Transport and Aviation Minister Glenys Hanna-Martin told airline industry luminaries yesterday it is time to discard the Minimum Revenue Guarantee (MRG) model, saying it works to the mutual disadvantage of both destinations and airlines.
Hanna-Martin was speaking at the Latin America and Caribbean Air Transport Association (ALTA) Airline Leaders Forum, touting the idea of shared risk.
"More often than not, ALTA delegates, I believe that we have allowed old, unproductive airlift models to hold sway, to our mutual disadvantage," she said, going on to lay out the MRG model, in which an airline insists on a guarantee of revenue before servicing a route.
Under this model, the destination in question is unable to do any marketing to build consumer demand for the flight, Hanna-Martin said, because it finds itself without the necessary funds to provide both an MRG and promote the flight.
"Consequently, the flight falters. The airline, faced with low demand for the flight, is forced to act. Even though it has no commercial risk, a route with low yields and poor load factors represents an unacceptable drag on its overall operating performance. So, the airline raises fares," she said. "The destination loses its ability to increase air arrivals and is forced to cancel the flight because it is simply unable to sustain the mounting losses."
The minister said the moral of the story is that both airlines and destinations must benefit from their partnership, which she said can only be achieved through a model of shared risk.
Citing the high degree of partnership with source markets in the United States, Canada and Europe, Hanna-Martin said The Bahamas is "proud" to have begun a partnership three years ago with Copa Airlines, which initiated nonstop scheduled service from its hub in Panama to Nassau. She sought to assure the airline of The Bahamas' commitment to the growth of the service. The minister also cited long-term partnerships with Caribbean Airlines and Cubana.
The minister also issued a challenge.
"In terms of stepping up to the challenge to develop infrastructure, my government invested $400 million in the newly-completed Lynden Pindling International Airport. At present, it is only handling half of its capacity. It has a United States pre-clearance facility. We believe that there is an opportunity to partner with one of you to develop a Nassau hub," she said to forum delegates.
"This speaks to a strategy of avoiding long delays at MIA (Miami International Airport), while extending your route network to North American gateways more seamlessly - and perhaps more cost-effectively. Have you considered Nassau as yet? Perhaps the time has come. We would like for you to begin to see Nassau not only as a possible termination point for your flights, but as a springboard to new route development opportunities."

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