Investor Presentaiton
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borders and within provinces without substantially similar private sector privacy legislation. The PIPEDA requires
informed consent by the individuals whose personal information is collected and used. The personal information may
then only be used for the purposes for which it was originally collected or for other specific purposes specified in the
PIPEDA. Air Canada has a privacy policy which is designed to meet or exceed the requirements of such privacy
legislation. Management believes that its privacy policy and practices comply with applicable law in Canada and
elsewhere.
INDUSTRY OVERVIEW AND COMPETITIVE ENVIRONMENT
General
The airline industry has traditionally been dominated by large established network carriers. Network carriers
generally benefit from brand name recognition and a long operating history. They offer scheduled flights to major
domestic and international cities while also serving smaller cities. They generally concentrate most of their operations
in a limited number of hub cities, serving most other destinations in their network by providing one-stop or connecting
service through their hubs.
Over the past two decades, governments have gradually reduced economic regulation of commercial aviation. This
has resulted in a more open and competitive environment for domestic, transborder and international airline services,
for both scheduled and leisure charter operations. This deregulation has transformed the global airline industry and
allowed the emergence of low-cost carriers, which has resulted in a rapid shift in the competitive environment. With
their relatively low unit costs largely resulting from lower labour costs and a simplified operational model and product
offering, low-cost carriers are able to operate profitably while offering substantially lower fares than network carriers.
By offering lower fares, these carriers have expanded and succeeded in taking market share away from network
carriers. While the majority of low-cost carriers offer predominantly point-to-point services between designated cities,
some utilize a "hub and spoke" strategy, where air transportation is offered from a local airport to a central airport from
which long-distance flights are available.
In order to become more competitive with the low-cost carriers and as a result of the succession of challenging
factors impacting the airline industry such as the events of September 11, 2001, the SARS crisis and continued high
fuel prices, many network carriers have had to restructure or are currently restructuring either through court-supervised
or consensual processes. The degree of restructuring and the changes being implemented vary from carrier to carrier.
Network carriers have reduced costs and capacity by negotiating labour concessions, renegotiating aircraft financing
and other contracts, rationalizing domestic capacity, and redeploying their fleet with a focus on long-haul premium
business routes. In order to more efficiently operate their networks, certain network carriers have also developed
extensive relationships with regional airlines, which generally operate with smaller aircraft in specific geographic areas
at a lower cost than the network carriers. These measures have enabled the network carriers to benefit from their
competitive advantages in the global marketplace.
Domestic Market
The Canadian domestic market is characterized by a large geographic territory with a limited number of high
density markets accounting for the majority of passenger traffic and revenue. This leads to a concentration of routes in
Western and Central Canada around four major hubs: Toronto, Montreal, Vancouver and Calgary.
According to Transport Canada, domestic revenue passengers grew at a compound annual rate of 3.2% from 1994
through 2004 and are expected to grow at a compound annual rate of 3.0% from 2005 through 2009.
Air Canada is Canada's largest domestic airline. Jazz, Air Canada's regional affiliate, is the largest regional airline
in Canada and Canada's second largest airline based on fleet size and number of routes operated.
WestJet Airlines Ltd. ("WestJet") is Canada's third largest airline based on fleet size and number of routes
operated. CanJet Airlines discontinued its scheduled passenger services on September 10, 2006. CanJet Airlines had
previously provided scheduled passenger services to a number of domestic destinations, with a particular focus on
Eastern Canada. During the period from January 1, 2006 to August 31, 2006, CanJet Airlines provided approximately
3% of the Canadian airline industry's overall domestic scheduled capacity, as measured by the total number of seats
available for passengers multiplied by the miles flown ("Available Seat Miles" or "ASMS"). CanJet Airlines cited high
fuel costs, rising landing fees and increases in competitive capacity on its primary routes as the primary reasons for its
decision to discontinue its scheduled passenger services.View entire presentation