Recently, Opposition Member, Haydn Hughes cried foul in protest of a statement made by the Hon. Minister of Tourism, Cardigan Connor, which suggested that Government, in working out an air-lift deal with Bermuda Air, has agreed to furnish payment to the airline under a Minimum Revenue Guarantee (MRG) for some 20 empty seats, since the aircraft would be unable to land or take off with a full capacity payload. However, the Hon. Minister of Infrastructure, Communications and Utilities, Jose Vanterpool, set the record straight in the last Government Press Conference on Monday, August 15th, saying that Government had never made such an agreement with Bermuda Air.
“I want to make it abundantly clear,” he said, “that the Government of Anguilla has not entered into any Minimum Revenue Guarantee with Bermuda Air or any other airline since this administration has taken office.”
“For further clarity, let me say that Minimum Revenue Guarantees ensure that airlines are profitable to some extent, regardless of performance or any other metric,” he continued. “If a minimum number of seats are not sold, then a government would subsidize and pay for those empty seats up to that minimum number. Or, another way that Minimum Revenue Guarantees are issued is that a commission is given for every seat sold.”
The Minister explained that in negotiating with Bermuda Air, the Government of Anguilla drew “a hard red line” stating that it will not be offering any Minimum Revenue Guarantee. However, he said that hoteliers were approached requesting that they share in taking on the risk of unsellable seats.
“To further clarify the statements that were made,” the Minister said, “for one of the routes coming out of the US east coast, there are a number of unsellable seats due to the load factor – the weight of the passenger capacity, the weight of fuel and the weight of baggage, etc. The airline came back later in our negotiations and said that because they have these ‘unsellable seats’ they would like to explore ways and means of mitigating that risk.
“The airline is capable of carrying 96 passengers, but 20 of these unsellable seats would be empty on account of the load restriction factor. They are therefore 76 seats that would be occupied,” he explained.
“A number of conversations were held with the private sector to help in sharing and mitigating the cost of the 20 empty seats. The cost of the entire 20 empty seats, if we were to quantify them, would be US$667,000 over the first five-month term of Air Bermuda’s operations in Anguilla. However, while this represents the cost of the empty seats over the initial five-month period, the economic impact on Anguilla that the operations stands to make on a monthly basis ranges between US$4.3 and US$6.5 Million per month.
“Therefore, the reason why hotels and the private sector were engaged in conversations was to find ways and means to share the risk of the 20 empty seats. Even if these entities contributed two or three hundred thousand dollars to compensate for the unsellable seats, they would be making millions of dollars in return on the back end.”
Minister Vanterpool noted that the return on investments to be gained on the empty seats is a 70% return, and the Government of Anguilla would not be even paying for half of those empty seats.
“So to say that the Government of Anguilla had entered into a Minimum Revenue Guarantee for these unsellable seats,” he said, “is absolutely not true.”
