CAIR Issue No. 72 - June 2009

CANADIAN AVIATION INTELLIGENCE REPORT

In this issue…

Features Columns: Regular Reports: • CEO Update (p.1) • Fuel Price Update (p.2) • A Global Response to Tourism

Industry Challenges (p.3) • The Caribbean Report (p.13) • The Asia Report (p.14) • The Europe Report (p.15) • The Ottawa Report (p.16) • The Washington Report (p.17)

• Airline Data - Canada (p.7) • Airline Data – U.S. (p.8) • Selected Canadian Airport

Data (p.9) • News (p.10) • InterVISTAS News (p.18)

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

Gerry Bruno CEO

CEO UPDATE June 2009

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

InterVISTAS Project Update The InterVISTAS Consulting Group is continuing to work on a large number of consulting assignments for a broad range of clients throughout the world. One recent engagement we wanted to highlight is three new programs for Regina International Airport:

• Regina Airport Authority Undertakes Survey Programs

1) Regina International Airport will participate in the 2009 Canadian Level II Airport Benchmarking Program. The Customer Satisfaction and Benchmarking Program is a powerful information tool that can be used by airport management, the Board of Directors, and the local community to help assess airport performance and determine what is driving that performance and plan future strategies. We continue to sign up additional Level II airports so please contact Maike Schmudlach, Manager of Consumer Research ([email protected]) if you are interested in participating or receiving more information about the study.

2) Airport Stakeholder Web Survey. The RAA has commissioned the survey to ensure internal and external stakeholder considerations are reflected in future planning at the Regina International Airport. The results of the study will be used to meet community expectations, enhance customer service, and assist in identifying future opportunities and overall direction for the airport.

3) Stakeholder Group Facilitation. Building on information gathered from the Airport Stakeholder Web Survey, a stakeholder facilitation session with key representatives of the airport community will be held. This will provide valuable industry input into the facilities, services and support factors required by airport stakeholders and the Regina community at large.

The June CAIR Line-Up This month’s publication line-up includes columns on the price of crude oil and on the globe’s response to current tourism industry challenges.

Our regular columns include:

▪ Caribbean Report ▪ Asia Report ▪ Europe Report

▪ Ottawa Report ▪ Washington Report

I hope you enjoy this month’s publication!


Doris Mak Director,

Special Projects

FUEL PRICE UPDATE June 2009

Crude oil prices over $70 per barrel Crude oil for near term delivery was priced at $73 per barrel on 11 June 2009, having increased from a low of $39 per barrel in April 2009. The gradual climb of fuel prices may be attributed to various factors, including recent declines in the financial markets, increasing fuel consumption in the U.S., and the recent forecast released by the International Energy Agency signalling a rise in global oil demand.1

In an attempt to reduce price volatility, a number of G-8 Energy Ministers at their recent meeting in Rome put their support behind India’s proposal from a year ago to institute a price band on crude oil. At the time, India had suggested that a buyers group, that represent nations that rely on petroleum imports, set a price band that would take into account future production and demand estimates. The intent is that the price band will help oil producers secure a steady stream of income and will also protect consumers from abrupt spikes in pricing. India imports more than 75% of the country’s oil needs.

… with futures prices at $84 by 2012 and $91 by 2016 Currently, a futures contract for delivery of crude oil in December 2012 costs 25% more than the current spot price of $73 per barrel. A futures contract with a December 2016 delivery date costs $91 per barrel, the current price of this contract is 36% less than the price of the contract if purchased during the market peak in May 2008, at a cost of $142 per barrel.

Crude Oil Futures PricesSpot Month - June 2009

$0

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03

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Month of Delivery

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$ pe

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Crude Oil Spot Prices

Crude Oil Futures Prices

May 2008

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Jun 2009

Mar 2008

Sep 2008

1 Guardian news article, 13 June 2009. <http://www.guardian.co.uk/business/feedarticle/8557018>


Eugene Chu Senior Project Manager

9.4%

5.9%7.0% 6.6%

-9.1%

-15%

-10%

-5%

0%

5%

10%

15%

Q1-2005 Q1-2006 Q1-2007 Q1-2008 Q1-2009

Change in Air Passenger Traffic (RPK)First Quarter Year-Over-Year

Source: International Air Transport Association (IATA).

9.4%

5.9%7.0% 6.6%

-9.1%

-15%

-10%

-5%

0%

5%

10%

15%

Q1-2005 Q1-2006 Q1-2007 Q1-2008 Q1-2009

Change in Air Passenger Traffic (RPK)First Quarter Year-Over-Year

Source: International Air Transport Association (IATA).

A GLOBAL RESPONSE TO TOURISM INDUSTRY CHALLENGES June 2009

The global tourism industry is being faced with a series of challenges. The world economy, one of the key drivers of demand for tourism products and services, is in one of the worst recessions since the Second World War – the International Monetary Fund (IMF) forecasts world GDP to contract by 1.3% this year, and does not expect a recovery until 2010.2 Meanwhile, the outbreak of the influenza A (H1N1) pandemic has further added to the challenges faced by the tourism industry.

According to the World Tourism Organisation (WTO), international tourism demand started deteriorating in late 2008, and the trend has continued into 2009. International tourist arrivals for the first two months of 2009 have declined by 8.0% (to 2007 levels). Statistics from the International Air Transport Association (IATA) shows that air passenger traffic declined by 9.1% in the first quarter of 2009 compared to the previous year - the first Q1 decline in over five years.

However, the industry has not stood still. The UNWTO has responded to the current crises facing the tourism industry, and continues to implement initiatives helping the tourism industry.

UNWTO response and recommendations The UNWTO’s response to the current crises revolves around three core pillars, as follows:

1. Resilience. The UNWTO has established a Tourism Resilience Committee (TRC) to provide a platform for enhanced market analysis, collaboration, and information sharing on best practices and policy. The TRC is open to all UNWTO members and industry partners.

2. Stimulus. The UNWTO encourages all governments to include tourism as a key priority in their general economic stimulus packages and programs. The jobs and trade flows from tourism are significant, and will make a key contribution to the economic recovery. This message was highlighted by the UNWTO at the last G20 Summit in London, UK.

3. Green Economy. The tourism industry must ensure that it is at the forefront of the world’s shift towards a green economy. This includes contribution to carbon neutral operations, environmental management and energy efficiency, amongst other initiatives.

2 World Economic Outlook, April 2009, International Monetary Fund.


A GLOBAL RESPONSE TO TOURISM INDUSTRY CHALLENGES – CON’T June 2009

Tourism recovery measures by country As part of the Tourism Resilience Committee’s initial situation assessment, a collection of response initiatives and measures undertaken by destination countries was completed. The measures can be categorised into eight broad categories as follows:

1. Fiscal Measures. This includes a reduction or suspension of taxes, or investments in infrastructure improvements and developments (e.g., exemption of air transport tax).

2. Marketing Measures. Increase in promotional budgets and development of special marketing campaigns (e.g., advertising to increase destination awareness and interest in travelling).

3. Monetary Measures. Providing businesses with access to credit and creating financial incentives for tourism development (e.g., financial benefits for air carriers to operate certain routes and air services).

4. Human Resources Measures. The creation of new jobs in tourism, increasing awareness of tourism as a career option, training seminars and programs, development of business techniques and integration of IT (e.g., IT training programs for tourism service providers).

5. Public/Private Partnerships. Partnerships between national and regional tourism administrations and the local tourism industry, and with financial institutions and economic development organisations at the regional and national levels (e.g., co-op marketing initiatives between government organisations and private industry partners).

6. Transnational Cooperation. Enhancement of regional and transnational co-operation to take advantage of synergies between destinations. Includes development and promotion of multi-destination itineraries, organisation of cross-border events, travel facilitation within a region, and the sharing of information and know-how on source markets (e.g., partnership between several destinations in a region to establish a mutually beneficial marketing program and strategy).

7. Environmental Measures. Medium and long term plans and initiatives for transformation to a green travel industry. Includes carbon off-set programs, development of eco-friendly infrastructure, promoting “green” practices, and funding for the development of “green” tourism products and services (e.g., investment in development of an eco-friendly resort).

8. Travel Facilitation. Simplification of travel regulations, minimising restrictions and rules for visitors, visa facilitation and visa fee exemptions to encourage visitation (e.g., exemption of visa requirements).



A summary of the type of initiatives and programs being implemented by different countries is provided in Table 1below:



Canada’s response to the current challenges In Canada, the Federal government’s economic stimulus program includes an additional $20 million for the Canadian Tourism Commission (CTC) in each of the next two years to invest into priority international markets, and to encourage domestic travel by Canadians. This is in addition to maintaining the annual $76 million funding that the CTC currently receives from the Federal government. Other initiatives include the creation of a National Trails System, upgrade to National Parks facilities and National Historic Sites, investments in community cultural and heritage institutions, and investments in festivals and events.

Of particular interest to the Canadian aviation industry include $407 million to improve passenger rail service in the Montréal to Toronto corridor operated by VIA Rail which will provide increased competition against air services along the same route, and $24 million over two years to develop cruise ship tourism – which may offer air service development opportunities for some Canadian airports.

The road to recovery The global tourism industry is facing yet another series of challenges, but the industry has responded. The road to recovery will depend on how effective the UNWTO and destination countries response and measures are in turning the tide. In October 2009, the Tourism Resilience Committee (TRC) will hold a meeting at the UNWTO General Assembly in Kazakhstan where the UNWTO’s Roadmap to Recovery strategy will be presented and discussed.


AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers May 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 Canada3 -10.4% -5.5% -6.7% -2.3% -3.3pts (to 81.0%)

-2.8pts (from 83.8%)

Domestic (Mainline) -11.1% -4.0% -8.2% -1.2% -2.6pts -2.3pts

Jazz -9.2% -14.1% -0.2% -2.4% -6.8pts -8.9pts International & Charter -10.0% -6.1% -6.0% -2.8% -3.6pts -2.9pts

WestJet -5.8% +12.5% +1.2% +21.5% -5.4pts (to 74.1%)

-5.9pts (from 80.0%)

Analysis: • Air Canada Mainline’s domestic sector

passenger traffic decreased 11.1% in May 2009 over May 2008, which contributed to a system-wide decline of 10.4% in the same period. The carrier’s domestic load factor declined from 82.0% in May 2008 to 79.4% in May 2009, a continued result of domestic traffic decreasing at a greater rate than domestic capacity.

• Air Canada Mainline’s international sector experienced declines in both traffic (-10.0%) and capacity (-6.0%) in May 2009 versus May 2008. During the period, the Latin America and Other international region traffic and capacity decreased by 17.0% and 28.0%, respectively. The Transborder market experienced a decline in traffic and capacity of 11.8% and 8.2% respectively, in year-over-year results.

• WestJet reported a drop in its system-wide load factor of 5.4 percentage points to a 2009 low of 74.1% in the month of May. The decreased load factor was due to an increase in capacity (+1.2%) over a drop in passenger traffic (-5.8%) during the period.

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

-10%

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0%

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25%

Mar-08

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

Feb Mar Apr May

RPK ASK

WestJetWestJet

-10%

-5%

0%

5%

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15%

20%

25%

Mar-08


Feb Mar Apr May

RPK ASK

WestJetWestJet

-15%

-10%

-5%

0%

5%

10%

Mar-08


Feb Mar Apr May

Dom RPK Dom ASK

Air Canada Domestic Mainline Air Canada Domestic Mainline

Jazz data is not included in this graph

-15%

-10%

-5%

0%

5%

10%

Mar-08


Feb Mar Apr May

Dom RPK Dom ASK

Air Canada Domestic Mainline Air Canada Domestic Mainline

Jazz data is not included in this graph

-20%

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0%

5%

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Mar-08


Feb Mar Apr May

Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

-20%

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0%

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Mar-08


Feb Mar Apr May

Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International


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

Airline Traffic (RPMs – millions)

Capacity (ASMs – millions) Load Factor

2,095 ↓3.3%

2,706 ↓1.1%

77.4% ↓1.8 pts

622

↓14.3% 849

↓14.5% 73.3% ↑0.2 pts

6,434 ↓3.6%

8,624 ↓3.2%

74.6% ↓0.3 pts

1 7,532 ↓9.0%

9,308 ↓8.8%

80.9% ↓0.3 pts

2 9,540 ↓12.3%

11,921 ↓10.2%

80.0% ↓1.9 pts

10,381 ↓11.7%

13,114 ↓8.8%

79.2% ↓2.6 pts

15,853 ↓5.7%

19,266 ↓7.9%

82.3% ↓1.6 pts

2 5,103 ↓5.2%

6,165 ↓5.8%

82.8% ↑0.5 pts

1,542 ↓11.1%

1,977 ↓9.6%

78.0% ↓1.3 pts

747

↓15.7% 919

↓14.9% 81.3% ↓0.9 pts

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

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

Page 9

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 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% 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%

2009

April -6.7% -8.1% -6.4% -5.1% +1.5% -7.1% -3.2% -1.9% +0.1% -0.7% +11.8% +6.4% +3.3%


NEWS AIR CANADA UPDATE NEW SERVICES

AC inaugurated

daily non-stop service between Calgary and Whitehorse and Calgary and London, Ontario on 1 June 2009. Flights from Calgary to Whitehorse are operated by a 75-seat CRJ-705 aircraft while flights to London, Ontario are operated by a 93-seat Embraer 190 aircraft.

AC also inaugurated daily non-stop service between Montréal and Geneva, Switzerland on 1 June 2009. This is Air Canada’s second flight into Switzerland as it also services Zurich non-stop from Toronto. Flights from Montréal to Geneva are operated by a 211-seat Boeing 767 aircraft.

On 15 June 2009 Air Canada Jazz inaugurated the only

daily non-stop service from Calgary to Portland Oregon. This is the third new non-stop service introduced by Jazz originating out of Calgary, which also includes San Diego and Whitehorse (after).

AIR CANADA REACHES AGREEMENT ON PENSION FUNDING MORATORIUM On 8 June 2009, AC reported that it has reached a tentative agreement on a 21-month pension funding moratorium and collective agreement extensions with three of its unions, CAW, CALDA and the IAMAW. The agreements examine past service contributions over a 21-month period extending to 2013. The agreement is subject to various terms and conditions including financing and ratification by union membership. The company has also extended the unions’ collective agreement to assure labour stability over the next 21 months with a provision for no strike or lockout as per the Canada Labour Code. Negotiations are continuing with Air Canada’s remaining unions, ACPA and CUPE, representing the pilots and flight attendants respectively.

WESTJET UPDATE NEW SERVICES

WestJet began seasonal non-

stop services to both San Diego and San Francisco from Calgary starting on 1 June 2009 and 2 June 2009, respectively. The San Diego service operates on Mondays, Wednesdays, Fridays and Saturdays and the San Francisco service operates on Sundays, Tuesdays and Thursdays.

NEW AND EXISTING SERVICES TO MEXICO TO RESUME IN THE FALL Commencing November, 2009 WestJet will expand its services to Mexico from 13 Canadian cities. Services will operate once weekly from: Moncton, Hamilton, Regina, Saskatoon, Kelowna and Victoria to Cancun; Regina and Saskatoon to Mazatlan, and; Regina and Kelowna to Cabo San Lucas. Twice weekly services will operate from Winnipeg and Vancouver to Puerto Vallarta, while Toronto to Cancun service will operate five times weekly. These new services complement existing non-stop services to Mexico from Vancouver, Calgary, Edmonton, Winnipeg, Ottawa and Halifax.

U.S. AIRLINES SOUTHWEST PILOTS VOTE DOWN LABOUR DEAL

On 3 June 2009, pilots for Southwest Airlines narrowly voted down (a

five-year tentative deal) that was reached in late March by 51%. The union representing the pilots will now have to regroup and collect further insights amongst the pilots as to what they would like to see “readdressed” in future contract discussions. It is expected that the negotiations will resume immediately since original discussions regarding the labour deal commenced back in September 2006.


NEWS – CON’T U.S. AIRLINES – CON’T US AIRWAYS AND QATAR ESTABLISH CODESHARE AGREEMENT

Pending approval from the U.S. Department of

Transportation, both Qatar and US Airways will be permitted to place their respective flight codes on selected services. Qatar Airways, based in Doha, will place its code on US Airways flights to Philadelphia and Charlotte from London Gatwick, Manchester, Madrid, Milan, Stockholm and Athens. US Airways, based in Charlotte, Philadelphia and Washington (DCA), will place its codes on Qatar flights from the same aforementioned European gateway cities to Doha. The Qatar/US Airways codeshare agreement was announced on 10 June 2009.

SOUTHWEST LOOKS FOR NEW REVENUE

In searching for new revenue streams, Southwest Airlines

announced on 1 June 2009 that it has raised some baggage charges and will commence allowing small pets onboard for a fee. The airline will be raising its third or overweight baggage charge (51 to 70 lb) from US$25 to US$50 per bag. The company will also introduce a “pet fare” for small pets that are able to be accommodated under the airplane seat. The fee will be set at US$75 each way and will count towards a passengers’ carry-on item count. In addition to the excess baggage and “pet fare” the airline will also add a US$25 fee each way for accommodating unaccompanied minors on flights. These initiatives will be effective 17 June 2009.

UNITED AIRLINES GOES AIRCRAFT SHOPPING

Executives from United Airlines were looking to purchase new aircraft at the Paris Air Show on 15 June 2009. Although the airline

may place an order as soon as this Fall, it has not confirmed which manufacture it may choose. The choice to purchase new aircraft is “a long-term strategic decision” regarding the fleet according to Kathryn Mikells, the CFO of the Chicago based carrier. United Airlines has not taken delivery of new aircraft since 2002, when the airline was operating under bankruptcy protection.

CARGO AF/KLM CARGO JV WITH CHINA SOUTHERN POSTPONED

On 9 June 2009, AF/KLM and China Southern decided to

postpone the launch of their joint venture cargo opportunity citing a rapid slump in the cargo market. The announcement was made during the IATA AGM in Kuala Lumpur by China Southern’s Chairman Si Xianmin. The launch of the joint venture will now be dependent on the recovery of the air cargo market. China Southern was set to have a 75% share in the joint venture. The joint venture, when it comes to fruition, will allow China Southern Airlines to compete with China’s big three that operate a cargo subsidiary (China Eastern, China Cargo Airlines and Air China).

SFO’S CARGO TRAFFIC CONTINUES DECLINE San Francisco’s April 2009 air cargo traffic volume continued to experience declines. Domestic cargo has fallen 27% while International cargo has dropped 34% in April. Air cargo traffic has fallen in all markets out of SFO with the exception of Mexico, the Caribbean and Central America. The hardest hit markets were Canada and Europe where year-over-year change for April resulted in a 56% and 38% drop in traffic respectively. SFO’s largest cargo markets by volume, Asia and Middle East, also experienced a traffic decline of 32% in April 2009 versus April 2008.


NEWS – CON’T CARGO – CON’T BRUSSELS AIRLINES CARGO AND LUFTHANSA CARGO CHARTER SIGN CARGO AGREEMENT

Brussels Airlines Cargo

signed an agreement to represent the Lufthansa Cargo Charter Agency on 9 June 2009. This partnership will add to the agency’s team which already includes Swiss World Cargo (2006) and Austrian Airlines Cargo (2009). This agreement will allow Brussels Airline Cargo to sell capacity and services of Lufthansa Cargo Charter, a subsidiary of Lufthansa Cargo. With the recent addition Lufthansa Cargo Charter has extended its reach into the African market where Brussels Airlines Cargo has been predominant.

PEOPLE IN THE NEWS YANNICK LACHAPELLE RESIGNS FROM IATA Yannick Lachapelle announced his departure from the International Air Transport Association (IATA) Latin America/Caribbean on 18 June 2009. After spending nearly nine years at IATA, Mr. Lachapelle has accepted a position in the

security department at United Airlines. Mr. Lachapelle’s resignation is effective 19 June 2009.

BOEING APPOINTS IHSSANE MOUNIR VP OF SALES

On 5 June 2009, Ihssane Mounir was named the Sales Vice President for Latin America and Africa for Boeing Commercial Planes. This is an expanded role

for Mr. Mounir as he has held the sales position for Latin America since November 2008. Before being promoted to VP Sales Latin America, he was London Business Director, and Deputy Vice

President for Europe, Russia and Central Asia sales. Prior to joining Boeing in 1997 as a Senior Aerodynamic Engineer, he was a research associate and engineer lecturer at Wichita State University.

TONY TYLER APPOINTED AS CHAIRMAN OF THE IATA BOARD OF GOVERNORS

On 9 June 2009, Tony Tyler, CEO of Cathay Pacific Airways was announced as Chairman of IATA’s Board of Governors at the 65th IATA AGM and World Air Transport Summit in Kuala

Lumpur. Mr. Tyler succeeded Samer Majali, CEO of Royal Jordanian Airlines. The focus of the Board for 2009 will be the environment and the industry’s commitment to achieving carbon-neutral growth by 2020. In addition, IATA announced that the board of governors agreed to name David Bronczek, President and CEO of FEDEX, to serve as Chairman following Mr. Tyler’s appointment. Mr. Bronczek term as Chairman will commence in June 2010.

OTHER PARIS AIRSHOW

This year the Paris Airshow is running from 15 – 21 June 2009 at Le Bourget. Traditionally, both the

Paris and Farnborough airshows have been ordering havens for airframe, engine and component manufacturers. However, this year, with the downturn in the economy and the industry, order expectations are being downplayed. Order rumours arising from this year’s show include Qatar Airways announcing “significant orders”, Ryanair negotiating with both Boeing and Airbus for up to 300 aircraft, and Etihad Airways planning a multi-billion dollar order for engines for 100 of their Airbus aircraft.


Jacqueline Clarke Manager,

Strategic Development

THE CARIBBEAN REPORT June 2009

Capacity increases Several carriers recently made announcements which will see a significant increase in airlift to the Caribbean region from Europe, South America and the U.S. British Airways will increase the number of destinations it serves in the Caribbean to 13 with the addition of Punta Cana (Dominican Republic) and the number of frequencies to 45 with an increase in service on five of its existing routes. The carrier will increase service from three to five weekly flights to Trinidad, from two to four frequencies to St. Lucia and return to Montego Bay with two weekly flights starting in October 2009.

From the U.S., Delta announced plans to increase service to the region by 24% for the peak winter season. The carrier will launch weekend flights to Punta Cana from Detroit in November and a weekly service from both Cincinnati and Minneapolis to Punta Cana on 19 December. Other flights commencing in December include weekly New York-Puerto Plata and New York-Kingston services. Weekly Minneapolis-Grand Cayman and Detroit-Grand Cayman service will begin on 21 November 2009 and 19 December 2009, respectively, and a weekly Minneapolis-San Juan service will commence on 19 December 2009. The carrier will also add a second weekly non-stop Atlanta-St. Kitts service beginning on 23 December 2009. Additionally, Cuba Travel Services will re-launch a weekly flight from Los Angeles to Havana on June 30 in response to increased demand following recent policy changes made by the Obama administration. The company provides travel services for authorized Cuban Americans as well as other licensed, qualified travelers.

From South America, two new charters will commence services between Lima and Ecuador and Jamaica this summer. Flights from Peru will begin on 23 June 2009 and continue through to 1 January 2010. The weekly service from Ecuador will begin operation to Montego Bay from 9 July 2009 to 13 August 2009. A total of 1,800 passengers are expected to result from these charters with additional flights in 2010 expected to generate 20,880 passengers. Taca commences a thrice-weekly service between Lima and the Dominican Republic on 1 July 2009.

Airline ticket levy to be implemented to Eastern Caribbean The leaders of the nine-member Organisation of Eastern Caribbean States (OECS) have endorsed a recommendation by tourism ministers for a levy to be applied to airline tickets purchased for travel to its member states (Antigua and Barbuda, Anguilla, the British Virgin Islands, Dominica, Grenada, Montserrat, St. Lucia, St. Kitts and Nevis and St. Vincent and the Grenadines). The levy will be used to finance the Caribbean Tourism Marketing Fund, a wider Caribbean initiative which will be administered jointly by the Caribbean Tourism Organisation and the Caribbean Hotel and Tourism Association.

Ministers discuss pre-clearance facilities for American visitors Tourism Ministers of the Caribbean Tourism Organization recently met with representatives from the U.S. Customs and Border Protection Agency in Washington DC to advance talks for the placement of pre-clearance facilities in the region. The talks are part of the CTO’s ongoing efforts to improve the Caribbean’s attractiveness as a destination for American visitors and cost-effectiveness for the airlines serving the region.

Short-stay visa waiver agreements signed between EU and Caribbean The European Union (EU) recently signed short-stay visa waiver agreements with Antigua and Barbuda, the Bahamas, Saint Kitts and Nevis, and Barbados. The agreements extend visa-free travel to all passport holders in the EU and the four Caribbean nations for stays not exceeding three months. Approximately 500,000 European citizens travel to these countries annually.


Doris Mak Director,

Special Projects

THE ASIA REPORT June 2009

China Eastern and Yunnan government establish joint venture China Eastern and the Yunnan Provincial People’s Government signed a strategic cooperation agreement on 2 June 2009, establishing a Yunnan-based joint venture in air transportation. Under the new agreement, China Eastern will hold the majority of the new company’s equity at 65%, with the remaining 35% held by Yunnan’s State-owned Assets Supervision and Administration Commission (SASAC). The specific amounts those percentages represent remain undisclosed. Founded in 1993, the former Yunnan Airlines was merged into China Eastern Airlines in 2002 where it was a branch company. The newly formed entity hopes to leverage support from the Yunnan government in expanding business and frequencies throughout South and Southeast Asia.

Japan Airlines to receive capital infusion On 3 June 2009, a collective of Japanese banks and the Development Bank of Japan (DBJ) announced their intention to inject approximately US$1billion into Japan Airlines (JAL) by the end of the month. Mizuho Corporate Bank and the DBJ are expected to provide the majority of cash to JAL, while the other two banks, Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Banking Corp., will invest the residual amount. A public/private partnership between the DBJ and the three Japanese banks alleviates any fears of the state-backed Development Bank becoming the airline’s largest creditor, a concern held by the syndicate. JAL intends to use the loan to shore up its current cash position.

Malaysia assures commitment to air service liberalization On 8 June 2009, Malaysian Prime Minister Datuk Seri Najib Tun Razak voiced his commitment to the ASEAN roadmap for liberalizing regional air services at the 65th International Air Transport Association (IATA) Annual General Meeting in Kuala Lumpur. Working with other 9 ASEAN member countries, Mr. Najib hopes to create a single aviation market similar to the European Union model and fully liberalize regional air services by 2015. The Prime Minister also announced his country’s commitment to implementing air traffic control procedures that would help airlines reduce fuel consumption and emit less carbon dioxide, as well as favouring continuous decent approach for aircraft landing at Malaysia’s Kuala Lumpur International Airport.

Airbus considers new assembly line in India On 10 June 2009 Airbus expressed interest in building an assembly line in Bangalore, India, as the European aircraft manufacturer seeks to cut production costs and increase profitability. The two states being considered for the new final assembly line, which could include a 2,600 metre runway, and facilities for painting, testing, and final delivery of aircraft, are Karnataka and Tamil Nadu. Establishing the Airbus facility in either of these states would contribute US$600 million to the local economy and generate employment for 600 to 1,000 people. Increases in operational costs have caused Airbus to establish manufacturing operations outside of Europe, in areas such as China, where it currently runs an assembly line in Tianjin. The aircraft manufacturer anticipates that Indian operations will reduce production costs by at least 20-30%. Airbus is also facing mounting pressure on profitability, particularly as the U.S. dollar depreciates against the Euro. Since Airbus’ incurred costs are in Euros and the majority of its products are priced in U.S. dollars, the carrier’s exposure to currency risk has had a negative impact on profitability. A new assembly line in India would bolster the country’s growing commercial aviation market, increasing it from US$1.5 billion to nearly US$3.8 billion by 2014, and support local aviation companies such as QuEST and Dynamatic that already operate within the Airbus supply chain.


Ian Kincaid Director,

Economic Analysis InterVISTAS – EU

UK Office

THE EUROPE REPORT June 2009

Norway, Denmark and Sweden sign new Air Services Agreement with Singapore Norway, Denmark and Sweden each formally signed bilateral Air Service Agreements with Singapore at the Royal Ministry of Transport and Communications in Oslo, on 11 June 2009. Negotiations were held between the three Scandinavian countries and Singapore back in January 2008, at which point the parties had agreed to replace their existing bilateral Air Service Agreements from 1966 with more liberal ones. The new Air Services Agreement allow airlines from either countries to operate between any two points in Scandinavia and Singapore, while allowing services via or beyond any intermediate point. The agreement places no limits on flight frequency, capacity, or aircraft type.

Europe and Canada sign agreement on civil aviation safety The European Union and Canada reached an agreement related to civil aviation safety in May 2009, which establishes a set of procedures and technical requirements that enable both parties to validate each other’s certification findings on civil aeronautical products and services, without the full certification process. The scope of the agreement encompasses the “airworthiness of civil aeronautical products, services and manufacturing and maintenance facilities, as well as environmental testing of civil aeronautical products.”4 The agreement will significantly enhance the efficiency of the product approval process between the two parties and is expected to save Canadian and European companies millions of Euros annually. Also, the agreement could potentially cover new responsibilities (i.e. air operations and pilot licenses) of the European Aviation Safety Agency (EASA).

ANA and Virgin agrees to code share: Tokyo-London All Nippon Airways (ANA) and Virgin Atlantic entered into an agreement which will allow codeshare on their respective Tokyo-London flights beginning in August 2009. This agreement builds on the June 2003 marketing agreement established between the carriers.

Star Alliance and Oneworld broaden their European presence The Star Alliance and Oneworld are both broadening their scope to include more European members. The Star Alliance has developed a scheme which allows smaller carriers to become full members, resulting in their recent invitation to Greece’s Aegean Airlines, which is expected to bring nine new destinations to Star by 2010. Moreover, Lufthansa, a founding member of Star Alliance, has recently been approached by LOT Polish Airlines about a potential takeover once it becomes privatised next year. Oneworld, on the other hand, has recently accepted a new member, Russian S7 Airlines, which will bring 54 new destinations to Oneworld, eight of which have not been previously served by the current Oneworld members, providing new access to destinations in Central Asia.

Aviation Global Deal Group proposes aggressive targets for GHG emissions reduction The Aviation Global Deal Group (AGD), a small group of airlines including Air France, British Airways and Virgin Atlantic, have proposed emissions reduction targets that are more aggressive than the carbon neutral growth scenario, which is a commitment that the international aviation industry will grow without increasing its carbon footprint. The AGD’s proposal was put forward to the post-Kyoto climate change treaty and included the following three 2020 emissions reductions targets: carbon neutral growth; 5% below 2005 levels; and 20% below 2005 levels.

4 Aviation Week Intelligence Network: Europe and Canada Sign Aviation Agreement, 5 June 2009.


Fred Gaspar Regional Vice President,

InterVISTAS Ottawa Office

THE OTTAWA REPORT June 2009

Bill S-2 Receives Royal Assent After significant delays in previous Parliamentary sessions, Bill S-2, containing important changes to the Customs Act, finally received Royal Assent recently after having made its way through both the House of Commons and Senate.

As reported previously in this space, these changes have the practical effect of enabling meaningful enhancements in the way that CBSA officers carry out their duties through associated regulatory changes that will now be developed to accompany the legal changes.

In this context, InterVISTAS will continue to work with officials to highlight the importance of key passenger processing and other innovations such as Arrivals Duty Free and Transfer Departure Facilities, which are enabled by these regulations.

Louis Ranger Moves on… In a move that had been widely anticipated for some time, Louis Ranger, the long time Deputy Minister of Transport, Infrastructure and Communities announced his retirement from the leadership of this crucial economic portfolio after a distinguished 35 year career in the Public Service.

During his time at Transport Canada, Ranger oversaw and contributed towards a number of important developments, including:

• The deregulation of domestic air services;

• The development of the National Airports Policy; and

• The privatization of Air Canada. Mr. Ranger will be succeeded by Yaprak Baltacioglu on 1 July 2009. Ms. Baltacioglu most recently headed the Department of Agriculture and Agri-Food as Deputy Minister.

Prime Minister Stephen Harper thanked Mr. Ranger for his work on the infrastructure and stimulus program. “The Prime Minister took the opportunity to express his gratitude to Louis Ranger, who is retiring after a very distinguished career in the public service, for his strong leadership and the many significant contributions he has made to Canada and Canadians over his 35-year career. In particular, the Prime Minister thanked Mr. Ranger for his exceptional work on the infrastructure stimulus program. The Prime Minister extended to Mr. Ranger his best wishes for great success in his future endeavours.”

Ranger’s departure is not expected to materially alter the policy direction of Transport Canada, although it is expected that the arrival of Ms. Baltacioglu signals a renewed emphasis to expedite infrastructure spending.


Steve Martin Senior Vice President,

InterVISTAS – ga2 Consulting Inc. Washington, DC

THE WASHINGTON REPORT June 2009

Washington Examines Safety of Regional Airlines Official Washington kicked off its response to public concerns about the safety of regional airline operations in the wake of the fatal accident of a Continental Connection flight outside Buffalo, New York. The Senate Commerce Committee’s Aviation Subcommittee held two days of hearings on safety issues at regional airlines. The subcommittee examined the issue of the comparative safety standards and expectations for regionals and major airlines along with FAA’s safety oversight of regional carriers. Additional hearings are planned later in June.

Preliminary results from the National Transportation Safety Board’s investigation into the February accident have indicated that pilot training at the carrier may have contributed to the accident. FAA’s oversight of regional carriers’ pilot training programs has come under scrutiny. Critics allege that relatively low pay, long hours, and inexperience among regional airlines’ pilot ranks contribute to a pervasive sense that regional carriers are not as safe as mainline airlines.

Transportation Secretary Ray LaHood and FAA Administrator Randy Babbitt asked for all U.S. airlines and major industry stakeholders to attend a “safety summit” in Washington. According to DOT, the purpose was to focus on airline responsibilities for crew training and support; standards for flight discipline; training standards and performance; and creating mentoring relationships between mainline carriers and regional airlines.

House of Representatives Passes TSA Authorization The House of Representatives passed an authorization bill (HR 2200) for the Transportation Security Administration (TSA). This marks the first time that Congress has explicitly authorized TSA's activities since its creation in 2001. Many major aviation stakeholders – including the airports community and organized labour -- endorsed the measure. The bill:

• Directs TSA to allocate funding based on “risk” rather than on population or regions. The report accompanying the bill notes that the Committee “…strongly urges TSA to incorporate comprehensive risk assessments and analysis in all resource allocation determinations….”

• Requires TSA to report on the performance of whole-body scanners and steps taken to ensure that privacy concerns are addressed.

• Directs TSA to establish a system for verifying that all cargo on inbound foreign passenger aircraft is being screened and to address redundant inspections of such cargo conducted by multiple agencies.

• Requires foreign airline maintenance facilities to meet security standards similar to U.S. facilities.

• Provides additional funding for airport perimeter security.

• Reaffirms congressional support in the Registered Traveler program and directed TSA to re-examine how to incorporate the program into a new risk-based assessment.

• Includes provisions to create a General Aviation security working group to ensure that TSA consults with stakeholders before imposing security initiatives. It also establishes a grant program for $10 million in security improvements at GA airports.

The bill authorizes $7.6 billion for TSA in fiscal year 2010. It also includes an expansion of the TSA into surface transportation such as highways, buses, trains and subways. The Senate is taking up the measure now.


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 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.”

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.”

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.

CAIR Issue No. 72 - June 2009

Documents

Transcript of CAIR Issue No. 72 - June 2009