The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Despite reducing its net loss by 7.4 per cent to $21.523 million, Bahamasair’s managing director has described the airline’s financial year to end-June 2011 as “by no means a pleasant one”, with volatile fuel prices and increasing competition squeezed both it and taxpayers.

Writing in the national flag carrier’s annual report, Henry Woods said fuel prices, as a percentage of total revenues, rose from 24.1 per cent in the 2009-2010 financial year to 28.7 per cent, hitting $19.064 million.

And, while costs were rising, Mr Woods acknowledged that the recession combined with increased competition, especially on domestic Bahamian routes, had placed “heavy pressure on yields”. Average fares, he added, had dropped from $73.07 in 2006 to $70.56 in the 2011 financial year.

In particular, Bahamasair acknowledged the competitive challenge it was facing from privately-owned Bahamian carriers, total revenues on its domestic routes falling by $2.43 million or 9.9 per cent year-over-year to hit $22.209 million.

“The saturation of scheduled air service within the Bahamas, and during a depressed economy, has further deteriorated the financial results of Bahamasair 2010-2011,” the airline conceded of its domestic market.

“”Revenues dipped by 9.9 per cent, passenger numbers dropped by 5.8 per cent, and the average fare slipped 4.3 per cent in comparison to the prior year.

“Prior to 2007, Bahamasair had a monopoly on the domestic scheduled services. However, today it competes with five established local carriers with an average fleet size of five into most Family Islands. Today, the airline’s exclusivity is limited to Inagua, the most southern island of the Bahamas.”

Passenger numbers on Bahamasair’s domestic routes fell from 317,433 to 299,096, a drop of 18,337, while average load factors dropped from an average 45.5 per cent in the 2009-2010 financial year to 44.8 per cent in the year to end-June 2011.

“The local carriers during the period under review provided more and better schedules into the major Family Islands, with a lower cost base and smaller but increased aircraft compared to Bahamasair,” the national flag carrier admitted.

Still, it described its Global Distribution System (GDS), which allows tourists to book Bahamasair flights from anywhere in the world - and to any of the Family Islands it services - as its “trump card”. This meant visitors were becoming major contributors to Bahamasair’s domestic routes.

However, only Exuma and San Salvador bucked the trend of declining revenues, passengers and load factors during 2011.

Better news, which enabled Bahamasair to declare that its main indicators had generated their “first positive results year-over-year” since 2008, came from its international routes. Total revenues here were up 28.4 per cent, or $8.487 million, year-over-year at $38.391 million compared to $29.904 million in 2009-2010.

International passenger numbers were up 20.6 per cent or 86,696, at 507,226 compared to 420,530 in 2009-2010, with load factors improved by 13.2 per cent - rising from 62.7 per cent to 71 per cent. Average fares were also up some 6.4 per cent, standing at $75.760 compared to $71.11.

Acknowledging that it saw the international market as a counterweight to “the saturation of the domestic market”, Bahamasair said it had shifted its excess capacity from Miami to Fort Lauderdale during 2011, due to “lower costing into this destination coupled with the shift in touristic traffic across this destination”. Fort Lauderdale now generated 37 per cent of total international passengers.

“The Fort Lauderdale, Orlando and the Freeport/Fort Lauderdale routes produced revenue growth in excess of 30 per cent, followed by Miami at 28 per cent,” Bahamasair said in its annual report. All international routes provided a double digit passenger number growth, while most routes supplied a 70 per cent-plus load factor other than the Havana and Providenciales routes.”

With the improved international route performance counteracting its weak domestic showing, Bahamasair saw its total route revenues for the 12 months to end-June 2011 rise 11.1 or $6.057 million to $60.6 million, with passenger numbers and load factors ahead 9.3 per cent and 8.9 per cent, respectively, year-over-year.

The national flag carrier added that it had seen a shift in its distribution channels towards Internet bookings, with ticket sales from this source rising from 20 per cent in 2009-2010 to 26 per cent in the 2011 financial year - the latter representing a major improvement on the 7 per cent of sales accounted for by the web just four years ago.

“Bahamasair’s ticket sales for the 2010-2011 year-end outpaced the prior year by 19.2 per cent or $11.4 million,” the airline’s annual report for 2011 said. “”The third party channels contributed $8.3 million (up 36.8 per cent) to the growth, while Bahamasair’s direct channels produced the other $3.1 million (up 8.5 per cent) sales growth.”

Aided by initiatives such as the Companion Fly Free and Air Fare credits, Bahamasair said ticket sales from its US channels grow 75 per cent year-over-year, generating 24 per cent of total sales compared to 16 per cent in 2009-2010.

“The incentives were marketed throughout the United States and fulfilled via the major Internet portals - Travelocity, Expedia and the local hotels’ sales arms,” the annual report said. “Bahamasair’s sales from the respective Internet portals grew by 90 per cent to $10.9 million, and contributed 15 per cent to total sales for the 2010-2011 period.”

Still, there was no getting away from cost pressures. “The volatility of fuel prices continues to represent a significant threat,” Bahamasair warned. “Jet fuel costs at $19.06 million ($14.37 million in 2009-2010) comprises a significant 21.8 per cent of operational expenses, an increase of 32.7 per cent over the previous year. The increase in cost is the result of a 44 per cent hike in the price during the year.”

Fuel prices started the 2010-2011 financial year at $2.50 per gallon, and exceeded $3 per gallon by year-end, a more than 20 per cent rise. With its fuel consumption remaining at six million gallons for the year, Bahamasair said it had reduced usage of its onboard Auxiliary power unit (APU) to produce savings of $137 per hour.

Still, Bahamasair’s total operating expenses of $87.644 million for the 12 months to end-June 2011 represented 132 per cent of the airline’s operating income, although down from 143 per cent the year before. Staff costs, at $27.039 million or 41 per cent of total operating income, was down down from 47 per cent in the 2009-2010 financial year.

And, with Bahamasair’s cumulative deficit standing at $489 million at 2011 year-end, something that has required the Government (Bahamian taxpayer) to pump in $478.622 million over almost four decades to kept in the air, the annual report warned that the national flag carrier would be unable to keep flying without government support.