STUDY OF THE QUALITY OF THE AIR SERVICE IN MONTREAL

STUDY OF THE QUALITY

OF THE AIR SERVICE IN

MONTREAL

September 2014

TABLE OF CONTENTS

Introduction

Determinants of a

quality air service

Evaluation of the air

service in Montreal

Conclusion

Potential for

improving the service

INTRODUCTION

With the globalization of trade, the quality of a region's air service is

an increasingly important driver of economic development

• The quality of a service influences the attractiveness of a location for head

offices and companies with international operations

• Regions that are well connected with the rest of the world are often more

dynamic and innovative

Conversely, economic strength also influences the quality of the

existing air service

• The demand for air services is closely linked to the strength and structure

of the local economy

• This demand is also closely related to a region's level of wealth

Evaluating the quality of an air service is a complex exercise

• It requires an understanding of the decision-making factors for air

carriers and the environment in which they work in order to judge the level

of air services on offer

• Evaluation of the quality of service must also be put into the context of the

region's existing socioeconomic characteristics

In this context, the present

study includestwo

objectives

1. To evaluate the Montreal air

service in comparison with

other similar North American

cities

2. To identify potential areas of

development for the service to

and from Montreal-Trudeau

airport

DETERMINANTS OF A QUALITY

AIR SERVICE

1. Determinants of an air service

2. Evaluation parameters of the quality of an air

service

In addition to a balancebetween supply and demand,a large number of conditionsmust also be met to

allow the establishment of a new link

DETERMINANTS OF AN AIR SERVICE

CARRIERS' PROVISION AND DEMAND FOR TRAVEL:

KEY DETERMINANTS OF A REGION'S AIR SERVICE

The air service of a city or region is first and foremost a question of profitability for the carriers, which is itself

dependent on demand

THE SUPPLY of air connections depends mainly on the

financial and strategic interests of private carriers

§ With the disappearance of public carriers and competition

within the industry, the establishment of a new connection is

a business decision based on a rigorous financial analysis

§ As a general rule, the establishment or maintenance of an

air link assumes the existence of a sufficient minimum

demand to make this connection profitable

A city's basic air transport DEMAND is dependent on several

socioeconomic and geographic factors

• The strength and structure of the local economy, wealth,

socio-demographic profile and the region's attractiveness

greatly influence the demand for a city as an origin-

destination

• A favourable geographical position can encourage a

carrier to choose a city as a hub, allowing the carrier to

acquire additional (connecting) traffic

CONSTRAINTS may hamper the establishment of direct

connections

• These constraints may be related to the capacity of the

origin and destination airports, to taxation or regulations

SOME LEVERS may have a positive influence on the

development of a service

• These levers include, among other things, the financial

incentives offered by airports and the mobilization of

stakeholders

DEMAND

Travel demand (destination and frequency)

• Leisure travellers

• Business travellers

• Family and friends travellers

• Connecting traffic

DETERMINANTS OF AN AIR SERVICE

ANALYSIS OF AN AIR SERVICE:

SUPPLY AND DEMAND, PLUS LEVERS AND CONSTRAINTS

Origin – destination demand

§ Strength of economy (employment, growth)

§ Wealth (GDP, average income)

§ Industrial structure(main industries, large

companies, head offices)

§ Socio-demographic profile (% immigrants)

§ Attractiveness of the city (tourism, business)

Source: KPMG-SECOR

CARRIER PROVISION

Decision criteria for airlines (routes, frequency)

• Level of traffic anticipated (local and

connecting)

• Pricing

• Potential for profitability (load factor, yield)

LEVERS

§ Direct subsidies

§ Reduction of costs (e.g. landing fees)

§ Minimum guaranteed volume

§ Investment in promotion

§ Involvement of the business community

and government

CONSTRAINTS

§ Capacity of origin and destination

airports (e.g. infrastructure, schedules)

§ Taxes, landing fees and other costs

§ Policies and regulations

§ Business model (e.g. regular, LCC, charter)

§ Network strategy (e.g. hub & spoke,

point-to-point)

§ Fleet (number, type and capacity)

§ Cost structure

§ Revenue structure

Connection demand

§ Geographical location

§ Qualityof airport experience (e.g. waiting

time, comfort)

OPTIMAL

SERVICE

DETERMINANTS OF AN AIR SERVICE

THE CARRIER'S PERSPECTIVE:A MINIMUM DEMAND OF BETWEEN 10,000AND 40,000PASSENGERS FOR

A DIRECT LINK FROM MONTREALDEPENDING ON THE DESTINATION

Source: KPMG-SECOR

DISTANCE TO

DESTINATION

LESS THAN 1,000

MILES

1,000 TO

3,000 MILES

3,000 TO

5,000 MILES

5,000 MILES AND

Destinations Canada and United States International destinations

Min. frequency/week 5 3

Examples of cities already or potentially

served from Montreal

Toronto, Boston,

New York

Vancouver,

Los Angeles,

Miami

Panama City,

Mexico City,

Bogota

London, Paris,

Amsterdam

Beijing, Sao Paulo,

Doha

Example of suitable aircraft Dash 8 - Q400 Airbus 319 Airbus 319 Airbus 330

B777-

300ER

Dreamliner

Capacity of aircraft 70 pax 120 pax 120 pax 265 pax 335 pax 251 pax

Target minimum passenger load factor 55% 70% 70% 80% 80% 75%

Minimumvolume of passengers

required per year

10,000 21,800 13,100 33,100 41,800 29,400

The potential profitability for a carrier of a regular link is obviously related to the customer base in terms of

passengers. However, in addition to this number, its distribution over the days and the year, as well as the

distribution of rates paid, are also key variables.

When considering the establishment of a direct air link, carriers use two key parameters to analyze its potential

profitability:

• The passenger load factor, i.e. the ratio of passenger numbers to capacity throughout the year

• The "yield," i.e. the earnings per passenger according to the rates for each class of air travel and the distribution of passengers

according to these different rates (reduced economy fare, full economy fare, business class, first class, etc.)

According to the assumptions made by KPMG-SECOR, presented below, the minimum volume of

passengers required to establish a direct link from Montreal varies from 10,000 to 40,000 per year,

depending on the destination and the distance to it.

KEY PARAMETERS FOR EVALUATING THE QUALITY OF AN AIR SERVICE

PARAMETERS FOR EVALUATING THE QUALITY OF AN AIR SERVICE

THE PASSENGER'S PERSPECTIVE: A QUALITY SERVICE DEPENDS FIRSTLY ON

DESTINATIONS AND ALSO ON THE FREQUENCY OF FLIGHTS

Source: KPMG-SECOR

A greater number of destinations served

by direct flights allows improved

accessibility for travellers and reduced

travellingtime, a particularly important

factor for business travellers.

0 – 10

10 – 20

...

NUMBER OF

DESTINATIONS SERVED

BY DIRECT FLIGHTS

The cities served are not all of equal

importancein terms of business and

connectivity. The "major" cities, that is

the 123 most economically influential

cities, have been identified using the

GaWC network classification.

Holiday destinations

Secondary cities

Major cities (including large

international hubs)

IMPORTANCE OF

DESTINATIONS

A quality service usually includes a

minimum of three flights per week

throughout the year to major

international cities served and five flights

per week to major Canadian and

American cities. Access to more flights

and to a variety of carriers provides

greater choice and flexibility for

travellers.

Seasonal link

Year-round link with 1 to 3

flights per week

Regular link with 3 to 7 flights

per week

Regular link with more than 7

flights per week

FREQUENCY OF

FLIGHTS

EVALUATION OF THE AIR

SERVICE IN MONTREAL

1. Context: customer base and carriers

2. Quality of the air service in Montreal

3. The Montreal air service within the Canadian

context

4. North American comparison of air service

quality

CONTEXT: CUSTOMER BASE AND CARRIERS

CUSTOMER BASE OF MONTREAL AIRPORT:

SIGNIFICANT GROWTH, PARTICULARLY IN TERMS OF INTERNATIONAL PASSENGERS

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

5,4

3,2

4,4

3,0

3,5

2,8

9,4

4,3

4,7

5,2

13,0

4,9

12,2

3,1

5,0

4,6

2,9

4,8

12,8

4,5

3,1

5,3

12,8

3,2

5,2

13,8

5,4

3,4

5,3

14,1

2,3

5,3

4,2

10,9

11,4

3,7

13,7

5,2

3,1

3,2

CAGR 2004-2013

2.5%

9.8%

2.1%

Domestic

International

Transborder

4.6%

Total

Sources: ADM, KPMG-SECOR

The total number of passengers at Montreal-Trudeau increased from 9.4 million in 2004 to over 14

million in 2013

• An average annual increase of 4.6%, greater than the increase in Quebec's GDP and population

The number of international passengers has shown the greatest increase during this period, with

an average annual growth rate of 9.8%.

NUMBER OF PASSENGERS AT MONTREAL-TRUDEAU

IN MILLIONS OF PASSENGERS, 2004-2013

CONTEXT: CUSTOMER BASE AND CARRIERS

GREAT DIVERSITY OF ACTIVE AIR CARRIERS IN MONTREAL,

INCLUDING 20 CARRIERS WITH INTERNATIONAL SERVICES

A total of 29 air carriers are active at Montreal-Trudeau in 2014

• 20 of the current carriers in Montreal serve the international sector and 15 are affiliated with an air carrier alliance,

allowing greater ease of connection

CARRIER AFFILIATION

INTERNATIONAL

SERVICE

1. Air Canada Star Alliance

2. Air Transat

3. Westjet

4. Porter Airlines

5. American Airlines OneWorld

6. Delta Air Lines SkyTeam

7. Sunwing Airlines

8. Air France SkyTeam

9. United Airlines Star Alliance

10. US Airways OneWorld

11. KLM SkyTeam

12. BritishAirways OneWorld

13. Royal Air Maroc

14. Lufthansa Star Alliance

15. SWISS Star Alliance

CARRIER AFFILIATION

INTERNATIONAL

SERVICE

16. Aeromexico SkyTeam

17. Air Inuit

18. CORSAIR

19. Air Algerie

20. Qatar Airways OneWorld

21. Cubana

22. Royal Jordanian OneWorld

23. First Air

24. Provincial Airlines

25. Air Creebec

26. Turkish Airlines Star Alliance

27. COPA Star Alliance

28. Air St. Pierre

29. SATA International

CURRENT AIR CARRIERS IN MONTREAL

AUGUST 2013 – JULY 2014

Sources: ADM, KPMG-SECOR

QUALITY OF AIR SERVICE IN MONTREAL

TOTAL NUMBER OF DESTINATIONS WITH A DIRECT SERVICE: 129 DIRECT LINKS AVAILABLE

IN MONTREAL, INCLUDING 75 INTERNATIONAL LINKS

Source: ADM

The air service in Montreal included a total of 129 destinations in 2013

• 75 international destinations, 26 in the United States and 28 in Canada

EXAMPLES OF IMPORTANT NEW DIRECT INTERNATIONAL CONNECTIONS FROM MONTREAL

2005-2014

QUALITY OF AIR SERVICE IN MONTREAL

TOTAL NUMBER OF DESTINATIONS WITH A DIRECT SERVICE:

ADDITION OF SEVERAL IMPORTANT CONNECTIONS IN THE LAST 10 YEARS

Prague*

Panama City

Tunis

Istanbul

Istanbul*

Doha

Geneva

Venice*

201420112009

Dublin*

Basel*

2008

Algiers

Barcelona*

Amman

2007

Madrid*

2006

Brussels

Rome*

Lisbon*

Toulouse*

2005

Sources: ADM, KPMG-SECOR

*Destinations served on a predominantly seasonal basis (summer)

Montreal's air service has undergone significant improvement over the past ten years, the number of

direct international destinations available from Montreal having increased from 30 to 75

• In 2014, four new direct destinations were added to the schedule, namely Istanbul, Panama City, Tunis and Prague

(summer)

QUALITY OF AIR SERVICE IN MONTREAL

IMPORTANT DESTINATIONS AND FREQUENCY OF FLIGHTS:A REGULAR SERVICE TO 28

MAJOR CITIES

1. Amman

2. San Francisco*

Destinations served throughout the

year but with fewer than 3

flights/week

1. Athens

2. Barcelona

3. Lisbon

4. Lyon

5. Panama City*

6. Rome

7. Tampa

Seasonal destinations

*Note: During the analysis period (2013) Panama City had only a seasonal connection, and flights to San Francisco were maintained at a

rate of 3 flights or more per week for each week of the year.

Sources: ADM with Diio, KPMG-SECOR

1. Amsterdam

2. Atlanta

3. Boston

4. Brussels

5. Calgary

6. Casablanca

7. Chicago

8. Cleveland

9. Dallas

10. Denver

11. Detroit

12. Doha

13. Frankfurt

14. Geneva

15. Houston

16. London

17. Los Angeles

18. Mexico City

19. Miami

20. Minneapolis

21. Munich

22. New York

23. Paris

24. Philadelphia

25. Toronto

26. Vancouver

27. Washington

28. Zurich

Scheduled destinations (3 flights or

more per week throughout the year)

With regard to major cities, namely the 123 most influential cities in the world, Montreal had a significant

connection in 2013 with 37 of them, with 50 flights or more flights per year

• 28 major cities are served on a regular basis, with a minimum of three flights per week throughout the year

DIRECT CONNECTIONSBETWEEN MONTREAL AND THE 123 MOST INFLUENTIAL CITIES IN THE WORLD

MAJOR CITIES SERVED BY 50 FLIGHTS OR MORE PER YEAR, 2013

QUALITY OF AIR SERVICE IN MONTREAL

IMPORTANT DESTINATIONS AND FREQUENCY OF FLIGHTS:A REGULAR SERVICE TO 17

MAJOR INTERNATIONAL HUBS

1. Dubai

2. Tokyo

3. Milan

4. Bangkok

5. Moscow

6. Hong Kong

7. Singapore

1. Madrid (annual total of 21 direct

flights, all in summer)

Hubs served by direct flights on

a seasonal basis Hubs not served by direct flights

1. Amsterdam

2. Atlanta

3. Brussels

4. Chicago

5. Dallas

6. Frankfurt

7. Istanbul*

8. London

9. Los Angeles

10. Miami

11. Munich

12. New York

13. Paris

14. San Francisco*

15. Toronto

16. Washington

17. Zurich

Hubs served by 3 or more direct

flights per week all year round

*Note: Istanbul and San Francisco have been added to the destinations served by 3 or more direct flights per week throughout the year,

compared with the previous figure which only covered 2013

Sources: ADM with Diio, KPMG-SECOR

In 2014, Montreal has a regular connection to 17 of the 25 major international hubs, with a minimum of 3

flights per week throughout the year

A quality service to the largest international hubs is important to all travellers as it allows easier

connections

• Of the 123 major cities, all except one (namely Shenzhen, China) are accessible from Montreal by direct flight,

or via a single connection

DIRECT CONNECTIONSBETWEEN MONTREAL AND THE 25 LARGEST INTERNATIONAL HUBS

2014

MONTREAL'S AIR SERVICE WITHIN THE CANADIAN CONTEXT

A GREATER CUSTOMER BASE THAN VANCOUVER AND CALGARY AT INTERNATIONAL LEVEL,

BUT SMALLER AT DOMESTIC LEVEL

100 %

Calgary

Domestic

Transborder

International

14 287 029

10 047 250

(70 %)

2 913 896

(20 %)

1 325 883

(9 %)

Vancouver

17 971 427

9 441 783

(53 %)

4 304 641

(24 %)

4 225 003

(24 %)

Toronto

36 008 749

14 377 079

(40 %)

9 839 325

(27 %)

11 792 345

(33 %)

Montréal

14 095 415

5 408 671

(38 %)

3 384 052

(24 %)

5 302 692

(38 %)

Total

CAGR 2004-2013 4.6% 2.6% 1.5% 5.0%

All major Canadian airports have seen their customer base increase and their specific positioning

consolidated over the course of the last decade

• Toronto stands out as the principal major hub located in Canada with more than 60% of its traffic being international or

transborder. It is also sustained in terms of domestic traffic by its economic base

• Vancouver is an important hub for Asia on account of its geographical situation, but more than 50% of its traffic is still domestic

• Calgary is an important regional hub thanks to the strength of its economy and to the presence of WestJet, but it has little

international traffic

• Montreal is characterized by its transborder and international traffic, and also operates a significant service to Europe and the

Middle East

NUMBER OF PASSENGERS AT MAJOR CANADIAN AIRPORTS

2013

Sources: ADM, KPMG-SECOR

THE MONTREAL AIR SERVICE WITHIN THE CANADIAN CONTEXT

TOTAL NUMBER OF DESTINATIONS WITH A DIRECT SERVICE: MORE SIGNIFICANT

DEVELOPMENT THAN OTHER CANADIAN AIRPORTS

28 28

153

2013

200420132004

182

129

20132013 20042004

Transborder

International

Domestic

TorontoMontreal Vancouver Calgary

Between 2004 and 2013, 43 new direct connections were made available in Montreal, a more significant

development than in Toronto (29), Calgary (19) and Vancouver (2)

• 45 additional international connections in Montreal compared with 26 in Toronto, 9 in Calgary and 5 in Vancouver

• Calgary is the only airport with a significant increase in transborder and domestic destinations

NUMBER OF DESTINATIONSSERVED BY DIRECT FLIGHTS

REGULAR AND SEASONAL FLIGHTS, 2004 AND 2013

Source: ADM

NORTH AMERICAN COMPARISON OF QUALITY OF SERVICE

IN RELATION TO COMPARABLE AIRPORTS, A FAVOURABLE POSITIONING

WITH REGARD TO DESTINATIONS AND AVERAGE FREQUENCY

Source: KPMG-SECOR

In order to position Montreal within a North American context, 14 comparable airports were selected

• These are similar airports located in cities of comparable size and economic importance to Montreal, with the

exception of Toronto which is in a different category due to its status as a major international hub

Montreal compares favourably in terms of the number of direct connections to major cities and is

average in terms of the number of flights

NORTH AMERICAN CITIES INCLUDED IN THE SAMPLE

NORTH AMERICAN COMPARISON OF QUALITY OF SERVICE

IMPORTANT DESTINATIONS SERVED: MONTREAL IN 2

POSITION WITHIN CANADA,

AND 5

WITHIN NORTH AMERICA

11 11

16 16

Boston

Minneapolis

San Diego

Houston

Toronto

Vancouver

Denver

Seattle

Montréal

Philadelpie

Detroit

Calgary

Cleveland

Pittsburgh

Portland

International

Canada – USA

Total

in Canada

in North America

Sources: ADM with Diio, KPMG-SECOR

With 28 direct destinations (32 in 2014) to the world's 123 most influential cities, Montreal is ranked 2nd

in Canada and 5th in North America among comparable airports in terms of the number of destinations

• Montreal comes in ahead of Boston and Seattle and is roughly on a par with Philadelphia and Detroit

• Houston stands out due to its status as a hub toward South America

• In Canada, only Toronto comes in ahead of Montreal with 47 destinations; Montreal is thus better connected to major

global destinations than Vancouver (26) and Calgary (17)

NUMBER OF DIRECT REGULAR CONNECTIONS TO MAJOR CITIES

DIRECT CONNECTIONS TO THE 123 MAJOR CITIES WITH A MINIMUM OF 3 FLIGHTS PER WEEK THROUGHOUT THE YEAR, FEBRUARY 2013 - FEBRUARY 2014

MONTREAL'S POSITION

NORTH AMERICAN COMPARISON OF QUALITY OF SERVICE

FREQUENCY OF FLIGHTS TO MAJOR DESTINATIONS:

MONTREAL IN 2

POSITION WITHIN CANADA AND 9

WITHIN NORTH AMERICA

1809

1650

1924

1723

Boston

Houston

Denver

Toronto

San Diego

1099

873

Detroit

1515 1514

Minneapolis

840

1187

Montréal

Seattle

Philadelpie

1445

Pittsburgh

771

Portland

754

Vancouver

629

837

Calgary

Cleveland

Sources: ADM with Diio, KPMG-SECOR

NUMBER OF DIRECT FLIGHTS PER WEEK TO MAJOR CITIES WITH A DIRECT REGULAR CONNECTION

DIRECT FLIGHTS TO DESTINATIONS SERVED BY A MINIMUM OF 3 FLIGHTS PER WEEK THROUGHOUT THE YEAR, FEBRUARY 2013 - FEBRUARY 2014

With regard to the number of flights to major cities, Toronto is ranked first in Canada with 1924 direct flights,

ahead of Montreal with 1099 direct flights

• Seven major US cities are also ahead of Montreal. This is largely a reflection of their considerable volume of domestic

flights and also their more flexible position due to the bilateral and multilateral "Open Skies" agreements in force in the

United States

Total

in Canada

in North America

MONTREAL'S POSITION

International

Canada – USA

NORTH AMERICAN COMPARISON OF QUALITY OF SERVICE

IMPORTANT DESTINATIONS AND FREQUENCY OF FLIGHTS:

GOOD CONNECTIVITY TO MAJOR INTERNATIONAL HUBS

999

1010

1111

1515

1616

Portland

Cleveland

Pittsburgh

San Diego

Calgary

Denver

Vancouver

Minneapolis

Detroit

Seattle

Montréal

Houston

Boston

Philadelpie

Toronto

288

359

402

507

582

613

699

864

953

961964

975985

987

1374

Portland

Pittsburgh

Vancouver

Cleveland

San Diego

Calgary

Montréal

Seattle

Toronto

Houston

Philadelpie

Detroit

Minneapolis

Denver

Boston

Number of regular direct connections

Number of direct flights

Note: As Toronto is the only city in the sample that is a major international hub, it is at a disadvantage

Connections

in Canada

in North

America

Flights

in Canada

in North

America

Sources: ADM with Diio, KPMG-SECOR

When the analysis focuses on service to the 25 most important

international hubs:

• Montreal is ranked 2nd in Canada and 5th in North America for the number of

hubs served regularly in 2013, namely 15 (17 in 2014)

• Montreal is ranked 2nd in Canada and 8th in North America for the number of

flights to regularly served hubs

NUMBER OF CONNECTIONS AND DIRECT FLIGHTS TO THE 25 MAJOR INTERNATIONAL HUBS

FOR DESTINATIONS SERVED BY A MINIMUM OF 3 FLIGHTS PER WEEK THROUGHOUT THE YEAR, FEBRUARY 2013 - FEBRUARY 2014

MONTREAL'S POSITION

NORTH AMERICAN COMPARISON OF QUALITY OF SERVICE

A SERVICE CONSISTENT WITH THE SOCIOECONOMIC

VARIABLES OF THE MONTREAL REGION

400.000300.000200.000100.0000

San Diego

Portland

Seattle

Houston

Denver

Minneapolis

Detroit

Cleveland

Pittsburgh

Philadelphie

Boston

Calgary

Vancouver

Toronto*

Montréal

200.000100.0000

300

300.000

2.100

400.000

1.500

1.200

1.800

900

600

Vancouver

Portland

Seattle

Toronto*

Philadelphie

Boston

Cleveland

Minneapolis

Pittsburgh

Detroit

Denver

Montréal

San Diego

Calgary

Houston

The service in Montreal appears consistent with the level of wealth of its economy

• Taking into account wealth measured by GDP (or wealth per capita), Montreal is situated above the level expected

for the number of destinations and at the level expected for the number of flights.

• This wealth effect may partly explain the difference in the propensity to travel. We note that there is less travel per

1,000 inhabitants in Montreal than in other major Canadian cities, the per capita personal income or per capita GDP

being higher in Calgary, Toronto and Vancouver.

Number of direct connections in relation to GDP

Number of direct flights in relation to GDP

# flights

Less extensive service than in

the most comparable cities

More extensive service than in

the most comparable cities

Number of direct connections in relation to GDP

Number of direct flights in relation to GDP

*Note: Toronto has been excluded from the calculation of regression lines,

given its status as a major international hub

GDP ($M)

# connections

GDP ($M)

Less extensive service than in

the most comparable cities

More extensive service than in

the most comparable cities

NUMBER OF CONNECTIONS AND DIRECT FLIGHTS IN RELATION TO GDP

TO THE 123 MAJOR CITIES, FOR DESTINATIONS SERVED BY A MINIMUM OF 3 FLIGHTS PER WEEK THROUGHOUT THE YEAR

Sources: Diio, Statistics Canada, U.S. Bureau of Economic Analysis, KPMG-SECOR analysis

NORTH AMERICAN COMPARISON OF QUALITY OF SERVICE

A SIGNIFICANT IMPROVEMENT IN THE MONTREAL SERVICE, IN SPITE OF BELOW-AVERAGE

ECONOMIC GROWTH

Sources: ADM with Diio, KPMG-SECOR

-4

-1-1

333

Portland

Cleveland

Pittsburgh

Minneapolis

Boston

Calgary

Vancouver

Denver

San Diego

Houston

Toronto

Detroit

Philadelphie

Montréal

Seattle

Net variation in direct regular connections

To the 123 major cities, 2003-2013

Despite below-average economic growth in the 15 cities studied, Montreal is among the cities whose

quality of service has improved the most, both in terms of the number of connections and the number of

flights to major cities

-277

-244

-96

-81

102

147

186

273279

455

773

Seattle

Montréal

Toronto

Houston

Denver

Philadelphie

Calgary

Portland

Pittsburgh

Cleveland

Detroit

San Diego

Minneapolis

Boston

Vancouver

Net variation in direct flights

To the 123 major cities regularly served, 2003-2013

Pittsburgh

1,0%

Avg. 3,3 %

Detroit

Portland

4,3%

Houston

4,4%

Calgary

7,6%

Minneapolis

3,9%

Denver

3,6%

Boston

2,6%

Philadelpie

2,9%

Cleveland

Vancouver

3,4%

3,7%

2,8%

San Diego

2,4%

Montréal

1,9%

Toronto

2,5% 2,4%

Seattle

GDP growth

2002-2012

Below average economic growth

Above average economic growth

NORTH AMERICAN COMPARISON OF QUALITY OF SERVICE

MONTREAL, IN BRIEF: AN ENVIABLE SERVICE TO EUROPE AND THE MIDDLE EAST,

IMPROVEMENTS TO BE MADE TO ASIA AND SOUTH AMERICA

In comparison with similar North American airports, Montreal has an enviable service to Europe, and

increasingly to the Middle East and North Africa

• But a lack of direct connections to South America and Asia is noted. However, this situation is not surprising when the

focus is on O-D traffic between Montreal and these parts of the world (see following section).

Above average Average Below average

Canada and United States

Mexico and Central America

South America

Europe

Middle East and Africa

Asia and Oceania

Note: Montreal achieves "above average" rating when it is ranked in the first third (first 5 cities out of 15), "average" when it is in the second third (cities 6 to 10),

and "below average" when it is in the group of the last 5 cities

Sources: ADM with Diio, KPMG-SECOR

AIR SERVICE BY GEOGRAPHICAL REGION (NUMBER OF REGULAR DIRECT CONNECTIONS AND DIRECT FLIGHTS)

POTENTIAL FOR IMPROVING THE

SERVICE

1. Service in relation to potential for carriers

2. Regional strategies

O-D traffic in % of the required

minimum demand*

Distribution of the 122 major cities

according to the % of minimum

demand met in Montreal

Number of direct connections in

2013-2014

for these cities

300% plus 8 cities § 8 regular connections

100% - 299% 19 cities

§ 11 regular connections

§ 5 seasonal connections

75% - 99% 6 cities § 4 regular connections

50% - 74% 14 cities

§ 6 regular connections

§ 2 seasonal connections

25% - 49% 21 cities

§ 2 regular connections

§ 1 seasonal connection

Less than 25% 54 cities

§ 1 regular connection

§ 1 seasonal connection

SERVICE IN RELATION TO POTENTIAL FOR CARRIERS

27 MAJOR CITIES HAVE AN O-D DEMAND THAT MEETS THE MINIMUM REQUIREMENT,

INCLUDING 23 ALREADY SERVED BY MONTREAL

An analysis of the O-D demand between Montreal and the 122 other major cities reveals that the current

provision by carriers is broadly in line with the size of the region's O-D customer base. The minimum

demand required to provide potential profitability for carriers is met in the case of 27 cities.

• Among these, 23 are already served directly from Montreal, including 19 on a regular basis

• 8 cities show a particularly high demand justifying daily frequency and/or several different carriers (300% and above O-D

traffic compared with the required minimum demand)

*Depending on destinations, the required minimum demand is between 10,000 and 40,000 passengers (see table on page 6). The percentage of demand met for each of the 122 major cities is

available in the appendix.

Required

minimum

demand*

reached

Required

minimum

demand*

not reached

SERVICE IN RELATION TO POTENTIAL FOR CARRIERS

OF THE 8 DESTINATIONS WITHOUT A REGULAR SERVICE AND SHOWING THE REQUIRED

LEVEL OF DEMAND, ONLY 3 PROVE FEASIBLE THROUGHOUT THE YEAR

Routes not served but with potential (required minimum O-D demand)

Currently "non-feasible"

potential routes

Regular "feasible" routes

3 cities 1 city

Beijing, San Diego, San Jose (CR) Beirut (national security)

Rome, Barcelona, Lyon, Athens,

Seasonal routes

4 cities

8 cities

Sources: ADM with Diio, KPMG-SECOR

Only four destinations not yet served have a sufficient level of demand throughout the year to provide a

minimum level of profitability for an airline. These are Beijing, San Diego and San Jose (Costa Rica).

Beirut (which cannot currently be served for national security reasons) may also be added to these.

• In the medium term, with the arrival of new energy-efficient aircraft such as the Dreamliner, certain additional links including

Madrid, Seattle, Tel Aviv, Lima and Shanghai could become viable

Rome, Barcelona, Lyon and Athens are

currently served by seasonal flights

only. Analysis of the potential demand

to these destinations reveals that the

low season (winter) demand does not

at present allow the minimum level of

demand required throughout the year

to be met.

Beirut cannot currently be served for

national security reasons.

Despite efforts made over the years by

ADM and its partners, it has not yet

been possible to establish a Montreal-

Beijing connection. This is mainly due

to the lack of a suitable landing slot at

Beijing airport.

SERVICE IN RELATION TO POTENTIAL FOR CARRIERS

POTENTIAL O-D DEMAND TO THE MOST POPULAR DESTINATIONS

IN SOUTH AMERICA AND ASIA

South America Asia

Sources: ADM with Diio, KPMG-SECOR

Required minimum demand: 30,000 to 40,000 passengers per year

For the moment, no Asian or South American destination shows a sufficient level of demand to justify

establishing a cost-effective direct connection, with the exception of Beijing

l In other cases, establishing a direct connection would require a combination of destinations, a solution not

favoured by air carriers because of the additional costs linked to fuel consumption and landing fees, among other

reasons

POTENTIAL O-D DEMAND TO THE MOST POPULAR DESTINATIONS IN SOUTH AMERICA AND ASIA

POTENTIAL PASSENGER DEMAND BETWEEN MONTREAL AND THE MOST POPULAR DESTINATIONS IN THE REGIONS CONCERNED, 2013

SERVICE IN RELATION TO POTENTIAL FOR CARRIERS

STAKEHOLDERS IN MONTREAL AND QUEBEC ARE LARGELY SATISFIED WITH THE

CONNECTIVITY OF MONTREALAIRPORT

In addition to the analyses presented above, interviews were also carried out in order to understand

expectations and opinions in Montreal. To this end, various stakeholders were interviewed (multinational

companies, international organizations, regional and provincial authorities).

On the whole, the various stakeholders consulted consider the air service in Montreal to be generally

satisfactory

• Most of the organizations consulted are of the opinion that there are simple and effective options for travelling anywhere

in the world, even when a connection is necessary.

According to stakeholders, priority needs relate mainly to:

1. The addition of a direct link to Asia

2. Greater frequency in Canada and the United States, in particular to cities in the West

With regard to the traveller's experience at Montreal-Trudeau airport, which is not directly connected to the

quality of the air service but is nevertheless important, the greatest weakness that stakeholders regret is the

absence of an efficient link between the airport and the city centre, either by rail or improved road access

given the current state of the roads to the airport.

Cities and airports compete strenuously to obtain new air

connections. The principal strategies preferred by airports to

ensure the development of an air service include:

FINANCIAL INCENTIVES. Although less crucial to carriers' decisions, these

nevertheless seem to be essential in order to compete with other airports. All the

airports studied offer financial incentives to encourage carriers to establish new routes.

The objective is always the same: to reduce the commercial risk during the launch

period

A STRATEGY TARGETING A NICHE POSITION (FOCUS ON A SPECIFIC REGION)

OR SIGNIFICANT LOCAL CONNECTIVITY. Vancouver has positioned itself as the

gateway to Asia from the Americas, and Boston is increasingly successful in positioning

itself as a transit airport without being the hub for a large carrier. Montreal is positioning

itself as a hub between North America and Europe, the Middle East and North Africa.

SIGNIFICANT INVOLVEMENT OF STAKEHOLDERS. Winning approaches to airlines

are often characterized by a high level of cooperation between airport, city and

province. In addition, mobilizing the business community is also desirable, particularly

to demonstrate the future use of the new connection.

The case of Montreal-Beijing

Cooperation between stakeholders

was established in the summer of

2013 with a view to creating a direct

Montreal-Beijing connection. Indeed,

several partners, including Aéroports

de Montréal, the Ministry of Finance

of Quebec, Tourisme Montréal and

Tourisme Québec, have agreed on

the composition of a financial

incentive program to interest a carrier

in providing such a connection with a

minimum frequency of 3 flights per

week.

However, the issue of the

accessibility of a viable landing slot at

Beijing airport has prevented the

implementation of the project. ADM is

nevertheless continuing its

canvassing efforts to connect the city

with Asia.

REGIONAL STRATEGIES

PRINCIPAL DEVELOPMENT STRATEGIES FOR AN AIR SERVICE:

INCENTIVES, POSITIONING AND COLLABORATION

REGIONAL STRATEGIES

FINANCIAL INCENTIVES OFFERED TO CARRIERS:

MONTREAL IN A GOOD POSITION

Source: KPMG-SECOR

Abolition or reduction of

landing fees

• Abolitionor reduction of landing fees (by between 25% and 100%) offered by all airports studied

• Incentives also offered by very large airports (e.g. Miami and Atlanta) as well as smaller airports (e.g. Syracuse, NY)

Promotional investmentfor

the new route

• Objective: To promote the new route (at the airport of origin and/or destination)in order to ensure its use

• Matching the amount invested by the carrier (50-50) is offered by almost all airports studied. In some cases,

amounts are granted unilaterally, without the requirement to match (e.g. Portland and Houston).

• Amountsgranted vary according to airport, destinationand airline (between $25 K and $400 K per route annually,

over periods of 1 to 2 years)

Preferential rates for

aircraft parking

• Preferential rates or free aircraft parking, for a limited time period (one or two years)

Other incentives

• Free use of common gates and free customs services for periods of 1 to 2 years (e.g. Denver and Portland)

• Free check-in desk for one year (e.g. Portland)

Negotiations between airports and airlines take place on a case-by-case basis and offers made to

carriers are not always known

According to publicly available information, Montreal's offer seems to be the most favourable in Canada

• A 100% reduction of the landing fee in year 1, 50% in year 2 and 25% in year 3 for new direct flights to

destinations defined as "priority"

• Investment in the promotion of the new destination to match the amount invested by the carrier (50-50)

EXAMPLES OF FINANCIAL INCENTIVES OFFERED TO CARRIERS BY NORTH AMERICAN AIRPORTS

REGIONAL STRATEGIES

EXAMPLE OF AN AIRPORT FOCUSING ON A NICHE POSITION: VANCOUVER

Source: KPMG-SECOR

Vancouver: hub position targeting an international region

KEY FACTORS FOR

SUCCESS

DESCRIPTION

Marketsize

• Passenger volumeof nearly 18 M per year

• SignificantO-D market, with a growing populationand strong community of Asian origin

• Proportion of passengers in transit: 28%

Strategy of the airport and

carriers

• Distinctive"Trans-Pacific" positionand role as a hub for the West Coast (according to the airport's"Master Plan")

• Proposal to create a "stop-over-zone" that does not require passengers to go through customs/visa when arriving from China

• Determination of Air Canada (which holds 50% of the market) to develop Vancouver as a hub between Asia and the

Americas

• Agreements between WestJet and Cathay Pacific and Taiwan's China Airlines also contribute to increasing international

transit

• Opening an office in Hong Kong to contribute to achieving the "Gateway Development Strategy"

Involvementof public

partners and the business

community

• Abolitionby the province of fuel tax for international routes (financialimpact for carriers estimated at $2 K to $3 K per long-

haul flight)

• Liberalization of aviation treaties between Canada and Japan to allow more flights to Tokyo

• Request that the federal government expand the airport and create a "stop-over-zone" between Asia and the EU and South

America (transfer without having to go through customs or needing a visa)