIX AIRPORT OFFICIALS UNVEIL $1.5 BN AIRPORT EXPANSION PLAN

Phoenix-Mesa Gateway Airport

officials recently unveiled a US$1.5 billion airport expansion plan that aims to develop the airport in four phases over the next 20 years. The new plan focuses on working to accommodate growing passenger numbers, after forecasts revealed that the airport would reach capacity by 2014. The plan will facilitate commercial development and ultimately create thousands of jobs in the region. Gateway is uniquely positioned for growth, as it has does not have the existing constraints and/or pre-existing circumstances that often plague strategic development of airports, like limited land and adjacent incompatible development.

DELTA AIR LINES TO CUT ANOTHER 25 FLIGHTS AT MEMPHIS AIRPORT

Delta Air Lines will cut another 25 flights

at Memphis International Airport this fall in a continuing effort to make the hub profitable. Delta will drop down to 125 flights a day from Memphis starting in late August to early September. The targeted

flights are regional jets (50-seaters) that are not making a profit at the current fuel prices. The reductions will leave Memphis International Airport with 46 percent fewer Delta flights than Delta and Northwest combined immediately preceding the October 2008 merger of the two carriers.

OTHER NEWS GLOBAL AIRLINES MAKE US$22.6 BN IN ANCILLARY REVENUES

According to the annual Amadeus Review of Ancillary

Revenue Results, 50 airlines around the world reported making a combined US$22.6 billion in 2011. This represents a 66 percent jump from the 2009 total and 5.3 percent jump from 2010 total. Ancillary revenues include à la carte fees, priority seating and cabin amenities, and revenues airlines earn through co-branding partnerships with credit card companies. Given the current pressures facing the industry (high operational cost and economic crises), it is unlikely airlines will forgo their ancillary revenues.

RISING DEMAND FOR AIRLINE PILOTS RAISED SAFETY CONCERNS Boeing forecasts that

about 465,000 new pilots will be needed worldwide over the next 20 years as airlines expand their fleets. Similarly, Boeing predicts that 601,000 new aircraft maintenance technicians will be needed over the same period. The rising global demand for pilots/technicians combined with the inevitable wave of retirements has raised concerns about a labor shortage. Concerns have also been raised that less experienced pilots and technicians may be hired on to fill the gap, which could have safety implications. In many regions of the world, namely China and India, a significant skilled labor shortage already exists.


August 2012

LUXURY CHAINS RIDE TRAVEL BOOM A rising class of affluent globe-trotters from China, Russia and Brazil is spurring retailers to expand their presence in high-end airports from the United States to Germany to China. Travel retail has been a mainstay for established brands like Estee Lauder and Louis Vuitton, but sales at airports have risen far more quickly in recent years than those at regular stores. As a result, travel/airport retail is at the forefront of many luxury companies’ expansion plans. Worldwide, duty-free and travel retail sales of perfumes, cosmetics and luxury goods jumped 28.3 percent between 2008 and 2011 (according to Generation Research).

AIRLINES SEE MOBILE SERVICES AS TOP INVESTMENT

According to the 14th annual SITA/Airline

Business IT Trends Survey, 93 percent of airlines have mobile services as a top investment priority over the next three years and 58 percent are planning major programs. Mobile services refer to everything from mobile ticket sales to mobile flight status notification.

BOEING RAISES AIRCRAFT FORECAST Boeing is raising its 20-year prediction

for worldwide aircraft sales to 34,000 jets, enough to double the size of the world’s fleet. According to forecasts, an estimated US$4.5 trillion worth of planes will be sold. Demand will stem from increased travel in emerging markets, with the Asia-Pacific region expected to be the biggest market for new planes. Growth in the low-cost carrier and freighter market as well as need for replacement aircraft are expected to further spur aircraft sales.

AIRBUS PLANT TO BE BUILT IN MOBILE, ALABAMA

Airbus Industries has announced that it will

build a $600 million, 116-acre A320 assembly and delivery center at a former U.S. Air Force base in Mobile, Alabama. The facility is scheduled to become operational in 2016 and will employ up to 1,000 workers. At full capacity is expected to assemble 40-50 planes per year. Airbus has an option to double the size of the facility if needed.

AIRLINES LOOKING TO PROMOTE SALES OF NON-TICKET ITEMS TO BOOST PROFITS

Legacy airlines struggling to maintain profits in the face of stiff competition and rising operation costs are increasingly looking to the sale of non-ticket items as a way to boost earnings. Established low-cost carriers, like Ryanair, have been maximizing revenues with auxiliary offerings since their inception. Ryanair, one of the pioneers of ancillary revenues, generates about a fifth of its revenues from optional extras. To contrast, legacy carriers generate about 5-10 percent of their total revenues from ancillary revenues. Traditional airlines are now looking for innovative non-ticket offerings that do not require a large infrastructure investment and/or can be contracted out. However, due to brand positioning, it is difficult for incumbent carriers to suddenly begin charging for certain services. Innovative solutions are required, such as offering Wi-Fi as a source of additional revenue.


August 2012

AIRLINE TRAFFIC

Asia-Pacific Airlines – June 2012

Airline Traffic

(RPKs – millions) Capacity

(ASKs – millions) Load Factor

1, 2

8,458 1.7%

11,056 1.4%

76.5% 0.2 pts

8,028 11.9%

9,674 6.3%

83.0% 4.2 pts

2

4,543 22.0%

6,804 8.8%

66.7% 7.2 pts

3

8,771 5.3%

10,574 3.5%

82.9% 1.4 pts

Notes: 1. Includes Qantas Domestic, QantasLink, Jetstar Domestic, Qantas International, Jetstar International, and Jetstar Asia. 2. Results are from May 2012 as June 2012 not available at the time of report issue. 3. Includes Cathay Pacific and Dragonair.

Source: Carrier traffic reports

European Airlines – June 2012

Airline Traffic

(RPKs – millions) Capacity

(ASKs – millions) Load Factor

1

19,415 4.6%

23,061 1.9%

84.2% 2.2 pts

2

18,852 4.9%

23,024 3.4%

81.9% 1.2 pts

3 15,777 8.9%

18,782 5.8%

84.0% 2.3 pts

Notes: 1. Includes Martinair. 2. Includes Lufthansa Passenger Airlines, SWISS, Austrian Airlines. 3. Performance comprises British Airways (including bmi Mainline, excluding bmi Regional and bmibaby) and Iberia (including Iberia Express).

Source: Carrier traffic reports


August 2012

AIRLINE TRAFFIC

North American Airlines – June 2012

Airline Traffic

(RPMs – millions) Capacity

(ASMs – millions) Load Factor

CANADA

4,985 1.5%

5,823 0.1%

85.6% 1.4 pts

1,382 6.7%

1,750 2.3%

79.0% 3.3 pts

78.4 4.1%

126.5 8.5%

62.0% 2.6 pts

UNITED STATES

2,903 9.7%

3,381 4.8%

85.9% 3.8 pts

1 19,238 0.1%

22,236 0.3%

86.5% 0.4 pts

3 12,167 1.0%

13,974 2.6%

87.1% 1.4 pts

18,331 0.4%

20,816 1.7%

88.1% 1.8 pts

2 5,828 1.7%

6,735 2.3%

86.5% 0.6 pts

3 9,621 0.1%

11,399 0.7%

84.4% 0.5 pts

Notes: 1. Consolidated results for United Continental Holdings. 2. Results are for US Airways Group consisting of mainline-operated flights including US Airways Express flights

operated by wholly owned subsidiaries PSA Airlines and Piedmont Airlines. 3. Results are for American Airlines Inc., and its wholly owned subsidiary AMR Eagle Holding Corporation. 4. Results are combined traffic results for Southwest Airlines and AirTran.

Source: Carrier traffic reports.


August 2012

Summary of Total Year-Over-Year Passenger Traffic Performance at Selected Canadian Airports Toronto Vancouver Montréal Calgary Edmonton Ottawa Winnipeg Halifax Victoria Kelowna Saskatoon Regina

2011

June +4.6% +1.1% +5.8% +0.8% +1.8% +0.2% -0.6% +1.1% -3.4% +1.7% +0.7% -2.1%

2nd Quarter +5.3% +1.1% +6.1% +1.6% +2.5% +1.5% -1.4% +1.6% -3.4% -1.0% +0.4% +2.6%

July +6.1% +1.8% +7.4% +1.2% +4.0% +4.9% +1.5% +0.7% +1.3% -0.1% +4.3% -1.7%

August +4.9% +3.3% +4.9% +3.2% +3.3% +2.6% +4.6% +0.3% +1.4% -2.5% +1.4% -3.3%

September +5.4% +2.8% +5.4% +2.1% +4.1% +6.7% +1.9% +1.7% -2.9% +2.7% +5.2% +4.2%

3rd Quarter +5.5% +2.7% +5.9% +2.2% +3.8% +4.7% +2.7% +0.8% 0.0% -0.2% +3.6% -0.4%

October +2.0% +0.0% +2.6% +0.3% +5.8% +4.7% +2.8% +1.6% -0.4% +1.7% +7.2% -0.9%

November +3.1% +1.9% +3.0% -0.6% +5.4% +7.3% +4.3% +4.7% 0.0% -0.2% +7.0% +3.1%

December +2.0% +3.9% +2.0% +1.7% +4.2% +4.4% +3.8% +2.9% +2.3% +1.0% +3.4% +2.3%

4th Quarter +2.3% +2.0% +2.5% +0.5% +5.1% +5.5% +3.6% +2.9% +0.6% +0.9% +5.8% +1.5%

Full Year +4.7% +1.5% +5.3% +1.1% +3.1% +3.4% +0.6% +2.5% -1.0% -0.1% +2.5% +1.9%

2012

January +5.2% +5.6% -0.4% +6.5% +8.7% +7.8% +8.5% +3.1% -0.7% +1.5% +7.1% +2.2%

February +7.5% +6.9% +4.9% +7.6% +10.1% +9.4% +9.9% +2.0% +4.2% +6.8% +8.4% +5.3%

March +4.4% +2.9% +5.6% +4.1% +5.7% +6.3% +5.5% +5.8% 0.0% +6.3% +6.8% +3.8%

1st Quarter +5.6% +5.1% +3.4% +6.0% +8.1% +7.8% +7.9% +3.8% +1.0% +4.8% +7.4% +3.8%

April +5.3% +4.8% +2.3% +6.7% +6.6% +6.0% +6.4% +5.2% +2.1% +3.3% +9.6% +2.9%

May +1.8% +2.7% -2.0% +3.9% +5.8% +0.1% N/A -1.2% -1.9% +1.3% +5.8% +1.5%

Source: Individual airports’ traffic reports. Note: Subject to revision.


August 2012

Summary of Total Year-Over-Year Passenger Traffic Performance at Selected U.S. & International Airports United States International

Atlanta Chicago Los

Angeles Dallas Denver New York

JFK London

Heathrow Paris CDG Frankfurt Beijing

Tokyo Narita

Mexico City

2011

June +4.6% +1.6% +6.0% +3.3% +1.5% +1.6% +6.3% +3.2% +4.9% +6.7% -24.3% +3.0%

2nd Quarter +4.8% +0.3% +7.9% +1.1% +2.1% +5.2% +15.3% +9.3% +12.3% +8.4% -30.0% +5.6%

July +5.6% -1.3% +6.7% +3.8% +0.8% +3.0% +2.5% +4.0% +5.2% +3.7% -18.4% +4.5%

August +5.3% -0.6% +5.1% +2.9% +2.3% -3.6% +0.7% +1.1% +2.5% +5.4% -12.5% +7.0%

September +3.2% +0.2% +6.1% +4.9% +0.6% +2.6% +1.4% +4.7% +4.3% +6.7% -15.0% +29.1%

3rd Quarter +4.8% -0.6% +6.0% +3.9% +1.3% +0.6% +1.5% +3.2% +4.0% +5.3% -15.3% +11.7%

October +2.4% -0.9% +2.7% +0.9% -2.4% -0.2% -1.3% +1.3% +2.5% +3.8% -13.8% +19.6%

November +3.1% -1.9% +3.7% +0.7% +1.6% -1.3% -0.5% +2.2% +4.3% +7.2% -5.9% +20.7%

December +1.2% +2.0% -0.4% -1.6% +2.1% +3.7% +14.7% +9.0% +12.2% +2.7% +0.4% +23.4%

4th Quarter +2.2% -0.3% +2.0% 0.0% +0.3% +1.1% +3.8% +4.0% +5.9% +4.5% -6.8% +21.3%

Full Year +3.6% -0.4% +4.6% +1.6% +1.7% +2.5% +5.5% +4.8% +6.5% +6.4% -17.1% +9.3%

2012

January +7.3% +1.0% +5.4% +0.4% -0.6% +7.2% +2.3% +3.3% +5.5% +5.0% +1.4% +22.5%

February +7.7% +11.3% +8.2% +9.7% +2.5% +12.5% +3.8% +3.6% +0.7% +8.2% +3.8% +24.0%

March +4.0% +2.5% +6.1% +2.6% -1.0% +8.5% +6.9% +5.9% +4.1% +4.2% +30.3% +19.7%

1st Quarter +6.1% +4.5% +6.5% +4.0% 0.2% +9.2% +4.4% +4.3% +3.5% +5.7% +11.1% +21.9%

April +4.1% +3.2% +2.6% +0.3% +0.4% +7.3% +0.0% +2.9% +2.8% +1.6% +51.3% +12.2%

May +1.4% +2.5% -1.2% +6.2% N/A +3.5% -0.6% -0.1% +1.4% +1.8% +29.4% 6.9%

Source: Individual airports’ traffic reports. Note: Subject to revision.


August 2012

INTERVISTAS NEWS The InterVISTAS Group continues to be active in delivering a diverse range of consulting projects around the world and some of the new projects we are working on are listed below:

Fortis BC Switch N Shrink Provide market research/consumer behaviour program.

Minneapolis – St. Paul Airport Update economic impact study for MSP including major passenger survey and four micro-

studies of new service.

African Regional Expansion Along with SSI Engineers and Environmental Consultants, assist with a study of regional

aviation expansion on the African Continent for the South African Department of Public Enterprises.

Port Metro Vancouver Assist in preparing for the implementation of a formal US Preclearance agreement at

Port Metro Vancouver.

Sault Ste. Marie Airport Provide a market size and leakage study for the airport.

Canadian Mountain Holidays Develop a greenhouse gas and energy footprint as part of Canadian Mountain Holidays

sustainability reporting initiative.

Niagara Falls International Airport Selected as part of the McFarland Johnson team to update Niagara Falls International

Airport’s Sustainable Master Plan.


August 2012

INTERVISTAS NEWS – CONT’D Speaking Engagements Gerry Bruno, Chief Executive Officer, and John Weatherill, Senior Vice President, Route Development

IAAE/AAAE International Conference: Montreal, Quebec – 19-22 August 2012

Mr. Bruno moderated the Airline Alliances and Mergers speakers’ panel and Mr. Weatherill presented “Evolution of the Airport and Air Carrier Industry”. Robert Andriulaitis, Vice President, Transportation & Logistics Studies

ACI-NA/World Annual Conference: Calgary, Alberta – 9 September 2012.

Mr. Andriulaitis presents “Key Issues of Today’s Air Cargo”. Barney Parrella, Executive Vice President

New York Aviation Management Association Annual Conference: Niagara Falls, New York – 19 September 2012.

Mr. Parrella speaks on “Air Service Trends and Perspectives”. Emre Serpen, Executive Vice President,

Terrapinn’s Travel Distribution World Europe Congress: London, England – 18-19 September 2012.

Mr. Serpen will present “Airline Distribution Costs” and “Direct Marketing”. Nigel Brownlow, Senior Vice President,

Travel & Tourism Research Association’s (TTRA) Canada Annual Conference: Winnipeg, Manitoba – October 11 & 12, 2012

Mr. Brownlow will present “Understanding the Traveler using Automated Communication Device Scanning” Mike Tretheway, Executive Vice President

5th Annual Civil Aviation Conference: Tel Aviv, Israel – 7 November 2012

Dr. Tretheway will present "Open Skies Liberalization of Aviation Markets"


August 2012

INTERVISTAS NEWS – CONT’D The InterVISTAS Group is pleased to announce the following promotions and achievements of InterVISTAS staff members:

Doug Bañez is promoted to Vice President of InterVISTAS It is with great pleasure that we announce Doug Bañez’s appointment to Vice President. Over the past several years, Doug has made significant contributions to the sales and delivery of projects in the Airline and Airport Practice Groups, developed and led InterVISTAS’ cargo consulting capability, and managed and mentored staff. His expertise in activity forecasting, air service development and cargo has led to vital roles on projects in Canada and the U.S., as well as around the world in Brazil, Sri Lanka, Saudi Arabia and Indonesia. Doug’s commitment to quality and dedication are some of the hallmarks of his work. Originally, Doug joined GKMG Consulting Services soon after its inception in the late 1990’s with prior consulting experience at Campbell Hill Aviation and Merge Global. Following the sale of GKMG, he left the team to pursue other professional opportunities. Doug rejoined the team at Innova Aviation Consulting and joined InterVISTAS when the two companies merged.

Kate Markhvida joins InterVISTAS as Manager, Economic Analysis We are pleased to welcome Kate Markhvida to our Vancouver office economics group as Manager, Economic Analysis. Kate recently graduated with a certificate in Air and Space Law from McGill University. She has a Master of Arts in Economics from Carleton University and two undergraduate degrees: Economics and Statistics from the University of British Columbia and Intercultural Communications from Minsk State Linguistics University. Her previous work experience includes Statistics Canada and the Competition Bureau where she supported and oversaw enforcement and advocacy projects aimed at promoting a competitive market place for 3 years and worked with InterVISTAS on one case during this period. Kate will support all offices and practice groups and looks forward to the opportunity to work on a variety of projects, particularly those dealing with the CIS countries. Kate speaks English, Russian and Belarusian fluently and has basic German and French language skills. Welcome aboard, Kate!

Chris Warren joins InterVISTAS as Vice President, Air Service Development We are pleased to welcome Chris Warren, who has officially joined the Airports Group of InterVISTAS as Vice President, Air Service Development, after serving as an Executive Consultant since 2011. Chris brings fifteen years of experience in airline-related commercial and financial roles, with particular expertise in financial and strategic analysis, market and network planning and corporate and business development. He has worked with TWA, American Airlines and ExpressJet, and has a deep understanding of route development, particularly in the Western United States. Chris is based out of the Los Angeles area. Welcome aboard, Chris!

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AIR Issue No. 12 - August 2012

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