AMBITIOUS: Work on the Airport redevelopment.

Published On:Wednesday, September 08, 2010

By NEIL HARTNELL

Tribune Business Editor

The Nassau Airport Development Company (NAD) reduced operating expenses by a further 5 per cent in its 2010 financial year, while raising non-aeronautical revenues by 18 per cent over a two-year period, although airline operators remain concern that its 2011 proposed fee increases will negatively impact their operations.

In response to feedback over the proposed fee increases, which are due to take effect from January 1, 2011, the Lynden Pindling International Airport (LPIA) operator stated that the rises were again necessary to generate sufficient revenues to finance repayments of the ultimately $409.5 million debt loan taken on to finance the airport's redevelopment, and enable it to meet its financial covenants.

The message also appeared to be that airline operators should seek to increase revenues and reduce costs, as NAD had done, to cope with any impact the fee rises may have on their cost structure.

"NAD is keenly aware of the industry's economic situation and, like our airline partners, has taken steps to reduce costs and grow non-aeronautical revenues, thereby reducing NAD's reliance on aeronautical fee increases," the airport operator said.

"NAD has reduced its annual operating expenses by 8 per cent in fiscal 2009 and a further 5 per cent in fiscal 2010. Additionally, NAD has reduced its planned annual maintenance capital by 76 per cent in the past two years. NAD has also incorporated a number of cost savings and value engineering efficiencies into the terminal redevelopment. Lastly, NAD continues to develop non-aeronautical revenues which have grown by 18 per cent in the past two years."

NAD added that, in issuing the consultation document over the fee increases, it had shown that they and further rises in the future were competitive with what other Caribbean airports charged.

However, Captain Randy Butler, president and chief executive of Sky Bahamas, last night told Tribune Business he was "justifiably concerned" about the impact from the fee increases. Contrasting the situation at LPIA with the Caribbean's opposition to the UK's air passenger departure tax and increases to that, with regional tourism ministers set to meet on the issue and lobby Britain, Mr Butler said that "in the Bahamas we're going up every single day or year, increasing charges".

He added that the $409.5 million LPIA redevelopment was not necessary given the flat tourism numbers, stating that the airport had just needed a clean-up. Passenger use should drive airport expansion, Mr Butler said, and the Bahamas was building a bigger airport despite this not happening.

"The world economy has changed, but we've not changed or responded to it," he added.

NAD plans to increase landing fees at LPIA by 10 per cent as of January 1, 2011, and raise other fees by 3 per cent.

Unveiling its plans to raise additional revenues, and ensure it complies with the financing covenants related to LPIA's $409.5 million redevelopment and expansion, NAD said that apart from the landing fees increase, it was also planning to raise terminal fees, aircraft parking fees and aircraft loading bridge fees by some 3 per cent as of the same date.

And international passenger facility user fees will rise from $20 per head to $27.5, a more than one-third increase, although NAD said LPIA's user costs will still remain below the Caribbean average.

Using a Boeing 737-200 with a 75 per cent load factor (102 passengers) and 90-minute turnaround with use of a loading bridge as its benchmark, NAD said in a previous report: "Excluding government taxes, LPIA's costs are currently $30.44 per passenger, and with the recommended increase become $38.21 per passenger.

"The average cost of the Caribbean airports presented in the graph excluding LPIA is $41.64 per passenger. LPIA's recommended rates are very competitive at $3.43 or 8.2 per cent less than the Caribbean average."

Yesterday, NAD said of the fee increases: "The financing structure inclusive of the proposed rate increases is in accordance with ICAO's Policies on Charges for Airports. The proposed rate increases and future rate increases are aligned with the facilities' operational availability, and are targeted to provide the necessary cash flow to support the related debt. Additionally, capital assets are accounted for in accordance with International Financial Reporting Standards.

"The financial model includes the proposed increase of fees and charges, in addition to increases planned for 2012 and 2013 followed by consumer price index-type increases.

"These increases are aimed to eventually achieve a cost recovery of the services provided to the airlines. The gradual increases contained in the financial model are necessary for NAD to meet its operational needs and the financial covenants, including a debt service coverage ratio of 1.3 to 1, of the terminal redevelopment financing."