Jamaica, AA strike deal

The Management of Air Jamaica is livid over the Government’s decision to give American Airlines a US$4.5- million (J$324 million) guarantee to encourage flights to the island.

But Tourism Minister Edmund Bartlett says there is nothing wrong with the decision, which he says will not hurt Air Jamaica and will ensure that there are seats for approximately 156,000 more visitors to come to the island.

That is little comfort for outgoing vice-president of marketing at Air Jamaica, Paul Pennicook.

“I fully understand and appreciate the minister’s attempt to bring seats into the island by giving a revenue guideline to American Airlines,” Pennicook, who will demit office at the end of the month.

“But what I do not agree with is that this revenue guarantee is given to American on routes that are currently served by Air Jamaica, specifically Chicago.”

Pennicook, a former director of tourism, was also dismissive of claims that the current administration was following a long- established practice whereby Jamaica Vacations Limited (JamVac) provided guarantees to airlines.

“JamVac was established to develop new gateways for Jamaica. It was never established to go and subsidise seats in existing gateways …” Pennicook said. “This is the first time that we are supporting a scheduled carrier and on a route which Air Jamaica serves.”

But Bartlett was unapologetic as he defended the deal.

“This arrangement is unprecedented in terms of its value to us at a time when there are massive cuts in airlifts throughout the Caribbean and the world,” the tourism minister said.

According to Bartlett, with nearly 3,000 new hotel rooms this year, the deal would help Jamaica ensure seat security out of North America.

He said the decision to sign an agreement with AA was based on its ability to move persons from across North America to the gateways.

“American will be able to get persons from communities from around the airports and Air Jamaica does not have the planes going into the communities around the gateways,” Bartlett argued.

He added that, despite putting up the US$4.5 million, the deal might not cost Jamaica one cent as it was based on the number of passengers that American will take to the island.

“No payment will be made to American until the end of the one-year period (November 30, 2009). This depends on the load factor and the money will remain in escrow earning interest,” Bartlett said.

“It is not that it would help Air Jamaica’s cash flow as we will not be paying the money every quarter or every month, this is a contingent guarantee that will only be paid if you don’t meet the agreed load factor at the end of the period.”

Under the deal, AA will not fly its planes into Jamaica if less than 65 per cent of the seats are taken up. However, if the aircraft is more than 65 per cent full but less than 75 per cent, Jamaica will be required to pay the 10 per cent revenue that the airline would lose.

Bartlett said that was a small price to pay for a deal that will see American making 19 new flights to Jamaica each week with the possibility that approximately 156,000 more visitors could make their way to the island over the 12 months.

“This will earn more than US$96 million for Jamaica with the Tourism Enhancement Fund, which is financing the deal, earning US$1.2 million over the period. Even if you were to pay the US$4.5 million, look at the value of the thing,” Bartlett added.

Company policy

In the meantime, AA told The Gleaner yesterday that the company policy prevented it from providing details of its agreement with the Jamaican Government.

But the airline noted that, in May, it had announced systemwide capacity reductions, mainly as a result of increasing fuel costs.

American said the cuts impacted on the Caribbean market with minor adjustments in Jamaica.

However, the airline said that, based on an approach from the Jamaican Government, it agreed to continue and expand its service to Dallas from Montego Bay to five times per week and expand with one flight five times per week from Montego Bay to Chicago.

Opposition Spokesman on Tourism, Dr Wykeham McNeill, has expressed alarm at the Government’s unprecedented deci-sion to provide revenue support for a scheduled commercial airline flying to Jamaica. This, he said, particularly in view of the fact that the national airline offers scheduled service on two of the three routes on which support is being granted.