“Creating an Environment for Success”Air Service Reform and Why We Should Care

Presented by Jim Facette, President & CEO

2

Airport Evolution

3

Managing Growth - Passenger

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

Domestic Transborder Overseas

PASSENGER GROWTH SINCE 1995,FORECAST THROUGH 2019

Forecast

Source: Transport Canada

Millionspax

4

Transborder Growth

Millions ofPax

Source: Transport Canada

CANADA-U.S. TRANS-BORDER GROWTH, FORECAST

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Forecast

5

Canada-U.S. Passengers

62%21%

17%

Domestic Transborder Other International

CANADIAN PASSENGER TRAFFIC

Transborder

Market

Transport Canada Aviation Forecasts –2007

6

Cost and Competitiveness

7

Transborder Competitors: Vancouver and

Bellingham International Airport

• About 1 hour from downtown Vancouver, downtown Abbotsford

• 35 minutes from downtown Surrey• 200,000 passengers a year and growing,

primarily targets greater Vancouver market

8

Canada: Gateway to the WorldWeekly International Seats to/from Overseas Markets Today

Antigua and Barbuda 266 Finland 681 Nicaragua 152

Austria 2,757 France 23,593 Pakistan 894

Bahamas 448 Germany 26,859 Peru 594

Barbados 1,192 Greece 1,906 Philippines 1,056

Belgium 1,087 Guadeloupe 224 Poland 2,741

Bermuda 1,272 Haiti 198 Portugal 1,540

Brazil 1,540 Hong Kong 8,751 Russia 1,811

Chile 660 Hungary 985 Saint Lucia 112

China 9,227 Ireland 2,161 South Korea 6,905

Colombia 594 Israel 3,211 Spain 412

Costa Rica 336 Italy 4,618 Switzerland 3,150

Cuba 3,109 Jamaica 2,429 Taiwan 4,807

Czech Republic 1,463 Japan 11,715 Trinidad & Tobago 1,908

Dominican Republic 636 Mexico 10,828 Ukraine 456

Egypt 638 Morocco 2,220 United Kingdom 55,589

El Salvador 372 Netherlands 11,592

Source: OAG Summer Schedule 2006

9

Monthly SeatsMonthly Seats to North America

U.S. Rank Country Seats to U.S. Seats to Canada

1 UNITED KINGDOM 1,179,975 298,238

2 GERMANY 617,038 109,461

3 JAPAN 602,474 44,285

4 FRANCE 378,818 113,773

5 DOMINICAN REPUBLIC 277,626 3,816

6 NETHERLANDS 276,363 51,541

7 ITALY 218,864 29,700

8 SOUTH KOREA 213,202 31,805

9 BAHAMAS 200,948 2,824

10 TAIWAN 186,361 20,529

11 JAMAICA 182,989 10,545

12 CHINA 155,337 68,065

13 IRELAND 153,024 11,825

14 BRAZIL 142,435 6,820

15 HONG KONG 141,566 57,724

10

Growing International Pax Capacity

CANADA – OVERSEAS PASSENGER CAPACITY GROWTH SINCE 2001

Source: Transport Canada & OAG

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

9000000

2001 2002 2003 2004 2005 2006

Europe Far East Caribbean Central and South America Middle East and Africa

11

More International Pax Growth Forecast

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

2004 2005 2006 2007 2008 2009 2014 2019

Europe Asia Central America

FORECAST INTERNATIONAL PASSENGER TRAFFIC GROWTH

Source: Transport Canada

12

Air Service Regimes

• The “backbone” of international air service• Bilateral agreements govern international air

service between two countries• Frequencies, number of carriers, total capacity,

destinations served, pricing, intermediate stops, beyond service, etc…

13

Air Canada U.S. Routes 1995

14

Air Canada U.S. Routes 2005

15

What is “Open Skies?”

• No limits on– Number of air carriers– Frequency, capacity, aircraft type– Destinations– Pricing– Codesharing– Intermediate points or beyond points (fifth

freedoms)

16

Freedoms of the Sky

Fifth Freedom

Sixth Freedom

17

New, Bigger Regional Jets

18

Long-Range Widebodies: Built for Canada

19

Recent Liberalization Progress

• EU-U.S. Open Skies in Effect (2008)• Canada-EU Talks (2007-ongoing)• Canada Open Skies with Ireland, Iceland, New

Zealand (2007)• UK Open Skies with Singapore (includes

Cabotage (2007)• New U.S. - P.R. China Agreement (2007)• Canada Open Skies with UK, U.S. (2005, 2006)• New Canada-India, P.R. China agreements

(2005)

20

Airline Support for Liberalization

“We are still bound by the antiquated rules of the Chicago convention, something that was created more than 60 years ago. … It may have been a good idea for airlines in the 1944. It is an outdated idea for airlines in 2006 and fails to respond to the challenges and opportunities posed by the rise of carriers like Emirates….the real question is whether the basic regulatory foundation of the airline industry, such as the Chicago Convention and foreign ownership restrictions, need to be not only modernized - but turned on its head. The answer, for me, is yes.”

21

Airline Sector Support for Air Liberalization

• “Today airlines form an intensively competitive mass transit system with thousands of players serving 2.2 billion passengers. But the archaic bilateral system still tells us where we can sell our products, who can own us, and by consequence, how we can access capital. The result is fragmentation…We need leadership that is bolder…the courage to break the mould and set the industry on a completely different course…Liberalization will come to aviation as it did every other industry. The real risk is if governments fail to lead by setting targets for progressive liberalization.”

- International Air Transport Association Director General Giovanni Bisignani

22

International Air Policy: An Airport Concern

Canada Markets Served Nonstop by Foreign Carriers Only

Market Foreign Carrier Market Foreign Carrier

Algeria Air Algérie Pakistan PIA

Austria Austrian, Tarom Poland LOT

Czech Republic CSA Portugal SATA

Egypt Egyptair RussiaAeroflotTransaero

El Salvador TACA TaiwanChina AirlinesEVA Airways

Finland Finnair Ukraine Aerosvit

Hungary Malev U.A.E. Emirates

Iceland Icelandair

Morocco Royal Air Maroc

Source: OAG Summer Schedule 2006

23

IAP: A Tourism Sector ConcernOverseas Visitors to Canada

# Source 2006 Visitors U.S. Open Skies? Canadian Air Regime

1 United Kingdom 881,742 No Open Skies in effect soon

2 Japan 401,127 No Priority market, Canadian carriers at capacity limit

3 France 373,606 YES Priority market, Canada seeking liberalization, currently routes restricted to Toronto and Montréal, limitations on fifth freedoms

4 Germany 313,025 YES Fairly open, restrictions on fifth freedoms

5 South Korea 201,815 YES Priority market, strict capacity limits that only gradually have expanded, both sides near capacity limits

6 Australia 206,542 YES Priority market, fairly open but limitations on fifth freedoms

7 Mexico 213,945 No 2 carriers from each side designated for each city pair, charter flights not subject to this limit

8 Hong Kong 111,866 No Fairly open

9 Netherlands 121,754 YES Fairly open

10 Taiwan 94,917 YES Priority market, current limited to two daily Taipei flights to Vancouver and three flights a week from Kaohsiung to anywhere in Canada by Taiwanese carriers

•Source: Statistics Canada

24

Overseas VisitorsOverseas Visitors to Canada

# Source 2005 Visitors Air Regime

1 United Kingdom 847,000 Open Skies reached 2006

2 Japan 437,000 Priority market, Canadian carriers at capacity limit

3 France 341,000 Priority market, covered by Canada-EU Open Skies

4 Germany 318,000 Fairly open, restrictions on fifth freedoms

5 South Korea 191,000Priority market, strict capacity limits that only gradually have expanded,

both sides near capacity limits

6 Australia 185,000 Priority market, fairly open but limitations on fifth freedoms

7 Mexico 177,0002 carriers from each side designated for each city pair, charter flights not

subject to this limit

8 Hong Kong 121,000 Fairly open

9 Netherlands 120,000 Open, covered by Canada-EU Open Skies

10 Taiwan 109,000

Priority market, current limited to two daily Taipei flights to Vancouver and three flights a week from Kaohsiung to anywhere in Canada by Taiwanese carriers

Sources: Statistics Canada, Transport Canada

25

IAP: A Community Concern

0

50

100

150

200

250

300

350

400

Domestic U.S. Transborder International FlightCrew/Overnight

Spending by Air Visitors to Calgary

$ millions

Source: The 2004 Economic Impact of The Calgary International Airport, Rp Erickson & Associates

26

European Union

Africa2%

Asia-Pacific35%

Latin America and Caribbean

11%

Europe52%

OVERSEAS TOURISTS(International other than the U.S.)

Source: Statistics Canada

27

Source: IATA Passenger Forecast 2005-2009

Growth in Key EU Markets

Pax traffic in millions

PASSENGER TRAFFIC GROWTH: CANADA TO FRANCE, GERMANY AND THE NETHERLANDS

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2005 2006 2007 2008 2009

Netherlands Germany France

28

Emerging Markets

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

1999 2000 2001 2002 2003 2004 2005

China India

VISITORS TO CANADA 1999-2005

Sources: Statistics Canada, World Tourism Organization

29

Source: IATA Passenger Forecast 2005-2009

China Traffic Growth

CANADA-CHINA PASSENGER TRAFFIC FORECAST

Pax traffic in millions

0

0.5

1

1.5

2

2.5

2005 2006 2007 2008 2009

Mainland China Hong Kong

30

Blue Sky Policy Support

• The CAC has strongly supported Minister Cannon’s Blue Sky international air policy

“With its new Blue Sky air policy, the federal government has indicated that it has heard the call of Canada’s

airports to improve choice for Canadians in international air service. This is what Canada’s airports have called for,

and the government has delivered. But Canadian travellers, shippers and the communities our members

serve will benefit most from increased choice and improved tourism and trade links.”

- CAC Press Release Nov. 27, 2006

31

Standing Committee on International TradeSupport

“The Standing Committee on International Trade seems to realize what we uncovered as well: That Canada needs an aggressive and competitive international business policy that recognises that Canada doesn’t operate in isolation anymore. We are part of a global economy and competitiveness is key to success.”

- CAC Press Release May 2, 2007

“Creating an Environment for Success”Air Service Reform and Why We Should Care

Presented by Jim Facette, President & CEO