Jan. 29, 3002 – After deferring increases last year, the Port Authority board announced on Wednesday that landing fees and passenger fees at the territory's airports will go up 25 percent on Saturday.
The board backed down in October on a plan to raise landing fees by 35 percent after airline executives vowed at a Sept. 17 public forum to cut back service or stop serving the territory altogether if the hikes were imposed
Darlan Brin, VIPA executive director, said on Wednesday that the increases are necessary to offset a currently projected deficit of about $5 million in the authority's Aviation Division for Fiscal Year 2003.
He said he sent a letter to all of the territory's signatory airlines on Jan. 24 informing them of the fee changes and explaining the authority's position.
"The revenue generated by this increase probably will not result in the Aviation Division's achieving a break-even condition," he said, unless there is a substantial and unexpected upturn in traffic. But it "will result in reducing the anticipated deficit by 60 percent, to $2 million," he added.
The increase, approved unanimously by the board, amounts to about half of what the original 35 percent increase would have been, Brin said. Since the first four months of the fiscal year have already passed with no user increase, he said, the effective annual hike is 17.5 percent.
Bob C. Arthur, VIPA rate consultant, had spelled out the financial facts of life facing the authority in September, and he did so again Wednesday. He said the revenues that will be generated by the increases are unlikely to be enough for VIPA to break even this fiscal year. His estimate is that the increase will reduce the deficit from $5 million to about $2 million.
To wipe out the deficit, VIPA would have to increase the fees by 40 percent, Arthur said. The 35 percent increase the board put on hold last fall would have left VIPA about $771,000 in the red, he said.
Arthur said airports all over the nation are facing the same problem. Airlines are anxious about an impending war with Iraq, the conflicts in North Korea and Israel, and new security and fuel costs. He said some mainland airports have government subsidies to bail them out, something the Virgin Islands doesn't have.
Air passenger volume dropped in FY 2002
Arthur said U.S. air passenger volume was down 8 percent in 2002 from 2001. In the territory, For FY 2002, air passengers were down 11 percent at Henry E. Rohlsen Airport and down 7 percent at Cyril E. King Airport. For the first three months of FY 2003, volume at the St. Croix airport was down 9 percent from a year earlier while that at the St. Thomas one was up 11 percent.
In October, in addition to postponing for six months any increases in landing and passenger fees charged airlines, the Port Authority board adopted a slimmed-down FY 2003 budget of $75 million. The board called on VIPA personnel to reduce travel expenses and get along with less in the way of materials and supplies in order to make up a $5.3 million shortfall in its earlier spending plan.
Brin told the Senate Finance Committee on Tuesday that the FY2003 budget also anticipates that all VIPA funding for capital projects will come out of an estimated $7 million surplus in the Marine Division.
In his report on VIPA finances to the senators, Brin said that because of budget cuts already implemented and the loss of $1.5 million in FY 2002 because of waiving cruise ship fees on St. Croix, the "authority cannot commit to any additional cost item, whether from inside or outside of the authority."
He told the senators on Tuesday and the board on Wednesday that VIPA is engaged in a cash-flow analysis that may entail revisiting the budget again "lest it runs out of cash."
Last fall, VIPA's then-executive director Gordon Finch had warned the board that it would have to do something to increase Aviation Division revenues in six months — by raising fees or by another means. An option, he said then, would be to ask the V.I. government for subsidies, something he said is a fact of life for many of the nation's port authorities, including that of Puerto Rico. "If we do not get subsidies, we have no choice but to raise rates," he said at the time.
Cutting liability insurance considered
Attorney General Iver Stridiron, a board member, said on Wednesday that a government subsidy is not "likely" to assist VIPA, adding that the administration "might look for VIPA to help them." He and Brin noted that the board has studied numerous cost-cutting measures. "We've looked at a wide range of options, including the draconian measure of cutting liability insurance," Stridiron said.
Brin said he is looking at capital improvement plans with an eye to determining what projects may not need all of the funding up front for this fiscal year.
VIPA's attorney, Donald Mills, pointed out that the Port Authority, by virtue of its signatory agreement with the airlines, is not allowed to make a profit on aviation revenues; any surplus must be returned to the airlines. At the same time, the airlines have agreed to absorb any aviation losses that VIPA may experience. "We have every legal right to increase fees," he said. "Fees were decreased by $3 million in 2001," he noted.
Representatives of American Airlines, American Eagle and Delta Air Lines were in attendance at the board meeting.
Robert de Lugo, Delta St. Thomas station manger, was asked by a board member if the fee hikes would affect service to the V.I. De Lugo said he couldn't answer that but cited a letter Delta's regional manager for properties, Steve Houlder, had written to Brin.
Houlder told Brin that "Delta is evaluating a service reduction starting in February due to the proposed increase in rates and charges."
At the meeting last September, Lowell Dyer, American's St. Croix station manager for the last 28 years, told VIPA: "Within 60 days, we would close the St. Croix station. With the pullout of the cruise ships, this would be drastic. But that is a fact; that is what we would have to do."
Queries to local American Airlines offices on Wednesday afternoon were referred to AA spokeswoman Minette Velez in San Juan. Velez said she had not "basically" received official notice of the increase. "We will have to see finally when it comes. If there is a particular requirement, we will handle it as it comes in, as we always do," she said, adding that she would comment after receiving notice from the Port Authority.
The 25 percent rate increases break down as follows:
– Landing fees, to $3.13 from $2.50 per 1,000 pounds.
– Arriving domestic passengers, to $3.24 from $2.59 per person.
– Arriving foreign passengers, to $10.19 from $8.15 per person.
– Departing commuter passengers, to $8.70 from $6.96 per person.
– Department pre-clearance passengers, to $9.63 from $7.70 per person.
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