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I think transparency is lacking in the quest to establish international flights to the Argyle International Airport (AIA). The airport is scheduled for its grand opening Feb. 14, 2017. However, there is no disclosure of commitment from any international airline for air service. What is the progress of route development?
In the route development process, airport or tourism representatives charm airline decision-makers and submit reliable data to demonstrate there is a profitable opportunity to launch a new route. We can forgo the charm and data submission because unfortunately, presently, there is no genuine profitability for airlines to operate international flights to AIA. So what would it take to get international flights to AIA?
It would require a significant incentive package to develop international air service(s) to AIA. There are variations of incentives programmes to lure airlines to commence new routes. However, the most common incentives are airport fee discounts, joint marketing support, community ticket trusts (also called travel banks), and minimum revenue guarantee (which I predict would be the primary enticing option for those who have the task of getting international flights to AIA).
So, what is minimum revenue guarantee (MRG)? MRG is guarantee money to an airline if revenue is loss while operating the route? The guarantee is based on revenue an airline must earn to make the route(s) feasible. Think of it this way: the amount of minimum revenue guarantee attached to each route reflects the airlines’ calculation of the financial risk they are taking on to operate that flight. If there is loss revenue while operating the route, the guarantor (e.g. airport or tourism authority) pays the airline the difference.
Take a look at Jamaica, Bermuda, Barbados and St. Kitts and Nevis as examples — countries with superior tourism industry compared to St. Vincent and the Grenadines. They all guarantee minimum revenue to airlines to fly to their gateway.
First illustration: Jamaica. Jamaica’s ministry of tourism, via its entity JAMVAC (Jamaica Vacation Limited), in an effort to “promote airlift to visitors to Jamaica,” agreed to minimum revenue guarantee incentive with American Airlines and other airlines. The American Airline-JAMVAC contract stipulates the air carrier would provide flights to Jamaica from Miami, Chicago, and Dallas gateways, with revenue guarantee of US$1.5million per gateway (totalling US4.5M) providing 130,832 seats for one year.
JAMVAC guarantee American Airlines revenue for round trip flight from MIA to Montego Bay (MBJ) US$24,368 per air service flight, which equal to $34.34 per round trip revenue passenger, using a Boeing 737 with 148 seats configuration. The round trip service to Chicago (ORD) to MBJ guarantee American Airlines US$49.08 per round trip revenue passenger. Total round trip flight charge per flight with Boeing 737 equipment to ORD to MBJ totals $50,686 per air service flight. The Dallas (DFW) to Montego Bay (MBJ) assured revenue of $46,214 per air service flight. And Jamaica is not alone in guaranteeing airlines revenue for flights to their airports.
“Every year, the Bermuda Government and its taxpayers pay out millions of dollars to international airlines serving Bermuda companies to cover the cost of Bermuda flights. They do so because failure to make revenue guarantee deals with airlines would mean losing Bermuda routes,” according to Tourism Minister Mr. Crockwell. As of January 2016, the Bermuda government paid out an annual $2 million-plus subsidy to airlines in minimum revenue agreements.
Barbados, which is one of the major hubs in the Caribbean, gives airlines incentives to fly to its gateway as well. “…Barbados, like many other destinations, continues to spend money to bring airlift here (to Barbados), through what is called in the industry co-op marketing as well as direct subsidies and minimum revenue guarantees,” stated Tourism Minister Richard Sealy. However, Sealy said “the country is now starting to attract more airlift by virtue of increased consumer demand.”
Another example of Caribbean countries paying MRG to air carriers for air services is St. Kitts and Nevis. In 2015, St. Kitts and Nevis signed an MRG agreement with United Airlines. With the minimum revenue guarantee agreement, United Airlines commence flying to St. Kitts and Nevis on Dec. 19, 2015 from Newark (EWR), New Jersey. The MRG to United Airlines was US$1.3 million. Additionally, St. Kitts and Nevis signed a US$1 million MRG agreement with American Airlines to operate routes from New York (JFK) and Miami (MIA).
So unless there is a drastic improvement in consumer demand to visit St. Vincent and the Grenadines, it would take a minimum revenue guarantee incentive contracts to deliver international flights to the Argyle International Airport.
K. Chambers, MBA
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