Seeing red: many local air services not breaking even
High costs, low demand keep ticket prices up
By Nicosia Smith
Stabroek News
February 5, 2004
Many local air operators may be operating in the red, because of high operating costs and low demand.
One source tells Stabroek Business that many air operators may not be breaking even and this makes it near impossible for them to consider decreasing their rates. Only economic growth or the lowering of corporate fees is likely to have an impact.
"Most of the people in the business are operating on the edge... basically they are offering a service to the people," the source said. "When you check it," the source says, "the operating costs are high [and] you just do not have the volume.
"The prices are high because it is a reflection of our economy [and] how good the economy is doing." The source added that a good exchange rate is vital in the aviation industry since aircraft parts are purchased abroad using foreign exchange.
One of the main factors for high operating costs is the price of aviation fuel, which fluctuates between $760 and $900 per gallon and aviation jet fuel at $527. These prices also draw an additional ten per cent consumption tax.
Fazel Khan, general manager of Air Services Ltd (ASL), which started three years ago says on small aircraft, tyres are changed five times a year, totalling 15 tyres in all at a cost of US$75 each. Khan says another essential part of the operating cost is engine oil which is sold at approximately $2,500 per gallon. Additionally, there are fees charged by the Guyana Civil Aviation Authority an autonomous body, for Air Operators and Airworthiness certificates, which were also subjected to increases.
He says the company pays $500,000 a year for the Certificate of Airworthiness for each of their nine aircraft. And over $1 million is paid each year, for the recently instituted Air Operators Cer-tificate along with other fees.
All the air operators spoken to agreed that if the demand for their services increases, then fares will most likely be lowered.
ASL planes can carry up to nine passengers, but there are aircraft which can carry up to 13 passengers. Khan says ASL has no plans to import larger aircraft now because of the nature of Guyana's jungle. But if demand increases to the point where larger aircraft are needed, then air operators will consider bringing in larger planes.
The cost of domestic flights has engaged operators' attention since the demise of the Guyana Airways Cor-poration (GAC) in 1999, because GAC, according to some, subsidized its domestic operation. Up to 1999 when GAC closed its operation due to financial difficulties, an air ticket to Lethem cost less than half of the present fare. At present flights into Lethem cost approximately $18,000 one way and $33,000 return.
Once GAC was no longer able to provide domestic flights, private air operators took up this service and had chartered flights into the hinterland.
Low demand has increasingly made scheduled flights into the hinterland uneco-nomical. Many of the air operators have abandoned scheduled flights altogether and concentrate on chartered flights. "They tend to fall back on what they know to cover the cost... The air operators do not want to take the chance [and be unable to recover their investment]" the source said.
Rodwell Paul, who worked as a pilot with GAC from 1971 to 1999, recalls that in most cases, his trips were filled with passengers. Paul says his passengers included businessmen, residents and developmental workers with government or non-governmental agencies. As a pilot, he flew to Lethem, Kurupung, Kamarang, Karasabai, Annai, Aishalton, and Kato among others.
Hugh Denbow, co-owner and commercial director of the consultancy group Timehri Aviation Services says air service is a demand and supply issue.
"Most of the people in the local areas could not afford [the fares and] they were never able [to]," Denbow says, adding that it was the heavy subsidizing of GAC's domestic flights that made them affordable.
Stabroek Business understands that Roraima Airways abandoned scheduled flights to Lethem in early 2003 because it became unprofitable.
Khan says ASL, for the past two years, has charged $70,000 per hour for its Islander aircraft and has not increased its fares even though fuel and operating fees increased. He says the fares were reduced because they were much higher in 2002. "We have not increased our fares in two years," Khan says, adding that this was in part due to competition.
A type of service now developing is a middle-man air charter, where persons will charter the aircraft and sell the seats themselves.
"That has become a popular [solution and] it helps the small man," Khan says.
At present, ASL only has scheduled flights going to areas in Region Eight such as Mahdia, Kato, Monkey Mountain, Paramakatoi, Orinduik and Kaieteur on Sundays, Wednesdays and Fridays. Flights into Region Eight cost the flat rate of $21,000 going in and $13,000 to leave. Fares for Region Seven for areas such as Kamarang cost $20,000 going in. Returning from the region costs $9,500. The return fares are lower, Khan says, because of the competition received from chartered flights. Chartered flights, after dropping off their passengers, can either leave empty or pick up passengers. If they choose to do the latter, their rates are often lower than scheduled flights. Therefore, to get passengers air operators will normally try to match the fares of the chartered flights.
Khan says there are no scheduled flights to Lethem and the intense competition there is just one of the factors.
For the most part, one air operator says, peak periods are usually in August and at Christmas, but for the rest of the year operations are basically at 50 percent.
Khan says many in the business are barely keeping their heads above the water, hoping that the government will reduce the fees to de-crease their operational cost.
With regard to the future he says, "these small operators will have to do the work."
On the other side of the coin are the passengers and the businesses who would desperately like to see lower fares.
Navin Narine, who is in charge of marketing at Earth Tours, argues that his company loses substantial profits because of the high fares charged for flights into tour areas in the interior.
Narine explains that it is cheaper for persons to travel to Trinidad or go to Suriname than to take one of their tours to Orinduk or Kaieteur Falls.
Traveling by road, Narine says, is one option to having cheaper tours to Lethem as it would be more cost effective to go in by land and come out by air. This strategy, he says, is being considered for travellers who are not "time conscious".
If flights become cheaper, Narine believes, "tours will become cheaper," leading to more profits for them.
Residents in Lethem who cannot afford the fares and who due to illness cannot travel by road are seeking medical attention in neighbouring Brazil. Officials from the Lethem Hospital contend that financial constraints make it difficult for many residents in Lethem to fly to Georgetown to obtain medical treatment there.
"Eighteen thousand for a housewife or farmer is too much," a hospital official said, speaking about the one-way fare from Lethem to George-town.
Emergency patients who require immediate attention are flown to the Georgetown Public Hospital Corporation (GPHC) and the region picks up the tab. But other patients, such as those requiring surgery say for fibroids or hernias, are given treatment to ease the pain and are listed as 'Cold Cases'. A 'Cold Case' patient usually has to seek treatment at the GPHC and this includes paying their way to get there.
The official says as a result 60 percent of all 'Cold Cases' go to Boa Vista, Brazil to seek treatment because it is cheaper than travelling to Georgetown. The official also noted that many patients who chose to travel to Brazil already had relatives living there who assist in providing a place for them to stay.
Zulficar Mohammed, director of Air Transport Management (ATM), says at present there is no legislation to regulate the prices of domestic flights.
"The international trend now is that government and civil aviation do not interfere. " I do not see the government going against that," he says, but adds that the government does have the authority to implement regulatory laws.
He says generally domestic airliners will inform the aviation department about their prices but they are not required to justify their prices. However, the aviation authority sets a maximum and minimum range and domestic airliners are mandated to fix their prices within this range. At present, the prices are within this range, he says.