Cost cuts at American Airlines could hurt Jamaica
Published: Wednesday | March 11, 2009
There is no word yet from American Airlines on the possible fallout which Jamaica could face from its decision to further reduce flights.
But a reduction in the number of people flying has caused the airline to cut flights and could force Jamaica to make a US$4.5-million payment to the airline, which the Government was hoping it would not have to.
Yesterday, American announced plans to cut domestic flying by nine per cent and trim international capacity by 2.5 per cent as part of its response to a reduction in passenger loads.
Thomas W. Horton, chief financial officer for American's parent company AMR Corporation, said the reduction in flights was in reaction to a dramatic fall-off in bookings.
According to Horton, bookings over the next four months were about 2.5 percentage points behind the corresponding period in 2008, with international bookings running 4.5 percentage points behind.
However, officials of the airline were unable to provide The Gleaner with any information on the possible impact on Jamaica.
American Airlines is expected to carry thousands of passengers into Jamaica this year under a deal signed with local authorities last November.
Under the deal, the Government has given American a US$4.5-million guarantee which will be paid if it comes into the island without a specified number of passengers.
Tourism Minister Edmund Bartlett, who was at the centre of the deal, has claimed that there would be seats for approximately 156,000 more visitors to come to the island.
"This arrangement is unprecedented in terms of its value to us at a time when there are massive cuts in airlifts throughout the Caribbean and the world," Bartlett claimed while a firestorm raged over the deal last year.
According to Bartlett, with nearly 3,000 new hotel rooms this year, the deal would help Jamaica to ensure seat security out of North America.
The tourism minister had added that despite putting up the money, the deal might not cost Jamaica "one cent" as it was based on the number of passengers that American took to the island.
The load factor
"No payment will be made to American until the end of the one-year period (November 30, 2009). This depends on the load factor and the money will remain in escrow earning interest," Bartlett said.
But with the reported decline in bookings being reported by American, it seems certain Jamaica will have to fork out the money.
Under the deal, American will not fly its planes into Jamaica if less than 65 per cent of the seats are taken up. However, if the aircraft is more than 65 per cent full but less than 75 per cent, Jamaica will be required to pay the 10 per cent revenue the airline would lose.
Bartlett had also claimed American would be making 19 new flights to Jamaica, but that figure was reduced within a month when The Gleaner learnt that instead of flying to Jamaica five times per week from Chicago, American would instead fly twice per week before withdrawing from the route completely on April 10.