The Tribune

By NEIL HARTNELL

Tribune Business Editor

DESPITE being on target for a $21 million loss in its 2011-2012 financial year, Bahamasair's chairman says the airline is trending in the right direction and eventually "may be able to get near break even if we can get all the pieces to fit".

J Barrie Farrington, in an interview with Tribune Business, said the national flag carrier was currently on track to deliver operating results for the 12 months to June 30, 2012, that are "a little bit better than expected", despite being hit with a significant year-over-year increase in fuel prices and other key cost items.

Acknowledging the continuing financial challenges facing Bahamasair, Mr Farrington said the situation was summed up by the fact that its three main cost line items - aviation fuel, staff payroll and aircraft maintenance - collectively accounted for a sum equal to 86.5 per cent of top-line revenues for its 2010-2011 financial year.

That had increased from a 75 per cent ratio just two years earlier, and Mr Farrington admitted he was "not happy" that the national flag carrier was continuing to rely heavily on government subsidies, thus representing an annual drain on Bahamian taxpayers.

And he told Tribune Business that Bahamasair had warned the three trade unions representing its staff, all of whom are negotiating new industrial agreements with the 100 per cent state-owned carrier, not to expect "any improvements, certainly sizeable improvements" to existing wage and benefits packages.

Setting Bahamasair's financial position in historical context by looking at the past three years, Mr Farrington said: "What has hurt is three particular cost items that take the bulk of revenues - that's fuel, staff costs and maintenance."

Of the three, "the good news" has been Bahamasair's payroll costs. These had declined by 8.2 per cent over a two-year period, dropping from $29.4 million in the airline's 2008-2009 financial year to $28.1 million in 2009-2010, and then to $27 million in 2010-2011.

"We haven't declared any redundancies," Mr Farrington told Tribune Business. "As people left the company, we did not fill the position or filled it internally. We managed that better, and had improved productivity."

When it came to the national flag carrier's fuel costs, these dropped between its 2008-2009 and 2009-2010 financial years, falling from $17.7 million to $14.4 million.

However, Mr Farrington said the latter figure also reflected a drop-off in passenger traffic and flight frequency as intensified competition hit Bahamasair's bottom line. And, with global oil prices once again on the rise, the airline said its fuel bill grow by close to $5 million in 2010-2011, hitting $19.1 million for the full year.

"The cost of fuel is going up, and there's nothing we can do about it unless we stop flying," Mr Farrington quipped. Bahamasair has also seen a similar pattern with its aircraft maintenance bill, which initially dropped from $12 million in 2008-2009 to $10.8 million in 2009-2010, but rose again to $11.2 million in its last financial year, which closed on June 30, 2011.

Yet Mr Farrington told Tribune Business that it was adding the three main cost items together "that really causes you to hesitate" when discussing Bahamasair's financial condition and performance. "It makes it abundantly clear the challenges that confront us," he added.

For 2008-2009, Mr Farrington said Bahamasair's fuel, staff and maintenance costs totalled $59.1 million, a sum equivalent to 75 per cent of its total revenues. The following year, with the top-line under pressure and "costs not going down proportionately", the three main cost items hit a collective $59.6 million - equivalent to 89.4 per cent of the national flag carrier's revenues.

For the year ended on June 30, 2011, this ratio had improved a little to 86.5 per cent, but it provides further evidence of how almost all Bahamasair's revenues are eaten up in meeting three cost items.

"That pretty much, in a nutshell, gives you a snapshot of the financial challenges that confront the airline," Mr Farrington conceded to Tribune Business.

As for Bahamasair's top-line, Mr Farrington said this, too, had been squeezed by the increasing competitive pressure the airline had faced, especially in its 2009-2010 financial year, on both its international (Florida) and domestic routes.

Focusing on the ever-present market share battle, the Bahamasair chairman said: "In 2008-2009, we generated a little bit more income than we generated in the two subsequent years. One of the reasons for the decrease in revenue was largely due to an increase in competition, and being able to maintain fare rates.

"Competition came from Spirit and Jet Blue, so we had to operate in a fiercely competitive market. We have had some recovery, which has continued.

"In the domestic market, the competition became as equally as intense, with Sky Bahamas, Western Air and, to a lesser degree, Southern Air, and so on."

Illustrating his point, Mr Farrington said that in June 2006, Bahamasair's international route load factor was around 58 per cent, and its domestic route load factor at 53 per cent.

Fast forward to June 2011, and the national flag carrier's international load factors had recovered to around 63 per cent, but this had come at the expense of fare rates. On domestic Bahamian aviation routes, Bahamasair's average load factor had slipped further to 45.5 per cent.

Looking at how this translated into overall revenues, Mr Farrington said the $78.8 million top-line generated by Bahamasair in 2008-2009 slipped to $59.6 million in 2009-2010, a 24.45 per cent drop. The airline "started to kind of climb our way back to improved revenues", ending the 2011 financial year with $66.2 million.

Still, the Bahamasair chairman said he was "encouraged" by the fact that the airline's annual net losses, while still relatively heavy, continued to shrink modestly year-over-year despite the continuing pressures on both its revenues and top-line.

While armed with an $18.6 million subsidy from the Ingraham administration for the 2011-2012 financial year, Mr Farrington said: "Where we are today we're on track, and think we might end up, on June 30, with operating results a little bit better than expected.......

"This year I expect that we're probably going to end up with somewhere around $21 million as a loss." This, he added, would represent a modest improvement on the $21.5 million net loss incurred for the year to end-June 2011, and would be a result achieved in the face of escalating fuel costs.

Pointing out that both outcomes represented an improvement over the $23.2 million net loss incurred in 2009-2010, which could have been closer to $25 million but for a $2.1 million insurance claim recovery, Mr Farrington told Tribune Business: "I think we're trending in the right direction.

"I'm not happy, because as long as we're showing up these losses we're relying on subventions from the Government, and drawing on the public purse is not ideal.

"We get criticised for that by other operators, who say Bahamasair can do what it wants, as it gets money from the Public Treasury whenever it wants. But we have 623 people who are employed, and contribute significantly to the economy."

Mr Farrington disclosed that Bahamasair's industrial agreements had all expired, and it was involved in three separate negotiations with the trade unions who represented its staff - the pilots' union, the Airport, Airline and Allied Workers' Union for its line staff, and the Public Managers' Union for its middle management employees.

"Our financial condition does not allow us to offer any improvements, certainly sizeable improvements," Mr Farrington warned. "We're trying to hold the line, keep the costs down if we have any hope of remaining in competitive condition.

"We're engaged, and hopefully we will be able to get to the finishing line without too much agony."

Looking towards Bahamasair's medium and long-term future, the chairman added: "We keep fighting on and doing the best we can. We may be able to get to a point, if we can get all the pieces to fit, near to break even. That will be the first prize for us. Whether we get there or not, I don't know."