Weekend was a joy

March 24, 2004

Dear Sir,

Now that my feet are planted back on the earth in New Zealand, I want to thank everyone in Bermuda for all the warm hospitality and kind words during my visit to accept the Lifetime Achievement Award from the Bermuda Insurance Institute.

Not only old friends but also strangers were so enthusiastic and welcoming. I even received a hug from a cab driver whom I had never met before when my husband bragged to her about my award. The staff at Waterloo House treated me as though I were a celebrity, which was really quite touching. I now have new friends at Face & Body and will certainly visit them again when I return to Bermuda.

I also want to congratulate The Royal Gazette's Lilla Zuill, whose articles on the Leader of the Year Award to David Ezekiel and the Lifetime Achievement Award to me summed up very nicely what we both said the night of the awards dinner at XL House.

It was so gracious of XL and its CEO Brian O'Hara to open its spacious lobby for the BII annual dinner when no other venue was available. Many thanks are due to the XL staff who orchestrated a wonderful evening.

Most of all, I want to thank the Bermuda Insurance Institute for presenting these annual awards. People who have very demanding day jobs devote a considerable amount of time and energy to making this annual event a success.

I also want to commend the BII for all its efforts to promote insurance education in Bermuda and for providing insights into important issues confronting Bermuda and its international business sector. These are very important contributions to Bermuda's continuing success as an insurance centre. My husband, Ronald Jacks, and I will never forget our truly magic weekend in Bermuda. We very much look forward to returning to friendly Bermuda, albeit with less fanfare.

KATHRYN MCINTYRE

New Zealand

Bargain airlines

March 16, 2004

Dear Sir,

Everything seemingly costs so much more in Bermuda than it does elsewhere - so writers to your newspaper would have us believe! Why then do people on this Island continually expect airfares to and from Bermuda to be comparable to those that you would pay for a domestic flight within the United States or between North America and Europe? It's like trying to compare apples with oranges - they don't equate!

To begin with, all of the world's major airlines are either Government owned (and therefore heavily subsidised), or they are independent carriers. First and foremost they are businesses, and like all businesses, they exist to make a profit. They have no obligations to serve Bermuda and no obligations whatsoever to subsidise their flights to this Island or to anywhere else.

Airline operating costs are affected by many different factors, such as the number of daily flights that a carrier operates, where they fly to and from, and the costs incurred at different airports (i.e. landing fees and staffing expenses). Further factors include fuel costs, load factors (the average number of passengers per flight), the type of aircraft being operated, and that big grey area of “matters beyond their control”. The last category includes fuel hikes, wars, the weather, recession, terrorism and more.

Shorter distances (i.e. New York to Bermuda) cost more to operate per mile than longer flights (i.e. Bermuda to London). It also costs an airline considerably more (per flight) to operate just one or two flights per day from a small airport, that it does to operate a full schedule of flights from a much larger one. Surely all this is just common sense!

All of the above factors (and more) must be taken into account when an airline sets its fares on a particular route and determines its break-even point - typically about 65 percent of capacity, though the figure can obviously vary considerably.

If a carrier's average load factor on a given route is regularly above its break-even point, then it makes a profit on that route. If however, on average, it carries less than the number of passengers needed to break-even, it makes a loss on the route (which more often than not is then subsidised from profit making routes).

When an airline continually loses money on a particular route, it has several options. It can reduce its airfares in the hope of substantially increasing its load factor (if it feels that the potential demand is there), or alternatively increase those airfares to try and reach the break-even point. Other options include reducing the number of flights that it operates to a particular destination each day or week, or pulling off the route altogether.

Enter the budget or bargain airlines, which work on a minimum profit margin. To be able to offer rock bottom fares, they need to operate with an average load factor well in excess of 80 percent. Typically when they launch a new route, they initially offer incredibly low fares in an attempt to quickly build up business - even though this is very costly for them and they lose money. If they succeed in the long run, fine! If not and profits fail to materialise, they generally cut their losses and pull out of that particular route.

Bargain airlines operate on a shoestring budget and their operating cost are considerably lower than those of the world's larger, established airlines. So how and where do they make their savings? Well, to start with, they cut out the niceties offered by other airlines (such as food and drink), they charge for all additional services provided, they buy or lease older aircraft, and they keep staff costs to a minimum. Some people will only fly on budget airlines, whilst others avoid them like the plague - you figure it out?

If and when such carriers come to Bermuda and introduce low airfares, they will probably be hoping for load factors in the region of 90 percent. Is that realistic? By their very nature such airlines attract a cheaper clientele, and the tourists whom they likely bring to Bermuda will also be looking for cheap accommodation and cheap restaurants. Can we adequately cater to this new breed of visitor? If not, then these tourists will probably only come once and warn others away with that familiar cry, ‘Bermuda is too expensive!'

What affect will the introduction of budget airlines have on the existing carriers that service Bermuda - after all, there is only so much of the pie to be divided? If the existing carriers start losing significant business to the new airlines, then they will have several options. These include reducing their airfares to compete (in the hope of securing higher load factors), reducing the number of flights that they operate to the Island, or pulling out altogether! The danger is, after the arrival of the new carriers and the introduction of more flights and low fares, we might actually face a backlash and even end up with fewer flights than we have now! Why, because if the new bargain carriers fail, they will quickly cut their losses and pull out. By that time however, the existing carriers might well have also cut back on their services to Bermuda!

In my opinion introducing budget carriers is not the answer - this is not, after all, a budget Island! Likewise neither should we encourage competition on existing routes - not enough people are interested in flying to Bermuda now! If for example Virgin Atlantic took up their option to compete with BA on the Bermuda to London route, it would inevitably result in a reduction in the number of weekly BA flights to the Island (less profit equals less flights). In any case, Virgin would never come here - they only seek to fly on guaranteed big profit routes! On the other hand, a much more sensible approach would be to try and encourage another European carrier to open up an entirely new route to the Island. For example, a once a week return flight from Frankfurt on Zurich via Lisbon to Bermuda. That would open up central and southwest Europe and the Azores to Bermuda, without compromising the services that we already have.

How about creating a Bermuda airline? Sure, we could establish one, but at what cost to you and me? Only if Government (meaning the taxpayer) heavily subsidised it, could it compete with the established carriers - a simple matter of high operating costs.

Instead of encouraging cheap airlines, the priority should be for the Government and people of this Island to work together at making Bermuda a much more desirable destination for our visitors. When more tourists are attracted here and our existing carriers achieve higher load factors, then we can revisit the matter of competition and this in turn will bring about a natural reduction in airfares to and from Bermuda.

REGULAR FLYER

Hamilton Parish

Brown deserves credit

March 29, 2004

Dear Sir,

It was very heartening to read in your newspaper Tourism Minister Renee Webb's prediction that hotel bookings will be up by as much as 18 percent based on talks with the Island's hoteliers. This comes close to confirming the statement made earlier by Shadow Tourism Minister David Dodwell that we could very well see a surge of 20 percent. While Sen. Kim Swan claims this good news is due to American fears of terrorism as well as the strength of the euro, which makes travel to Europe more expensive, I beg to differ. Far more credit must go to Minister of Transport Ewart Brown for securing lower airfares to the Island. One must also remember the massive marketing campaign held in England earlier this year, which should result in a great influx of visitors from the UK. I fear taxi drivers will be using toothpicks to keep their eyes open due to the large volume of work coming their way this summer.

Recently, on the People's Show with Everest DeCosta, one Junior DeSilva emphasised during his pontification on the Israeli-Palestinian conflict in the Middle East that whether we like it or not we must accept the fact that ‘to the victor goes the spoils'. Of course he is 100 percent correct, which makes it hard for me to understand why many in this Island have difficulty accepting this practice when it is applied locally. Let me explain, earlier on the same show a caller claimed that Government was about to ‘steal' a company from a local businessman, which of course is totally absurd. When a government, any government is in power it has the right to decide who should be given government contracts, who should have their government lease renewed etc.

Invariably they tend to favour their supporters or those with whom they have connections, while I am not saying that this is necessarily fair it most certainly is reality. Let me conclude by citing an example of this in the United States. I do not believe for a moment that by mere coincidence Halliburton Oil Company where Vice President Dick Cheney just happened to serve as chairman and CEO from 1995 until his nomination as a Vice Presidential candidate, got control of Iraq's South Oil Company, the largest potential oil producer in Iraq.

Further it is alleged that Cheney, who received $20 million from Halliburton when he became Vice President, knows that he will receive deferred payments of a size to be determined by Halliburton's Board of Directors, based upon how well he performs in office. While such practices may not be deemed ‘ethical' they are in fact commonplace both here and abroad!

RECMAN

St. George's