Slide 1 Canada s Airports: Doing Our Part for Canadian International Business Strategy Jim Facette President and CEO July 19, 2007 Slide 2 Canada s Airports 2
Good morning! This morning I have chosen to explain how Canada s airports are doing their part in the development of a Canadian international business strategy. In the spring of this year, a committee of our elected federal government officials said that Canada needed to develop an international business strategy. In particular, it recommended an increase in liberalized air service agreements as a key enabler to growing Canada s international competitiveness. We agree. A governance model that makes Canada s airports responsible to their communities. Infrastructure investments that keep up with demand. We have world competitive business practices, and through continued improvements to the passenger experience. Canada s airports are doing their part on the global stage.
Canada s airports have a very different not-forprofit business model from the local-government model one finds in the U.S. today. Canada s airports are operated by independent airport authorities having boards of directors responsible not to local government, but to the community. These not-for-profit corporations are free to behave in a commercial manner, including being able to raise funds from the debt market. Slide 3 Top Eight Airports Control About 90% of Traffic 3.4 mil pax Others Halifax Winnipeg 13% 3% 3.4 mil pax 3% Ottawa 3.8 mil pax 4% Edmonton 5.2 mil pax 5% Toronto 31% 30.9 mil pax Calgary 11% 11.3 m pax Montreal Vancouver 12% 18% 11.4 mil pax 16.9 mil pax Source: Transport Canada and airport annual reports 3
The eight largest airports in the country, from east to west: Halifax, Montreal Trudeau, Ottawa, Toronto Pearson, Winnipeg, Calgary, Edmonton and Vancouver, are responsible for about 90% of Canada s passenger traffic. They also handle nearly 84 per cent of the cargo tonnage in the country. Slide 4 The Large Small Airports Prince George 394,407 Ft. McMurray 416,000 Québec St. John s 1.2 Million Victoria 1.4 Million Abbotsford 502,000 Kelowna 1.2 Million Saskatoon 953,000 Regina 871,000 Thunder Bay 600,000 London 413,000 Hamilton 527,000 Moncton 558,000 Charlottetown 225,000 Source: Airport annual reports and OAG schedule data for the summer, some charter and winter sun flights also operated 4
In addition to these big eight are many large small airports. These are airports like St. John s, Newfoundland in the east and Victoria, British Columbia in the west operating between 400,000 and 1.2 million passengers a year. These communities are gaining their own international routes via U.S. carriers through their hubs but also direct to Europe and sun destinations via charter services. Slide 5 Managing Growth - Passenger PASSENGER GROWTH SINCE 1995, FORECAST THROUGH 2019 Millions pax 160.0 140.0 Forecast 120.0 100.0 80.0 60.0 40.0 20.0 0.0 2019 2017 2015 2013 2011 2009 2007 2005 2003 2001 1999 1997 1995 Domestic Transborder Overseas Source: Transport Canada 5
One of the biggest challenges for airports around the world, including in the U.S., is infrastructure capacity. In doing our part on the global stage our business model has allowed Canada s airports the ability to make the improvements required to keep pace with this growth. Since 1991, Canadian passenger traffic has grown more than 50%, including international traffic growth of more than 120%. Continued growth is forecast, particularly internationally. Slide 6 Transborder Growth Millions of Pax CANADA-U.S. TRANS-BORDER GROWTH, FORECAST 35.0 30.0 25.0 20.0 15.0 10.0 5.0 Forecast 0.0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Source: Transport Canada 6
One of the biggest areas of traffic growth for Canadian airports has been in the U.S. transborder market. Over the past decade, transborder routes nearly doubled. The U.S. transborder passenger market is bigger than all of Canada s other international markets combined responsible for more than 21% of Canadian enplaned/deplaned passengers in 2005. Many of these passengers are travelling between Canadian and U.S. cities, yes. But as Canada continues to grow our overseas routes you will continue to see travellers choose Canadian gateways from throughout North America to points beyond. Slide 7 The Infrastructure is Ready 7
Canada s airports are ready to play this role as global gateways. Over the past 15 years, they have committed to more than $9 billion in completed or ongoing capital improvements. Doing our part means that Canada s airports are working hard to compete with their world counterparts for connecting traffic, and that includes travellers from right here in the U.S. We have invested a lot of time and money into making our airports pleasant places through which to travel. And we have worked hard to increase the choices in carriers and destinations served by our airports.
Just last week, the International Air Transport Association released their Economic Benefit Report, it reconfirms that investment in aviation infrastructure and services can provide a significant economic rate of return. These returns benefit the performance and growth of the national economy. Slide 8 Canada: Gateway to the World Weekly International Seats to/from Overseas Markets 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 8
Overseas markets are a major preoccupation for Canada s airports, and a growing one. Since 1991, non-u.s. international passenger air traffic has grown more than 120%. This growth has come from foreign carriers and Canadian carriers taking advantage of Canada s strategic geographic position. Canada is a first stop along the Polar Route from Asia and Europe to North and South America and our members are finding considerable success in serving as connecting hubs for this traffic. Slide 9 Growing International Pax Capacity 9000000 CANADA OVERSEAS PASSENGER CAPACITY GROWTH SINCE 2001 8000000 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 2001 2002 2003 2004 2005 2006 Europe Far East Caribbean Central and South America Middle East and Africa Source: Transport Canada & OAG 9
As evidence of the new opportunities, we have seen scores of new flights launched to Asia, Europe and Latin America over the past few years. In all, overseas capacity is up more than 22 percent over 2001 levels. Slide 10 More International Pax Growth Forecast FORECAST INTERNATIONAL PASSENGER TRAFFIC GROWTH 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 2004 2005 2006 2007 2008 2009 2014 2019 Europe Asia Central America Source: Transport Canada 10
Our federal department of transport forecasts non- U.S. international traffic to grow more than 5% a year over the next three years, and continued growth beyond. Growth is forecast for all regions and there are projections for nearly 33 million passengers travelling to overseas destinations through Canada by 2019 Slide 11 # Open Skies: Trading Partners Canada s Top Trading Partners Market Imprt/Exprt U.S. Open Current Canadian Air Regime (Billions) Skies? 1 United States (U.S.) $581 N/A Open Skies in effect March 2006 2 China $36.6 No 2005 agreement Increased capacity, more markets open in both countries 3 Japan $23.9 No Priority market, recent loosening of some restrictions 4 United Kingdom $18.6 YES 2006 agreement, near Open Skies to go into effect soon 5 Mexico $17.8 No 2 carriers from each side designated for each city pair, charter flights not subject to this limit 6 Germany $13.5 YES Fairly open, restrictions on fifth freedoms 7 South Korea $8.1 YES Priority market, strict capacity limits that only gradually have expanded, both sides at capacity limits 8 Norway $7.6 YES Carriers not operating in this market 9 France $7.5 YES Priority market, only Toronto and Montréal designated as points in Canada, limitations on fifths 10 Italy $6.5 YES Single by route designation, Rome, Milan, Toronto and Montréal only designated points, restrictions on codeshares Sources: Strategis, Transport Canada 11
Canada s airports have an obligation to seek new air service opportunities for their communities and we have been a big proponent of Open Skies as government policy for Canada. While the government is taking positive steps for change with a new Blue Sky policy announced last fall, the reality is that many of Canada s current air service regimes are more restrictive than they should be. As an industry association, we have led the way in Canada for a dramatic increase in the number of liberalized air service agreements. Since 2005, in addition to a new full Open Skies agreement with the U.S., we now have new, more liberalized agreements providing more choice for service via Canada to the U.K., the People s Republic of China, India, Portugal and Ireland. Slide 12 Canada-EU Open Skies Passengers (millions) 16 14 12 10 8 6 4 2 0 Potential growth in air passengers due to liberalisation: Canada - EU (direct scheduled flights only) 0.5 1.1 1.8 2.6 3.5 8.7 9.3 9.8 10.4 11.1 2007 2008 2009 2010 2011 Estimated volume New traffic generated Source: Booz Allen Hamilton, The Impacts of an Open Aviation Area between the EU and Canada 12
Beginning in the fall, our government sits down with delegates from the European Union to ensure that Canada s airports are as well positioned as our American cousins to offer competitive service to Europe. Europe is Canada s second biggest trading partner and second largest source of tourists. Over half of Canada s overseas tourists hail from Europe. A study conducted by the EU suggests that the first year after liberalization could yield as many as 3,700 additional jobs Slide 13 Asian Markets CANADA IMPORTS AND EXPORTS $ BILLIONS 50 45 40 35 30 25 20 15 10 5 0 India South Korea Chinese Economic Area 2002 2003 2004 2005 2006 Source: Industry Canada 13
As you are witnessing here in the U.S., increasingly important for Canada are emerging tourist markets, like China and India. Badly needed air regime reforms were achieved with these two markets in 2005 and Canadian cities are as well placed as any city in North America to serve as our continent s gateways to these fast growing travel regions and the growth potential here is enormous. Already we have seen new services added from both domestic and foreign carriers since these agreements were reached. More reforms are needed with key trade and tourism partners, most notably South Korea one of our most important economic partners but one in which a very restrictive air regime is in place. Slide 14 Improving the Travel Experience Pearson is not the only airport under redevelopment. Upgraded facilities at other Canadian airports are also contributing to a better travel experience for Air Canada s customers. Of course there is still more work ahead, but each improvement brings us a little closer to that more convenient, less stressful travel experience that we all want each time we travel. - Air Canada President and CEO Montie Brewer in EnRoute Magazine, Dec. 2005 14
With all this work underway to increase opportunities for new international air services to Canada, it is worth noting that Canada s airports have not forgotten that we need to make travel through our airports as pleasant as possible once our international travellers get here. And the airlines have noticed, as evidenced by an endorsement from Air Canada President and CEO Montie Brewer. Mr. Brewer notes that upgraded facilities at Canadian airports are contributing to a better travel experience for Air Canada s customers. We agree. We have good relationships with our air carriers. Each of our major airports, for example, has an airline consultative committee with the airport that works together on major projects and on our shared objectives for a positive passenger experience.
Doing our part on the global stage not only means infrastructure improvements, it also means improving the passenger experience at the border. Slide 15 Border Facilitation -Transit without Visa -E-Pill 15
Canada s airports work closely, for example, with border officials at the U.S. Customs and Border Protection Service and our own Canada Border Services Agency. We have been an active advocate for the use of technology to more efficiently handle international arriving travellers. The CAC was a strong proponent for the expansion of the joint Canada-U.S. NEXUS program, which is now being rolled out at Canada s eight largest airports. NEXUS is a great tool for Canadian and America travellers between the U.S. and Canada, as well as for U.S. travellers connecting through Canadian gateways between the U.S. and overseas. Without compromising safety or security, NEXUS automates the U.S. border pre-clearance process in Calgary, Edmonton, Halifax, Montreal, Toronto, Ottawa, and Winnipeg, NEXUS greatly improves the travel experience by cutting out the usual U.S. border line. There are other programs under development as well that will improve the transit experience for international passengers travelling through Canada.
Transit without visa is exactly as it sounds a program to enable passengers travelling through Canada on their way to a third country to do so without requiring a visa to enter Canada. Currently a pilot in place at Vancouver, the government is looking at expanding the program throughout Canada. E-Pil is an exploratory program being developed to automate part of the border process for travellers entering Canada, greatly improving processing times for everybody. And we are working with our American counterparts at Airports Council International North America for an end to the duplicative re-screening of Canada-originating baggage on U.S. connecting flights. Slide 16 CAC Industry Partners AIRPORTS COUNCIL INTERNATIONAL ACI LATIN AMERICA-CARIBBEA ACI NORTH AMERICA THE INTERNATIONAL AIR CARGO ASSOCIATION 16
As an industry association, doing our part on the global stage also means reaching out to our partners; be they foreign or domestic. At our recent annual meeting and conference we brought people from different parts of the world together to examine where global travel and the industry are going. Slide 17 Airport Rent CUMULATIVE AIRPORT RENT PAID SINCE 1992, PROJECTED THROUGH 2010 $4,500 Millions $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $- 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 17
Looking into the future, in the interests of continued international competitiveness, the CAC will continue to pursue policies that support our members global ambitions. In addition to international air policy, a big part of this is cost competitiveness. Canada has attracted some attention due to the federal government s practice of charging airports rent. It is a cost of doing business that has driven up costs and one that our allies, the air carriers, are aligned with us on. As we do our part on the global stage, we need a playing field that provides airports and the communities they serve the opportunity to grow. With each additional passenger or cargo airplane serving a community in Canada, it provides both direct and indirect jobs. Slide 18 Infrastructure Improvements 18
If Canadian airports like Vancouver, Montreal and Toronto are to compete as global hubs they need connectivity. Connectivity will provide greater opportunity not just for foreign visitors and businesses that ship goods to or through Canadian communities but it also offers Canadian communities the same said benefits. Calgary International Airport, for example, is responsible for more than 25,000 direct jobs while the cargo sector at Toronto s Pearson Airport fuels 16,000 jobs. A 2005 economic impact study conducted for Vancouver International Airport found that each time one of its foreign air carriers lands at the airport with a local crew, it generates nearly 790 hours of employment. Over a year of twice daily service, the carrier is estimated to generate 369 person years of employment. Of the 64 carriers serving Vancouver, more than 40 of them are foreign carriers. The IATA Study confirms the connection between economic growth and connectivity.
The committee of elected officials were correct when they said that in order for Canada to have an effective international competitiveness strategy, we need to get our own house in order. Decreasing the amount of money paid by airports in Canada in the form of rent would be a significant step in getting our own house in order. Reducing airport rent will enable Canadian airports to seek greater connectivity for their communities and Canada. Slide 19 Canada s Airports: Doing Our Part for Canadian International Business Strategy Jim Facette President and CEO July 19, 2007
A great president of the U.S. said during his inaugural speech, ask not what your country can do for you, ask what you can do for your country. The combination of good governance, investments, business acumen and a commitment to customer service. Canadian airports will continue to do their part in the development of a Canadian international business strategy. Thank-you for your time.