9 AIR TRANSPORTATION

PASSENGER TRANSPORTATION

TRAFFIC

Passenger traffic in 2004 was nearly equal the previous peak reached in 2000, with 60 million passengers. No significant event affected air traffic in 2004, although Air Canada had reduced capacity while it was under creditor protection. In contrast, all of the low-cost carriers increased their capacity during the year.

As shown in Table 9-1, the domestic, transborder and international sectors each registered significant growth with increases of eight per cent, 10 per cent and 18 per cent, respectively. The high growth can be explained in part by a recovery after the Severe Acute Respiratory Syndrome outbreak, however, traffic in all three sectors increased significantly over 2002 levels. Despite these improvements, airline revenues declined.

For a summary of 2002 traffic at the 26 NAS airports, by sector and region, see Table A9-17 in the Addendum.

Previously published data for 2001 have been revised due to the recent availability of more accurate information. Because the 2002 data used last in last year's report were estimates based on the reported 2001 data, those numbers have also been revised.
Data estimated for 2003 and 2004
Passenger Traffic is based on enplaned and deplaned passengers, but results for the domestic sector have been divided by two to avoid double counting of passengers.

Source: Statistics Canada

SERVICES

DOMESTIC

Low-fare airlines continued their rapid expansion in 2004 with the most attention paid to the heavily travelled transcontinental routes. WestJet boosted its presence in Toronto, transferring most of the flights that had been serving Hamilton to Pearson International Airport and increasing service frequency in most major markets. Jetsgo was also active in the Toronto market, increasing the frequency of flights in most markets that it had already been serving and introducing first-time service to Moncton and Quebec City. CanJet filled some of the void left by WestJet in Hamilton by introducing a new Hamilton-Ottawa service.

As part of its restructuring plan, Air Canada eliminated several aging aircraft from its fleet and ordered 90 new regional jets. Its subsidiary Zip terminated its operations and was fully integrated with Air Canada. Overall, Air Canada reduced flight frequencies on its network, but continued service to most points. The only exceptions were in British Columbia, where Jazz ceased operations in Fort Nelson in June and in Quesnel and Williams Lake in October. Jazz also discontinued direct service in Quebec on the Quebec-Val d'Or/Rouyn route.

Local service airlines were also active in 2004. Regional 1, a new airline, started to operate scheduled flights from Lethbridge and Red Deer in Alberta to Kelowna and Vancouver in British Columbia. Central Mountain Air picked up air service in Fort Nelson, Quesnel and Williams Lake after Air Canada exited those markets. Hawkair also expanded its services to Fort Nelson and Fort St. John in British Columbia. In Alberta, Peace Air started new services in Red Deer and Medicine Hat. Pascan Aviation, based in St-Hubert, Quebec, expanded to New Brunswick with daily flights to St. Leonard and Charlo.

See Addendum Table A9-18 for a list of new and discontinued domestic services.

TRANSBORDER

In 2004, the transborder markets received more attention from Canadian low-cost airlines. WestJet started scheduled transborder flights in September 2004 and by the end of the year served seven U.S. destinations (Los Angeles, San Francisco, Phoenix, Fort Lauderdale, Tampa, Orlando and New York) with non-stop flights from Calgary, Toronto and Vancouver. Jetsgo continued to offer transborder flights and added three new U.S. destinations. Along with CanJet, the two low-cost carriers added the Toronto-New York (La Guardia) route. As well, Harmony Airways started scheduled flights from Vancouver and Victoria to Hawaii. Despite the significant growth in the transborder sector, low-cost airline participation in the markets is still minimal. Furthermore, no U.S. low-cost airlines entered the transborder market.

The major airlines made some adjustments to their networks. Air Canada's restructuring affected its transborder routes; although service was continued to all points, flights were cut on most routes. Some major U.S. airlines, despite their financial difficulties, added new transborder service. America West was the most active carrier, adding several new routes that included Calgary, Edmonton and Vancouver. Northwest started new services in Kitchener/Waterloo, added a new Toronto- Memphis route and converted seasonal flights to yearround service in Halifax and Quebec City. Continental Airlines offered new flights to St. John's, Newfoundland, while United Airlines added service from Chicago to Edmonton and Ottawa. As part of its restructuring, US Airways partially withdrew from some routes in Montreal and Ottawa. All of the new transborder services offered by major U.S. airlines involve regional jets. For more details on both new and discontinued transborder services, see Table A9-19 in the Addendum.

INTERNATIONAL

Air Canada continued to focus its expansion efforts on Asia and on Latin America. The airline introduced a new non-stop Toronto-Hong Kong year-round service and restored the Toronto-Tokyo and Vancouver-Nagoya routes that were suspended in 2003. In Latin America, Air Canada started new services to Bogotá, Caracas and Lima. The airline continued to expand seasonal weekend-only services to destinations in the Caribbean, a process that started in the fall of 2003. Zoom airlines started to operate scheduled flights to Paris, France, and points in the United Kingdom from several Canadian cities. There was no significant withdrawal of service on international routes except for BMI's new Toronto- Manchester route, which was initiated in the spring of 2004. Current plans indicate that the seasonal route will be taken over by Air Canada in 2005. Air Canada and BMI are both full members of the Star Alliance. Refer to Addendum Table A9-20 for a list of new and discontinued international services.

COMPETITION

In response to low-cost carrier competition, Air Canada introduced a simplified fare structure across its network and ticket passes on certain heavily travelled routes. The new fare structure, where all fares are one-way and require no minimum stay, is transparent and allows customers to choose a fare based on price and flexibility. There are five fares for the North American market, ranging from Tango, the most economical, to Executive Class, the most flexible. The amount of reward points collected also depends on the fare chosen by the customer. A similar fare structure is applied to international travel with four different fares. To increase its competitiveness, Air Canada introduced four sets of passes, where a pass is a prepaid package of flight credits. The airline first introduced the Latitude Pass for Rapidair, in response to the competitive service introduced in 2004 by Jetsgo and WestJet on the Toronto-Ottawa-Montreal triangle. This was followed by the introduction of Latitude Passes for the West between the cities of Calgary, Edmonton and Vancouver, City Passes (on selected domestic and transborder routes), and Sun Passes for destinations in the south from Montreal or Toronto.

Domestically, low-cost airlines continued to increase their share of the market at the expense of Air Canada. From December 2003 to December 2004, Air Canada's capacity share dropped by eight percentage points to 52 per cent, while WestJet's share rose to 29 per cent, Jetsgo to nine per cent and CanJet to three per cent. In transcontinental markets, WestJet made significant gains at the expense of Air Canada. Increased service by WestJet, a new Edmonton-Vancouver route by Jetsgo and the reduction in flights as a result of the shutdown of Zip all contributed to an eight percentage point decrease in Air Canada's share of the market in western Canada. In Ontario and Quebec, Jetsgo and CanJet made minimal gains, and in Atlantic Canada, Air Canada lost 10 percentage points, mostly to CanJet, but also to Jetsgo. Carriers such as Canadian North and First Air maintained their strength in the North. For more detailed information on domestic market share by airline and by region in December 2004, see tables A9-21 and A9-22 in the Addendum, and for the summarized results of the top 25 domestic markets, see Table A9-23.

Major Events in 2004

Infrastructure

Industry Structure

Price, Productivity and Performance

Freight Transportation

Passenger Transportation