Still receiving $18M from gov’t, but no net loss projected
A rise in tourism, falling oil prices and the purchase of three jets, previously on lease, have all contributed to an improved financial picture for the island’s national airline.
The calculation does not include the almost- $18 million in payments the airline receives from government, which it treats not as a subsidy, but as a purchase of services to support the tourism industry and domestic travel to the Sister Islands.
Government also makes an annual $5.1 million “equity injection” to pay off the airline’s historical debt, which is also not included in the annual revenue and expenditure calculations.
Fabian Whorms, CEO of Cayman Airways, said the results for 2014/15 came against the backdrop of improving performance over the last few years.
According to the airline’s 2012/13 financial statements – the most recent publicly available accounts – laid before the Legislative Assembly last month, the airline incurred losses of nearly $7 million in that year,
Auditor General Alastair Swarbrick, in his notes on those statements, pointed out that government was the airline’s biggest customer, with its payments accounting for a quarter of the airline’s revenue. He cautioned that without those government payments, the airline would be unable to continue in its current form.
Tourism Minister Moses Kirkconnell said record tourism arrival figures for 2014 showed that government’s payments to the airline were justified.
“We have always said that Cayman Airways is important to the country because it is the tool we use to drive tourism and to benefit our tourism product. It gives us a competitive edge over other regional small-island nations.”
CAL has previously had issues paying bills to the Cayman Islands Airports Authority, including the passenger facilities charge which feeds the fund that will be used to rebuild the Owen Roberts International Airport.
Mr. Kirkconnell said CAL is now paying those bills as well as addressing debt owed to the CIAA.
Mr. Whorms said increased passenger volumes are driving up revenues.
“This year, Cayman Airways will carry 60,000 more passengers than it did five years ago and 120,000 more passengers than it did 10 years ago,” he said.
For the first nine months of the current financial year, Mr. Whorms said, the airline carried 16,000 more passengers compared to the same period last year.
Mr. Whorms said a decision to purchase three of the four 737-300 jets as well as a spare 737-300 engine actually helped reduce the airline’s operating expenses.
Previous reports suggested that the US$7.9 million purchase would save the airline an estimated $19 million over the next five years, set against a US$5.9 million annual leasing cost. However, the fleet will likely need to be replaced after that time, meaning CAL’s expenses would increase again.
Recent reductions in oil prices have also had an impact on the airline’s bottom line, though Mr. Whorms said this was relatively minor and was offset by the increased amount of fuel required to carry a growing number of passengers.
There is also less space on inbound flights to “tanker” fuel into Cayman, meaning the airline is often required to buy its fuel on island at a higher cost,
“The net effect is that while the reduction in oil prices have helped our financial performance, the percentage reduction in fuel costs at Cayman Airways is far less than the percentage reduction in world fuel prices or the fuel price reductions being experienced by overseas-based airlines.”
He added, “From all of the preceding, CAL is projected to close this fiscal year without a net loss and with its revenues in excellent alignment with expenses.”
Mr. Whorms said government’s contributions to the airlines are classified as a purchase of services to support the tourism industry, rather than as a grant.
In the last budget, government allocated $2.85 million to CAL to run the Sister Islands routes and $14.96 million to run what are described as “strategic tourism” routes.
“Both of these amounts are treated as revenue once the contracted services are delivered by Cayman Airways,” Mr. Whorms said.
The modus operandi of the airline when it comes to its “strategic tourism” routes – Chicago, Washington, D.C., Dallas, New York – is to guarantee airlift and prevent foreign carriers from gaining monopolies. Flights to the island without this option would be prohibitively expensive or nonexistent, officials believe.
“These output payments are made to Cayman Airways for the provision of strategic and essential air services consistent with the government’s socioeconomic policies,” Mr. Whorms added.
He said the level of government payments to CAL in future would depend on which routes it wants the airline to operate.
He added. “The cost to provide airlift services can also vary significantly from year to year because of the airline industry’s constantly changing commercial operating environment.”