Fiscal Year 2008-2009 Budget Debate
Hon. Neko C. Grant I, J.P., M.P.
Minister Tourism & Aviation
Wednesday, June 11, 2008
I rise on behalf of the wonderful people of Lucaya to support and contribute to the Budget Debate of 2008/2009.
I wish to first thank the people of Lucaya for giving me the opportunity to represent them in this place. Lucaya and the members of Team Lucaya have stood by me faithfully over the past 16 years. With the help of Almighty God and their ongoing and unwavering commitment we will accomplish all of our goals.
I am pleased to report Mr. Speaker, that during the past 12 months we accomplished much in the Lucaya Constituency.
Work to rebuild the seawall destroyed in 2004 by hurricanes in Williams Town is progressing well with completion expected soon.
Reconstruction of the roadway, washed away during the hurricanes, is also in hand.
Other improvements in progress for the Williams Town area include building a board walk and public rest-room facilities which are expected to transform the Williams/Russell Town area when completed.
The allocation of $100,000 for the Constituency of Lucaya was invested in projects that will bring significant social, cultural and educational benefits to the residents of Lucaya.
These projects include:
Completion of two well equipped community centres, one in Williams and Russell Town and the other in Central Lucaya at a cost of $53,828.92. Free computer lessons will be given at the Lucaya Centre. We are also committed to spending $19,500.00 to pave the road in Imperial Park and install speed bumps in Royal Bahamia Estate and Imperial Park.
We donated $24,551.08 for computers and musical instruments to a school, church and community center in Lucaya. We wished to ensure that the music program, started 12 years ago in the constituency, continues.
We also contributed $2,100.00 to assist schools on Grand Bahama attending the Hugh Campbell Basketball Tournament in March 2008.
We still have much work to do in the Lucaya Constituency but we are well on the way.
I wish to take this opportunity to renew my election pledge to provide dedicated service on behalf of Lucaya constituents and vigorously defend and promote their interests and the interests of all Bahamians in the Commonwealth Of The Bahamas.
A recent newspaper article reported I was absent six times from this place. For the sake of posterity, and the benefit of my loyal constituents, I wish to note that I was away a total of five times on Government business as follows:
1. October 10, I attended the Florida Caribbean Cruise Association (FCCA) Conference in Cozumel;
2. October 22, I attended the Caribbean Tourism Organization (CTO) Conference in Puerto Rico;
3. March 3, 5, & 6 (three meetings) I attended the ITB Convention in Germany, arguably the largest travel trade show in the world.
As you are aware, my portfolio requires that I travel frequently in the performance of my duties.
The Government’s 2008/09 budget has already begun to excite and inspire our people.
In the relatively short time since the Rt. Hon. Hubert A. Ingraham presented the Budget Communication to this Hon. House on May 28, environmentalists, business persons, building contractors, and many members of the public, I have come into contact with, have lauded the Government’s fiscal vision for dealing with the current economic situation.
The local daily “The Tribune” in its editorial of June 3, 2008 “A Budget to profit Bahamians” noted, “Under this new legislation Bahamians are being empowered to preserve what they have, improve upon it and invest even further. Maybe this will now discourage the tendency to look to government for everything. Bahamians are now being empowered to look to themselves to improve their lives.”
I dare say this outpouring of positive public support for a budget presentation is unprecedented.
The almost instantaneous outpouring of approval by the public generally for the Government’s budget is a definite signal that we are on the right track to restoring “trust” in governance.
The primary voices raised in opposition appear to be sitting opposite.
It is very clear, for those who have eyes to see and ears to hear, that the Free National Movement Government cares about the welfare of the people. Not only do we care, but the people know that they can “trust” us to deliver for them.
That is what we are debating today, Mr. Speaker, the restoration of “trust”, as promised by the FNM, despite challenging global economic times.
It is difficult for me to comprehend the Opposition’s criticism of this particular budget which seeks to reduce the impact of rising prices on Bahamian families, especially those with low incomes.
Now is the time Mr. Speaker, for right thinking Bahamians to rally around all serious efforts to mediate and cushion, if you will, the shock of increasing cost of electricity, food, building materials and construction.
This is not the time Mr. Speaker for partisan politics.
This is not the time for political grand standing.
This is the time for men of courage and conviction to stand and be counted.
This is the time for those who love this country and wish it well to provide support where warranted and offer constructive criticism that will move us forward.
It is a budget designed to place The Bahamas in an advantageous position to meet the challenges ahead.
We are all, in a sense, victims of the sub-prime mortgage crisis in the United States coupled with skyrocketing oil prices which have implications for global financial markets and which are largely to blame for drastic increases in the cost of many items we use on a daily basis.
As a government of the people we have taken decisive action. I say that we are not late. That’s some other folks. We are right on time. Not only is this budget right on time but more importantly it is right on point.
The Prime Minister and Minister of Finance noted and I concur that “this budget has been crafted to take into account the international economic turbulence and uncertainty impacting so harshly on our own people and on the travel intentions of people wishing to vacation in The Bahamas.”
Measures designed to minimize the impact of rising costs on fellow Bahamians least able to afford it include:
1. An increase in the Department of Social Services Budget of some $7 million or 22 per cent over last year’s budget increase for a total of $13 million in two years. Some $3 million has been specifically earmarked for poverty alleviation this year.
2. The incentives provided under the new Family Islands Development Act which will allow individuals investing in 15 islands Duty Free and Excise Tax free importation of machinery for clearing of land for farming or construction or remodeling of a new or existing building.
3. Elimination of import duties on a number of citrus fruits as well as frozen vegetables, cereals, oatmeal and bread so our people can now eat healthy.
4. We are exempting personal computers, printers and software from current Stamp Tax and making them duty free for the benefit of our children.
5. Measures to reduce import duties on energy saving-home appliances are designed to encourage Bahamians to help with national conservation efforts and global “green” initiatives.
6. Significantly decreasing the import duty on hybrid vehicles from between 45% and 65% to 25 % to encourage the purchasing of smaller more fuel efficient vehicles on the overcrowded streets of the city.
7. We are eliminating the 2 per cent Stamp Tax on some 160 food items. While those opposite say this is only a small amount, every cent that the people in Lucaya and around The Bahamas do not have to pay, puts more money directly into their pockets.
8. We are also making it possible for Bahamians whose businesses cater to visitors to receive the same duty free concessions under the Hotel Encouragement Act for the construction, renovation, remodeling of their business premises, as does major foreign investors.
This is what caring governments do. They govern in such a way that seeks to meet the needs of those whom they serve.
I am therefore pleased to support this budget which as Prime Minister the Hon. Hubert Ingraham noted, “strikes a proper balance between appropriate fiscal easing that remains within the International Monetary Fund (IMF) requirements while maintaining fiscal discipline necessary to maintaining prudent economic policy.”
I now turn my attention to tourism.
The Ministry of Tourism & Aviation has been allocated $91 million, an increase of $9,261,642 or 11.3 % more than in 2007/2008.
We intend to use our funds wisely and to carry out our mandate to promote The Islands Of The Bahamas.
For the benefit of members of this place, members of the public generally and the leaders of various organizations, I regret that we will not be funding, or making generous contributions as was done in the past to non-touristic endeavors.
Despite the negative impact of the Western Hemisphere Travel Initiative (WHTI) and weakness in key segments of our major market, The Bahamas recorded an improvement in overall tourism output and expenditure.
According to the Central Bank Mr. Speaker, visitor expenditure improved as higher hotel rates and strengthening in other hotel performance indicators offset the contraction in overall tourism arrivals.
While total visitors fell by 2.9 per cent to 4.6 million in 2007, from 4.7 million and not 5 million, hotel sector performance indicators showed robust growth of 8.4 per cent in room revenue to an estimated $403 million, supported partly by the addition of high-end hotel rooms to the outstanding stock.
The first quarter preliminary figures from the Department of Statistics for 2008 show that visitor arrivals overall are up by 2 per cent boosted by the Out Islands tourism arrival figures which are up 16 per cent in the first quarter compared with the first quarter of last year.
Air and sea arrival for Nassau/Paradise Island were down by one (1) per cent while Grand Bahama Island was down 13.5 per cent. It should be noted that while GBI cruise passenger arrivals was down, the coming on stream of the Norwegian Cruise Line vessels in the first quarter of the year served to slow the decline to 7.5 per cent by all ports of entry.
However Air and Sea arrivals were up in Andros 8.7 %, Berry Islands 32.2 %, Bimini 30.3 %, Cat Cay 26%, Cat Island 16.1%, Eleuthera 4.2%, Inagua 40.7%, Half Moon Cay 37.3% and San Salvador 0.4% compared to the same period in 2007.
Let me state up front and unequivocally that when it comes to tourism, and the numbers bear this out, The Bahamas remains a leading destination in our region, and the Bahamian tourism industry remains among the top in terms of innovation in our tourism landscape.
Make no mistake however, that our market share whilst strong, has given up some ground to emerging and other destinations in our region, as more and more national economies continue to grow the levels of resources that they dedicate to industry building.
Tourism is indeed a global business with a track record of successes in every corner of the world, and our regional neighbors are no different than the many others, who are aggressively pursuing the economic benefits of this proven business.
Increased international demand Mr. Speaker, domestic market maturation, and the globalization of trade have led to a surge in geographic expansion by U.S.-based companies. The introduction of Las Vegas-style resort casinos will likely continue to drive significant revenue growth in Asia Pacific, where casinos and other regulated gaming are projected to grow from $14.6 billion in 2006 to $30.3 billion in 2011. Since being converted into a destination resort and convention center in 2006, Macau – a city on the southern coast of China – has overtaken the Las Vegas Strip as the largest gaming market in the world.
With China’s growing affluence, improved internal travel networks, and hosting of two major global events – the 2008 Beijing Olympics and 2010 Shanghai World Expo – the hotel market in this region is expected to soar. The number of internationally branded hotel rooms is predicted to grow a total of 76 percent in Shanghai from 2007 to 2010, and more than double in Beijing by 2009. In South India, as many as 133 hotel projects are being planned, with targeted completion by 2010.
Expansion is also occurring in less-talked-about markets such as Russia, where gross domestic product (GDP) per capita is growing at a rapid pace and citizens’ wages have been increasing by 25 percent per year. Russia is now the twelfth largest retail market in the world, and Moscow has been ranked as the most expensive city in the world two years in a row. Looking ahead, expansion is sure to continue, as the Russian Black Sea resort of Sochi has been chosen to host the 2014 Winter Olympics.
The sheer volume of individuals traveling across borders, combined with the health and safety issues that accompany this, are requiring greater focus, and public health resources. The challenge for destinations is protecting customers while managing escalating costs and enhancing the travel experience.
The emergence of the discount-fare airline carrier has provided consumers access to a broader range of destinations, at significantly discounted fares. As a consequence, there is fierce competition from major US cities to increasing numbers of destinations throughout the Caribbean and Latin America.
Furthermore, we have a cruise industry which continues to enjoy a very strong share of consumers as passengers, compared to the stopover market, underscoring the preference of this majority segment, for the convenience of lumping us all into the single homogenous destination of the Caribbean.
So in many ways, there are a lot more of us competing for the same consumers.
In our region, and as is the case in any situation that suggests a ranking of group counterparts, our leadership position is under threat on a daily basis, as our competitive field broadens and competition becomes more intense, in an industry that rewards diversity and distinction.
The Bahamas’ successful tourism marketing efforts for attracting new visitors must be supported by further national infrastructure development, followed by equal attention to precise definition, development and improvement of The Bahamas’ tourism product.
It is important to point out that this budget includes relief for taxi, livery and omnibus franchise holders in the form of duty free importation of new vehicles every five years.
This is to ensure that they are able to upgrade the tourism transportation product and better develop their business services.
The visitor experience requires input, coordination, and packaging of a destination’s cultural heritage product, inclusive of entertainment, arts, crafts and various indigenous handiworks.
How do we do that?
The hotel sector has been supported by a Hotels Encouragement Act. The Government has amended this legislation to support and encourage our entertainers, musicians, artists and artisans and other entrepreneurs who understand the tremendous potential of this industry. We wish to help those constituencies to find their place and purpose in the larger scheme of things.
How long in this country have we talked about anchor developments throughout our Bahamas? And how long have we neglected downtown Nassau, which irrefutably anchored this industry from its early inception. More than 2 million of the 3 million cruise passengers to the country arrive via Nassau’s harbor visit downtown Nassau.
Passengers which I hasten to add, grossly under-spend by comparison with the average visitor at other regional ports by roughly $36 per person.
Are you aware Mr. Speaker, that despite boasting among the largest volumes of cruise arrivals in our region in any given year, when it comes to the average per passenger expenditure on shore, we don’t even measure up to the industry average. An average that has been attained and even exceeded by destinations far less experienced, and with far less to offer than we potentially have.
The average passenger spend in the region is $100 per person compared with $64 in The Bahamas, a difference of $36.00 per passenger or some $97,263,900.00 on an annual basis.
Imagine if we were to increase passenger spend on shore from $64 per person on average to the regional average of $100 per person, total passenger spend would jump from $172,913,600.00 to $270,177,500 million dollars overnight. This represents more money directly into the pockets of taxi drivers, venders, merchants, hair braiders, tour operators, and restaurant owners.
This shortfall translates into one of our industry’s most significant examples of opportunities lost. Some might even say squandered.
So with at least 2 million cruise passengers each year, having immediate access, downtown remains very relevant and very critical to our industry’s competitive success.
But downtown of course is exceptional compared to key resort areas, in that it comprises a mixed bag of owners and retailers, and offers a range of business and professional services. Thousands traverse its streets every day, but it is indeed very much a shell of what downtown used to be during the industry of years past.
Those of us in this place, sufficiently mature to remember, may recall the vibrant night life of yester-year that Nassau was famous for. Duke Leroy Stephen Hanna in a feature in the Nassau Guardian on June 4, 2008 spoke eloquently about the artistic and cultural contributions of Bahamian greats such as Becky Chipman, Paul Meeres, Sweet Richard, Abbie LeFleur, King Eric Gibson to tourism. Off course there were many other outstanding Bahamians who helped to create an active nightlife over-the-hill and the environs of downtown, Nassau.
Today, we have three or four cruise ships in port at Prince George Dock overnight. The vessels are ablaze with light and life, but Bay Street devoid of entertainment and in darkness culturally. Downtown needs to come alive in the evenings.
The Government proposes to enact legislation which will cause for the redevelopment and revitalization of downtown Nassau. We will define it by clearly defining where downtown Nassau begins and where it ends. Such zoning would permit the attachment of certain property owner and maintenance standards, regulations and obligations.
For the American consumer, the weakness of the US dollar makes foreign travel more expensive, particularly to areas like Europe and Australia. The Australian dollar has also appreciated more than 10 percent against the US dollar. Because of nothing other than currency fluctuations, travel to Australia (Americans’ dream vacation) has become 10 percent more expensive.
A recent tour operator survey suggests that for Americans a significant switch may be underway among consumers who are increasingly intimidated by the exchange rates governing their planned European vacation costs but unwilling to cancel their overseas holidays entirely. This then represents an opportunity for the Caribbean and The Bahamas.
Ordinarily, the stagnant U.S. economy by itself would be cause for concern about negative impacts on our tourism business, but this is exacerbated by the fact that there are still millions of Americans who do not yet have passports and now cannot afford to get them. Further, it is typical for Americans to stay close to home during a Presidential election year. All of these factors coming together at the same time, present an unprecedented challenge for our business.
At the same time, there is more opportunity for The Islands Of The Bahamas (TIOTB) than for the rest of the Caribbean to convince those Americans with passports, and who are least affected by the prevailing economic conditions to take an off-shore (foreign) vacation close to home. It is acknowledged that pricing will be important, so that these consumers feel that they are getting good value from a Bahamas vacation, particularly because other more distant destinations will be discounting with promotional offers.
The European market has responded to the region’s offer, as currency exchange favours their outbound travel. The search for and retention of a new advertising agency in the U.K. will enable fresh thinking and new approaches for TIOTB during this period of favourable currency values. The addition of new service in November 2008 by XL Airlines from France to Nassau is very important to the growth objective.
We have determined that there are some critical success factors for our industry this coming fiscal period.
The critical success factors include:
Product Development/Tours & Entertainment.
Communications/Public Relations & Advertising.
Tours & Entertainment
Now more than ever, the sites and facilities frequented by visitors need to be refreshed, upgraded, beautified and maintained. The environment has to reflect the value that we want to assign to the Bahamas tourism product. We therefore expect to expend $3,090,000 to assist with necessary improvements in this area.
New Tours / Activities
The creation and implementation of new sightseeing tours and new attractions and entertainment activities are critical to our objective of generating maximum revenue from tourism. They are also critical to our need to be more competitive, as more and more visitors are seeking experiences that are meaningful to them and that allow them to interact with the natural environment.
The issue of safety and security Mr. Speaker, is a very important consideration in the selection of a vacation destination and in the enjoyment of that destination. Initiatives that create a safe environment, from the perspective of a sense of personal safety, to health standards that ensure food safety and wellness, will be given much attention.
It is becoming increasingly clear that declining service quality is preventing TIOTB from being as competitive as it needs to be. It is not helpful to have a reputation for high prices and indifferent, or unprofessional service delivery.
We must change this.
Improved Welcome & Departure Experience
Given the current environment where consumers will make deep, considered decisions about a vacation, a concerted effort needs to be made to have visitors feel as though they are truly being welcomed by the destination at the various ports of entry, and the departure experience should be as pleasant and emotive as possible, to encourage return visits. This will be accomplished through personal greetings, music, signage, video, etc.
In view of the important role played by ports of entry as security filters, travelers are spending more time in airports and sea ports. They should therefore reflect the requirements of today’s traveler with respect to comfort, technology, dining options, shopping, etc.
We also have had the benefit of experience that has taught us that visitors enjoy on-island events in their vacation destination. Events such as Festivals, Fairs, Regattas, Mr. Speaker, allow visitors the opportunity to interact with local people and experience all things Bahamian – music, food, craft items, celebrations such as Junkanoo are important for us to provide throughout TIOTB to enhance the visitor experience.
We will focus on:
o Events that must have a built-in visitor attendance – events that have the elements that are proven to be of interest to visitors, and events that are held in appropriate locations that are accessible to visitors
o Events that can be held at the right times in order to maximize visitor attendance, e.g. Winter months, July/August; we will also look at seasonal events to create excitement surrounding specific seasons such as Easter, Independence (US), Thanksgiving, Christmas, etc.
o Authentically Bahamian Product Events – such as the ‘Christmas Craft Show’ which are exceptionally popular with visitors, are to be held with more frequency, given their potential to generate revenue directly into the hands of producers who are small businesspersons.
We will make Industry Training more available to more groups in more places and islands. The most requested assistance from the MOT by the industry is for training – Bahamahost training as well as Customer Service Training. In order to meet the demand throughout all of the islands, it will be necessary to:
Put Bahamahost online.
Use more MOT managers to train by “roster”.
Develop a program to stimulate and excite our young people about the tourism industry by showing successes, and making the industry/business relevant to them as a career choice.
Influence “integration” of dissimilar tourism/technical/vocational training programs. The tourism industry needs to ensure that the available programs that train for knowledge and skills are relevant for today’s tourism. Further, there needs to be an aggressive effort to ensure that every high school graduate has access to an appropriate programme that will equip him/her with sufficient skills and knowledge to become employable by the industry.
Improve staff training opportunities. The staff of the MOT must also be trained, certified and exposed to best practices, through courses, internships, online learning, etc., in order to be as effective as possible in the face of the challenges of managing this dynamic business. New staff members must undergo intensive orientation, which should be inclusive of internships throughout the private sector, in order to improve their effectiveness. COMMUNICATIONS
(Advertising & PR)
We will spend some $29,560,792.00 to produce and place new advertising and public relations campaigns in the US, UK, Europe and Canada with the heaviest possible schedules to give us the most consistent message in the marketplaces where we can influence the consumers’ decision to travel. Some retail and public relations efforts will also be undertaken in China and possibly India, to coincide with the easing of visa applications for these citizens.
We will improve online communication through www.bahamas.com and other MOT sites – it is indisputable that visitors go online first to find information about potential vacation destinations, so TIOTB needs to have the most current, extensive information available online. MOT will also engage in more monitoring of social networks and what consumers are saying about their Bahamas vacation experiences, so that we know what to fix.
Community outreach communications programmes are important in order to inform and engage the public in the tourism business; these forums are to include industry partners and the Ministry of Education. We will also expand the successful local Tourism Awareness campaign which is a multi-media effort, as well as the Domestic Tourism Programme.
The successful Visiting Journalist Programme will be increased Mr. Speaker, to allow more writers and photographers to visit our multiple destinations, and the itineraries developed to be more varied to reflect the niche interests of our changing consumer, such as Adventure travel.
The Sales staff will focus on major producers of business to TIOTB. These producers are both online and “bricks and mortar” operators/agencies. The staff will:
o Engage in all forms of marketing activities with producer accounts, inclusive of retail advertising, online advertising, e-mail blasts, etc.
o Engage the Communications Department to support sales efforts based on an agreed communications strategy
o Re-focus efforts on the primary Latin American markets of Mexico, Argentina, Brazil, Venezuela, where their economies are sound enough that their citizens would respond to our sales messages. Our goal is to drive airlift from a couple of these key markets as we stimulate demand for The Bahamas.
We are aware that the Latin market enjoys high-end shopping, casinos, gourmet cuisine, wines, etc., so we are satisfied that we have an opportunity to influence their decisions in our favour, by working with the right tour operators, and creating the right packages.
o Ensure that more Bahamian destinations and support businesses are “book-able” by these producer accounts, in order to achieve the key objective of increasing and expanding the distribution of income from tourism.
o We will focus on key vertical or special interest markets, consistent with the lifestyles of today’s discriminating consumer. These include soft adventure activities, but also the more traditional pursuits of Boating, Fishing, Private Aviation and Dive. These pursuits are particularly valuable to the Family Islands, and often drive their summer business.
The cruise industry continues to be important for certain key sectors of our society. It will be important for us to provide reasons for the millions of cruise visitors coming to and through our ports to spend more money within the country, on more varied shopping products, new sightseeing tours, new entertainment activities, etc.
We need to provide incentives to the cruise lines, in order to maintain and then grow the business, in view of the growing popularity of European and Latin American cruises, which have been siphoning business away from the Caribbean. It is now an open secret Mr. Speaker that the cruise lines need to receive incentives in order to rationalize positioning their ships, to deliver incremental numbers to the Caribbean or The Bahamas. We have therefore allocated $3,450,000.00 for incentives in this regard.
Some $5,874,000.00 will be spent in view of the disappearance of the competitive edge formerly held by TIOTB with respect to the low fare carriers, as they have expanded into the wider Caribbean, and the exceptionally high cost of fuel which is putting tremendous pressure on all carriers, but especially the legacy carriers due to their aged and fuel-inefficient fleet.
We are faced with the reality of spending considerable funds on airlift support, in order to encourage carriers to add more routes and maintain existing routes.
It is very clear that short-haul routes like The Bahamas need to mitigate potential losses by the carriers, and as such we need to be able to augment their marketing programs, as well as cover losses on weak seasonal load factors.
A related challenge we face is the higher turn-around costs at our airports, which have to be mitigated by us in order to at least maintain service.
Marketing Heads Of Agreement (HOA) – Subventions
Since the late 1990’s, the marketing subventions granted to investors have been housed in the Ministry of Tourism’s budget. Some $10,000,000.00 is allocated for 2008/09.
As new investors have come to formal agreements with the Government, the increased level of commitments to these investors continues to impact our budget. It should be noted that these sums are spent without the input of the MOT, and as such, we are not able to influence the degree to which their spending directly supports our key consumer messages. In the next fiscal period, the following have been allocated:
Isle of Capri $2,000,000.00
Some $16,304,287.00 has been allocated for personal emoluments in order to maintain the staff complement within The Bahamas, the USA, Canada, UK & Europe.
During this year’s budget exercise Mr. Speaker, I discovered that 12 employees were not properly engaged in that financial clearance was never sought or received for their employment. They were not being paid from the personal emolument line item. They could not receive letters of employment to satisfy financial institutions like an ordinary employee. The total amount being paid to these employees was in excess of $500,000.00 per annum. Some of these employees have been on the job for almost three years and were left in a state of “limbo”.
This was indeed sad, and no caring government would act in this manner.
Overhead & Operational Charges
Other overhead and operational charges are allocated $22,388,244.00
I wish to again commend the hard working staff at my Ministry who carry out their responsibilities under distressing and stressful conditions since fire destroyed the Ministry of Tourism offices on Bay Street in 2001. Seven years later, tourism’s staff on New Providence remains scattered over eight (8) different locations including the former Bolam House building which was purchased for $4.25 million, a multi million dollar disgrace. Some $650,000 has been allocated to complete renovations in this year’s budget. We are grateful.
The proposed rehabilitation of the Down Town Fish Fry at Arawak Cay, particularly the provision of security lighting, upgrading of parking facilities and improvement to the bathroom facilities are indispensable measures for the enhancement of this area which has become a popular venue for residents and visitors alike.
I therefore wish to commend the Ministry of Agriculture and Marine Resources for taking the initiative to ensure a safe, healthy and clean environment at Arawak Cay for the benefit and enjoyment of all.
I welcome this opportunity to make a statement regarding the Budget as it relates to Bahamasair. As you know, in the Prime Minister’s Budget presentation to the House he declared that the funds allocated for the operation of Bahamasair for the next fiscal year was capped at $28M. In fact he emphasized that he did not expect management to come back for any more.
In order to have a full appreciation of what Bahamasair’s Budget represents we must look at it in a historical context and it is particularly appropriate to do as we are recognizing the 35th anniversary of the creation of Bahamasair.
Suffice it to say, Bahamasair since inception has never turned a profit.
I think it is important to say that at the formation of Bahamasair and prior to the commencement of operating, the mandate issued was two fold.
1) To provide the Bahamian community with cost-effective air transportation within the Bahamas – a service which is indispensable to the social and economic infrastructure network of this archipelago.
2) To obtain a share of the tourism market and act as a mainstay when the Country is faced with reduction or discontinuation of services by other carriers.
There is no one inside or outside of this chamber who does not recognize that the airline industry throughout the world is in crisis. There is an ever increasing number of news reports and releases that clearly describe financial woes of the industry and some of the draconian measures to be taken to ensure the survival of various airlines.
Here is a quote from James Doran – of the Observer made on Sunday, May 25, 2008 “airlines in America are closing down or going bankrupt at a rate of one a week as the rocketing price of oil prices forces the industry to its knees and calls into question the very viability of commercial air travel.”
Among the fatalities was Aloha Airlines, a regional carrier based in Hawaii for more than 60 years which closed on March 31, 2008.
Aviation fuel increased by 98 per cent over the past year and now account for about 40% of airline operating costs.
United Airlines is slashing jobs – line, contract and management employees. It will ground its entire fleet of 94- Boeing B737’s and 6-747’s. It is also scrapping its coach only “Ted” (low cost carrier) service and reconfiguring those planes to include first-class seats.
The bad news on the global industry continues unabated.
American Airlines (AA) revealed May 21 that it will reduce its US domestic capacity 11 to 12 per cent in the fourth quarter of 2008, retire at least 75 mainline and regional aircraft and charge most coach passengers $15 for their first checked bag.
The short AA flights from Miami, Florida will carry a penalty of $80 round trip for passengers traveling with two (2) checked luggage for leisure carriers on top of fuel surcharges and higher fares.
American’s CEO Gerard Arpey noted at the time that, “the airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel and certainly not when record fuel expenses are coupled with a weak U.S. economy.”
American Eagle also announced plans to reduce flights to Puerto Rico by 50 % and terminate 360 employees in that country. They are also reducing flights from Puerto Rico to St. Croix by 60 % and to St. Thomas by 30 %.
Singapore Airlines is seeking to sell its 49 % interest in Virgin Atlantic.
As recently as June 3, Spirit Airlines, a carrier that serves The Bahamas, notified Union Leaders that come August 1, there could be substantial reductions in its work force and a number of its bases closed.
The low cost carrier is expected to lay off up to 448 or 60 percent of its flight attendants and as many as 242 or 45 percent of its pilots in two months as the airline closes its New York, LaGuardia and San Juan bases and reduces its Fort Lauderdale base.
Given the global situation I can say without fear of contradiction that the situation with Bahamasair is equally as perilous. We are faced with a significant number of complex challenges which seriously impact our financial resources, not least of which is the ever increasing cost of fuel.
With regard to the fiscal year 2008/2009, the Government has taken the decision to limit its injection of cash into Bahamasair at $28M. You may recall that the subventions for 2007/2008 totaled $22.3M. Given the volatility of prevailing operating conditions within the industry and which directly and indirectly affect Bahamasair, there can be no doubt that the Board and Management will be seriously challenged to live with its budget.
It is therefore incumbent upon Management and the Board to examine every opportunity for revenue enhancement and cost containment and thus be self-sufficient beyond Government’s financial commitment.
Be assured that all such matters will be under constant review and where changes have a direct impact upon the traveling public appropriate notices will be issued.
The point that I make Mr. Speaker, is that Management has been charged seriously with examining every aspect of its operations with the intent of reducing costs, improving revenues and to do so without causing a deterioration in customer satisfaction nor causing a diminution of our competitive position in the industry.
Escalating fuel prices is of major concern to the airline as it is with all airlines today. Some airlines had the foresight to arrange for hedging against escalating fuel prices and have benefited for awhile but such an exercise is costly. At Bahamasair it was a matter that was placed under consideration and we were able to obtain advice from experts within the market and we looked at options available to us. However, in the context of the volatility in this segment the cost was prohibitive and the risk too great. The decision was taken not to proceed. To have a sense of escalating oil prices in January 2007 fuel was at $2.15 per gallon, today the fuel cost is $4.56 per gallon an increase of over 100%.
The Government believes that a National Flag Carrier is critical and will remain critical to the provision of air transport within the country. Further if the National Flag Carrier is going to remain reasonably stable and to have the opportunity of becoming viable, it is important that management, staff and union leaders have full understanding of circumstances and make a very firm and uncompromised commitment to work in concert to get the best result for the National Flag Carrier in the short, medium and long term. There can be no doubt we are at the cross roads and the way forward must be the transformation of Bahamasair into a business that is successful and of which the country can be proud.
There is no easy fix but a strategic plan will be developed that is relevant to the needs of The Bahamas.
I can assure Members and the Country that the Government is very concerned with the affairs of Bahamasair and that there will be no rest until we get a National Flag Carrier that operates as it should.
Lucaya supports the budget.