The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Airlines representing 90 per cent of US airlift into the Bahamas have warned they may cut their services due to the Budget’s tax increases, a move that will undermine the tourism industry and threaten plans for a 400,000 seat capacity increase.

A June 28, 2013, letter to Customs Comptroller Charles Turner from the Airlines for America coalition, which represents key operators such as Jet Blue, Delta and American Airlines, warned that its members “may be forced to reconsider their service levels to the Bahamas”.

The letter, which has been obtained by Tribune Business, expressed particular unhappiness at the late notice provided by Customs to the airline industry of the tax /fee increases.

Keith Glatz, Airlines for America’s (A4A) vice-president of international affairs, warned Mr Turner in no uncertain terms that the new charges threatened his members’ “exceedingly slim profit margins” and could “undermine the desire to stimulate the Bahamas’ economy”.

“A4A’s members want to maintain and grow, where demand warrants, their operations to the Bahamas,” Mr Glatz told Mr Turner. “Higher taxes will not encourage A4A members to grow their service to the islands.

“With exceedingly slim profit margins and the inability to recoup the taxes and fees that they pay directly to governments, airlines may be forced to reconsider their service levels to the Bahamas.

“The proposed fees may have unintended consequences and undermine the desire to stimulate the Bahamian economy”.

The A4A letter, and the implied threat that airlift to the Bahamas may be cut in response, is likely to send shockwaves through this nation’s largest industry, which is still trying to recover - especially on room rates - from the recession.

Airline service is the lifeblood for the hotel and tourism industry, and any carrier cutbacks on service to the Bahamas could result in reduced occupancies, lower revenues/profits, and produce sector lay-offs.

The airline industry’s reaction to the new Customs-related charges could also not have come at a worse time for plans to increase airlift capacity into the Bahamas by 400,000 seats, a move timed to coincide with Baha Mar’s early 2015 opening.

The Government, Nassau Airport Development Company (NAD) and the private sector - chiefly Atlantis and Baha Mar - have been travelling extensively in a bid to increase airlift, and the Budget’s tax reforms threaten to undermine their efforts in one fell swoop.

The situation means that the Government has now alienated the commercial airline industry, in addition to the private aircraft sector.

Frank Comito, the Bahamas Hotel and Tourism Association’s executive vice-president, declined to comment when contacted by Tribune Business.

However, Robert Sands, Baha Mar’s senior vice-president of governmental and external affairs, said that although he had not seen the letter, anything that might impact airlift to the Bahamas would concern the hotel and tourism industry.

Emphasising that his organisation represented 10 US airlines, Mr Glatz said they and their marketing partners accounted for “over 90 per cent of total US-Bahamas scheduled passenger airline capacity” in terms of available seat miles for the year to end-June 2013.

Describing airlift as “a key economic driver which supports and stimulates increased business travel, tourism and shipping” between the US and the Bahamas, Mr Glatz said the carriers were especially concerned at the rise in Customs services’ charges and the new Customs processing fee.

“This development is of particular concern to A4A’s member airlines due to the lack of notice, transparency and cost-based justification for the new charges and increased fees,” Mr Glatz charged.

“Less than two weeks is insufficient time for airlines to re-programme their systems to accommodate the new fees and increased charges.”

Noting that all flights would be charged $75 for both arrival and departure, for a grand total of $150 per flight, the airlines also slammed the Customs service charge for planes arriving after 5pm, and before 9am, on any given day.

Commercial aircraft with a seating capacity of less than 30 will be charged $50 per hour; airliners with seats numbering between 31-70 will be charged $100 per hour; and those with 71 seats or more will be charged $200 per hour.

And A4A’s members also expressed concern over Customs’ new 1 per cent administrative processing fee, which will be added to brakes, tyres and other aircraft parts imported to the Bahamas for repairs. This fee, capped at $500 per import, replaces the previous $10 Stamp Duty levy.

Responding for Baha Mar, Mr Sands told Tribune Business: “Airlift directly impacts hotel occupancy, and it will be important that all parties resolve these issues to ensure there are no impediments to future airlift growth to the Bahamas.”

With one eye on the need to fill Baha Mar’s net 2,100 room inventory increase, Mr Sands acknowledged that it was “important that all these issues are resolved in a manner that is a win-win for both the airlines, private sector hotels and the Government of the Bahamas.

“I would be concerned, but it’s important for all stakeholders to work together to resolve these issues in time, so it does not work to the detriment of airlift to the destination.”

Another tourism stakeholder, speaking to Tribune Business on condition of anonymity, said there had been “a lot of outrage” from both small and international airlines over the Budget’s fee increases, especially service charges relating to Customs and Immigration.

“There was no consultation with the airlines and private sector on this, and it’s safe to say this kind of move without consultation and advance warning is really not the way to do business,” the source said.

“The airlines have every right to be upset, and it does put us in a vulnerable position. Already the airfares are among the highest per passenger mile cycle in the world, and when you look at this kind of added cost, the options for the airlines are to reduce or discontinue service, or maintain margins by passing it on to passengers.”

Another source pointed out that airfare costs were among the main travel determinants for consumers, which was why the hotel industry and government had worked so hard on the ‘Companion Fly Free’ discount initiative to maintain occupancies.

“It’s a bad move,” the source said. “On a bigger picture, the lack of consultation on the tax and fee increases affecting the private sector is unconscionable.”