Hoteliers should assume Air Jamaica's responsibilities
Dennis Morrison, Contributor
Air Jamaica, an integral element of the iconic Jamaica brand for more than 40 years, will disappear soon if the letter of intent signed with Caribbean Airlines is implemented.
Over its years of its operation, the national airline has developed an enviable track record for safety and in-flight service, one that is second to none. Its absence from the skies will leave many, Jamaicans and foreigners alike, who have become emotionally attached to the airline with a deep sense of loss.
At its peak of operations, the airline accounted for over 50 per cent of air seats to the island, and about 40 per cent of visitors. As the "little piece of Jamaica that flies", the Lovebird became a symbol of national pride and the carrier of first choice for Jamaicans at home and in the diaspora. Importantly, it was, as well, a key instrument in the campaign to open up new tourism gateways in North America and Europe since the 1970s. Even at its current reduced level, Air Jamaica still carries some 30 per cent of our visitors.
Sadly, under both private sector and state management, the airline has chalked up huge losses, seemingly unable to find a business model that would make it viable or one that would at least ensure minimal losses. Over the years, procrastination in adapting to adverse changes in the airline industry after 9/11, loose fiscal management of the carrier, increased volatility in fuel prices and deteriorating economic conditions led to mounting losses. These were aggravated by heightened competition from American carriers with the advent of the provisional 'Open Skies' arrangement with the United States that came into force in October 2003.
Truth be told, when the airline returned to state management, valiant attempts were made to tighten fiscal management and to rationalise operations, but perhaps it was already too late. Even at that late stage, however, it was hard for the managers to make the changes that were necessary, as they were chastised in all quarters for terminating the highly unprofitable London route which was, at that time, running up losses of more than US$40 million annually before the record oil prices of 2008. Indeed, local tourist interests declared that "the skies would fall in" on our United Kingdom visitor arrivals if such a move was made. (Of course, the reverse has happened, as British Airways and Virgin Atlantic now offer service to both Montego Bay and Kingston.)
With accumulated losses now in the region of US$1.4 billion, an unsustainably high fiscal deficit, and the country having to meet strict International Monetary Fund (IMF) conditionalities, the Government's support for the airline cannot be continued. Thus, having failed to make the airline cost-efficient in spite of the huge sums sank into it, our grim economic situation dictates that this burden be offloaded. But as Air Jamaica departs, there will be concerns whether sufficient airlift will be available to cover the demand by locals, as well as the tourist industry.
The evidence is that with domestic air travel declining in the US after 9/11, American carriers ended up with excess seat capacity. This pushed them to seek out markets in nearby regions to utilise excess capacity in their fleets and improve their yields. First, we saw US Airways, Delta, and American Airlines significantly increasing their seats on Jamaican routes.
More recently, low-cost carriers like Spirit and Jet Blue have joined the race, providing service to both the ethnic and tourist markets, a mix that allows for better yields than tourist traffic only. For as long as domestic air travel remains weak in the US and Caribbean Airlines continues to operate the routes divested by Air Jamaica, there will be a potential supply of air seats. As to whether the transition process will be smooth and the supply will meet demand are issues requiring serious consideration and strategic planning.
Though there are risks involved in mobilising airlift to support robust expansion of the tourist industry, I have no doubt that a strong response by the industry would contain potential fallout. It should be noted that in the case of the extraordinary increase in tourist arrivals from Canada in the last six years, airlift has been supplied primarily by charter flights contracted by hotel chains and their tour operators. This is one very positive result of the investment drive that was undertaken to attract European integrated hotel chains with marketing, airlift and capital to penetrate new tourist source markets.
It has always been my view that while the state should provide marketing support for the destination, it is the owners of hotel rooms and other players in the industry who have primary responsibility to secure airlift to serve the tourist market. In the post-Air Jamaica era, the industry players will have to take on this responsibility more fully. Still, I have to caution that the airline industry suffered its worst year in 2009, losing over US$11 billion, and losses for this year are projected to be over US$5.6 billion. And the ever-present risk from volatile oil prices could mean even higher losses.
Such an outcome would put a strain on airlines, with negative effects on the travel market and our local tourist industry. The forecasts do not suggest that there should be any sharp rise in oil prices in the immediate term. Should prices rise dramatically putting extraordinary pressures on airlines, without the national carrier, some sections of the local industry would find themselves exposed.
Dennis Morrison is an economist. Feedback may be sent to email@example.com