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Fixed Income Quarterly—Infrastructure
cultural linkages. For example, during 2013, GTAA replaced its incentive programs with an air service incentive program that targeted the introduction of new international air carriers to Toronto Pearson.
Toward this end, the airport authority observed that, on a net basis, air carriers servicing Toronto Pearson increased service on nine routes, representing either completely new service or increased capacity on existing routes. The result for Q4/13 reaffirms our longstanding belief that ongoing diversity in the GTA’s demographic and business profile will encourage a strong international component to the air traffic composition of Pearson.
For the full-year 2013, passenger traffic grew by 3.4% to 36.1 million. Although 2013 represented the third year in a row of declining growth, the level is still well above GTAA’s compound historical annual growth rate of 1.7%, which in and of itself is a remarkable accomplishment in light of the solid growth experienced in the previous several years.
In contrast to passenger traffic growth, the amount of aircraft movements actually declined by 0.6% during 2013 to 431,300, which GTAA attributed to the ongoing trend of airlines adjusting their fleet mixes and flight schedules to improve financial performance, and hence a focus on load factors. The airport authority observed that the average load factor rose by 160 basis points during 2013 to 79.8%. The use of larger planes, for instance, resulted in a 1.1% rise in maximum takeoff weight (MTOW) to 14.3 million tonnes in 2013, and an expansion of 1.3% for arrived seats to 22.6 million.
We view GTAA’s Q4/13 and full-year 2013 traffic results as positive. Passenger traffic experienced solid growth of 4.6% and 3.4% for the quarter and year, respectively. Although mo- mentum slowed again for the third straight year, the results in and of themselves remain impressive, especially in a globally challenged economic environment. The fact that quarter after quarter and year after year a different segment of GTAA’s pas- senger base steps forward to drive traffic performance speaks volumes to the growing economic and demographic diversifica- tion of the GTA, as well its importance to the airport itself.
Traffic for 407 International was relatively unchanged in Q4/13, with total trips increasing only slightly to 29.22 million, while average workday trips were up 0.6% to 387,121. VKT and average trip length were relatively flat y/y; however, unbillable traffic continues to improve, dipping a further 17 basis points in Q4/13 to 2.09% due mainly to improved readability of li- cence plates due to continuing enhancements to the company’s tolling system and procedures. The transponder penetration rate of 82.3% rose slightly while the number of transponders in circulation grew 4.9% to 1,157,830.
Similar to the Q4/13 results, the total number of trips for the full-year 2013 was roughly unchanged, rising by 0.1% to
114.9 million. Average workday trips also increased a touch to 381,226. VKT was up 0.7% to 2,356 million as average trip length rose by a similar amount to 20.5 kilometres. Unbillable traffic declined by 11 bps to 2.28%.
We view the Q4/13 and full-year 2013 traffic results at 407 as neutral from a corporate debt perspective. Despite relatively high fuel costs and challenging economic conditions in the Ontario region, we believe the inelasticity of the highway remains well demonstrated and stems from a strong value proposition to customers with regard to time savings and reduced gas usage, coupled with superior safety. These factors have particular appeal to the portion of the local population that are in a socioeconomic position to readily absorb the an- nual toll rate increases implemented by the company and are willing to pay for a higher level of service. Furthermore, it is this inelasticity that underpins 407 International’s consistently sound operating and financial performance.
Nonetheless, we do believe traffic performance will continue to be challenged over the medium term as fuel price pressures and economic challenges persist. We likewise believe exogenous risks, such as fiscal problems in the U.S. and Europe, are still a credible threat to global economic growth. Especially import- ant to monitor are ongoing geopolitical forces in the Middle East, which at any time could put further upward pressures on fuel prices, despite the recent move toward entente by Iran.
During fiscal Q3/14, BC Ferries vehicle traffic increased by 0.8% to 1.7 million, while passenger traffic likewise improved by 1.0% to 4.3 million. Unlike the earlier couple of quarters in fiscal 2014 when traffic was adversely affected by the tim- ing of holidays or inclement weather, the traffic improvement experienced during Q3/14 was across the board with both non-commercial and commercial traffic, including drop-trailer traffic, rising. While trying not to place too much stock in the results from one quarter, we are reasonably encouraged as the company is hopefully back on track to the decent traffic momentum that was building prior to the end of fiscal 2013, especially as commercial traffic, including drop trailer traffic, remained a stalwart of activity all throughout. For the full fis- cal year 2014, BC Ferries expects its traffic levels to be roughly flat, but notes that it is undertaking planned terminal upgrades that will cause a temporary reduction in traffic on some of its routes later this year.
From an operating standpoint, BC Ferries delivered an on-time performance of 93.1% during Q3/14, up 40 bps versus fiscal Q3/13. Capacity utilization was flat at 46.3%. As we noted last quarter, working with the regulator and the province to reduce the number of sailings over the next few years will obviously enhance both operating efficiency and capacity utilization. Toward this end, the Province of British Columbia confirmed on February 5, 2014 a service level adjustment plan to achieve roughly $19 million in net savings over the remainder of per- formance term three, which ends March 31, 2016. The plan