Cayman Airways will continue to need significant funding from government as long as it is required to serve unprofitable but strategically valuable routes like New York and Dallas, the airline’s CEO Fabian Whorms said last week.
By funding the airline to the tune of around $21 million a year he said government was essentially subsidizing flight prices to bring big spending tourists from the wealthiest parts of the U.S. to the island.
He said the funding also enabled the national airline to set the price point that other carriers had to follow, ensuring low fares into the Cayman Islands from all airlines operating out of gateway cities. The strategy helps ensure wealthy tourists chose Cayman over rival destinations, he claimed.
Citing a report that the Bermuda government paid more than $3 million annually to secure a single weekly flight out of Toronto, Cayman Airways Chief Financial Officer Paul Tibbetts suggested rival destinations that did not have their own airline were at a serious competitive disadvantage.
Facing questions from legislators at the Public Accounts Committee last week, the officials said government was getting a significant return on its annual investment in Cayman Airways through tourist spending in the country.
Mr. Whorms said research from the Department of Tourism and from Deloitte had shown that visitors from New York were among the highest spenders, making an economic contribution worth $5,000 per passenger to the island’s economy.
He said by operating at a loss out of New York, Cayman Airways brought valuable business to the island and “kept the competition honest,” driving up tourism from one of the wealthiest regions in the U.S.
“It is impractical for us to start flying to New York at $299 to bring tourists to the island, when we are losing $300 a passenger. We couldn’t do it without the payment from government.”
He said the amount of economic activity generated as a result of increased tourism meant government was getting value for money for its multi-million dollar payment to the airline, a frequent source of scrutiny among legislators and consultants seeking to cut government spending.
“What it costs the Cayman Islands to be in that game is we facilitated an airfare that made our jurisdiction chosen over another – that expense of $300 is well worth it,” said Mr. Whorms.
“As long as those dynamics remain viable and sensible, anyone would say that it makes sense to continue.”
Asked by PAC chairman Ezzard Miller if there were a longer term strategy to make such routes profitable and reduce the amount of government funding required, Mr. Whorms said this was not the endgame.
“As long as the route justifies its investment from government in terms of the return, the decision to continue will be made even if it loses money. There are no set time frames.”
Even when rival carriers start eating into the market share out of a city like New York, Mr. Whorms said the airline had an ongoing role to play.
“We are able to have some level of influence on the pricing of other carriers by putting a lower price in the market – that’s all part of the strategy.”
He said marketing focus on New York meant the route remained viable for Cayman Airways, even with competitors like JetBlue operating on the route.
“The pie is big enough for everybody,” he said, “What is important though is if we do not maintain a presence, the influence we have on the pricing will go away. The marketing work might be in vain because the tourists won’t find it attractive.”
He acknowledged that a large portion of the economic benefit went to private sector businesses, including hotels, but said the tourism stimulated by Cayman Airways also brought direct revenue in airport taxes and hotel taxes.
He said government would not get that revenue if tourists shopped round and found they could take their family to the Bahamas for $1,000 less.
Decisions on which routes to pursue are taken in conjunction with government, he said.