The Adrian Loveridge Column – Economics of the Airline Subsidy
The decision made by the St. Lucian Government and St. Lucia Tourist Board not to pay Virgin Atlantic Airlines a subsidy quoted at EC$20 million over the next three years has raised a number of questions.
First, there seems to be some doubt if hoteliers and tourism partners were fully involved before the Government bodies made the announcement not to concede to Virgin’s demands.
Secondly, let’s take a look at the economics of the proposed subsidy.
If Virgin continue to operate either version of the Airbus 330 (332 or 333) on this route, with a frequency of three times weekly in the summer months and five flights weekly in the winter from Gatwick to Hewanorra (UVF) that’s a total of between 792- 1,300 seats each week, across all classes or around 50,000 round trip seats per year.
Based on the quoted US$2.5 million annual subsidy, that equates to about US$50 per return, for every passenger based on full aircraft loadings.
If average accommodation stays on St. Lucia are comparable with British visitors to Barbados, those 50,000 seats would translate to around 275,000 occupied room nights based on two persons sharing and 11 night duration.
This is all of course, before you factor in the secondary spending contribution on car rentals, activity, attractions, shopping, restaurants etc., and any taxes they generate.
The reason so far given for the refusal to initially meet Virgin Atlantic’s demands were given as not wanting to set a precedent, where all other airlines could demand the same concessions.
But that, at first appears a little hypocritical and unbalanced after several Caribbean governments, including St. Lucia, have already granted unilateral unique tax exemptions to a limited number of land based tourism operators,
And especially when you consider that according to the St. Lucia Times, during the five years the current Prime Minister was Minister of Tourism the following subsidies were paid (we assume in EC$) to:
American- $11,371,597, British Airways – $5,325,336, Condor – $2,334,243, Excel Freedom Flight – $800,118, Jetblue – $5,180,741, Sun Tours – $462,643 and Virgin Holidays – $8,648,520.
These alone total over $38 million.
Our own Government has received the windfall bonus since October 2018 of the secondary departure tax (Airline Travel and Tourism Development Fee) of US$70 for every air traveller arrival with the single exception of the reduced US$35 payable on flights within CariCom.
If our current stay-over numbers are maintained, that should result in somewhere around US$45-50 million in the first full year of collection.
So, for Barbados, a single airline subsidy of US$2.5 million per annum represents a tiny proportion of overall taxes collected.
And that’s before you count in all the new various room and tourism levies, or the already existing departure tax of US$27.50 per person (US$18 million annually).
Not forgetting the 17.5 per cent VAT (value added tax) levied on air travel and VAT at varying rates on accommodation, restaurants and ancillary services.
Naturally St. Lucia has options.
To increase British Airways direct flights or to persuade Thomas Cook and TUI to step up frequency, and perhaps introduce a direct Manchester service, even if it is operated as a triangle service in tandem with Barbados.