The recent revelation out of the Cayman Islands that the Cayman Airways flight to Barbados averages 34 passengers for either leg is notsurprising. The issue for most Bajans is that it was the Government of the Cayman Islands that released this information publicly. Many are surprised that, once again, taxpayers are financing activity meant to grow the tourism economy but without their permission or particularly in this case, their oversight. Moreover, the issue at hand is that, since this expose’ is aviation-related, the feeling is that the current underperformance of this route at this point must be costing the country millions of dollars. This thought is not too far off from what I perceive to be the reality. Take note though that this is the nature of most investments, in that it takes a while to see a payoff. Commercial aviation, to that point then, is not the most profitable nor cash-flow positive of businesses, especially when dealing with larger or growing fleets while operating on a scheduled basis. Payback periods are typically longer than, for example, the construction industry regardless of project size.
Barbados, or any small island tourism economy for that matter, never gains “directly” on paper from subsidising a route. According to the plenty-shared Cayman Compass article, published on April 9th 2024, our government is offering a Minimum Revenue Guarantee (MRG) for this service. A MRG is just that lowest total revenue figure per leg flown that the air carrier wishes to make, and that any shortfall below that figure would be covered by a countersigning government. Barbados is the countersigned in this case and, according to the CEO of Cayman Airways, the route is “contractually guaranteed by the Barbados Tourism Marketing Inc” and “This revenue from BTMI ensures that Cayman Airways does not incur any losses on the service….”.
The Cayman Compass would have also made a similar revelation late in 2023 from its findings supported by the colony’s Freedom of Information Act. To be honest, something of this nature is not that unusual. It may be shocking most readers to inform that almost every scheduled service we have flying into Barbados benefits in this way. It is used as an incentive to make our destination more attractive through affordable means (to the inbound passenger) and increased connectivity. The benefit then, may I remind us all, is on having the persons here or in the Cayman Islands adding to economic activity through tourism. However, there are some incentives that go beyond just ensuring a MRG.
What is surprising for me though, and that has been the case, is why there hasn’t been a larger push to utilise that return to Cayman leg as, principally, a cargo flight. Given that the legs may underperform for sometime into the future, I would figure that would be sensible. It doesn’t make much economic sense at this point with the current 34 persons per leg traveling between the jurisdictions. Allow me to point you to some back of the napkin calculations to sort of prove my point. The Boeing 737 Max-8 is the aircraft used on this route. It is well known that most configurations of this aircraft can take 162 passengers. Therefore, it stands that 34 passengers per leg implies a 21 percent load factor in each direction of flight. The standard ticket charge for this route revolves around the US$632 mark inclusive of all taxes and airport fees. This brings the average total revenue per leg to approximately US$21,488 without the MRG. In order to show the impact of the MRG on a leg, we make some assumptions on how occupancy impacts profitability. Boeing estimates that the Max 8 burns 15 percent less fuel per hour than its 737-800 models (750 gallons per hour) at cruising altitudes or about 637 gallons per hour. The 737-800 has a maximum per hour operating cost of approximately US$12,000, which includes a small contingency to ensure a very small profit.
Conservatively, we can assume that fuel costs range around 35 percent of total operating costs at today’s rates. It is normally more than this but let’s if we take into consideration the difference in burn rates with that figure of 35 percent then we have an approximate operating cost of US $11,000 per hour for the Max 8. Each leg is approximately 3 hours and 30 minutes of flight time, and without taking, handling costs, taxiing time and ground checks into consideration, we can assume that each leg costs Cayman Airways around US$38,500 to operate with a small contingency in place. Given that an average of 34 passengers travelled on each leg, this results in an average loss of about US$17,012 per flight or leg. Total losses for the first 56 flights from October to January that Cayman Compass researched could have amounted up to at least US$ 952,672.
Please note that these calculations were presented without the MRG and should be viewed as the short fall that the BTMI must cover. For good measure we can assume that the MRG should be greater than US$38,500 requiring 61 seats filled per flight or an occupancy rate or load factor per leg of approximately 38 percent. Industry-wide load factors meant to produce a comfortable profit for shareholders are assumed to be about 60 to 70 percent. This means then the MRG that the BTMI countersigned could have costed taxpayers, by these calculations and assumptions, between US$22,833 to US$33,055 per leg. The total for the 54 flights from October to January under review can be calculated at a range of US$1.23 million to US$1.78 million to the Barbadian taxpayer. This is providing that my assumptions about the MRG and other minute factors are within range since details of the MRG are still unknown publicly. So Barbados might have paid at least US$17,012 per leg and at most, I hope, US$33,055 per leg during that time.
I could go even further into the math to show how Cayman Airways saves potentially a few million in US dollars a year by taking up most of its fuel in Barbados than in Grand Cayman given that the cost of Jet-A fuel here is approximately 50 percent cheaper. Space will not allow however but remember that taxpayers also bare of the generous subsidy on all Jet-A fuel pumped at Grantley Adams International Airport. I will say that the great premise behind this route is, allegedly, is the connection of Barbados to the west coast of the USA without having to pass through the super busy airports on its east coast. I, however, am unsure of its viability with insufficient data though I generally support the addition of routes. We have great potential on top of tourism to be a transshipment hub. But with the rise of Panama as an great alternate to Miami for the travel and shopping savvy Bajan, this service to Cayman remains fleeting for the time being. Bajans and Caymanians need to be aware of the long term play.