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Airline Insider-March/April 06

Industry News.


September 27, 2007
By Brian Dunn

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CANADA’S NEWEST CARRIER

If
everything goes according to plan, Porter Airlines, Canada’s newest
carrier, will begin service next fall from Toronto City Centre Airport
(YTZ) to about 17 cities in Quebec, Ontario, six American states and
Washington, DC, all within 90 minutes flying time or an 800-kilometre
radius of the airport.

Porter is a subsidiary of REGCO Holdings,
a privately-held company owned by Toronto businessman Robert Deluce who
ran Air Ontario before it was acquired by Air Canada. Former American
Airlines chairman and CEO Don Carty is chairman of the new entity.
REGCO has placed a firm order with Bombardier Aerospace for 10 70-seat
Q400 turboprop aircraft valued at $250 million and options on an
additional 10 aircraft for a total value of $500 million. It has
secured $125 million in equity financing to support the launch.

Deluce
had originally signed a letter of intent to acquire 10 Q400s in April
2003, but his plan to start a new service from YTZ fell through after
the Toronto Port Authority (TPA) squelched plans to build a bridge
linking the island to the mainland, to which it is now connected by a
ferry service.

His plans were revived after the TPA recently
announced the construction of a new ferry facility and the acquisition
of a new ferry capable of carrying more vehicles and passengers.

“It’s
a good time to start up a new airline due to a strong pricing
environment,” says analyst James David of Scotia Capital in Montreal.
“They’ve been circling for years and were attracted by the absence of
Jetsgo. And turboprops have come back into vogue in a big way. The Q400
is a very quiet plane, rivalling some RJs, and it’s also very fuel
efficient.”

To prepare for the new service, REGCO’s wholly-owned
subsidiary City Centre Aviation Limited (CCAL) has started renovations
of the terminal building which will employ over 500 people when
completed. It plans to add electronic check-in kiosks, business work
stations, a new departure lounge, upgraded wireless internet access and
food and beverage concessions.

As a result of the construction,
ACE Aviation’s Jazz Air is suspending operations indefinitely after
receiving an eviction notice from CCAL. Jazz operated flights between
YTZ and Ottawa five days a week and was planning to augment its service
to Ottawa and resume flights to Montreal.

FRONTIER AIRLINES OF DENVER
Canadian
airlines will see new competition coming from south of the border.
Low-cost carrier Frontier Airlines of Denver has been granted
regulatory approval to fly to as many as five Canadian destinations and
is starting with service between Denver and Calgary on May 25. The
twice-daily service will use 70-seat Bombardier RJ-700 aircraft through
its Horizon Air affiliate. While the airline, with images of animals as
part of its livery, wouldn’t identify its other Canadian destinations,
they involve “the usual suspects,” says Frontier spokesperson, Joe
Hodas which likely means Vancouver, Edmonton and Winnipeg.

Hodas
added that Frontier would be interested in a codeshare agreement with a
Canadian carrier, but it’s not an immediate priority.

Started in
1994, Frontier provides service to 48 destinations in 29 states and to
seven cities in Mexico from its Denver hub. The airline is the
second-largest jet carrier operating out of Denver International
Airport with an average of 250 daily systemwide departures and
arrivals. It operates a fleet of 49 Airbus A318 and A319 aircraft as
well as nine RJ 700s through Horizon.

The entry of Frontier into
the Canadian market should come as no surprise, said Scotia Capital’s
David, who added that if it wasn’t Frontier it would have been another
carrier.

“There will always be new competitors in the
marketplace, especially with the exit of a deep discounter in Jetsgo. I
don’t know what their strategy is, but codeshares create costs and
low-cost carriers try to avoid adding more costs. There are other forms
of less costly tie-ups they could look at.”

ACE ENDS YEAR WITH $258 MILLION PROFIT
After
posting a loss of $103 million in the fourth quarter, ACE Aviation
Holdings ended the year with a profit of $258 million, pretty
impressive in the face of high fuel costs. It was the first yearly
profit for Air Canada since 1999 and an eye-popping turnaround from the
$880 million the airline lost in 2004. Revenue for the year was $9.8
billion compared to $8.9 billion in 2004.

Despite the
turnaround, ACE is cutting 600 non-unionized jobs or roughly 20% of its
non-unionized workforce as it struggles to trim costs. “We must renew
our efforts to achieve a cost structure that will allow us to remain
profitable in an environment of record high oil prices,” company boss
Robert Milton said after announcing the cuts.

He said he was
pleased with the results, considering that fuel costs jumped 37% and
added an extra $592 million to expenses. He also noted the results were
among the best in the airline industry. As for this year, Milton said
2006 looks promising based on customer bookings.

Air Canada
ended 2005 with its flights operating at close to 80% capacity and
expected to see additional capacity coming onto the market either from
existing airlines or from new competitors. It believes it can still
grow its 60% share of the domestic market and is forecasting capacity
growth of about 5% this year.

Effective June 16, the airline
will fly non-stop daily between Montreal and Denver using 93-seat
Embraer E190 aircraft. Air Canada has also resumed service between
Calgary and New York/JFK with daily non-stop service using the same
aircraft. Flights between the two cities were halted in the mid- 1980s
after oil prices fell.

On the international front, Air Canada is
introducing non-stop service between Toronto and Shanghai effective
June 16, using 286-seat A340-300 aircraft. It will operate three
non-stop flights per week, complementing its Toronto- Beijing non-stop
service and its daily non-stop flights to both Shanghai and Beijing
from Vancouver.

WESTJET TURNS 10
Happy 10th birthday to
WestJet Airlines, which began operations in February 1996 as a
low-cost, single-class, point-to-point carrier with three Boeing
737-200 aircraft operating between Vancouver, Kelowna, Calgary,
Edmonton and Winnipeg, and 220 employees. It has grown from $37 million
in annual revenue to $1.4 billion today and operates a fleet of 51
nextgeneration Boeing 737s serving 23 destinations in Canada and 10 in
the US. including Honolulu and Maui, and employs 5,000 people. In 2006,
the airline will accept delivery of two 737-700s and 10 737-600s.

Like
Air Canada, WestJet enjoyed a turnaround year, earning $24 million in
2005 versus a year-earlier loss of $17.2 million, partly the result of
an accelerated replacement program of its fleet of 737-200s. Revenue
increased to $1.4 billion from $1.06 billion.

The airline is
spending a lot of money on advertising in Ontario in an attempt to grow
market share, which will be much more difficult to do because Air
Canada has a much more rigid customer base there than in the west.

HARMONY AIRWAYS TO LAUNCH CALGARY AND VANCOUVER SERVICE
Harmony
Airways plans to launch a new service on May 14 between Calgary and
Vancouver, competing head-to-head with Air Canada and WestJet with its
fleet of Boeing 757-200 aircraft. Harmony will operate three flights
weekdays and two on Saturday, timed to hook up with partners China
Eastern Airlines’ and Japan Airlines’ services from Vancouver to Asia.

“Harmony
recognizes the tremendous demand from cities such as Tokyo and Shanghai
for destinations like Calgary and the Rockies,” said the airline’s
president and CEO, Gary Collins. “We’re making the link between Asia
Pacific and North America using Vancouver as the gateway.”

Harmony
also plans to offer yearround service between Calgary and Hawaii. The
carrier launched twiceweekly seasonal service between Calgary and Maui
on Dec. 9, but demand was so overwhelming that it decided to make the
route a year-round service. Twice-weekly service was to continue until
the end of April, after which Harmony will offer Saturday-only service
until the end of October. A second non-stop flight will be added again
in November. The carrier already flies year-round from Vancouver to
Maui.


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