Minimum Revenue Guarantee Deals For Airlines

November 27, 2015

[Written by Don Burgess]

Bermuda still has deals in place with the airlines for minimum revenue guarantees.

However, the Ministry of Tourism Development and Transport declined to say which airlines Bermuda has deals with, with the Ministry saying they take “necessary steps to secure and maintain air services.”

In the recently issued Auditor’s General Report [PDF], Government paid $361,536 to American Airlines for the fiscal year that ended November 2011.

Screenshot from the Auditor General’s report:

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The Consolidated Fund audited financials for the year ending March 31, 2014 [PDF] shows that Government had signed agreements with three airlines to provide regular air service to Bermuda.

The estimated liability for March 31, 2014 was $2.7M, compared with $1.35M for 2013.

Screenshot from the Consolidated Fund report:

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The Ministry declined to say if it had to pay on any of the guarantees in 2013 or 2014.

A Ministry of Tourism Development and Transport spokesman said the Ministry “takes necessary steps to secure and maintain air services. Island destinations have increasingly engaged in minimum revenue guarantee agreements with airlines.

“Bermuda has reduced the number of such arrangements and has instead focused resources toward marketing and promotional efforts to support our air services. That is the more sustainable approach to take.”

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Comments (7)

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  1. planeasday says:

    So taxpayers are to fund a failing tourism industry as far as air arrivals are concerned? And with our money they are “DECLINING” TO LET US KNOW THE CARRIERS THAT ARE SUBSIDIZED? Given the genesis of this deal (2011- pre OBA) I do have to say I am disappointed – that after three plus years and quite a bit of investment in the “Tourism Authority” – tasked to improve our tourism product, our government still find it necessary to essentially pay flights to come here. How could there be any more of an admission of failure in our tourism industry than this? And to be fair, this decline started with (and I am sure this point is inarguable) the UBP and has seemingly accelerated through the subsequent governments since then.

    We have to ask ourselves a serious question here…is it us (Bermuda, an over priced, no real exceptional tourist destination qualities versus other locales) or is it simply that people have less disposable income to spend? Maybe the fairy tale illusion of the financial market recovery (post 2008) is not holding water where the rubber meets the road…

  2. Vote for Me says:

    I trust we do not get to the point of ‘cutting off our collective noses to spite our collective faces’.

    Whether UBP, PLP or OBA, revenue guarantees are standard tools to ensure appropriate lift to Bermuda. Once in Bermuda, visitors help to boost our economy by renting rooms, taxis, eating at restaurants, sightseeing etc.

    Also, revealing the individual details of each contract may be counterproductive since each airline will cherry pick to get the best overall deal.

    Perhaps the Minister should simply disclose the total revenue guarantees paid on an annual basis to keep us, the taxpayers informed.

    • planeasday says:

      “Whether UBP, PLP or OBA, revenue guarantees are standard tools to ensure appropriate lift to Bermuda. Once in Bermuda, visitors help to boost our economy by renting rooms, taxis, eating at restaurants, sightseeing etc.”

      Quite witty there in your response “Vote for me” but in reality how is this actually working out? It is lipstick on a pig. Stellar arrival figures you might say? Not in decades! Like I said ask the difficult questions…

      Some faces I’ve seen around here may look better without a nose…

  3. Richard says:

    Minimum Revenue Guarantees are the norm in the Caribbean and have been so for a number of years. Jamaica had a US$3Million MRG in place with American Airlines in 2010 to ensure adequate lift from major gateway cities like Dallas, Chicago and MIAMI. In 2015 Grenada negotiated a US$1.3 Million MRG with United Airlines. Many Caribbean countries sign on for Marketing Support Agreements (MSA’s) with European Airlines to ensure proper lift. These MSA’s cost upwards of US$750,000 per year.
    Whilst not a perfect solution,make no mistake, Bermuda and many of the countries to our south would not enjoy good airline service from major cities in the US or Europe without MRG’s or MSA’s.

  4. Need Peace says:

    With the guaranteed revenue amount being so high, you would think that the airlines could perhaps offer better prices for airline tickets more often. Smdh!