cair issue no. 29 - may 2005

Copyright ©2005 InterVISTAS Consulting Inc., all rights reserved

InterVISTAS ’CANADIAN AVIATIONINTELLIGENCE REPORT

Features Columns:§ Canada-China Air Bilateral (p.1)§ Passenger Survey Research (p.2)§ Ticket Distribution Update (p.3)§ The Boeing 787 Dreamliner (p.11)§ Airport Rent Relief (p.14)

Regular Reports:§ Airport & Airline Data (p.4)§ Industry News (p.8)§ Airport Best Practices (p.11)§ Ottawa Report (p.19)§ Washington Report (p.20)§ InterVISTAS’ News (p.21)

In this issue…

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

Eugene Chu

Project Analyst

THE NEW CANADA-CHINAAIR SERVICE AGREEMENT12 May 2005

In April 2005, Transport Minister Jean-C. Lapierre and InternationalTrade Minister Jim Peterson announced that Canada hadconcluded a new bilateral air service agreement with the People’sRepublic of China (PRC). The agreement includes an increase inthe level of permitted passenger and cargo services between thetwo countries, and also contains aviation safety and securityelements. However, this is not an open-skies agreement.

The New Air Services Agreement. The table below compares the level of Canada-Chinaservices permitted under the new agreement and the previous bilateral, which was completed in June1973. Note that many details of both agreements remain confidential.

Comparison of the Canada-China Air Service Agreements

June 1973 Agreement April 2005 Agreement

Passenger Frequency/Week Three-fold increaseCargo Frequency/Week Three-fold increase

Chinese Cities Included-Passenger services

1) Beijing2) Shanghai3) One other to be named by Canada

Up to 9 cities total to benamed by Canada

Chinese Cities Included-Cargo services

1) Shenzhen2) Nanjing3) Beijing/Shanghai

Up to 9 cities total to benamed by Canada

Source: Transport Canada press release and interview.

China Services Offered by Canadian Carriers. Under the previous agreement, AirCanada (currently the only Canadian carrier with passenger services to China) operated 18passenger flights per week to China including Vancouver-Beijing (daily), Vancouver-Shanghai (daily)and Toronto-Beijing (four/week). The carrier has announced plans to increase passenger services toChina under the new agreement including:

§ Increase in Toronto-Beijing service to daily flights by 2006

§ Start daily Toronto-Shanghai service by summer 2006

§ Start daily Vancouver-Guangzhou service by summer 2007

Other Canadian carriers including Harmony Airways, Air Transat, CargoJet and All Canada Expresshave also expressed interest in serving China. Harmony in particular has been promoting its intentionto become a major carrier from Canada to China.

This new bilateral air services agreement, combined with the recent designation of Canada as anapproved destination by China, will facilitate Canada’s access to the fast growing Chinese market, amarket forecast to grow to 100 million annual outbound tourists by 2020.


Jane Ha

Manager, Customer Research Services

PASSENGER SURVEY RESEARCH:FULL SERVICE CARRIERS VS LOW COST CARRIERS12 May 2005

Passenger survey research can provide valuable insights into an airport’s passenger base. One topicof interest is the difference in behaviour among passengers travelling on full service airlines(FSAs, e.g., Air Canada) versus those flying on low cost carriers (LCCs, e.g., WestJet). Results fromthe 2004 Customer Satisfaction & Benchmarking Program among 12 Canadian Airports Council SmallAirports reveal a number of interesting differences between the two passenger groups.

Method of Ticket Purchase. Passengers travelling on LCCs are less likely to purchasetheir tickets through a travel agent (17% vs. 30%) and more likely to book their flight through an airlinewebsite (42% vs. 30%).

Full Service Carriers Low Cost Carriers

Airline website 30% 42%

Directly with airline(telephone, personal visit) 13% 19%

Travel agent office 31% 17%

Travel agent website 5% 3%

Internet travel site 8% 9%

Other 13% 10%

Incidence of Purchase. Results also show that passengers flying on LCCs are slightly morelikely to make a purchase at the airport relative to those travelling on FSAs. This holds true for bothfood/beverage and retail purchases, although the differences are not statistically significant.


Made a Purchase 27% 31%

Food/Beverage 22% 24%

Retail 7% 11%

Incidence of Greeters/Well-wishers. Passengers travelling on LCCs are more likely toattract greeters/well-wishers to the airport than those flying on FSAs, especially for arrivingpassengers.

% of Passengers withMeeters/Greeters


Total Passengers 46% 55%

Arriving Passengers 55% 64%

Departing Passengers 38% 45%


Angelica Sparolin

Research Manager

TICKET DISTRIBUTION UPDATE:SHIFTS IN ONLINE SALESMay 2005

Shift to Carrier Websites. Online air ticket sales are continuing to grow. This is good newsfor air carriers as online distribution costs are significantly lower than traditional channels. Even betternews for carriers is that consumers are shifting towards purchasing tickets directly from the carriers’websites rather than from online agencies such as Expedia and Travelocity. A recent studyconducted by PhoCusWright showed that while the majority of online travel consumers in the US stillbelieve that online agencies have the lowest prices (45%), this is down from 59% in 2002.1 Incontrast, the percentage of online travel consumers who believe that carrier sites have the cheapestprices has risen from 14% to 38%. This may in part be related to booking fees now charged by manyonline agencies (e.g., Expedia charges $5 and Travelocity charges $10 per flight booking).Additionally, a number of air carriers have recently announced lowest fare guarantees. For example,Continental Airlines is offering a refund on the difference plus a travel voucher in the amount of $100if consumers are later able to find the same Continental ticket offered by an online agency for at least$5 cheaper than on the Continental website. Both United Airlines and American Airlines offer asimilar deal with a $50 voucher.

The PhoCusWright study also estimated that 61% of US online airline ticket sales are now madedirectly on carriers’ websites. Data for Canada was not available, but the recent Canadian surveyresults from Ipsos-Reid (2003) show that online agencies remain popular in Canada. Three of the topfour most popular online travel websites are still online agencies: Expedia (18%), Travelocity (13%),Air Canada (12%) and CAA or local automobile association (11%). However, these results includenot only air travel purchases, but hotel, car rental, cruise and other travel services. Use of onlineagencies will likely remain strong for consumers looking for package deals and a wider range of travelservices.

Business Traveller Shift. Further shifts in online sales appear to be taking place amongstbusiness travellers. A survey of 550 US business travellers conducted by Accenture found that in2004, 71% booked their business travel primarily online.2 Only 22% preferred to book via thetelephone with a travel agent, down from 36% in 2003. Air Canada seems to be trying to takeadvantage of this shift with a new service aimed at online business travel sales. On May 3 the carrierannounced that it was introducing self-service online business management accounts to book, trackand monitor travel trends and expenditures for small to medium size businesses.

Travelocity: Live Agents. An interesting shift in strategy for online agency Travelocity isthe introduction of over 1,000 live agents which can be reached by phone to deal with any problemsthat arise with a booking. This service was introduced as part of a new customer bill of rights whichaims to correct any problems that may go wrong with a trip.

1 “Online travel giants still rule the roost” MSNBC, April 12, 2005.2 “About 75% of US business travellers use the Internet as their primary means for arranging their businesstravel” Eye for Travel, March 31, 2005.


-10%

0%

10%

20%

30%

40%

Apr-04

May Jun July Aug Sep Oct Nov Dec Jan-05

Feb Mar Apr

Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

-15%-10%-5%0%5%

10%15%20%

Apr-04


Feb Mar Apr

Dom RPK Dom ASK

Air Canada Domestic Mainline Air Canada Domestic Mainline

Jazz data is not includedin this graph

AIRLINE DATA – CANADATraffic and Load Factors on Canada’s Major Air CarriersApril 2005

Passenger TrafficRevenue Passenger Kilometres

CapacityAvailable Seat Kilometres Load Factor

Air Carrier % Changeover 2004

% Changefrom 2003

% Changeover 2004

% Changefrom 2003

Changeover 2004

Changefrom 2003

Air Canada1 +4.7% +28.1% +1.1% +10.6% +2.8 pts(to 80.5%) +10.9 pts

Domestic(Mainline)

+4.7% +22.9% -1.7% +2.5% +5.0 pts +13.5 pts

Jazz +17.0% +31.7% -1.4% +7.7% +9.4 pts +12.8 pts

International& Charter

+4.7% +30.4% +2.3% +14.4% +1.9 pts +9.8 pts

WestJet +35.0% +77.1% +28.5% +68.7% +3.3 pts(to 68.8%) +3.2 pts

Analysis:

§ Air Canada and WestJet traffic continueto be strong due to Jetsgo’s demise inMarch 2005.

§ Air Canada marked the thirteenthconsecutive month of record system anddomestic load factors in April 2005 asdomestic capacity continues to bereduced while traffic increased.

§ In April 2005, Air Canada’s internationaltraffic and capacity increased comparedto the same month in 2004 and 2003 asthe demand for international travelcontinues to show strength over the past12 months. Atlantic and Pacific trafficincreased by 3.4% and 8.4%respectively.

§ For five straight months, WestJet’s growthin traffic outpaced the addition of capacityin April 2005, resulting in an improvedload factor.

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

OTHER CARRIERS:

LOAD FACTORS

CanJet: not reported

0%

10%

20%

30%

40%

50%

60%

Apr-04


Feb Mar Apr

RPK ASK

WestJetWestJet


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

Traffic Data – April 2005

Airline Load FactorTraffic

(RPMs – millions)Capacity

(ASMs – millions)

77.4%

á2.5 pts

11,306

á4.5%

14,600

á1.1%

69.8%

á1.7 pts

647

á26.1%

927

á22.9%

63.2%

â13.1 pts

501

â55.6%

793

â46.5%

180.0%

á2.0 pts

3,249

á1.0%

4,060

â1.5%

76.4%

á2.1 pts

10,013

á7.3%

13,110

á4.3%

87.3%

á1.0 pts

1,625

á26.6%

1,863

á25.1%

81.2%

á1.0 pts

6,336

á8.2%

7,805

á6.9%

69.1%

á0.1 pts

4,807

á2.5%

6,961

á13.2%

280.1%

á0.2 pts

9,049

â3.8%

11,299

â4.0%

275.9%

â3.9 pts

3,472

â0.2%

4,576

á5.0%

Notes: 1. Mainline2. Load factor includes scheduled service only

Sources: Carrier traffic reports.

InterVISTAS’ Canadian Aviation Intelligence ReportMay 2005 Copyright ©2005 InterVISTAS Consulting Inc., all rights reservedPage 6

Toronto Vancouver Montréal-Trudeau

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

March +9.3% +5.2% +21.4% +2.0% +8.0% +11.4% +11.4% +9.0% +8.2% +2.6% +10.8% +3.9% +21.3%

1st Quarter +6.8% +4.8% +17.1% +3.7% +8.8% +9.7% +9.9% +6.1% +10.5% + 6.5% +5.3% +5.0% +18.0%

April +30.6% +20.5% +31.7% +11.5% +8.6% +20.8% +11.2% +16.9% +12.7% -0.3% +10.9% +2.6% +20.1%

May +30.8% +20.4% +26.3% +5.5% +7.5% +7.6% +9.0% +19.4% +8.0% -1.3% -0.3% -5.5% +15.2%

June +18.5% +16.1% +18.1% +8.0% +2.8% +12.1% +9.2% +7.8% +8.6% +3.0% +1.7% -4.3% +15.9%

2nd Quarter +26.2% +18.8% +24.9% +8.3% +6.2% +13.2% +9.7% +14.5% +9.7% +0.5% +3.8% -2.5% +16.9%

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

August +16.0% +4.9% +18.1% +1.9% +2.2% +6.2% +7.4% +6.9% -2.0% -5.9% +5.4% +1.5% +10.1%

September +16.1% +11.5% +13.2% +13.0% +6.3% +7.9% +8.8% +8.6% +8.3% +12.1% +5.3% -0.6% +13.4%

3rd Quarter +16.4% +8.7% +16.7% +6.2% +2.9% +6.6% +8.2% +8.6% +3.3% +1.1% +5.4% +0.8% +11.2%

October +14.3% +7.0% +10.7% +10.7% -4.0% +11.9% +1.1% +3.7% -1.4% +9.1% +7.9% +1.9% +18.2%

November +13.3% +6.2% +17.6% +9.6 +4.7% +11.4% +4.4% +8.3% +0.3 +5.1% +8.0% -11.1% +9.9%

December +14.2% +6.8% +20.9% +8.9% +8.4% +11.0% +5.1% +8.0% +2.1% +3.9% +8.1% +3.6% +6.8%

4th Quarter +14.0% +6.7% +16.1% +9.7% +3.1% +11.4% +3.5% +6.4% +0.3% +5.9% +8.0% -2.1% +11.9%

2004

Full Year +15.7% +9.6% +18.6% +7.0% +5.1% +10.2% +7.7% +9.1% +5.7% +3.6% +5.6% +0.3% +14.0%

January +15.0% +9.8% +14.4% +13.2% +9.6% +12.9% +13.6% +6.6% +4.7% +12.4% +17.7% +9.7% +11.9%

February +8.7% +4.5% +4.0% +10.2% +7.8% +5.5% +7.0% +4.5% +7.1% +15.8% +10.4% +8.5% +1.5%

March +10.9% +8.2% +5.1% +17.5% +12.5% +7.3% +9.7% +6.6% +15.4% +19.5% +19.1% +22.2% +19.6%

2005

1st Quarter +11.5% +7.5% +7.6% +13.7% +10.0% +8.4% +10.0% +5.9% +9.3% +16.0% +15.6% +13.3% +11.5%Source: Transport Canada and individual airports’ traffic reports.

If your airport is interested in providing InterVISTAS Consulting Inc. with its monthly passenger statistics, please email Doris Mak at [email protected]

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

Expanded Origin & DestinationMarket Data for all Top Markets

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

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

Identify True Origin & DestinationFlows

• Quantify city-pair market sizes for airservice development initiatives

Analyse Hub Activity & Routings

• Identify key routing patterns to supportair service proposals

Understand Competition withinAirport Catchment Areas

• Quantify traffic leakage to determinetrue market sizes

For more information, contact:

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

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

InterVISTAS Consulting,

in conjunction with the

International Air Transport

Association and other

suppliers, is offering a unique ,

and newly enhanced data

product that provides passenger

market sizes, travel routings and

fare profile data

for domestic, transborder and

international markets.

InterVISTAS Consulting Inc.550-1200 West 73rd Avenue,

Vancouver, BC, V6P 6G5Canada

Telephone: 1-604-717-1800Facsimile: 1-604-717-1818

E-mail: [email protected]

New!

New!


NEWS ARTICLESAIR CANADA NEWSAIR CANADA MODERNIZES FLEET WITHB777S AND B787 DREAMLINERS

On 25 April 2005, AirCanada announced

its wide-body fleet renewal plan, which includesup to 36 Boeing 777s and up to 60 Boeing 787Dreamliners. The plan includes firm orders for18 Boeing 777s and purchase rights for 18 moreplanes. Deliveries for the 777s are scheduled tobegin in 2006, with the arrival of three 777-300ERS. The new 777-300ERS will be used onthe airline’s Vancouver-Tokyo service. Firmorders for 14 B787 Dreamliners with options topurchase rights for an additional 46 planes, arealso reported. The first 787 is slated for deliveryin 2010.

ACE AVIATION HOLDINGS REPORTSCDN$10 MILLION OPERATING LOSS INFIRST QUARTERACE Aviation Holdings Inc., parent companyof Air Canada, reported an operating loss ofCDN$10 million in the first quarter of 2005,compared to an operating loss beforereorganisation and restructuring items ofCDN$145 million in the same quarter last year.Net loss for the quarter was CDN$77 million,compared to CDN$304 million in 2004. ACEhad a consolidated cash balance ofapproximately CDN$2.1 billion as of 11 May2005.

AIR CANADA OFFERS SIMPLE ONLINEBOOKING FOR SMALL BUSINESSESAir Canada has established new online self-service booking tools aimed at simplifying thebooking process for small and mediumbusinesses. The tools will allow businesses tobook, track, and monitor travel trends andexpenditures for their business.

OTHER CANADIAN AIRLINENEWSJETSGO DECLARES BANKRUPTCYJetsgo has declared formal bankruptcy and thecarrier’s remaining assets including 10 Fokker-100 aircraft will be sold as the company isliquidated. The carrier’s restructuring plan didnot satisfy creditors who are owed aboutCDN$108 million. Following the carrier’sdeclaration of bankruptcy, Transport Canadahas cancelled Jetgo’s air operator certificate.

TRANSAT A.T. INC. ACQUIRESINTEREST IN TRIPCENTRAL.CA

Transat A.T. Inc., throughConsultour Inc., a wholly ownedsubsidiary of Transat, hasacquired controlling interest in

Hamilton, ON based Travel Superstore Inc.Travel Superstore Inc. operates 10 travelagencies and a travel website known astripcentral.ca. The website has developed anew approach to marketing vacation travelservices by integrating the services of theInternet, a call centre with several sales outlets,and its skilled travel consultants.

SKYSERVICE ADDS TWO B767-300AIRCRAFT TO FLEET

Skyservice has addedtwo B767-300 aircraft to

its fleet of 25 aircraft. The aircraft will be usedfor flights from Toronto to the United Kingdom,Portugal, Italy and Croatia in the summer andfrom Vancouver to the Caribbean and Mexico inthe winter.

WESTJET REPORTS LOSS IN FIRSTQUARTER 2005

WestJet reported a $9.6 millionloss in net earnings for the first

quarter of 2005 compared to $512,000 profit inthe same quarter last year. Operating revenuesincreased 36% to $295 million. Capacity for thequarter increased 31% and RPMs increased by42%. WestJet reasons that intense competition,high fuel costs and a low-yield environmentcontributed to declines in earnings.


NEWS ARTICLESOTHER CANADIAN AIRLINENEWS – CON’T

WESTJET REPORTS LOSS IN FIRSTQUARTER 2005WestJet reported a $9.6 million loss in netearnings for the first quarter of 2005 comparedto $512,000 profit in the same quarter last year.Operating revenues increased 36% to $295million. Capacity for the quarter increased 31%and RPMs increased by 42%. WestJet reasonsthat intense competition, high fuel costs and alow-yield environment contributed to declines inearnings.

WESTJET ADDS TO SUMMERSCHEDULEWestJet has announced increases in itssummer schedule, which includes 66 additionalnon-stop flights per week between cities andthroughout its network. Vancouver, Calgary,Toronto, Halifax, Moncton, Windsor, London andComox will experience increases in capacity.

WESTJET TO LAUNCH SEASONALCHARLOTTETOWN SERVICEBetween June 18 and 15 September 2005,WestJet will be adding seasonal all-jet serviceto Charlottetown. The carrier will offer dailyCharlottetown-Toronto service and dailyconnecting service between Charlottetown-Calgary, and Charlottetown-Abbotsford. Inaddition, one-stop service is available six days aweek between Charlottetown-Vancouver, withconnecting service between Charlottetown-Edmonton, and Charlottetown-Montreal.

WESTJET TERMINATES NEW YORKSERVICEAfter less than a year of service, WestJet willterminate flights to New York La Guardia on 4July 2005. The carrier’s decision to end servicewas the inability to secure gates at La Guardia.The aircraft will be used for a daily Toronto-Victoria flight this summer.

CANADIAN AIRPORTSWINNIPEG AIRPORTS AUTHORITYREPORTS INCREASE IN Q1 RESULTS

The WAA reported operatingrevenues of $9.6 million for Q12005,up 8.4% from the same period last

year. Airport Improvement Fee revenues for thequarter totalled $5.0 million, while the airport’srestricted capital fund is approximately $26.9million.

CARGO NEWSAIR CANADA LAUNCHES TORONTO-SHANGHAI CARGO SERVICESAir Canada has started three times weeklycargo services between Toronto and Shanghai.The flights are operated with MD-11 aircraftwhich has a cargo capacity of 84 tonnes. AirCanada is currently the only carrier operatingdirect freighter services between Canada andChina.

WORLD AIRWAYS SIGNS DEAL WITHAIR CANADA

A $44 million wet-leasecontract between World

Airways and Air Canada has been signed forinternational cargo services between Torontoand several cities in Asia, and between Torontoand Europe. The two-year agreement allowsWorld Airways to operate a MD-11F aircraft forAir Canada starting in May. In addition, AirCanada has extended its lease agreement withGemini Air Cargo to operate over the NorthAtlantic for an additional two years beginningMarch 1. Air Canada will offer a Toronto-Frankfurt five time weekly all-cargo service.

CARGOLUX REPORTS STRONGPROFITS FOR 2004

Cargolux reported revenuesof US$1.2 billion at year end

2004, up 26% from last year. Operating profitincreased 24% to US$81 million, while net profitincreased 18% to US$84 million. The companycarried approximately 595,000 tonnes of freightin 2004, 17% increase from 2003.


NEWS ARTICLESCARGO NEWS – CON’TNEW CARGO INFRASTRUCTURE INHAHNFrankfurt-Hahn airport will be investing in newcargo infrastructure. The airport recentlyresurfaced its 3,400 metre runway, has installedILS Category IIIa approach aids and has addedhigh-speed taxiways. The airport’s board ofdirectors has also approved a US$52 millionrunway extension to 3,800 metres. Completionof the runway extension is slated for mid 2006.

DHL INTRODUCES NEW U.S.-CHINASERVICE

DHL will offer two new directovernight express services

between Shanghai and the U.S. and betweenBeijing and Hong Kong. The Shanghai-U.S.flights will be operated by Northwest Airlineswith a B747-200 freighter. The four timesweekly Beijing-Hong Kong service will beoperated by Cathay Pacific using an A330-200passenger aircraft.

OTHERNAV CANADA CONTRACT AWARDEDTO NICE SYSTEMS

Nav Canada has awarded a$2.8 million contract toIsrael’s Nice Systems. Under

the terms of the contract, Nice Systems will offeradvanced interaction management tools to 70Canadian air traffic control sites. This projectwill be completed by the end of this year.

GOVERNMENT OF CANADA FUNDSBOMBARDIER JET SALEThe Government of Canada will provide loansworth US$230 million to Delta’s regional carriersComair and Southeast Airlines for the purchaseof Bombardier jets. The loan is the secondtransaction under a US$960 million cash facilityset up in July 2003 by the Government as partof the “Canada Account” to help the aerospacesector sell planes.

GOVERNMENT OF MANITOBAPROVIDES MUNICIPAL AIRPORTFUNDING

Thirty-three Manitobamunicipal airports will receive$76,200 in grants. The funding

will ensure the maintenance of safe operationsand enhancement of facilities. The annualManitoba Airports Assistance Program willprovide operating grants of $2,400 for airportswith paved runways and $1,200 for facilities withunpaved runways.

PEOPLE IN THE NEWSTRANSPORT MINISTER ANNOUNCESVIA RAIL APPOINTMENTSMr. Michel Crête and Mr. Steven M.Cummings have been appointed to the board ofdirectors of VIA Rail Canada Inc. Mr. Crête

currently providesconsulting services to theGovernment of Canada

while Mr. Cummings is currently president andCEO of Maxwell Cummins & Sons HoldingLimited.

AER LINGUS APPOINTS NEW CEODermot Mannion has beenappointed the new CEO of AerLingus. Previously thePresident of Group SupportServices for Emirates,Mannion will focus on

continuing Aer Lingus’ low-fare strategy.

If your organization has any personnelannouncements, please email Rob Beynon [email protected]


AircraftSeating

CapacityMaximum

Range (nm)787-300 296 3,500787-800 223 8,500787-900 259 8,300767-200 181 6,600767-300 218 6,100767-400 245 5,650

A330-200 253 6,750A330-300 295 5,650

John Weatherill

Manager,Airline Planning

THE BOEING 787 DREAMLINERMay 2005

Creating New Market OpportunitiesMomentum appears to be building for the 787 Dreamliner, Boeing’s first new aircraft since thelaunching the 777 in 1990. In the past few weeks, new orders have been announced by KoreanAirlines, Air Canada and Northwest Airlines, bringing the order book to over 250 units from 20 airlines.The 787 seems to be emerging as a favourite over the Airbus A350 – an A330 derivative which hasyet to be officially launched.

The 787 will come in three series, the–300, –800 and –900, with the latter twointended for long haul operations. Three-class seating configurations and designranges put these planes in competition withthe Boeing 767 and Airbus A330 families,as shown at right.

As we move towards the first deliveries ofthe 787 in 2008, it is useful to examine whatimpacts this aircraft will have on airlines andon global air services.

787 Dreamliner BenefitsRange. The 787 offers several critical benefits to the airlines that will operate it. First, the –800 and –900 variants are medium-sized aircraft designed with a maximum range of over 8,000 nautical miles;this is comparable to the much larger 777, 747 and A340 aircraft families. As the table abovedisplays, current mid-sized aircraft are limited to about 6,600nm. This opens up a huge number ofpotential non-stop routes which are too long for existing 767/A330 aircraft, but too small for the largerjets in the market to serve profitably.

Cost. Combined with the increased rangeis a lower cost base. On a unit (availableseat mile) basis, Boeing estimates fuel andmaintenance costs to be 20% below peeraircraft, with overall cash operating costs10% lower (although manufacturerestimates should always be taken with agrain of salt). Purchase pricing is said tobe comparable to existing mid-sizedaircraft.

Revenue. The 787 will be composed of 50% composite materials, adding strength and durability tothe frame, and allowing improvements in passenger comfort such as larger windows, higher cabinhumidity and wider seats and aisles. By offering new non-stop services and increased passengercomfort, airlines should be able to recognise a yield premium with the 787.


THE BOEING 787 DREAMLINER –CON’TAir Service ImplicationsThe combination of longer range and lower costs is a powerful one. For the first time, an aircraft willbe available to serve very long, thin markets, such as London-Perth or Montreal-Tokyo, which arecurrently only served with connecting flights. The figure below shows the range limits for the 787-800and 767-400 from New York City, and illustrates the significant range improvement of the new aircraft.When Continental takes delivery of their first 787-800, non-stop flights from their Newark hub toJohannesburg, Dubai, Delhi, Auckland and many other cities would be possible with a mid-sizedaircraft.

Even within the range limits of the 767, the 787 can offer significant benefits. With a lower unit costthan peer airliners, the 787 can make non-stop flights viable on thinner routes, including secondarymarkets that cannot currently be served profitably. Consider a North America – Eastern Europeservice, which may not have the market size to support a 767-400 operation. With its lower trip costsand fewer seats, it is estimated that the breakeven load factor for a 787-800 would be five percentagepoints lower than the 767. This translates into 20 fewer passengers per flight required to make theservice viable.

This type of improvement could allow airlines to offer additional frequencies on current routes, andcould result in new, sustainable air services on routes which are currently considered marginal. Forthe first time, scheduled long haul international air service could be achievable for hundreds of cities.

Planning for the 787Although delivery of the first 787 is not scheduled until 2008, airports and communities should beginexamining the implications of this aircraft on their long range air services. Given the extendedplanning cycle required for international services, communities should start laying the researchgroundwork necessary to quantify and communicate these new air service opportunities to thegrowing list of airlines that will operate the 787 Dreamliner.


AIRPORT BEST PRACTICES5 May 2005

This month, InterVISTAS introduces a new feature to the Canadian Aviation Intelligence Report, acolumn which will focus on best practices in the aviation industry.

YVR’s Community Consultation for its Master PlanVancouver International Airport Authority is preparing its newMaster Plan, which will guide the development of YVR from 2007 to2027. Under the Direction of Michael O’Brien, the AirportAuthority’s Vice President of Strategic Planning and LegalServices, YVR is looking at a 40-year horizon to provide thecontext, direction and long-term thinking required to make near-

term decisions that do not preclude future choices. The Airport Authority is using a sustainabilityframework, integrating governance, economic, environmental and social considerations into theplanning process.

What is perhaps the most interesting aspect of YVR’s planning process is the degree and type ofcommunity consultation it is undertaking. YVR has not produced a draft master plan, as yet. Instead,it has started a dialogue with stakeholders and the community regarding long-term trends and whatthese might mean for the airport over the next 40 years. It has sketched out a few options for airportdevelopment, but they are literally sketches, not a part of the Master Plan, as yet. The trends theyare looking at include population/demographic trends, trends in environmental impacts of aviation andvalues in the community, the role of the airport in the region’s economic development, trends intechnology, etc.

Forum 44. The consultation process began in the fall of 2004 with Forum ‘44, a two-dayconference involving community, business and government leaders. At Forum ‘44, one of thespeakers, noted youth environmentalist Severin Cullis-Suzuki, observed that she may be the only oneat the forum who would actually be using the airport in 2044. From this, YVR organised a YouthForum in April 2005. The forum invited youth from around the Province of BC, representing differentelements of society, to seek their views on long-term airport development.

Regional Consultation. Also in April 2005, the consultation process moved beyond theimmediate Vancouver area to embrace stakeholders throughout British Columbia. YVR serves as agateway to BC, and regional communities are affected by the development (or lack of development)of YVR. For example, one issuethat YVR put to the audience waswhether development of regionalservices should be via the mainterminal or via the more convenientSouth terminal.

Based on the dialogue, YVRexpects to produce a draft masterplan, which will then go out toextensive consultation. Moreinformation is available fromwww.yvr.ca.

Rob Beynon

Director,Airport Marketing


AIRPORT RENTS: THE DETAILS10 May 2005

Two Components of Benefits. On 8 May 2005, Transport Minster Jean-C. Lapierreannounced a program of rent relief for Canada’s airports. The rent relief has two components:

§ Reduced rent for each of the 21 rent paying airports in the National Airport System (NAS).

§ Cancellation of any remaining payments for chattels from NAS airports.

The chattels forgiveness is an important benefit for 12 NAS airports who collectively still owed $22million over a period ending in 2014. The largest beneficiary is Prince George ($4.2 million) followedby Gander ($3.4 million). The largest airport in this group is Halifax ($1.3 million), with benefits to anumber of small airports, such as Charlottetown and Saint John. There are beneficiaries in 8 of the10 provinces.

The rent reduction announcement follows several years of intense lobbying by the airports, theircommunities and stakeholders, the airlines, the tourism industry and, some pundits would say, theTransport Minister himself (with the Minister of Finance being the lobbying target).

Justification. The underlying justification for the rent reductions comes from TransportCanada’s review of rents, which began in June 2001. The review was the result of comments in 2000by the Auditor General, as well as pressures from the airports and airlines. The rent reductionannouncement essentially indicated that the rent review found that rents paid by the Canadian NASairports were excessive when compared to public utilities and to foreign airports that had beenprivatised. That comparison suggested that the appropriate level of rents should have been $5 billion(in net present value, NPV), rather than $13 billion.

The big picture. The announcement focused on the big picture, but the devil is in the details.The big picture is that every one of the 21 airports will eventually enjoy reduced rent. The scale of therent reduction is large: a 60% reduction in net present value of rents to be paid over a 58 year period -from an estimated $12.9 billion in NPV to $5.1 billion, for a total reduction of $7.8 billion.

Limited benefit for next few years. Now the details. The reduced rent is phased inslowly until FY2011, as thediagram shows. The benefits,although small, do begin in thecurrent fiscal year. Beginning inFY2012, there is a big increase inbenefit, largely due to rent relieffinally being extended to Toronto.Essentially, the rent reliefprogram keeps the impact on thefederal treasury low for next fewyears. Some might say thegovernment is providing relief forfuture amounts it has not yet worked into its budget.

More Equitable. The new rent formula (see next page) is simple, transparent, and eliminatesanomalies where airports of similar size paid very different rent.

Michael Tretheway

Executive Vice President


Toronto Rent Payments

AIRPORT RENTS: THE DETAILS – CON’TToronto. However, Toronto receives almost no rent reduction in the first six years. In fact, theGreater Toronto Airport Authority was quite critical of the rent relief announcement. Not only does itreceive little in the way rent reduction until 2012 (its rents will go up in 2006!), it criticised the newformula for essentially charging rent on revenues required to pay for property taxes (technically,payments in lieu of taxes), capital construction costs, and interest payments on debt required for newconstruction.

According toGTAA, it iscurrently paying43% of total airportrent payments inCanada but thiswill eventuallygrow to 66%. Aswell, the GTAAcriticised thecontinuingcompetitiveimbalance, as U.S.

airports with which it must compete pay no rents and are often subsidised by their governments.GTAA has vowed to continue to press for rent relief for Toronto International Airport.

Others. Many of the other airport authoritieswelcomed the rent relief announcement. Airports withless than $5 million in annual revenues will pay no rents,and the graduated scale of rent payments will keep rentsdown for most small and mid sized airports. Thegraduated rent scale (see box) works much likeprogressive income tax schedules – as you earn more,the percent you pay increases with each income bracket.

The table and selected graphs on the following pagesprovides detail for each affected airport on the rents it willand would have paid.

Assessment. Overall, this is an important step formost of Canada’s airports. The principle argued by theairport authorities and their stakeholders that rentpayments were not equitable among the NAS airportshas been accepted, as was the argument that the levelof rent payments was excessive. The Ministers(Transport and Finance) and the Transport Canada staffare to be credited with making this important first step.The deferral of rent relief at Toronto, on the other hand, is of great concern. It is the hub major for AirCanada and an important point in the networks of WestJet and CanJet.

New Airport Rent Formula

Gross Revenue(millions pa)

Rent Paid

On the first $0 to$5

0%

On the next $5million

1%


(total $25)5%


8%


10%

Any amount over$250 million

12%


AIRPORT RENTS: THE DETAILS – CON’TCanadian Airport Rents and Savings Under New Rent Formula

Airport Rent 2006 2010 2015 2020 TotalOld Formula $337 million $390 million $818 million $1.2 billion $12.9 billion

New Formula $289 million $214 million $274 million $0.3 billion $5.1 billion

All A

irpor

ts

Savings $48 million $176 million $544 million $0.9 billion $7.8 billion

Old Formula $147 million $161 million $491 million $785 million $8 billion

New Formula $144 million $135 million $173 million $198 million $3 billionTo

ront

o

Savings $3 million $26 million $318 million $587 million $5 billion

Old Formula $81 million $99 million $125 million $151 million $2.0 billion

New Formula $75 million $30 million $ 41 million $ 51 million $0.9 billion

Vanc

ouve

r

Savings $ 6 million $69 million $ 84 million $100 million $1.1 billion

Old Formula $23 million $33 million $84 million $96 million $1.0 billion

New Formula $19 million $23 million $25 million $31 million $0.5 billion

Mon

treal

Savings $4 million $10 million $59 million $65 million $0.5 billion

Old Formula $47 million $51 million $54 million $57 million $809 million

New Formula $24 million $10 million $15 million $17 million $305 million

Calg

ary

Savings $23 million $41 million $39 million $40 million $504 million

Old Formula $13.2 million $17 million $21 million $24 million $332 million

New Formula $12.5 million $4 million $4 million $5 million $112 million

Otta

wa

Savings $0.7 million $13 million $17 million $19 million $220 million

Old Formula $13 million $14 million $15 million $15 million $192 million

New Formula $4 million $5 million $7 million $8 million $103 million

Edm

onto

n

Savings $9 million $9 million $8 million $7 million $89 million


New Formula $3.89 million $4 million $ 5 million $ 6 million $ 81 million

Win

nipe

g

Savings $0.03 million $2 million $ 5 million $11 million $ 83 million


New Formula $4.2 million $3 million $3 million $4 million $63 million

Halif

ax

Savings $0.3 million $2 million $5 million $7 million $56 million

Old Formula $1.2 million $1.8 million $1.9 million $2.3 million $23 million

New Formula $1.1 million $0.4 million $0.5 million $0.7 million $11 million

Vict

oria

Savings $0.1 million $1.4 million $1.4 million $1.6 million $12 million



Airport Rent 2006 2010 2015 2020 TotalOld Formula $0 $1.45 million $2.64 million $2.7 million $18 million

New Formula $0 $0.04 million $0.04 million $0.1 million $2 million

Qué

bec

Savings $0 $1.41 million $2.60 million $2.6 million $16 million

Old Formula $578,000 $628,000 $1.2 million $2.2 million $17.0 million

New Formula $207,000 $338,000 $0.6 million $0.8 million $ 8.3 millionSt

Joh

n’s

Savings $371,000 $290,000 $0.6 million $1.4 million $ 8.7 million

Old Formula $680,000 $742,000 $968,000 $1.2 million $10.7 million

New Formula $49,000 $135,000 $222,000 $0.4 million $3.7 million

Regi

na

Savings $631,000 $607,000 $746,000 $0.8 million $ 7.0 million

Old Formula $678,000 $737,000 $814,000 $899,000 $7.6 million

New Formula $45,000 $99,000 $217,000 $340,000 $2.8 million

Sask

atoo

n

Savings $633,000 $638,000 $597,000 $559,000 $4.8 million

Old Formula $331,000 $459,000 $743,000 $1.06 million $7.6 million

New Formula $12,000 $21,000 $35,000 $0.05 million $0.7 million

Thun

der

Bay

Savings $319,000 $438,000 $708,000 $1.01 million $6.9 million

Old Formula $0 $0 $0 $1.5 million $7.5 million

New Formula $0 $0 $0 $0.3 million $2.4 million

Mon

cton

Savings $0 $0 $0 $1.2 million $5.1 million

Old Formula $0 $32,000 $722,000 $817,000 $5.3 million

New Formula $0 $26,000 $33,000 $49,000 $1.1 million

Lond

on

Savings $0 $6,000 $689,000 $768,000 $4.2 million

Old Formula $0 $0 $636,000 $705,000 $4.3 million

New Formula $0 $0 $39,000 $60,000 $1.0 million

Prin

ceG

eorg

e

Savings $0 $0 $597,000 $645,000 $3.3 million

Old Formula $0 $0 $0 $636,000 $3.4 million

New Formula $0 $0 $0 $47,000 $0.5 million

Gan

der

Savings $0 $0 $0 $589,000 $2.9 million

Old Formula $0 $0 $0 $345,000 $1.4 million

New Formula $0 $0 $0 $ 22,000 $0.3 million

Fred

eric

-to

n

Savings $0 $0 $0 $323,000 $1.1 million



Airport Rent 2006 2010 2015 2020 TotalOld Formula $0 $0 $0 $270,000 $1.1 million

New Formula $0 $0 $0 $12,000 $0.1 million

Sain

t Joh

n

Savings $0 $0 $0 $258,000 $1.0 million

Old Formula $0 $0 $0 $304,000 $984,000

New Formula $0 $0 $0 $11,000 $187,000Ch

arlo

tteto

wn

Savings $0 $0 $0 $293,000 $797,000

Source: Transport Canada: Airport Rent Policy Fact Sheets http://www.tc.gc.ca/air/airport-rent/ fact.htm

Vancouver Rent Payments

Calgary Rent Payments

Gander Rent Payments

Winnipeg Rent Payments


Sam Barone

Regional Vice PresidentOttawa, ON

THE OTTAWA REPORTMay 2005

Canada-China Bilateral Air Agreement AnnouncedOn 19 April 2005, a new and expanded bilateral air transport agreementbetween Canada and the People’s Republic of China was announced. Thenew pact allows a threefold increase in passenger and cargo flights. As well,the agreement contains strong aviation safety and security provisions. As aresult of the agreement, Air Canada, Cargojet and Harmony Airways intend tointroduce new passenger and cargo services. Air Transat and All CanadaExpress have also expressed an interest in serving China.

Audit of Canada’s Aviation Security SystemBeginning May 2005, Canada’s aviation security system will undergo an audit under the InternationalCivil Aviation Organization’s (ICAO) Universal Security Audit Programme. The audit focuses onlegislation, policy, regulation, organisational arrangements and security measures being carried outby airports. Results of the audit will help Canada identify key areas for continued improvement inaviation security.

Official Language Protection LegislationOn 2 May 2005, the Transport Minister announced the amendment of the Air Canada PublicParticipation Act, which outlined the conditions for the privatisation of Air Canada in 1988. Since AirCanada emerged from bankruptcy protection in September 2004, there were major changes to itscorporate structure. The new legislation will ensure that official language obligations continue to applyto the restructured Air Canada and its former internal divisions and subsidiaries. As well, therequirement to keep the Air Canada head office in Montréal will be extended to ACE AviationHoldings.

Funding Awarded to Greenhouse Gas Emission Reduction Projects inthe Freight IndustryApproximately $1 million in funding provided by Transport Canada’s Freight SustainabilityDemonstration Program will be awarded to seven projects designed to reduce greenhouse gasemissions in the freight industry. Projects range from evaluating the impact of alternative fuels onengine performance to assessing the first commercially available hybrid electric-diesel delivery trucks.Air Canada, Canadian Pacific Railway, FedEx, FIBA Canning, Hudson’s Bay Company, InnovationMaritime, and Saskatoon Diesel Services will receive funding under the program.

Canada Responds to U.S. Lighter BanStarting 26 April 2005, the Canadian Air Transport Security Authority (CATSA) will intercept lighters atU.S. pre-clearance screening points at airports in Montreal, Ottawa, Toronto, Winnipeg, Calgary,Edmonton, and Vancouver. As well, retail establishments will not be allowed to sell lighters in theprotected pre-clearance areas. Passengers flying within Canada or to destinations other than theU.S. will be allowed to carry disposable lighters.


THE WASHINGTON REPORTMay 2005

U.S. – Paraguay Open Skies AgreementSignedOn 2 May 2005, the U.S. and Paraguay signed a full Open-Skies air agreement allowing carriers in the U.S. andParaguay to operate between the two countries without anyrestrictions. The two parties came to an agreement withoutholding formal negotiations. As a result of this, the U.S. nowhas full Open-Skies agreements with 14 countries in theWestern Hemisphere and with 68 countries worldwide.

TSA Phase II of Airport Access Control Pilot Program to BeginOn 25 April 2005, the Transportation Security Administration (TSA) announced the start of Phase II ofthe Airport Access Control Pilot Program. The TSA will test advanced technologies such as videosurveillance, Radio Frequency Identification (RFID) cards, iris scan readers, and hand geometryreaders to enhance access control to secure areas of an airport. Boston’s Logan, New York’s John F.Kennedy, Denver, Orlando and Salt Lake City will be among the airports to pilot the technologies.The technology will be deployed in June 2005 and the pilot program will run through summer 2005.

Appropriates Subcommittee Approves FY06 DHS Spending BillThe House Homeland Security Appropriations Subcommittee approved the fiscal year 2006 fundingbill for the Department of Homeland Security (DHS). The bill provides $30.8 billion for operations andactivities of the DHS. Items of interest include:

§ $19.4 billion for border protection, immigration enforcement, and related activities;

§ $3.6 billion for supporting state and local first responders;

§ $6.4 billion to enhance security for all modes of transportation, with a focus on research anddevelopment of advanced technologies to inspect baggage, passengers and cargo;

§ a cap of 45,000 TSA passenger screeners;

§ the development and implementation of improved air cargo security standards and protocol; and

§ the implementation of a security plan to allow general aviation aircraft to land and take off atRonald Reagan Washington National Airport within 90 days of enactment.

DOT Issues Final 2006 Authority for China MarketsThe U.S. DOT has granted clearance to airlines for service rights to China. American Airlines willoffer Chicago-Shanghai service, while FedEx, Northwest, Polar and UPS will add three weeklyroundtrip flights. Continental, set to begin service on June 15, 2005, will offer a daily non-stop NewYork-Beijing service. The carrier has also applied to DOT for approval to operate New York-Shanghainon-stop service starting March 2007, with online connecting service between Shanghai and pointsthroughout the U.S., Europe and Latin America.

Charles Chambers

Senior Vice PresidentInterVISTAS-ga2 Consulting Inc.

Washington, D.C.


INTERVISTAS NEWSMay 2005

Joe O’Gorman Joins InterVISTAS-ga2 as Associate ConsultantInterVISTAS is pleased to announce that Joe O'Gorman, former Director ofU.S. Preclearance for Customs and Border Protection, DHS, in Washington,D.C. has joined InterVISTAS-ga2 as Associate Consultant, BorderManagement and Security. As an InterVISTAS Associate, Joe O'Gormanwill serve clients in programs for border management, process re-engineering and security.

He has recently completed a 35-year career with the U.S. Government,serving with the U.S. Customs Service, and then U.S. Customs and BorderProtection, for over 33 years. During his tenure as the national Program

Manager for Land Border Passenger Processing, he oversaw the development and installation oflicense plate readers to facilitate vehicle processing and the initial “trusted traveller” programs whichbecame NEXUS LAND.

Earlier in his career with U.S. Customs he managed various programs concerning the processing ofpassengers, cargo, and international mail, and helped develop procedures for clearing internationalexpress consignment shipments.

InterVISTAS Upcoming Speaking Engagements

• June 3: Canadian Airline Investment Conference, Toronto, Ontario.Mike Tretheway, Executive Vice President“The New Industry Model in Canada”

• June 9: National Transportation Summit, Toronto, Ontario.Paul Ouimet, Executive Vice President“Increasing Infrastructure Investment – Getting Goods Moving Faster and Easier with Public-Private Partnerships”

• June 13: ACI Marketing Conference, Calgary, Alberta.Mike Tretheway, Executive Vice President“What’s Next for Airline Market”

InterVISTAS’ Canadian Aviation Intelligence Report is a collection of information gathered from public sources, suchas press releases, media articles, etc., information from confidential sources, and items heard on the street. Thussome of the information is speculative and may not materialise.

To inquire about advertising opportunities or to provide comments/feedback on the InterVISTAS’ Canadian AviationIntelligence Report, please contact Rob Beynon at [email protected] or 1-604-717-1864.

To subscribe, please send an email to [email protected] unsubscribe, please send an email to [email protected].

Prepared by InterVISTAS Consulting Inc.

cair issue no. 29 - may 2005

Documents

china services

new agreement

canadachina air bilateral

new air services agreement

level of canada

previous agreement

passenger flights

canada expresshave