The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet Minister was yesterday said to have sent a “go close your doors” message to private Bahamian airlines by reaffirming unlimited government support for Bahamasair.

Captain Randy Butler, Sky Bahamas’ chief executive, said Dionisio D’Aguilar’s confirmation of continued taxpayer support for the national flag carrier’s ‘below cost pricing’ meant existing market distortions will endure.

Mr D’Aguilar, minister of tourism and aviation, said taxpayer subsidies were essential to keeping Bahamasair ‘in the air’ given the current Government mandate for the national flag carrier.

With almost $15 million allocated to the airline in the 2017-2018 Budget, the Minister said the only issue to be decided was the “extent” of Bahamian taxpayer support, as he listed examples of how government policy increased such subsidies.

With the airline seen as an essential transportation link to sparsely populated Family Islands, Mr D’Aguilar said Bahamasair was flying routes it would never touch if it was a commercial airline because they were simply not economically viable.

“Bahamasair continues to operate several routes in and around the Bahamas which, if business and profitability ratios were the only determining factors, the airline would not operate those routes,” he conceded.

“There is a real cost attributable to the Government for demanding that Bahamasair provides that service. Bahamasair has quantified that cost to be approximately $3 million per annum.”

Mr D’Aguilar then revealed that Bahamasair wanted to increase domestic air fares to cover ever-increasing costs, but had been prevented from doing so by the Government for fear of a voter backlash and that it might price Bahamians out of the air transportation market in tough economic times.

“A $20 fare increase across the board on domestic fares would provide an additional $3.5 million to Bahamasair, which would improve the bottom line and decrease the subvention,” the Minister confirmed.

His comments, made in the House of Assembly during the mid-year Budget debate, highlight how Bahamasair’s existing subsidy of $14.8 million could be reduced by $6.5 million or 44 per cent if the carrier was allowed to operate as a business on just these two issues.

And, with a 650-strong workforce, Mr D’Aguilar said it was “unquestioned that the airline is overstaffed but, again, the Government has instructed that there be no major downsizing at Bahamasair”. It has had to rely on ‘attrition’, with workers retiring, leaving or being fired, to reduce payroll costs by $1.3 million this fiscal year.

Captain Butler, who listened to the Minister’s address, questioned why the Government “continues to treat Bahamasair like a baby” through never-ending subsidies that lead to “predatory pricing” and distort the market for private Bahamian carriers.

“All the other businesses might as well close up because Bahamasair is the Government’s airline,” he told Tribune Business of the Minister’s message. “We might as well close the door. The unfair, unlevel playing field and predatory pricing will continue, and there’s no way we can deal with it.

“The Minister needs to consider that. I don’t know what accounting he’s using. What you’re telling the private airlines is get out of the business. He’s admitted they charge below cost and run specials that are below price. No other carriers will be able to survive.

“The Government, whether Bahamasair is an essential service or not, whether it has the right equipment or not, whether it has too many people or not, is going to continue to support this airline and grow the debt on the backs of the Bahamian people who will pay more and more.”

Bahamasair has racked up more than $500 million (over half a billion dollars) in losses since it first took off in 1973, and Captain Butler urged Mr D’Aguilar to confirm whether the Minnis administration will “go back to the original vision” for the airline.

This, he argued, was to develop new international routes and bring in tourists, before allowing private carriers to take over once sufficient market demand had been established. “It was never the purpose of Bahamasair to compete with domestic carriers,” he told Tribune Business. “It’s only going to Miami and Fort Lauderdale, carrying Bahamian shoppers and taking money out the country.”

Captain Butler argued that continued taxpayer subsidies will “kill the competition”, and added: “There is nobody in the Bahamas that can compare or compete with the Treasury, which seems to be bottomless and where Bahamasair gets unlimited money with no accountability. How did they get those planes and money with no accountability or Parliamentary approval.”

The Sky Bahamas chief was referring to the $120 million loan, secured during the former Christie administration, that allowed Bahamasair to acquire five new aircraft and refinance its existing debt.

Mr D’Aguilar, during the mid-year Budget debate, revealed that Bahamasair’s taxpayer subsidy was likely to increase by a total $25 million per annum as a result of having to pay interest and principal on the loan.

He suggested that debt servicing costs alone would amount to $9.7 million of that sum, with between $15-$16 million due in annual principal payments. While no principal repayments have been made to-date, they are due to begin in the upcoming 2018-2019 Budget year.

“Discussions are ongoing with the lenders to defer principal payments for a further year, with voluntary principal reduction payments of $6 million,” the Minister said, conceding that the deferral was akin to “kicking the can down the road”.

Turning to more positive developments, Mr D’Aguilar said Bahamasair required no further subsidies this fiscal year, with revenues projected to grow by 16 per cent - from $74 million to $86 million.

He added that during 2017’s calendar fourth quarter, from October to December, Bahamasair saw a 15,000 year-over-year increase in passenger numbers from its four Florida routes, which was attributed to Baha Mar’s opening.

The national flag carrier will also start a four-day weekly service between Bimini and Miami in April 2018 to support Resorts World Bimini, and begin a once-weekly service for Club Med between Miami and San Salvador in October 2018.

This, Mr D’Aguilar said, would include a stop in Nassau as the Government sought to “line up the connections”. He added that while Bahamasair was satisfied with its new routes to Haiti and Houston, “the jury is still out” on their long-term viability.

For 2018-2019, the Minister said Bahamasair was projecting a 10.4 per cent revenue increase that would take its top-line to $95 million, largely through the acquisition of a Boeing 737 jet with 138-144 seats.

The new aircraft will increase “turns into Florida”, improve the carrier’s reliability and enable it to offer more charter services. “Bahamasair is actively searching for the additional aircraft and the good news is that it is expected that no additional funding will be required from the Government for the acquisition of this plane,” Mr D’Aguilar said.

“The airline, in conjunction with its lenders, will seek to acquire the additional aircraft through the transfer of collateral assets. The banks are currently holding cash collateral on the company’s $120 million loan and have indicated that they would be willing to allow the airline to replace the cash collateral with an additional aircraft as collateral.”