Basseterre, St. Kitts, October 17, 2015 (SKNIS)—Tourism Minister, Honourable Lindsay Grant, is debunking the myth that the government of St. Kitts and Nevis is losing millions of dollars annually from subsidized international transport. Some in the public sphere have suggested that the government pays millions of dollars to airlines to provide airlift to the country which results in a heavy loss to the tourism industry as the passenger haul does not compensate for that subsidized investment.
However, while on the radio program “Working For You” this past week (October 14), Minister Grant explained that this is not so and explained the arrangement the government has with some airlines to fly to St. Kitts. He said airlines work on either a marketing strategy or use what is known as a Minimum Revenue Guarantee or MRG. MRG involves the government placing a certain amount of money on an escrow account agreed to by both the government and the airline, which the airline would draw from if it did not meet the revenue target when flying to the destination.
According to Minister Grant, St. Kitts and Nevis has just signed a MRG with United Airlines that will begin flying to St. Kitts and Nevis on the 19th of December of 2015 from Newark, New Jersey. The MRG is valued at $US$1.3 million.
“It doesn’t mean that we pay United Airlines $US1.3 million, it means that we put $US1.3 million in an escrow account, agreed by both parties, on a bank agreed by both parties just in case there’s a fall below the load factor that’s acceptable,” Grant explained. “There is an expected load factor the airlines will have to make to ensure that there is profitability on their end. If we don’t go above that benchmark, then they have to draw down on the MRG which is $1.3 million. We don’t expect that to happen.”
He further disclosed that the Ministry of Tourism would have done its research to ascertain that the Newark/New Jersey area and the surrounding counties are among the 10 richest counties, which St. Kitts and Nevis could benefit from. The minister said there is also a MRG with American Airlines valued at $US1 million for travel out of New York’s JFK and Miami. There was no need to draw down on the MRG over the last five years with American Airlines, the minister noted.
“The JFK route and the Miami route are working well. If you have travelled recently out of Miami, you can’t find a single seat—although we have the money on that account, just in case it doesn’t operate with efficiency,” Mr. Grant said. The minister also disclosed that with the merger of US Airways and American Airlines, the MRG for both airlines will now be combined.
On the other hand, St. Kitts and Nevis has a different arrangement with British Airways, the minister explained.
“With British Airways which comes out of London, we don’t have a MRG…what we do we have is a marketing fund with them. So if this year we decide, as a team in The Tourism Authority and the Ministry of Tourism, we are going to spend $2 million promoting St. Kitts and Nevis in the United Kingdom, we spend that on our own and what British Airways will do is match that amount,” Grant said.