The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamasair is being "implored" by the COVID-19 crisis to increase revenues by $7.5m annually through the levying of "nominal" ticket price rises and baggage fees, a Cabinet minister revealed yesterday.

Dionisio D'Aguilar, minister of tourism and aviation, told the House of Assembly during the 2020-2021 budget debate that the fiscal realities imposed by the pandemic and Hurricane Dorian, coupled with years of deficit spending by previous administrations, meant the national flag carrier had no choice but to reduce its burden on the public purse.

He added that Bahamasair was set to implement recommendations from PricewaterhouseCoopers (PwC), the accounting firm, which was hired by the Ministry of Finance to conduct a study on how loss-making state owned enterprises (SOEs) such as the airline can reduce the annual $400m-plus burden they inflict on Bahamian taxpayers to subsidise them.

PwC, which found that Bahamasair had not increased its ticket prices for eight years, called for the airline to better align pricing with the cost of service on its domestic routes between Nassau and the Family Islands.

Revealing that a $20 per return ticket increase had been recommended, Mr D'Aguilar said this would boost Bahamasair's revenues by $3m per year. And PwC also urged the airline to target "ancillary revenue streams" by levying a charge for carrying passenger bags - a common practice in the industry.

"The realities of COVID-19's financial impact on the government implores Bahamasair to adopt these industry standard tools and pricing models to become independent of the government's enormous subsidy," Mr D'Aguilar said. "The combination of a $20 nominal domestic fare increase coupled with a similar $20 nominal fee for the first bag will keep the airline competitive while improving its revenue stream by some $7.5m each year."

Referring to PwC's work, he added: "Bahamasair must modernise its pricing models to ensure future profitability and avoid a persistent drain on the public purse. The study found that Bahamasair has not increased domestic airfares in over eight years.:"

Questioning whether there was any other business that had not increased prices in line with inflation over this period, Mr D'Aguilar added: "Whereas this pricing model is beneficial for the consumer, it ultimately becomes the burden and responsibility of the public's Treasury. The study recommends that Bahamasair adjust its domestic fares to better align with the ever-increasing costs of operating a premier airline."

The minister, though, hinted that Bahamasair's role in providing a transportation lifeline to many remote Family Islands meant ticket price hikes could not be so exorbitant that they priced Bahamians out of the market.

"An adjustment of $20 per return ticket has been recommended to Bahamasair. This would provide an expected increase in revenue of some $3m per year," he said. "Now, this means that Nassau to Freeport, round trip, would cost $180 instead of $160. Nassau to North Eleuthera, again round trip, $156 instead of $136."

As for the proposal to levy fees on bags, Mr D'Aguilar told the House of Assembly: "The reality is that this phenomenon is not localised to the Commonwealth of The Bahamas. In 2018, the airline industry brought in an estimated $92.9bn through ancillary fees for bags and on-board services.

"As we are all aware, Bahamasair hauls bags.... When compared to other carriers on Bahamasair's international routes, there are no justifiable reasons why the airline cannot charge a nominal fee for each bag handled. Airlines for years have relied on this ancillary fee to keep their ticket prices low."

While many Bahamians, used to bringing huge quantities of shopping home from Florida and the US, may take time getting used to the cultural shock of paying baggage fees and higher ticket prices, change is being forced upon the national fag carrier. The Ministry of Finance has already given itself the target of reducing collective annual SOE subsidies by $100m over the next five years, of which Bahamasair accounts for a major portion.

Mr D'Aguilar, meanwhile, said the carrier estimates it will save a further $3m per year through the March 2020 shift from its old Sabre passenger reservation system. He added that the new Hitit/Crane system was Internet-based, and will enable the airline to connect to travel agencies via the Internet rather than Sabre's global distribution system (GDS), which was "historically inflexible at responding to changing market needs".

"This new system eliminates so-called 'Look to Book' ratio costs," the minister said. "Whereas the old system included a fee for all searching above a 75:1 search to booking ratio, Bahamasair will no longer be charged every time someone searches for flights and they do not actually book. Other features include enhanced bag tracking and new revenue accounting modules.

"This transition from the previous passenger service system to the new Hitit/Crane system is expected to save Bahamasair an estimated $3m per year, and will greatly improve the airline's operations and overall customer experience.

"In the 2018-2019 fiscal year, the last full year that Bahamasair used the old system, the airline paid Sabre $5.12m - with another $435,000 in ancillary costs - which will no longer be necessary under the new Crane system. For similar activities and processes, Bahamasair will instead incur costs of $2.5m, representing savings over 45 percent."