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RAISE FEES AND LOSE FLIGHTS, AIRLINES TELL VIPA

Sept. 17, 2002 – Airline companies voiced their opposition to the Port Authority's announced increases in airport fees on Tuesday, laying out the grim consequences for the territory that they said such a move would have.
American Airlines official Danny Menendez said with the carrier's ongoing losses, it will have to drop some of its flights serving the territory. Lowell Dyer, American's St. Croix station manager for the last 28 years, said one of them would be the only mainland service St. Croix now has.
"Within 60 days, we would close the St. Croix station," Dyer said. "With the pullout of the cruise ships, this would be drastic. But that is a fact; that is what we would have to do."
And American Eagle wouldn't be far behind. Julia Carter, American Eagle representative, said if the announced 35 percent increase in landing fees goes into effect, "We will have to cut half of the flights — and cut back half of the staff on St. Thomas and on St. Croix."
Steve Houlder, Delta Air Lines regional manager, said the increase, compared with airport fees elsewhere in the world, "stands out as an aberration." He added, "These fees could jeopardize the level of service we provide to the V.I."
And R. Brian Davis, US Airways manager of airport affairs and international services, said a planned new flight between Charlotte, North Carolina, and the territory "may have to be re-evaluated" in light the increased fees. Davis noted that US Airways recently filed for bankruptcy protection but said the company was moving forward with expansion plans.
Gordon Finch, VIPA executive director, called the meeting for the airline officials to share their views on the increase scheduled to go into effect on Oct 1. As part of the authority's Fiscal Year 2003 budget, the Port Authority board approved increasing landing fees for signatory airlines to $3.38 per 1,000 pounds from the current $2.50 per 1,000 pounds. The per-passenger fee charged the airlines will increase to $32 from the present $22.
Finch explained that the Port Authority, by virtue of its signatory agreement with the airlines, is not allowed to make a profit on aviation revenues; any surplus must be returned to the airlines. At the same time, the airlines have agreed to absorb any aviation losses that VIPA may experience.
That was not a popular viewpoint Tuesday morning at the meeting, which extended over more than three hours. The spacious VIPA conference room was packed with community stakeholders: representatives of the major airlines, small commuter airlines, the hotel sector and the general public.
Hercules Williams, longtime V.I. aviation figure and American Eagle consultant, patted Finch on the back. "He is a fine citizen, and I know he will do what he has to do," he said. Then, turning to Finch, he added, "but I am begging you [not to increase the fees]."
Finch told the gathering, "To be honest, I don't know any other way." He added, "If you look at it as a $10-per-passenger cost, that should buffer the alarm factor of a 35 percent increase."
The $10 figure didn't go over well with David Yamada, Renaissance Grand Beach Resort general manager and president of the St. Thomas-St. John Hotel Association. "The $10 isn't a minimal amount — if I should increase my room rates by that, occupancy would drop," he said.
Yamada said the potential impact of the airport fee increases on the territory's hotels could be bad. "Almost all the hotels have reduced rates since Sept. 11," he noted. "The increase could be counterproductive. We are 15 to 20 percent down in occupancy right now."
Jamie Holmes, general manger of the Ritz-Carlton St. Thomas Resort, was more direct. "We've spent $85 million on our expansion project," he said. "This is the last thing I want to hear. What we have had to do is figure out how to run a business after Sept. 11."
Private sector solution: Cut costs
The airline and hotel officials were of one mind: The Port Authority should take its cue from the private sector and cut back expenses. Houlder said, "We have an aggressive program. We're doing it better, smarter and cheaper. We even cut janitorial service in our corporate offices from daily to once a week."
Bob Arthur, VIPA aviation rate consultant, said echoed Finch's comments that the aviation division's "residual rate methodology is that the surplus gets put back to the airlines, and the deficit gets made up." Arthur and Finch both noted that airport fees have gone down four out of the last five years. "The rates are calculated every six months," Arthur said, noting that VIPS did not raise rates last September, although "we could have."
Finch said aviation bond rates are considered a minimum investment by Standard & Poor's. "If they see our books don't balance, the bondholders will go bush," he said, employing a local term for pulling out.
Finch, too, reminded the airline representatives that VIPA decided not to raise fees after Sept. 11 last year because of the impact doing so would have had on the airlines at the time. Now, however, he said, "If we can't meet our debt service of $4 million a year, the airlines would have to pick that up."
Cleo Hodge of Ace Flight Center, which runs flights to the British Virgin Islands along with providing pilot training, said he would have to charge $70 one-way to the BVI under the new rates — and "$26 of that would go to the Port Authority." He said he couldn't compete with the ferries, which charge $20 one-way.
Paul Wikander, owner of Air St. Thomas and a 32-year veteran of the airline business on St. Thomas, was incensed. He told Finch, "This has got to stop. You're destroying the economy of the V.I., and you'll make less money because you will have fewer landings. I beg of you not to do it."
Wikander, whose airline connects St. Thomas with San Juan, Fajardo and St. Barths, said the increased fees would force him to bypass St. Thomas and operate out of San Juan. "It's 18 cents per passenger to land there," he said, in contrast to the $3.50 per passenger in the V.I. He added, "If you cut the big guys, you will cut the little ones. My business is based on the major carriers; if you cut them back, it will have a domino effect."
Finch said the VIPA board has "agreed we are going to eat the losses from FY 2002." But he said the authority 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 items were a payroll increase of $2.1 million to meet a higher wages negotiated in 1999 and an increase in security activities.
The territory's air arrivals are down 9 percent from a year ago, which compounds other fiscal considerations for VIPA. The authority is expected to record a $10.4 million drop in cash and marketable securities for FY 2002.
VIPA's monthly board meeting is Wednesday. Several board members were present Tuesday, including Attorney General Iver Stridiron, who said the airlines have not treated the territory well in the last few years. "How about cutting the travel agents' commissions, forcing a number of agencies to close?" he asked.
Airlines come in for criticism, too
Stridiron also criticized the major airlines' recent elimination of senior citizen coupon booklets, saying that has had a direct effect on the territory's economy. "For instance, my mother makes three trips here a year, and she spends money on jewelry and clothes," he said. "Now, she will be able to come down only once."
Stridiron raised the question of whether the signatory airlines had ever offered not to claim the surplus in years
when there was one. "I don't think so," he then answered, adding that VIPA and the carriers need to revise their contract.
He said the board would go over the budget figures "carefully" with its accountants before Wednesday's meeting. He did not rule out the possibility of a change in the planned increases.
"What we all should be doing is discouraging our leaders from the saber-rattling about Iraq," Stridiron told the full room, "or we won't see any planes in the sky going anywhere. If we go to war, people will lock up, close down; they won't be going anywhere."
Ken Johnson, Cape Air Caribbean regional manager, said the airline plans to hold steady. "We aren't going to cut back," he said. "We are committed to the Caribbean in the five years we've been here, and we re not leaving as long as we have passengers."
However, Johnson said, "With the territory's crime and now the garbage situation [haulers are striking on St. Croix], I'm pretty discouraged. It's hard to get passengers to come here as is. And then to have to say, 'By the way, we have to charge you $10 more.'"
The VIPA board will meet at 10 a.m. Wednesday in the same conference room.

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