gtaa_2014_feasibilitystudy.pdf
TRANSCRIPT
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
1/63
January 24, 2014
Mr. Howard Eng, P.E.President and Chief Executive OfficerGreater Toronto Airports AuthorityToronto - Pearson International Airport3111 Convair Drive
Toronto AMF Ontario L5P 1B2 Canada
Dear Mr. Eng:
AXIS Consulting Inc. (AXIS) is pleased to submit this Report of the Airport Consultant (the Report)
to the Greater Toronto Airports Authority (the GTAA) in conjunction with the planned filing by the
GTAA of a 2014 Short Form Base Shelf Prospectus (the Prospectus). AXIS understands that the
Report will not be included in the 2014 filing.
New activity forecasts have been prepared from 2014 through 2023 (the Forecast Period) based on themost recent data available for passengers, aircraft movements, maximum takeoff weights and air cargotonnage. Key assumptions in this Reports forecast include:
A competitive domestic aviation market will be maintained over the forecast horizon.
The growth and sustainability of low fare airlines will continue to stimulate aviation demand in
the Greater Toronto Area (GTA).
Domestic, transborder and international traffic are expected to increase at moderate levels yearover year during the Forecast Period.
The costs of enhancing aviation security will not overly burden air carriers.
The Terminal 1 and 3 Enhancement Programs will be undertaken and will encompass demand
driven projects designed to provide a better flow of passengers, baggage and new commercial
retail offerings all designed to enhance the customer travel and service experience. Although the
Enhancement Programs will provide better access and connectivity for passengers, the Reports
forecast does not base future aviation activity growth solely on traffic stimulation based on the
Airports facility enhancements.
Based on the aviation activity forecasts prepared for and presented in this Report, the constructionof the sixth runway and Piers H and I will not be required during the Forecast Period.
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
2/63
Toronto - Pearson International Airport
January 24, 2014 - FINAL ii
The Airport currently has two commercial passenger terminals: Terminal 1 and Terminal 3, each of which
provides domestic, transborder and international service. The two terminals collectively offer 81 gates
with loading bridges (select loading bridges in Terminal 1 can accommodate the Airbus A380 aircraft) and
28 commuter gates. In total, the Airport has 155 aircraft parking positions available for air terminal
operations including 46 hardstand aircraft parking positions.
The Airports size and gate capacity have given the GTAA the ability to plan a short-to-medium term
strategy of making the facility a global connecting hub for Air Canada. Given its large Origin and
Destination (O&D) passenger base in addition to a growing number of international transfer passengers,
the Airport has the unique ability to connect travelers to six continents without having to expand its
existing facilities. The advent of new international carriers in the past 12 months such as Saudi Arabian
Airlines (Saudia) and Egyptair in addition to Air Canadas integration of Rouge to its international
airline network, has added new non-stop destinations and increased frequencies to existing points around
the globe.
The Airports objective of becoming a global hub has prioritized Airport capital programs and major
initiatives to adapt the current facilities to ease connections and the flow of passengers throughout. In
addition, the GTAA through the construction of additional retail space in Terminals 1 and 3 as well asmodifications to product offerings and higher priced merchandise, is expecting to drive non-aeronautical
commercial revenues from the current 8.0 percent to 15.0 percent of total non-aeronautical revenues by
2018 on an average annual compound basis.
On October 17, 2013, the GTAA entered into a Long Term Aeronautical Fees Agreement with Air
Canada (the AC LTA) which goes into effect January 1, 2014, and covers an initial five year term
expiring December 31, 2018. Air Canada will pay a fixed amount to the GTAA in lieu of the GTAAs
standard aeronautical charges comprised of landing fees, general terminal charges and apron fees. For
each calendar year of the term, the AC LTA establishes certain passenger traffic thresholds for Air Canada
and its affiliates collectively. Provided that Air Canada and its affiliates achieve the cumulative passenger
threshold in a given year, Air Canada receives a rebate calculated based on the additional revenues
generated by incremental passenger growth at the Airport in excess of the threshold. The AC LTAprovides that Air Canada and the GTAA will collaborate in the development of certain specified service
level standards important to customer service and the development of a global hub.
The Terminal 3 Enhancement Program had an original approved capital budget of $406.8 million. As part
of the GTAAs 2013 strategic direction review, the capacity elements of the Terminal 3 Enhancement
Program were reviewed and the program has been modified accordingly. The revised capital budget for
the Terminal 3 Enhancement Program is $141.3 million and includes the following projects:
1.
Retail improvements and related modifications to check-in and security screening layout;
2.
Energy efficiency improvements;
3.
Restoration of Pier A (formerly referred to as the Terminal 3 Satellite);
4.
Improvements to baggage induction facilities and baggage screening system conversions; and
5.
Other general refurbishment items.
Potential projects that will be scoped further in 2014 include: expansion of the restoration program,
relocating security in advance of U.S. Customs and Border Protection; additional baggage system
improvements and improved facilitation of passenger connections.
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
3/63
Toronto - Pearson International Airport
January 24, 2014 - FINAL iii
As part of the GTAAs 2013 strategic direction review, infrastructure projects for improvements to
Terminal 1 were identified and include:
1.
Improved facilitation and flow for passengers connecting from International locations to Domestic
destinations;
2.
Addressing regulatory requirements relating to baggage security screening; and
3.
Relocating security in advance of U.S. Customs and Border Protection.
The full scope and implementation of these projects will be developed in 2014.
This Report was prepared to analyze the Airports ability to generate sufficient revenues during the
Forecast Period to permit the GTAA to make payments for operating and maintenance expenses, debt
service requirements, fund deposits and coverage requirements. The Report forecasts the economic and
demographic conditions of the GTA and discusses factors that affect aviation demand at the Airport based
on an independent forecast of passenger levels, aircraft movements, maximum aircraft takeoff weights and
air cargo tonnage. A financial analysis that covers revenues, expenses, capital costs, debt service, airline
requirements and that forecasts airline costs per enplaned passenger through the Forecast Period is also
included.
Based upon our analysis, it is the opinion of AXIS that:
The economic base of the GTA is strong and diverse and demonstrates a high demand for air
transportation service. Population, employment and personal income, all important variables in
deriving air service demand, are forecast to produce steady growth over the Forecast Period. The
GTA will continue to be a leading international commercial and financial center and maintain its
well-balanced and diversified economy.
The Airport will continue to be a major international gateway and hub with a substantial number
of airlines providing flights to all major domestic, U.S. and an increasing number of international
destinations through 2023. Total passenger traffic is forecast to increase from 36.7 million
passengers in 2014 to 47.0 million passengers in 2023 at an average annual compound growth rate
of 2.8 percent.
For the Forecast Period, domestic passenger traffic is forecast to increase at an average annual
compound growth rate of 2.2 percent. The Airport will remain a primary destination on both
transcontinental routes and the Toronto-Montreal-Ottawa triangle market.
Domestic passenger demand at the Airport will be stimulated by the growing presence of several
low fare carriers.
The Open Skies Agreement between Canada and the U.S. and the establishment of a U.S.customs/immigration pre-clearance facility at the Airport will continue to facilitate increases in
transborder traffic. Transborder traffic is forecast to increase at an average annual compound
growth rate of 2.8 percent during the Forecast Period.
International traffic is forecast to increase at an average annual compound growth rate of 3.5
percent during the Forecast Period.
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
4/63
Toronto - Pearson International Airport
January 24, 2014 - FINAL iv
The air traffic and financial projections contained in this Report are based on what AXIS Consulting Inc.believes to be reasonable evaluations of existing conditions, estimates of current conditions and estimatesof future conditions.
The Report should be read in its entirety in order to gain an understanding of the projections and theirunderlying assumptions. The Airport Consultant has no responsibility to update this report for events and
circumstances occurring after the date of this Report.
Respectfully submitted
AXIS Consulting, Inc.
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
5/63
Toronto - Pearson International Airport
January 24, 2014 - FINAL v
TABLE OF CONTENTS
CHAPTER TITLE PAGE
I. ECONOMIC AND AIR TRAFFIC ANALYSIS 1
A.
ECONOMIC CONDITIONS AND OUTLOOK 1
1.
Aviation Industry Outlook 1
2.
Drivers of Toronto Pearsons Future Activity 9
B.
AIR CANADA LONG TERM AERONAUTICAL FEE AGREEMENT 17
1.
Scope 17
2.
Term 17
3.
Fees 18
4.
Airport Improvement Fee 18
5.
Rebates 18
6.
Non-Exclusivity 19
7.
Reservation of GTAA Operational Rights 19
8.
Events of Default and/or Termination 19
9.
Service Level Standards 20
10.
Assignment 20
C.
FORECAST OF AVIATION ACTIVITY 20
1.
Fleet Mix 21
2.
Econometric Approach (Top Down) 23
3.
Air Service Approach (Bottom Up) 23
4.
Qualitative Approach 23
5.
2014 2023 Passenger Discussion and Forecast 24
6.
2014 2023 Aircraft Movements Discussion and Forecast 27
7.
2014 2023 Maximum Take-Off Weight Discussion and Forecast 27
8.
2014 2023 Air Cargo Discussion and Forecast 27
II.
FUTURE AIRPORT CAPITAL PROGRAMS 32A.
TERMINAL 3 ENHANCEMENT PROGRAM 32
B.
TERMINAL 1 ENHANCEMENT PROGRAM 32
C.
AUTOMATED PEOPLE MOVER PROJECT 34
D.
MAINTENANCE AND RESTORATION CAPITAL PROGRAM 34
E.
FUTURE DEVELOPMENT 34
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
6/63
Toronto - Pearson International Airport
January 24, 2014 - FINAL vi
III. FINANCIAL ANALYSIS 36
A.
AIRPORT FINANCIAL STRUCTURE 36
1.
Rate Covenant 36
2.
Rates and Charges Methodology 36
3.
2013 Change to Rates and Charges Methodology 37B.
FUNDING SOURCES 38
1.
Bank Credit Facilities 39
2.
Outstanding Bonds and Future Series Bonds 39
C.
HISTORICAL FINANCIAL OPERATIONS 39
D.
FORECAST OPERATING EXPENSES 42
1.
Personnel Expenses 42
2.
Non-Personnel Expenses 42
3.
Ground Lease 44
4.
Payments In Lieu of Real Property Taxes 44
E.
FORECAST NON-AERONAUTICAL REVENUES 45
1.
Concessions 45
2.
Car Parking and Ground Transportation 47
3.
Rental Revenues 47
F.
FORECAST AIRPORT IMPROVEMENT FEES 47
G.
FORECAST AERONAUTICAL REVENUES 47
1.
Landing Fees and Other Services 49
2.
General Terminal Charges 49
3.
Apron Fees 49
H.
FORECAST DEBT SERVICE AND FUND DEPOSITS 49
I.
FORECAST AIRLINES COST PER ENPLANED PASSENGER 52
J.
CASH FLOW PROJECTIONS 52
K.
DEBT SERVICE COVERAGE 52
L.
CONCLUSION 56
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
7/63
Toronto - Pearson International Airport
January 24, 2014 - FINAL vii
LIST OF TABLES
CHAPTER TITLE PAGE
I-1 North American Airline Mergers 2008 - Present 3
I-2 Comparison of Boeing and Airbus Global Market Forecasts 5
I-3 Comparison of Bombardier and Embraer Global market Forecasts 6
I-4 2013 Boeing and Airbus Aircraft Orders 7
I-5 Key Revenue Drivers of IATA 2013 Passenger & Freight Forecasts 8
I-6 Average Domestic Fares for Major Canadian Airports 14
I-7 2013 Peak Month Average Weekday Fleet Mix 22
I-8 Total Passenger Forecasts 26
I-9 Aircraft Movements Forecast 28
I-10 Maximum Takeoff Weight Forecast 29
I-11 Air Cargo Tonnage Forecast 30
II-1 Sources and Uses of Funds 33
III-1 Selected Consolidated Audited Financial Information 41
III-2 Forecast Operating Expenses 43
III-3 Forecast Non-Aeronautical Revenues 46
III-4 Forecast Aeronautical Revenues 48
III-5 Annual Debt Service Requirements 50
III-6 Forecast Fund Deposit Requirements 51
III-7 Forecast Airline Cost Per Enplaned Passenger 53
III-8 Summary of Cash Flows 54III-9 Application of Revenues and Debt Service Coverage 55
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
8/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 1
January 24, 2014 - FINAL
I. ECONOMIC AND AIR TRAFFIC ANALYSIS
Aviation activity at the TorontoPearson International Airport (the Airport or Pearson) depends
primarily on economic conditions and the network strategies of the airlines. Many factors operating at the
global, national and local levels will jointly determine the demand for air transportation. This section
outlines the economic conditions and outlook of the global airline industry and the drivers that define the
Airports future activity. The forecast period for this Report is from 2014-2023 (the Forecast Period).
A. ECONOMIC CONDITIONS AND OUTLOOK
The Economic and Air Traffic analysis Chapter for the Study outlines the economic conditions and
outlook of the aviation industry from a global perspective, defines the drivers on future traffic growth at
Pearson and presents a long-term forecast of air traffic volumes for the Airport. The forecast is an
independent analysis using mathematical relationships and trend analysis to provide the Greater Toronto
Airport Authority (GTAA) with the necessary guidance to implement long-term business planning
strategies and to help the airport derive future rates and charges. The Forecast Period details total
passengers broken down into the three travel sectors: domestic, transborder and international.
Additionally, a movements forecast is produced and disaggregated into three categories includingpassenger services, charter services and general/aviation and other movements for the same time period as
passengers. This Study will project maximum takeoff weight (MTOW) and cargo demand measured in
tonnage for the Forecast Period.
1. Aviation Industry Outlook
Commercial aviation has weathered many downturns in the past. Yet recovery has followed
quickly as the industry reliably returned to its long-term growth rate of approximately 5.0 percent
per year. Despite uncertainties, 2012 passenger traffic rose 5.3 percent from 2011 levels. This
trend is expected to continue over the next 20 years, with world passenger traffic growing 5.0
percent annually according to the Boeing Co. (Boeing)1. Air cargo traffic has been moderating
after a peak period in 2010. Air cargo contracted by 1.5 percent in 2012. Expansion of emerging-
market economies will foster a growing need for fast, efficient transport of goods. Boeing
estimates growth for the air cargo industry at the 5.0 percent level annually through 2032.
Commercial aviation continues a lengthy process of evolution, changing the way airports relate to
their airlines and communities. It has staggered between a series of periodic crises and has not yet
emerged from the cyclical economic events of the past several years including a spike in the price
of oil and a weak revenue / yield environment. New and increased federally mandated screening
measures have further eroded the airlines operational reliability and the overall passenger
experience. After more than a decade recording multi-billion-dollar losses, United States (U.S.)
airlines appear to be reversing their financial losses based on mergers, acquisitions and new
business models that charge passengers for certain cost recovery fees beyond those that arerequired by federal governments. As the global economy rebounds, travel demand has risen,
pushing load factors to record levels. Net profits in the second quarter of 2013 were solid for
North American carriers in a quarter that was particularly affected in 2012 by higher fuel prices.
WestJet recorded earnings of Canadian dollars (C$) $44.7 million making it its 33rdconsecutive
1Boeing Current Market Outlook, 2013 - 2032
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
9/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 2
January 24, 2014 - FINAL
quarter of profitability2. Air Canada posted an adjusted profit of C$169.0 million in the second
quarter of 20133.
In the U.S., United Airlines (United) reported earnings of U.S. dollars (US$) $469.0 million 4,
Southwest of US$224.0 million5, Delta of US$685.0 million6 and US Airways of US$287.0
million7.
From 2000 through 2009, U.S. airlines lost about US$60.0 billion and eliminated 160,000 jobs,
according to the Airlines for America (A4A). During that tumultuous decade, airlines were hit
with a series of events beyond their control: two recessions, the September 11, 2001 attacks, an
avian flu outbreak and rising fuel costs.
The industry was profitable in 2000, 2006 and 2007, during cyclical economic peaks. Those
growth years were masking the industry's underlying problems including high operational costs
and an over-supply of capacity. During 2008 and 2009, airlines lost a combined US$23.0 billion.
During that same time period, the airlines began aggressive cost-cutting plans aimed at fixing
many of the systemic issues which kept them unprofitable. Some of the cost-cutting measures
they adopted to return to profitability included:
Eliminating money-losing flights: With a recovery in travel demand, airlines raised ticket
prices for the smaller supply of seats, which consequently raised yields.
Grounding older, less gas efficient airplanes: As of year to date (YTD) 2013, there
are more than 1,000 commercial airplanes parked at six airports in the southwestern U.S.
according to the Center of Land Use Interpretation. These aircraft include older types
such as DC-9s and older generation Boeing 737s as well as widebodies such as Boeing
747s and MD-11s.
Adding ancillary fees: In 2010, airlines collected more than US$6.3 billion from ancillary
sources such as checked baggage, on-board purchases and ticket change fees. In 2012,
airlines earned US$27.1 billion from these fees, increasing this line of revenue by 330.0percent in two years8.
Consolidating: Delta Air Lines (Delta) purchased Northwest Airlines (Northwest) in
2008 and United and Continental Airlines (Continental) merged in 2010. American
Airlines (American) and US Airways merged on December 9, 2013, and it will take
approximately 12-18 months to merge their operating certificates. In the low-cost sector,
Southwest Airlines purchased AirTran Airways in 2010. Collectively, these changes put
upward pressure on airfares. Table I-1 summarizesthe airline mergers since 2008.
2WestJet, Media and Investor Relations, www.westjet.com3Air Canada, Investor Relations, www.aircanada.com4United Airlines Inc., Investor Relations, www.united.com5Southwest Airlines Co., Investor Relations, www.southwest.com6Delta Air Lines, Inc., Investor Relations, www.delta.com7American Airlines, Inc. represent earning for former US Airways Group, Investor Relations, www.aa.com8TTG Asia Media Pte Ltd, June 10, 2013
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
10/63
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
11/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 4
January 24, 2014 - FINAL
a)
Commercial Aircraft Demand
Boeing has forecast a long-term demand for 35,280 new airplanes, valued at US$4.8
trillion from 2013 until 20229. Their projections identify 14,350 of these new airplanes
(41.0 percent of the total new deliveries) for the replacement of older, less efficient
airplanes, reducing the cost of air travel and decreasing carbon emissions. The remaining
20,930 airplanes will be for fleet growth and expansion of low-cost carriers in emerging
markets. The latest available data from Airbus SAS (Airbus) estimates that between
2013 and 2032, 27,347 new airplanes will be delivered10. Both of the manufacturers
predict most of these new orders will originate from the Asia/Pacific region in countries
such as China, Indonesia and Malaysia. Bombardier and Embraer, manufacturers of
mostly regional jets under 100 seats, have forecast their aircraft demand estimates. Based
on new, next generation aircraft which both manufacturers are currently planning and
testing, Bombardier has estimated the demand for their aircraft (now defined as seating 20
to 149 passengers) at 12,800 units between 2012 and 2031 11. Embraer (which defines
their aircraft as seating 30 to 120 seats) estimates aircraft demand in their segment to be
6,794 units12. Table I-2and Table I-3show the demand for new aircraft as forecast by
these manufacturers divided by global region.
9Boeing Current Market Outlook, 2013 - 203210Airbus, Global Market Forecast, 2013 - 203211Bombardier, Commercial Aircraft, Market Forecast, 2012-203112Embraer Commercial Aviation, Embraer Market Outlook, 2012-2031
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
12/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 5
January 24, 2014 - FINAL
Key Economic Indicators
Boeing1 Airbus2
World Economy (GDP) 3.2% 3.2%
Airplane Fleet 3.6% 3.5%
Airline traffic (RPK) 5.0% 4.7%
Cargo Traffic (RTK) 5.0% 4.9%
New Airplane Demand by World Region
Boeing1 Airbus2
Asia Pacific 12,820 9,618
Europe 7,460 5,701
North America 7,250 5,851
Middle East 2,610 1,906
Latin America 2,900 2,085CIS 1,170 1,229
Africa 1,070 957
Total 35,280 27,347
Note (s):
1/ Boeing Current Market Outlook, 20 13 - 203 2
2/ Airbus Global Market Forecast, 2012 - 2031
Source(s):
Boeing; Airbus
Table I-2
Toronto - Pearson International Airport
Comparison of Boeing and Airbus Global Market Forecasts
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
13/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 6
January 24, 2014 - FINAL
Key Economic Indicators
Bombardier1
20-149 Seat Aicraft
Embraer2
30-120 Seat Aicraft
World Economy (GDP) 3.3% 3.1%
Airplane Fleet 2.1% 3.2%
Airline traffic (RPK) n/a 5.0%
New Airplane Demand by World Region
Bombardier1
20-149 Seat Aicraft
Embraer2
30-120 Seat Aicraft
North America 4,730 2,195
Latin America 930 670Africa & Middle East 970 515
Europe, Russia & CIS 2,240 1,905
China 2,220 1,005
Asia/Pacific 1,710 505
Total 12,800 6,795
Note( s):
1/ Bombardier Aerospace Market Forecast, 2013 - 2032
2/ Embraer Market Outlook, 2012 - 2031
Source(s):
Bombardier; Embraer
Table I-3
Toronto - Pearson International Airport
Comparison of Bombardier and Embraer Global Market Forecasts
b)
Aircraft Orders
Boeing and Airbus logged US$129.0 billion in aircraft orders at the Paris Air Show in July
201313. Airbus sold 466 planes worth US$69.0 billion and Boeing 382 aircraft valued at
US$60.0 billion. In order to meet demand, both Boeing and Airbus are boosting
production to respond to the risk of longer delivery times. Airbus is planning output of 50
A320 new-engine option (NEO) aircraft per month by the year 2020 from their standard
production level of 42 Airbus A320s. Boeing is increasing monthly output of 737 aircraft
to 42 by 2014 from 35 in 2012 and unveiled its Boeing 737 MAX family as the successor
to the current Boeing 737 Next Generation (NG) family. In May 2013, WestJet ordered
10 Boeing 737-800NG aircraft for delivery in 2014 and 2015
14
. In September 2013,WestJet announced a definitive purchase agreement for 65 Boeing 737 MAX aircraft with
deliveries commencing in 2017. Air Canada has outstanding orders with Boeing for two
additional 777-300ERs, 15 787-8s and 22 787-9s 15. In December 2013, Air Canada
announced its intention to acquire up to 109 Boeing 737 MAX aircraft to replace its
13Speed News, Penton Media Inc., June 20, 201314WestJet, Press Release, www.wesjet.com15The Boeing Company, Commercial Airplanes, Orders and Deliveries, www.boeing,com
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
14/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 7
January 24, 2014 - FINAL
Airbus narrowbody fleet and a portion of the Embraer 190 fleet. A definitive order is yet
to be completed between Air Canada and Boeing. Table I-4shows Boeing and Airbus
orders for 2013 year-to-date.
2013 Boeing Aircraft Orders1
737 747 777 787 Total
2013 Gross Orders 758 5 37 83 883
Changes -94 -5 -8 -1 -108
2013 Net Orders 664 0 29 82 775
737 747 777 787 Total
2013 Airbus Aircraft Orders2
A320 A330 A350 A380 Total2013 Gross Orders 817 11 104 0 932
Changes -36 0 -4 -40
2013 Net Orders 781 11 100 0 892
Note(s):
1/ Boeing orders through August 6, 2013.
2/ Airbus orders through July 31, 2012.
Source(s):
Boeing; Airbus
Table I-4
Toronto - Pearson International Airport
2013 Boeing and Airbus Aircraft Orders
c)
International Air Transport Association Perspective
The International Air Transport Association (IATA) upgraded its global outlook for the
airline industry to a US$12.7 billion profit in 2013 based on projected revenues of
US$711.0 billion16. This is US$2.1 billion better than the US$10.6 billion profit projected
in March of this year and an improvement on the US$7.6 billion profit generated in 2012.
According to IATA, oil prices are expected to average US$108/barrel (Brent Crude) in
2014, a little below the US$111.8 per barrel average for 2012, in part due to increasing
supply from North America. The outlook for global economic growth has deteriorated
slightly since March as the recession in Europe has proven to be deeper than expected.
The beneficial impact of lower fuel prices is expected to offset the adverse effect of
weaker economic growth, providing a moderate boost to industry profitability. Load
factors are estimated to average 80.3 percent by 2014, which would be a record high.
Overall passenger capacity in 2014 is projected to expand to 4.3 percent, which is less thanthe 5.3 percent anticipated growth in demand for 2013. The worldwide industry is
expected to see demand grow faster than capacity. The tight supply and demand
conditions, however, will not lead to improved yields. Passenger yields are forecast to
grow at a rate of 0.3 percent in 2013. Table I-5shows the historical key revenue drivers
utilized in its global outlook.
16IATA Economics, Outlook, Financial Forecast 2013
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
15/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 8
January 24, 2014 - FINAL
2007 2008 2009 2010 2011 2012Estimate 2013 Forecast
World GDP growth 3.8% 1.7% -2.3% 3.9% 2.6% 2.1% 2.2%
Passenger traffic growth 7.5% 2.7% -2.4% 8.8% 6.2% 5.3% 5.3%
Cargo traffic growth 4.7% -0.7% -8.8% 19.4% -0.1% -1.1% 1.5%
Passenger yield growth 1.7% 8.2% 13.7% 9.6% 5.0% 3.5% 0.3%
Passenger load factor 74.9% 76.0% 76.0% 78.4% 78.4% 79.2% 80.3%
Source:
IATA
Table I-5
Toronto - Pearson International Airport
Key Revenue Drivers of IATA 2013 Passenger & Freight Forecasts
d)
Airline Alliances
There are few large network carriers globally that do not belong to an alliance. Airlinessuch as Gulf Air and Virgin Atlantic, which do not belong to a global alliance, have
indicated that alliances have significant anti-competitive elements and that membership
would be an artificial brake on their business plans. According to British Airways,
alliances exist only because of restrictions on mergers for which the three main global
groupings are a poor substitute17. Alliances provide air carriers revenue synergies, but
consolidation often increases near-term operating costs for the individual airline and the
alliances.
There are currently three major airline alliances across the globe:
One World: 12 members
SkyTeam: 19 members
Star Alliance: 27 members
For customers, the advantages of airline alliances include through-ticketing, reducing the
need to be in a myriad of frequent flyer programs with reciprocal points earning
recognition of Frequent Flyer elite status by partner airlines. There have been several
interesting recent moves influencing the traditional airline alliances:
Delta (Sky Team) which owns 49.0 percent of Virgin Atlantic (non-aligned) has
announced a joint venture on U.K.-U.S. flights;
Qantas has recently shifted a significant amount of business from its OneWorld
partner British Airways to non-aligned Emirates;
Consolidations and mergers are shifting alliance memberships (example: the US
Airways - American merger means US Airways will leave Star Alliance for OneWorld
and Continental Airlines (Continental) left SkyTeam just before its United merger to
join Star Alliance;
17Bloomberg L.P., April 11, 2013, www.bloomberg.com
http://www.oneworld.com/member-airlines/http://www.skyteam.com/en/About-us/Our-members/http://www.staralliance.com/en/about/member_airlines/http://www.staralliance.com/en/about/member_airlines/http://www.skyteam.com/en/About-us/Our-members/http://www.oneworld.com/member-airlines/ -
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
16/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 9
January 24, 2014 - FINAL
In March, 2013, after the merger of LAN Chile (One World) and TAM (Star
Alliance), the joint venture, LATAM, announced they chose OneWorld as their
unified alliance of choice;
Lufthansa is almost its own alliance with its European airline subsidiaries: Austrian
Airlines, Brussels Airlines and Swiss Air Lines;
Virgin Australia has a codeshare relationship with Delta (Sky Team) as well as
Singapore Airlines (Star Alliance) and Air New Zealand (Star Alliance).
Alliances arguably bring revenue benefits to those involved. Nevertheless, examples
above show that secondary alliances and agreements by individual network carriers
outside of their alliance parameters are more frequent and may result in a shift in alliance
structures into the future. Low-cost carriers are increasingly joining alliances, GOL
Linhas Aereas of Brazil, will be joining SkyTeam and Jetstar Airlines of Australia will
join OneWorld. Air Canada is a founding member of the Star Alliance and the Airport
serves as a hub for hundreds of daily connections under code-share arrangements between
Air Canada and its partner airlines. WestJet is not part of an alliance as of 2013, but, does
have code-share relationships with American Airlines, Air France, British Airways,Cathay Pacific,China Eastern,Delta, Japan Airlines,KLM andKorean Air.
e)
Air Cargo Industry
Air transportation trade group associations including IATA have been cautious about the
air cargo industrys outlook. IATA warns of potential future issues with cargo growth
which may affect long-term demand including the slow-down of emerging markets and
recent oil price spikes which may continue into the future. The ability of airlines to match
cargo capacity to demand is limited by the natural growth in belly capacity that occurs as
airlines respond to passenger demand. Despite the overall positive signs, cargo markets
remain depressed with IATA revising its 2013 growth to 0.9 percent from a previously
projected 1.5 percent growth rate. Cargo revenues are expected to show an US $8.0billion decline to US$59.0 billion from their peak in 2011. In comparison, passenger
revenues expanded by US$68.0 billion to US$565.0 billion over the same period
according to IATA18. This performance reflects the impact on demand of the oil price
spike associated with the Syrian crisis and disappointing growth in several key emerging
markets. Profits in 2013 will be considerably better than the US$7.4 billion net profit of
2012 and the upward trend should continue into 2014.
2. Drivers of Toronto Pearsons Future Activity
Fuel prices and the economy have been the leading concerns of airlines worldwide followed
closely by over-capacity according to IATA
19
. Fuel price increases have been steady following astrong spike that occurred in 2008. The industry has managed to adjust to the increases, but often
at the price of profitability, where fuel accounts typically for around 30.0 to 40.0 percent of airline
costs. Capacity management and higher load factors, combined with higher yields, have made
profitability possible.
18IATA Economics, Outlook, Financial Forecast 201319IATA Economics, Outlook, Financial Forecast 2013
http://www.aa.com/http://www.airfrance.ca/cgi-bin/AF/CA/en/local/home/home/HomePageAction.do?WT.srch=1&WT.mc_id=3132421|5357422|64186564|241311633|1091628http://www.britishairways.com/travel/home/public/en_cahttp://www.cathaypacific.com/cpa/en_INTL/homepagehttp://www.flychinaeastern.com/http://www.delta.com/http://www.jal.com/http://www.klm.com/http://www.koreanair.com/http://www.koreanair.com/http://www.klm.com/http://www.jal.com/http://www.delta.com/http://www.flychinaeastern.com/http://www.cathaypacific.com/cpa/en_INTL/homepagehttp://www.britishairways.com/travel/home/public/en_cahttp://www.airfrance.ca/cgi-bin/AF/CA/en/local/home/home/HomePageAction.do?WT.srch=1&WT.mc_id=3132421|5357422|64186564|241311633|1091628http://www.aa.com/ -
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
17/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 10
January 24, 2014 - FINAL
On the global economic front, Asia has remained robust and is gearing up for further growth
throughout the forecast horizon, even faced with a slower global economy. Increased air service
and new aircraft orders have all indicated a heavy focus on China and Southeast Asian growth in
the past decade. Europes economic uncertainty has lowered most major international stock
market indices and austerity measures will likely end in the short-term future. Major banks have
erected barriers to protect themselves from shocks, making funding and financing more difficult.
For full-service, legacy airlines such as Air Canada, tight capacity control and the capture of high-
yield, traffic has been key to keeping pace with its peer airlines in the U.S. The legacy airlines are
aware they cannot significantly narrow the operating cost gap between themselves and the Low
Cost Carrier (LCCs) levels. Capacity reductions remain as one of a few options to protect
against losses. Airlines have only a limited capability to protect themselves against rising fuel
prices. Hedging has been an expensive and risky option prompting airlines to limit this strategy.
It is becoming more difficult to hedge fuel prices over the long-term limiting the threat of
prolonged oil price increases. If oil prices were to increase another US$30.00, there is a real
prospect that airlines will substantially reduce flights, with long-haul operations the most sensitive.
In todays more intensely competitive, price-sensitive market, airlines have become much moreprecise in analyzing marginal or loss-producing routes, and implementing selective capacity cuts.
The reduction of flight frequency where possible, or complete route withdrawal where necessary,
can occur quickly, as soon as losses begins. If oil prices were in fact to increase to US$130.00,
this could result in as much as 15.0 to 20.0 percent reductions in long haul seat offerings. This
would not be evenly applied. Route yield profile will be a main determinant, with the first seats to
go from the predominantly leisure routes to tourism-based destinations reliant on long-haul origin
markets. Eventually, lower cost airline models might fill the breach in these markets, but there is
no clear evidence yet that long-haul low-cost operations are effective beyond nine hours flying
time. At that stage, fuel becomes such a high proportion of cost that differentials in other cost
areas pale by comparison.
Short-haul airlines with markedly lower costs (LCCs and others) have expanded and evenflourished while the full-service airlines have stood still. Carriers based in the Middle-East are
growing as fast as any group of airlines in history on long haul and with their yield profile are
probably best equipped to handle any future economic impacts.
a)
Air Canada
Air Canada is defined as a legacy carrier and has undergone different restructuring plans
since 2000 to reduce its high operating costs. Air Canada carries the majority of
international and high yield corporate business travelers from its hub at Pearson. Air
Canadas cost structure has made the company particularly vulnerable to regular operating
risks. In addition, as with most legacy carriers, Air Canada is highly unionized andsusceptible to wage concession negotiations and strikes. After several difficult years
marked by labor unrest, the carrier boosted profitability by recording US$55.0 million in
net profit for 2012, its first annual profit since 2007. According to Air Canada, overall
capacity will grow by approximately 9.0 to 11.0 percent in 2014, in part due to the
delivery of the carriers first seven Boeing 787s. In December 2013, the carrier
announced an agreement with Boeing for orders for 33 Boeing 737 MAX 8 and 28 737
MAX 9 aircraft for deliveries starting in 2017. Air Canada also negotiated options and
purchase rights for an additional 48 Boeing 737 MAX aircraft.
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
18/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 11
January 24, 2014 - FINAL
Air Canada is focusing on transporting more business travelers from the U.S. to final
destinations in Asia and Europe, by transferring them through Pearson, Montreal and
Vancouver according to Toronto Star Newspapers Ltd20. This strategy could potentially
generate an additional US$400.0 million in gross revenue for the carrier.
The airline is adding capacity on Boeing 767 and Airbus 319 aircraft to be used on Air
Canada Rouge, a leisure airline that began service to Europe and leisure markets in the
Caribbean, Mexico and Central America, on July 1, 2013. The leisure carrier, which has a
strategy of competing with established charter carriers like Air Transat and Sunwing
Airlines, started operations with four aircraft with the ability to expand its fleet to 50
aircraft by the end of 2015.
b)
Low-Cost Carriers
LCCs have succeeded internationally due to reduced expenses, flexible work forces, and
strict debt-management. They are usually limited to regional routes, with minimal
international capacity. There is a recent trend that is based on a new business model that
incorporates popular international and national destinations that preserve a lower operatingcost structure. Both WestJet and Porter began as LCCs, and have since expanded
significantly. WestJet is no longer solely regional, offering some select international
flights, and Porter has been looking closer at Western Canada and the North-Eastern U.S.
WestJet reported its highest quarterly earnings since its founding recording a net income
rise of 33.3 percent to C$91.1 million in the first quarter of 2013. That compared with net
earnings of C$68.3 million or C$0.49 per share in the same period in 2012. Total revenue
was up 8.6 percent to C$967.2 million in the first quarter of 2013 compared to C$891.0
million in the first quarter of 2012. WestJet is in the process of selling its oldest Boeing
737-700NG aircraft while agreeing with Boeing to purchase 10 737-800NG aircraft, with
deliveries in 2014 and 2015. WestJet has deferred the delivery of five Boeing 737-700NG
aircraft from 2014 and 2015 to 2016 and 201721.
Encore, a regional airline based in Calgary and wholly owned by WestJet, commenced
operations on June 24, 2013, using a fleet of Bombardier Dash 8 Q400s. Encore initially
launched service from its Calgary to Fort St. John and Nanaimo, both in British Columbia,
followed by Brandon, Manitoba. Encore will eventually have two bases, with the eastern
base at Pearson. The carrier has ordered 17 Dash 8 Q400s from Bombardier and currently
has options for 25 additional aircraft22.
Porter has evolved over the years from a traditional LCC to a hybrid LCC/full service
carrier. The carrier takes full advantage of its LCC business model, but holds a virtual
monopoly over Billy Bishop Airport (Toronto City Centre Airport) where they have low
landing fees and less expensive, non-unionized labor. As a growing company, Porter willbe challenged by cautious expansion at the risk of allocating a large percentage of its
resources too broadly.
20Toronto Star Newspapers Ltd., December 18, 2012, www.thestar.com21WestJet, Media and Investor Relations, www.westjet.com22WestJet, Press Release, www.wesjet.com
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
19/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 12
January 24, 2014 - FINAL
c)
Broad-Based Challenges
Some of the global challenges facing the Canadian air traffic industry include variable
operating costs such as fuel prices and corporate debt borrowing. Specific challenges
imposed by the Canadian government include fees and taxes passed directly to Canadian
air travelers such as the Federal Excise Tax on Aviation Fuel, which Canadian carriers
argue to be an advantage to U.S. carriers. Other Canadian taxes such as the air travelers
security charge introduced after the attacks of September 11, 2001, increased federal
treasury tax collection from travelers by approximately 20.0 percent between 2000 and
2005. Since 2005, these various taxes and surcharges have increased at a rate more
commensurate with overall economic growth.
There has been a significant degree of internationalization of major airlines through inter-
corporate alliances. The result of this could be a global stratification of airlines where a
few leading global carriers would form the first tier followed by a group of national
carriers as second-tier airlines. Most legacy hub carriers such as Air Canada operate with
code-share partnerships within and outside of their global alliances. WestJet, which is not
a member of a worldwide airline alliance, has code-share agreements with nine global aircarriers and interlines (baggage transfer agreements) with an additional 24 airlines.
d)
Industry Competition
Competition rules in the airline industry are significant relative to other sectors. Foreign
ownership limits do not exist to the same degree in things like media and television
competition in Canada. Publicly traded carriers like WestJet and Air Canada are expected
to increase foreign ownership restrictions from 25.0 percent to 49.9 percent.
e)
Canada-U.S. Relations
Canada and the U.S. are currently the world's largest trading partners and share the world'slongest border. Recent difficulties have included repeated trade disputes, environmental
concerns, Canadian concern for the future of oil exports, issues of illegal immigration and
the threat of terrorism. Trade between the two countries has continued to expand in both
absolute and relative terms for the last two hundred years, but especially following the
1988 Free Trade Agreement (FTA) and the subsequent signing of the North American
Free Trade Agreement (NAFTA) in 1994.
Canada and the U.S. have three significant issues/events to see through during the 2013
2014 period: a new U.S. ambassador to assume the post in Ottawa, the decision on the
Keystone XL Pipeline and reciprocal official state visits by Prime Minister Stephen
Harper and President Barack Obama. Each of these events is an important element in thebilateral relationship between the two nations. This Report maintains that the political,
economic and trade relations climate between Canada and the U.S. will remain positive
and trade will continue to grow throughout the Forecast Period.
f)
Fuel Costs
In 2012, prices climbed to approximately US$100.00 a barrel for Brent Crude despite a
soft international economy and relatively weak demand for oil. According to BP, crude
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
20/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 13
January 24, 2014 - FINAL
oil consumption in developed countries declined by 1.2 percent in 2012 to record low
levels since 1995, but overall global consumption grew by 0.7 percent23.
Uncertainty in unstable political regions such as the Middle East is one factor that is
keeping buyers and speculators from large investments. Instability is not unusual for the
Middle East region, but heightened tensions in Syria, Libya, Turkey and Egypt in addition
to demonstrations quickly assembled through social media in the region have prompted
caution in the investment markets for crude oil.
Most expectations are for fuel prices to remain around current levels for 2013 according to
the U.S. Department of Energy24. A fuel price spike in 2014 or beyond could force
airlines to further reduce capacity on marginally profitable routes or to withdraw
completely. In the past full-service airlines may well have persisted with ailing routes, but
todays heightened levels of competition are prompting a greater focus on the short-term
bottom line.
g)
Airline Yield
The public data on airfares is very limited. Statistics Canada has published evidence that
Pearson has higher airfares compared to other Canadian airports as shown in Table I-6.
The airlines will be especially reluctant to reduce services at high airfare markets that
produce higher airline yields during a period of weak traffic. High airfare markets are less
vulnerable to problems associated with poor airline earnings and are the most likely to
attract competition, Torontos high airfares were likely part of the attractions that induced
WestJet to transfer its eastern Canada hub from Hamilton to Pearson in 2004. High
airfares show the potential for traffic stimulation. Should Pearson receive even stronger
domestic competition, its relatively high airfares would fall, further stimulating traffic
growth.
An appreciating Canadian Dollar has and will continue to make the Airport more desirableto foreign airlines. There is little data available publicly on average international airfare
levels.
23BP, Energy Outlook 2030 booklet, www.bp.com24U.S. Department of Energy,Annual Energy Outlook 2013 - Energy Information Administration, www.eia.gov
http://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&cad=rja&ved=0CCwQFjAA&url=http%3A%2F%2Fwww.eia.gov%2Fforecasts%2Faeo%2F&ei=VAauUurVGoalsATjmYCgBg&usg=AFQjCNGXPMmucRRzKAqaSsYArjkQ4fU4Eg&bvm=bv.57967247,d.cWchttp://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&cad=rja&ved=0CCwQFjAA&url=http%3A%2F%2Fwww.eia.gov%2Fforecasts%2Faeo%2F&ei=VAauUurVGoalsATjmYCgBg&usg=AFQjCNGXPMmucRRzKAqaSsYArjkQ4fU4Eg&bvm=bv.57967247,d.cWc -
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
21/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 14
January 24, 2014 - FINAL
h)
Currency
The Canadian dollar will hold near current levels through 2013 while seeing a rebound toparity with the U.S. Dollar by the end of 2014 according to CIBC World Markets Inc25.
Historically, the Canada economy fared better than most industrial nations, but still
experienced a serious recession in 2008 and 2009. As a result, the central bank pushed
interest rates to record lows. In Canada, natural resources still make up less than half of
exports, with manufactured products still hanging on to a major role. The country's top
exports are oil, vehicles/parts and machinery. Disappointing growth in China and a shift
in its mix towards less resource-using sectors like services, have had a limited effect on
the Canadian economy given that China's import share in oil, Canada's export
heavyweight, remains limited. Other countries like Australia, heavy producers of iron-ore
mostly exported to China, have experienced a fall in export prices as a result of greater
commodities reliance, and specifically to goods tied to Chinese demand.
Canada's oil reliance brings its own vulnerabilities and according to CIBC, economists
expect crude oil to average US$98.00 per barrel in 2014, helped by improving global
growth, even if politics in the Middle East temper. Canada faces a potentially more
favorable external environment in the coming year, given its significant ties to the
improving U.S. homebuilding market. CIBC forecasts that the U.S. economy could see a
25CIBC Monthly FX Outlook - CIBC World Markets,October 2013
2011-Q3 2011-Q4 2012-Q1 2012-Q2 Average
Calgary 173.40 183.50 174.10 178.40 177.35$
Edmonton 166.10 175.20 170.70 173.50 171.38
Halifax 173.50 186.20 186.60 184.00 182.58
Montreal 186.10 191.10 189.40 192.50 189.78
Ottawa 184.40 195.90 190.90 201.40 193.15
Regina 173.30 183.50 174.70 180.50 178.00
Saskatoon 178.10 185.90 185.50 190.60 185.03
Toronto 204.60 217.50 215.50 213.90 212.88Vancouver 204.40 212.30 208.30 204.70 207.43
Winnipeg 180.20 197.10 189.60 189.40 184.90
Source:
Stat s CDA CANSIM T able 401-0003 "Domestic Air Fares, Selected Cities of Enplanement "
Table I-6
Toronto - Pearson International Airport
Average Domestic Fares for Major Canadian Airports
http://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=4&cad=rja&ved=0CD0QFjAD&url=http%3A%2F%2Fresearch.cibcwm.com%2Feconomic_public%2Fdownload%2Ffxmonthly.pdf&ei=6weuUuuRI-ipsAS_74DIDA&usg=AFQjCNEMg526AEfLa7bOSsuk1yW_vNfhBw&bvm=bv.57967247,d.cWchttp://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=4&cad=rja&ved=0CD0QFjAD&url=http%3A%2F%2Fresearch.cibcwm.com%2Feconomic_public%2Fdownload%2Ffxmonthly.pdf&ei=6weuUuuRI-ipsAS_74DIDA&usg=AFQjCNEMg526AEfLa7bOSsuk1yW_vNfhBw&bvm=bv.57967247,d.cWchttp://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=4&cad=rja&ved=0CD0QFjAD&url=http%3A%2F%2Fresearch.cibcwm.com%2Feconomic_public%2Fdownload%2Ffxmonthly.pdf&ei=6weuUuuRI-ipsAS_74DIDA&usg=AFQjCNEMg526AEfLa7bOSsuk1yW_vNfhBw&bvm=bv.57967247,d.cWc -
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
22/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 15
January 24, 2014 - FINAL
noticeable acceleration next year and projects growth of 3.3 percent vs. 1.8 percent in
2013.
i)
Liberalization
Canadas Blue Sky policy, announced in the fall of 2006, outlined a process to ease the
entry barriers on international air services and have brought tangible benefits to Pearson.
In 2008, Iceland Air inaugurated nonstop services from Toronto to Reykjavik. A March
2009 agreement with Turkey allowed Turkish Airlines to begin nonstop Toronto-Istanbul
flights, limiting the airline to three flights weekly. The spring 2009 agreement with Korea
allowed Korean Air to boost nonstop Toronto-Seoul services to a daily flight. The
December 2009 agreement with the European Union (EU) not only liberalizes air
services to nineteen nations; it extends a liberal agreement to eight EU member states that
previously lacked any air service agreement with Canada. The agreement largely
eliminates routing, pricing, capacity and carrier designation constraints. In August 2011,
Canada and Brazil concluded an open skies agreement. In September 2011, negotiations
with Japan concluded with a greatly liberalized agreement that became effective in 2013.
In 2011, successful Canada-Mexico and Canada-Costa Rica negotiations led to expandedair service agreements. In 2013, Saudia and Egypt Air announced new nonstop routes to
Pearson following an easing of bilateral restrictions.
The process of international liberalization remains incomplete, and situation-specific
impediments remain. Bilateral agreements still constrain frequencies between Canada and
the United Arab Emirates, Turkey and other countries. The bilateral agreement with
Singapore creates liberal rights only for all-cargo and nonstop passenger flights. Between
2011 and 2013, a larger degree of liberalization towards foreign-investment rights in the
Canadian air traffic industry has occurred. Canada, however, has been faced with a
number of challenges that are not conducive to further liberalization including a heavy tax
burden and intense competition.
j)
New Aircraft
With the advent of a new classification of aircraft identified as Group VI, along with new
and fuel-efficient Group IV and V airplanes throughout the forecast horizon, there will be
a large number of new aircraft taking flight, particularly in the next 10-year period. These
aircraft include the 555-seat Airbus 380 (Group VI), the 250 to 290 seat Boeing 787
(Group V) and the 315 seat Airbus A350 XWB (Group V). Most of these aircraft to date
have been sold to foreign flag carriers. In Canada, Air Canada holds orders and options
for 15 Boeing 787-8 and 22 Boeing 787-9 aircraft. In the U.S., American, United and
Delta have orders for 110 Boeing 787-8 and Boeing 787-9 aircraft along with 208 options.
US Airways (ordered prior to the American merger), United Airlines and HawaiianAirlines have orders for 53 Airbus A350-800 and Airbus A350-900 aircraft along with 56
options.
A new group of narrow body aircraft in development will enter service in 2014. The
Bombardier C-Series will seat between 110 and 130 passengers and will have two
variants, the CS100 and CS300. In April 2013, Porter signed a conditional order for 12,
with options for an additional 18, C-Series CS100 aircraft. In the U.S., Republic Airways
has already committed to purchase 40 CS300 aircraft.
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
23/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 16
January 24, 2014 - FINAL
Airbus will introduce a new version of its 320 aircraft named the NEO (new engine
option). The A320neo will have improvements in fuel burn, maintenance costs and will
gain additional range. These combined improvements are projected to result in 15.0
percent less fuel consumption, 8.0 percent lower operating costs and a reduced noise
production. Airbus has logged over 2,300 orders as of August 2013, and first delivery is
scheduled for 201626.
Similarly, Boeing launched the 737 MAX family of aircraft as a replacement of the
previousBoeing 737Next Generation (NG) family. It will be the fourth generation of the
Boeing 737 family. The primary change is the use of the larger and more efficientCFM
International LEAP-1B engines. The airframe is to receive some modifications as well.
The Boeing 737 MAX is scheduled for first delivery in 2017 Boeing has firm orders for
the 737 MAX totaling 1,495 as of July 201327.
k)
Regional Jets
It is expected that a trend towards larger regional jets will continue while most of the
smaller regional jets will be retired from the Canadian airline fleet throughout the ForecastPeriod. While demand for 70 to 90 seat aircraft continues to increase, it is expected that
the number of 50 seat regional jets in service will fall, increasing the average regional
aircraft size in 2014 and beyond. Given a production halt of 50-seat regional jets by major
manufacturers such as Embraer and Bombardier and the average age of these aircraft
(Embraer 145/140/135 and Canadair CRJ-200s) slowly increasing throughout the forecast
horizon, the average increase in regional jet size will continue.
l)
Aerospace Manufacturers - Bombardier
In late-November 2009, Bombardier announced they would have to cut 715 jobs in the
Montreal area because of lack of interest for buying aircraft28. Unlike the major carriers,
aerospace manufacturers are going to take much longer to bounce back. It willundoubtedly take time for the major carriers to be in the position to place orders for new
aircrafts, and it could be two or more years before aerospace manufacturers catch up with
the rest of the industry with the exception of those with large military contracts. The Q400
Turboprop has been a successful aircraft given its great efficiency and lower price than the
new generation regional jets. Demand for the Q400 has been supported by a broad range
of orders from return customers of earlier versions of the Dash-8 such as Jazz, as well as
carriers in European countries and the Middle East. Bombardier has been diversifying
their interests and recently has been talking to major Middle Eastern airlines about
supplying 100 to 149 seat C-Series jets. While these are good linkages to be establishing,
the opportunities to capitalize on these offers will not be realized until major airlines are
well into the recovery process.
26Airbus, Aircraft Families A320neo, www.airbus.com27The Boeing Company, Commercial Airplanes, Orders and Deliveries, www.boeing,com28Air Transport World, November 30, 2009, www.atwonline.com
http://en.wikipedia.org/wiki/Boeing_737_Next_Generationhttp://en.wikipedia.org/wiki/CFM_International_LEAPhttp://en.wikipedia.org/wiki/CFM_International_LEAPhttp://en.wikipedia.org/wiki/CFM_International_LEAPhttp://en.wikipedia.org/wiki/CFM_International_LEAPhttp://en.wikipedia.org/wiki/Boeing_737_Next_Generation -
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
24/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 17
January 24, 2014 - FINAL
m)
Conclusion
The Greater Toronto Areas (GTA) well-balanced and diversified economy, large
population base, and attractiveness as a business and tourist destination should continue to
provide strong demand for air transportation services over the Forecast Period. In
addition, stable fuel costs, increased airline competition both on the domestic and
international fronts as well as an appreciating currency will provide for traffic growth at
Pearson throughout the Forecast Period. The Canadian air carrier industry has responded
to this positive outlook with large wide-body, narrow-body and regional aircraft orders
and the creation of two new subsidiary carriers for domestic and international leisure
customers.
The GTA continues to be the largest gateway to Canada and a leading international
destination. The cultural and social ties resulting from immigration will create economic
development that will support future air service demand. These factors make the GTA a
desirable place in which to live, visit and conduct business. With growth expected in
population, employment and personal income, the GTA is forecast to generate continued
demand for air transportation service through the Forecast Period.
B. AIR CANADA LONG TERM AERONAUTICAL FEES AGREEMENT29
On October 17, 2013, the GTAA entered into a Long Term Aeronautical Fees Agreement with Air
Canada (the AC LTA). Pursuant to the AC LTA, Air Canada will pay a fixed amount (subject to certain
adjustments as permitted under the AC LTA) to the GTAA in lieu of the GTAAs standard aeronautical
charges (normally comprised of landing fees, general terminal charges and apron fees). The key terms of
the AC LTA are summarized below.
1. Scope
The AC LTA covers the aircraft movements of Air Canada, its wholly-owned subsidiaries, thirdparty air carriers with whom Air Canada has or enters into capacity purchase agreements and other
arrangements as may be mutually agreed to be included in the scope of the AC LTA (Air Canada
Family Members).
2. Term
The AC LTA comes into effect January 1, 2014, and covers an initial five year term expiring
December 31, 2018. The term will be extended automatically for a further five years expiring
December 31, 2023, provided that (i) Air Canada Family Members collectively meet an agreed
passenger volume threshold during the 2018 calendar year, and (ii) the AC LTA has not otherwise
been terminated prior to the expiry of the initial term. The GTAA may, at its option, elect toextend the initial term for the further five year period notwithstanding the applicable passenger
volume threshold has not been met.
29GTAA
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
25/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 18
January 24, 2014 - FINAL
3. Fees
The AC LTA provides for the payment by Air Canada of a fixed annual aeronautical base fee, plus
applicable sales or other commodity taxes, over the term (including any extended term). In 2014,
the fixed annual aeronautical base fee is approximately $270.0 million, which reflects Air
Canadas proportionate share of the GTAA is forecasted 2014 aeronautical costs expected to be
incurred by the GTAA at the Airport, which costs would otherwise be recovered by the GTAA
through the imposition of landing fees, general terminal charges and apron fees. In subsequent
years, including any extension of the initial five year term, the prior years fee escalates by
approximately one percent (1.0 percent) annually.
The fixed annual aeronautical base fee may be increased or decreased in certain circumstances,
including if the GTAA elects to adjust any one or more of its then current published aeronautical
charges payable by the remainder of the air carrier community at the Airport for any reason,
including (without limitation) adjustments to address:
Unbudgeted or unanticipated increases or decreases in the GTAAs revenues (other than
reductions pursuant to the payment of rebates under the AC LTA), costs or capitalexpenditures;
Increases or decreases in the GTAAs costs arising from changes in or restructuring of the
manner of provision of certain services at the Airport which are currently paid by the
remainder of the air carrier community operating at the Airport directly to third party service
providers as third party service fees; or
Other adjustments which the GTAA determines will be necessary in order to manage the level
of GTAA indebtedness in accordance with its requirements and objectives.
In the above circumstances, the GTAA determines the amount of additional or reduced funds
that it requires to raise through its aeronautical charges. Air Canadas fixed annual
aeronautical base fee is then adjusted by its proportionate share of the additional or reducedfunds accordingly (based on Air Canadas share of 2013 aviation traffic). The proportionate
share percentage remains unchanged throughout the term of the AC LTA.
4. Airport Improvement Fee
The GTAA expressly retains its right to increase or decrease the Airport Improvement Fee at any
time during the term of the AC LTA in its sole discretion.
5. Rebates
For each calendar year of the term, the AC LTA establishes certain passenger traffic thresholds for
the Air Canada Family Members collectively. Provided that the Air Canada Family membersachieve the cumulative passenger threshold in a given year, Air Canada shall receive a rebate
calculated based on the additional revenues generated by incremental passenger growth at the
Airport in excess of the threshold.
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
26/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 19
January 24, 2014 - FINAL
6. Non-Exclusivity
The GTAA is not prevented from or restricted in entering into other aeronautical rate agreements
with other air carriers operating or proposing to operate at the Airport on the same or on different
terms, or from offering and implementing incentive programs regarding aeronautical charges in its
sole discretion. If the GTAA enters into a fixed fee contract with another air carrier exceeding
certain parameters, the base fee in such other air carrier must be not less than a specified
percentage of the GTAA forecasted revenues from that other air carrier during the term of that
other agreement. Where the GTAA wishes to engage in an incentive program to the air carrier
community regarding aeronautical charges, the GTAA shall publish its program on its website.
The GTAA shall also publish and adhere to its standard rates and terms with respect to other
commercial arrangements for air carriers at the Airport (such as employee parking and commercial
space rentals).
7. Reservation of GTAA Operational Rights
The GTAA retains all rights to operate the Airport in such manner, as it deems appropriate, both
with respect to its development decisions and with respect to the operational procedures and plansconcerning its facilities. The AC LTA expressly provides that Air Canada has no interest in any
gates, counters, terminals or other GTAA facilities and that the GTAA is not obliged to provide or
construct any infrastructure or improvements or implement any particular operating procedures.
8. Events of Default and/or Termination
The AC LTA provides for certain customary events of default and rights of termination, and
expressly provides for additional rights of termination in certain circumstances, including the
following:
Air Canada may terminate the AC LTA without liability of either party if, at the end of a
calendar year, the fixed annual aeronautical base fee for that year (net of any permissibleadjustments and rebate earned by Air Canada) is greater than the amounts that would have
been paid by the Air Canada Family Members collectively if they had been paying the
GTAA on the basis of its thencurrent published tariffs in respect of aeronautical
charges;
Air Canada may terminate the AC LTA without liability of either party if the GTAA fails
to deliver (a) by June 16, 2014, a draft airport development plan, including the GTAAs
facility allocation procedures in respect of common use assets, provided that such
termination right must be exercised so as to terminate the AC LTA prior to or on
December 31, 2014, and (b) by December 31, 2015, certain related facility improvements
for common use assets or its written plan for doing so, provided that such termination right
must be exercised so as to terminate the AC LTA prior to or on December 31, 2016;
The GTAA may terminate the AC LTA effective on or after December 31, 2019, if the Air
Canada Family Members fail to achieve agreed threeyear rolling average passenger
volume thresholds, beginning with the 2017-2019 period; and
If the GTAAs Ground Lease is terminated for any reason and the AC LTA is not assigned
to the federal government, the AC LTA shall be terminated as of the date of termination of
the Ground Lease.
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
27/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 20
January 24, 2014 - FINAL
9. Service Level Standards
The AC LTA provides that Air Canada and the GTAA shall collaborate in the development of
certain specified service level standards which the parties have identified as being important to
customer service and the development of a global hub. The GTAA and Air Canada will develop
the relevant metrics over a period of six months, with the eventual goal of achieving top quartile
performance as compared to mutually agreed comparator groups of airlines and airports. The
service level standards will be measured and improvement plans will be developed collaboratively,
with remedies available to promote improved service performance. The GTAA will be obliged to
impose (i) commensurate service level standards on ground handling service providers operating at
the Airport and other air carriers with longterm fee agreements and (ii) commensurate non-
binding service level standards on other air carriers operating at the Airport. Any payments to
other air carriers under incentive programs will only be payable if the air carriers achieve a certain
standard of performance. Ground handling companies who fail to comply with the standards shall
be subject to termination by the GTAA in its discretion.
10. Assignment
The GTAA may assign its rights and obligations under the AC LTA, without the prior approval of
Air Canada, to any person which:
Is able to grant the same rights with respect to the Airport and the fixed annual
aeronautical base fees as are granted by the GTAA pursuant to the AC LTA; or
Is the counterparty to the Ground Lease with Her Majesty and is the operator of the
Airport, and the GTAA may encumber such rights by way of security or assignment as
security to its lenders.
C. FORECAST OF AVIATION ACTIVITY
The forecasts of total passengers, aircraft movements, MTOW and air cargo tonnage presented below were
developed by AXIS for the purpose of this Study. Annual, quarterly, monthly and weekly aviation activity
was analyzed in constructing a 10-year forecast of the Airports aviation demand and the longer-term
prospects that are reasonably expected and driven by conventional aviation demand-drivers (e.g.,
population and PCPI). The forecast methodology employed regression analysis (top-down), air service
analysis (bottom-up) and a qualitative approach predominantly observing system-wide industry trends.
The economic environment in 2013 was taken into consideration, particularly the volatile socio-political
climate in the Middle East and North Africa and continuing Euro Zone debt crisis and austerity measures.
The forecast was based on continuing aviation demand recovery in the Canadian, U.S. and international
markets. The forecasts assume that airlines will continue to stress cost controls and the unbundling of
products and services, which were normally included in ticket prices in the past (i.e., checked-luggagefees, onboard snacks for sale etc.). Pro-competitive policies will force the airlines to pass savings on to
customers and shippers.
Key assumptions for the Forecast Period include:
Long-term population growth will provide the basis for aviation demand in the GTA.
Pearson will remain the principal airport serving the GTA and will remain a competitive gateway
for international travel through the Forecast Period.
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
28/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 21
January 24, 2014 - FINAL
The GTA will remain a leading center of industry, innovation, education, and culture and will be
an important influence in the growth of international air traffic.
Domestic air carriers will face a competitive environment, resulting in average airfares that will
remain reasonable; low cost air carriers will maintain their presence at the Airport and grow at a
moderate rate.
Transborder routes will be adversely affected during the Forecast Period by a slowly recovering
U.S. economy.
Both transborder and international travel may grow due to international airline competition and
new trade liberalization. New travel opportunities should increase air service at Pearson.
Reform and liberalization of international aviation agreements on market entry will continue. The
most important agreements have already been liberalized. Restrictions on bilateral agreements
will continue to constrain growth at Pearson on a very case-specific basis.
Fuel supplies will remain available for air transportation, and the cost will be subject to short-term
volatility.
Aircraft will become more fuel efficient, quieter and more cost effective with lower emissions,thereby reducing airline operating costs while increasing reliability.
1. Fleet Mix
The current fleet mix at Pearson, according to a published schedule provided by the GTAA via
Sabre Airline Solutions for a peak schedule in August 2013, is comprised mainly of narrow body
aircraft. The average number of departing seats per aircraft movement is 114 and the largest
number of departures is performed by the Bombardier CRJ-200 at 9.4 percent of total movements.
It is assumed that the fleet mix at Pearson will change throughout the forecast horizon with a
reduction in 50-seat regional jets and 37-seat DeHavilland Dash-8 aircraft and be replaced by
larger capacity aircraft types such as Embraer E-Jets, Canadair C-Series aircraft and Bombardier
Q-400 turboprops. Narrow body aircraft currently dominating the Airports fleet mix include theAirbus 320, 319 and the Boeing 737-700 NG (accounting for 26.6 percent of the current fleet
mix), the majority of which comprise the domestic and regional fleets of Air Canada and WestJet.
Most of these aircraft average a low to medium fleet age are optimally sized and have the best
flight economics to continue comprising the bulk of Pearsons fleet mix. Wide bodies comprised
10.1 percent of Pearsons total fleet mix in 2013. These aircraft are predominantly operated by Air
Canada to long-haul international destinations in Europe, Latin America and the Far East.
Additionally, the Airport hosts 32 foreign air carriers, excluding U.S. carriers, the majority of
which operate wide bodies including Boeing 777s, Airbus 330/340s and Boeing 787s to the
Airport. Table 1-8 shows the 2013 peak month average weekday fleet mix at Pearson.
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
29/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 22
January 24, 2014 - FINAL
Aircraft Type 2013 Fleet Mix Share (%)
Canadair Regional Jet 9.4%
Airbus A319 9.1%
Airbus A320 9.0%
Boeing 737-700 8.6%
De Havilland DHC-8-100 Dash 8/8Q 8.5%
Embraer ERJ-190 7.6%
Boeing 737-800 5.9%
De Havilland DHC-8-400 Dash 8/8Q 5.2%
Embraer ERJ-175 4.6%
Beechcraft Beech 1900D 4.4%
Canadair Regional Jet 700 3.9%Boeing 737-600 3.7%
Boeing 767-300 3.3%
Airbus A321 3.1%
Canadair Regional Jet 705 2.9%
BOEING 777-300ER 1.7%
Embraer ERJ-135/140/145 Regional JetF21 1.5%
Airbus A330-300 1.0%
Airbus A330-200 0.9%
Airbus A310-300 0.9%
BOEING 777-200LR 0.7%
Canadair Regional Jet 900 0.7%
Embraer ERJ-145 Regional Jet 0.7%De Havilland DHC-8-200 Dash 8/8Q 0.5%
Boeing 777-200ER 0.3%
Boeing 787-8 0.3%
Embraer ERJ-170 0.3%
BOEING 747 Freighter 0.2%
Airbus A340-300 0.2%
Airbus A340-600 0.2%
Boeing 747 Combi 0.2%
Boeing 757-200 0.2%
Boeing 767-200 0.2%
Boeing/McDonnell Douglas MD-11 0.2%
Embraer ERJ-140 Regional Jet 0.2%
Note(s):
1/ Design Day Schedule for August 15, 2013.
Source(s):
GTAA; Sabre Airline Solutions
Table I-7
Toronto - Pearson International Airport
2013 Peak Month Average Weekday Fleet Mix
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
30/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 23
January 24, 2014 - FINAL
2. Econometric Approach (Top Down)
Air transportation demand is derived from the demographic and economic profile of a region.
Origin & Destination (O&D) passengers are those passengers who arrive at or depart from an
airport; they do not change aircraft at the subject airport. The total number of O&D passengers is
a reflection of a regions attractiveness as a place in which to live, visit, work, and conduct
business. The majority of Pearsons passengers are considered O&D (approximately 70.0 percent
in 2013). With a large number of total passengers, the Airport has a sizeable connecting or
transfer passenger presence expected to equal approximately 10.5 million passengers in 2013. The
Airport serves a major connecting point for both Air Canada and WestJet and connects numerous
international-to-domestic/transborder passengers via code-share agreements with the Star Alliance
network of carriers.
AXIS reviewed and tested the GTAA forecast using a methodology that has been successfully
used and accepted by most major airports, Transport Canada and the FAA linear regression. The
methodology involves collecting and analyzing historical data and uses standard statistical
techniques to identify relationships between elements of historical information, which can then be
used to project future activity.
Historical enplanement data (the independent variable) was paired against socio-economic and fare
data (the independent variables) to establish a statistical relationship between the demographic and
economic variables and the demand for air travel. With this mathematical relationship (the
regression equation) established, the forecast of demographic variables and airline yield were used
to project future levels of passenger activity.
3. Air Service Approach (Bottom-Up)
After calculating passenger growth rates via an econometric approach, a fleet-mix forecast using a
2013 peak month average week day schedule was developed for Pearson. The schedule, obtained
from the GTAA via Sabre Airline Solutions, looked at an average day in the peak month givingplanners a good indication of what the operational conditions would be at the Airport during the
busiest season of the year. This baseline schedule was then calibrated by applying load factors and
further annualized to reflect near actual annual volumes. Using this baseline schedule and using
air service principles, current industry outlook reports and future aircraft orders, a fleet mix
forecast was constructed for 2018 and 2023. All the changes made in the fleet mix forecast were
documented for discussion purposes and to allow for further revisions and calibration. Airline
planners frequently forecast their future activity through a bottom-up exercises which look at flight
activity based on fleet mix, market growth and competitive assumptions.
4. Qualitative Approach
The qualitative approach is associated with the subjective quality of Pearsons operations and
requires the expertise of an aviation analyst to document and follow trends of air service activity
and growth at the Airport. The qualitative approach did not require quantification as the
knowledge gained was through the observation and experience gained by AXIS and through
conversations with GTAA staff.
Some of the observations included the following:
http://www.businessdictionary.com/definition/associated.htmlhttp://www.businessdictionary.com/definition/subjective.htmlhttp://www.businessdictionary.com/definition/quality.htmlhttp://www.investorwords.com/10896/require.htmlhttp://www.businessdictionary.com/definition/quantification.htmlhttp://www.businessdictionary.com/definition/quantification.htmlhttp://www.investorwords.com/10896/require.htmlhttp://www.businessdictionary.com/definition/quality.htmlhttp://www.businessdictionary.com/definition/subjective.htmlhttp://www.businessdictionary.com/definition/associated.html -
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
31/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 24
January 24, 2014 - FINAL
WestJet has signed a letter of intent to purchase 65 Boeing 737 MAX aircraft, comprising
40 Boeing 737 MAX 8s and 25 Boeing 737 MAX 7s; the order is valued at US$6.3 billion
and is a key component of the carrier's strategy to optimize and modernize.
WestJet Encore, the new turboprop regional affiliate of WestJet, launched operations with
a fleet of Bombardier Q400s in 2013;
WestJet ordered 20 Q400s plus 25 options and envisions Encore eventually covering all
of Canada; the regional will be focused on serving western Canadian destinations in the
short-term and will serve Pearson in the medium-term.
Air Canada selected the Boeing 737 MAX family to replace its fleet of Airbus narrowbody
aircraft and a portion of its Embraer 190 fleet. Air Canada plans to acquire up to 109
Boeing 737 MAX aircraft, with deliveries commencing in 2017. The order is subject to
completion of a definitive purchase agreement.
Air Canada will commence deliveries of the 251-seat Boeing 787-8 Dreamliner aircraft
during 2014.
Air Canadas new leisure airline, Rouge, launched new service to holiday spots in Europe
and the Caribbean departing daily from Toronto and Montreal; service was launched onJuly 1, 2013.
Air Canada has completed the transfer of all 15 Embraer E-175 aircraft to Sky Regional
Airlines; under a capacity purchase agreement, Sky Regional now operates 20 aircraft on
behalf of Air Canada.
Air Canada is looking to transfer the operation of some Canada-U.S. transborder regional
flights from Chorus Aviation Inc.s Jazz to another regional carrier, in an effort to cut
costs; a Request for Proposal (RFP) is out for regional carriers to take over the operation
of some existing, short, cross-border routes.
New international air service from Pearson in 2013 includes the following carriers:
o
Saudia to Riyadh, Saudi Arabia.
o
Aer Lingus service to Dublin, Ireland (commences in 2014)
o Egyptair to Cairo, Egypt.
5. 2014 2023 Passenger Discussion and Forecast
Total Airport passenger volume grew from 28.6 million in 2004 to an estimated 35.6 million in
2013, reflecting an average annual compound growth rate of 2.5 percent (see Table I-8).
Although economic factors will constrain the Airports traffic growth, the forecasts reflect and
expect no significant, disruptive, non-recurring events such as SARS or September 11, 2001.
Total passenger volumes have been projected through 2023, reaching an estimated 47.0 millionpassengers. During the Forecast Period, total passengers are estimated to increase at an average
annual compound growth rate of 2.8 percent.
Passenger traffic within the Canadian domestic market, the largest segment, is expected to
continue to expand on the strength of the GTA economy and the strong competition between Air
Canada and WestJet. This segment, however, is mature. In the absence of a sharp increase in
-
8/11/2019 GTAA_2014_FeasibilityStudy.pdf
32/63
Toronto - Pearson International Airport
Chapter I Economic and Air Traffic Analysis 25
January 24, 2014 - FINAL
competition and a consequent reduction in fares, domestic traffic is projected to experience an
average annual compound growth rate of 2.2 percent over the Forecast Period
Transborder passengers (Canadian-U.S. local travel plus the international destination passengers
who use Toronto or a U.S. gateway as transit points) will display moderate long term growth. The
recovering U.S. economy and rising real estate prices will help fuel this growth.
During the Forecast Period, the transborder passenger traffic market is projected to increase from
an estimated 9.9 million passengers in 2014 to 12.7 million passengers by 2023, at an average
annual compound growth rate of 2.8 percent. The expansion by Air Canada and the longer term
strategic transborder