BWIA breakeven point so close, yet so far

THE EDITOR: There has been considerable comment on BWIA in the media recently, and most of it appears to be conjecture, or “ole talk”, not supported by hard evidence. As a shareholder of BWIA who has devoted some time to analysing the published material available, I feel that it is time that some facts were put into the “ole talk”.

The numbers I have derived are from Annual Reports and other public documents, and may contain errors of origin, transcription, or calculation, and rounding or scaling may cause some distortion, so they are for general comparison only. Nobody can deny that BWIA appears to be less productive than many airlines in the industry, especially when raw numbers are used, and I will get back to that later. The fact is, however, that even with poor productivity, BWIA’s labour element of its cost of production is considerably below even Southwest Airlines, one of the benchmark “low cost” airlines in the USA. See table 1. It is even slightly below Jet Blue, the current darling of the industry, when whole year 2002 numbers are examined, see table 2. So one must look elsewhere when BWIA’s high cost of operations is being analysed.

The question of productivity is often linked by insinuation to work rules that are supposed to be very restrictive. Even a cursory examination of other airlines’ work rules will reveal that BWIA’s work rules are not outside the average range for the airline industry, and are less restrictive than many businesses outside of aviation. It is in the efficient use of the work rules available that BWIA appears to fall short; this might indicate an oversight or implementation problem. In the case of the numbers published to illustrate productivity in the Recovery Plan 2003, they could be a little misleading in that BWIA performs services for Tobago Express and LIAT, and possibly others, and the manpower necessary will show up in the head count, but the aircraft numbers will not, giving the impression that the employees per aircraft ratio is higher than normal. This will also skew the passengers per employee and revenue per employee numbers. Average sector length, yield and load factor of course make quite a difference too. Even so, it might be fair to say that the ratios could stand some improvement.

Another area frequently criticised is staff travel, or, as our US counterparts call it, pass travel. Once again BWIA staff do not enjoy anything that is not right in the normal band for the industry, and existing practices at reputable scheduled airlines can be checked. Anything that is not in keeping with industry norms can only be the result of abuse of rules, which might indicate an oversight or control problem. Table 3 is extracted from Annual Financial Reports and SEC filings, or in the case of BWIA 2002, from their 2004 Recovery Plan. The blank rows and entries are because of differences in reporting layouts between ATA, IATA, and BWIA formats. There are differences in the definition of categories, so that the information is not necessarily exactly comparable, but the general trends are representative of what is taking place. As can be seen BWIA’s total costs are too high compared to low cost carriers, but that is not the whole picture.

A comparison of operating statistics, Table 4, shows that although the costs are somewhat higher than the “low cost” carriers, the loads, as indicated by the passenger load factor numbers below, are way below the low cost carriers. Even the relatively high BWIA total cost element would be supportable at a slight increase in load factor. If one was to bring the BWIA load factor up (at a constant yield) to that of the lowest of the low cost examples, Southwest at 68.1 percent, than factoring in reasonable extra fuel and catering costs, BWIA’s 2002 operating profit would theoretically have been about USD$21 million. Even a modest 65 percent load factor would have produced a theoretical USD $9 million operating profit. The theoretical BWIA break-even point is about 62.5 percent, not all that far from the 58.9 percent achieved. So near, but yet so far.

I hope that the figures that I have supplied help clear up some of the misconceptions that exist, and engender an increased level of support for BWIA which will show in the form of increased load factor! A little bit is all it takes. It is notable that the US aviation industry is at this time clamouring for a total reduction in all taxes on the industry. In the light of the current world travel decline, consideration might be given to the removal of VAT and duty on all travel or tourism related industry in TT. The dollar and percentage breakdown of BWIA’s ticket costs reveal that the VAT and surcharge elements are quite significant, representing more than the staff pay and pilot pay elements of BWIA’s ticket cost breakdown, respectively. See table 5. It is hoped that facts and figures will help drive the recovery of BWIA rather than “ole talk”.
Time for “ole talk” done.

SIMON KELSHALL
Diego Martin