Bahamasair must cut costs!!

Bahamasair must cut costs

By TAMARA McKENZIE,Guardian Staff Reporter

Bahamasair, like other legacy carriers, must cut costs if it chooses to stay in business, the airline board and management revealed on Monday. They said although most legacy carriers were profitable before Sept. 11, 2001, this is no longer the case.

“All that matters is that low cost carriers are now driving the market with lower fares which forces everyone to reduce cost. Bahamasair was never profitable because previous governments have consciously subsidised known unprofitable domestic routes to serve a greater economic and social good. Such unprofitable routes are now being outsourced,” said a press statement issued to The Guardian from the management of the cash-strapped national flag carrier.

The statement responded to an article that appeared in the Oct. 21 edition of the Tribune, in which several allegations were made by the President of the Airport, Airline and Allied Workers Union Ms Nellerene Harding.

On the matter of low cost carriers entering the Bahamian market, the airline board said Bahamasair lodged no objection to their applications because it would have been futile to do so. The entire industry is in favour of low cost carriers and every travel consumer will argue in favour of lower fares, the board claimed.

Speaking with The Guardian last week, the AAAWU president said the union had nothing to give and the staff should not have to bear the cost of losses if they resulted from decisions made by management. She said Bahamasair has been undercapitalised for many years, and should not ask for concessions, if they could not tell union members what they will gain and how the company will grow as a result. She also said the union was not willing to bend to the demands of Bahamasair’s executives who wanted the union to take hefty cuts in addition to other concessions. She said if the 400 unionised members of AAAWU were forced to take pay cuts, then the entire board, managers and the minister must do likewise.

On the other hand, the statement issued by the board said concessions being requested by Bahamasair are intended to affect all work groups, without exception. As to a timetable for reinstatement of such concessions, the board said most airlines did not follow a timetable, but the Minister [Bradley Roberts] had indicated that he has no objection agreeing to a formula which would allow for reinstatement of the concessions once the airline becomes profitable, and where return of the concessions would not result in a loss to the airline.

The Board claimed AAAWU, along with other unions representing work groups at Bahamasair, has on several occasions been invited to recommend restructuring measures and to accept proposed staff concessions, but never responded. The statement said the board and management are very sensitive to the concerns of staff relative to concessions, but stressed that the external forces which resulted in a crises in the entire industry, now beg immediate action by Bahamasair, if it is to survive.

Following an emergency meeting last week Wednesday when the fate of Bahamasair employees was discussed, The Guardian was told that the airline’s board gave unions two weeks to submit recommendations “to cut losses and keep the national flag carrier afloat.”

Ms Harding said despite the board’s requests, the union still could not state its short or long term goals for the company. “They said they don’t have one and to me, it is worse than where we were,” she said. Ms Harding stated further that the union will offer the board cost-saving measures, but it will not accept or recommend a pay cut. “We told them to bring their ideas and we will bring ours,” she said.

Meanwhile, the board said it is not aware of unions being dictated to, but rather they were advised of what is required for the airline to be sustainable without the government having to subsidise it beyond the $9,000,000 allocated to Bahamasair this fiscal year. The board said in order to further reduce cost, it continues to outsource its unprofitable routes and all non-core business.

“Finding additional capital for assets on unprofitable routes is difficult when the government has so many other essential competing demands being placed upon it. Outsourcing while at the same time preserving costly staff benefits is not the way to go as suggested by Ms Harding particularly at a time when the airline is pursuing privatisation,” the board said.

Additional aircraft

On acquiring additional aircraft, the board said this move was carried out because of the “buyers’ market” which existed to help improve Bahamasair’s “On Time Performance” and “Reliability” and to allow it to meet its seasonal demand; better serve the tourist market; and conduct charters.

Bahamasair had seriously considered a retrenchment strategy but decided against it on the recommendation of the unions which argued that they would prefer to see the airline “fly” out of its financial problems by expanding. The company said the only economically feasible expansion Bahamasair felt viable in the present fiercely competitive airline environment was through Seat Guarantee arrangements such as the one entered into with Driftwood out of Freeport.

“The brief informal discussion the Managing Director had with executives of the AAAWU resulted in their drawing their conclusions with respect to the Driftwood proposition. The truth is that the lion share of the $3,000,000 revenue growth experienced in fiscal year ending June 30, 2004 was derived from the Driftwood Seat Guarantee arrangement,” the statement said.

Bahamasair said Seat Guarantee arrangements are predicated upon travel wholesalers or hotel/casino operators contracting with an airline to provide a predetermined number of seats at a predetermined price for a pre determined duration. The airline said the prices of such seats are naturally discounted because the wholesaler or the hotel/casino operator bears the risk if they cannot fill the committed seats.

“Even back then, a year ago we were bidding against Low Cost Carriers, the likes of Air Tran and Spirit. The arrangement Bahamasair negotiated was further supported by The Grand Bahama Island Tourist Board and the Ministry of Tourism guaranteeing the uncommitted seats if Bahamasair was unable to sell them through their marketing efforts. This type of information is regularly shared with the unions through a Monthly Business Review published by Management,” the airline stated.

Bahamasair said an informal discussion was held with the union to apprise them of the new fare paradigm in the leisure travel market in addition to examining cost structure and staff costs, if they chose to compete in this market.

“Management had the foresight to perceive this shift in the airline market dynamics and sought to keep the unions abreast. Unfortunately the Driftwood arrangement came to an abrupt end after their properties were damaged by the two recent hurricanes other such arrangements are under review with The Ministry of Tourism.

“The truth of the matter is that for the six months we operated the service for driftwood it was marginally profitable which is much better than flying unprofitable routes,” the Board said, adding that such strategies implemented over the past two years have produced outstanding results and has reduced the annual loss to under $12 million in 2004 contrasted with a loss of $27.5 in 2003.

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