cair issue no. 27 - march 2005

INTERVISTASMARKET INTELLIGENCEREPORT

InterVISTAS Consulting Inc. Market Intelligence ReportMarch 2005 ©InterVISTAS Consulting Inc.Page 1

WEAK AIRLINE STOCKPERFORMANCE9 March 2005

The stock performance of airlines over the past 12 months has been weak with the majority of airlinestocks declining in value.

The Dow Transport Index

The Dow Jones Industrial average recently hit a 3½ year high almost reaching 11,000, a level notseen since June 2001. The Dow Transport Index has also performed well during the past 12 months,increasing in value by 28%. Similarly, NASDAQ’s Transport Index has shown an increase in thevalue of transport companies, up 30% over the past 12 months. However, gains in these marketindices are not indicative of individual company performance. A closer look at the components of theDow Transport Index reveals that the airlines (Southwest, Continental, AMR, Northwest and Delta)make up less than 6% of the index. The top three Dow Transport weighted companies are FedEx,UPS and Union Pacific Corporation; these three companies make up 28% of the index. The growth ofthe index is mainly due to the strong performance of the more heavily weighted companies.

Cargo Integrators

The major U.S. integrators, Federal Express and UPS, have performed well financially compared totheir passenger airline counterparts. The positive results from these two firms and their heavyweighting in the Dow Transport index are the main reason for the positive returns in the index.

Network Carriers

Despite the positive results of the performance of the Dow and NASDAQ Transport indices, theairlines have continued to struggle financially over the past 12 months. In general, the networkairlines still have difficulties with their operations and are impacted by external factors, such ascontinued high fuel prices. Only a few select network carriers have shown improvement in their stockprice. For example, Air Canada exited CCAA protection on September 30, 2004 and the airline’sstock price has risen 30% over the past five months since its reorganisation. All of the major U.S.airlines have reported poor stock performances over the past year, with American and Delta’s stockprices each losing over 40% of their values. United Airlines has been under Chapter 11 bankruptcyprotection since December 2002; however, it may emerge from protection later in 2005.

Low Cost CarriersThe stock performance of the low cost carriers has alsofaltered during the past year. Only Ryanair andSouthwest posted positive gains in their stock price duringthis time period. ATA (whose stock price is down 89%)filed for Chapter 11 bankruptcy protection in October2004. Other low cost carriers have suffered decliningstock prices falling more than 30%, as is the case forWestJet (down 35%), AirTran (down 36%), and AmericaWest (down 55%). Of course the LCCs may have beenovervalued in the past with the sharp price adjustmentbringing them to more reasonable price-earnings ratios.

Doris Mak

Senior Project Manager

Integrators

% Change in Stock Price27 Feb 2004 - 28 Feb 2005

-100%-80%

-60%-40%

-20%0%

20%40%60%80%

100%

Rya

nair

Sou

thw

est

Fro

ntie

r

JetB

lue

Wes

tJet

AirT

ran

Am

eric

a W

est

AT

A

Haw

aiia

n

Air

Can

ada

Ala

ska

KLM

/Air

Fra

nce

Brit

ish

Airw

ays

Con

tinen

tal

Nor

thw

est

Am

eric

an

Del

ta

Fed

Ex

UP

S

Low Cost Carriers Network Carriers


Air Canada& Regionals

Air Canada& Jazz

Air Canada& Jazz

ZipTango

2001 (14 Fare Codes)Business: C, JFull Economy: YDiscount Economy: B, H, L, M, N, Q, V, X, ZAeroplan Rewards: D, W

October 2004 - Adjustments to SimplifiedFare Structure (20 Fare Codes)Executive: C, JFreedom: YLatitude: M, UFun: A, B, H, L, Q, VTango: E, G, I, N, P, R, TAeroplan Rewards: D, W

2001 to 2004 - New Brands & SimplifiedFare Structure (20 Fare Codes)•Fares split between AC/Jazz, Tango andZip, each with own fare codes•Tango operated October 2001 to September2003•Zip operated September 2002 to September2004•New simplified fare structure introduced inMay 2003: Flash, Fun, Econo, Latitude &Freedom classes•“Tango” fare class added after Tangoceased operations as separate brand

AIR CANADA’S BOOKING FARE CODES:A SUMMARY OF RECENT CHANGESBetween 2001 and 2004, Air Canada implemented a number of changes to its basic fare structure.Booking codes are now grouped together based on varying degrees of restrictions and fare levels topresent a “simplified” fare structure to the general public and travel agency community. In May 2003,Air Canada announced this new fare structure for the domestic market with six fare classes: Tango,Fun, Econo, Latitude, Freedom and Executive. In the first quarter of 2004, Air Canada expanded itssimplified fare structure to transborder destinations. In October 2004, Air Canada eliminated theEcono class and now offers only five fare categories. At the same time, Air Canada also removed allSaturday night stayover requirements for discounted domestic and transborder tickets and has madeall these fares available for one-way purchase.

While the five fare categories presented to the customer provide a simplified user-interface, AirCanada’s more complex inventory management structure remains. Each of the simplified categoriescontinues to be associated with a series of booking codes (e.g., Tango is associated with E, G, I, N,P, R and T booking codes). In fact, there are actually a greater number of active booking codes in2004 than in 2001 (increase from 14 active codes to 20 active codes). Each booking code continuesto be further differentiated into a series of fare bases and specific airfares (e.g., the G booking code inthe Tango category is further differentiated into fare basis such as G7NRB, G7NRBW, etc.). The farebases vary seasonally and are determined based on specific restrictions. While some of theindividual booking codes appear to have seen some streamlining in the number of fare bases offered,others have actually seen an increase (e.g., the Y booking code for full economy fares has increasedfrom typically one fare basis “Y1” to numerous fare basis such as YRB, YSTRB, etc.).

Despite these internal complexities, the recent changes in booking code structure have providedconsumers with a better understanding of Air Canada’s fares and restrictions. These changes,together with improvements to the fare displays on Air Canada’s website, are likely to help the carrierwith its goal of increasing online carrier direct sales.Changes in Air Canada’s North American Booking Codes 2001 to Present

Angelica Sparolin

Research Manager


-15%-10%

-5%0%5%

10%15%20%

Feb-04

Mar April May Jun July Aug Sep Oct Nov Dec Jan-05

Feb

Dom RPK Dom ASK

Air Canada Domestic Mainline Air Canada Domestic Mainline

Jazz data is not includedin this graph

0%

10%

20%

30%

40%

50%

Feb-04


Feb

RPK ASK

WestJetWestJet

AIRLINE DATA – CANADATRAFFIC AND LOAD FACTORS ON CANADA’S MAJOR AIR CARRIERSFEBRUARY 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 +1.6% +9.5% -5.2% 3.7% +5.3 pts(to 77.9%) +4.2 pts

Domestic(Mainline)

-2.0% +6.3% -6.6% 3.1% +3.6 pts +2.4 pts

Jazz +14.3% +13.4% -4.7% +0.5% +11.9 pts(to 71.3%)

+8.1 pts

International& Charter +3.1% +10.7% -4.7% 3.9% +5.9 pts +4.8 pts

WestJet +39.9% +101.6% +29.3% +80.2% +5.5 pts(to 72.9%) +7.8 pts

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

Analysis:

• Air Canada recorded its 11th

consecutive month of record loadfactor in February 2005. Althoughdomestic traffic declined, capacity ondomestic services continues to bereduced, resulting in the higher loadfactor.

• In February 2005, Air Canada’sinternational traffic increased alongwith a reduction in seat capacity,resulting in an improved load factor.U.S. traffic and capacity declined by5.6% and 14.3% respectively, whileAsia Pacific traffic increased by 8.7%.

• WestJet reported an improved loadfactor in February 2005 despite acapacity increase of 29.3%, trafficincreased by about 40%.

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

2 Jetsgo ceased operations on 11 March 2005. February 2005 data not published.

OTHER CARRIERS:

LOAD FACTORS

CanJet: not reported

-10%

0%

10%

20%

30%

40%

Feb-04


Feb

Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International


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

Traffic Data – February 2005

Airline Load FactorTraffic

(RPMs – millions)Capacity

(ASMs – millions)

72.2%

á3.3 pts

9,601

á2.4%

13,295

â2.3%

64.3%

á0.4pts

527

á21.4%

820

á20.7%

58.4%

â7.8 pts

525

â44.7%

899

â37.3%

174.4%

á4.2 pts

4,740

á5.1%

6,369

â1.0%

71.0%

á2.4pts

8,180

á9.7%

11,522

á5.9%

83.3%

á5.4pts

1,345

á27.8%

1,615

á19.6%

77.6%

á3.1pts

5,498

á6.6%

7,088

á2.4%

63.3%

á1.1 pts

3,997

á9.2%

6,310

á7.3%

274.8%

á1.6 pts

7,896

â1.8%

10,551

â4.0%

269.7%

á1.2 pts

2,931

á3.0%

4,208

á1.2%

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

Sources: Carrier traffic reports.


Toronto Vancouver Montréal-Trudeau

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

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 +17.1% +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%

2005 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%

Source: Transport Canada and individual airports’ traffic reports.

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


NEWS ARTICLESCANADIAN AIRLINE NEWSACE AVIATION HOLDINGS INC.REPORTS CDN$15 MILLION NETINCOME IN FOURTH QUARTER 2004

ACE AviationHoldings Inc., the

parent company of Air Canada, reported netincome of CDN$15 million in the fourth quarterof 2004, compared to a net loss of CDN$768million (which included CDN$560 million inreorganisation/restructuring items) in the samequarter last year. Transportation revenuesincreased by 5% as a result of higher traffic.Operating expense per ASM increased by 3% toCDN$0.15.

AIR CANADA TO BOOST JAZZ FLEETBeginning in May 2005, AirCanada will add 15 CRJ-705aircraft to its Jazz fleet, for a

total of 65 regional jets. Jazz services willincrease starting in the summer of 2005, alongwith the replacement of some Dash-8 turbopropservices with jet aircraft.

AIR CANADA REALIGNS JAZZNETWORKEffective 3 May 2005, Charlottetown,Fredericton, Saint John, Moncton, Quebec Cityand Thunder Bay will be served exclusively byJazz. From 1 October 2005, Regina, Saskatoonand Whitehorse will be served only by Jazz.

AIR CANADA JAZZ TO LAUNCHQUEBEC CITY-BOSTON SUMMERSERVICESBeginning 1 June 2005, Air Canada Jazz willoperate daily non-stop summer servicesbetween Quebec City and Boston. The flightswill be operated with 37-seat Dash-8 aircraft.

AIR CANADA EXPANDS WEB CHECK-INTO ALL OUTBOUND FLIGHTSAir Canada has expanded its web check-inservices to include to all flights departing fromCanada, including transborder and overseasservices. The web check-in service allowscustomers to check-in and print boarding passesfrom the Air Canada website.

AIR CANADA CARGO TO EXPANDSERVICES TO CHINAAir Canada Cargo announced that it plans to

expand cargo capacityto China by adding MD-

11 freighter services between Canada andShanghai three times per week beginning May2005. The service is subject to governmentapproval and will triple the carrier’s weightcapacity on the route. Air Canada has signed atwo-year lease agreement with World Airwaysfor the MD-11 freighter.

OTHER AIRLINE NEWSJETSGO CEASES OPERATIONSOn 11 March, Jetsgo ceased operations andasked the Quebec Superior Court for protectionfrom creditors under the Companies’ CreditorsArrangement Act. In its court documents,Jetsgo stated that it lost CDN$55 million overthe last eight months, including CDN$12 millionin January 2005 and CDN$10 million inFebruary 2005.

WESTJET REPORTS CDN$17 MILLIONNET LOSS FOR 2004WestJet reported a net loss of CDN$17.2million for the year ended 31 December 2004.Revenues increased by 23% to CDN$1.1 billionbut expenses also increased to CDN$1.1 billionfrom CDN$749 million last year. WestJet alsoincurred a write-down of CDN$47.6 million forthe early replacement of its fleet of 18 B737-200s.


NEWS ARTICLESOTHER AIRLINE NEWS – CON’T

WESTJET TO START SEASONALSERVICES BETWEEN CALGARY ANDSAN DIEGO

WestJet announced that itwill offer seasonal non-stop

services between Calgary and San Diego from 2June to 11 October 2005. The flights will beoperated three times per week.

SKYSERVICE APPROVED TO STARTSCHEDULED TORONTO-MOSCOWSERVICES

Skyservice Airlines hasreceived approval from the

Minister of Transport to operate scheduledservices to Russia. The carrier already has alicense to fly non-scheduled international charterservices. Skyservice plans to offer year-roundflights between Toronto and Moscow three timesper week starting in the spring.

REGIONAL 1 TO LAUNCH SERVICESBETWEEN VICTORIA AND KELOWNA,RED DEER AND LETHBRIDGE

Alberta based Regional 1 willlaunch services betweenVictoria and Kelowna, RedDeer and Lethbridge starting

21 March. The flights will be operated withDash-8 aircraft four times per week on eachroute.

AMERICA WEST STARTS VANCOUVER-SAN DIEGO SERVICESAmerica West Airlines haslaunched daily non-stop

services between Vancouver and San Diego.The America West Express flights are operatedby Mesa Airlines with 86-seat CanadairRegional Jet aircraft.

CANADIAN AIRPORT NEWSNAV CANADA TO INSTALL INSTRUMENTLANDING SYSTEM AT HAMILTONINTERNATIONAL AIRPORT

NAV CANADA hasannounced plans to install a$1.5 million instrument

landing system (ILS) at Hamilton InternationalAirport to reduce landing limits and improveairport accessibility in poor weather conditions.Construction will begin in the spring and the ILSis expected to be operational by late fall.

THE PROVINCE OF BC AND THE CITYOF ABBOTSFORD INVEST $6.8 MILLIONIN YXX

The Province of BC and theCity of Abbotsford will invest$6.8 million in the expansionof Abbotsford International

Airport. The Province is contributing $4.25million which will be spent on severalinfrastructure upgrades, including a runwayextension, expansion of the runway apron,building a new terminal loading bridge which willserve wide-body aircraft and expansion of theinternational arrivals building. The City ofAbbotsford will contribute $2.55 million to theairport expansion.

OTHER NEWSFAA CONSIDERS CLOSING AIR TRAFFIC

CONTROL TOWERSOVERNIGHTThe U.S. FAA is considering a cost

saving move that would close 42 air controltowers during the overnight hours. Amongairports being considered is Bangor, Maine.


James A. Bell

NEWS ARTICLESOTHER NEWS – CON’T

AMERICAN AIRLINES INSTALLS SELF-SERVE KIOSKS AT VANCOUVER ANDCALGARY

Passengers returning to theUnited States on AmericanAirlines will now be able to

check-in, print and reprint boarding passes andcheck baggage at Vancouver and Calgaryinternational airports. Kiosks will becomeavailable at Toronto and Montreal internationalairports in the next few months.

PEOPLE IN THE NEWSJosée Goulet has been appointed to the board

of directors of the Canadian AirTransport Security Authority.Mrs. Goulet is currently the Chiefof Marketing Services for BellCanada in Montreal, Quebec.

ATA Holdings Corp .announced the promotion of

Co-Chief Restructuring Officer John Denison toCEO of ATA Airlines, reporting directly to ATAHoldings Corp Chairman and CEO GeorgeMikelsons. Denison joined ATA in January andpreviously held senior management positions atSouthwest Airlines.

British Airways CEO RodEddington will step down atthe end of September. FormerAer Lingus CEO Willie Walsh,who will begin work as CEO-designate on 3 May, willreplace him. Both executives are credited withrestoring their respective airlines to profitability

Boeing CEO Harry Stonecipher resigned on 6March 2005. The Board ofDirectors appointed CFOJames A. Bell as presidentand CEO on an interim basis,and Board Chairman LewPlatt has assumed anexpanded role in his capacityas non-executive chairman.

Wayne Heller has beenappointed executive vicepresident and COO ofRepublic AirwaysHoldings, parent companyof Chautauqua Airlines and

Republic Airlines. He will be responsible for alloperational areas within the company.


PASSENGER WIRELESSTECHNOLOGIES & AIRPORTS6 March 2005

The explosive growth of wireless devices in phones, PDAs and laptops are opening up newpossibilities to revolutionise passenger processing in airports. But will these tools ever replace theuniversality and practicality of paper systems? This column reviews the leading platforms that haveapplications for passenger processing.

WiFi (802.11b, g, a, n and other variants)Invented at a Canadian auto plant to span large distancesfor data transmission, WiFi is the leading protocol to allowbusiness and leisure travelers to catch up on last minute e-mails and surf the web before flights. The large majority ofnew laptops since 2002 have WiFi built in. Increasingly, it isa standard for PDAs as well as higher endcellular/smartphones. However, integration of thistechnology in airport processes is in its infancy. Check-in fortransit passengers without boarding passes and otherprotocols can be facilitated with WiFi. Furthermore, theadoption of in-flight WiFi by some air carriers will allowlaptop and PDA users to surf and use Internet services(web, e-mail, voice, messenger) while on the aircraft. Last-minute itinerary changes and hotel bookings, for example,are some of the travel applications in-flight WiFi couldprovide. The latter could be of value for missed flight connections.

Text Messages

Though lagging behind our Asian and European friends,Canadians are leading adopters of text messaging in NorthAmerica. Also known as short message service (SMS),flight status information and news alerts are some of themore common tools for this 150-character text-onlycommunication. Relatively inexpensive (1 cent to 10 centsper message), there remains a significant potential for usersto pre-register for services with an airport. For example,traffic advisories for travel routes into airports have beenimplemented at leading hubs to help manage groundtransportation routing choices.

Mobile Internet

The adoption of direct cellphone web surfing through “Wireless Application Protocol” (WAP) haslanguished in Canada, particularly due to the exorbitant pricing schemes that Canadian cellular phoneservice providers charge their customers. At about 5-10 times the cost for similar transactions forU.S. service providers, this remains the most inhibiting factor for adoption. Given that most of thehandsets since 2000 include mobile internet, there remains some potential for “pull” content retrievalof flight status and check-in that carriers such as Alaska Airlines have successfully implemented.

Solomon Wong

Director Security & Planning

Most major airports in Canadaand the U.S. have WiFi stations

for free or through a per-usecharge.

Text messages for traveladvisories are relatively

undeveloped in Canada, butcan assist in providing real-time

information on flight delays.


PASSENGER WIRELESS TECHNOLOGIES& AIRPORTS – CON’TCellphone Data

At 2-5 times the cost of what U.S. cellphone carriers charge, cellphonedata in Canada is not anticipated to grow unless pricing moves into therange of our friends south of the border. Cellphone data packages(e.g. GPRS, EDGE) provide the ability for laptops andsmartphones to access regular internet services. Theadvantage is that cellphone data is available at nearbroadband speeds from anywhere. WiFi, on the other hand, islimited by proximity to broadcast stations. For example,cellphone data would be available on board aircraft, while WiFiis not available unless the aircraft has it installed.

Bluetooth

Bluetooth itself is analogous to USB ports, serial ports andinfrared. On its own, it does not provide a data service, but actsas relatively secure conduit for cellphone data and specificapplications. With greater adoption in Europe and Asia,Bluetooth devices (e.g. cellphones and PDA’s) have been testedin order to provide preliminary credentialling for check-inprocesses. Users would “wave” their pre-registered cellphone atairline check-in in order to pass through preliminary stages.Security is pre-authorised and locked between recipient andtransmitting device; however approval for its use in Canada issubject to further evaluation.

Drivers for New Adoption

WiFi, text messages, wireless data and Bluetooth are butsome of the many emerging technologies that have yet-to-be-defined relevance to airport processing. With still a smallproportion of passengers carrying such devices, developing astandard set of new processes requires greater maturation of both technologies and the passengertravel market. Moreover, the different platforms (Palm, Windows, PocketPC, Java) presentchallenges for implementing agencies (airlines, security, airport, border control) to troubleshoot themyriad of technological pitfalls for novice users.

Sizable market growth in personal technologies will lead to field trials of new methods and practicesfor passenger processing. The possibilities for integrating these devices to airport processesdepends on the simplicity of the wireless process, as well as new security requirements.

For example, paper boarding passes provide a simple and portable means of showing gate/seatinformation. Without the difficulties of battery outages, paper boarding passes printed from kiosks orhome printers provide easy integration to barcode readers. Yet as new security requirements forauthentication passenger ID as well as routing information emerge, a greater demand for greatersecurity and potential interaction with wireless personal information devices will continue to grow.

To address the unavailability ofWiFi in some locations, mobile

Internet applications areavailable within most cellphones

since 2000. Connections tolaptops from cellphones through

“3G” or “GPRS” networks arecarrier-dependent.

Check-in and authentication ofindividuals through bluetooth

technologies are anticipated togrow, though challenged bystandards and compatibility

issues.


THE OTTAWA REPORT9 March 2005

Federal Budget 2005

On 23 February, the Liberal minority government presented the 2005 FederalBudget. The Budget aims to improve the well-being of Canadians with the keydrivers being a robust economy, a secure social foundation, a sustainableenvironment and a sound fiscal framework.

In the area of transportation and security, the Budget provides for additional funds to address terroristthreats, improve the security of Canadians and to allow for the safe movement of goods and peopleacross borders. The 2005 Budget has allocated an additional $1 billion towards the implementation ofthe National Security Policy which was previously announced in April 2004. The funding will be usedto support security for diplomatic missions abroad, emergency planning and response, transportation,and border security. The funds will also be used to combat organised crime in Canada. Othersecurity initiatives announced in the Budget include:

• Air Traveller Security Charge (ATSC). The Budget announced the third consecutive reductionin the ATSC. For domestic travel, the ATSC has been reduced to $5 for oneway travel from $6.On a roundtrip basis the ATSC is $10 for return travel compared to $12 previously. Fortransborder travel, the ATSC has been reduced to $8.50 from $10 and the ATSC for internationaltravel has been reduced to $17 from $20.

• Marine Security. Budget 2005 has allocated an additional $222 million over a five year timeperiod to further improve Canada’s marine transportation system. Some of the marine securityinitiatives include the purchase of new mid-shore patrol vessels for the Great Lakes and St.Lawrence Seaway, increased regulatory inspections, the creation of Emergency Response teamsfor the Great Lakes and St. Lawrence Seaway and also increased police presence at thecountry’s ports.

• Border Security. The 2005 Budget provides $433 million over the next five years to furtherstrengthen the Government’s ability to deliver secure and efficient services for the Canada – U.S.border.

Transport Minister Meets U.S. Counterpart at CAC Open Skies ForumTransport Minister Lapierre had the opportunity to meet with U.S. Transportation Secretary, NormanMineta, at the recent Canadian Airports Council Open Skies Forum. The Forum marked the 10th

anniversary of the Open Skies Agreement between Canada and the U.S. signed in 1995. A jointstatement released after the meeting indicated that officials from Canada and the U.S. will beginexploratory discussions to further build on the air agreement signed between the two countries in1995.

Transport Canada to Strengthen Aviation Safety Management System

Transport Minister Lapierre announced proposals to further improve the safety performance ofCanadian air operators. The proposed changes would require air operators to implement safetymanagement systems in their organisations. The Minister proposes changes to the Civil AviationRegulations that will require aviation organisations to appoint company executives who would beaccountable for safety and the implementation of safety management systems.

Sam Barone

Regional Vice PresidentOttawa, ON


THE WASHINGTON REPORTMarch 2005

DOT Announces FY 2006 Budget

The Department of Transportation recently announced its fiscalyear 2006 budget. The total DOT budget is $56.5 billion of whichthe FAA has requested a budget allocation of $13.8 billion. A totalof $7.7 billion or 56% of the FAA allocation is to be used for safetyinitiatives including aircraft inspections and ensuring the safety offlight procedures. The budget allocation for aviation in 2006 islower than expected.

DHS Plans to Increase Security FeesThe annual budget proposal by the Bush Administration for the Department of Homeland Securityincludes $5 billion for aviation security and also proposes to consolidate some programs such as U.S.Visit into the Office of Screening Co-ordination and Operations. The DHS budget proposal alsoincludes increases to the passenger security fee. The passenger security fee in the U.S. would risefrom $2.50 to $5.50 per one-leg ticket. Passengers travelling on multiple legs would see a feeincrease from $5.00 to $8.00. The total tax burden has risen from 7%, 20 years ago to 26% today ona typical $200 air ticket.

Senators Plan to Introduce Bill to Refocus DHS Priorities

Senators Ted Stevens (R-Alaska) and Daniel Inouye (D-Hawaii) plan to introduce a bill that willrefocus the priorities of the Department of Homeland Security. The two senators believe that thegovernment is spending too much money on screening airline passengers and on seizing potentiallydangerous items and not enough money on addressing port, rail, motor carrier, hazardous materialshipment and pipeline security. Currently, aviation security has received over 90% of TransportationSecurity Administration (TSA) funds and virtually all of TSA’s attention. TSA administrator, TomStone plans to submit a security plan for all modes on 1 April.

Guidelines for Commercial Space Travel Proposed

In February 2005, the FAA has proposed federal guidelines for commercial space travel that couldinclude requiring a passenger to have a physical exam and also sign consent forms stating that theyunderstand the risks associated with participating in space travel. Guidelines for participating flightcrew requires that the pilot possess a FAA pilot certificate and flight crew should possess valid FAA2nd class medical certificates.

Charles Chambers

Senior Vice PresidentInterVISTAS-ga2 Consulting Inc.

Washington, D.C.


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.

Prepared by InterVISTAS Consulting Inc.

Michael Tretheway

Vice President &Chief Economist

WHAT’S HAPPENING:THE ORIGINS OF AIRPORT RETAIL13 March 2005

This month, I deal with a lighter topic. Recently, I was in London and purchased a book on the history(and politics) of the London Underground, or the Tube as Londoners like to call it.3 The first line wasthe Metropolitan line, which opened in 1863, the first urban underground railway in the world. Forthose familiar with London, this line roughly ran from Paddington Station to Kings Cross Station.

There is an interesting passage in the book (Underground to Everywhere,by Stephen Halliday) which caught my attention. It described how theboard of the Metropolitan Railway (the underground began as a privateoperation) ‘showed some enterprise in securing revenue from sourcesother than fees.’ Two months after the line opened, the company sold theright to sell books and advertising in the stations. The concession fee was£1,150. While today that is roughly the cost of return ticket from Canada to the UK, in those days itwas a considerable sum, given that a trip cost the passenger only three pence.

In 1866, the original concessionaire (James Willing) renewed the contract for sevenyears for £34,000. Willing renewed the contract every seven years thereafter until1907.4 In 1907 the concession passed to a new company, W.H. Smith. The latter,of course, is the global operator of bookstores in airports, train stations and on thestreet. W.H. Smith opened in 1792 as a small news vendor in London, close to whatis now the Canadian embassy. In 1848 it opened its first bookstall in a railwaystation (Euston Station).

The in-terminal retail and advertising concession had a humble beginning in railway stations, but nowit generates a significant portion of airport non-aeronautical revenues, which globally accounts foralmost 50% of the revenue base.

3 Among purists, there is a distinction between the original underground railways, which were subsurface cutand cover railways, and the ‘tubes’ constructed 30 years later, which are deep tunnels. The tubes were onlypossible after the invention of the electric dynamo and electric locomotives. The tubes were lower cost, sincethey were constructed deep enough to avoid the need to re-route sewers, water and other utilities and to notcause undermining and failure of existing buildings.

4 This is the same Willing who published Willings’ Press Guide, the global guide to publishers on titles in print.

cair issue no. 27 - march 2005

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