Transborder US Canada Roundtable

Transborder US Canada Roundtable How Passenger Leakage Affects Airports Moderated by Jack Penning Director of Market Analysis Sixel Consulting Group

The Transborder Roundtable Panel Michael Seabrook President and CEO London International Airport Pascal Cohen Senior Marketing Manager Buffalo Niagara International Airport Niagara Falls International Airport

Agenda The US Canada Air Service Dynamic Canadian Leakage to US Airports How US Airports Access the Market The Vancouver Bellingham Example The London Example The Buffalo-Niagara Example Canadian Taxes and Airport Costs New Routes Between Canada and the US Making Your Case For US Airports For Canadian Airports The Future of Transborder Service

The Major Issues At a Glance Canadian Leakage to US Border Airports is Growing Five Million Canadians/Year Fly Out of US Airports Base Fares Lower in US More Competition Canadian Ticket Taxes Discourage Competition Canadian Airport Costs Can be Higher Canadian Dollar Strength Added to Leakage Canadian Dollar Currently Weakening Against US 38 New Transborder Routes in the Last Five Years

Canadian Leakage to US Airports Vancouver: 953K Thunder Bay: 34K Regina: 24K YVR YQR YWG BLI SEA YQT MOT FAR DLH Winnipeg: 163K Ottawa: 53K Montreal: 799K YOW YUL YSJ BTV YYZ BGR PBG YQG IAG DTW BUF Toronto: 1.8 Million Source: Canadian Airports Council, Represents CY2012

The Causes of Canadian US Leakage As Simple as One, Two, Three #1: Fares #2: Tax Differential SEA YVR BLI YQR MOT YWG FAR DLH YQT YOW YUL YYZ PBG BTV YSJ BGR #3: Airport Costs DTW YQG BUF IAG

US Canadian Fare Differentials YVR: $388 YVR BLI BLI: $269 YYZ: $318 YYZ YUL PBG BTV YUL: $573 BUF: $265 BUF PBG/BTV: $292 Source: Canadian Airports Council, Represents CY2011

Canadian Leakage to US Airports 90% of Canadian Population within 100 Miles of Border 31 Million Canadians No US Low Cost Carrier Serves Canada Currently Carriers Can Lure Canadians Across Border SEA YVR BLI YQR MOT YWG FAR DLH YQT YOW YUL YYZ PBG BTV YSJ BGR DTW YQG BUF IAG Source: John Korenic, YVR

US Airports Brand to Take Advantage YUL PBG Source: Plattsburgh International Airport

BLI Capacity Up 550% Since 2002 700,000 600,000 YVR BLI Seat Departures 500,000 400,000 300,000 200,000 Other Skywest Horizon Frontier Alaska 100,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: YVR, Vancouver International Airport

Leakage to US Does Not Reflect Stimulation YVR BLI O&D 800,000 700,000 600,000 500,000 400,000 300,000 200,000 YVR BLI 1.20 1.00 0.80 0.60 0.40 Exchange (CAD:USD) 100,000 0.20 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0.00 Source: YVR, Vancouver International Airport

London is Surrounded by Other Options 1:37 Drive Time 2:20 Drive Time 2:27 Drive Time Source: Sixel Consulting Group London True Market Study CY2013

Despite a Longer Drive, 22%+ Use Detroit 50.8% 20.4% 0.8% 22.2% London Catchment: 3,108 PDEW Only 633 PDEW Use London 688 PDEW Drive to Detroit 501,000 Passengers in 2013 Source: Sixel Consulting Group London True Market Study CY2013

Leakage Is Most Pronounced to US Cities Orlando: Las Vegas: Ft. Lauderdale: 68% Use Detroit 76% Use Detroit 67% Use Detroit YXU LAS MCO Source: Sixel Consulting Group London True Market Study CY2013 FLL

Not Only Are Fares Lower, So Are Taxes London Fare Detroit Fare Orlando: $226 $179 Las Vegas: $306 $204 Ft. Lauderdale: $360 $189 YXU LAS MCO Source: Sixel Consulting Group London True Market Study CY2013 FLL

Buffalo-Toronto is a Contiguous Region Toronto Detroit Rochester Boston Cleveland Buffalo NYC About 15% of the Buffalo Bills (NFL) and Buffalo Sabres (NHL) Season Ticket holders are Canadian Source: Niagara Frontier Transportation Authority

Naturally, BUF/IAG Draw from Ontario Last year 47% of the cars in the Buffalo Niagara Int l Airport long term parking lots had Canadian license plates BUF handles 5.1 million passengers/year Estimated 2.0 million from Canada At the smaller Niagara Falls Int l Airport, there were over 80% Canadian license plates BUF/IAG Source: Niagara Frontier Transportation Authority

Leakage Follows Visitation Trends One out of three US visitors comes from Canada ~21 Million in 2013 70% of Canadians visiting another country visited the US US to Canada visits are dropping as Canadian visits increase 22 millions of travelers Canada Outbound to U.S. 20 18 16 14 12 Canada Inbound from U.S. 10 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: US Department of Commerce, Stats Canada

US Canadian Ticket Tax Differential Taxes, Fees, and Surcharges Transborder Itineraries, Canadian National Airports As of June 2012 Tax/Fee/Surcharge Amount On $400 Ticket Canada Goods and Services Tax 4.90% $19.60 Canada Harmonized Sales Tax 0.08% $0.32 Canada National Airport Security Charge 1.78% $7.12 Canada Airport Improvement Fee (Average) $29.00 $29.00 Canada Immigration User Fee $7.00 $7.00 US Customs Fee $5.50 $5.50 US Agriculture Fee $5.00 $5.00 US Flight Segment Tax $11.40 $11.40 September 11 Security Fee $2.50 $2.50 Total Taxes and Fees Exclusive to Canada National Airports Total Cost of $400 Canada National Airport Ticket Source: Sixel Consulting Group Analysis of Taxes and Fees, June 2012 $87.44 $487 Source: Sixel Consulting Group, June 2012

Reasons Behind High Canada Airport Costs National Airports Pay to Lease the Land they Use There Are Fewer Federal Grant Programs for Airport Facilities Bonds Are Not Tax Free in Many Cases Lease: $66 Million/Year $3.76 Per Passenger YVR Lease: $22 Million/Year $1.92 Per Passenger YUL YYZ Lease: $148 Million/Year $4.76 Per Passenger Source: Canadian Airports Council

New Transborder Routes: 2007 Present US Carriers Sought Higher Revenue Opportunities in Canada Canadian Carriers Sought to Feed Hubs Canadian LCCs Established Market Share Before US LCCs YYC YVR YYJ YLW YXE YQR YWG YQB YYG PDX ORD YKF GRR YOW YYZ YTZ YXU YUL BTV PWM BOS JFK SFO DEN MDW IAD EWR DCA SNA SAN LAS PSP PHX RIC CLT MYR LIH MCO

Discussion Break Strategies for Reducing Leakage Value of Higher Canadian Fares to US Carriers Future Canadian Airport Policy Reducing the Airport Burden

Making Your Case

Keys for US Airports Pitching Canada Service Highlight High Yielding International Routes That Connect Fares Are Key Average Fare Fare Buckets on Current Service Z/J/C/F Fares But You Can t Use DOT Data Agrees not to disclose the restricted data in any level of detail, from basic to summary, to any person or party not [a citizen of the United States]. Use Leakage Study/True Market Study Data Highlight New Connections Not Provided at US Hubs

Keys for Canadian Airports Pitching US Service Fares, Fares, Fares Highlight Fare Relative to Peer US Markets Fare by Connecting Market Over Hub is Key Canadian Data is Difficult to Obtain No O&D Survey or T100 Like in US Stats Canada Data is Old and Unreliable Leakage/True Market Study is Key to Understanding Business vs. Leisure Travel Breakdown Business Travelers Are Less Price Sensitive If Airport Costs Are Low, be Sure to Highlight it

Discussion Break Other Key Points US Airlines Want to Analyze Biggest Challenges in Obtaining Transborder Service The Impact of Customs and Immigration Facilities The Impact of Pre-Clearance

The Future Of Transborder Service

Roundtable Discussion on the Future Key Topics The Entry of Low Cost Carriers Will the Federal Burden be Taken Off Canada s Airports? Increasing Border Congestion and the Impact on Air Service Can Canadian Airlines Compete on Cost?

Transborder US Canada Roundtable How Passenger Leakage Affects Airports Moderated by Jack Penning Director of Market Analysis Sixel Consulting Group