TRANSPORT CANADA AVIATION FORECAST WORKSHOP

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TRANSPORT CANADA AVIATION FORECAST WORKSHOP
First Airs Perspective on the Future of Air
Travel
Ottawa, Ontario December 9, 2002
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OVERVIEW OF PRESENTATION

• Introduce First Air
• Review domestic cargo market
• Highlight various market challenges
• Offer some conclusions

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COMPANY HIGHLIGHTS

• Established in 1946 as a flying school
• Dominant airline in Northern Canada
• Operate 25 aircraft
• Carried 262,000 passengers last year
• Transport 23,000,000 kilograms of cargo
• Employ 1,000 people / 90 unionized
• Named one of Canadas 50 Best Managed Companies
  in 2001 and 2002

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OUR BUSINESS

• Operate in three segments

• Operate a diversified business model

• Focus on niche markets using specialized
  aircraft

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JET AIRCRAFT 3 B737-200C Combis 2 B727-100C
Combis 1 B727-200C Combi 3 B727-200F
Freighters
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TURBOPROP AIRCRAFT 4 ATR42-300 Combis 7 HS748
Combis 1 Hercules Freighter
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ATR42 COMBI CONFIGURATIONS 33 SEAT PITCH
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DOMESTIC AIR CARGO MARKET

• DEDICATED JET FREIGHTERS

Probably at least six more B727 surplus freighter
aircraft parked
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DOMESTIC AIR CARGO MARKET

• TRANSBORDER ACTIVITY
• All major U.S. couriers fly transborder routes
• Estimated 20 to 25 aircraft per night
• Primarily narrow body lift but a few Airbus
  aircraft utilized
• SCHEDULED CARRIERS
• Air Canada belly freight major factor carrying
  significant percentage of total cargo market
• Only domestic carrier with meaningful scheduled
  capacity for cargo

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DOMESTIC AIR CARGO MARKET

• GENERAL COMMENTS
• Overall domestic/transborder market has
  experienced significant growth over last 10 years
• Current barriers to entry for new market entrants
  very low
• Air Canada and Purolator have benefit of network
  strength

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FUTURE CHALLENGES

• CARGO MARKET
• North American industry still sorting out
  USPS/FedEx deal followed by 9/11
• Domestic market maintains significant surplus
  lift capacity at present time
• Market dynamics and Canadas geography inherent
  challenge
• Co-terminaling is no answer

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FUTURE CHALLENGES

• CARGO MARKET
• Future of the B727 and replacement with newer,
  efficient aircraft a factor
• Cargo transportation is not an end product, we
  need people to buy and build things
• Core market sound and our economy structured to
  assure continued growth in this sector

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FUTURE CHALLENGES

• PASSENGER MARKET
• Short haul presently at great risk
• Costs (airports, security)
• Hassle factor
• Modal subsidization (Via Rail planes, not
  trains!)
• Global uncertainty is bad news
• Political/security issues
• Will remain long term issue for avation

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FUTURE CHALLENGES

• PASSENGER MARKET
• Current Canadian market data offers some
  encouragement
• Currently a winning environment for low cost,
  high value air carriers
• Opportunity from cost perspective, never better
  for new start-ups

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FUTURE CHALLENGES

• NICHE MARKETS (FIRST AIR)
• Opportunities much more difficult to find
• Adhoc charter big guys now in game
• European operations environmental issues
• Competition now all new generation aircraft
• Size of Canadian market
• Canadian work will not even support our one Herc
  (of course Canada never charters us either)
• Barriers to market entry for new operators
• Availability of very low cost aircraft and labour

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CONCLUSIONS CARGO MARKETS

• Short term
• Core market will remain stable
• Viciously competitive at operational level
• Long term
• Growth tied to economy
• Have very positive outlook for growth

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CONCLUSIONS PASSENGER MARKETS

• Short term
• Short haul needs federal action
• Some failures likely/USA for sure
• Great opportunities for low cost or start-up
  carriers
• Long term
• People will always want to fly far and fast,
  airplanes are the way to go
• Mode is a natural for strong growth however this
  is precarious because security issues
• This problem is going to stay with us so expect
  wide variations in travel

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CONCLUSIONS - NICHE MARKETS

• Short term
• Opportunities for growth very limited
• Good expense management critical
• (for all markets actually)
• Long term
• Good prospects for financially sound carriers
  operating newer aircraft

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