The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunmedia.net

The Nassau Airport Development Company’s (NAD) proposal to increase its international passenger user fee by 12.7 per cent has fuelled concerns about the ‘double taxation’ burden being imposed on the airline industry, one operator describing this as having “a big time” impact.

Captain Randy Butler, president and chief executive of Sky Bahamas, told Tribune Business that the airline had to pay Business Licence fees not just on its own revenues but the monies it collected, then remitted, to NAD and the Civil Aviation Authority (CAA).

Describing this ‘double tax’ burden as “one of the craziest things”, Captain Butler said NAD appeared unwilling to remit even a small portion to the airlines for collecting fees on its behalf. He contrasted this with Broward County in the US, which allowed Sky Bahamas to retain a portion of the $3.75 per passenger fee that the carrier collected on its behalf.

Late last week, NAD disclosed that it is proposing to raise Lynden Pindling International Airport’s (LPIA) international passenger facility charge by $4.50, or 12.7 per cent, to $40 (a figure that includes the $6 passenger processing fee).

The LPIA operator is also planning to increase the domestic passenger facility charge by 50 per cent or $2.50 per person to $7.50. The increases are proposed to take effect from October 1, 2013.

And, while the planned increases will increase LPIA’s total per passenger costs by 9.7 per cent to $51.12, a figure 7.9 per cent above the Caribbean airport average, NAD said this was on target with projections and would come into line “within two years” of construction work on the new airport ending.

Explaining the rationale for the rate increases, NAD said these were planned five years ago to help finance LPIA’s $409.5 million redevelopment. Referring to the October 2013 facility fee increases, the airport operator said: “This also is the last significant increase related to the terminal redevelopment; NAD only plans CPI (consumer price index) type increases hereafter.”

NAD added that the domestic passenger facility fee increase was the first since the charge was implemented in 2007, plans to increase it earlier having been “deferred to the end of the project” following feedback from airline operators.

“The reality of it is that we have to live with it,” Captain Butler told Tribune Business. He added, though, that the latest round of NAD increases - which had been flagged well in advance - further exposed the ‘double taxation’ burden facing the domestic Bahamian airline industry.

Noting that Sky Bahamas was currently calculating its Business Licence fee, based on 0.75 per cent of total turnover, Captain Butler said the latter also included the fees it collected on NAD and the CAA’s behalf.

“It’s one of the craziest things,” he told Tribune Business. “Although we have paid taxes to the Government, and NAD and the CAA, we have to pay almost 1 per cent of that amount to the Government. This is what is driving the costs of this industry up.

“This is what we mean by double, triple taxation. All the money that comes through the till, we have to pay taxes on, and we collect some of that money for NAD and the CAA. When we collect facility fees, security fees, that goes to NAD.”

While Broward County allowed Sky Bahamas and other carriers using Fort Lauderdale International Airport to keep a portion of the passenger facility fees they collected on its behalf, Captain Butler added: “Here, NAD is not willing, offering, open to giving us some of that money for collecting it. We pay almost 1 per cent to the Government for collecting it.”

Comparing LPIA’s passenger-related charges and fees to other Caribbean airports, NAD once again used a Boeing 737-700 with a 75 per cent load factor (passenger count of 102) and 90-minute turnaround time that used a jet loading bridge.

Noting that other Caribbean airports were likely to raise their fees in 2013 and 2014, NAD said: “Excluding government taxes, LPIA’s 2013 costs will be $46.62 per passenger, and with the recommended increases become $51.12 per passenger. The current 2012 average cost of only the Caribbean airports presented in the graph, excluding LPIA is $43.22 per passenger.

“Adjusting the Caribbean average for a 4.3 per cent, average annual rate increase experienced over the past three years, for 2013 and 2014 results in a Caribbean average of $47.35. LPIA’s recommended fees are 7.9 per cent above the average, and is competitively ranked fourth of its 12 Caribbean peer airports.”

Moving quickly to address any concerns about LPIA’s passenger facility fees making the airport, and the Bahamas, uncompetitive on cost, NAD added: “At 7.9 per cent over the forecast average, NAD is exactly where predicted when the project began, and this is consistent with the project government Project Definition Report approval.

“Being slightly above average is justifiable in that LPIA is brand new, and has three sectors of service. These are dimensions that do not exist at peer comparison airports. As LPIA plans only nominal rate increases (CPI type) on aeronautical fees going forward, LPIA should be equal to the average once again within two years of completion and below average thereafter, given the historical rate of airport rate increases in the region.”

The $51.12 international passenger facility fee, apart from the $40 worth of facility and processing charges, also includes a $7 airport security fee and airport fees worth $4.12 for landing, terminal and bridge fees.

The reference to LPIA’s “dimensions that do not exist” at other airports alludes to the US preclearance facility, while comparisons with the domestic passenger facility fee cannot be made because the Bahamas’ multi-island geography is unique in the Caribbean.

The passenger facility charges are vital to providing NAD with the cash flow required to service its $445.43 million worth of debt taken on to finance LPIA’s redevelopment.

NAD saw passenger facility charge revenue for the year to end-June 2012 rise 8.3 per cent to hit $28.817 million, while passenger processing fees more than doubled, growing 109 per cent to $7.505 million.

NAD’s bottom line was dragged into the red for the 12 months to end-June 2012, down from a $7.77 million profit in 2011, due to a combination of interest and depreciation/amortisation costs.

Interest costs increased year-over-year by 122 per cent to $26.84 million, compared to $12.086 million in 2011, while amortisation and depreciation rose by 198 per cent - growing to $13.188 million from $6.659 million.

As a result, NAD’s total non-operating expenses more than doubled, hitting $40.913 million for 2012 compared to $19.704 million the year before. This shows why the fee increases are necessary.

The LPIA operator added: “In accordance with its financing obligations, the Nassau Airport Development Company must maintain a debt service coverage ratio (DSCR) of not less than 1.3 to 1. The average DSCR ratio for the period of 2012 to 2020 is currently projected at 1.52 to 1, consistent with an investment grade rating.

“The gradual increases contained within the financial model are necessary for the Nassau Airport Development Company to meet its operational needs and the financial covenants of the Phase II financing.

“NAD continues to adhere to its commitment to becoming one of the top three airports in the region whilst remaining cost competitive within this marketplace.”