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STUDY SUMMARY & FINDINGS JUNE 2006 2006/TPT-WG-28/AEG-SRV_004_v2 28 th APEC Transportation Working Group Meeting Vancouver, Canada 5-8 September 2006 Study of the Impacts of Air Transport Liberalization: Study Summary and Findings Purpose: Information Submitted by: Michael Tretheway, Executive Vice President, InterVISTAS Consulting Inc.

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STUDY SUMMARY & FINDINGS JUNE 2006 2006_TPT-WG-28_AEG-SRV_004_v2

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3 Background Commercial aviation is governed today by a myriad of arcane rules and regulations that defy logic and the principles of free trade. Most airlines are trying to become more competitive and responsive to consumer demand for lower fares. Despite the efforts of the U.S. Government, and selected others, some governments and airlines want the protection of todays regulatory regime.

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4 2006_TPT-WG-28_AEG-SRV_004_v2 Background (contd) Conventional wisdom is that: Liberal air service agreements promote economic growth and jobs. Airlines, freed of economic regulation, will produce more efficiently, and that will translate into lower fares. However: There has been no vehicle for measuring the potential impacts of liberal agreements until after they have been implemented for a number of years. There has been inadequate information available relative to the benefits of free trade in aviation.

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5 2006_TPT-WG-28_AEG-SRV_004_v2 Study Objectives Examine air service liberalization and identify the impacts on air travel and economic growth. Develop an analytical model that will measure the benefits of liberalization -- prospectively. Provide the means to validate liberalization assumptions through case studies. Promote a better informed debate on the historical and potential benefits of liberalization.

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6 2006_TPT-WG-28_AEG-SRV_004_v2 The Scope and Scale of the Industry World airlines annually transport roughly 2 billion passengers per annum and carried almost 40% of world trade by value. Air transport is a major contributor to job creation and economic growth. 8% of world GDP 5 million direct jobs, and an additional 8.5 million indirect and induced jobs 15.5 million additional direct and indirect jobs resulting from air transports impact on tourism.

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7 2006_TPT-WG-28_AEG-SRV_004_v2 Modeling Liberalization Isolate Liberalization Traffic Growth link Determine Increased Traffic Drive Demand Against Baseline Economic Data Generate Increased GDP, Employment, Tourism/Business and Catalytic Benefits Liberalization Traffic growth Economic Growth Jobs

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8 2006_TPT-WG-28_AEG-SRV_004_v2 The Impact of Liberalization: A Cross-Sectional Approach TRAFFIC GDP x GDP * Restrictive 1 Liberal 3 + * Restrictive 2 Liberal 1 + * Restrictive 4 * Restrictive 3 Liberal 2 + + Liberal 5 + Liberal 4 Restrictive 5 * Liberal Bilaterals Restrictive Bilaterals

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9 2006_TPT-WG-28_AEG-SRV_004_v2 Selected Findings-#1 Test the models What If capability Examine 320 arbitrary country pairs Determine economic impact if all were liberalized RESULT Liberalizing the 320 ASAs would generate 24.1 million jobs and generate an incremental $490 billion GDP. This approximates the GDP of Brazil.

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10 2006_TPT-WG-28_AEG-SRV_004_v2 Selected Findings-#2 Examined EU Single Aviation Market (1992 Package) Traffic growth tracked EU GDP 1990-1994 1995 & beyond traffic growth rate well above GDP Traffic growth rate 1995-2004 was double the pre-1994 rate of growth. Low Cost Carrier (LCC) market share expanded from 1.4% in 1996 to 20.2% in 2003. RESULT Incremental GDP $85 billion; new jobs -- 1.4 million.

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11 2006_TPT-WG-28_AEG-SRV_004_v2 Selected Findings-#3 U.S.-UK agreement was significantly liberalized in mid-1990s. All markets opened between U.S. and UK, except Heathrow and Gatwick. A U.S.-EU Air Transport Agreement would completely liberalize the U.S.-UK market. RESULT Traffic between the U.S. & UK would expand by 29%. GDP would expand by $7.8 billion -- 117,000 new jobs would be created.

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12 2006_TPT-WG-28_AEG-SRV_004_v2 Case Studies: US-UK 1994 10 City-Pairs 62 Weekly Flights Belfast Glasgow Manchester Birmingham Washington Dulles Atlanta Chicago OHare New York JFK Boston Los Angeles Nonstop US-UK Routes (Excluding Heathrow & Gatwick) Source: May 1994 Official Airline Guide, US/UK Designated Carriers Only

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13 2006_TPT-WG-28_AEG-SRV_004_v2 Case Studies: US-UK 2006 17 City-Pairs 144 Weekly Flights Birmingham Washington Dulles Atlanta Chicago OHare Newark Boston Nonstop US-UK Routes (Excluding Heathrow & Gatwick) Source: May 2006 Official Airline Guide, US/UK Designated Carriers Only Las Vegas Philadelphia Orlando (MCO) Bristol London Stansted New York JFK Belfast Glasgow Edinburgh Manchester

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14 2006_TPT-WG-28_AEG-SRV_004_v2 Selected Findings-#4 Partial liberalization of Malaysia - Thailand agreement achieved via MoU to allow increase in capacity, frequency and routes. RESULT Traffic between Malaysia and Thailand grew by 370,000 passengers per annum (37%). Identical impacts on both countries. GDP would expanded by $114 million each 4,300 new jobs created.

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15 2006_TPT-WG-28_AEG-SRV_004_v2 Kuala Lumpur (Subang) Chiang Mai Bangkok Penang Hat Yai Phuket Malaysia - Thailand Nonstop Services April 1996

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16 2006_TPT-WG-28_AEG-SRV_004_v2 Kuala Lumpur (Subang) Koh Samui Chiang Mai Kota Kinabalu Bangkok Kuala Lumpur (KLIA) Penang Hat Yai Phuket Malaysia - Thailand Nonstop Services April 2006

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17 2006_TPT-WG-28_AEG-SRV_004_v2 Source: OAG Schedules February 2001 May 2006

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18 2006_TPT-WG-28_AEG-SRV_004_v2 Summary of Case Studies: Job Creation Intra Community - 1.4 million jobs U.S.-UK - 117,000 jobs UAE to Germany and UK - 26,000 jobs Australia-New Zealand - 40,000 jobs Malaysia-Thailand - 8,600 jobs

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19 2006_TPT-WG-28_AEG-SRV_004_v2 Summary Findings Open Skies between U.S. & EU would benefit the U.S. and UK markets by adding 117,000 jobs and $7.8 billion in GDP. Liberalizing a sampling of 320 ASAs would generate 24.1 million jobs and generate an incremental $490 billion GDP. Case studies uniformly support model results and conventional wisdom. Intra-EU Open Skies produced doubling of growth rate of traffic for the 1995-2004 period versus pre-1994 regulated environment.

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20 2006_TPT-WG-28_AEG-SRV_004_v2 Conclusions World economies are heavily dependent on air transport. We now have a model that will test the impact of liberalization on a prospective basis. This model documents the economic and job creating benefits of liberalizing air service agreements. This study found that if countries want to increase jobs and economic growth, liberalizing their air services will help do this.

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STUDY SUMMARY & FINDINGS Copy of full study available at www.InterVISTAS.com 2006_TPT-WG-28_AEG-SRV_004_v2