'Bang on' over $415m aviation boost for GDP


Tribune Business Editor


Research showing The Bahamas will enjoy a $415m economic boost if it participates in Caribbean-wide aviation reform has been branded "bang on" by a local airline's principal.

Captain Randy Butler, pictured, Sky Bahamas' chief executive, told Tribune Business that the findings of a Caribbean Development Bank (CDB) study were "all on target, all on point" when it came to identifying the potential impediments to significant job and GDP growth opportunities.

He said he was "praying" that Dionisio D'Aguilar, Minister of Tourism and Aviation, would read and "see the benefits" of acting on the recommendations from the CDB's study of the region's Air Transport Competitiveness and Connectivity.

The report, obtained by Tribune Business, suggests that The Bahamas will be the greatest economic beneficiary among the CDB's borrowing members - with the creation of 16,370 total jobs - if this nation and the region target three key areas for reform.

These are reduced taxes and fees/charges, which will lower air fare costs and boost passenger demand; greater liberalisation and an improved regulatory environment through Caribbean nations harmonising their rules; and greater efficiency in airport and airline operations.

The CDB study, using estimates for air passenger traffic to all Caribbean nations in 2025 without any reforms as its base, developed its economic forecasts on the elimination of taxes on flights between countries in the region. It also assumed that taxes on international flights would be cut by 25 per cent, and airport charges reduced to about $30.

Other assumptions included in its modelling included lower airline costs from improved regulation/harmonisation, with aviation liberalisation to increase passenger demand by 30 per cent. And improved airport and airline operations, via "smarter and greater" use of technology and infrastructure, were forecast to boost traffic by a "conservative" 10 percent.

"While each of the policy reforms will be expected to have an impact individually, the greatest impacts will result from implementation of a coherent and holistic strategy," the CDB study's authors wrote.

"The improvements from the combined scenario would allow for greater economies of scale and greater freedom for carriers to expand their services, thereby stimulating the growth of passenger traffic and, in turn, the expansion of viable direct services into and within the Caribbean. This would result in time savings for passengers."

Should change in all three areas be achieved, the report found that the Bahamas would enjoy the greatest economic impact through a $415 million gross domestic product (GDP) expansion and the creation of over 16,000 jobs. It estimated that air arrivals to this nation would increase by 1.058 million or 42 percent above baseline, with the majority - 901,035 - coming from abroad and representing the high-spending stopover tourists the Bahamas is targeting.

Captain Butler, who has previously called for reform in all three areas identified in the study, told Tribune Business of its findings: "I think they're bang on. All on target, all on point. We've been talking about this for years, and I hope the Government takes this study and looks at it.

"I endorse this study, and pray the Minister see the benefits of it. We cannot live this out by ourselves. We're part of a global village, and have to participate or get out."

Air connectivity is essential to the Bahamian economy as it provides the means for 1.5 million higher-spending stopover visitors to access this nation's tourism product, as well as bring in air cargo for the smooth functioning of commerce.

Improvements in connectivity, especially those related to competitiveness issues such as prices and efficiency, are thus vital to fostering the greater transportation links that the Bahamian economy relies upon.

The CDB study, though, showed that taxes and fees continue "to make up a large portion of the overall ticket price" on flights from the Bahamas to both international and regional destinations.

Using data provided by Bahamasair and other sources, it revealed that such charges accounted for 43 per cent - or $158.13 of a $371.13 full fare - from Nassau to Providenciales in Turks & Caicos.

As for international routes, the study cited a flight from Nassau to JFK Airport in New York. It said taxes and fees accounted for 32 per cent, or $155.51, of the $483.51 air fare. The percentage accounted for by taxes/fees was in line with the Caribbean regional average.

Captain Butler told Tribune Business that this taxation/fee burden was much higher in the Bahamas and wider Caribbean compared to that faced by international carriers on their inbound flights.

"You can go from Fort Lauderdale on almost any given day to Nassau for $69," he said. "You cannot go to Fort Lauderdale from Nassau for anything less than $200. The fees and charges and taxes are just too much."

The Sky Bahamas chief has in the past expressed concern about the continual increases in passenger and airline fees imposed by the Nassau Airport Development Company (NAD), although the airport operator has produced benchmarking statistics showing the burden is in line with the regional average.

Cutting such fees, as suggested by the CDB report, could be especially problematic for NAD given that they generate the revenue used to service the debt taken on to finance Lynden Pindling International Airport's (LPIA) $409.5 million redevelopment.

Captain Butler, meanwhile, said the CDB report had failed to account for the Bahamas' unique geography and the additional taxes/fees incurred by passengers transiting Nassau on their way to the Family Islands.

He pointed to San Andros, a destination 12 minutes' flight from Nassau, yet costing passengers $85 "each way" as one example of this cost burden. The Sky Bahamas principal also cited Freeport as "the only airport in the region that charges holiday fees, time-and-a-half, and you cannot pass it on to your passengers".

The Bahamas at year-end 2017 had 11 air services agreements (ASAs) in place with countries ranging from Brazil to Australia, New Zealand and Qatar. These enable the movement of passengers and goods between countries, and the CDB study identified them as key to moving to "open skies agreements" where airlines can fly to any point in participating nations.

"Many studies from around the world have found that air service liberalisation led to increased competition in markets, providing greater choice and lower fares for passengers, both for business and for leisure," the report added. "As a result, connectivity increased, which in turn created further opportunities for air traffic volumes to increase.

"The Caribbean is yet to experience such liberalisation, but some progress has been made. Although the 1996 CARICOM Multilateral Air Service Agreement (MASA) was not fully ratified, a revised MASA was signed by a number of CARICOM member states in February 2018, and the Heads of Government urged countries to take steps towards implementation.

"If fully implemented, the MASA will expand 'the scope for airlines owned by CARICOM nationals to provide air services throughout the 15-member grouping' and 'allow for no restriction on routes, capacity or traffic rights'."

Captain Butler, though, said the Bahamas appeared to be going in the opposite direction with tighter regulation and control. He added that changes to air fares, and the approval of new routes, still had to be approved by the Minister of Aviation and the Bahamas Air Transport Advisory Board.

"The rest of the world is going to open skies; we're going to closed skies," Captain Butler lamented to Tribune Business. He added that regulatory harmonisation was not being aided by the Bahamas' decision to remain outside the Caribbean Aviation Safety and Security Oversight System (CASSOS), a body dedicated to achieving such objectives.

The Sky Bahamas chief said this nation's aviation sector was incurring higher inspection and other costs because it was unable to access the resource sharing available through CASSOS.

"Aviation is, almost by definition, a global industry. It is also highly regulated," the CDB study said. "This creates a requirement for regulatory harmonisation to ensure efficient operations but also to avoid contradictions and inconsistencies, as well as duplication of cost and time.

"The regulatory framework across the region is not harmonised. The complexity of complying with different laws, regulations and regulatory practices adds to airline costs, and in some cases places direct limits on airlines' ability to provide service.

"This lack of harmonisation is exacerbated by the proliferation of authorities and agencies that regulate different aspects of the aviation sector, meaning that airlines in the region interact on a day-to-day basis with a myriad of bodies."

The report described this as "a tacit form of protectionism", with airlines deterred from entering new markets by the time, cost and bureaucracy associated with obtaining regulatory approvals.