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Air Jamaica chides Observer
Wednesday, May 03, 2006
Dear Editor,
It was with profound interest that I read the recent article by Mr Al Edwards in your Business edition on Thursday, April 13. Interesting, not because of its content, which was a continuation of the same slant that has been advanced by the Observer over the past several months. It hasn't mattered whether your forum has been business articles, editorial cartoons or letters from select readers - the following theme has been constant:
The airline was better under the private ownership of Air Jamaica Acquisition Group (AJAG).
New initiatives announced by the current management are nothing more than things that were done earlier by AJAG.
The airline will lose more in 2005 compared to the US$99 million loss in 2004 under AJAG.
Personal attacks against certain members of the airline's board of directors, including attacks pertaining to matters having nothing to do with the airline.
What was of interest to me this time, however, is that the Observer has decided to take things up several notches, and in my view, you have clearly crossed over the line. I readily admit that I have been tempted in the past on a number of occasions to respond to what I believe is the true motivation of the Observer; but quite candidly, I found most of your "coverage" to be not worthy of comment. Now however, I feel compelled to respond as CEO of Air Jamaica and on behalf of the 2,400 men and women of the national carrier who are working very hard to make Jamaica proud of their airline.
You have taken great liberty in quoting various anonymous sources with respect to AJAG v Government ownership on matters pertaining to financial results, market share, etc. So kindly allow me to offer some balance to your "coverage".
During the almost 11 years of Air Jamaica's ownership under AJAG, a great deal was in fact accomplished. The image of the carrier was vastly improved and its aging fleet was replaced. These were necessary undertakings, for certain; however, these undertakings came at a great price:
During the AJAG tenure, the airline was never profitable, and in fact, incurred losses totalling approximately US$700 million - and this during a period when jet fuel prices ranged between a low of 49 cents a gallon to a high of $1.37.
Had AJAG been faced with the $1.92 average price of fuel for 2005, the losses under AJAG would have almost doubled to US$1.4 billion. The losses under AJAG strapped the airline with a substantial debt load and necessitated equity advances from the Government in excess of US$400 million by the end of 2004. Accordingly, your "spin" that the current and planned commitment of the Government to Air Jamaica is a "new phenomenon", is quite a stretch.
With respect to Air Jamaica's market share, it is true that it has fallen over the past year at the same time visitor levels to Jamaica have risen. There are two key factors causing this: 1) There are more carriers serving Jamaica, including carriers providing service from cities that have never been served by Air Jamaica, and 2) Air Jamaica is currently operating with a smaller fleet size than what was operated under AJAG in 2004. Of course, the smaller fleet size was due to the grounding of a portion of the company's fleet in February 2004 in order to implement an accelerated maintenance program for the entire fleet, issues pertaining to which arose as far back as 2002.
While not minimising the aforementioned drop in market share, it should be noted that today, Air Jamaica still carries over 36 per cent of all passengers arriving in Jamaica, and over 53 per cent of all scheduled passengers arriving in Kingston. Higher than our priority to maintain market share, is our goal to be profitable for the very first time and to be a self-reliant airline that does not require government assistance, which would also be a first.
We believe we have a strategy in place that gives us a high degree of confidence that our goals of profitability and self-reliance will be achieved. These goals will not be achieved overnight, nor will it take, in our opinion, anywhere near 11 years, the time in which the airline was controlled by AJAG and during which time AJAG failed to meet these goals.
It is my belief that the Observer has rallied around a theme of transparency as a veil to support the hidden agendas referred to earlier. And yes, while I believed the audited results for 2005 would have been signed-off by the end of March, it has taken longer than expected.
Given the major transition that occurred during the past year and quantifying the effect of the fleet grounding in February 2005 and other related matters, the process is taking longer. However, the board of directors appointed by the Government has been fully apprised of our unaudited results, and we do not anticipate any material changes to our unaudited results once the outside auditors complete their work.
Senior Government officials of both parties have been advised of not only our 2005 results, but also our short and long-term strategic plans. It will continue to be our policy of not releasing our financial results to the media and general public until we have official sign-off from our outside auditors. It is more than interesting to note that the annual financial results under AJAG from 1994 to 2003 took an average of 11 months to be signed-off by the outside auditors.
With respect to forward-looking business plans, we have no intention of making a public release of such information to the media. These plans contain highly proprietary information pertaining to pricing, routes, fleet planning and financing strategies, as well as a wide variety of other sensitive data that no company in a highly competitive environment signals in advance to the media, and accordingly, to its competitors. This information is, however, reviewed in great detail with those responsible for the governance of the company - the board of directors and senior Government officials.
I would further add that we are most anxious to close out 2005 and focus totally on the tasks that lie ahead. I have stated publicly that the losses in 2005 will exceed those of 2004, and when released, it will be apparent why that is the case, after taking into account the costs associated with the fleet grounding and the unprecedented cost of jet fuel that prevailed throughout 2005.
I continue to be amazed by the Observer's propensity to cite "global" industry profit trends in a manner that I believe is self-serving to the themes being advanced. Allow me, again, to provide some balance:
Your attempts at correlating global industry profit trends to Air Jamaica, in my opinion, are misleading. Such global statistics, in itself have two distinct components: 1) The continuation of huge losses by the US airlines, and 2) Record profits by certain Asian and European carriers whose respective marketplaces bear no resemblance to the competitive conditions that prevail in the Caribbean.
You cite that US carriers are expected to lose $5.4 billion in 2006, compared to $11 billion in 2005. It would have been appropriate to note that a significant portion of the 2005 loss of $11 billion pertains to one-off charges that have been taken by certain US carriers that entered bankruptcy. In any event, I trust you would agree that a forecasted loss of $5.4 billion for 2006 is no day at the beach.
A more objective trend analysis would be to focus on the US$5.3 billion loss of Air Jamaica's major competitors. So here it is:
2005 Loss (Millions US$)
Delta $3,800
American 861
US Airways 537
Spirit (1) 110
Total Losses $5,308
(1) For 12 months ended September 2005
You might also consider making inquires of industry experts as to what their views are on trends for these carriers. And while you are at it, consider citing only the most current forecasts and trends, such as ones that reflect something closer to the current price of fuel, which is in excess of $70 a barrel, rather than the $57 noted in your article of April 13th.
I would add that it is readily apparent to quite a few people that the Observer's campaign with respect to Air Jamaica is a very subjective one, dominated more by personality, and in some instances, it has been outright vindictive. Given the relentless campaign being waged by the Observer, it would be easy to conclude that there are even some people in Jamaica who wouldn't mind seeing Air Jamaica fail. If true, this is most unfortunate, and I would like to advise the Observer that we have no intention of letting that happen.
The stakes here are very high, and the viability of the national carrier is far more important than any one person. Now more than ever, responsible business leaders should be rallying together; the opportunities are many and the potential is great.
In conclusion, the country, the 1.5 million passengers who fly on Air Jamaica each year, and the men and women of Air Jamaica who have devoted their careers to the carrier - all deserve better, and everyone deserves better from one of the country's leading newspapers.
Very truly yours,
Michael J Conway
President & CEO
Air Jamaica Ltd
Editor's note: We can assure Mr Conway that the Observer has no 'hidden agendas' in reporting on Air Jamaica, a state-owned company that has a duty to provide information on its performance - financial and otherwise - to its owners, the people of Jamaica. As such, we will insist on transparency in the operations of Air Jamaica.
In relation to Mr Conway's statement that Air Jamaica's smaller fleet size was due to the grounding of a portion of the company's aircraft in February 2004 in order to implement an accelerated maintenance programme for the entire fleet, we prefer to believe that Mr Conway has been the victim of a typographical error.
Mr Vin Lawrence, the former Air Jamaica executive chairman, at a news conference on February 24, 2005 acknowledged that "the FAA after carrying out an audit around December 9, 2004, questioned the airline's maintenance schedule and insisted through the JCAA that the cycle be reduced immediately to 15 months". This schedule had already been approved by the JCAA.
Mr Conway is also being disingenuous by arguing that the fleet reduction resulted from the FAA ruling. The fact is that it stemmed from a recommendation by Sabre Airline Solutions, delivered to the AJAG group in the last quarter of 2004 and adopted by the new management headed by Mr Lawrence after they took over the airline in December 2004. In fact, it emerged from the Air Jamaica news conference of January 5, 2005 that the airline was looking at returning three aircraft out of its fleet to save on leasing costs.
Mr Conway should also be aware that it was his own current chairman, Mr O K Melhado, who, in a December 16, 2005 interview on Independent Talk on Power 106, told the show's host, Mr Ronald Thwaites, of Air Jamaica's review of its business strategies and its intent to unveil a revised business plan in the first quarter of 2006.
Air Jamaica chides Observer
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