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Air North News

President's Message - March 2011

March 1, 2011

With winter pretty much behind us, I am optimistic that the Yukon will have a busy summer in 2011. All indications are that both the mining and the tourism sectors will generate healthy levels of activity again this year. The one dark spot on an otherwise bright horizon is fuel prices. During 2010 our average cost of fuel was up about 13% over 2009, and thus far in 2011 it is already up by another 10%. I'm sure that most of our readers are seeing similar changes at the gas pumps and on their heating bills.

With our newly acquired Boeing 737-400 and Boeing 737-500 aircraft we are now much better equipped to cope with rising fuel costs. The B737-400 provides close to a 27% improvement in unit fuel consumption relative to the B737-200, mainly because of its more fuel efficient engines, but also because of its increased seating capacity. The B737-500 provides close to an 11% improvement in unit fuel consumption relative to the B737-200, again mainly because of its more fuel efficient engines, but also because of its winglets. Unit fuel consumption data for each of our aircraft types is shown below.

Air North, Yukon's Airline
Fleet Fuel Consumption Summary
Aircraft Type Fuel Consumption #/ASM
B737-200 0.119
B737-400 0.087
B737-500 0.106
HS748 0.180

To reflect the increased efficiency afforded by our new aircraft we have adjusted our fuel surcharge formula and we have done a "re-set" on our passenger fares by incorporating a major portion of the surcharge into the base fare. This is all designed to minimize the impact of fuel price increases on our customers.

There is no doubt that people travel more often when prices are reasonable and we are committed to doing our best to keep travel affordable in the Yukon market. This has really been a foundation of our success to date because it has generated the traffic that we needed to establish and support our place in the market. Perhaps the best illustration of this is by observing that in 2001, our competitor had the Yukon market pretty much to themselves. At that time, fares were averaging more than $310 per segment, and I estimate that they transported approximately 110,000 passengers to and from Whitehorse. Last year I estimate that our competitor had passenger numbers in the Whitehorse market that were pretty close to what they had in 2001, but in 2010 our competitor had less than half of the total market traffic. Last year our average yield was $222 and we had more than 50% market share. These numbers illustrate how a 30% fare reduction caused traffic to almost double.

Fuel Consumption Litres/Passenger
AC Type Ave. Sector hrs. 100% Load 80% Load 75% Load 50% Load
B737-200 2.2 65 81 87 130
B737-400 2.2 49 61 65 98
B737-500 2.2 58 73 77 116
HS748 2.2 55 69 73 110

Prior to acquiring our new aircraft, our fuel-surcharge calculation used a prorated average consumption of 86 litres/passenger (and .46 litres/pound for cargo). With our new aircraft, we are now able to use a prorated average consumption of 75 litres/passenger (and .37 litres/pound for cargo). The revised calculation reflects not only the more fuel efficient aircraft but also changes in our load factors. I would like to see our load factors improve such that we can get our average fuel consumption below 70 litres/passenger. This is entirely doable and would be a win-win-win situation, benefiting Air North, our customers, and the environment.

Another significant element in our efforts to keep fares affordable involves scale. We need to make sure that we generate enough flying to efficiently amortize all of our fixed costs. This means that we need to maintain the lions share of our Yukon market and we need to supplement our scheduled flying with charter and specialty flights. Our specialty flights to date have been tremendously successful and have included the Olympic Day flight to Vancouver last winter, Okanagen Wine Festival in Kelowna charter flight, the Victoria Marathon flight last fall, and most recently, our Las Vegas weekend flight in January. We will continue to market special events flights such as these every two or three months.

In closing, once again I would like to thank all of you for your past and continued support. We greatly appreciate your business.

Enjoy your flight

Joseph Sparling, President

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