Air Jamaica has placed its hopes for a profitable share of the Caribbean tourist market on a new Montego Bay hub
Normally sober Delta Air Lines caught the mood of the moment, with an impromptu tie-swapping ceremony that sparked the spirit of celebration at the 30 June inauguration if Air Jamaica's Montego Bay hub. Delta executive vice-president Harry Alger exchanged neckwear with Air Jamaica chairman Gordon "Butch" Stewart, jokingly describing Stewart's flamboyant tie as a "monstrosity". The ceremony marked the signing of a letter of intent to pursue a co-operation agreement which Stewart hopes "…will serve the new hub.
Creation of the hub is a bold move for Air Jamaica in its battle to challenge American Airlines' dominance in the Caribbean. As evidenced by the array of Caribbean heads of state who attended the hub's inauguration, the airline has wide local support for its bid to wrest control of the region's all-important tourist industry from a foreign carrier.
Caribbean governments received a rude awakening in February when the threat of a pilots' strike exposed the region's dependence on American. Some of the islands faced a total loss of international air service had American stopped flying, with dire consequences for the tourist trade. "We have come to rely too heavily on one extra-regional carrier," says Barbados prime minister Owen Arthur.
Air Jamaica's renaissance comes as the Caribbean economic community (Caricom) is moving towards a single market. Jamaican prime minister (and Caricom chairman) P J Patterson believes that Air Jamaica has a key role to play in regional integration, as the Caribbean states strive "…to increasingly see ourselves more as partners in the field of tourism, rather than competitors."
This accords with Stewart's vision of how the Montego Bay hub will allow Air Jamaica to offer multi-destination vacations. America's point-to-point network, centred on Miami and Puerto Rico, makes it difficult for holidaymakers to visit more than one island, he argues. The Montego Bay hub, linking US gateways with several Caribbean destinations, will make island-hopping easier, Stewart says.
Tourism first
Stewart, a hotelier who led the Jamaican investor group which acquires 70% of Air Jamaica when it was privatised in 1994, understands the importance of tourism to the region.
Since privatisation, his airline has won back the majority share of Jamaican-national traffic, lost to American because of the state-owned Air Jamaica's notorious unreliability. Now his target is to take a major slice of the tourist traffic, and his weapons are the Montego Bay hub and a marketing agreement with Delta.
While Jamaican-national traffic flows mainly to the capital Kingston, Montego Bay is the centre of the tourist industry - and the location for more than one Sandals resort. For this reason, it was chosen as the hub for Air Jamaica's revamped Caribbean operations. By US airline standards the hub is modest - flights from the nine US gateways are scheduled to arrive by 10.30am local time to connect with services to Antigua, Barbados, Grand Cayman, Nassau, St. Lucia and Turks & Caicos.
Creation of the hub required substantial changes at Montego Bay Airport, which were accomplished within two months. "If you had seen the airport six weeks ago, there is no way you would have thought that what we proposed could have happened," Stewart said at the inauguration. Jamaican prime minister Patterson says "considerable sums" have been invested by the Government to improve the airport and retrain personnel, as part of a "major expansion programme" now under way.
Air Jamaica's Airbus A310s are used mainly on the longer and higher-density routes, while the airline's smaller A320s and McDonnell Douglas MD-83s are also used on intra-region connections This increases aircraft utilisation, which is another key goal behind creating a hub at Montego Bay. "The hub gets the utilisation of our equipment up to a level that can make Air Jamaica profitable," Stewart says.
Increased utilisation is required to offset the debt Air Jamaica has accumulated since privatisation. That debt, which Stewart puts at over $50 million, is the result of operating restrictions placed on the airline in 1995 by the US Federal Aviation Administration, after the Jamaican Government's safety oversight was judged inadequate by the FAA's International Aviation Safety Assessment team.
The Category 2 rating imposed on Jamaica effectively blocked the newly privatised airline's plans to open new US gateways and introduce new aircraft. Air Jamaica's operating certificate was frozen, preventing the carrier from adding routes or aircraft, according to president Albert Chappell. Among the operating restrictions imposed is a take-off visibility requirement at New York that has resulted in the delay or cancellation of hundreds of departures.
Air Jamaica worked to overcome the operating restrictions by wet-leasing aircraft from US operators to open new gateways, but its efforts have not been wholly successful. Believing the Category 2 problem would be short-lived, its initial leases were short-term. When it realised that the restrictions would not be removed quickly, the airline negotiated longer leases, with the aircraft to be painted in Air Jamaica colours, Chappell explains. Unfortunately, the first such deal fell through when the operator chosen, NationsAir, fell foul of the FAA.
A second, 18 month deal was negotiated with Great American, covering two MD-83s, but this operator also encountered problems with the FAA. As a result, Chappell says, Air Jamaica has acquired the two aircraft, which are leased from Ansett. They have been subleased to Mexican carrier Allegro, which is wet-leasing the aircraft back to Air Jamaica. Allegro is supplying the flightdeck crews and Air Jamaica the cabin crews. Once Jamaica is re-rated Category 1 - fully compliant with international safety oversight standards - the aircraft will be transferred to Air Jamaica's operator's certificate.
Inadequacy acknowledged
While Stewart acknowledged that the Jamaican Civil Aviation Authority was inadequate, he is angered by the FAA's refusal to help put things right. "It was supposed to be a 30-day problem," he laments. Jamaica now hopes to be re-rated Category 1 by August. Sufficient progress has been made so far for the FAA to agree to allow Air Jamaica to begin substituting its own aircraft for wet-leasing equipment, on a "one in, one out basis," says Chappell.
The damage done to the airline by Jamaica's Category 2 status is substantial. When the yet-to-be-incurred costs of recovering traffic lost to American are factored in, Chappell estimates the operating restrictions will have cost the airline around $100 million. It is clear that Stewart came close to asking the Jamaican Government to take back its airline. Now, with the creation of the Montego Bay hub, he sees an opportunity to move into profit.
With the hub operational, Air Jamaica is moving ahead with other plans. Its first priority is to acquire two long-range aircraft to replace A310s used on routes to Europe. The choice is between the Airbus A330-200 and Boeing 767-300ER, Chappell says. The A310s will be retained, and used on other routes, he says. The airline has six A310s and four A320s. Options on two additional A320s will not be exercised, Chappel reveals, as Air Jamaica has acquired the two MD-83s. Instead, a fleet-rationalisation study has been started.
Another major initiative is to achieve some degree of integration with the Caribbean's other carrier, BWIA International Airlines. These efforts have the support of the Jamaican Government, which still holds 25% of Air Jamaica. "Above all, the question of co-operative agreements among regional carriers must be a priority issue," maintains prime minister Patterson, who praises an operating agreement signed by the two airlines.
Chappell says the agreement covers five areas, including joint ground handling and fuel purchasing. Air Jamaica has employed BWIA A321 crews left idle after the airline subleased its aircraft to another carrier. Whereas previous attempts to reach an agreement with BWIA foundered on issues such as ownership and livery, Chappell says the latest talks are staying away from such contentious areas, at least initially. The negotiations were given impetus by the threatened American pilots' strike, he says, and by the Caribbean governments' resulting desire for a strong regional carrier.
The Government of Trinidad & Tobago, which still holds a stake in BWIA's post-privatisation ownership structure, which brings together Caribbean and US investors with different priorities, remains the stumbling block. "The carrier is being pulled three ways," one official says. Air Jamaica, in contrast, is Caribbean-owned and is undoubtedly being seen as the focus for the creation of a strong airline for the region. Barbados is vocal in its support, having already granted Air Jamaica flag-carrier status.
"Air Jamaica is our national carrier," says prime minister Arthur, revealing that Barbados is seeking an equity stake in the airline. Insiders suggest any such stake would most likely have to come from the Jamaican Government's remaining shareholding in the airline.
Delta emerges ahead
A key element in Air Jamaica's strategy is the successful negotiation of a marketing agreement with Delta, which Stewart hopes to have in place by September. Chappell says that negotiations were conducted with several airlines, including United, but Delta made the best offer. The US airline already has a contract to provide maintenance, operations and training support for Air Jamaica's A310s, having reconfigured and repainted the ex-Pan Am aircraft for delivery to the Caribbean carrier.
Alger says the eventual agreement "…is going to have substance. We want it to be successful." Interestingly, Chappell reveals that, while negotiations were underway with potential partners, no mention was made of plans to establish the Montego Bay hub. "We wanted them to love us for what we were, not what we could be," he jokes. Chappell says Delta executives "fell off their chairs" when plans for the hub were unveiled after the deal was struck.
Stewart says an agreement with Delta will make Air Jamaica "a world airline". He believes the carrier has delivered on the promises made when it was privatised, improving efficiency, renewing the fleet, opening gateways and adding flights. The next step is to expand the Montego Bay hub, adding services to Latin America, Cuba and other Caribbean destinations, as well as more flights to the USA and Europe. "The potential of the hub is only limited by our imagination and our efforts to make it work," Stewart says.
For Air Jamaica, the Montego Bay hub is a bold and risky adventure that represents perhaps the only way the airline can become profitable and challenge American Airlines.
Source: Flight International
