STUDY SUMMARY & FINDINGS

1. 2006/TPT-WG-28/AEG-SRV_004_v2 28th 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. STUDY SUMMARY & FINDINGS JUNE 2006

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

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 today’s regulatory regime.

4. Background (cont’d) • 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.

5. 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.

6. 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 transport’s impact on tourism.

7. 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

8. The Impact of Liberalization:A Cross-Sectional Approach Liberal 3 + + Liberal 4 Liberal Bilaterals + Liberal 5 * Restrictive 4 Liberal 1 + Restrictive 5 * Liberal 2 + TRAFFIC * Restrictive 2 Restrictive Bilaterals * Restrictive 3 * Restrictive 1 GDP x GDP

9. Selected Findings-#1 Test the model’s “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.

10. 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.

11. Selected Findings-#3 • U.S.-UK agreement was significantly liberalized in mid-1990’s. 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.

12. Nonstop US-UK Routes (Excluding Heathrow & Gatwick)Source: May 1994 Official Airline Guide, US/UK Designated Carriers Only Boston New York JFK Chicago O’Hare Glasgow Washington Dulles Belfast Los Angeles Manchester Atlanta Birmingham Case Studies: US-UK 199410 City-Pairs 62 Weekly Flights

13. Nonstop US-UK Routes (Excluding Heathrow & Gatwick)Source: May 2006 Official Airline Guide, US/UK Designated Carriers Only Boston New York JFK Newark Chicago O’Hare Philadelphia Glasgow Washington Dulles Edinburgh Las Vegas Belfast Atlanta Manchester Birmingham Orlando (MCO) London Stansted Bristol Case Studies: US-UK 200617 City-Pairs 144 Weekly Flights

14. 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.

15. Chiang Mai Malaysia - Thailand Nonstop ServicesApril 1996 Bangkok Phuket Hat Yai Penang Kuala Lumpur (Subang)

16. Chiang Mai Malaysia - Thailand Nonstop ServicesApril 2006 Bangkok Koh Samui Phuket Hat Yai Kota Kinabalu Penang Kuala Lumpur (Subang) Kuala Lumpur (KLIA)

17. Source: OAG Schedules – February 2001 – May 2006

18. 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

19. 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.

20. 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.

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