Bahamasair Bidders Invited
By Candia Dames
7th June 2005
The Ministry of Works and Utilities announced yesterday that the government is inviting expressions of interest from entities or individuals wishing to participate in the ownership and operation of Bahamasair.
In this regard, the Ministry says submissions should include a profile of the entity or individual wishing to invest in the national flag carrier, including financial and technical qualifications.
Meanwhile, the consultancy firm the government hired to advise it on how best to position Bahamasair for privatization has delivered a report that points to challenges and opportunities that have for years been outlined by various boards of the national flag carrier.
McKinsey and Co., which is reportedly the world’s largest management consultancy firm, said in a preliminary report that Bahamasair could significantly improve its financial performance by successfully capitalizing on certain opportunities.
The airline is being advised to improve operational performance by fixing on-time performance to reduce costs and capture more market share; improve revenue management to achieve higher yields; and minimize crew downtime.
Bahamasair is also being advised to increase labour productivity and right size its present fleet by choosing appropriate aircraft better scaled to demand.
The consultants noted that Bahamasair’s operating unit costs per hour for a DH-8 aircraft (50 seats) is $1,616, but would only be $832 per hour for B1900 aircraft (19 seats).
"For longer flights, the cost advantage of the B1900 is even greater," the consultants noted.
McKinsey and Co. said there is excess capacity in the system even during peak seasons.
The firm also noted that the break-even load factor for Bahamasair is 65 percent, but the overall load factor is only 51 percent.
Only one month in fiscal year 2004 did the airline exceed 65 percent, the consultants noted, adding that even peak flights during peak periods rarely exceed 70 percent average load factor.
The consultants pointed out that no airline can make money flying excess capacity all of the time.
"Bahamasair has to demonstrate significant progress on these issues if it hopes to survive without constant government intervention," wrote the consultants, who were hired by the government at a cost of $1 million.
The consultants also pointed out that without the government subsidy it is now receiving, as it stands now, Bahamasair would not be able to operate.
"While Bahamasair cannot grow its way out of its current difficulties, by focusing on a limited number of improvement opportunities it can achieve profitability and establish a growth platform for the future," McKinsey and Co. also pointed out.
The firm said Bahamasair faces a competitive challenge with its flight attendant cost structure, since cost per block hour worked are well above international and regional carrier levels.
McKinsey and Co. indicated that Bahamasair spends $90 per hour in costs associated with flight attendants, which is double what American Eagle spends.
Some Bahamasair employees who have viewed the initial recommendations of McKinsey and Co. told The Bahama Journal that it is unfortunate that the government is spending so much money to receive the kind of suggestions that are not even remotely new.
But the airline’s present board appears pleased that the consultants are confirming what the board has been saying all along and one source said that McKinsey and Co. is expected to say much more in its final report.
While announcing the hiring of the consultants earlier this year, Minister of Works and Utilities Bradley Roberts stressed that the $1 million fee being paid to the firm was "competitive".
At the time, he announced that McKinsey and Co. will be responsible for performing the privatization requirements in conjunction with a privatization committee comprised of knowledgeable professionals from the airline and related industries.
Late last month, Bahamasair Chairman Basil Sands announced that consultants who have been hired to advise the government on the privatization of Bahamasair are about to begin more extensive discussions with stakeholders at the national flag carrier to try to resolve differences over productivity and wage disparities.
Mr. Sands said that he expects the final report on the privatization process to be presented to the government within 60 days.
He also assured that the airline’s unions have indicated their willingness to work along with management and a privatization committee to assist in reducing the losses of the airline and ultimately make it profitable.