New Bahamas airport raises financial issues

Written by  //  April 2, 2013  //  Caribbean  //  No comments

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Nassau’s Lynden Pindling International Airport (Credit: http://imageshack.us/f/338/dsc0229wb.jpg/)

Nassau’s Lynden Pindling International Airport (Credit: http://imageshack.us/f/338/dsc0229wb.jpg/)

One of the Caribbean’s top tourism destinations, the Bahamas, now has a world-class international airport to boast about. Yet who will foot the bill for this strikingly modern, $409.5 million expansion project remains a matter of controversy.

The three-stage redevelopment of Nassau’s Lynden Pindling International Airport (LPIA) began with the March 2011 opening of a 247,000-square-foot U.S. terminal and one million square feet of aircraft operating surface. The second stage, a 226,000-square-foot international arrivals terminal valued at $144 million and housing more than 20 retail and food outlets, was inaugurated in October 2012.

Upon completion of Phase III — consisting of a domestic and international  departures terminal as well as a domestic arrivals terminal — later this year, the new LPIA airport complex will cover 571,000 square feet and have the capacity to handle five million passengers per year.

To pay for it all, the Nassau Airport Development Co. (NAD) has proposed boosting the international passenger facility charge by $4.50 and the domestic passenger facility charge by $2.50, effective Oct. 1, 2013. This will raise the total fee to $40 for international passengers.

That doesn’t sit well with the seven airlines that bring the bulk of U.S. passengers to the Bahamas: American, US Airways, Delta, JetBlue, Southwest, Spirit and United. In a Feb. 4 letter to NAD, the airlines complained that the proposed increase would unfairly raise the cost of air travel and cut into profits of airlines serving the competitive Bahamas tourism market.

In response, the airport’s governing body is aggressively defending its action, arguing that all passenger facility charge (PFC) increases are made in accordance with initial plans discussed with the airlines when LPIA’s expansion commenced in 2009.

“PFC increases have been timed to occur at the end of each stage of construction, as each new terminal commences operation, at the airlines’ request,” said Chris Ryan, NAD’s vice-president and chief financial officer, in his Feb. 19 letter. “This means financing for construction was raised in advance, with debt repayment deferred, until full operations of the new terminal commenced.”

Based on current traffic forecasts, Ryan said, the current rates will repay the debt with only CPI-based increases in the future.

“The nature of the financing of this project is such that essentially all of the free cash flow of the airport must be utilized to first repay the debt,” the NAD representative said.

Fees not off mark
In 2012, LPIA handled 731,312 domestic, 362,260 non-U.S. international and 2,175,706 U.S. passengers for a grand total of nearly 3.27 million. That’s up 5 percent over 2011 figures and represents increases in all sectors.

Compared to other Caribbean airports, LPIA does not appear to be that far off the mark when it comes to fees and charges.

LPIA’s projected per-passenger cost by October 2013 — based on a Boeing 737-700 with a 75 percent load factor (102 passengers) and a 90-minute turnaround time flying internationally — comes to $46.62, excluding government taxes. With the recommended increases, that goes up to $51.12 per passenger.

Adjusting the current Caribbean average for a 4.3 percent average annual rate increase seen over the past three years, for 2013 and 2014, results in a Caribbean average of $47.35; LPIA’s recommended fees are only 7.9 percent above that average.

“At 7.9 percent over the forecast average, NAD is exactly where predicted when the project began,” Ryan said. “Being slightly above average is justifiable in that LPIA is brand-new and has three sectors of service. These are dimensions that do not exist at peer comparison airports. As LPIA plans only nominal rate increases on fees going forward, LPIA should trend toward the average as other peer airports increase their rates.”

Baha Mar will include four new hotels — a Mondrian, a Rosewood, a Grand Hyatt and a casino hotel — as well as a convention center and Jack Nicklaus golf course. (Credit: www.bahamar.com)

Baha Mar will include four new hotels — a Mondrian, a Rosewood, a Grand Hyatt and a casino hotel — as well as a convention center and Jack Nicklaus golf course. (Credit: www.bahamar.com)

Baha Mar development on track
In other Bahamas news, the $3.5 billion Baha Mar development is about halfway completed and will open on schedule in December 2014, said Robert Sands, senior vice-president of administration and external affairs. A midway “topping off” celebration marked completion of the 25th and final level of the Baha Mar Casino & Hotel, the tallest structure at the 1,000-acre resort, located on the south shore of New Providence Island.

Baha Mar will include four new hotels — a Mondrian, a Rosewood, a Grand Hyatt and a casino hotel — as well as a convention center and Jack Nicklaus golf course. It’s being marketed as the Bahamian Riviera and will encompass the existing Sheraton and Wyndham hotels and have 2,200 rooms.

Finally, in late January, Bahamians voted overwhelmingly against the legalization of so-called “web shop gambling” and the establishment of a national lottery. Under current law, Bahamian citizens are prohibited from gambling in casinos at island resorts, leading many to underground gambling centers known as “web shops” to bet on numbers in televised U.S. lotteries.

The Jan. 29 referendum was rejected by a nearly two-to-one margin — despite arguments by Prime Minister Perry Christie and his ruling Progressive Liberal Party that the measure would generate hundreds of jobs and $20 million a year in taxes if approved. Criticism of the bill was led by former prime minister Huber Ingraham, the opposition Free National Movement and the Bahamas Christian Council, whose spokesman Ranford Patterson called the referendum’s outcome “a victory for the church.”

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