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AIRPORT FEE HIKES: SOLUTION OR FURTHER PROBLEM?

Sept. 6, 2002 – The Port Authority's executive director, Gordon Finch, will be meeting on Sept. 17 with the signatory airlines using the territory's airports to discuss recently announced increases in airport fees.
VIPA has no choice but to raise the fees, according to Finch. "The Port Authority is obligated by agreement with the signatory airlines to raise rates to balance the aviation system," he said. "It's not a question … We need to raise the rates to cover the deficit projected for Fiscal Year 2003."
The 35 percent increase proposed to take effect on Oct. 1 will raise to $3.38 the fee per 1,000 pounds of an aircraft's maximum allowable landing weight and raise to $3.50 the fee the airlines pay per passenger.
Finch noted that a couple of years ago, VIPA lowered the rate per 1,000 pounds of landing weight to $2.50 from $3.90. "We got no thanks for that from the airlines, the users or anybody," he said. The rates were lowered for the same reason as they are being raised now, he said: to balance the aviation system in effect with the airlines.
The VIPA board announced the increase in landing fees at its August meeting as part of its FY 2003 budget. The move was made to stem losses in the Port Authority's aviation system, which at the time were estimated at more than $5 million. Finch said this week that, factoring in a credit from last year, the figure will be closer to $3.3 million.
The VIPA board "agreed we are going to eat the losses from FY 2002," Finch said, but it needs to cover the projected deficit for FY 2003. VIPA's financial statements show a continuous slide downward in the last year. Aviation revenues declined by $1.2 million and marine revenues dropped by $1.6 million in FY 2002. The largest expenditure increases were $2.1 million to meet a pay increase negotiated in 1999 and a rise in security costs.
Compounding VIPA's fiscal picture, the territory has seen a 9 percent drop in air arrivals since last September, compared with the preceding year. The authority saw a $10.4 million drop in cash and marketable securities in FY 2002.
Travel sector exec: Working with airlines works
None of this matters much to critics of the fee increase, who see it as another economic blow to the islands.
Mary Simpson, president of St. Croix's Southerland Tours, the territory's oldest travel agency, decried the 35 percent increase "when the airlines are going into bankruptcy."
She cited an Aug. 26 Time magazine article stating that with "US Airways' move last week to seek bankruptcy protection, United's warning that it was sliding that way, and American's announcement of 'fundamental structural changes,' the majors as much as admitted that they can't wait any longer for the friendly skies to return." The article noted that the major carriers together lost $11 billion last year — and stand to lose an additional $5 billion this year.
Simpson — like many others in the private sector and in government — has long been an advocate of a private-public tourism authority for the territory, an idea which Gov. Charles W. Turnbull has rejected. The governor alienated the territory's Chambers of Commerce and Hotel and Tourism Associations last February when he vetoed a bill passed by the 23rd Legislature creating a private/public tourism authority to replace the government's Tourism Department. (See "Associations seek meeting on tourism authority".)
And Simpson is appalled by Turnbull's $10 million guarantee to Sun Airways, a proposed new airline that would use St. Croix as a hub. "It's bizarre," she said.
In a letter in August, the governor told Bruce Morgan Casner, Sun Airways executive, "The government of the V.I., through the Economic Development Authority, will issue a $10 million guarantee" from a new Economic Development Fund "for the purposes of assisting in the financing of an airline hub on St. Croix, once the fund is organized." (See "New airline gets V.I. backing for St. Croix hub".)
This week, Simpson said, American Airlines, the dominant carrier serving the Virgin Islands, put in tour-basing fares from New York and four other major mainland cities to the islands of Antigua, Barbados and St. Lucia which are "less than these departure points to the V.I."
This, she said, is an example of how islands that have tourism authorities and that work closely with the airlines benefit. "I bet none of these islands would reserve $10 million for a non-existent airline like Sun Airways and insult the major carriers that serve them by raising landing fees and supporting an airline that doesn't exist," she said.
"If you took that $10 million and put it in the Sunday New York Times, we'd come back to life," Simpson continued. "It's ridiculous, while we sit here dying. If there really is $10 million, let's use it to put us back on the map."
And she's not just talking theoretically. "We have, this Nov. 15, the Celebrity Cruise Line's new Constellation, one of the greatest cruise ships — it carries 1,950 passengers — coming to St. Croix," she said. "We could stage the biggest welcoming party in the world, and get some publicity to help offset this disaster."
Airline owner: Hike in fees may mean drop in flights
On St. Thomas, pioneer airline owner Paul Wikander was also incensed at VIPA's decision to increase airport fees. "They're out to destroy the little people. We can't keep this up — they're pushing us to the limits," said the man who has run Air St. Thomas, previously known as Virgin Air, for 32 years. The airline connects St. Thomas with San Juan, Fajardo and St. Barths.
"And," Wikander said, "they'll somehow wind up with the same amount of money anyhow, because I'll have to cut down, have fewer flights."
In fact, he said, if the proposed new rates go into effect, he will have to bypass St. Thomas in favor of San Juan. "I'll give up my office at the airport and do reservations from the states with an 800 number and give up my $1,050-a-month counter here," he said.
"I think it's absurd, utterly ridiculous," Wikander continued. "Puerto Rico went down by 20 percent after Sept 11. The counter I was paying only $510 for went down to $319 per month."
He said Port Authority officials told him rates would go down after they built the new Cyril E. King Airport terminal — and "instead they have been raised twice."
Wikander said the landing fee on Puerto Rico is a flat $11 for the small aircraft he operates and 65 cents per passenger, as opposed to the proposed V.I. fee of $3.50 per passenger. On St. Barths, the fees are $9.85 for landing, 18 cents per for domestic passengers, and $1.46 for foreign passenger, he said.
Frank Fox, St. Croix Chamber of Commerce president, said he, too, is disturbed by the fee increases. He sees them likely leading to higher airfares and probably fewer flights. "Governments have a tendency to increase revenues first and reduce expenses second," he said Friday. "We need to reverse that trend."
Fox continued, "I'd much rather see them [VIPA] cut down expenses, or curtail Crown Bay. I don't know why they need to spend all that money. Maybe they could make up their deficit by looking to the marine side. Perhaps some of those cruise ships could make up the difference. If they could transfer funds from the marine operations, maybe they wouldn't need to make a 35 percent increase; maybe it could be 15 percent."
American Airlines spokesperson Minette Velez in San Juan said she had no official comment on the announced increases.
She said American is "still in conversations with the Port Authority right now." Velez said the talks were under way even before the fee increases were announced.

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