cair issue no. 25 - january 2005

INTERVISTASMARKET INTELLIGENCEREPORT

InterVISTAS Consulting Inc. Market Intelligence ReportJanuary 2005 ©InterVISTAS Consulting Inc.

THE HIGH PRICE OF FUEL12 January 2005

The price of crude oil closes at $46 in January…The price of crude oil tempered at $46.37 after hitting a high of $55 per barrel in late October 2004.The spot price has risen 34% in January compared to the same month last year. However, to putthings into perspective, after adjusting forinflation, today’s prices are still relatively low inreal (inflation adjusted) terms compared to thelate 1970s, early 1980s during the oil crises atthe time.

Declining U.S. Oil Inventory. A recent reportby the U.S. Energy Department showed adecline in U.S. consumer oil inventories. Agreater than expected decline in inventoryresulted in a small spike in market prices.Market prices were also affected by greaterdemand/consumption of heating oil during thecold winter months.

Other Global Factors. Unrest in Iraq continues to impact crude oil prices due to unreliable oil output.In addition, OPEC has also hinted at cutting production levels at its next meeting in late January;however, market analysts feel that it is unlikely that OPEC would reduce production from currentlevels at current prices. China continues to be a factor. Recent statistics show that China imported atotal of 120 million tons of crude oil in 2004, 35% more than in 2003. Not only has China been a largeimporter of crude oil, the country has also been a big purchaser of other commodities such as ironore.

…. Rising futures pricesThroughout 2004, the price of crude oil in the futures market has been increasing steadily, this trendhas continued into 2005. During the summer of 2003, the futures price of a barrel of crude oil for

delivery in December 2008 wasbelow $25. However, in January2005, the futures price for that samebarrel of crude oil is $38, a priceincrease of 55% compared to 18months ago.

Global Airline IndustryProfitability. The price of crude willplay a central role in the profitabilityof the airline industry. Recentcomments by IATA’s ChiefEconomist forecast the airlineindustry to make a small profit in2005 after accumulating US$35

billion in losses since 2001. However, the forecast of a small profit is based on the assumption thatcrude oil prices on average do not exceed $34 per barrel. By comparison, the average price in 2004was $40 per barrel and as a result, the annual global industry loss is forecast to be US$4.8 billion.

Doris Mak

Senior Project Manager Source: Air Transport Association Fuel Cost and Consumption Report. 2004 Data uses the December30, 2004 price from the U.S. Department of Energy, Energy Information Administration, New York JetFuel Kerosene Spot Prices.

Inflation Adjusted Aviation Fuel Prices

0

10

20

30

40

50

60

70

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Year

2004

US

Cen

ts/L

itre


6%

Calgary

12%

Toronto

3%

Vancouver

January 2005 Transborder Seat Capacity

Los Angeles26%

New York23%Orlando

15%

Fort Lauderdale9%

Tampa8%

San Francisco8%

Phoenix8%

Palm Springs8%

WESTJET SEAT CAPACITY 200512 January 2005

In September 2004 WestJet entered the scheduled transborder market with daily non-stop flights fromToronto to Los Angeles and New York, and from Calgary to Los Angeles. Subsequently, other routeswere added. Now that WestJet has entered the U.S. market, we will examine the low-cost carrier’schange in weekly seat capacity between January 2004 and 2005.

Overall Change – Capacity IncreasesBetween January 2004 and 2005, WestJet increased its overall weekly non-stop capacity by 15%.The major changes in 2004 included the shift of its eastern focus city from Hamilton to Toronto andthe introduction of transborder services. The Hamilton-Toronto switch was not merely a transfer ofexisting routes from one city to another, WestJet also added capacity and routes to its new easternhub. The low-cost carrier started flying the Eastern Triangle route with the addition of over 6,600 seatsin and out of Toronto to each of Ottawa and Montreal. Overall, Toronto capacity is up 238% (42,700additional weekly seats) while Hamilton is down 73% (27,100 weekly seats).

Transborder Services – now 6% of WS seatsWestJet has made new serviceannouncements at least once everymonth since starting transborderservices in September 2004. Today,the transborder sector makes up 6%of WestJet’s non-stop capacity(14,400 weekly seats). All of thiscapacity is flown to and from itsthree main focus cities – Calgary,Toronto and Vancouver. The graphon the right shows the share oftransborder capacity at each city.

The airline currently flies to Los Angeles, New York, Orlando, Fort Lauderdale, Tampa, SanFrancisco, Phoenix, and Palm Springs. The graph on the left shows the share of weekly seatsWestJet flies to each U.S. market. Los Angeles, with 26% of the seats, was initially served non-stop

from all three Canadian cities but WestJethas since changed its Toronto service to aconnection through Calgary. New York, with23% of seats, is served only from Toronto.The carrier seems to be concentrating ontourist and sun destinations as it has not yetstarted flying to the other major businessmarkets (e.g., Chicago, Washington D.C.,Detroit).

WestJet now serves all of the U.S. citiesannounced in Summer 2004, with no newdestinations announced since then.

Geneva Tretheway

Research Consultant

Source: OAG MaX January and December 2004 discs.Note: Seat capacity figures represent weekly non-stop seats flown in both directions.


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

10%15%20%

Dec-03

Jan-04

Feb Mar April May Jun July Aug Sep Oct Nov Dec

Dom RPK Dom ASK

Air Canada Domestic Mainline Air Canada Domestic Mainline

Jazz data is not includedin this graph

-5%0%5%

10%15%20%25%30%35%

Dec-03

Jan-04


Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

AIRLINE DATA – CANADATraffic and Load Factors on Canada’s Major Air Carriers- December 2004

Passenger TrafficRevenue Passenger Kilometres

CapacityAvailable Seat Kilometres

Load FactorAir Carrier

% Changeover 2003

% Changefrom 2002

% Changeover 2003

% Changefrom 2002

Changeover 2003

Changefrom 2002

Air Canada1 +1.0% +1.2% -3.3% -5.8% +3.2 pts(to 75.2%)

+5.2 pts

Domestic(Mainline) +0.4% -0.9% -10.1% -13.2% +8.0 pts +9.6 pts

Jazz +6.2% +8.7% -7.4% -11.1% +8.8 pts +12.4 pts

International& Charter +1.2% +2.0% -0.3% -2.5% +1.2 pts +3.3 pts

WestJet +34.5% +89.1% +32.4% +82.5% +1.1 pts(to 74.7%)

+2.6 pts

Jetsgo2 N/A N/A N/A N/A N/A N/A

Analysis:

• Following an earlier trend, AirCanada continues to reducedomestic capacity. The carrierrecorded its fifth consecutive monthof increased domestic passengertraffic. Domestic traffic in December2004 was near 2002 levels.

• Air Canada’s total internationaltraffic increased compared to bothDecember 2003 and 2002.Transborder capacity was reduced by12%, while Asia Pacific capacityincreased by 3.4%. Overallinternational capacity is still below2002 levels.

• For the first time in several months,WestJet’s traffic growth outpaced theaddition of capacity, resulting in animproved load factor (75%). Thecarrier continued to add transborderservices in December 2004, includingnon-stop flights between Vancouverand Los Angeles.

1Air Canada Mainline consists of all Air Canada with the exception of Jazz.2 Jetsgo data not available at time of publication.

0%

10%

20%

30%

40%

50%

60%

Dec-03

Jan-04


RPK ASK

WestJetWestJet

OTHER CARRIERS:

LOAD FACTORS

CanJet: not reported


AIRLINE DATA – U.S.U.S. Airlines Release December 2004 Traffic Figures

Traffic Data – December 2004

Airline Load Factor Traffic(RPMs – millions)

Capacity(ASMs – millions)

74.6%

á0.9 pts

10,982

á6.1%

14,712

á4.9%

65.7%

á1.1 pts

571

á28.3%

870

á26.1%

69.9%

á1.1 pts

911

â11.0%

1,303

â12.4%

177.3%

á0.3 pts

5,522

á6.5%

7,145

á6.1%

73.6%

â0.5 pts

9,059

á5.4%

12,308

á6.2%

82.0%

â0.2 pts

1,446

á34.1%

1,763

á34.4%

78.2%

á0.1 pts

6,172

á7.7%

7,892

á7.6%

62.9%

â1.1 pts

4,338

á10.3%

6,901

á12.2%

277.7%

â0.7 pts

9,402

á2.3%

12,094

á3.2%

270.7%

â2.2 pts

3,036

â2.8%

4,294

á0.2%

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

Sources: Carrier traffic reports


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

Toronto Vancouver Montréal-Trudeau

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

November +0.1% +2.2% +9.0% +8.0% +7.2% +6.5% +5.8% -0.05% +13.7% +9.6% -0.3% +19.8% +9.4%

December +1.9% +2.8% +8.5% +5.4% +4.9% +6.0% +6.0% +2.9% +16.1% +9.1% +0.8% +2.0% +13.9%

4th Quarter -0.1% +0.5% +6.4% +3.9% +7.4% +4.5% +6.4% +1.9% +15.6% +6.6% -0.4% +6.33% +10.8%

2003

Full Year -4.6% -3.7% +1.3% +2.7% +2.9% +1.3% +5.1% +4.2% +7.3% +2.9% -0.5% +2.4% +9.4%

January +2.3% +1.5% +10.0% +3.9% +7.7% +3.5% +6.4% +3.2% +12.4% +5.9% -2.2% +8.3% +12.8%

February +8.6% +7.9% +19.6% +5.3% +10.7% +13.9% +11.7% +5.6% +11.4% +11.6% +7.8% +2.8% +19.8%

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 +17.2% +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 +16.5% +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 +14.8% +7.0% +10.7% +10.7% -4.0% +11.9% +1.1% +3.7% -1.4% +9.1% +7.9% +1.9% +18.2%

2004

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%

Source: Transport Canada


NEWS ARTICLESAIR CANADA UPDATEAIR CANADA TO LAUNCH NON-STOPSERVICE BETWEEN TORONTO ANDSEOUL

Beginning 1 July 2005,Air Canada will offer

non-stop service between Toronto and Seoulthree times weekly. The route will be operatedwith A340-300 aircraft. Currently, Air Canadaoperates non-stop service from Toronto to threedestinations in Asia including Hong Kong, Tokyoand Delhi.

OTHER CANADIAN AIRLINESWESTJET LAUNCHES TORONTO-ABBOTSFORD SERVICES, INCREASESSERVICES FROM CALGARY TO PALMSPRINGS, SASKATOON ANDVANCOUVER

Starting 5 February2005, WestJet will offerdaily non-stop service

between Toronto and Abbotsford. The airlinewill also increase service between Calgary andPalm Springs by one flight per week, for a totalof three flights per week. The Calgary-PalmSprings service will be operated until 3 April2005.

From 7 February 2005, service betweenCalgary-Saskatoon and Calgary-Vancouver willeach increase by one non-stop flight per day, fora total of 27 and 76 non-stop flights per weekrespectively.

WESTJET FILES SUIT AGAINST AIRCANADAOn 15 December 2004, WestJet announcedthat it had filed a lawsuit against Air Canada andthree of its top executives (present and past),chief executive Robert Milton, vice-presidentSteve Smith and former vice-president CalinRovinescu, for abuse of the judicial system. Thesuit is for C$30 million and alleges the airlinewas abusing the court in an attempt to demolishthe low-cost carrier.

WESTJET CEO ADDED TO AIR CANADALAWSUITOn 23 December 2004, an Ontario court judgeissued an order adding Clive Beddoe, chairman,president and co-founder of WestJet, along withfour other WestJet executives, Scott Butler,Donald Bell, William Lamberton, and BrendaTrockstad to Air Canada’s C$220 million lawsuitagainst the low-cost carrier. The Order alsopermits Air Canada to file an amendedstatement of claim.

LONDON AIR RECEIVES FIFTH JETLondon Air Services, a charter airline ownedby the H.Y. Louie Group of London Drugs fame,has taken delivery of its fifth business aircraft, a9-seat Lear Jet XR45. The Richmond, B.C.based company also announced that it hasordered its first two AB139 helicopters fromBell/Augusta Aerospace.

U.S. & INTERNATIONALAIRLINESALOHA FILES FOR CHAPTER 11The Aloha Airgroup and its subsidiary Aloha

Airlines filed forreorganisation underChapter 11 bankruptcyprotection. Despite

the company’s efforts at cutting costs, Alohacited high fuel and operating costs as the mainreason it has been unable to remain profitable.The airline will continue to operate flights duringits restructuring period. This is the first time inits 58-year history that Aloha has soughtbankruptcy protection.

SOUTHWEST GETS GATES, HANGARFROM ATASouthwest Airlines’ US$117 million bid to

acquire six gates anda maintenance hangarat Chicago Midway

from ATA was approved by the U.S. BankruptcyCourt. The bid, which includes a total ofUS$117 million in commitments to ATA andcodeshare agreements between the carriers, isstill subject to approval by the City of Chicago.

FUEL PRICES

13 January 2005

SPOT OIL PRICES DROPFUTURES PRICES DECREASE

Crude Oil Prices:

Spot – US $48.04(up 6% from December)

Futures• 6 month - $46.95

(June 2005 delivery)• 12 month - $44.50

(January 2006 delivery)• 2 year - $41.57

(January 2007 delivery)• 5 year - $37.77

(December 2010 delivery)

$15.00$20.00$25.00$30.00$35.00$40.00$45.00$50.00$55.00$60.00

Januar

y-04Feb

ruary

March April May

June July

August

Septem

berOctob

er

Novem

ber

Decem

ber

Januar

y-05

US$

per

Bar

rel

Monthly Spot PricesMonthly Spot Prices


NEWS ARTICLESU.S. &INTERNATIONALAIRLINES – CON’T

AIR JAMAICA REVERTS TOGOVERNMENT CONTROL

The privategroup,

headed by hotel mogul Gordon Stewart, thatowns 78% of Air Jamaica’s shares said that itis pulling out of the airline which has lostUS$682 million since the group took over theairline in 1994. The shares will go to theJamaican Government in a debt swap and thecarrier will be recapitalized. The JamaicanGovernment plans to sell the airline as soon asit is restructured. Air Jamaica’s pilots areamong the highest paid in the industry.

STAR ALLIANCE MEMBERS TOCOMPARE A350 AND B7E7

The 15 Star Alliance airlinemembers decided to go forwardwith a complete analysis and

comparison of the Boeing 7E7 and Airbus A350.Several airlines may delay orders for the Boeingplane as they wait for the results of the analysis,which will be conducted by experts chosen bythe Star Board.

CANADIAN AIRPORTSHALIFAX GETS U.S. PRECLEARANCE

The U.S. Governmenthas agreed to extend theCanada-U.S.

preclearance program to Halifax InternationalAirport. As soon as the airport’s newpreclearance facility is complete, passengers onHalifax-originating scheduled or chartercommercial flights will be able to go throughU.S. customs, immigration and inspection beforethey are boarded. Halifax is the eighthCanadian airport to offer preclearance.

EDMONTON-LAUGHLIN NV ROUTELAUNCHED

SunFest Tours is launchingcharter service betweenLaughlin, Nevada and

Edmonton International Airport. The flightswill operate twice weekly from January to April2005.

FREDERICTON AIRPORT ANNOUNCESIMPROVEMENTS

The MP for Fredericton, AndyScott, and Fredericton AirportChairman, Lyle Smith haveannounced that a number of

improvement projects will proceed atFredericton Airport. The improvement projectswill include the expansion of the pre-boardsecurity hold area and washroom/drinking waterfacilities, and the installation of a sprinklersystem in the Air Terminal Building. Under theterms of the Fredericton Airport TransferAgreement, the Government of Canada willcontribute C$1 million towards these projects.

RIVIÈRE-ROUGE/MONT-TREMBLANTAIRPORT GOES INTERNATIONALAn amendment to the Canadian Air TransportSecurity Authority Designation Regulations andimprovements in airport safety has allowedRivière-Rouge/Mont-Tremblant Airport (YFJ)to handle direct international flights from U.S.markets. The amendment allows Mont-Tremblant International airport to be added tothe list of designated airports where theCanadian Air Transport Security Authority(CATSA) is required to provide securityscreening services. Work was done to lengthenand mark the runway, install a permanentlighting system and install marker boards. MontTremblant is located 130 km north-west ofMontréal.


NEWS ARTICLESCARGOFEDEX SECOND QUARTER PROFITS UP289%

FedEx Corp. reported anet income of US$354million for the second

quarter ended 30 November 2004. This is adramatic increase over its $91 million netincome in Q2 of the previous year. FedEx saidits profits included a one-time charge of $48million related to the U.S. Department ofTransportation’s recent decision to reject thecompany’s arguments for additional 9/11-relatedcompensation and directing it to repay a portionof the compensation already received.

QANTAS JOINT VENTURE CREATESTHAI AIR CARGOQantas Airways and CTIHolding of Thailand signed

a joint venture agreement that establishesBangkok-based Thai Air Cargo. Qantas willown 49% of the new carrier with the rest ownedby CTI Holdings. The cargo carrier will primarilyserve Asian sectors within a 5-6 hours flyingradius of Bangkok with high-capacity MD-11s.Thai Air Cargo plans to begin operations by mid-2005.

AIR CANADA LAUNCHES FRANKFURTCARGO FLIGHTS

Air Canada haslauncheddedicated cargo

flights five times per week between Toronto andFrankfurt. The flights are operated on 85-tonnecapacity MD-11 freighters leased from GeminiAir Cargo. Air Canada has also startedoperating a B727 freighter on a Toronto-Calgary-Vancouver route through an agreementwith Cargojet Airways.

AIR CANADA FLIES CARGO TO SPAINAir Canada has introduced a weekly cargo flightto Vitoria International Airport in Spain. Thecarrier is carrying 80 tonnes of fresh fish on awet-leased MD-11.

DHL TO OPEN NEW CALIFORNIA HUBDHL has announcedthat it will open a newair/ground hub at

March Air Force Base in Riverside, California.The facility, slated to open in October 2005, willbe used by both ABX and Astar aircraft and willalso remain an operational air force base. Nineflights per day will be operated and eight aircraftwill be based at March.

UPS ORDERS 10 A380 FREIGHTERSUPS has placed an order for 10freighter-version A380 aircraft withoptions to buy 10 more. Deliveries areexpected to start in 2009 with the final

aircraft delivered in 2012. Rival FedEx signed asimilar deal with Airbus in 2002. The A380freighter version can carry three decks of cargoacross distances that normally would take two ormore flights.

AIR CARGO, INC. CEASES OPERATIONSAir Cargo, Inc., a Delaware corporation locatedin Annapolis, Maryland, ceased operations atthe end of December 2004. The company hadfiled for bankruptcy on 7 December and hadclosed its logistics airport-to-airport product lineon 3 December.

AIRCRAFT MANUFACTURERSBOEING BOOKS 1267E7 ORDERSThe end-of-year total of 126

orders for Boeing’s 7E7 Dreamliner falls shortof its target of 200 orders for the aircraft.Continental and Vietnam Airlines ordered a totalof 14 7E7s at the end of December. Otherairlines that have placed orders include: AllNippon Airways, Air New Zealand, BluePanorama, First Choice, Primaris and JapanAirlines. Boeing is also rumoured to haverechristened the 7E7 as the 787. No officialannouncement has been made, as Boeing isreportedly delaying the name change until it canannounce a large order from Chinese airlines.


NEWS ARTICLESAIRCRAFT MANUFACTURERS– CON’T

BOEING DELIVERS 285 AIRCRAFT IN2004

Boeing reported that itdelivered 285 aircraft in 2004,202 of which were from the

737 Next Generation program. The deliveriesinclude 7 aircraft delivered under operatinglease. For the fourth quarter of 2004, Boeingdelivered 68 planes, one of which was deliveredunder operating lease.

AIRBUS A350 GETS FIRST MOUAir Europa of Spainbecame the firstcustomer for Airbus’

proposed A350 aircraft in December 2004. Theairline has signed a Memorandum ofUnderstanding (MOU) for 10 A350-800s withoptions for two more. Air Europa’s A350’s willbe able to transport 245 passengers over 8,600nm (15,900 km) in a three-class configuration.The airline will also lease an A340-200 fromAirbus and intends to lease two new A330-200sin the spring of 2006.

AIRBUS DELIVERS 320 NEW AIRCRAFTIN 2004, RECORDS 370 NEW ORDERS

Airbus delivered 320 newaircraft in 2004 compared to305 in 2003. Deliveries

included 233 A320 family aircraft, 37 A300-600F/A330-200s, and 50 A330-300/A340s. Themanufacturer received 370 new firm ordersduring the year, valued at approximately US$34billion.

GOVERNMENT/REGULATORYIATA SAYS INDUSTRY PROFITABLE IN2005

The International AirTransport Association(IATA) expects the airlineindustry to make a small profit

in 2005, assuming fuel prices do not exceedUS$34 per barrel on average. IATA Chief

Economist, Bryan Pearce, says that the industryas a whole could break even at fuel prices of$36 per barrel, but at higher levels wouldcontinue to incur losses which haveaccumulated to $35 billion since 2001. Pearcepointed out that were it not for the high cost offuel, a normal cyclical recovery could haveoccurred that would have restored profitabilityfollowing airlines’ efforts to reduce costs.

INDIA WILL ALLOW DOMESTICAIRLINES TO FLY OVERSEAS ROUTES

Until last year, only state-ownedAir India and Indian Airlineswere allowed to fly oninternational routes, but

following cabinet approval, privately-helddomestic airlines can now fly on lucrativeinternational routes, outside from the Gulfcountries. This exception is in place for threeyears to protect the state-owned carriers’businesses. The Civil Aviation Ministry said thatdomestic airlines planning to start internationalflights will need to have been in business for fiveyears and have a fleet of at least 20 aircraft.

AIRPORTS CAPITAL ASSISTANCEPROGRAM TO BE RENEWED

The Airports Capital AssistanceProgram will be renewed to 31March 2010. The program willprovide eligible airports with funding

for projects related to safety, asset protectionand operating cost reductions. Between April2005 and 31 March 2010, $190 million will beavailable, allocated at an average of $38 millionper year. Existing criteria for eligibility will beretained, however airports with more than75,000 annual passengers will now be requiredto contribute more towards their projects. Since1 April 1995, the program has provided $298million for 375 projects at 143 airports.


Bruce Ashby

NEWS ARTICLESPEOPLE

Reg Milley has been selectedas the incoming President andChief Executive Officer ofEdmonton Airports. Milley,President and Chief ExecutiveOfficer of the Halifax

International Airport since 2001 will commencehis new role at Edmonton Airports on 1 February2005 after implementing a strong transition forthe Halifax Airport Authority.

Warren C. Hurren has beenappointed by the Greater TorontoAirports Authority (GTAA) as the newChairman of the Board effective 1

January 2005. Hurren succeeds Michael Butt,who has served as Chairman since 1997.

Aloha Airgroup hasnamed David Banmillerpresident and CEO ofAloha Airgroup and AlohaAirlines. Banmiller is a

former president and CEO of Pan AmericanAirways, Sun Country and Sun Jet, and workedin a number of positions at TWA.

Bombardier announcedthe followingorganisational changes:

William J. Fox is stepping down as Senior VicePresident, Public Affairs; and Moya Greene isstepping down as Senior Vice President,Operational Effectiveness.

Philippe Camus has announcedthat he will resign as co-CEO ofEADS to return full-time to theLagardère Group. Noel

Forgeard, current Airbus chief executive, willbecome the new French co-CEO of EADS inJuly 2005, joining his incoming Germancounterpart, Thomas Enders. Forgeard hasrequested that his position at Airbus be filledfrom within the company’s ranks.

Andres Conesa, Mexico’sdeputy secretary for publiccredit, has left his position to

join Cintra, an airline holding company that willjoin Aeromexico and Mexicana de Aviacion, andis majority owned by the Mexican Government.He replaces Rogelio Gasca, who will continueworking as an advisor at Cintra.

Kent George, Executive Director ofthe Pittsburgh International Airport,has been named Chairman of theACI-NA Board of Directors for 2005.

Ben Baldanza has lefthis position as ExecutiveVP Marketing and

Planning at US Airways tobecome President and COOof Spirit Airlines, effective24 January 2005. He will bereplaced by Bruce Ashby,current Senior VP-Alliancesand President of US AirwaysExpress.


U.S. INTELLIGENCE REFORM ACT

& CANADIAN AIRPORTS10 January 2005

In the midst of large-scale government re-organisation following 9-11, the structure of intelligenceagencies in the U.S. had remained largely unchanged until now. The U.S. National IntelligenceReform Act (NIRA) signed by President George W. Bush on 17 December 2004 heralds a new era forintelligence management. Key changes include the FBI and CIA reporting to a single Director ofNational Intelligence.

While the details of intelligence reforms have largely focused on governance and informationmanagement, the Act contains profound implications for transportation and border security.

A Single Registered Traveller Program

Until now, Registered Traveller programs included Nexus,INSPASS, SENTRI, CBP-PASS, among others. Typically,these programs provide low-risk expedited passengers withthe ability to be processed more quickly at ports-of-entry(land, sea or air). In exchange, passengers are subject tosecurity background checks, as well as provision of someform of biometric identifier. An emerging problem within theDepartment of Homeland Security and Customs and BorderProtection is the lack of interoperability between programs.Nexus participants for the Canada-US border, for example,could not use their status as a pre-approved traveller for theU.S.-Mexican border. Similarly, airports and land borderprograms are not compatible.

However, NIRA calls for a single registered traveller programto be implemented. A progress report on its status is dueDecember 2005. Furthermore, NIRA directs the Departmentof Homeland Security to join Registered Traveller programstogether with U.S.-VISIT -- the platform for entry/exit tracking.

For Preclearance airports in Canada, this signifies important changes to expedited border crossingprograms. Nexus-Air, a pilot at Vancouver International Airport, will ultimately be joined together withthe fingerprint biometric authentication that has been in place since January 2004.

Review of Travel Document Changes

At present, Canadians travelling to the U.S. must be able to establish both identity and citizenship byproviding a birth certificate (with driver’s license for photo identification), citizenship certificate orpassport. By 2008, the DHS will have a plan to require new documentation to prove citizenship forforeigners -- including Canadians for whom certain provisions have been waived to date.

At present, less than half of Canadian citizens (13 million) have passports. Should the U.S. movetowards requiring a form of identity other than ones currently accepted, this will require a major re-education process that will require considerable support from airports and airlines in Canada.

Furthermore, still to be defined, is a biometric passport standard that the Canadian Passport Office isanticipated to unveil in 2005.

Solomon Wong

Director, Security & Planning

Registered Traveller will beamalgamated as one program

within U.S.-VISIT


U.S. INTELLIGENCE REFORM ACT

& CANADIAN AIRPORTS – CON’TExplosive Detection Systems

The TSA is mandated to submit to Congress aStrategic Plan on Explosive Detection Systems(EDS) at Airport Screening Checkpoints by March2005. The Strategic Plan could potentially herald anew round of equipment deployment focused onscreening passengers and carry-on bags forexplosives with new portal, document scanners andother equipment. While tests have been conductedin Canada on certain new technologies, theimplications of new EDS equipment mandated byNIRA could add additional pressure to pre-boardscreening checkpoints in Canada. Shouldrequirements for EDS be increased, transborderflights in particular could be subject to differentprocesses.

Of particular note is the issue of re-screening of bagsconnecting in the U.S. In 2001, when the TSAoriginally received a mandate for 100% EDS,Canada pursued a separate track of a multi-levelhold baggage screening system (as discussed in theApril 2003 Market Intelligence Report). Withequivalency of the systems not engrained at the onset, bags must be re-screened upon arrival in theU.S. from Preclearance airports. Should equivalency not be reached for the passenger pre-boardscreening for the next generation of EDS deployment, there will be dire consequences for transborderprocesses if re-screening of passengers is required.

Long Term Impacts of NIRA

In the coming months, the impact of NIRA will be pronounced through new and revised programs forborder and transportation security. These will need to be assessed for the impacts on existingprograms. In particular, the Smart Border Action Plan has passed its fourth year of initiatives since itwas signed by Manley/Ridge. A McLellan/Chertoff dialogue is anticipated to continue the positivework of their predecessors. Yet time again shows that at a congressional level, exemptions forCanadians and the "special relationship" between the two countries appears to be an afterthought forlegislative and regulatory changes.

Airports and air carriers in Canada thus have a role in ensuring that legislative changes such as NIRAdo not inadvertently change the landscape for airports in Canada too far away from the interests offacilitation and security.

Trace Explosive Detection for documentsare being tested in Canada. Future U.S.

direction on this technology, or largerportal scanners will impact Canadian pre-

board screening facilities.


OTTAWA REPORT 11 January 2005

NavCanada Reports September & October Traffic FiguresNav Canada announced traffic figures for September and October 2004, asmeasured in weighted charging units for enroute, terminal and oceanic airnavigation services as compared to the same period in 2003 and in 2000. Trafficfor September and October increased by an average of 5.2% and 5.1%,respectively, as compared to the same months in 2003. However, traffic was1.9% and 2.9% below the September and October 2000 levels. Fiscal year-to-date traffic is 5.2% higher than in fiscal year 2003/04 and 2.4% lower than in fiscalyear 2000/01.

Hours of Work for Truckers FinalisedTransport Minister Jean-C. Lapierre announced in late December that a consensus had been reachedamong the key organisations in the Canadian trucking industry on safety rules for inter-provincialcommercial vehicle operations. In an effort to make Canadian roads and highways even more safer,key organisations such as Transport Canada, Teamsters Canada and the Canadian Trucking Alliancehave agreed on a package of proposed rules that limits commercial vehicle drivers to 13 hours ofdriving and 14 hours on duty per 24-hour period.

Appointment of Armand Goguen to the Transportation Appeal TribunalArmand Goguen, of Cocagne, New Brunswick has been appointed as part-time member of theTransportation Appeal Tribunal of Canada. Mr. Goguen had worked at CN Rail for 35 years and hasalso served as vice-chairman of the New Brunswick Safety Council, director of the Nova Scotia SafetyCouncil, and was a member of the Railway Safety Act Review committee in 1994.

Established in June 2003, the Transportation Appeal Tribunal of Canada provides a means ofrecourse for the air and rail sectors pertaining to administrative decisions and enforcement actionstaken under federal legislation.

Open Skies Conference

The tenth anniversary of the signing of the Canada-US open skies agreement is Feb. 24, 2005. Tocelebrate the agreement and to debate next steps in the liberalisation of air policy, the CanadianAirports Council is organising an "Open Skies Forum" to be held in Ottawa on February 23-24.Expected to be in attendance are Transport Minister Jean Lapierre, US Secretary of TransportationNorman Mineta, and Congressman James Oberstar, who has chaired the aviation subcommittee.The forum is sponsored by the CAC, ATAC, The Canadian Industrial Transportation Association andthe Van Horne Institute. Further information can be obtained by contacting the CAC.

Sam Barone

Regional Vice PresidentOttawa, ON


THE WASHINGTON REPORTJanuary 2005

Congress Convened 4 Jan 2005The 109th Congress convened at noon on 4 January 2005 and beganthe process of formally organising itself for the two-year periodahead. One of the biggest changes will be the consolidation ofhomeland security jurisdiction into the Homeland Security Committee.Homeland security had been governed primarily by the House Transportation and InfrastructureCommittee (T&I), but now will be a permanent committee in the House of Representatives withjurisdiction over the key functions of the Department of Homeland Security (DHS) and theTransportation Security Administration (TSA). The House Homeland Security Committee will bechaired by Rep. Christopher Cox (R-Calif.).

FAA Unveils Air Traffic Controller Staffing PlanThe Federal Aviation Administration (FAA) has projected that 11,000 current air traffic controlemployees (73% of total employees) will be lost in the next ten years due to retirement and otherfactors. The FAA plans to hire 12,500 controllers over the period to cover the projected losses. Thisincludes a buffer of 1,500 employees to cover higher than normal retirement rates beyond 2014, a 5%training failure rate and expected increases in traffic volume.

DOT Outlines Plan for Future of U.S. Aviation SystemThe U.S. Department of Transportation (DOT), joined by NASA and others, has outlined a plan for thefuture of the U.S. aviation system. The Integrated National Plan for the Next Generation AirTransportation System covers eight specific areas: airport infrastructure development, security, the airtraffic system, information technology, safety management, environmental stewardship, weatherforecasting, and global collaboration. Additionally, the development of innovative public-privatepartnerships is a key component to the entire effort. The Integrated National Plan also includes aframework to deal with new modes of transport such as micro-jets, air taxi services, new commercialaircraft and commercial space vehicles.

U.S. – India Open Skies TalksThe United States and India will begin negotiating a new open skies deal on 13 January 2005. Thecurrent deal is nearly 50 years old and restricts frequencies, destinations and pricing. The U.S.-Indiamarket is 1.5 million travellers per year and is growing quickly. The talks, scheduled for two days atthe U.S. State Department, will cover passenger and cargo service. Air India, Delta Air Lines andNorthwest Airlines currently fly non-stop between the two countries.

National Transportation Security Strategy Required in IntelligenceReform BillAn intelligence reform bill was passed by Congress and signed by President Bush that requires anational transportation security strategy. Among the list of initiatives, the bill requires advancedprescreening and biometric identification systems to be put in place, the creation of a Privacy andCivil Liberties Oversight Board of private citizens with access to all government agencies, andrequires the TSA to develop a biometric standard that can be adopted by other government agenciesby 31 March 2005. The TSA must also improve watch lists and create a system for passengers tocorrect inaccurate no-fly information.

Charles Chambers

Senior Vice PresidentInterVISTAS-ga2

Washington, D.C.


THE KYOTO COMMITMENT BY

ATAC11 January 2005

ATAC commits! Air transport is claimed to account for between 3% and 9% of green house gas(GHG) emissions. On 15 November 2004, the Air Transportation Association of Canada committed toan agreement with Transport Canada to reduce GHG emissions by 2012 by 24% relative to the Kyotobaseline. This will require the industry to reduce emissions by 1.1% per annum, beginning this year.

This is a significant event, as it is the first industry in Canada to make a Kyoto commitment. It is atrailblazing commitment for the world’s aviation industry.

Air Transport has a lot to be proud of. Why would Canada’s airlines make such acommitment? Its simple – the air transport industry has a remarkable record in reducing emissions(as well as noise). Unlike some other transport and industrial sectors, modern aircraft have reallycleaned up their act. Few of the younger generation can appreciate just how awful the original jetaircraft were. Noise was orders of magnitude higher, and you could see clouds of black smoke fromeach of the four engines on the 707s, DC9s and CV880s that took off. Today, simply phasing outolder models of aircraft will go a long way toward achieving the Kyoto commitment. Both Air Canadaand WestJet are phasing out their 737-200s, and CanJet also has a re-equipment program.

Two categories of emissions. When considering aircraft emissions, there are two categories ofconcern. The first are noxious emissions – NOx, SOx and particulates (among others). The secondcategory is greenhouse gas emissions, CO2, which in the past were considered to be harmless, butnow are the focus of Kyoto.

With regard to the noxious emissions, the UEET programsponsored by the U.S. Federal Aviation Administration hasbeen working on new engine technologies, such as the“twin annular pre-swirl” (TAPS) engine combustortechnology, and are achieving significant progress inreducing NOx emissions by 50%. General Electric, oneof the new engine suppliers to the 7E7 is already workingto transfer new technology to the marketplace for the 7E7. Progress has been so rapid that a newgoal of a 70% emissions reduction (from 1996 regulatory maximums) is being developed.

For greenhouse gas emissions, apparently the key is reducing the fuel burn of an aircraft. Again, newengine technologies offer much promise with reductions of up to 20% in the works. Simply staying thecourse on re-equipment will be all the industry needs to meet its goal.

Michael Tretheway

Executive Vice President &Chief Economist

This 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 materialize. Information containedherein is provided for the use of InterVISTAS Consulting Inc. only, and may not bedistributed beyond InterVISTAS Consulting Inc.

Prepared by InterVISTAS Consulting Inc.

cair issue no. 25 - january 2005

Documents

januarythe price of

price of crude oil closes

tons of crude oil

largeimporter of crude

samebarrel of crude

oil inventory

price of crude willplay

market prices