Transport & Mining Minister Robert Montague says the Government, through the Airports Authority of Jamaica, wants to woo a private investor into starting a new domestic airline.
“In today’s Jamaica, we need scheduled internal flights, so the call is for persons in the private sector to come forward and let the negotiations begin,” said Montague in an address to Parliament on Wednesday.
The carrier would effectively compete against Jamaica-based International Airlink Express, whose fleet includes a 17-seater Cessna Grand Caravan and Bahamian carrier InterCaribbean Airlines which has offered flights from Kingston to Montego Bay since 2014, and whose fleet includes a 30-seat Embraer aircraft. There are also small aircraft owners that operate charter trips between both cities.
Historically, most airlines offering domestic flights have cited major challenges of fuel, devaluation and wages. But the improved road network poses a new challenge, as commuters may opt to drive or use the bus service operated by Knutsford Express.
Still, the boss of the bus company believes the idea for a new carrier has merit.
“The cost of operations will be a factor. It will be a high price for a small market,” said Knutsford Express CEO Oliver Townsend in response to Financial Gleaner queries. It costs roughly US$60 ($7,500) each way to fly 40 minutes between cities. A one-way trip for a four-hour journey on Knutsford Express is around $3,000.
“A deep-pocket, private-sector company can give it a shot,” added Townsend, even while acknowledging that there is a lack of information on market demand.
A number of internal airlines have come and gone over the decades, with the most recent being Jamaica Air Shuttle. That airline, which operated two 12-seater Beech 99 aircraft, started service in 2009 and suspended operations in 2013. Other airlines in the past included Trans Jamaica and Air Jamaica Express.
There are also barriers to market entry from a regulatory and financial perspective. The largest start-up costs pertain to the acquisition or leasing of turboprop planes. One of the most popular aircrafts, a Beechcraft 35-seater, can cost US$500,000. These costs result in airlines operating with a thin break-even margin which, optimally, requires near-to-full seats on each flight.
Restarting the Norman Manley International Airport, NMIA, after a major accident, or the threat of rival airports pinching away passengers are concerns that the Airports Authority of Jamaica, AAJ, wants quantified and studied prior to divestment.
The authority is looking for a consultant to outline the growth prospects and the risk associated with the airport, and from there, devising plans of action for NMIA’s recovery from a variety of risk scenarios.
The Business Continuity Management Study, expected to be conducted between January and July 2019, forms part of the privatisation plan for the airport. Until then, the AAJ remains its operator through NMIA Airports Limited.
“The continuity report has a number of uses for us,” Alfred McDonald, AAJ director of commercial planning and development, told the Financial Gleaner in an interview on Monday.
“It will assess the risk of the airport and also access its growth prospects. At the AAJ/NMIA, we want to ensure that risk is mitigated, whether the airport is divested or not,” he said.
The report will also serve as a guide to the private operator that wins the concession to operate the airport, and it will become a tool for the AAJ as well in monitoring the performance of the concessionaire, McDonald noted. The concessionaire is expected to own and operate NMIA for about 30 years.
Eight groups are vying for the airport on which bids are due at the end of June.
On Monday, McDonald indicated that current data on revenues and other particulars on NMIA would remain undisclosed until presented to Parliament.
Data promised on passenger arrivals and departures for 2017 was not forthcoming, but passenger movements in 2016 totalled 1.59 million, according to information on NMIA’s website.
The current arrangement with NMIA Airports Limited is also structured as a 30-year concession agreement signed in 2003. The AAJ has invested some US$136 million in its 20-year Master Plan, to upgrade the existing infrastructure, according to the expression of interest on the study.
The deliverables of the continuity study include a comprehensive review of air services and to provide recommendations that will support the development of the NMIA in passenger and cargo services.
In relation to the continuity study, the authority wants the report to determine NMIA’s competitiveness and potential to grow air services; recommend new routes, including target markets and air carriers; determine air cargo potential and possibilities for NMIA, including target markets, products and air carriers; determine the market potential for NMIA as a hub for passenger and cargo traffic; and recommend market and air carriers and provide preliminary recommendation on how NMIA can attract transit flights for technical stops.
The consultant must also identify ways to create a risk register ranking in order of most severe to least severe, methods for NMIA to create partnerships to protect its interest, and devise procedures aimed at managing “all critical services” in emergency events.
Costs associated with the divestment of NMIA are backed by a loan to the AAJ from the European Investment Bank, and a “subsidy” for technical assistance and studies related to the planned privatisation of the airport, according to the invitation for bids.