CAL expects Air Jamaica payback in three years
Published:Wednesday | January 19, 2011 | 12:00 AM
Mark Titus, Business Reporter
George Nicholas III is not willing to say just yet whether the Air Aamaica acquisition by Trinidad and Tobago was a good investment.
He prefers to wait out a three-year timeline for the relaunched carrier to pay back its new owners, as more information emerges on the behind-the scenes moves that led to the decision of the less than one-year-old Persad-Bissesar adminis-tration to embrace the merger of Caribbean Airlines Limited and Air Jamaica.
"When we just came in, the decision at that time was to do away with Air Jamaica and go with CAL, but we spent some time on that, and realised that it is not working," said Nicholas, the chairman of CAL.
That position changed only after talks in Kingston between the Trinidadian prime minister, Kamla Persad-Bissessar, and her Jamaican counterpart in July last year, as well as a falloff in Air Jamaica load numbers.
"Our prime minister came here in July and, on her return, said that Air Jamaica can stand on its own," said Nicholas, who noted that Jamaican travellers had also begun to pull support from Air Jamaica under CAL's control.
"Some brands are better off on their own," the CAL chairman said.
Air Jamaica will now operate as the carrier for holidaymakers and the Jamaican diaspora, while CAL will stick to its core business of service to southern Caribbean and executives.
And while, by the Trinidadian airline's own reckoning, it will take some three years before it knows if the deal is profitable, the Air Jamaica logo relaunched by CAL's political and executive leadership in Kingston last week, will continue flying beyond the 12 months initially agreed.
"If you look at it as an accountant, looking at the numbers and going backwards, you would say a mistake was made," Nicholas said of the acquisition.
"We will know whether or not the Air Jamaica buy was a good buy in two to three years time," Nicholas said.
"If you understand marketing and if you understand the equity that was spent to build a brand you will understand that that brand, will in the future give you returns if you market it properly and you serve it with the right products," he added.
The Air Jamaica trademark now belongs to the Trinidadian airline in exchange for the 16 per cent ordinary shareholding by the Jamaican Government in the Trinidadian company and one representative being named to the CAL board.
Caribbean Airlines Limited is valued at around US$500 million, with Air Jamaica representing about 40 per cent of its revenue.
Nicholas reiterated that Jamaica was not required to spend any money in the merger arrangement.
"It cost the Jamaican Government nothing; Jamaica makes a profit from this transaction and it's very important to note that. They have no reason to pay any money and shall not be required to pay any money."
He added that CAL paid all costs, leased the aircraft and paid Air Jamaica staff redundancies and worker switchover to the new company.
This expenditure, he said, was being viewed as operating expenses rather than capital costs.
The Trinidadian airline, he said, was operating profitably with what he described as healthy reserves, but declined to give financial specifics.
According to its chairman, with just one page of items in the merger deal to be completed, it was now time to focus on growing Air Jamaica's business.
In addition to its claw-back to flying the Air Jamaica-branded planes, CAL is also now keeping the Montego Bay resort location as the hub of operations for Air Jamaica flights, despite earlier indications it would be shutting down operations there and consolidating its Jamaica business in Kingston.
"Montego Bay is a strategic asset for Air Jamaica because of the number of hotels located in that region. You cannot be in the aviation business and ignore the hotels; they work hand in hand," said Nicholas.
Pointing to what he has described as the invasion of cost-cutting carriers operating out of Montego Bay's Sangster Inter-national Airport, Nicholas said CAL's Air Jamaica brand would be creating global partnerships to compete. He did not elaborate on the partnerships being contemplated.
"In Montego Bay, there are giants and minnows. The giants are American Airlines British Airways and Virgin, and the minnows are those who fly in and out whenever there is an opportunity," he said, noting that the former Jamaican airline, on its own, could not compete effectively with the giants.
For starters, Air Jamaica, according to Nicholas, has already been granted membership in the Jamaica Hotel and Tourist Association and on the Jamaica Tourist Board.
Air Jamaica routes, massively scaled back after the May 2010 takeover by CAL, are now to be expanded again. Air Jamaica is now flying to Fort Lauderdale, New York, Philadelphia, Toronto and Nassau, but some 12 other routes, including the coveted Heathrow gateway given up in 2007, are to be added by year-end.
"We intend to get back to three of four days a week flights to London on 777s. On Tuesday the board decided to lease four 787 aircrafts and that should give you an idea of the kind of airline we intend to build."
The larger long-haul aircraft are preferred to handle increased passenger load, baggage and cargo.
Noting that CAL expected Air Jamaica routes, with a current load capacity of just about 40 per cent, to turn a profit within the first quarter of this year, Nicholas said Air J's monthly losses were down to US$2.4 million.
In December, he said, Air Jamaica flew 7,000 more seats than it did a year earlier.
The CAL-Air J merger is to be finalised by April, Nicholas said.