TABLE OF CONTENTS EXECUTIVE SUMMARY ECONOMIC OUTLOOK AIRLINE INDUSTRY OUTLOOK YMM AIRPORT OUTLOOK STRATEGIC OVERVIEW PLANNING OVERVIEW FINANCIAL PLAN

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2 Table of Contents TABLE OF CONTENTS EXECUTIVE SUMMARY ECONOMIC OUTLOOK GLOBAL VIEW NATIONAL VIEW PROVINCIAL VIEW REGIONAL VIEW AIRLINE INDUSTRY OUTLOOK YMM AIRPORT OUTLOOK PASSENGER ACTIVITY FORECAST STATISTICS FOR CANADIAN AIRPORTS MOVING OVER 200,000 PASSENGERS PER YEAR AIRCRAFT MOVEMENT FORECAST CARGO ACTIVITY STRATEGIC OVERVIEW AIRPORT AUTHORITY VISION MISSION CORE VALUES KEY SUCCESS DRIVERS PLANNING OVERVIEW FINANCIAL PLAN AVIATION ACTIVITY THE BRANDS ARE IMPRESSIVE FINANCIAL PERFORMANCE PASSENGER TRAFFIC FORECAST FIVE YEAR FINANCIAL PROJECTIONS CAPITAL INVESTMENT CAPITAL PLAN AIRSIDE/LANDSIDE CIVIL WORKS AND SITE INFRASTRUCTURE AIR TERMINAL BUILDING CONSTRUCTION Page 2

3 GROUND SUPPORT EQUIPMENT (GSE) FACILITY COMMERCIAL DEVELOPMENT RUNWAY EXTENSION INFORMATION TECHNOLOGY PLAN BRAND LAUNCH Page 3

4 Message from the Board Chair and CEO Fort McMurray Airport (YMM) is the Region s connection to a wider world of travel, business, leisure and adventure. With the new air terminal building set to open, record passenger growth and new air services, Fort McMurray Airport Authority is ready to rocket into a new era. Details of what fuels YMM s success are discussed in this Strategic Plan with some of the highlights being: More passengers and more flights. Passenger numbers are soaring with nearly 1.2 million travelling through YMM in Added to this, is the introduction of the Region s first ever nonstop service to the U.S. via Denver, additional service to existing nonstop domestic destinations, and the return of seasonal Mexico service. The U.S. and international services are made possible by the introduction of YMM as an Official Port of Entry this past October with Canada Border Services Agency (CBSA) providing services at the terminal. YMM is thrilled to announce the most popular U.S. destination for Wood Buffalo residents is coming June 24, 2014 when WestJet starts flying twice weekly non- stop to Las Vegas. The new flight complements the existing non- stop United Express service to Denver, linking YMM to important airport hubs strategically located in the centre of the U.S. WestJet also starts two more non- stop domestic flights to Kelowna and Vancouver on May 12, 2014, raising its domestic total to seven destinations. The new terminal building is set to open this June. The $258 million airport terminal building project will usher in a new era of air travel to the Region with 15,000 square meters of space and the ability to accommodate over 1.5 million passengers. Passengers will be treated to a new level of service with over 2,200 parking stall, and 15 retail and food and beverage outlets to choose from. The existing terminal building will continue to play an integral role and is currently under review for future development. Page 4

5 Developing the airport lands has also taken centre stage. We have prime land 1,266 acres in all a significant portion of which will be developed for future aviation and non- aviation commercial and industrial use. The YMM air cargo plan is lockstep with the supply chain and logistics of the oil and gas industry with plans to expand along with industry s rapid development which includes the development of air cargo facilities. Assistance from the Federal Government is being sought to help extend the runway in order to accommodate the heavy freight aircraft needed to bring in larger equipment. If the monumental success of our airport over the past five years is any indication, it s sure to be clear skies ahead for Canada s fastest- growing airport. Page 5

6 Executive Summary Fort McMurray Airport Authority (YMM) has continued to build a solid foundation for future growth and financial sustainability. This has led to another unprecedented year of growth with passenger traffic forecasted to reach approximately 1.2 million; an increase of 25% over Achievements this year include expansion into the US transborder market with the launch of direct flights to Denver, increased frequency of flights to such destinations as Edmonton, Calgary, Toronto and Vancouver, the addition of international flights to Mexico and a substantial increase in work force charters have all contributed to a higher volume of passenger traffic. In October 2013, YMM was granted official port of entry status after successfully working with the Canada Border Service Agency (CBSA) to obtain publicly funded core services. This helps set the stage for more US transborder and international passenger and air cargo service. YMM leads the nation in passenger growth. The chart below which compares the growth rate of major Canadian airports from January to August 2013, illustrates this. Exhibit 1 30% 29.0% Passenger Growth Comparison by Canadian Airport January to August % 20% 15% 10% 5% 4.0% 4.0% 4.0% 0 1.0% 1.0% 0% 0% -0.1% -5% Fort McMurry YMM Saskatoon YXE Edmonton YEG Calgary YYC Victoria YYJ Toronto YYZ Kelowna YLW Montreal YUL OVERALL Vancouver YVR -1.0% -3.0% -3.0% -4.0% Winnipeg YWG Halifax YHZ Ottawa YOW Page 6

7 2014 will be a year of significant change for YMM, as the new airport terminal opens in June. This milestone will be celebrated with an air show and grand opening gala as well as the launch of the new YMM brand. Key revenue and cost drivers that shape the 2014 financial plan and the 5- year outlook are based on goals and objectives outlined by management and the Board of Directors. The plan also reflects assumptions that have been taken into consideration including the economic, regional and industry landscape which YMM operates in. The airline activity at YMM is the key driver for determining a substantial portion of the aeronautical and non- aeronautical revenue budgets, and to a lesser extent the expense budget. Passenger traffic in 2014 is forecasted to increase by 5.3% and between 3% - 4% for the next four years. The following table reflects passenger traffic split between commercial and workforce charter, including targets to Exhibit 2 FMAC/FMAA Passenger Traffic to 2018 Forecast Total Passengers Commercial Workforce Charters 1,600,000 1,400,000 1,200,000 1,000,000 Commission Authority 1,255,907 1,192,694 1,002, , ,727 1,306,143 1,042,255 1,345,327 1,073,523 1,427,258 1,385,687 1,138,900 1,105, , , , , , , , , , , , , , , , , ,965 28,722 36,662 42,222 36,958 43,232 52, , Forecast , , , , , ,357 Budget 2014 Forecast 2015 Forecast 2016 Forecast 2017 Forecast 2018 The capital plan for 2014 will mark the completion of the new air terminal building project that began in With the wind up of this major project the focus will shift towards commercial development and the infrastructure required to support the airport master plan. As a result, additional non- aeronautical revenue will be generated from the comprehensive retail, food and beverage program that will begin with the opening of the new building, future commercial development as well as business opportunities to be realized with the existing north terminal. There will be challenges associated with growth and the transition into the new larger terminal building. However, the scope, pace and complexity of change will be managed carefully as the years unfold. Page 7

8 Economic Outlook Global View After a slow and fragile recovery of the global economy the past few years, 2013 has provided signs of improved conditions. These signs have driven improved world economic forecasts that indicate a continued period of strong growth throughout However, uncertainty across regions from the post- election fiscal debate question in the U.S. to the Chinese leadership transition and reforms in the Euro Area will continue to have global impacts in sluggish trade and tepid foreign direct investment. The reality is that the global economy has yet to completely shake off the fallout from the crisis of Emerging positive signs include the expansion of the Euro- area GDP, after nearly six quarters of decline and high unemployment. In the US, gains in employment continued through September and unemployment fell to a four year low. If these trends continue, 2014 may mark the first year in many when the incremental gain in world growth will be driven by advanced, instead of, emerging economies (Royal Bank of Canada, 2013). The Royal Bank of Canada (RBC) predicts overall, 2013 s growth rate is likely to match 2012 s subdued 3.1% pace with the key difference being that the hand- off to 2014 will be much stronger setting up for real GDP to expand by 3.8% (Royal Bank of Canada, 2013). Exhibit 3 Chart Credit: RBC Economic and Financial Market Outlook September 2013 Page 8

9 National View Canada s economy has avoided slipping back into recession, and growth is expected to continue to strengthen according to the RBC. Canada s economy continues to be hampered down by the fallout of reduced global demand for exports, high household debt, and slow job growth. Sources indicate that much of the growth in Canada will be export- led and will continue to surge through 2013 and well into According to RBC s September 2013 outlook, improvements in the US housing market, rising motor vehicles sales and increasing US business investment in machinery will support the rising demand for Canadian exports as the pace of economic growth improves (Barhat, 2013). These implications have resulted in expectations of even stronger Canadian export figures as the global economy strengthens. RBC projects moderate growth in Canada with forecasts for GDP growth have been tempered over the course of The most recent forecasts as issued by RBC project real GDP to grow by 1.8% in 2013, 2.8% in 2014 (Royal Bank of Canada, 2013). The Conference Board of Canada forecasts slightly lower GDP growth of 1.7% in 2013 and 2.4% in Exhibit 4 Chart Credit: RBC Economic and Financial Market Outlook September 2013 Page 9

10 Provincial View Alberta continues to be an economic leader in 2013 despite experiencing the worst environmental disaster in its history. Alberta is expected to lead the country in economic growth in RBC projects that Alberta s Real GDP will accelerate to 4.1%, up from the current projection of 3.2% for 2013 (Royal Bank of Canada, 2013). Much of the growth experienced earlier in the year was setback due to the floods in southern Alberta. However, rebuilding and repair work, as well as the replacement of damaged property will more than make up for the temporary slowdown. Exhibit 5 Chart Credit: RBC Provincial Outlook September 2013 Alberta s economy has moderated over the past few years and is growing at a slower pace. Analysts state that this slower, yet healthier pace, have helped stabilize labor and housing markets. The slower pace has been attributed to a slower pace in the energy sector and public spending cuts by the provincial government (Toneguzzi, 2013). However, healthy growth is forecast to continue to build momentum through 2013 and into Indicators for this growth include employment increasing by 2.2% in 2013 and 1.9% in 2014 compared to the Canadian average of 1.2% for both years. Unemployment in Alberta is expected to sit at 4.4% next year compared to Canada s average of 7.0% (Royal Bank of Canada, 2013). Overall, most economic indicators point to substantial momentum being sustained in the province. Alberta s economy next year will further benefit from an anticipated ramp- up in capital investment in the oil sands now that earlier bitumen bubble concerns have largely receded. Page 10

11 Regional View Fort McMurray s economic forecast will continue to boast strong growth and a positive outlook. With the displacement of approximately 100,000 people due to the floods, production disruptions and temporary shutdowns in the oil and pipeline sectors had adverse economic consequences. Despite some month to month volatility, crude oil production was still on a record pace as of this spring (with gains in both unconventional and conventional output) (Royal Bank of Canada, 2013). Nonetheless, the hit has been more than reversed during the remainder of this year and an anticipated ramp up in capital investment in the oil sands will keep momentum going into Crude Oil One Year Chart Exhibit 6 Chart Credit: Oil Sands Sustainable Development Secretariat, Oil Sands Division, Alberta Energy Of Canada s 179 billion barrels of oil reserves, 170 billion barrels are located in Alberta. Fort McMurray is home to over 56% of Alberta s major oil sands projects. This amounts to over $2,077 billion in oil sands investments between 2010 and This is what is considered economically recoverable. With new technology coming online, the amount could increase to 315 billion barrels. Page 11

12 Exhibit 7 Chart Credit: Oil Sands Sustainable Development Secretariat, Oil Sands Division, Alberta Energy The Regional Municipality of Wood Buffalo (RMWB) boasts the highest average household income in Canada at $189,458 and a population of over 116,407 that continues to grow at a rate of over 7.1%. In addition, discretionary income for residents leads the nation at an average of $30,464 which translates into a much higher than average propensity to travel, especially for leisure purposes (Wood Buffalo Economic Development, 2013). Page 12

13 Airline Industry Outlook Globally, the International Air Transport Association (IATA) expects the airline industry to generate profits of $11.7 billion on revenues of $708 billion in Performance in 2013 is considerably better than the $7.4 billion net profit of The upward trend should continue into 2014 when airlines are expected to return a net profit of $16.4 billion. Growth in passengers demand has been strong in 2013, but cargo growth has not materialized while demand for emerging markets has slowed. The oil price spike caused by the turmoil in the Middle East has had a dampening effect on demand. North American airlines are expected to post the strongest performance financially in 2013 with profits more than double that of Along with an improved overall economic outlook, the North American industry s improved profitability is being driven by the impact of a better industry structure. Rising business and consumer confidence levels should indicate an uptick in the global business cycle in 2014 which has a direct impact on air travel demand and airline profitability. Oil prices are expected to fall on the back of reduced geo- political tensions and an improved US energy outlook, which is expected to boost airline profitability. Air Canada has been struggling to return to profitability, but in the latest quarter posted a profit and good operating margins of around 12%. Air Canada has been reducing costs and forecast that costs would fall further in the later part of The replacement of CRJ aircraft with 74- seat Q400s and ramping up of capacity of its Rouge, its new discount airline, has helped in reducing costs. Rouge is aimed at high- volume leisure travel to the United States and other international markets. Rouge continues to build its presence in leisure markets near and far, replacing previous mainline services such as Toronto to Las Vegas with new services by Rouge using B ER. A key to managing sharp seasonal swings in Canadian demand is aggressive redeployment of aircraft from east- west transcontinental and European markets during summer to north- south U.S. and Caribbean sunspot markets during winter. In addition, Air Canada will be taking delivery of its first fuel- efficient 787s at the end of the first quarter of 2014 which will allow them to serve new long- range medium density routes. The airline plans to grow capacity by up to 11% in 2014 compared to 2.5% this year. WestJet Airlines continues to grow with capacity increasing by 8.8% and revenue passenger miles 7.6% in the 9- months, Jan.- Sep The airline has been profitable for 34 consecutive quarters and has good operating margins of around 12%. Their new regional subsidiary, Encore, continues to expand its new regional service adding Brandon, Man., to its destinations on September and Terrace, B.C., on November It also introduced, in August, a premium economy Plus program aimed at the business traveller. WestJet Encore also serves some higher density routes in off- peak times, including YMM- YEG (Edmonton) which begins in Dec. 2013, to allow greater frequencies which are attractive to business passengers. Future expansion plans for Encore will primarily be concentrated on eastern Canada although we expect additional new services to YMM in WestJet is also expanding its codeshare and interline agreements to increase traffic. In Q3 2013, it entered into one additional interline agreement as well as a new code- share partnership with China Southern Airlines. WestJet expects to increase system- wide capacity in 2014 by between 4% and 6% with WestJet Encore representing approximately half of this growth. WestJet announced a three- year plan last January to reduce $100- million in annual costs by the end of Page 13

14 YMM Airport Outlook Passenger Activity Forecast YMM currently has regularly scheduled passenger service provided by seven air carriers to six non- stop domestic destinations and one US transborder destination. The number of air carriers is expected to increase up to nine in In addition, there are numerous carriers providing charter passenger services primarily associated with providing workforce transportation which will continue to grow next year operating from the North Terminal (existing terminal building). Seasonal international leisure charter service commenced in December, 2012, and is expected to expand to multiple sunspot destinations in At YMM, airlines have increased capacity greatly to meet the strong growth in demand. Departing seats to Toronto have grown 50% in 2013 over 2012 levels with Air Canada using larger A320s and A321s on the route and WestJet commencing service on the route. WestJet initially started with three time s weekly service in June, 2013, using the 136- seat and increased it to daily three months later. Increases in capacity to Edmonton (YEG) and Calgary (YYC) airports are mainly due to Air Canada increasing frequency and replacing the Dash s and CRJ s with larger 74- seat Q400s almost entirely on those routes. Exhibit 8 Scheduled services at YMM offered by mainline carriers as of November 2013 are as follows: Canadian Air Canada Northwestern McMurray WestJet Markets Aviation Calgary (YYC) 6x daily using 74- seat Q400s (5x) and 75- seat CRJ- 705 (1x) 2x daily (1x weekend) using 136- seat B Edmonton (YEG) Fort Chipewyan (YPY) Red Deer (YQF) Toronto (YYZ) Vancouver (YVR) 5x daily using 74- seat Q400s (4x) and 50- seat Dash 8 (1x) 2x daily using 146- seat A320s and 174- seat A321s 2x daily weekdays (1x weekends) using 50- seat CRJ- 100/200 3x weekly using 18- seat Jetstream 31 Air 3x weekly using 18- seat Jetstream 31 5x weekly using 18- seat Jetstream x daily using 8- seat C208 2x daily using 136- seat B & 119- seat B (extra daily on weekdays starting in December using Q400) Daily using 136- seat B US Transborder Markets Denver (DEN) Puerto Vallarta (PVR) Sunwing 1x weekly service using 189- seat s (December to March) United Airlines Daily using 66- seat CRJ- 700

15 In December 2012, YMM received its first international commercial passenger flight with Sunwing Airlines starting weekly service to Puerto Vallarta, Mexico using a 189- seat (December to March). The flight starts at Grand Prairie and has transit passengers onboard at YMM. The service was very well received and Sunwing has announced it will continue the service in 2013/2014 adding additional weeks. June 2013 marked the launch of YMM s first scheduled US transborder flight with United Airlines operating daily flights to Denver using 66- seat CRJ700. Load factors on the route have been trending well, increasing month- over- month since the initial start- up. The service has allowed many business and leisure travellers to connect easily at one of the US s largest hub airports to many US and other international destinations. Currently there are no cargo carriers providing freight or integrated courier services with the two major commercial carriers providing limited cargo capacity in the belly of passenger aircraft serving YMM. This is expected to change in 2014 with the introduction of daily courier service by either FedEx or UPS and possible daily Cargojet freighter services from YEG used for transporting heavier cargo. With Canada Border Service Agency (CBSA) available to handle US transborder and International flights next year, charter heavy lift flights can be accommodated although the existing length of the runway is a limiting factor. The following charts provide an overview of both charter and scheduled service carriers that currently operate at YMM. Page 15

16 Exhibit 9 Workforce Charter Carriers Air Carriers YMM Non- Stop Destinations Air Georgian Limited Scheduled Calgary Air North Charter Air Canada Denver Air Tindi Air Canada Express Edmonton Airco Aircraft Charters Air Georgian (20143) Fort Chipewyan Alberta Central Airways Allegiant Airlines (2014) Grande Prairie (2013) Alta Flights (Charters) McMurray Aviation Kelowna (2014) Arctic Sunwest Charters Northwestern Air Puerto Vallarta, Mexico (Seasonal) Bar Xh Air (Integra) United Airlines Red Deer Bearskin Lake Air Services WestJet Saskatoon (2014) Canadian North WestJet Encore Toronto Central Mountain Air Vancouver Enerjet Leisure Charter Flair Airlines Sunwing Jazz Charter WestJet (2014) Kenn Borek Air Morningstar Partners Cargo North Cariboo Air Cargojet (2014) Northern Air Charter FedEx/UPS (2014) Pentastar Air Perimeter Aviation Regional 1 Airlines Shell Canada Skyservice Business Aviation Suncor Sunwest Aviation Syncrude West Wind Aviation In 2013 YMM is expected to handle approximately 1.20 million passengers based on actual values for the January to September period. The aviation forecast for 2014 anticipates that the number of passengers will grow by approximately 5.3% to 1.26 million passengers as oil sands activity continues to grow, as well as an increase in traffic created by new scheduled and charter air services to YMM that will generate more passengers. For budgeting purposes, a passenger forecast of 1,256,200 was assumed for 2014.

17 Exhibit 10 YMM Growth Passenger Growth ( ) 1,200,000 1,100,000 1,000, , , , , , , , , ,000 - Commerical Airlines Syncrude and Suncor Charter Other Charter E13* Long term passenger traffic forecasts were developed for YMM using the latest available forecasts (2013) of oil production by Canadian Association of Petroleum Producers (CAPP), oil sands project development plans and the RMWB population growth as key inputs. The numbers of enplaned and deplaned passengers, including those on flights chartered or operated by oil sands companies where passengers use YMM, that are forecast by SNC- Lavalin for the period of are presented below. With the introduction of new US transborder and international services, much of the growth will occur in these sectors as passengers switch to flying directly to international destinations rather than on domestic flights from YMM and connecting at other Canadian airports such as Edmonton and Calgary. Growth over the next five years to 2018 is forecast to average 5.1% per year. Exhibit 11 Fort McMurray Airport Passenger Forecast ( ) Year Passengers Annual % Change Domestic Trans- Border Other Int'l Total Domestic Trans- Border Other Int'l ,251,500 45,100 3,400 1,300, % >100% 9.7% 8.3% ,310,100 67,600 6,300 1,384, % 49.9% 85.3% 6.5% ,347,800 73,500 8,700 1,430, % 8.7% 38.1% 3.3% ,391,600 76,600 9,800 1,478, % 4.2% 12.6% 3.4% ,445,800 81,700 10,500 1,538, % 6.7% 7.1% 4.1% Total Over the longer term, the average annual growth rate is forecast to be 3.2% from 2013 to Based on the latest currently available information, the medium growth scenario is still considered to be the most likely scenario. Page 17

18 Exhibit 12 Passenger Forecast Long Term Growth ( ) 2,500,000 Domespc Internaponal 2,000,000 1,500,000 1,000, , The original passenger forecasts prepared by Jacobs Consultancy in 2009 have tracked actual growth well over the past five years, particularly in relation to other forecasts prepared for YMM previously as shown below. Exhibit 13 Comparison of Actual and Forecast Passengers on Scheduled Flights for YMM for Forecasts Prepared by Jacobs Consultancy in Page 18

19 Statistics for Canadian Airports Moving Over 200,000 Passengers per Year Rank Airport Toronto Pearson 32,334,831 30,368,339 31,842,413 33,435,351 34,912,029 2 Vancouver International 17,852,459 16,177,438 16,779,709 17,032,780 17,596,901 3 Montreal 12,813,320 12,224,534 12,969,834 13,668,829 13,798,286 4 Calgary 12,507,111 12,175,011 12,633,709 12,844,523 13,638,137 5 Edmonton 6,437,334 6,090,213 6,089,099 6,277,137 6,676,445 6 Ottawa 4,339,225 4,232,831 4,473,894 4,624,626 4,685,956 7 Halifax 3,578,931 3,417,164 3,508,153 3,594,164 3,605,701 8 Winnipeg 3,570,033 3,379,440 3,369,912 3,389,237 3,549,523 9 Toronto City 513, ,094 1,221,075 1,748,487 2,292, Victoria International 1,537,677 1,532,889 1,514,713 1,499,792 1,506, St John's 1,222,585 1,223,944 1,270,790 1,371,417 1,448, Kelowna 1,389,883 1,367,631 1,391,725 1,390,187 1,440, Quebec 1,022,862 1,035,026 1,190,088 1,313,432 1,342, Saskatoon 1,135,113 1,157,375 1,215,923 1,246,011 1,326, Regina 1,005,270 1,022,042 1,120,134 1,141,177 1,185, Fort McMurray 693, , , , , Thunder Bay 645, , , , , Moncton 573, , , , , Abbotsford 505, , , , , London 449, , , , , Prince George 409, , , , , Grande Prairie 344, , , , , Hamilton 549, , , , , Yellowknife 304, , , , , Comox 304, , , , , Deer Lake 293, , , , , Vancouver Harbour 374, , , ,083 n.a. 28 Charlottetown 272, , , , , Fredericton 270, , , , , Kamloops 226, , , , , Victoria Harbour 313, , ,484 n.a. 32 Saint John 242, , , , , Whitehorse 226, , , , ,042 Aircraft Movement Forecast Aircraft movements increased by 21% to 75,325 in 2012 and are expected to increase by 12% in 2013 to approximately 84,300 based on actual values for January to July Movements by smaller air carriers are the largest segment (49% of itinerant movements). The larger air carriers account for another 34% of itinerant movements and increased by approximately 18% in 2013, the largest increase of all the carrier segments. Page 19

20 Exhibit 14 Aircraft Movements by Type of Operation ( ) Local State + Military Private Est Other Commercial Air Carrier Level IV+ Air Carrier Level I- III 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 Movements of larger aircraft increased greatly in 2013 with medium jets increasing 63% and large turboprops 110%. Helicopters account for almost a third of movements and increased by 8% in Movements of piston and small turboprop aircraft both declined with their share of total itinerant movements falling from 28% to 22%. The number of aircraft movements is forecast to grow by 4.8% in 2014 to 88,330 movements in total. Growth is forecast to remain in the 5-6% range in , reaching approximately 98,500 movements in After 2016, movements are forecast to level off to The proportion of air carrier movements is forecast to increase from 75% to 81% over the next 15 years. Page 20

21 Exhibit 15 Long-term Forecast Aircraft Movements ( ) 120, ,000 Ipnerant Local 80,000 60,000 40,000 20, Cargo activity at YMM is forecast to grow significantly once daily courier service begins which is anticipated in 2014 with small Metroliner or Caravan aircraft as well as B- 727 service by Cargojet. Cargo Activity In 2012, 600 tonnes of cargo were handled at YMM, a 7% increase from The tonnage in 2012 was slightly higher than the previous two highest tonnage years in 2006 and Over half the cargo at YMM is handled on cargo flights, the remainder was carried on Air Canada and WestJet scheduled passenger flights. Cargo handled by WestJet is expected to increase by 15% in 2013 (data from other airlines is unavailable). Page 21

22 Exhibit 16 Air Cargo Tonnages at YMM ( ) 600 Cargo (Tonnes) Annual Tonnes Source: Stapspcs Canada Air cargo tonnages at YMM have fluctuated greatly over the past eight years but have been relatively stable over the past three years at around their highest annual values. While the volume of cargo processed at YMM is relatively low, there is significant potential for growth as much of the cargo travelling by air is transported by truck to/from the Fort McMurray area and flown from Edmonton or Calgary airports. YMM is well positioned to be the air cargo gateway of choice for the Athabasca oil sands area. YMM currently has minimal facilities for air cargo, much of which is carried on scheduled passenger aircraft: there is no dedicated air cargo terminal, apron or customs presence for processing international cargo. However, the oil sands developments provide significant potential demand to support air cargo service including machinery parts/spares required urgently from distant locations such as the southern US, eastern Canada or Europe. Many of these items are high- value, operational- critical, heavy or oversized which require special handling. Air cargo will be an important part of prospective business in the future. FedEx or UPS are expected to commence courier service at YMM in The Canadian Border Services Agency will start providing services for clearing US transborder and international cargo when the new terminal opens in June Growth in future cargo volumes is very dependent on the levels of regular freighter services available at the airport. Daily courier service is expected to increase annual tonnages by 30-50% to up to 900 tonnes by Regular jet freighter service would be expected to increase tonnages by 150% to around 1,500. Page 22

23 Strategic Overview Airport Authority Fort McMurray Airport Authority was incorporate in December 2009 and its first Board was formed effective January 1, The Board consists of ten positions appointed by five appointing bodies (Regional Municipality of Wood Buffalo, Fort McMurray Chamber of Commerce, Oil Sands Community Alliance, CUPE, and the Fort McMurray Airport Authority). Vision The YMM vision provides a statement that guides the strategic actions taken by the Board and Executive. The Board of Directors, President/CEO and the senior management team came together to look into the future and define what YMM should be. This vision forms a target to which all other plans are defined against. It takes into account our rich history, our diverse culture, our robust growth and our unique position in the business world at the heart of the Athabasca oil sands. We know where we are, where we want to go and we have charted a course to get there. Mission The Mission statement defines why the company exists and brings clarity of purpose as to how we will achieve our vision. The Mission statement helps us define how our human and financial resources will be applied. Core Values We are Canada s Premier Regional Airport We are responsible stewards of our airports, achieving superior performance in the conduct of safe, secure, effective and efficient operations. Our airport businesses contribute significantly to the economy of the Region, Alberta and Canada. The Authority s Core Values are intrinsic beliefs that all members of our organization are expected to use, live by and demonstrate on a daily basis while executing their work responsibilities. These core values help define who we are, what we stand for, and guide us in our accountabilities and our professional behavior. Page 23

24 Excellence in Safety, Security and Environmental Performance We conduct our businesses in a culture of safety and security that promotes best practices and sharing of experience and mutual support. We are sensitive to and support sustainable environmental practices. Commercially Focused and Fiscally Responsible Business Sustainability We have a commercial operating philosophy and culture. We operate as a robust business maintaining a strategic focus on risk mitigation and financial strength. Exemplary Customer Experience through Teamwork We are customer service leaders. Together with our stakeholders, we are Team YMM with a common goal of creating a superior customer experience. Leadership We value leadership with integrity and innovation in support of our Vision. Key Success Drivers Key success drivers (KSDs) are the corporate goals that are essential in achieving the short term and long term strategic direction of the organization. An outcome of the 2013 management and board retreat was to simplify the YMM corporate key success drivers. There are now three KSDs (from the previous four) and they are as follows: KSD 1 to optimize the customer experience by leading a high performing airport team that provides superior facilities and services with a weighting of 40 points KSD 2 to be financially sustainable and environmentally responsible with a weighting of 40 points KSD 3 to foster effective stakeholder relations with a weighting of 20 points Page 24

25 Planning Overview Planning Overview Fort McMurray Airport Authority subscribes to a corporate culture and operating philosophy where measureable results against specific objectives that support the airport mission and vision are paramount. Our success depends on this fundamental synergistic relationship. It is part of our corporate philosophy and the way we operate and conduct our business. The airport relies on a structured business planning framework to set the overall direction for the airport and to guide its operation. Fundamental elements for guiding the strategic development of the airport are the Vision and Mission Statements, Strategic Plan, and the Annual Business Plan. The Annual Business Plan delineates the commercial framework, presents strategies for improving customer service and the financial bottom line and outlines our 2014 objectives and related activities for achieving our long term goals. The annual business planning cycle is illustrated by the following diagram: Exhibit 17 Page 25

26 Financial Plan Key revenue and cost drivers that shape the financial plan for the 2014 are based on the outlined goals and objectives. The plan also reflects assumptions that have taken into consideration the current economic, regional and industry landscape within which YMM operates. Next fiscal will be a year of significant change for YMM, with the new airport terminal slated to open in June This milestone will be celebrated with an air show and gala prior to the opening. In conjunction with the opening the new YMM brand will be launched. YMM will diligently manage its cost structure to carefully align with the revenue growth and diversification. In 2014 there will be in a number of one- time costs associated with the transition to the new airport terminal. Aviation Activity The airline activity at YMM is the key driver for determining a substantial portion of the aeronautical and non- aeronautical revenue budgets, and to a lesser extent the expense budget. The forecast aircraft activity in 2014 is based on published air carrier schedules for 2014, extensive economic and demographic analysis, including the development plans of Oil Sands companies, and interviews with key stakeholders. YMM is expected to handle approximately 1.2 million passengers in 2013, representing an increase of 25% over For the 2014 budget, we are assuming a forecast of 1,256,200 passengers, an increase of 56,200 passengers or 5.3% over the 2013 traffic. Aircraft movements generate revenue for the Airport from landing fees. Larger aircraft generate much higher revenues, while local movements generate no landing fees but stimulate business at the Airport. The level of aircraft traffic is also important as demands above the runway capacity will lead to significant impact on activity at the airport. A single runway with a traffic mix such as that at YMM typically has a runway capacity of around 60 movements per hour and 200,000 annually. Following 10% growth in aircraft movements in 2013, growth is forecast by SNC- Lavalin to slow down in 2014 to 7.4% to 88,850 movements in total. The following chart shows the YMM passengers and aircraft movement forecast for 2014 to be used in the revenue projections. Commercial Exhibit 18 PASSENGER AND AIRCRAFT MOVEMENT FORECAST FOR 2014 Passengers Suncor/ Syncrude Total Aircraft Movements Air Carrier General Total Local Total (Scheduled) + Charter Level I-III Level IV+ Aviation Itinerant 1,002, ,200 1,256,200 28,300 38,100 13,750 80,150 8,700 88, % 5.3% 5.3% 10.5% 6.7% 5.9% 7.9% 3.6% 7.4% Page 26

27 New Airport Retail/Food & Beverage Concession Program As part of additional revenue generation for 2014, the new terminal building will unveil a comprehensive retail/food and beverage program. In the fall of 2012, Fort McMurray Airport Authority called for an expression of interest (RFEI) in providing both retail and food & beverage concessions in the new terminal building. The goal was to obtain information from the marketplace regarding potential interest in developing and operating selected new retail and food & beverage outlets by qualified and experienced operators that provided product that matched what our customers requested through surveys that were conducted annually over the past three years. The Airport was seeking a contemporary concession program, which included Retail and Food & Beverage concepts and offerings that offer quality products, value and time efficiency for the customer. In addition, the Airport strongly encouraged proponents to incorporate established local, regional or national brands as they were popular with passengers based on the surveys. The Brands are Impressive The airport will have 16 concession outlets including 8 major food brands including Starbucks, Tim Hortons, Subway, Jugo Juice and Burger King along with three popular brands that have never located in an airport terminal environment including Earls, Famoso Pizzeria, and Mary Browns. All of these outlets are owned and/or operated by long- time residents of the Fort McMurray Community. In terms of local participation, the airport will feature an iconic retailer, Chocolates and Candlelight as well as Best Buy, Nickelby s Convenience, and other outlets yet to be named. This enhanced concession program will significantly improve customer service and generate new revenues for the airport and benefit the community in terms of job creation, business tax revenues and significantly improve the first impression for visitors. A look at the locations of these concessionaires is illustrated in the following diagrams. Page 27

28 Exhibit 19 Concession Program - Ground Floor Concession Program - Level Two Page 28

29 Financial Performance Passenger Traffic Forecast The following table depicts the overall passenger traffic targets for that were used in the 2014 and five year forecast. Passenger Enplaned an Deplaned Forecast Year Forecasted Increase Total Passengers Forecast ,193, % 1,264, % 1,314, % 1,354, % 1,394, % 1,436,000 Five Year Financial Projections Revenues are projected to grow from $35.8 million in 2013 to $48.3 million in 2018, and expenses to increase from $15.7 million to $21.7 million for the same period. Earnings before interest and amortization (EBITA) are expected to increase from $20.1 million to $26.6 million in Financial projections for the period of are summarized in the following income statement. Page 29

30 Statement of Comprehensive Income (Loss) Five Year Financial Outlook ($000s) Forecast Budget Budget Budget Budget Budget Passengers Commercial 951,727 1,002,169 1,042,255 1,073,523 1,105,729 1,138,900 Workforce 240, , , , , ,357 Total Passengers 1,192,694 1,255,907 1,306,143 1,345,327 1,385,687 1,427,258 REVENUE Airport Improvement Fee 17,407 18,330 19,063 19,635 20,224 20,831 Other Airfield Revenue 8,594 9,587 10,204 10,612 11,037 11,478 Parking Revenue 3,673 3,969 4,267 4,437 4,615 4,799 Car Rental Agencies Revenue 2,095 2,258 2,348 2,442 2,539 2,641 Land Lease Revenue 2,239 1,658 2,094 2,178 2,265 2,356 Building Lease Revenue 1,050 2,014 2,989 3,143 3,303 3,470 Other Revenue 747 1,849 2,617 2,657 2,699 2,742 Sponsorship/Revenue - Airshow /Gala 0 1, TOTAL REVENUE 35,804 40,664 43,582 45,104 46,682 48,318 EXPENSES Salaries & Wages 7,907 9,220 7,862 8,343 8,853 9,383 Contracted Services 0 1,984 2,545 2,596 2,673 2,754 Operating 2,304 3,098 3,551 3,657 3,767 3,880 General & Administrative 4,065 3,686 3,797 3,911 4,028 4,097 Airport Improvement Fee Handling 1,058 1,042 1,074 1,106 1,139 1,173 Loss on Disposal of Assets Special Events - Airshow /Gala 0 1, Authority Board Costs TOTAL EXPENSES 15,684 21,133 19,242 20,039 20,900 21,740 Earnings before interest, taxes and amortization 20,120 19,531 24,340 25,065 25,781 26,578 INTEREST & AMORTIZATION Amortization Expense 11,223 12,919 14,004 14,004 14,004 14,004 Amortization Deferred Contribution RMWB Grant Interest on Loans - New Terminal 0 5,429 9,166 8,981 8,787 8,583 INTEREST & AMORTIZATION TOTAL 11,223 18,908 24,130 23,945 23,751 23,547 TOTAL COMPREHENSIVE INCOME (LOSS) 8, ,120 2,031 3,030 Page 30

31 $60,000 FMAC/FMAA Financials to 2018 Forecast $50,000 $40,000 Commission Authority $30,000 $20,000 $10,000 $0 ($10,000) Forecast 2013 Budget Forecast Forecast Forecast Forecast Total Revenue Total Expenses EBITA Net Earnings Capital Investment Capital Plan 2014 marks the completion of the initial phase of the New Air Terminal Building (ATB) Project launched in Airside/Landside Civil Works and Site Infrastructure 2013 saw the Substantial Completion of the Site Works contract that was awarded to E- Construction in There is some minor landscaping and parking equipment to be completed in 2014 however all other roadways, taxiways, parking lots, utilities and the new apron are either in use or will be opened concurrently with the new ATB. The construction of the West Airport Boundary Road (RMWB Range Road 85) from Snowbird Way to Highway 69 was substantially completed by the RMWB in 2013 and final paving will take place in also saw completion of the sanitary sewer system from the airport through Saline Creek including the new lift station on the airport and the connection to the existing Fort McMurray sewer system. This enabled the existing Sewage Lagoon to be disconnected and ready for decommissioning. Page 31

32 Air Terminal Building Construction Construction of the ATB will be completed in 2014 along with the fit- up of the tenant spaces inside the building. Ground Support Equipment (GSE) Facility The GSE facility has been identified as a high priority capital project for Concept design drawings are underway and will be completed in early Q along with the business case. Commercial Development In 2014, work will focus on the continued development of the east commercial lands, particularly those that were on hold pending the resolution of the Alberta Oilsands Inc. pilot facility (the Government of Alberta canceled AOS lease in 2013 when they approved the RMWB s Urban Development Sub- Region). The construction of the first phase of Golden Hawk Road, started in 2013, will be completed in 2014 along with additional site servicing for the first phase of commercial development lots in the area. With the airport s sanitary sewer system now connected to the permanent RMWB system, the existing sewage lagoon will be decommissioned in 2014 to facilitate access to the Golden Hawk Industrial Park. The commercial development lands along the north side of Snowbird Way will be further developed in 2014 and construction is expected to start on several plots at both the west and east ends of the road. Work will continue on the planning and development of the Ground Support Facility and the Rental Car Quick Turnaround (QTA) facility. Planning and studies will also continue for new projects identified in the Capital Plan. Runway Extension In order to accommodate larger aircraft and to tap into the significant potential for air cargo growth, the current runway will need to be extended to 9,000 feet. A request for government funding has been initiated and if successful a portion of this grant will be used to fund the runway extension project. Information Technology Plan Invention, innovation and evolution are fundamental to the success of any organization and the YMM business strategy and goals reflect this. In 2014, YMM shall experience a new information technology (IT) transformation that eliminates organizational gaps and redundancies currently experienced in our current IT environment. This will inevitably result in better quality of service for our customers and workforce will see the implementation of a number of key systems in the new terminal that include Building Management; Operation Centre; Common- Use; Flight Display and Security Systems. Making a significant investment in cutting- edge software and a technologically advanced IT infrastructure will allow increased organizational agility that enables rapid, effective and positive response to business change that is scalable for many years to come. Public Funding A request for public funding from both the provincial and federal government, for the purpose of extending the current runway to 9,000 feet, building a 3,000 feet emergency cross runway and initial civil works for a second runway has been submitted. Should YMM be successful in receiving the funding, a revised capital plan will be developed. KSD 1 to optimize the customer experience by leading a high performing airport team Page 32

33 Brand Launch YMM is in the process of undergoing a rebrand for its corporate identity. The new brand being developed will reflect the distinct region YMM represents and its unique passenger makeup. The brand will be reflective of this in its energetic, bold, confident imagery. After developing a comprehensive brand and guideline that will outline the brand architecture, there will be an internal brand rollout for employees followed by and external brand rollout for the public along with a new corporate website launch. Page 33