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The Jamaican Government revenue-guarantee airlift agreement with American Airlines

10/29/09

Permalink 12:24:09 am, by Melba
Categories: Commentary

The Jamaican Government revenue-guarantee airlift agreement with American Airlines

In November 2008 the Jamaican Government entered into a deal with American Airlines (AA) that still has most Jamaicans totally baffled. The deal was for Jamaica to guarantee AA funds if the revenue derived from their flights between Jamaica and Miami, Chicago and Dallas fell below a specific target. In exchange Jamaica would be guaranteed capacity from those destinations to Jamaica. According to the Tourism Minister Edmund Bartlett, although they were entering into the deal the chances that they would have to actually pay was very unlikely.

Now this kind of arrangements is not new. Many countries make these deals with airlines however it is done to get tourist from places where they believe there is a market and where the tourist has no alternate air lift. If AA thought that they would do well, why would they have needed a deal to continue operation on those routes? Did no one in the Tourism Ministry think of this?

Air Jamaica is the National Airline of Jamaica. At the time of the deal they operated several flights daily to Miami as well as Fort Lauderdale, Florida. They also operated several flights a weeks to Chicago. The question then is, why didn’t the Jamaican Government secure its National Airline on the routes that they already operated rather than pay a competitor.

Now AA has said that there was a decline in bookings and the airline recorded a shortfall of US$1.5 million up to July 31 this year. Than being the case the Jamaican Government could be called on to pay more than J$133 million to American Airlines as part of the revenue-guarantee airlift agreement. Those figures by the way represent traffic over the summer period when air travel is usually at its peak. Historical data tells us that September to November is always much slower. Despite all this the Tourism Minister Edmund Bartlett, is still maintaining that Jamaica may not have to pay out any money.

‘Duh……’ Do the math people. If I know that I will be paid for my product/service one way or the other all I have to do is drop the price. It doesn’t matter if I collect from the buyer or a guarantor. Hopefully after the guaranteed period I would have built a loyalty base and can raise my price after. Never mind about the competitor, if they have to drop their price to compete with me, so be it.

One has to wonder what the Tourism Minister is really doing. Where does he get his facts and who if any one is advising him? He keeps painting this fabulous picture re tourism in Jamaica while the industry is truly hurting. Sure some hotels might have a decent occupancy levels, but at what price. All our properties are on sale 30 percent and up. They are even offering locals some great deals just to keep their doors open. The thing is the cost of accommodation has not gone down. In fact it might have escalated.

Not to mention the fate of our National Airlines. No one seems to know and if they do, no one is talking. Word is that the current Business Plan by the present CEO, Mr. Bruce Nobles is showing positive signs. It is too late? The pilots seem to think not. Anyway that’s another story.

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