Minister Zane DeSilva On Airline Incentives

November 26, 2018 | 26 Comments

“The Government will continue to support air service development and the strengthening of our tourism product with additional flights and new gateway cities, however, the success of these initiatives depends on all partners, Skyport especially, doing their part,” Minister of Tourism and Transport Zane DeSilva said.

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Speaking on in the House of Assembly on Friday, the Minister said, “For many years and up until recently, the Government, either directly or indirectly via the former Department of Airport Operations, has provided airline incentives in the form of a minimum revenue guaranty [MRG]. This involved making direct cash payments to airlines to guarantee a pre-determined profit margin.

“The desired outcome of airline incentives is for the airline to succeed in starting a new service or expanding an existing service within a defined timeframe – and not to continue indefinitely. The air service needs to be sustainable and commercially viable without an airline incentive.

“As of today, the Government, directly or indirectly, does not provide any minimum revenue guarantees to airlines.

“There are several reasons why there are no longer any airline revenue guarantee agreements. First and foremost, as a part of the airport deal, and since March 2017, Aecon and Skyport are now responsible for the marketing, business development and planning to increase the volume of air traffic and passengers to maximize Airport revenues.

“It is important to note that Skyport receives 100% of the airport revenues from what each passenger pays in ticket fees and what each airline pays in landing, cargo and fuel throughput fees.

“This is a deliberate term of the airport deal which means that revenue that used to come to the Government of Bermuda now goes wholly and solely to Skyport.

“When MRGs were the responsibility of the Government of Bermuda, the responsibility to pay for them was, as you would expect, the Government’s.

“In spite of now having this responsibility, Skyport has determined that it should not be responsible for making payments under the MRGs,” the Minister said, adding “Skyport is content to have the authority but not the responsibility. The airport deal seems to have empowered Skyport to pass this burden on to the Bermudian taxpayer.”

“This Government was elected with a mandate to relieve the burdens of the hardworking, taxpaying families in this country. In a deal that has deprived them of a vital, national asset – as well as the significant revenues that it generates – it is unthinkable that we would sit idly by while taxpayers are forced to bear a financial responsibility that rightly rests with Skyport.

“This is another part of this airport deal that has the potential to create challenges for the people of Bermuda. I wish to be clear that the Government of Bermuda will continue to support air service development and the strengthening of our tourism product with additional flights and new gateway cities. However, the success of these initiatives depends on all partners, Skyport especially, doing their part.”

The Minister’s full statement follows below:

Mr. Speaker, the House will be aware of this Government’s vocal opposition to the Airport deal and our 2017 election platform pledge to review the Project Agreement between the Bermuda Airport Authority, on behalf of the Government, and Aecon and Skyport to see if Bermuda could get a better deal. The report on the review of the Project Agreement, released earlier this year, recommended against terminating the agreement at this juncture and, instead, recommended contract optimizations, or improvements. One such contract improvement is passenger traffic growth and revenue sharing.

Mr. Speaker, I will update the House on progress with all airport project agreement optimizations in the upcoming months. However, today I wish to speak specifically about passenger traffic growth and airline incentives. Airline incentives are tools used to assist airlines with establishing new air routes or expanding existing services and they help to mitigate an airline’s financial risk associated with this activity. For many years and up until recently, the Government, either directly or indirectly via the former Department of Airport Operations, has provided airline incentives in the form of a minimum revenue guaranty [MRG]. This involved making direct cash payments to airlines to guarantee a pre-determined profit margin.

Honourable Members may recall that the former Progressive Labour Party Government used MRGs as a means by which to grow air service development and to complement the expansion of tourism markets for Bermuda. Flights which have become a mainstay of our air traffic originated with a robust and, ultimately, very successful air service development programme.

Mr. Speaker, airport promotion and development is a complex matter that involves a detailed understanding of airline economics, market analysis and a firm grasp of the operational and competitive environments that drive airline decision-making. Accordingly, the type of airline incentive, if any, must be aligned with

a)air service development strategy, goals and objectives;

b] defined benefits to all stakeholders, including the airlines; the airport operator, Skyport; the tourism, international and local business sectors; and, the Government; and,

c] a full understanding of the impact of incentives, provided to one airline, on existing airlines and competitors.

Mr. Speaker, the desired outcome of airline incentives is for the airline to succeed in starting a new service or expanding an existing service within a defined timeframe – and not to continue indefinitely. The air service needs to be sustainable and commercially viable without an airline incentive.

Mr. Speaker, as of today, the Government, directly or indirectly, does not provide any minimum revenue guarantees to airlines. Whilst I would like to fully disclose the details of previous revenue guarantee agreements in the interest of transparency, the commercial nature of these agreements, and specifically their contractual stipulations prevent me from disclosing the specific details such as airline names, routes and amounts.

Mr. Speaker, there are several reasons why there are no longer any airline revenue guarantee agreements. First and foremost, as a part of the airport deal, and since March 2017, Aecon and Skyport are now responsible for the marketing, business development and planning to increase the volume of air traffic and passengers to maximize Airport revenues. Mr. Speaker, it is important to note that Skyport receives 100% of the airport revenues from what each passenger pays in ticket fees and what each airline pays in landing, cargo and fuel throughput fees. Mr. Speaker, this is a deliberate term of the airport deal which means that revenue that used to come to the Government of Bermuda now goes wholly and solely to Skyport.

Mr. Speaker, when MRGs were the responsibility of the Government of Bermuda, the responsibility to pay for them was, as you would expect, the Government’s. Honourable Members and the public may be surprised to learn that in spite of now having this responsibility, Skyport has determined that it should not be responsible for making payments under the MRGs. It appears, Mr. Speaker, that Skyport is content to have the authority but not the responsibility. The airport deal seems to have empowered Skyport to pass this burden on to the Bermudian taxpayer.

Mr. Speaker, this Government was elected with a mandate to relieve the burdens of the hardworking, taxpaying families in this country. In a deal that has deprived them of a vital, national asset – as well as the significant revenues that it generates – it is unthinkable that we would sit idly by while taxpayers are forced to bear a financial responsibility that rightly rests with Skyport.

Mr. Speaker, this is another part of this airport deal that has the potential to create challenges for the people of Bermuda. I wish to be clear that the Government of Bermuda will continue to support air service development and the strengthening of our tourism product with additional flights and new gateway cities. However, the success of these initiatives depends on all partners, Skyport especially, doing their part.

Thank you, Mr. Speaker.

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Comments (26)

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  1. 2 Bermudas says:

    How many people reviewed this deal and said it was a fair deal?! Now this guy is trying to muddy the waters.

    Why didn’t Island Construction take the same deal if it was so great for Skyport and not so great for the taxpayer?! Methinks because it wasn’t as a good a deal as Port Royal!!

    • hmmm says:

      Like you said it’s 2 Bermudas now go worship the Jet Gate XPremier as your leader. You know it’s sad day in the oba when that’s the only choice they have to lead.

      • Blankerchief says:

        What about Ewart Brown’s jetgate that no plp supporter wants to talk about?

      • 2 Bermudas says:

        Yes, 2 Bermudas indeed. The gov’t takes my taxes only to give it to Ewart Brown!! Keep drinking de titty milk!!

  2. Deep Throat says:

    Tell us about Port Royal Zane!

    • RIP oba/UBP says:

      Tell Bermuda why you change the name from UBP to OBA………and used a certain segment of the community to help you win votes!!

      Didn’t work again in 2017 when Fahy wanted to give everyone status. You distance yourselves from him real fast but not fast enough.

      Now you have Craig Trump as a leader LOLOLOLOL. Try the titty milk and you might win again = NEVER!!

      • Blankerchief says:

        You do realize there are other places in the world that are already living in poverty if that’s what you’re so desperate for.

      • sandgrownan says:

        It won’t matter, with the PLP in charge Bermuda is doomed.

        No idea, no clue, and incompetence. 15 years of failure, debt and a shrinking economy.

        So how about you STFU and come up with some solutions.

      • 2 Bermudas says:

        I wouldn’t distance myself from Fahy, he done great things for Bermuda against great resistance from the Pee El Pee and their buddies. Unfortunately once the Pee El Pee is done wrecking this island and the people want someone to save the day, guys like Fahy, Gibbons and Richards won’t be there!! Start exporting titty milk!! Ha ha ha!!

  3. Retro says:

    This is backwards. It’s The BTA and department of tourism’s job to incentivize visitors to come here so that mgr’s aren’t required and if you want people to be outraged then you are going to have to offer a figure on these mgr payments ,otherwise ,this just seems like more of the same political bs.

  4. eve says:

    Zane is off to a good start putting Skyport on notice to take responsibility for what they are getting paid too do. Skyport is responsible for marketing so there is no need for the marketing deals BTA has with some of the airlines.

    • Kick butt says:

      Go Zane! Don’t let those mi etc hungry Canadians off the hook! OBA gave 39 years of our income away and now they don’t want to market Bermuda? Shut them down!

      • Blankerchief says:

        You can’t even get the years right.

      • Double S says:

        Go ahead and cancel it. Just make sure that the $200mn cancellation fee that would be payable to AECON is paid solely by PLP supporters. And when did an airport ever have responsibility for marketing a tourist destination. Once again PLP supporters showing themselves to be simple sheep by lapping up anything a PLP MP/Senator states as truth.

        • Pick one says:

          “And when did an airport ever have responsibility for marketing a tourist destination”

          LOL!! Ask Bob Richards! That was part of his big sell on the airport deal

          • Double S says:

            Never did Bob Richards say that the airport has responsibility for marketing Bermuda as a tourist destination.

            I challenge you to prove otherwise. LOL!!

  5. Virgin on a trip says:

    Kiss Goodbye to any hope of trying to get new airlines to operate out of Bermuda.

  6. kevin says:

    so lets see a construction guy telling marketing tourism what they should be doing …hey Zane why don’t you get a carpenter to fix your next cavity ……idiot
    if they don’t have incentives in place dopey its because they don’t require any ………..its that I have to spend money mentality
    ……

    • eve says:

      Aecon has a marketing department and they would not be directing their efforts direct to tourists but promoting what the airport has to offer the airlines who in turn should be telling their passengers what Bermuda has to offer. Before, the government offered to cover the airline’s income shortfall and trusted the airlines to market their Bermuda route. With government picking up shortfall, incentive by the airline to promote Bermuda was not a priority. BTA got involved and offered to share marketing expenses with the airlines, better than picking up shortfall but still paying airline to do marketing they should be doing on their own anyway.

  7. ZANE has alot of mouth about everything
    else but has memory loss over Port Royal and the rest of the nonsense that went on.

  8. mixitup says:

    No one speaking against Zane DeSilva has argued the point he has made…. The Airport Authority SHOULD be responsible for MRG’s if needed to activate a new route, he makes a good point.

    • Double S says:

      You mean the commentators are acting like you and your crew when you post on an OBA penned article (ie never address the message)?

      The hypocrisy with you lot is amusing to say the least.

  9. Free Thinker says:

    Our big and fancy Hub style Airport, will not get us any new flight or more visitors, just because its big and beautiful. Only the naive, thinks people travel to a destination for it’s airport. A wool was pulled over a lot of people face, with this deal. A good upgrade is all we needed, we could have saved and build our own in time. If Sky Port doesn’t make the margins guaranteed in the deal, we are on the hook to make up the difference. They don’t need to market anything, they will get theirs anyway. Lookout for massive increases in ticket fees, they can and will do whatever they want.

    • 2 Bermudas says:

      Save?!? Did you just say save?!? We are more than $2.5bn in debt you numpty!! If we financed it ourselves we’d still be paying back a bank!! What’s the difference?!?! Scary part is you vote!

    • kevin says:

      free thinker so I guess you are one of those who think the airport could have been fixed …….another dreamer throwing 100 million which btw you would have had to borrow on a dinosaur that would still have you and our guests subjected to the elements ….hope you are a worker bee mr free thinker and not one that makes economic decisions at your work place ….

  10. Bob&Margaret says:

    Let’s look at this practically. Skyport are incentivised to grow air traffic because it will help them prosper. However, my understanding is that they have minimum revenue guarantees from government. Therefore it is in government’s interest for Skyport to have sufficient revenues from air traffic. Aside from that, generating air traffic and routes is not solely done to generate airport revenues (far from it), but instead to support both our international business and tourism sectors. As a result, irrespective of the airport deal it is very much still the government/BTA/BDA that has the financial motivation for providing MGR’s to the airlines. Whether government should provide them is another issue- if our tourism and international business does not drive sufficient foot traffic to make the routes viable, then perhaps we need a change in strategy in the IB and Tourism target markets instead.

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