Cayman Airways says unprofitable routes necessary for tourism

Even though only seven of Cayman Airways’ 69 routes made a net profit in five years, tourism officials say keeping certain gateways running provide “strategic value” for the country’s tourism sector and helps keeps travel costs down.

Both Fabian Whorms, Cayman Airways president and CEO, and Stran Bodden, chief officer of the Tourism and Ports Ministry, contend that operating the existing routes, including the low-performing New York gateway, remain necessary to maintain Cayman’s competitive advantage as a tourist destination.

Bodden, speaking before the Public Accounts Committee Thursday afternoon, said the tri-state area of New York, New Jersey and Connecticut is a high target market for the island, and ensuring there is strategic airlift out of New York is important.

“We are in there to temper that price point of airfare to the Cayman Islands,” he said, as he responded to questions from the committee arising out of the Auditor General’s performance report, ‘Efficiency and Effectiveness of Cayman Airways Limited (March 2024)’.

Bodden explained to the committee that there are two airlines operating the New York route now, JetBlue and United, while CAL flies in three times a week.

“We are there to provide the checks and balances [so for] that area that is a target market for us, that price point of airfare does not go too high that it would make you want to second guess [a Cayman Islands experience],” he said.

Keeping prices competitive

Whorms, in his testimony, said most of the airline’s routes cover their variable costs, but they are recorded as losses when they could be remedied by applying government’s equity injections as output payments.

“If [a route] falls in strategic tourism or strategic domestic [route] then the reason why we do it is because it’s been done for strategic reasons. Its purpose is not to necessarily make money. Its purpose is to have another effect which is beneficial to the Cayman Islands,” Whorms said, adding that this is where the shareholder collaboration comes into play when assessing routes.

He reminded that CAL’s routes are also aligned with the Department of Tourism’s marketing efforts, and the New York route in particular is a gateway to the “very affluent” tri-state area.

“We work with them, and we’re there to help keep the others on the route who are there because of the DOT’s marketing efforts. We’re there to keep them honest. The instant we leave the other airlines flying to Newark or directly out of JFK on their own, then the airfare element [changes] because there’s no competition,” Whorms said.

While he said the airline is setting low fares, its market presence enables it to provide a competitive pricing environment.

He pointed to the high rates being charged to head to places like Turks and Caicos, which does not have a national flag carrier, as example of how Cayman Airways’ presence in routes like New York keeps air fares to the island affordable.

Challenges with overheads

Whorms also addressed CAL’s budgeting shortfalls and the need for increased expenditure.

He pointed to an expense of an additional $3.5 million now needed to address an overhead of increasing employee remunerations to satisfy the requirements of the Public Authorities Act. Under the act, government companies are required to have similar pay scales and employee benefits to that of the civil service.

Whorms, in response to a question from PAC member Bernie Bush on the small pension payments being issued to CAL’s former employees, said it was a concern for him, as was the lack of post retirement healthcare.

He said he has “great compassion” for impacted workers, and he reminded the committee that he and his management team are also approaching retirement.

“We don’t know what’s going to happen when we retire. We do not think we will be able to survive and that’s something that I think is very serious. Everybody talks about it almost every single time we’re in the house, whether it’s Finance Committee… the Public Accounts Committee,” he said.

Whorms said he is hoping to see the day when government does something very tangible to deal with the pension and healthcare liabilities.

“It could be simply just accepting responsibility for the Cayman Airways employees under the Public Service Pension Board provisions and implementing a different style of pensions, or funding us to do more. It can be simply umbrellaing retired Cayman Airways employees with the civil servants who have retired their post retirement health care benefits through the HSA and CINCO,” he suggested.

The airline, he said, has operated as a private entity and to bring it in line with the civil service will take “a lot of funding” as employees salaries have to be uplifted to match civil servants pay and benefits.

CAL board chairman John-Paul Clarke also touched on the issue, saying that the airline has had to raise revenue to meet those demands as well as fuel prices without seeking additional appropriations from government.

“If there was a route that was performing and the loads were going down, we would change frequency. We will change time of days to basically make sure that our airplanes are as full as possible, and we’re getting them as full as possible,” he said.

He said the airline raised about $12 million in 2023 to “basically offset those additional costs.”

Bodden, speaking to the legislative requirement, said, it is something that will have to be looked at “very carefully, very sensitively” in terms of how it is done and whether it’s funded partly by government and partly by Statutory Authorities and Government Companies like CAL.

PAC member McKeeva Bush, however, said that what the act requires is “unrealistic.”

“The expectations on this law does not meet what government can do,” he said, adding that the Auditor General’s office needs to look at the issue and not just “that the law says that everybody must be equal or equal in comparison to what government is paying”.