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Air J loses US$61m in five months
Company blames maintenance cycle; says cost-cutting will impact later
Observer Reporter
Wednesday, June 22, 2005
Air Jamaica lost US$61 million for the first five months of this year, as the government, which has been running the airline since December, struggles to shrink it into viability, in line with its strategic master plan.
The loss during the five months, represents an acceleration of the haemorrhaging that took place when the company was in private hands - though the new management says the bleeding will be curbed once the recent cost containment measures begin to take effect.
Yesterday, Air Jamaica's executive chairman, Dr Vin Lawrence, told the Business Observer that operating deficit of US$36 million had been budgeted for the first six months of this year. But unforeseen disruption of services, caused primarily by an increase in the frequency of major maintenance, and route restructuring, had added another US$25 million in expenses.
Lawrence, speaking through the airline's public relations director, Sandra Falconer said that a requirement earlier this year, for Air Jamaica to carry out major maintenance once every 15 months, rather than 18 months as was the practice for years, had forced the company to shut down services in a way that had not been programmed.
The maintenance schedule was dictated by the Civil Aviation Authority, as part of its mandate and effort to engender safety at the airline.
"They changed the maintenance cycle from 18 to 15 months," noted Falconer. "Major maintenance on a plane can cost up to US$1 million."
The airline which was privatised in 1984 - after years of continued losses -to a private sector investor group led by Observer chairman, Gordon Butch Stewart, lost an average of US$65 million per year over the 10 years in private hands.
It was re-nationalised in December last year, with Lawrence, who had been a government-represented board member under Stewart's stewardship, being given the task to turn it around, with the ultimate objective of seeking other private investors.
The core of Lawrence's strategy was to shrink the airline - which had seen rapid expansion in assets and routes under Stewart - into viability. He trimmed the staff by 300 to 2,500, cuts some routes, restructured others and gave back some of the leased aircraft.
But given the significant cost rigidities for which the industry is notorious, revenues apparently came down much faster than costs, thus putting the company on a path to making its most significant single-year loss ever. Last year, Air Jamaica lost between US$80 million and US$90 million.
Lawrence, however, remains sanguine that the deficit of the first five to six months will not be replicated through the full year, arguing that once the cost reductions of the first few months begin to take hold, the bleeding will subside.
There were also signs that revenues were on the rebound, he said.
"We have reorganised some routes including Newark which we had decided to cut, and they are now doing very well," said Falconer. Another route that was subject to reorganisation was the Eastern Caribbean with a direct flight between Jamaica and Barbados, which she said was doing well.
As part of this process Air Jamaica sent home more than 100 flight attendants and more than 20 pilots, but in recent times has had to recall some of this category of staff, apparently because of an underestimation personnel and route demands.
Air J loses US$61m in five months
Company blames maintenance cycle; says cost-cutting will impact later
Observer Reporter
Wednesday, June 22, 2005
Air Jamaica lost US$61 million for the first five months of this year, as the government, which has been running the airline since December, struggles to shrink it into viability, in line with its strategic master plan.
The loss during the five months, represents an acceleration of the haemorrhaging that took place when the company was in private hands - though the new management says the bleeding will be curbed once the recent cost containment measures begin to take effect.
Yesterday, Air Jamaica's executive chairman, Dr Vin Lawrence, told the Business Observer that operating deficit of US$36 million had been budgeted for the first six months of this year. But unforeseen disruption of services, caused primarily by an increase in the frequency of major maintenance, and route restructuring, had added another US$25 million in expenses.
Lawrence, speaking through the airline's public relations director, Sandra Falconer said that a requirement earlier this year, for Air Jamaica to carry out major maintenance once every 15 months, rather than 18 months as was the practice for years, had forced the company to shut down services in a way that had not been programmed.
The maintenance schedule was dictated by the Civil Aviation Authority, as part of its mandate and effort to engender safety at the airline.
"They changed the maintenance cycle from 18 to 15 months," noted Falconer. "Major maintenance on a plane can cost up to US$1 million."
The airline which was privatised in 1984 - after years of continued losses -to a private sector investor group led by Observer chairman, Gordon Butch Stewart, lost an average of US$65 million per year over the 10 years in private hands.
It was re-nationalised in December last year, with Lawrence, who had been a government-represented board member under Stewart's stewardship, being given the task to turn it around, with the ultimate objective of seeking other private investors.
The core of Lawrence's strategy was to shrink the airline - which had seen rapid expansion in assets and routes under Stewart - into viability. He trimmed the staff by 300 to 2,500, cuts some routes, restructured others and gave back some of the leased aircraft.
But given the significant cost rigidities for which the industry is notorious, revenues apparently came down much faster than costs, thus putting the company on a path to making its most significant single-year loss ever. Last year, Air Jamaica lost between US$80 million and US$90 million.
Lawrence, however, remains sanguine that the deficit of the first five to six months will not be replicated through the full year, arguing that once the cost reductions of the first few months begin to take hold, the bleeding will subside.
There were also signs that revenues were on the rebound, he said.
"We have reorganised some routes including Newark which we had decided to cut, and they are now doing very well," said Falconer. Another route that was subject to reorganisation was the Eastern Caribbean with a direct flight between Jamaica and Barbados, which she said was doing well.
As part of this process Air Jamaica sent home more than 100 flight attendants and more than 20 pilots, but in recent times has had to recall some of this category of staff, apparently because of an underestimation personnel and route demands.
Air J loses US$61m in five months
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