87.7 F
Charlotte Amalie
Wednesday, June 12, 2024


It's simple economics, and we choose to ignore it: Airlines, like every other business, are in business to make money. Their income is made up of passengers and cargo. The number of passengers and pounds of cargo multiplied by their applicable fares or tariffs represent their income. Their expenses are made up by their indirect overhead and direct costs such as fuel and airport fees. The difference is their profit or loss, and it's simple economics.
Edwards & Kelcey, an air service consulting firm from Morristown, New Jersey, was recently contracted by the University of the Virgin Islands to perform an Air Service Marketing and Development Strategy study for the territory. This was not the first time this type of study has been done. This was not the first time that many of the recommendations were made.
According to the E&K study, airfares to the Virgin Islands are in line with similar-length trips within the states. The study didn't compare fares to other Caribbean destinations. That is unfortunate, as Caribbean countries with their own national air carrier (Air Jamaica, Bahamasair, Air Aruba, etc.) can effect lower fares through government-subsidized competition.
I did a similar but smaller-scale study 15 years ago as an airline representative on the St. Croix Hotel & Tourism Association board. When the airfare per mile was figured, St. Croix was just about even with other Caribbean destinations. Sure, the airfare to the Bahamas from Miami is going to be lower; it's a 30-minute flight versus two and a half hours.
So if the fares aren't part of this mix, the number of passengers is the only variable left in the income equation (ignoring cargo). There may be a perception of a lack of hotel rooms on St. Croix, but with an average occupancy this past season of around 50 percent, there were plenty of available hotel rooms — just no one who wanted to stay in them.
Why there's no demand as a destination
The average Caribbean hotel occupancy was 75 percent for the same period. How can a United States Virgin Island not do as well as other non-U.S. Caribbean destinations during a season in which the United States was at war? There's no demand for St. Croix as a destination, either by air or by cruise ship, and that is due only to the lack of actively and correctly marketing St. Croix.
On the expense side, the airlines have the same indirect expenses (reservations, administration, etc.) no matter where they're flying. Fuel, maintenance, crew costs and airport fees are their direct expenses. Fuel, being cheaper on St. Croix, should be a huge selling factor for us. Maybe the government could consider waiving any taxes on aviation fuel purchased by a major airline on any current or future scheduled or charter flights to St. Croix.
It's not as if the government would be losing any taxes (other than on the AA Miami flight — assuming it keeps flying here), as the flights would not be operating here if it weren't for the tax break. Crew costs are handled by union negotiations and through cost-cutting moves such as American was forced to take in the Virgin Islands.
The last of the expense variables, airport fees, although representing only 4 percent of costs to the airlines according to the E&K study, are one of their best bets for attempting to cut costs and stem losses. Many destinations facing a reduction or loss of air service have chosen to reduce the fees the airlines must pay.
A 25 percent increase in fees (some are more, once you do the math) could be swallowed on St. Thomas (and in fact was with only a slight reduction in service) as the demand is much higher. However, St. Croix , already struggling under a lack of identity, demand, viable advertising campaign, etc., couldn't possibly hope to get away with raising those fees.
USAirways has already made its position known by canceling the daily shared flight from Philadelphia. By the time this is published, I'm sure we'll have heard that the once-a-week flight from Charlotte is gone. Sooner or later, no matter how high the fees, you're still multiplying by zero flights, so the answer will always be zero. (The same thing can be said about tax increases).
I would have liked the Edwards & Kelcey study to compare the costs of airlines to operate here versus other destinations in the Caribbean. We have to understand that some other Caribbean airports have the advantage of being able to charge a "departure" tax of up to $20 to cover airport operating fees. Unfortunately that's something prohibited by the Federal Aviation Administration for U.S. airports.
The Port Authority is proposing to waive fees for new service to the islands. I think if I were one of the airlines already serving the territory (at a below break-even load factor, according to the study), I wouldn't be overly happy about having competition being wooed in and given a competitive pricing advantage.
Who's the common denominator here
According to the staff at Edwards & Kelcey, many of the airline officials interviewed were dismayed at the way the fee increases were handled, citing little or no lead time on the hikes. The chair of the Port Authority board, Pamela Richards (also commissioner of Tourism), blames the airlines for not "passing the word up the chain."
She said the Port Authority notified the station managers at each of the airports about the increases. With all due respect to airline station managers (and I'm good friends with several current and past ones here), if the only liaison the U.S. Virgin Islands has with the airlines is through their local station managers, it's a wonder we have any air service at all.
We should concentrate on keeping the service already provided by the current major airlines for St. Thomas and giving them the incentives to increase service to St. Croix. We can affect two of the variables: increasing demand for St. Croix as a destination (that's the job of the Tourism Department) and reducing the airlines' expenses for operating here (that's the job of the Port Authority). There is a common denominator here: the commissioner of Tourism who is also the chair of the Port Authority board.
At a time when some airlines, such as US Airways, are expanding in the Caribbean, it is beyond belief that St. Croix, a U.S. territory, can't even keep its current level of service. We've got to market St. Croix; something that a private sector-based Tourism Authority would be more adept at doing. We have to have a full-time liaison with the airlines. We have to give the airlines incentives to fly to St. Croix, such as cheap tax-free fuel and reduced airport fees.
It may be too late to get a USAir flight back to St. Croix by this winter, but it's not too late to keep the American flight here.

Editor's note: Ed Buckley the owner of St. Croix Ultimate Bluewater Adventures, vice president/marketing of the St. Croix Chamber of Commerce, vice president of the Christiansted Restaurant and Retail Association, vice president of the Virgin Islands SCUBA Retailers Association and former vice president/marketing of Aviation Associates (d.b.a. Eastern Express and Sunaire Express). He is an executive committee member of the committee that reviewed, interviewed and chose the consultant for the current air arrivals study.
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