|The Bahamas Investor Magazine
January 21, 2015
January 21, 2015
When Hurricane Sandy slammed into the East Coast of the US in late October 2012, president and chief executive officer at Nassau Airport Development Co (NAD) Vernice Walkine and her team had their hands full. Lynden Pindling International Airport (LPIA) was in the midst of a crucial $409.5 million redevelopment and it was her department’s task to bolster passenger traffic. The last thing they needed was a natural disaster to dampen the travel market. She immediately set about negotiating with airlines on new, or increased services.
By the second quarter of 2014, the team’s efforts had started to pay off and they had managed to reverse the decline in the wake of Sandy. “It’s been difficult for us because we depend on passenger numbers to grow in order for us to increase our revenue,” says Walkine, the first female Bahamian executive on NAD’s team and the first woman ever to hold the airport’s top post. “Everything that generates revenue for us is dependent on passenger growth.”
The airport exec had joined NAD in November 2010, just as the company was wrapping up Phase One of the redevelopment, which saw the construction of a new US terminal. In accepting the position of vice president of marketing and communications, Walkine wrapped up a 31-year stint with the Ministry of Tourism having last served as director general. Part of her mandate with MOT involved airlift negotiations. “That was one of the reasons why I was recruited, because I had the skill set to help NAD achieve its objective of the right mix of airlines and the right frequency of flights to meet the needs of the airport and the destination.”
Shortly before the late-season hurricane struck, Walkine’s portfolio had been expanded to include vice-president of commercial development. She took over as president and chief executive officer on March 3, 2013.
“Essentially, I was wearing multiple hats. I still continue to wear multiple hats,” she says. “My 25-hour days are long!”
An around-the-clock operation, LPIA caters to 32 airlines flying to 29 international and 16 domestic destinations. The 571,000 sq ft airport complex has the ability to handle five million passengers annually. In 2013, the airport served 3.26 million passengers.
But the job is more than just crunching numbers. “Airports are not just a place where aircrafts take off and land,” says Walkine. “The aviation industry is multifaceted, exciting, dynamic. We’re tasked with keeping passengers safe and not sacrificing a quality passenger experience. We have to meet the demands of passengers who are already stressed because of safety and security procedures that they have to go through, and who therefore need to be distracted in a productive way.”
Airport for the future
It was in July 2009, that officials broke ground on Phase One of the three-phase airport redevelopment and construction project. The project weathered a global recession, two hurricanes and a change of government, remarkably finishing on time and on budget. The last of the three smartly engineered state-of-the- art terminals was officially opened on October 17, 2013. Immediately, NAD had its first major loan payment looming.
“Now that construction is over, you have to start to pay the piper. We borrowed a lot of money, almost a half a billion dollars in order to construct these new terminals. The deal was that we would make minimal payments during the construction period, which allowed us to deposit a lot of cash that we generated from our ongoing operations to begin to pay down the debt once construction was done,” Walkine explains. “Our first major loan payment was $35 million. We have a long mortgage, but we have a prescriptive programme for repayment of the debt.”
Loan payments, in addition to ongoing operational expenses, must be covered by its operations, as NAD receives no government subsidies. The airport generates revenue by several means, the most significant being the passenger facility charge (PFC), a fee charged on every departing passenger. It is a fee included in the airline ticket collected by the International Air Transport Agency (IATA) and remitted back to NAD.
For the year ended June 30, 2013, audited company reports show NAD collected $36.5 million in passenger facility charges and another $7.5 million in passenger processing fees. The PFC funds are earmarked strictly for the repayment of the redevelopment debt.
The airport also generates aeronautical fees, with airlines paying for services and facilities provided by the airport, such as landing, take-off, parking and using the loading bridges. At the end of June 2013, that amount came to just over $6 million. Those funds also go towards debt repayment and ongoing operational expense. In June 2013, NAD’s total operating revenue amounted to $64.3 million, with commercial operation accounting for $12.6 million. Meantime, total operating expenses came in just under $23 million, making for an operating income of a little more than $41 million.
“We are very focused on operating the terminals in a fashion that is consistent with world-class airports, while ensuring that we generate sufficient revenue to pay back the debt,” says Walkine. “We continue to successfully secure the additional airlift that we need. I can say that without fear of contradiction. We have a formula that works for us.”
Last year several announcements were made regarding new and increased airlift. Delta announced an increase in frequency to The Bahamas from New York’s John F Kennedy International Airport from once to twice per day, effective February 2015. The low-cost Frontier Airlines headquartered in Denver, Colorado, has also expressed interest in operating flights to The Bahamas.
NAD’s ability to bring on new airlift in a systematic fashion is due to a strategic airlift group comprised of NAD, the Ministry of Tourism (MOT) and the Nassau Paradise Island Promotion Board.
After scrutinizing the MOT’s statistics, the three agencies work together to determine what airlines and gateways to approach. New services are determined by the numbers. If a particular zip code posts strong numbers or growing numbers without the benefit of non- stop airlift, then an opportunity might exist to increase the number of passengers with a direct flight. The size of the aircraft and flight frequency must be determined as well. The strategic airlift group must also ascertain what level of support an airline would need for a route if it agrees to provide the service.
“Whether it’s a JetBlue, Delta, Southwest or whomever, together we put the proposal to the airline,” Walkine explains. “It says this is what we want and this is what we believe your load factor will be.”
Airlines require a minimum load factor in order to break even. If they fall below that break-even point, it is the strategic airlift group’s job to determine who will cover the loss. Those terms are open to negotiation.
Events such as the World Routes Development Forum prove a useful avenue to negotiate new airline routes. The annual forum attracts the global aviation industry’s top executives and key tourism officials. In September 2014, the strategic airlift group attended the forum, finalizing negotiations with some carriers, and with others advancing or commencing them.
“We are doing things to support the growth of the destination and there are more things to come that will support Baha Mar’s rooms when it opens in 2015,” says Walkine. “We are looking at a number of new gateways within the US, Latin America and Europe.”
To increase the likelihood of success for a new service out of a new gateway, NAD offers certain concessions. For instance, it could waive all of the aeronautical fees for one year and up to a maximum of two years, depending on whether it is a daily service, which indicates a real commitment by the carrier. “That has tremendous value to an airline, particularly because the more frequency they have the more it costs them,” says Walkine.
The promotion board and the MOT also do their part in placing some marketing support behind the carrier’s new route. “They would adjust their advertising schedules so that before the start date of the service they would go in and start to stimulate the demand in the marketplace,” says Walkine.
This flexibility and willingness to work together is key to the airport’s continued success, says the airport CEO. “Most other destinations do not have that kind of collaboration, so airlines have to talk separately to the tourism people and separately to the airport. The collective approach that we have taken has proven to be extremely successful for us.”