CAIR Issue No. 66 - November 2008

CANADIAN AVIATION INTELLIGENCE REPORT

In this issue…

Features Columns: Regular Reports: • CEO Update (p.1) • Economic Outlook (p.2) • Caribbean Report (p.9) • Asia Report (p.10) • Europe Report (p.11) • Ottawa Report (p.12) • Washington Report (p.14)

• Airline Data - Canada (p.3) • Airline Data – U.S. (p.4) • Selected Canadian Airport

Data (p.5) • News (p.6) • InterVISTAS News (p.15)

InterVISTAS’ Canadian Aviation Intelligence Report November 2008 Copyright ©2008 InterVISTAS Consulting Inc., all rights reserved. Page 1

Gerry Bruno President & CEO



CEO UPDATE November 2008

Welcome to InterVISTAS Consulting Inc.’s November 2008 edition of the Canadian Aviation Intelligence Report (CAIR). This edition marks the final publication for 2008, but the CAIR will return again in January 2009.

InterVISTAS Projects Update The InterVISTAS Group is currently working on a large number of consulting assignments for a broad range of clients throughout the world. A couple of recent projects include:

• Port Metro Vancouver Economic Impact Study InterVISTAS Consulting completed the first economic impact study of the recently amalgamated Port Metro Vancouver (PMV) earlier this month. The study, using a survey based approach, assessed the influence of port-related activities on the Lower Mainland, the Province of British Columbia, and throughout Canada. As the nation’s largest port, PMV is a significant contributor to employment, wages, Gross Domestic Product, and economic output at all levels of the economy.

• Planning Work in Reggane, Algeria for RSW Internationale InterVISTAS has been retained by RSW Internationale to support the planning for the conversion of an airfield in Reggane, Algeria, into an active military base. Our work involves the development of conceptual layouts for aeronautical facilities, along with guidance on support infrastructure location and overall land use advice.

The November CAIR Line-Up Over the past few months, the global economic downturn has been top of mind and the air transport industry has not been immune. The International Air Transport Association (IATA) has reported two consecutive months of decline in global passenger traffic and statistics also show a slowing in air cargo markets. IATA Director General and CEO, Giovanni Bisignani, indicates that recession is the biggest threat to airline profitability. The Economic Outlook in this month’s publication provides some insights into consumer confidence in Canada and the U.S. In addition to the regularly reported airline data, airport data and news stories, the November edition also includes the following regional updates:

Caribbean Report

Asia Report

Europe Report

Ottawa Report

Washington Report

I hope you enjoy this month’s publication and have a wonderful holiday season!


Alex Welch Senior Analyst

ECONOMIC OUTLOOK November 2008

Consumer Confidence Measures of consumer confidence can be a useful indicator of consumer expenditures in the near future. While not necessarily accurate in predictions of economic performance as a whole, the relationship between consumer sentiment and spending means that changes in sentiment can nonetheless have an effect on the economy overall. In general, high levels of consumer confidence signal strong consumer spending, while low expectations of future performance may cause consumers to scale back discretionary spending, particularly large purchases. A look at indicators for the U.S. and Canada shows consumer confidence has exhibited similar trends in the two countries although the magnitude of changes has been more severe in the U.S.

The U.S. Several measures of consumer confidence in the U.S. are collected regularly, including the University of Michigan Consumer Sentiment Index. This index measures consumer sentiment monthly based on a survey of households including views of current conditions and expectations.

U.S. consumer confidence has shown a sharp decline throughout 2007 and the first half of 2008, after reaching a two-year high of 96.9 in January 2007. Specifically, the index decreased from 90.4 in July 2007 to 56.4 in June 2008, its lowest since May 1980. This dramatic decrease can largely be explained by the recent turmoil in the housing and financial markets which has pushed the U.S. into an almost certain recession. Although the index began showing signs of recovery from July to September, it quickly decreased to 57.6 in October 2008, amid renewed fears of a global recession.

Canada. In Canada, consumer sentiment is measured using the Decima-Investor’s Group Index of Consumer Confidence. This index uses methodology closely based on the University of Michigan Index and is considered to provide a comparable measure. The index has been measured roughly quarterly since being introduced in September 2001.

Compared to the U.S., the Canadian index has been relatively stable over the past few years. That being said, it appears that consumer confidence over the past few months has experienced a significant downward trend, although not to the same extent as that in the U.S. Specifically, the index decreased from a 4-year high of 0.88 in June 2007 to 0.72 in May 2008. Of particular interest is the 0.09 unit decrease over the period of February to May of this year, the largest decrease in the index over a three month period since August 2005. It should be noted that the most recent measure of the index is August 2008, thus it remains to be seen whether the slight rebound experienced in the summer months will exhibit the same behaviour as the U.S. index, dropping back to near record low levels.

50

60

70

80

90

100

110

Jan-

04

Apr

-04

Jul-0

4

Oct

-04

Jan-

05

Apr

-05

Jul-0

5

Oct

-05

Jan-

06

Apr

-06

Jul-0

6

Oct

-06

Jan-

07

Apr

-07

Jul-0

7

Oct

-07

Jan-

08

Apr

-08

Jul-0

8

Oct

-08

U.S. Consumer Sentiment

Source: University of Michigan Consumer Sentiment Survey

50

60

70

80

90

100

110

Jan-

04

Apr

-04

Jul-0

4

Oct

-04

Jan-

05

Apr

-05

Jul-0

5

Oct

-05

Jan-

06

Apr

-06

Jul-0

6

Oct

-06

Jan-

07

Apr

-07

Jul-0

7

Oct

-07

Jan-

08

Apr

-08

Jul-0

8

Oct

-08

U.S. Consumer Sentiment

Source: University of Michigan Consumer Sentiment Survey

0.6

0.7

0.8

0.9

1.0

1.1

Feb-

04

May

-04

Aug

-04

Nov

-04

Feb-

05

May

-05

Aug

-05

Nov

-05

Feb-

06

May

-06

Aug

-06

Nov

-06

Feb-

07

May

-07

Aug

-07

Nov

-07

Feb-

08

May

-08

Aug

-08

Canadian Consumer Sentiment

Source: Decima-Investors Group Index of Consumer Confidence

0.6

0.7

0.8

0.9

1.0

1.1

Feb-

04

May

-04

Aug

-04

Nov

-04

Feb-

05

May

-05

Aug

-05

Nov

-05

Feb-

06

May

-06

Aug

-06

Nov

-06

Feb-

07

May

-07

Aug

-07

Nov

-07

Feb-

08

May

-08

Aug

-08

Canadian Consumer Sentiment

Source: Decima-Investors Group Index of Consumer Confidence


AIRLINE DATA – CANADA

Traffic and Load Factors on Canada’s Major Air Carriers October 2008

Passenger Traffic Revenue Passenger

Kilometres Capacity

Available Seat Kilometres Load Factor Air Carrier

% Change over 2007

% Change from 2006

% Change over 2007

% Change from 2006

Change over 2007

Change from 2006

Air Canada1 -4.0% -1.3% -6.5% -4.0% +2.1pts (to 81.2%)

+2.2pts (from 79.0%)

Domestic (Mainline) -2.9% -1.0% -4.5% -1.5% +1.4pts +0.4pts

Jazz -3.3% -1.7% 0.0% -0.4% -2.4pts -0.9pts International & Charter -4.4% -1.4% -7.3% -5.0% +2.4pts +2.9pts

WestJet +9.5% +31.9% +12.9% +30.5% -2.3pts (to 75.8%)

+0.9pts (from 74.9%)

Analysis: • Air Canada Mainline’s domestic traffic decreased

by 2.9% over October 2007, which contributed to a system-wide decline in passenger traffic of 4.0%. Despite the decrease, the carrier’s domestic load factor increased from 80.1% in October 2007 to 81.5% in October 2008, a result of traffic decreasing at a slower rate than capacity.

• Air Canada Mainline’s international sector experienced declines in both passenger traffic and seat capacity levels in October 2008, decreasing by 4.4% and 7.3% respectively over October 2007. The carrier’s International load factor increased 2.4 points over October 2007 to 81.1%. Passenger traffic and seat capacity in the Latin America and Other sector increased by 5.1% and 12.2%, respectively, between October 2007 and October 2008. The codeshare agreement concluded between Air Canada and Brazil’s largest airline TAM on 7 October 2008 may have a positive impact for the Latin America region in future months.

• WestJet reported a decrease in its system-wide load factor by 2.3 percentage points to 75.8% in October 2008 over October 2007. Similar to last month, the load factor decline reported in October 2008 was due to seat capacity growth (+12.9%) outpacing traffic growth (+9.5%) over last year.

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

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

10%

Aug-07

Sep Oct Nov Dec Jan-08

Feb Mar Apr May June July Aug Sep Oct

Dom RPK Dom ASK

Air Canada Domestic Mainline Air Canada Domestic Mainline

Jazz data is not included in this graph

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

10%

Aug-07



Dom RPK Dom ASK

Air Canada Domestic Mainline Air Canada Domestic Mainline

Jazz data is not included in this graph

-10%-8%-6%-4%-2%0%2%4%6%8%

Aug-07



Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

-10%-8%-6%-4%-2%0%2%4%6%8%

Aug-07



Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

0%

5%

10%

15%

20%

25%

Aug-07



RPK ASK

WestJetWestJet

0%

5%

10%

15%

20%

25%

Aug-07



RPK ASK

WestJetWestJet


AIRLINE DATA – U.S. U.S. Airlines Release October 2008 Traffic Figures

Airline Traffic (RPMs – millions)

Capacity (ASMs – millions) Load Factor

1,882 ↓5.4%

2,331 ↓11.1%

80.7% ↑4.8pts

641

↓15.5% 921

↓10.8% 69.6% ↓3.9 pts

6,207 ↑2.9%

8,812 ↑2.9%

70.4% ↓0.1 pts

1 7,135 ↓7.3%

9,037 ↓6.7%

79.0% ↓0.5 pts

2 8,682 ↓9.7%

10,684 ↓9.9%

81.3% ↑0.2 pts

10,511 ↓8.8%

13,298 ↓7.0%

79.0% ↓1.5 pts

9,930 ↓2.2%

12,166 ↓4.7%

81.6% ↑2.0 pts

6,381 ↓1.4%

7,574 ↓2.0%

84.3% ↑0.5pts

2 4,703 ↓3.6%

5,745 ↓5.2%

81.9% ↑1.4 pts

1,431 ↓2.3%

1,777 ↓5.6%

80.5% ↑2.7 pts

728

↓10.9% 869

↓15.2% 83.8% ↑4.0 pts

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

InterVISTAS’ Canadian Aviation Intelligence Report November 2008 Copyright ©2008 InterVISTAS Consulting Inc., all rights reserved.

Page 5

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 September +1.5% +3.5% +9.3% +8.2% +12.4% +3.7% +1.9% +4.2% +6.1% +9.6% +7.9% +10.5% -0.7% 3rd Quarter +0.5% +2.0% +10.4% +7.3% +15.9% +6.4% +3.7% +4.3% +6.1% +8.7% +7.2% +9.9% -4.7%

October +3.7% +3.2% +7.5% +9.0% +13.7% +8.4% +3.5% +4.6% +8.0% +7.5% +7.2% +5.5% +5.8% November +5.0% +8.5% +6.1% +8.8% +15.6% +11.0% +4.7% +5.7% +10.8% +4.2% +8.4% +9.1% +0.8% December +2.8% +4.4% +8.1% +3.7% +8.2% +9.2% +3.8% +4.2% +8.1% +3.7% +7.5% +3.7% -5.5% 4th Quarter +3.8% +5.2% +7.3% +7.1% +12.4% +9.5% +4.0% +4.8% +8.9% +5.0% +7.7% +6.0% +0.7%

2007

Full Year +1.7% +3.3% +8.7% +8.5% +16.3% +7.4% +5.5% +2.7% +6.6% +11.3% +8.6% +10.2% -0.2% January +4.8% +9.2% +4.3% +4.9% +7.6% +6.4% +4.4% +2.2% +6.1% +4.5% +9.2% -0.3% -2.2% February +7.7% +12.8% +9.8% +7.4% +10.2% +8.3% +7.4% +8.6% +7.9% +10.3% +9.1% +8.3% +4.3%

March +6.2% +8.0% +2.2% +8.0% +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% +6.8% +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% -2.0% +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% +1.0% +4.1% +9.9% -4.8% +2.0% +6.7% +4.8% +8.1% +6.9% +3.0% September -1.6% -6.0% -5.0% -5.8% +4.9% +6.9% -2.4% -4.1% +3.5% +2.0% +14.9% +4.7% +2.5%

2008

3rd Quarter +1.6% -1.4% -2.6% -0.8% +5.4% +8.6% -2.9% -1.8% +5.4% +3.2% +10.5% +3.2% +1.9%

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


NEWS AIR CANADA UPDATE SEASONAL HALIFAX-ORLANDO SERVICE INTRODUCED

On 21 October 2008, Air

Canada announced the introduction of bi-weekly, non-stop service between Halifax and Orlando. Seasonal service will commence 6 February 2009 and cease operation on 10 May 2009, offering flights on Fridays and Sundays.

NEW SERVICE BETWEEN MONTRÉAL AND GENEVA AC announced the introduction of daily non-stop, year-round service between Montréal and Geneva on 17 November 2008. The inaugural flight will begin 1 June 2009, offering same-plane service to/from Toronto. The new service will be offered in cooperation with Star Alliance partner Swiss International Air Lines on a codeshare basis and is subject to requisite government approvals prior to operation.

Q3 RESULTS RELEASED AC announced operating income of $112 million in the third quarter of 2008 compared to record operating income of $351 million in the same quarter of 2007. Due to record high fuel prices throughout the period, fuel expense in the third quarter amounted to $1.1 billion, an increase of $348 million or 49% over the third quarter of 2007. Passenger revenue increased by 4% to $2.8 billion in the third quarter of 2008 over 2007, mainly due to yield growth of 6%. Income for the quarter resulted in a net loss of $132 million.

WESTJET UPDATE CORPORATE TRAVEL PROGRAM INTRODUCED WITH ONEWORLD

On 4 November 2008,

WestJet and oneworld announced the introduction of a corporate travel program. Canadaconnect will offer companies across Canada special rates on business air travel between domestic and international destinations. Seven oneworld members will participate in the program, including American Airlines, British Airways, Cathay Pacific, Japan Airlines, LAN, Qantas and Royal Jordanian.

Q3 RESULTS RELEASED WestJet announced third quarter revenue of $718.4 million in 2008, an improvement of over 18% compared to the $606.2 million generated in the same quarter last year. Despite the increase in revenue, net earnings decreased 28% from $76.1 million in the third quarter of 2007 to $54.7 million in the third quarter of 2008. Compared to the same period in 2007, capacity grew over 20% in the third quarter of 2008 and the airline anticipates a further 12% growth in the fourth quarter of 2008.

OTHER CANADIAN AIRLINES PORTER INAUGURATES YTZ-MDW SERVICE

Porter Airlines made its first flight between Toronto City Centre Airport (YTZ)

and Chicago Midway International Airport (MDW) on 12 November 2008. The initial schedule offers three times daily service per weekday and twice daily service on both Saturday and Sunday. The full schedule of six daily flights on weekdays and expanded weekend service will begin 8 January 2009. Porter plans to release additional information about expanded service to Boston, Washington, and Philadelphia as it takes delivery of additional aircraft throughout the next 18 months.


NEWS – CON’TU.S. AIRLINES SOUTHWEST AND VOLARIS FORM CODESHARE PARTNERSHIP

On 10 November 2008 Southwest Airlines announced

plans to enter into a codeshare agreement with Mexican airline Volaris. Southwest’s initial intention is to become a distribution channel for Volaris’ existing Mexican service and future transborder service beginning in Spring 2009. In early 2010, Southwest and Volaris hope to expand their partnership by announcing codeshare flight schedules, which will be subject to regulatory approval. Other areas of cooperation between both carriers may include frequent flier options, ground handling, and cargo. Southwest announced a codeshare agreement with WestJet in July of this year.

DELTA EXPANDS INTERNATIONAL ROUTE NETWORK

Delta Air Lines recently announced three new international services. On

31 October 2008 Delta introduced daily non-stop service between Hartsfield-Jackson Atlanta International Airport and Mumbai Chhatrapati Shivaji International Airport. Delta also announced two additional non-stop flights between Paris-Charles de Gaulle International Airport and Raleigh-Durham and Pittsburgh on 6 November 2008. Both services to Paris, made possible through a Delta-Air France joint venture, are scheduled to launch in June 2009.

UNITED ADDS INTERNATIONAL SERVICES

On 18 November 2008, United Airlines announced both the introduction of new daily non-stop service between Washington-Dulles (IAD) and Geneva (GVA) and

the reinstatement of daily service between Denver (DEN) and London-Heathrow (LHR).

Service between IAD and GVA will commence 19 April 2009, pending government approval, while DEN-LHR service will resume 29 March 2009 and end 24 October 2009. Cargo capacity on the IAD-GVA and DEN-LHR routes will consist of 15 and 18 tonnes, respectively.

CARGO DHL CEASES U.S. OPERATIONS

Germany-based DHL released information on 11

November 2008 detailing its plan to cease domestic services in the United States. Following five years of financial loss, DHL Express CEO John Mullen cited the scale, market reach, and brand awareness of UPS and FedEx as limiting factors in DHL’s ability to become a third alternative in the U.S. shipping market. DHL is presently conducting negotiations to spin-off its domestic line-haul flight operations to UPS with hopes of finalizing a deal by the end of the year. In addition to the 5,400 U.S. jobs already lost this year, a complete shutdown of DHL domestic operations, including air lift services from ABX Air and Astar, could result in the elimination of 9,500 jobs.

UPS DISTRIBUTION FACILITY PLANNED AT YYC

United Parcel Service (UPS) unveiled plans to establish a new distribution centre at the Calgary International Airport (YYC) on 18

November 2008. The $26 million, 150,000 square-foot distribution facility will allow UPS to meet the demands of Alberta’s economy by doubling its capability to process packages over time. The three existing distribution centres located throughout Calgary will remain operational until the new facility opens in October 2009.


NEWS – CON’TPEOPLE IN THE NEWS CATSA PROMOTES KEVIN MCGARR TO PRESIDENT AND CEO

On 6 November 2008 The Canadian Air Transport Security Authority (CATSA) announced Kevin McGarr as President and Chief Executive Officer (CEO). Mr. McGarr joined CATSA in January

2003, holding various positions of increasing responsibility such as Director, Vice-President, Risk and Quality, Vice-President and Chief Technology Officer and later Executive Vice-President and Chief Operating Officer. Mr. McGarr assumed his new role as President and CEO on 15 September 2008.

ATAC APPOINTS JOHN MCKENNA AS PRESIDENT AND CEO

The Air Transport Association of Canada (ATAC) announced the appointment of John McKenna as President and Chief Executive Officer on 7 November 2008. Mr. McKenna

joins ATAC from the Quebec Air Transport Association (QATC) where he was President and General Manager since 2003. Prior to QTAC, Mr. McKenna held numerous assignments in transportation-related positions in both the public and private sectors.

GTAA BOARD PROMOTES DAY-LINTON TO CHAIR

Marilynne E. Day-Linton was appointed Chair of the Board of Directors at the Greater Toronto Airports Authority (GTAA) on 28 November 2008.

Ms. Day-Linton, a Chartered Accountant, acted as the Chair of the Board’s audit committee since February 2007. Prior to joining The Board of Directors of the GTAA in May 2004, Day-Linton held senior management positions with Signature Vacations, the Gemini Group Limited Partnership and Wardair International Ltd. The

appointment is scheduled to take effect 1 January 2009.

OTHER STRIKE ENDS AS BOEING AND UNION ACHIEVE AGREEMENT

Boeing and its 27,000 member union, the

International Association of Machinists and Aerospace Workers, settled their dispute on 4 November 2008, reaching a four-year agreement that addresses compensation and job security concerns. The new contract provides a general wage increase of 15% over a four-year period, a 16% pension increase effectively immediately, and payments of at least $8,000 over the life of the agreement. The vote by union members to ratify the contract was 74% in favour, achieving a majority needed to end the 58-day strike.

AIR ARABIA PURCHASES 10 ADDITIONAL A320S

Air Arabia exercised an option for 10

Airbus A320s on 13 November 2008. The original order of 49 A320 aircraft placed at last year’s Dubai Air Show comprised of 34 aircraft plus 15 options. The low-cost carrier is expanding its fleet in anticipation of government approval that would permit a joint venture with Regional Air Lines of Morocco. Air Arabia’s existing fleet operates 16 A320s to service 44 destinations throughout the Middle East.

12th Hamburg Aviation Conference

Change Course:New Challenges for Financial Viabilityand Economic Sustainability in Aviation

11–13 February 2009InterContinental Hamburg, Germany

Preliminary Conference Programme

In association with

University of British ColumbiaCentre for Transportation Studies

Deutsche Gesellschaftfür Luft- und Raumfahrt

Contact:

For further information please contact:

c/o Michael Vagedes GmbH

Tel.: +49 (0)40 30 30 03 36 (Hotline)

Fax: +49 (0)40 30 30 03 33

E-mail: [email protected]

www.hamburg-aviation-conference.de

Conference venue:

InterContinental Hamburg

Fontenay 10

20354 Hamburg

Germany

Tel.: +49 (0)40 4142 0

Fax: +49 (0)40 4142 2298

Please visit our website:www.hamburg-aviation-conference.de


Jacqueline Clarke Manager,

Strategic Development

THE CARIBBEAN REPORT November 2008

Capacity changes from UK to Caribbean Two of the major destinations for UK-bound travelers in the Caribbean will experience a reduction in capacity early in 2009. Following on the heels of XL Airways’ suspension of services, another UK carrier will cut service to the Caribbean. Effective April 2009, BMI will cease to offer flights between Manchester and Antigua and Barbados. Following a review of transatlantic long-haul operations, a decision was taken to withdraw under-performing routes. Disappointing revenues and high fuel prices were cited as the reasons for the decision.

S. Kitts and Nevis, a smaller, less popular destination, will experience a major boost in capacity from the UK. British Airways announced the introduction of a weekly scheduled service effective January 2009. The introduction of the service marks the first time an established UK scheduled carrier will offer a regular service to St Kitts. With the addition of St. Kitts, BA extends its Caribbean network to 11 destinations.

First nonstop service from Western Canada to the Caribbean Jamaica will become the first Caribbean destination to have a direct non-stop service from Canada's west coast. Effective 19 December 2008, Air Canada Vacations and Air Transat/Sunquest will each offer a weekly non-stop seasonal service from Vancouver to Montego Bay.

Tourism officials are expecting a record-breaking year for Canadian arrivals to Jamaica as a result of the increase in services from other Canadian gateways. These include WestJet’s increase to daily flights from Toronto, Air Canada Vacations’ addition of a second seasonal service from Montreal, Air Transat Holidays introduction of two weekly services from Montréal and Sunwing Vacations addition of weekly departures from Ottawa, Kitchener and Québec City.

Delta, JetBlue add Caribbean routes Effective this winter, JetBlue will launch two daily services from Fort Lauderdale to San Juan and a weekly service from Boston to St. Maarten. The carrier will also increase its current schedule to a daily service between Aruba and Boston and will increase from five to six flights per week between Cancun and Boston. JetBlue will also add a daily non-stop from Orlando and twice daily service from Fort Lauderdale to Nassau.

Delta is beefing up its winter schedule to the Dominican Republic. The carrier’s daily service from Atlanta to Puerto Plata begins on December 20; a second daily flight is in effect from December 20 to January 4. Delta will also add a second daily flight to Aruba, a second weekly service to the Cayman Islands, a third daily flight to Montego Bay, a second weekly service to the Turks and Caicos and a second weekly flight to St. Maarten.

Caribbean Airlines adds eighth Boeing 737-800 to fleet Caribbean Airlines, Ltd. announced plans to add an additional Boeing 737-800 aircraft to its operating fleet effective 15 November 2008. Caribbean Airlines serves 14 markets in the Caribbean, North and South America and Europe, operating 530 flights a week with an increase to 618 weekly flights in the peak season.


Doris Mak Director,

Special Projects

THE ASIA REPORT November 2008

Air New Zealand and Air Canada Joint Venture Rejected The Australian Competition and Consumer Commission (ACCC) has issued an initial rejection of Air New Zealand’s proposal to form a joint venture with Air Canada on certain routes from Canada to Australia and New Zealand. The proposed venture would have the two air carriers jointly selling Air New Zealand’s Auckland-Vancouver route, and Air Canada’s Sydney-Vancouver services. The agreement would also allow the air carriers to combine and share the revenue from these two flights. Air New Zealand has stated that it is still considering the draft decision and may make further submissions to the ACCC at a later date.

EU and South Korea Reach New Air Services Agreement The EU and South Korea have reached a new air services agreement which removes nationality restrictions from the current bilateral agreements between South Korea and EU member states. The “horizontal agreement” allows South Korean air carriers to fly to any EU member state, and any EU air carrier to fly between South Korea and any EU member state that has a bilateral agreement with South Korea. The EU has also completed similar “horizontal agreements” with Australia and Mexico.

Singapore and Kuwait Reach Open Skies Agreement The governments of Singapore and Kuwait have reached an open skies agreement which removes all restrictions on passenger and cargo flights between the two countries. The agreement also allows for fifth freedom services from both Singapore and Kuwait. Currently, Singapore Airlines Cargo operates two flights per week between the two countries.

Air Asia to Start Services to India Starting December 1st, Air Asia will launch services to India with daily Kuala Lumpur-Tiruchirappalli flights. The air carrier is looking at Hyderabad as its next Indian destination, and also plans to offer services to Mumbai, New Delhi and Northern India with its long-haul carrier Air Asia X. Currently, Air Asia’s network includes over 60 destinations, while Air Asia X operates to five cities.

Kingfisher Airlines Looking to Sell 25% Stake Kingfisher Airlines owes mores than US$400 million to its suppliers, including airports, petroleum companies, caterers and others, and is looking to raise cash by selling a 25% stake in the air carrier. The airline has been in discussions with British Airways, Singapore Airlines and Virgin Atlantic, among others. However, the Indian government does not allow foreign air carriers to invest in domestic Indian airlines. Currently, foreign direct investment in the Indian domestic aviation sector is limited to 49%, foreign airlines are not permitted to make direct or indirect investments. The Ministry of Civil Aviation in India has already stated that it is not considering a change in this policy.

Jet Airways and Kingfisher Airlines to Work Together Jet Airways and Kingfisher Airlines are currently in discussions to find ways in which the two airlines can work together to achieve operational efficiencies. This may include network rationalisation, the sharing of staff and crew, joint catering, ground-handling, and fuel management. As noted above, Kingfisher Airlines is in financial difficulty and owes $400 million to its suppliers. The Director General of Civil Aviation in India has not commented on the matter, and it is unclear whether or not clearance will be required from the authority for the two airlines to work together.


Ian Kincaid Director,

Economic Analysis InterVISTAS- EU

UK Office

THE EUROPEAN REPORT November 2008

Lufthansa Number 2 at Heathrow In late October, Lufthansa agreed a deal to take majority control of BMI British Midland (the deal will conclude in January 2009). The carrier already has a 30% stake in BMI, and in October reached an agreement to buy the 50% holding of BMI chairman Sir Michael Bishop for a rumoured £318 million. This deal has been long expected following the Open Skies agreement signed by the U.S. and EU which came into force in March 2008.2

The real attraction of BMI is its slot holdings at Heathrow: the carrier holds 11-12% of slots at the airport, second only to British Airways. With the acquisition, Lufthansa has a number of options. It could keep the slots and sell off the other BMI assets. Under this scenario, one possibility is BMI is merged with Virgin Atlantic, which has previously courted BMI (Virgin is also 49% owned by Singapore, a Star Alliance partner), although Virgin would probably want some additional slot access. However, while Star Alliance would have a combined 20% slot holding at Heathrow, OneWorld’s holding (which includes BA) would be close to 50% with much greater frequencies and network reach.

Alternatively, Lufthansa may attempt a more modest entry into Heathrow, taking over some of the more valuable slots and allowing BMI to continue operating under its own brand (just as it does with Swiss International, which Lufthansa also controls). The airline may also consider selling some of the slot holdings to raise cash for other acquisitions. Certainly, Lufthansa appears to be taking a leading role in the consolidation of European airlines – it is negotiating to take over Austrian Airlines and is rumoured to be seeking a stake in Alitalia (although the latest news is that Lufthansa is setting up its own Italian operation). Whether Lufthansa’s expansive plans can be sustained in the face the slumping German economy remains to be seen.

Euro Zone Now in Recession The Euro zone (the 15 EU countries using the Euro currency) is now technically in recession, having experienced two consecutive quarters of negative growth. Eurostat, the European Union statistics agency, said third quarter GDP across the Eurozone shrank 0.2%, following a 0.2% fall in the previous quarter. While a few European countries are still experiencing growth (notably France), Germany, Spain, Ireland and others are in full recession. This is the first recession the Euro zone has experienced since its creation in 1999. The United Kingdom, which is not part of the Euro zone but is part of the EU, has not technically gone into recession, but is widely expected to go that way by the end of 2008.

2 The history of this deal goes back to 1999 when Lufthansa took a stake in BMI (buying part of a share holding of SAS) and BMI was invited to join the Star Alliance, with Lufthansa and SAS agreeing to underwrite any of BMI’s losses.


Fred Gaspar Regional Vice President

THE OTTAWA REPORT November 2008

New Cabinet Appointed On 30 October 2008, Prime Minister Stephen Harper announced the appointment of a new Federal Cabinet to manage his government’s priorities. From a transportation and tourism perspective, key appointees include the following:

• Transport. The new Transport Minister is John Baird. Baird is an Ottawa MP and a stalwart in the Conservative Party of Canada, who will be well-positioned to advance key conceptual policy planks, such as Blue Sky, which are based on a ‘free and open markets’ approach to policy development. The portfolio, itself, remains unchanged with the integrated responsibilities of Infrastructure and Communities as well as Crown Corporations.

• Tourism. Diane Ablonczy retains her role as Minister of State, Small Business and Tourism. A lawyer by training, Ablonczy has been a strong advocate for the tourism sector during her previous tenure in the post. Although not a full-fledged Cabinet Minister, Ablonczy can and should be expected to provide effective leadership on these files.

• Public Safety. Peter Van Loan assumes the role of Minister of Public Safety. A lawyer by training, Van Loan can be expected to continue the approach adopted by his predecessor, Stockwell Day, to advance the profile of security measures with respect to their role in solidifying the Canada-US relationship.

• Citizenship and Immigration. Jason Kenny has been appointed Minister of Citizenship and Immigration. It is hoped that Kenny will be receptive to advocacy efforts which improve passenger screening and processing efficiencies, particularly from the broader perspective of this government’s intent to restrain spending during the current economic uncertainty.

• Finance. Jim Flaherty remains as Finance Minister. The consensus emerging about Canada’s (potentially large) fiscal deficit presents both challenges and opportunities. While consumer and corporate declines in discretionary spending will negatively impact travel and tourism prospects in the short term, governmental commitments to infrastructure spending as the preferred means to stimulate the economy, suggest that investment proposals in key, long-term infrastructure to support these industries may be well-received.

Economic Update On 28 November 2008 Finance Minister Jim Flaherty released his government’s annual fall economic update. Key highlights included: (1) Provide solvency funding relief to federally regulated private pension plans, (2) Enhance credit availability through Crown agencies for Canadian businesses affected by the global credit crisis, and (3) Reduce the required minimum withdrawal amounts for Registered Retirement Income Funds by 25 per cent for 2008. Notably, the update also contained cost-cutting measures such as Parliamentary pay-freezes, an end to public subsidies of political parties and a suspension of the right-to-strike for public sector unions. These last two measures, in particular, proved to be highly controversial with the opposition parties. By the end of the week, the Liberal and New Democratic parties had, with the support of the Bloc Québécois, formed a proposed coalition to serve as an alternative to the current government.


THE OTTAWA REPORT – CON’T November 2008

Opposition Coalition Citing the lack of meaningful and urgent stimulus spending in the Economic Update delivered by Minister Flaherty, The Liberal and New Democratic parties formed a Parliamentary coalition proposing am alternative policy platform based on a series of core principles: Economic Stimulus Package • Accelerating existing infrastructure funding and substantial new investments; • Housing construction and retrofitting; and • Investing in key sector strategies (like manufacturing, forestry and automotive). Rapid Support for those affected by the Economic Crisis • Improve skills training; • Amend the current law establishing a new crown corporation for employment insurance in order to guarantee that all revenue from EI premiums provides benefits and training for workers. Eliminate the current two week waiting period; • Lower the minimum required RRIF withdrawal for 2008 by 50 per cent; • Reform bankruptcy and insolvency laws to better protect pensions; and • Implement an income support program for older workers who have lost their jobs in order to help them make the transition from work to receiving retirement benefits. Other Priorities to Stimulate the Economy • Support for culture, including the cancellation of budget cuts announced by the Conservative government; • Support for Canadian Wheat Board and Supply Management; • Immigration Reform; and • Reinstate regional development agency funding to non-profit economic development organizations. The Government has indicated its intent to oppose the proposed change in government and clarity is expected to the current situation very shortly, given the 8 December 2008 scheduled vote of ‘non-confidence’ in the government in the House of Commons. It is widely expected that one of two scenarios will emerge: 1. The Prime Minister could request a prorogation of the House of Commons (ceasing the work of the current Parliament), with a return date in late January to coincide with the release of the 2009 budget; 2. The non-confidence vote could proceed, which, itself, could result in either the Governor General dissolving Parliament and calling for a new general election or she could ask the coalition to form government.

Regardless of the outcome, clients can expect delays and difficulties in getting their issues advanced through government channels as officials prepare for the various contingencies. Clearly, clarity to the current political turmoil is required in order to make progress on numerous regulatory, legislative and other government decisions currently awaited by clients on key files.


Jon Ash President,

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

THE WASHINGTON REPORT November 2008

President-Elect Obama Selects Team to Review Transportation Department U.S. President-Elect Barack Obama has named a six-member agency to review the U.S. Transportation Department and related agencies. The team includes former FAA Administrator Jane Garvey, and former NTSB Acting Chairman Carol Carmody, both officials at the time of the September 11 terrorist attacks. The team also includes several officials from the Clinton Administration, including Seth Harris, a professor of law who served in Clinton’s Labour Department, Mortimer Downey, a former Deputy Transportation Secretary during the Clinton Administration, and Michael Huerta, an associate deputy secretary and intermodal transportation expert who served in the Transportation Department. The agency also includes John Cullather, a former House Transportation Committee official with expertise in maritime issues. The objective of the review is to provide the Obama Administration with the information required to make personnel, budgetary, and policy decisions before the official inauguration in January 2009. The team is being led by Moritimer Downey, with Jane Garvey handling the aviation issues. Both are believed to be candidates for the next Transportation Secretary position.

Cap-and-Trade System on the Horizon? Senator Barbara Boxer, Chair of the Senate Environmental and Public Works Committee, has stated that she will introduce legislation that will require the Environmental Protection Agency to set up a cap-and-trade system in the next Congress to meet the greenhouse gas emissions targets set out by U.S. President-Elect Barack Obama. The last bill to introduce a cap-and-trade system, the Lieberman-Warner bill, was defeated by the Senate in June of this year. The bill proposed making fuel refiners responsible for the cost of emission credits that they sold, but airlines worried that this would significantly increase the price of fuel. Boxer plans to introduce a more streamlined bill that would also amend the Clean Air Act.

New Energy and Commerce Committee Chairman Rep. Henry Waxman has been selected by the House Democrats as the next Energy and Commerce Committee Chairman. Waxman, an environmental advocate, is expected to make a strong push for ways to control carbon emissions, such as the cap-and-trade system.

U.S. Rejects EU Emissions Scheme The U.S. ambassador to the EU, Kristen Silverberg, has delivered a letter to Jos Delbeke, acting director general of the environment directorate, stating the U.S.’ opposition to including aviation in the EU’s emissions trading scheme (ETS). The ETS would apply to all foreign air carriers operating to and from airport in the Europe Union, which the U.S. argues is inconsistent with the terms of the Chicago convention, and the U.S.-EU transport agreement. The U.S. has stated that it will take legal action if necessary to protect its rights under the current agreements.

Potential Expansion of the Essential Air Service Program James Oberstar, Chairman of the House Transportation & Infrastructure Committee, is considering expanding the Essential Air Service program in 2009. Oberstar wants to see what effect airline consolidation may have on services to/from small communities, and believes that it may be necessary to expand the program criteria to include airports that are dropped by merged airlines such as Delta/Northwest.


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 New Content on InterVISTAS Consulting Inc. Website The presentation entitled “How Do We Measure Progress? And will anyone care?” authored and presented by Dr. Mike Tretheway at the IATA / AAAE Environmental Symposium in Washington, DC on 14 November 2008 is now available on the InterVISTAS website: http://www.intervistas.com

InterVISTAS Upcoming Speaking Engagements Dr. Mike Tretheway, Executive Vice President, Chief Economist • IATA Revenue Management and Pricing section within IATA Commercial

Strategy Symposium: Las Vegas, NV – 2-4 December 2008 Dr. Tretheway will be delivering a presentation titled, “Rising Airfares are Stretching the Elasticity of Consumer Demand.”

Documents

CAIR Issue No. 66 - November 2008