Dennis Chung, Contributor
CHUNG
'AIR JAMAICA loses US$61m in five months' was the headline in last Wednesday's Business Observer. If continued at the same rate then the result will be an annual loss of US$146 million for the current financial year. This will be greater than the US$80 to US$90 million loss last year.
The chairman of Air Jamaica in the same article seems pretty confident that the losses will not be at the same rate going forward, as he feels that cost reduction strategies will begin to impact reduced costs. Whatever the loss ends up at it is apparent that it will be substantial, and very possibly above the previous year.
AIR JAMAICA'S FUTURE
I would think there must be a budget for the current year. The important piece of information, which should be provided, is whether or not we are within budget. If within budget the question of course is why would we implement strategies to result in a greater loss this year than the prior year?
If running a greater loss than budget then what is causing this and is the budget, realistic based on the strategies implemented? Also, were the strategies the appropriate ones and have they made the situation worse than it was previously?
Certainly the recent restructuring exercise may have had an influence on customer loyalty as Air Jamaica was consistently delaying and cancelling flights, which likely would have caused revenue losses, as persons switched to more reliable flights during that period. Flying on time and safety are definitely more important than how much, and the quality of food one gets.
It is important that we correctly answer the questions re Air Jamaica's future, as this is very important not just for the development of Jamaica, but also the CARICOM Single Market and Economy (CSME). The fact is that tourism is our second highest foreign exchange earner (sadly behind remittances) and this, of course, depends on the movement of people. It is therefore very important that we decide on the most efficient way of moving these people. The answer is either that we press along with Air Jamaica or find some other solution to the problem. The concern is that months after the Air Jamaica 'bail out' we still do not seem to have a proper plan as to what is the best solution to our air transportation problem.
It seems that we are still "hovering" around the position of saving Air Jamaica because of nationalistic rather than economic reasons. Certainly if the losses are projected to increase then we must strategically decide that this is either best for Jamaica or not, by properly assessing the expected benefit to the country, and determining if after considering the alternatives, that it is worth making that loss.
TRADE OFF FOR TAXES
A US$100 million loss equates to J$6.2 billion approximately. This is two thirds of the J$9 billion in new taxes that the Government proposed in the last budget presentation. One implication is that if we did not need to finance the Air Jamaica losses then quite possibly we would not have had such a great increase in taxes. This is what the hoteliers need to understand as they clamour to reduce the imposed GCT. They were most adamant that Air Jamaica must be saved because of the number of persons it transported to Jamaica. Well they must believe too much in the television advertisement that they can have their cake and eat it too. It is not possible to save Air Jamaica without absorbing the costs in additional taxes, and since they are the ones that benefit the most then it is quite obvious that they have to bear some amount of the costs.
ROLE OF TRANSPORTATION
My hope in all of this is that we realise the fundamental role that transportation plays in the economy and make a concerted effort to ensure an expeditious determination of the best approach to the Air Jamaica situation. I am sure this was the approach taken in considering the road infrastructure improvements, which the current government must be highly commended for. The ability to move people and goods around efficiently has numerous economic benefits (including greater fuel efficiency), and was in fact one of the pillars of American development. The same considerations must be given to air transportation.
We cannot continue groping in the dark with Air Jamaica and not properly consider the alternatives and what is best for Jamaica. Certainly it looks good to have a Jamaican symbol "soaring to new heights" in the skies but it feels better to not to have to fund it though additional taxes or debt.
CSME CONSIDERATION
This consideration is even more important in the context of the CSME. To achieve true free movement of people and services within the region it is important that we do so most efficiently and at the least cost. Currently we have two major regional air lines (Air Jamaica and BWIA) and both make financial losses. Additionally there are smaller air lines in the same position. Since we are talking harmonisation, we should be moving in the direction of merging these air lines in order to provide a better service at lower costs. Presently they compete against each other at a loss.
One of the main arguments against merging the air lines is that the fleet of air planes is different and so a merger would pose some difficulties. My argument is that there must be some elimination of costs, even with differing fleets, and even if minimal initially, it is important start down that road with a plan to streamline the operations.
WORLD CUP 2007
This is even more critical when we consider the upcoming World Cup 2007. Even presently all available flights between Jamaica and the eastern Caribbean are always full. What will happen when 2007 comes? Do we have plans in place to cope with the increased demand in air transportation requirements? If we do not consider this as a matter of urgency then all expected economic benefits may not be realised. This was highlighted a few weeks ago in a conversation I had with Minister Delano Franklyn, when he was very concerned about it. I hope his forward thinking ideas surrounding this are seriously considered.
In conclusion I would like to again emphasise the importance of transportation to economic improvement. We must seriously consider the economic impact of our transportation choices and make the right decisions for the country and region.
Email: dra_chung@hotmail.com
