If the Terrance B. Lettsome International Airport runway is extended and terminal upgraded, will major airlines from North America, Latin America, Europe, Asia and so on dash to start nonstop flights in and out of it? Airlift is a vital mode of transportation to move passengers and cargo. It is also vital for continued economic growth and development, especially in maintaining competitiveness in the tourism industry. Further, both residents and visitors would like the convenience of direct flights between the Virgin Islands and major cities in the United States, United Kingdom, Canada, Brazil, Mexico and other countries.
Nonetheless, there are challenges to this convenience becoming a reality. One of them is the lack of an extended runway, but more important is the core issue of attaining and maintaining a sustainable profitable passenger load factor, known as a PLF. As any other business, an airline must turn a profit to stay in business. A PLF is the engine that drives a passenger airline’s profitability.
The Beef Island airport has a 4,645-foot runway and is the main one of three airports serving the VI, with the others on Virgin Gorda and Anegada. In 2004, the airport underwent a major capital improvement programme project valued at approximately $50 million and including a runway extension; a terminal upgrade; a new control tower; an enlarged flight apron; and an enlarged and revamped parking lot. Currently, the airport does not receive any scheduled passenger jet service.
However, government has invested approximately $7 million in BVI Airways to provide nonstop jet service between Miami International Airport and TBLIA, using British Aerospace Avro RJ 100 jets. The start date for flights, however, is pending.
Additionally, government is also proposing to expand the runway from 4,645 feet to approximately 7,100 feet and upgrade the terminal. This project would accommodate Boeing 737-800 and Airbus A320 planes.
The current working estimate for the project is $250 million. Public funding is not currently available to fund it, but government is currently pursuing a public-private partnership to develop, finance and construct it.
Passenger airlines currently serving TBLIA include LIAT, Seaborne Airlines, Cape Air, VI Airlink and so on.
Not a priority?
Though overall many residents do not oppose the expansion, they may not see it as a top priority at this juncture, given the urgent need for other major capital projects to rebuild the territory. The other major capital projects that are needed include reconstructing the road network; schools; the electrical grid; the sewerage system; the potable water system; marine ports; public safety facilities including fire and police stations; tourist attractions and facilities; the prison; and public facilities such as the Central Administration Building. Hurricanes Irma and Maria, two category five storms, devastated the territory within two weeks in September 2017, causing an estimated $3.6 billion in damages and necessitating the major rebuilding effort.
Airline operation is a service business that is capital intensive, labour intensive and relatively seasonal, and it has a razor-thin profit margin. Further, every passenger airline taking off and landing incurs a fix cost, including flight crew benefits, maintenance and operations, landing and other fees, lease cost, ground staff compensation and so on. These expenses are covered primarily by paying passengers. Typically, an airport’s revenue streams include space rental, landing fees, usage fees, gate space, parking lot usage, storage facilities, hangar space, rental car fees, retail and concessions sales, and so on.
The Beef Island airport is a small facility with limited traffic and revenue-generation options. Investors, meanwhile, normally look for investment opportunities that generate at least a minimum return on investment north of 10 to 20 percent. Consequently, to fund the project and attract an investor, government may have to enter into an agreement with a PPP or other investor(s) to develop, finance and operate the facility for a number of years. The entity may have to be given operating control of TBLIA for 20-25 years to recoup its investment and make a reasonable return. Undoubtedly, extending the runway and upgrading the terminal would boost the national pride and psyche, but what price are residents willing to pay for it? Are the benefits worth the cost? Is sustainable passenger traffic there to justify this project at this juncture? Is this project the best use of scarce resources?
Passenger Load Factor
In the hotel, motel, guesthouse, cottage and apartment business, occupancy rate is a critical operating metric. Similarly, in the airline business, passenger load factor (PLF) — a measure of how full an aircraft is — is a critical operating metric. PLF can also be employed in the ferry, bus or train business. It is the ratio of revenue passenger mile/available seat mile measured in percent, and it is different for each airline. Each airline must consistently operate at a PLF that covers operational cost plus profit to stay airborne. The International Air Transport Association — a trade association for world airlines that is headquartered in Montreal, Canada, with offices in Geneva, Switzerland, and consisting of 290 airlines from 117 countries — states that 2017 PLF for total markets was 80.7 percent, for North America was 82.7 percent, and for Latin America was 81.5 percent.
Moreover, an airline’s decision to start a new route or continue an existing route is a function of paying passenger loading, not necessarily the length of the runway or the grandness of the terminal. A, perhaps non-sustainable, option is for government to subsidise airline operations to meet at least their minimum PLF. The cost of any subsidy must be weighed against the benefits provided.
Airline-ferry service link
Further, the link between air-ferry service needs a closer evaluation.
This territory and the USVI are close neighbours and have always maintained close economic and social interactions. Cyril E. King International Airport in St. Thomas offers nonstop passenger jet service between New York, Newark, Atlanta, Miami, Fort Lauderdale, Philadelphia and so on. Currently, many residents and visitors to this territory fly into and out of Cyril E. King and take a short ferry ride to get here. The VI can continue to partner with the USVI for meeting its scheduled passenger jet service needs. In the short- to medium-term, in other words, it can use Cyril E. King as the gateway for scheduled passenger jet service.
Thus, to strengthen the gateway process, the VI should modernise the ferry service; optimise ferry scheduling; consolidate ferry ownership/operations (perhaps by forming a co-operation), and so on. Moreover, the VI can benchmark Princess Juliana International Airport in St. Maarten as the gateway for scheduled passenger jet service for Anguilla, St. Barthelemy, Saba, St. Eustatius and so on. Further, like the VI to USVI, Anguilla operates a ferry service to and from St. Martin.
Ultimately, extending the TBLIA runway to facilitate scheduled passenger jet service is a requirement. However, the critical factor in attracting nonstop flights from North America, Latin America, Europe and Asia is PLF. A lengthy runway with a modern terminal will be underutilised if the passenger loading is not there to attract airlines to start and sustain nonstop flights. As a hotel has to put heads in beds at least at a minimum occupancy rate to stay open, so too must airlines put at least a minimum number of butts in seats to get and stay airborne. Thus, PLF is the core issue as to whether nonstop flights are started or continued. As such, even if the runway is extended to 7,100 feet and the terminal modernised, there is no guarantee that airlines will race to start and sustain nonstop flights. Nevertheless, if the route yields their desired profit margin, they will come.