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The big question on that Air Jamaica Heathrow deal
Diane Abbott
Sunday, June 03, 2007
Air Jamaica has now belatedly admitted that it has sold off its Kingston/London route to the British airline Virgin Atlantic. But this came well over a week after Virgin had proudly announced the news in London. And there are still questions to answer, in particular, where does Air Jamaica go from here?
Diane Abbott
The most striking thing about the whole episode was the apparent reluctance to come clean with the people of Jamaica. It is understandable that there had to be a measure of confidentiality when the "sell off" negotiations were actually going on. But on Tuesday, two weeks ago, Virgin Atlantic put out a press release stating "Virgin Atlantic. is to expand its services to Jamaica later this year with the launch of new flights between London Gatwick and Kingston. The move follows Air Jamaica's decision to cease operations between the UK and Jamaica so as to concentrate on its core routes."
Virgin could not have been clearer about what was really happening. But days later the chairman of the Jamaica Tourist Board would still only admit that the Government was "reviewing its options" in relation to Air Jamaica. And Air Jamaica itself was silent. Instead, Jamaican journalists were deliberately confused by talk of "code sharing".
Code sharing is an administrative procedure designed to allow Air Jamaica passengers to be booked onto Virgin flights with the minimum of complications. The real story was not the "code sharing", the real story was the sell-off. But Jamaicans might have been forgiven for believing that the phrase "code sharing" meant that Air Jamaica and Virgin were somehow to continue to run the route jointly.
Yet, Air Jamaica seemed happy for this misapprehension to linger. Once the deal was signed, why was there the delay in spelling out for the Jamaican people what was really going on?
The other unanswered questions are about the future for Air Jamaica. Business consultants are supposed to have advised the Jamaican Government to concentrate on Air Jamaica's regional operations. But where is the business plan for that? Competition in the region is fierce. Not just Caribbean Airlines, but American Airlines is increasingly in contention. And in its press release last week Virgin hinted that in the future it might be competing directly with Air Jamaica by using Jamaica as a hub for flights all over the Caribbean. It said, "In future, we will look to build up connecting traffic via Jamaica to other points in the Caribbean region".
So what plans has Air Jamaica got for staving off the competition? Air Jamaica was losing $2 million a month on the London/ Kingston route. But British Airways and Virgin are apparently able to run the same transatlantic route profitably. They obviously have economies of scale. But their fares are no higher than Air Jamaica's (in Britain at least). Could it be that there are structural reasons why Air Jamaica loses so much money, which will not be solved just by jettisoning a particular route? And, if those structural problems are not being addressed, why should the Jamaican taxpayer be asked to continue pouring money down the drain supporting the airline?
Business consultants are supposed to have advised the Jamaican Government to concentrate on Air Jamaica's regional operations. But where is the business plan for that?
But perhaps the biggest unanswered questions are about the sale of Air Jamaica's take-off and landing slots at Heathrow. It cannot be stressed enough how valuable those landing rights are. Heathrow is the busiest airport in the world and is virtually full. The "Open Skies" agreement, which has opened up the United States market, has made those slots more valuable than ever. Some airlines that have these slots but no longer use them refuse to sell outright. Instead, they "lend" them out. Others run empty planes out of Heathrow, just to maintain their right to the slots.
Getting their hands on these take-off and landing rights at Heathrow would have been almost as important to Virgin as obtaining the Kingston/London route itself. Notably, Virgin will not be wasting these slots on flights to Jamaica. Instead, Jamaican flights will be relegated to the less popular Gatwick airport.
In 2004, the Australian airline Qantas reportedly paid US$40 million to buy just two pairs of such slots. At the end of last year, the Trinidad and Tobago Government sold seven such slots to British Airways for US$10 million. But local politicians claimed the slots were worth much more.
So how much did Virgin pay for the Heathrow landing rights? Divesting the London route probably made sense in terms of Air Jamaica's long-term future and the need to rationalise costs. But selling the take-off and landing rights at Heathrow was asset stripping pure and simple.
Presumably the Jamaican public will not have to wait long to find out how much was paid for them. The Trinidad and Tobago Government announced in Parliament how much they sold BWIA's Heathrow slots for. So what reason could there be for the Jamaican Government not to follow their lead?
Diane Abbott
Sunday, June 03, 2007
Air Jamaica has now belatedly admitted that it has sold off its Kingston/London route to the British airline Virgin Atlantic. But this came well over a week after Virgin had proudly announced the news in London. And there are still questions to answer, in particular, where does Air Jamaica go from here?
Diane AbbottThe most striking thing about the whole episode was the apparent reluctance to come clean with the people of Jamaica. It is understandable that there had to be a measure of confidentiality when the "sell off" negotiations were actually going on. But on Tuesday, two weeks ago, Virgin Atlantic put out a press release stating "Virgin Atlantic. is to expand its services to Jamaica later this year with the launch of new flights between London Gatwick and Kingston. The move follows Air Jamaica's decision to cease operations between the UK and Jamaica so as to concentrate on its core routes."
Virgin could not have been clearer about what was really happening. But days later the chairman of the Jamaica Tourist Board would still only admit that the Government was "reviewing its options" in relation to Air Jamaica. And Air Jamaica itself was silent. Instead, Jamaican journalists were deliberately confused by talk of "code sharing".
Code sharing is an administrative procedure designed to allow Air Jamaica passengers to be booked onto Virgin flights with the minimum of complications. The real story was not the "code sharing", the real story was the sell-off. But Jamaicans might have been forgiven for believing that the phrase "code sharing" meant that Air Jamaica and Virgin were somehow to continue to run the route jointly.
Yet, Air Jamaica seemed happy for this misapprehension to linger. Once the deal was signed, why was there the delay in spelling out for the Jamaican people what was really going on?
The other unanswered questions are about the future for Air Jamaica. Business consultants are supposed to have advised the Jamaican Government to concentrate on Air Jamaica's regional operations. But where is the business plan for that? Competition in the region is fierce. Not just Caribbean Airlines, but American Airlines is increasingly in contention. And in its press release last week Virgin hinted that in the future it might be competing directly with Air Jamaica by using Jamaica as a hub for flights all over the Caribbean. It said, "In future, we will look to build up connecting traffic via Jamaica to other points in the Caribbean region".
So what plans has Air Jamaica got for staving off the competition? Air Jamaica was losing $2 million a month on the London/ Kingston route. But British Airways and Virgin are apparently able to run the same transatlantic route profitably. They obviously have economies of scale. But their fares are no higher than Air Jamaica's (in Britain at least). Could it be that there are structural reasons why Air Jamaica loses so much money, which will not be solved just by jettisoning a particular route? And, if those structural problems are not being addressed, why should the Jamaican taxpayer be asked to continue pouring money down the drain supporting the airline?
Business consultants are supposed to have advised the Jamaican Government to concentrate on Air Jamaica's regional operations. But where is the business plan for that?But perhaps the biggest unanswered questions are about the sale of Air Jamaica's take-off and landing slots at Heathrow. It cannot be stressed enough how valuable those landing rights are. Heathrow is the busiest airport in the world and is virtually full. The "Open Skies" agreement, which has opened up the United States market, has made those slots more valuable than ever. Some airlines that have these slots but no longer use them refuse to sell outright. Instead, they "lend" them out. Others run empty planes out of Heathrow, just to maintain their right to the slots.
Getting their hands on these take-off and landing rights at Heathrow would have been almost as important to Virgin as obtaining the Kingston/London route itself. Notably, Virgin will not be wasting these slots on flights to Jamaica. Instead, Jamaican flights will be relegated to the less popular Gatwick airport.
In 2004, the Australian airline Qantas reportedly paid US$40 million to buy just two pairs of such slots. At the end of last year, the Trinidad and Tobago Government sold seven such slots to British Airways for US$10 million. But local politicians claimed the slots were worth much more.
So how much did Virgin pay for the Heathrow landing rights? Divesting the London route probably made sense in terms of Air Jamaica's long-term future and the need to rationalise costs. But selling the take-off and landing rights at Heathrow was asset stripping pure and simple.
Presumably the Jamaican public will not have to wait long to find out how much was paid for them. The Trinidad and Tobago Government announced in Parliament how much they sold BWIA's Heathrow slots for. So what reason could there be for the Jamaican Government not to follow their lead?