The Tribune

The Bahamas is breaching international standards by levying 7 per cent import duty on jet fuel, warns a report produced for the Caribbean Development Bank (CDB).

The document, entitled ‘Making Air Transport work better for the Caribbean’, says the worldwide aviation industry standard requires that jet fuel supplies should not be subject to such taxes.

“Fuel costs across the Caribbean are estimated to be 14 per cent higher than the world average,” warned the report, which was unveiled recently at the CDB’s annual governors’ meeting.

“The Bahamas applies a 7 per cent import duty on jet fuel, in contravention of global standards in relation to jet fuel, which state that it should not be taxed.”

The report added that such issues made fuel costs in the region a major challenge for both commercial airlines and private aviation, and were another factor inhibiting the sector’s competitiveness.

The findings prompted the head of one Bahamian-owned airline to call for the Government to again reassess how it taxed the local aviation industry, and how it employed the proceeds.

Captain Randy Butler, Sky Bahamas’ president and chief executive, said that in addition to the concerns raised in the CDB report, the Civil Aviation Department also levied its own $0.07 per gallon tax on fuel.

“The thing I always tell people is that in a business like this, user fees are the best way to go,” he told Tribune Business. “If you use it, you pay for it.

“The Government should also be obliged to take aeronautical fees and put them back into the industry to keep it growing. That’s one of the problems. There’s not enough revenue coming in from the airports, but what money is coming in is going into the Consolidated Fund” and not back into improving aviation infrastructure.

Captain Butler suggested that the Bahamas’ 7 per cent import duty on jet fuel could be an “innocent” mistake, and stem from this nation “not getting involved with what’s happening in the industry.

Calling on Civil Aviation to keep the Government better informed on industry developments, he added: “If it’s something we know we should not be doing, then we should stop doing it. I’d be happy if the Government quit doing it.

“We’ve got to pay our way, but not to the point where the Government is taxing us out of business.”

Apart from 7.5 per cent Value-Added Tax’s (VAT) implementation, Captain Butler said his company had also dealt with a 50 basis point increase in the Business Licence fee rate and two increases in Lynden Pindling International Airport (LPIA) fees.

He also complained that Grand Bahama International Airport was increasing the fees it levies on airlines during holiday periods.

Meanwhile, the air transport report described Bahamasair’s annual $20 million losses as “generally deemed acceptable” by the Government and Bahamian people, due to the airline’s role in the tourism industry.

The report added that Bahamasair, together with the two other government-owned airlines in the Caribbean, had generated a combined accumulated deficit of $1 billion over their lifetimes - and cost taxpayers a collective $100 million annually to keep them flying.

Bahamasair also received just a ‘two out of five’ score from Skytrax, the airline performance monitor, placing it below the ‘three out of five’ rating enjoyed by Caribbean Airlines.

Due largely to the Bahamas’ US proximity and inter-island nature, the report found that this nation had the highest propensity to travel in the Caribbean with an average of eight trips per person, per year - well above the world average of 0.5 trips.

The Bahamas’ has the region’s fourth and fifth highest number of seats per route, with the Miami and Fort Lauderdale routes into Nassau generating 25,772 and 25,508 seats, respectively, in December 2014.

“A significant amount of capacity to and from the Caribbean region is provided by foreign carriers,” the report said. “If the Available Seat Kilometre (ASK) measure is taken in tourism-intensive jurisdictions such as Barbados and the Bahamas (Nassau only), foreign carriers provide as much as 96 per cent and 86 per cent of total capacity, respectively.

“However, if the more pertinent ‘seats provided’ measure is used, foreign carrier dominance reduces considerably to 64 per cent and 54 per cent in Barbados and the Bahamas, respectively.”

Bahamasair has the largest market share at LPIA based on capacity, although this is just 25 per cent. The top three carriers at Nassau’s airport have just 50 per cent of total market capacity, indicating that it is served by a diverse airline base.

At Freeport and Marsh Harbour, the leading carriers have market shares of greater than 33 per cent and 40 per cent, respectively. The top three airlines going into these destinations collectively have a 70 per cent and 90 per cent market share, respectively.