Zacca
Al Edwards, Financial Editor
DESPITE HAVING to slash costs by US$50 million in order to keep the national airline viable, Air Jamaica has no intention of drastically curtailing its in-flight luxury service and going the way of low fare carriers such Jet Blue and EasyJet.
Speaking with Wednesday Business earlier this week, Air Jamaica's chief executive officer Christopher Zacca said, "The fundamental basis of the product is 'the best service in the sky' and that will not change. That was the basis upon which we built Air Jamaica and we forecast demand based on that. The trick is for us as managers to find ways for us to aggressively deliver that product at a cost which is reduced in the face of external factors that are beyond our control such as the price of fuel."
He said the airline could achieve its aims, "By being very aggressive on our providers of supplies and on cost areas such as leases. But the bottom line is that the fundamental product design of high service in the skies will not change."
Mr. Zacca said there are no immediate plans to increase air fares and drew attention to Ameri-can Airlines' attempt to do so. He said that only two weeks ago it attempted to add an extra US$5 to US$10 on its ticket prices in the United States but was forced to rescind that because demand was soft.
He said airlines are finding it difficult to maintain price increases because of cut-throat competition among the carriers.
"It is now such a competitive industry that your prices cannot be much higher than your rivals, so unless everyone goes with a price increase it doesn't stick. With the price of fuel being what it is you wonder what the future holds. Demand is so soft now that you just can't raise your prices."
Air Jamaica is facing a fuel bill of US$105 million this year, a
significant increase on last year's US$73 million. It's new business plan is predicated on a US$45-$50 a barrel scenario. However, yesterday oil prices leaped above US$51 a barrel.
Oil analysts surmise that high prices have had little effect on the fastest oil demand growth in a generation this year, while concerns of potential supply disruptions as oil producers pump at full capacity has fed price gains.
Industrialists and policymakers around the world are watching the price of crude oil to see if record highs will threaten world economic recovery.
REMAINING VIABLE
Mr. Zacca said that it
was important that the country understood why it is important that Air Jamaica remains viable. He said that the airline rakes in US$1 billion a year and is responsible for carrying 51 per cent of all visitors to Jamaica. It is a vital fillip to the tourism sector that until Hurricane Ivan, it grew by 10 per cent and was set to have a record year as far as arrivals was concerned. Air Jamaica has costs of US$500 million a year with passenger revenues coming in at US$440 million. It now finds itself owing its local bankers US$100 million.
Mr. Zacca said that in 2001 Air Jamaica was on target to post its first profits but subsequent events put paid to that.
It is now undergoing cost cutting measures and is asking its staff for 'give backs' and to contemplate the possibility of salary cuts. Mr. Zacca said that Air Jamaica pilots are amongst the highest paid in the world and that the company has been in negotiations to trim their salaries but the pilots are instead insisting on a five per cent increase.
FACING REALITY
Responding to the question in light of the calamities to beset the industry and more particularly Air, Jamaica , is it extracting value from its pilots, Mr. Zacca responded: "We do get value from our pilots but with the state of the industry as it is now there is a need to cut their salaries. Everyone in this company has to face the reality that concessions have to be made. So far we have tried to share as much information with the pilots but it seems to be of no avail with them continuing to insist on increases."
The President of the Jamaican Airline Pilots' Association, Mr. Keith White in a letter to Wednesday Business said: "Air Jamaica has threatened us with replacement by foreign pilots if we do not accept a 25 per cent pay cut. Statements in the press about our salaries are not true. It has been said we are paid more than our competitors, for example, American Airlines. This too is not true. In fact, confronted with this claim we have suggested that we be offered American's pay contract and would match any concessions that their pilots gave.
"This offer was not taken up because it would increase our package and cost Air Jamaica much more money. Air Jamaica's studies and studies done on our behalf by international agencies confirm that Air Jamaica's costs for crews is less than 10 per cent of the airline's costs. The industry average is 13 per cent. The pilots have a collective bargaining agreement with Air Jamaica which the company has breached twice. Air Jamaica may well be the first major Jamaican company to break a wage contract. We hope no other companies follow suit. This occurred in November 2003, just before the start of the winter tourist season. Our pilots to date have not taken industrial action."
