4 AIR

Changes to legislation complete deregulation of domestic licensing regime. Domestic air service options have increased across Canada, as have trade and tourism opportunities, through full use of international route rights. Canadian and US carriers are operating more freely as a result of the 1995 "Open Skies" air agreement, and more airports are being operated by local organizations. The air navigation system has been taken over by Nav Canada.

The Legislative and Institutional Framework

The federal government has the legislative and regulatory responsibility for the air mode, at both the economic and the technical levels. This means that it establishes the regulatory framework for the safe operation of the total system and for the licensing of air services. Transport Canada, under the authority of the Aeronautics Act, certifies aviation equipment and personnel, airports and air navigation systems, and ensures compliance with safety requirements. [See Chapter 13 for a full discussion of safety issues.]

Transport Canada is also responsible for federal policies relating to domestic and international air services. The Canadian Transportation Agency (the Agency) is responsible for licensing air carriers wishing to provide domestic air services (passengers and cargo) and/or international services on behalf of Canada or a foreign country with whom Canada has an air services agreement. The Agency is also responsible for administering bilateral air services agreements negotiated between Canada and the governments of other countries.

Royal assent was given to two new acts in 1996, amending the legislative and institutional framework of the air mode and significantly affecting the management of air services. Part II of the Canada Transportation Act completes the process of economic deregulation of the domestic air services sector and establishes clearer regulatory requirements in the international sector.

The Civil Air Navigation Services Commercialization Act, proclaimed in November, authorized the transfer of the ownership and management of Canadian air navigation services to a not-for-profit company, Nav Canada.

Legislative Initiatives

The 1996 changes to the legislative regime for commercial air services follow from provisions in the National Transportation Act, 1987. The amendments were intended to increase consumer protection and, at the same time, reduce the regulatory burden for licencees. This regulatory relief was of particular significance to operators providing air services in Northern Canada.

Effective July 1996, a single domestic air services regime regulates licensing, with the same entry and exit requirements for all operators. The 1996 legislation removed the last of the residual restraints on services into the North by abolishing the "designated area"; all domestic air service licences are now subject to the same requirements. They must:

be controlled in fact and in law by Canadians (the regulation was modified to make explicit the requirement for companies to be incorporated in Canada);

have the required Canadian aviation document attesting that the operations will meet Canada's aviation safety regulations (no change);

hold the prescribed liability insurance (no change);

meet prescribed minimum financial requirements (new); and

have not sold air transportation for which no licence has yet been issued (new).

The last two requirements were added primarily to enhance the integrity of the air licensing system and the protection this system provides to the travelling public. When an air carrier seeks a licence for passenger service using medium and/or large aircraft (aircraft with 40 seats or more), that carrier must be found by the Agency to be financially "fit" to start those services (or to resume passenger operations after interruptions of more than 60 days) - the financial tests are set out in the Agency's Air Transportation Regulations. The last requirement means that prospective operators and other interested parties must not offer for sale, directly or indirectly, passenger services for which there is no licence. Contravention can result in a delay of up to a year in the issuance of a licence.

The exit notice provisions have been modified such that carriers will no longer be required to give notice to the Agency in cases where there are three or more carriers serving that point. Formal 60-day exit notice is now required only of the second-last and last carrier to exit a point, and a shorter notice period may be approved by the Agency on request. Where there is a complaint that a carrier did not give notice, the Agency can order re-instatement of a service for no more than 60 days. This residual notice provision is designed to ensure both that the community is made aware of the carrier's departure plans and that other carriers are alerted to a potential competitive opportunity.

The Agency is still responsible for hearing complaints about unreasonable basic (economy) fares and unreasonable fare increases on monopoly routes anywhere in Canada. On review, it may order roll-backs and even refunds.

To ensure that the consumer can make informed travel choices, the Agency has been given explicit responsibility to authorize a carrier to provide services using the aircraft and crew of another carrier and to require disclosure of these arrangements. The disclosure requirements complement the requirements in Canada's computer reservation system regulations that travel agents inform the traveller of the name of the actual operator of the air service purchased.

To facilitate the administration of international air services, the Agency may now, subject to ministerial direction, temporarily authorize international air services that are not permitted by an air agreement. This amendment is intended to allow adjustments made necessary by unforeseen circumstances such as equipment failure. The requirement for Canadian applicants to demonstrate "public interest" when seeking an international non-scheduled (charter) licence has been eliminated, as has the requirement for Governor-in-Council concurrence for certain ministerial directions concerning international air services.

The amended Air Transportation Regulations issued following the proclamation of the new legislation describe the new classifications of aircraft and air services, the financial requirements for new entrants, and the requirements for the provision of aircraft with crew and for public disclosure. The regulations also incorporate changes to the charter rules for transborder (Canada-US) and international air services.

None of these changes in the economic regulatory framework are expected to have a major impact on the way air services are provided within Canada. Rather, they can be described as the fine-tuning of a regime whose basic tenets have been in place since 1988.

Canada-US (Transborder) Initiatives

A new air transport agreement between the Government of Canada and the Government of the United States was signed by their respective political representatives on Feb. 24, 1995. The new agreement, commonly referred to as the "Open Skies" agreement, replaced a 1966 agreement that had not been revised since 1974. The old agreement restricted airlines to those routes named in the agreement; service on most city-pairs was limited to one carrier from each country.

The new agreement encompasses all aspects of the aviation relationship except pre-clearance issues, which are the subject of separate negotiations.

From the outset, the Open Skies agreement provided a significant degree of liberalization. Canadian carriers gained immediate unrestricted access to all transborder markets. US carriers gained open access to all transborder markets, with new services at Montreal, Toronto and Vancouver to be phased in over a three-year transition period. At the same time, service restrictions were removed on several existing routes.

The transition phase regulated the speed of the expansion of US airline services at the three restricted cities. During each of the first two years of transition, US airlines could introduce twelve non-stop flights in each direction (frequencies) on new routes to both Montreal and Vancouver and four new frequencies to Toronto. The frequency restrictions apply to new US services only.

A separate transition regime was applied to all-cargo services. New entry by US airlines was restricted for one year at the three sites; the all-cargo market has been open since Feb. 25, 1996.

Several milestones have been reached with the second anniversary of the new agreement. US carriers now have open access to Montreal and Vancouver. A total of eight new frequencies are available to US airlines at Toronto for the third year of the transition period. The US Department of Transportation has allocated two frequencies each to Continental, Delta, Midway and Northwest for service to Newark, Atlanta, Raleigh and Minneapolis, respectively.

International Air Policy Initiatives

In December 1994, the Minister of Transport announced Canada's new policy for international air transportation. The policy was designed to:

make the best use of Canada's international route rights through a "use it or lose it" approach;

facilitate access to Canada for foreign carriers; and

provide consumers with more travel options and improve protection for their travel arrangements.

In March 1995, criteria for designating a second Canadian carrier for international routes were announced.

Since then, the Minister of Transport has issued 40 Canadian carrier designations or re-designations in 34 country markets. As of the end of 1996, 14 additional markets were being contested. This high level of interest from Canadian air carriers reflects an industry actively seeking access to new markets around the world.

Net results of the designations (and any subsequent re-designations) as of the end of 1996 are as follows:

Air Canada has been designated to Belgium, Denmark, Germany, Greece, Haiti, Hong Kong, Indonesia, Israel, Norway, Poland, Singapore, South Africa, Sweden and the Ukraine;

Canadian Airlines International has been designated to Bahrain, Belize, Chile, Costa Rica, the Czech Republic, the Dominican Republic, El Salvador, Germany, Guatemala, Honduras, Kuwait, Malaysia, the Netherlands, Nicaragua, Panama, the Philippines, Russia, Spain and Vietnam;

Air Transat has been designated to Cuba; and

Icelandair has been authorized under the foreign carrier access policy to operate twice weekly to Canada and has chosen to fly to Halifax.

International Bilateral Air Relations

Canada has negotiated a number of major new or expanded air agreements with foreign governments.

Following the successful acquisition of the right to serve Osaka, Japan, representatives of the two governments met regularly throughout 1995 and 1996 to facilitate enhanced services in that market. Air Canada is now operating a daily service between Vancouver and Osaka and expects to introduce a thrice-weekly non-stop Toronto-Osaka service beginning in the summer of 1997. Canadian Airlines International's service will expand to daily flights to Nagoya beginning in the summer of 1997. This is in addition to its existing service to Tokyo.

In implementing its policy of designating second carriers in some international markets, Canada was successful in acquiring the right for Air Canada to introduce scheduled service to Hong Kong.

Air Canada now operates four return B-747 Combi flights per week from Toronto and Vancouver to Hong Kong. In October 1996, Canada and Germany concluded an open skies agreement providing for scheduled access between all Canadian and all German cities. As a result, Air Canada has announced its intention to introduce new direct air services to Frankfurt from Montreal and Halifax. The airline will also be providing service in a number of new city-pairs in co-operation with its German alliance partner, Lufthansa.

Over the last two years, Canada concluded its first air agreements with Costa Rica, Nicaragua, El Salvador, Guatemala, the Philippines, Indonesia, and Malaysia. Enhanced air agreements were also negotiated with Brazil, Switzerland, South Korea, India, and Argentina, as with Japan, Hong Kong and Germany. Many of these have resulted or will result in the immediate implementation of new air services.

• In November 1995, Malaysian Airlines and Canadian Airlines International jointly introduced a twice-weekly service to Vancouver from Kuala Lumpur.
• In the summer of 1996, Korean Airlines augmented its service to Canada from Seoul; in the summer of 1997, Air Canada will increase its capacity in this market 66 per cent.
• On Sept. 19, 1996, Philippines Airlines introduced a Manila-Vancouver-New York service at four flights per week.
• On Oct. 28, 1996, Canadian Airlines International introduced service to Manila three times a week from Vancouver via Hong Kong.
• Beginning in April 1997, Canadian Airlines International will introduce five direct flights per week between Toronto and Buenos Aires.

Multilateral Initiatives

Canada is host to the International Civil Aviation Organization (ICAO), a specialized agency of the United Nations that sets international standards and regulations to ensure the safety, security and regularity of air transport. This UN agency also serves as a medium for co-operation in all fields of aviation among its 185 member states. The ICAO headquarters has been in Montreal since the oganization's inception in 1947. One of the 33 full-time ICAO Council members, Canada is one of only three member states currently on all Council standing committees. Canada also has a representative on the 15-person Air Navigation Commission.

Canada participated in the ICAO secretariat working group, which developed a revised code of conduct for computer reservation systems (CRS). The code, designed to ensure that the relationships between air carriers, CRS system operators and travel agents are non-discriminatory and to ensure that travelers have access to comprehensive and neutral information about air travel choices, was approved by the Council of ICAO in June 1996.

Canada has also been actively supporting ICAO's effort to modernize the liability rules that govern legal relations between the air carriers and their passengers. Special emphasis is being put on dramatically increasing levels of compensation to consumers in case of accident. [See Chapter 13 for details.]

In parallel to its work as a member of the steering committee of the Organization for Economic Cooperation and Development's (OECD) project on international air transport, Canada continued its own development of an economic model to assist in evaluating the economic benefits of international air liberalization.

Infrastructure

Commercialization of the Air Navigation System

The Canadian Air Navigation System (ANS) consists of seven area control centres, 44 air traffic control towers and 86 flight service stations, supporting 6.8 million aircraft movements a year.

After extensive negotiations by Transport Canada, other government departments, industry and bargaining agents, 1996 saw the successful completion of the Air Navigation System Commercialization Project. This unique project was completed on Nov. 1, 1996, with the transfer of more than 6,000 Transport Canada employees to Nav Canada, a private not-for-profit corporation.

The regulatory framework for the operation of air navigation services by Nav Canada and the authority to effect the sale are provided in the Civil Air Navigation Services Commercialization Act, which was proclaimed on June 20, 1996. The $1.5-billion net proceeds to the Government of Canada from the sale were raised through debt financing by the major commercial lending institutions. In taking over responsibility for the services from Transport Canada, Nav Canada has obtained certain monopoly privileges, but the corporation is also subject to certain obligations, including technical and financial ones previously assumed by the Government of Canada.

An economic regulatory framework has been established based on self-regulation, transparency of information and mandatory consultations, a set of charging principles established in legislation, and an appeal process. The ANS will continue to be subject to safety regulation under the federal Aeronautics Act.

Nav Canada is expected to finance itself entirely from user fees after a two-year transition period, during which existing fees for overflights and oceanic services are supple-mented by a federal transition- period payment.

As part of the transfer, Nav Canada takes over the collective agreements and related conditions of employment and pension entitlements of the federal public servants joining the company and will be required to continue service at specified Northern and remote sites. Nav Canada has also reached an agreement with National Defence Canada to ensure continuation of the co-operative relationship that exists between the civil and military air navigation systems.

The Airports System

There are some 726 airports in Canada certified by Transport Canada for operation (out of approximately 2,000 aerodromes). Some are privately owned, but the vast majority are owned by municipalities, provincial or territorial governments, or the federal government, some of whose airports are now operated by local airport authorities. Plans are in place to commercialize as many as possible of the 149 airports with Transport Canada involvement.

The National Airports Policy

Announced on July 13, 1994, the National Airports Policy (NAP) outlines plans for all federally owned airports and affects the different categories of airports as outlined below. National Airports System (NAS)

The NAS airports are those in the national, provincial and territorial capitals and those that handle at least 200,000 passengers per year.

The federal government will retain ownership of all 24 NAS airports but will transfer the operations to not-for-profit Canadian airport authorities through long-term leases. Five of these airports were transferred to local airport authorities in the summer of 1993. NAS airports serve more than 90 per cent of all scheduled passenger and air cargo traffic in Canada.

Regional and Local Airports

Ownership of the 69 regional and local airports that have scheduled passenger traffic but fewer than 200,000 passengers per year will be offered to provincial and local governments, airport commissions, private businesses or other interests. In an effort to encourage takeovers before the year 2000, measures have been introduced to increase the viability of the airports by reducing the variance between costs and revenues at each site.

Small and Satellite Airports

The 25 airports that do not have scheduled passenger services were transferred to local interests by Mar. 31, 1997. The six general aviation, recreational and flight training satellite airports associated with international airports will be offered to their respective airport authorities. If the airport authority is not interested in operating the satellite airport(s), the satellite will be placed in the appropriate category and handled accordingly.

Remote Airports

Fourteen remote airports providing year-round access to isolated communities will continue to receive federal assistance.

Arctic Airports

The 11 Arctic airports have already been transferred to their respective territorial governments.

Current Year Events

In 1996, a total of 28 airports were transferred; one NAS airport, 16 regional/local airports, nine small airports and two Arctic airports. The transfer of the two Arctic airports - Whitehorse and Watson Lake - to the Yukon government completed the transfer of all the Arctic airports. The only NAS airport to transfer operations that year - Lester B. Pearson International Airport - was transferred to the Greater Toronto Airport Authority through long-term lease arrangements.

Negotiations with both the Winnipeg and the Ottawa airport authorities were completed in 1996; the two airports became Canadian airport authorities in early 1997. In 1996, 31 letters of intent to enter into negotiations were signed by interested communities. Since the inception of the NAP, 62 communities have begun negotiations with Transport Canada to transfer the remaining airports.

An integral part of the NAP is the Airport Capital Assistance Program. This contribution program was established in April of 1995 to assist eligible airports in the financing of airside safety-related projects.

The 149 airports with Transport Canada financial involvement included five airports operated by four local airport authorities, one Canadian airport authority airport, 60 airports owned and operated by Transport Canada, 29 owned by Transport Canada and leased to others, and 54 owned by others. In 1996, Transport Canada spent $455 million on the operation of airports (including operating costs, subsidies and capital), and took in revenues of $304 million. An additional $80 million came in the form of rent paid to Transport Canada by the five airport authorities.

Industry Structure

The National System Two large air carriers - Air Canada and Canadian Airlines International Ltd. - continue to dominate Canada's air transportation industry. Together they account for more than 66.1 per cent of the passenger and freight revenues earned by the Canadian industry, while their affiliates account for an additional 14.8 per cent. The rest of the commercial industry consists of several airlines offering service with jet equipment and numerous smaller operators providing services using non-jet aircraft, especially in remote and sparsely populated areas of the country. See Table 4-1

New Entrants

Two Western-based air carriers began service to Canada's domestic markets in 1996 with large jet aircraft. There were no new entrants of this type in the international sector.

WestJet

Calgary-based WestJet entered the market in February using B-737 aircraft, with service between major points in Western Canada. Services were halted voluntarily during the last two weeks of September in response to a Transport Canada audit of its flight operations procedures. Following the audit, the airline returned to service points in Saskatchewan, Alberta and B.C.

Kelowna Flightcraft Air Charter Ltd.

In April 1996, the National Transportation Agency issued its decision with respect to a proposed joint domestic air service venture between Greyhound Lines of Canada Ltd., a foreign-controlled bus and tour company, and Kelowna Flightcraft Air Charter Ltd. The Agency ruled that Greyhound Lines of Canada Ltd. would be the effective operator of the service and required a domestic licence to provide the commercial air services, which were to be sold and marketed by Greyhound Lines of Canada Ltd. and flown by Kelowna Flightcraft Air Charter Ltd. At the time, Greyhound would not have been able to meet the Canadian requirements for obtaining a domestic licence. The applicants sought a review of the decision, and in May the Agency issued a second decision upholding its original finding.

Greyhound subsequently restructured itself to become a Canadian-controlled company and petitioned the Governor in Council to overturn the Agency's decisions. On June 9, the Governor in Council ruled that the joint venture could go forward provided that Greyhound remained a Canadian-controlled company, that the air services were provided by Kelowna Flightcraft and that the public was always made aware of that fact.

Air services, marketed to the public as "Greyhound Air", began on July 8, 1996. Service is offered between Ottawa, Toronto, and Hamilton, and Winnipeg, Calgary, Edmonton, Kelowna and Vancouver, with all services connecting over Winnipeg. Greyhound also provides co-ordinated service to the many points in its intercity bus network.

Industry Services

Domestic

National

In 1996, the two major carriers and their affiliates served some 130 points throughout Canada - Air Canada's system served 83 and the Canadian Airlines system about 110. The larger "charter" operators have also built up an increased presence on the major domestic routes in addition to the services provided by the new entrants. (Note that the term "charter" continues to be used even though there is no such category in domestic licensing.) Table 4-2 provides statistics for 1995, the latest annual data available.

Atlantic Canada

Air Nova and Air Atlantic are the two primary air carriers in Atlantic Canada. Both provide air services within the four Atlantic provinces and both link mid-size Atlantic communities to Halifax, Montreal and Toronto for longer haul connections via Air Canada and Canadian Airlines. Air Nova and Air Atlantic were stable in terms of services offered and communities served in 1996. A third Atlantic carrier, Inter Provincial Airways, which continued to provide air service within Newfoundland and Labrador (operating primarily in Labrador), increased its services in 1996.

Quebec

Air Alliance introduced the 19-seat Beech aircraft, which permitted more frequent service to smaller Quebec communities and more non-stop flights to Montreal on reduced capacity. Canadian Airlines made known its wish to sell all or part of Inter-Canadien to Quebec investors, and Air Inuit and First Air now operate as one company and dominate some Northern Quebec routes previously served by Canadian Airlines.

The Government of Quebec provided a direct air transport subsidy to residents of the lower North Shore and Les ×les-de-la-Madeleine.

Ontario

Canadian Airlines increased the frequency of its flights in the Ottawa-Toronto-Montreal triangle to match Air Canada's service. In Northern Ontario, norOntair ceased operation. No community served by norOntair was left without air service, although in the case of three communities, the provincial government had to step in temporarily to ensure continuity of service during the process of tendering for a new service provider.

Prairies

Air services within Manitoba and Saskatchewan continued to be offered on a more regional level with Calm Air and Perimeter Aviation serving Manitoba and Athabaska, and Sabourin Lake serving Saskatchewan. Transfers for transcontinental services in these provinces are made at Saskatoon, Regina and Winnipeg to Air Canada, AirBC, Canadian Airlines and Canadian Regional (Time Air). Alberta communities are well served, with Air Canada, Canadian Airlines, AirBC and Canadian Regional (Time Air) all providing some level of service. Air Canada has become a competitive player in the Calgary- Edmonton market. WestJet's new service initially linked Winnipeg to Edmonton and Calgary and points in B.C., but service to Winnipeg was later dropped, and Regina, Saskatoon and Fort McMurray added.

British Columbia

AirBC and Canadian Regional (Time Air) dominate air services to the major communities within British Columbia and there continues to be a wide range of small air carriers serving the Gulf Islands and Coastal B.C. For the most part, these services are based in Vancouver and Prince Rupert. When Kelowna Flightcraft Air Charter Ltd. began air services for Greyhound Air, it expanded its operations and introduced services from Victoria, Vancouver and Kelowna to Winnipeg, Hamilton, Toronto and Ottawa. WestJet introduced new domestic services into Vancouver, Victoria and Kelowna.

The North

NWT Air began service to Whitehorse in 1996. Regional services in the Western Arctic continue to be operated by Aklak Air Limited, North-Wright Air Ltd., Buffalo Airways Ltd., Air Tindi Ltd. and Northwestern Air Lease Ltd. from bases at Yellowknife, Norman Wells and Inuvik. Calm Air and Keewatin Air provide service to the Central Arctic region primarily from bases at Arviat and Rankin Inlet. In the Eastern Arctic, First Air and Baffin Air are the primary air carriers, offering services from Iqaluit. The Department of Indian Affairs and Northern Development makes annual payments of some $15 million to the Canada Post Corporation (Canada Post) as part of the Northern Air Stage Program, to cover approximately 55 per cent of the cost of the contracts negotiated by Canada Post with individual air carriers such as First Air, Comair, Air Creebec and Aklak to provide commercial air stage parcel service to isolated Northern communities without year-round surface transportation. About 80 per cent of the funding is for nutritious perishable food shipments, mainly to communities in the Northwest Territories and the northern parts of Quebec, Ontario, Saskatchewan and Labrador; the remaining 20 per cent is for non-perishable food and non-food items such as clothing. There are about 15 food entry points serving the North, the main ones being Goose Bay, Val-d'Or, Pickle Lake, Churchill and Yellowknife.

Transborder Air Services

The effect of the new Canada-US Air Services Agreement was apparent when carriers introduced their schedules for the spring 1995 travel season. Table 4-3 summarizes entry and exit in transborder markets since 1995, excluding routes that were formerly operated as charter services but were later converted to scheduled services. A complete list of service changes, including the charter conversions, is presented in Appendix 4-1A.

Seventy new services, 29 of them Canadian, have been added since February 1995. The new agreement has meant better air links to major US business and leisure destinations, such as Atlanta, Denver, Minneapolis and Orlando.

The increase in transborder capacity as a result of the new agreement is shown in Figure 4-1, which plots trends in scheduled seats since 1989. Note that the graph does not include charter capacity, which is nearly all provided by the Canadian industry.

A 25 per cent year-over-year increase in capacity has occurred in the four quarters since the agreement was signed. Airlines have reduced capacity somewhat since then, but are still offering 21 per cent more capacity over pre-agreement levels. The combined share of scheduled capacity held by Air Canada and Canadian Airlines stands at 42 per cent for the first quarter of 1997, compared to 35 per cent for the first quarter of 1995.

International Air Services

The most notable event in the airline industry in 1996 was the consolidation of a number of global airline alliances, two of which involve Canadian carriers. Air Canada and Canadian Airlines both announced new alliances with European partners (Air Canada with Lufthansa and Scandinavian Airlines, and Canadian Airlines with British Airways). The composition of the main alliances, all of which involve a relationship with large US and European carriers, are listed in the box entitled "The Global Airline Alliances" (above). The largest Asian carriers have yet to commit to an alliance.

The alliances have already had an impact on international air services provided in Canada. Services to Frankfurt (Air Canada) and London (Canadian Airlines) have already increased. The foreign alliance partners are increasingly using Air Canada's and Canadian Airlines' domestic networks to feed traffic to points such as Halifax and Winnipeg. Similarly, Air Canada has begun feeding passengers onto Lufthansa's services between Frankfurt and Athens. Both Canadian airlines are seeking authority to extend similar code-sharing arrangements to several other countries.

The foreign cities served by Air Canada and Canadian Airlines and the Canadian airports served by the foreign scheduled airlines are listed in Appendix 4-2A, which also provides a partial listing of the destinations served by the charter airlines. However, the charter airlines also regularly serve several other destinations in Europe, Central America and the Caribbean.

Of the 41 countries currently receiving same-plane, scheduled air services from Canada, Canadian carriers serve 27. In the spring of 1996, Air Canada introduced a summer-season non-stop service between Vancouver and Zurich, and in the fall, Canadian Airlines and Philippine Airlines introduced new year-round routes to Manila. The most noteworthy service withdrawals were Canadian Airlines' discontinuation of service to Frankfurt and Paris and Air Canada's cessation of service to Berlin and Vienna. KLM has suspended service to three of the six Canadian cities it previously served: Calgary, Halifax, and Ottawa.

Industry Traffic

Domestic Highlights

Table 4-4 shows the growth in domestic enplaned and deplaned passenger traffic between 1988 and 1995.

The advance statistics for the major carriers indicate a moderate growth in domestic traffic of about six per cent for 1996. The final figure may be higher, in part because the recent entrants have attracted a new segment of the travelling public, which until now was not choosing to travel by air. Traffic was also stimulated by the "charter" operators, which offered service to more communities than previously. The highest growth will be in Western Canada.

Transborder Highlights

Total traffic in 1995 stood just under 15 million passengers, a nine per cent increase over the 1994 level, with most of the traffic increase occurring in the last half of the year. Traffic for the third and fourth quarters of 1995 was 16 per cent higher than comparable quarters in 1994, a trend that is expected to continue for the first two quarters of 1996. Passenger traffic and market share information for the period 1991-1995 is the subject of Table 4-5, which gives a breakdown of results by quarter for 1994 and 1995. The table measures transborder traffic carried by Canadian and US airlines, including traffic carried on all scheduled, regional and charter services.

As shown in Figure 4-2, load factors on transborder routes have deterior-ated somewhat, down two to five percentage points in the last three quarters of 1995, compared to the equivalent period in 1994. However, transborder capacity also declined during 1996.

International Highlights

Passenger traffic information for the period 1991-1995 is provided in Table 4-6, which measures pas-senger flows on same-plane services between Canada and countries other than the US. The table includes traffic carried on scheduled, charter and regional services, but excludes passengers connecting to international services in the US. Total traffic flow surpassed the 10-million mark for the first time in 1995, with an increase of seven per cent over 1994 levels. Routes to Asia - which increased 19 per cent in 1995 - are responsible for much of this growth. However, moderate growth was experienced in both the Atlantic and Southern sectors as well. Growth in the Pacific sector has consistently outpaced the share increases in the other sectors, but the largest source of new traffic, in absolute terms, has been the Atlantic sector, which generated 1.4 million of the 2.5 million new passengers since 1991.

Air Cargo

In 1994, approximately 540 million revenue tonne-kilometres of air cargo traffic were moved within Canada. The domestic market had peaked in 1990 and, after two years of recessionary decline, was growing again. At the time of writing, the figures are not yet available, but air cargo traffic for 1995 is expected to reach a new domestic Canadian record.

Transborder air cargo was up sharply in 1995 - to approximately 700 million revenue tonne- kilometres - an increase of 25 per cent over 1994. This trade is increasingly unbalanced, however, as imports from the US to Canada have grown to more than 85 per cent of the cargo by weight. Table 4-7 shows the extent of Canadian participation in transborder courier operations.

The Canadian industry currently performs no scheduled all-cargo services in international markets, though some services are performed by foreign carriers, most notably Air France, Cathay Pacific and Korean Air. However, Air Canada does provide additional cargo capacity to major European and Asian markets with combination passenger/ cargo aircraft.

Appendix 4A part 1.

Appendix 4A part 2.

Appendix 4A part 3.

Appendix 4B.