Cayman Airways new planes could add $10M to annual costs

News about this airline - please include a link to the source as well as the article text itself.
Web site: http://www.caymanairways.com/
User avatar
bimjim
Forum Administrator
Forum Administrator
Posts: 30891
Joined: Fri May 12, 2006

Cayman Airways new planes could add $10M to annual costs

Unread post by bimjim » Mon Nov 26, 2018

https://www.caymancompass.com/2018/11/2 ... ual-costs/

Cayman Airways new planes could add $10M to annual costs
James Whittaker -
November 25, 2018

Government is likely to have to inject significantly more cash into Cayman Airways to help fund the cost of its new fleet of aircraft at a time when the airline is suffering from falling revenues, legislators heard Thursday.

Government and airline chiefs declined to reveal the exact cost of leasing the four new state-of-the-art 737 Max 8 aircraft, the first of which arrives on island next week. But they defended the expenditure saying the airline’s current fleet of older planes was reaching the end of its useful life and had to be replaced. They also expect the new aircraft to lead to savings in fuel and maintenance costs that will partially offset some of the rental cost.

Cayman Airways initially calculated it would need to increase revenues by 5 percent – around $4 million – to cover the costs associated with fleet replacement. But various factors, including the opening up of Cuba to direct flights from the U.S., mean the airline’s income has actually gone down in 2018.

Cayman Airways is projected to lose $4.5 million in 2018 over and above the $33 million government budgeted to help fund tourism and domestic routes and to pay off historic debts. Questioned over the cost implications of the new fleet during a Finance Committee hearing Thursday night, Cayman Airways CEO Fabian Whorms and Tourism Minister Moses Kirkconnell declined to give precise details of the lease agreement, citing reasons of commercial sensitivity. Mr. Whorms said the base rental costs would be less than the $205,000 per month the airline currently pays for a 15-year-old Boeing 737-800 aircraft that it has on temporary lease right now.

Cayman Airways currently owns the bulk of the planes in its fleet. But those 737-300 jets are between 20 and 25 years old and are being removed from service. Mr. Whorms acknowledged that leasing brand-new aircraft, straight off the Boeing production line, would mean extra costs, but he said the airline had no choice but to renew its fleet.
Jacques Scott

Leader of the Opposition Ezzard Miller questioned why the cost of the new planes could not be made public now that the negotiations have been concluded. He said a conservative estimate, based on the ballpark numbers quoted, was that the four new planes would ultimately add at least $10 million every year to the airline’s costs, before the additional “reserve costs” associated with aircraft upkeep were considered.

He questioned the wisdom of spending that much money on new aircraft at a time when the airline’s revenues are declining. “Where is the revenue going to come from to service that lease?” Mr. Miller asked.

Mr. Whorms said the airline had got a very good deal and was leasing the new aircraft at “virtually half price.” He said the planes would bring significant savings in terms of fuel and would create new route opportunities for the airline and the island. “It was the best option we had,” he said. “There was no choice when it came to retiring the 300s. At 25 years old, they become so expensive to maintain. There is a cost in terms of the leases and those costs are higher than the depreciation rates on the aircraft we now own – obviously they are higher, so that is new additional costs and it is a cash cost versus depreciation on the 300s.”

He emphasized the new planes would mean a 20-percent saving on fuel burn, as well as significantly less expenditure on upkeep and less costs associated with delays. “Substantial savings come from newness. There are also savings from the reliability of the aircraft, which means when it is supposed to fly, it will fly and we won’t incur all of the expense that we have from with irregular operations, delayed flights and bad customer service,” he said. “There are tremendous benefits that offset the costs. Will it offset the costs completely? No.

“Our business case did say we will have to grow our revenues by 5 percent, and that was a reasonable target. The situation is that revenue has been falling for a variety of reasons so the growth will have to be more.”

Tourism Minister Moses Kirkconnell said the airline was contributing significantly to the record tourism arrivals that Cayman has seen over the past few years. He said the new planes were necessary and would increase the options for opening new routes, including a direct flight to Denver starting next year.

“The value of the airline to this country is multiplied by the number of people it brings to these islands,” he said. “We have the top performing tourism product in the region and part of the reason for that is Cayman Airways. Sure, there are going to be times when it needs more money. That’s business.”

User avatar
bimjim
Forum Administrator
Forum Administrator
Posts: 30891
Joined: Fri May 12, 2006

Re: Cayman Airways new planes could add $10M to annual costs

Unread post by bimjim » Sun Dec 02, 2018

Tomas's Comment:

The arrival of the new leased B737-8 is good news for Cayman Airways, 3 x B737-300 are old and expensive to operate, but cheap to lease or buy.

The B737-8 will allow non-stop flights to the US West Coast and Brazil, all good future markets, once the runway at Grand Cayman's Owen Roberts International Airport (GCM) is lengthened from current 7,070 feet by at least 1,000 feet, $20.5 million westward extension and accommodating the longer hauls and heavier loads of the next generation aircraft, which it should have been done before the aircraft's arrival, as now the aircraft is good to do Denver but not LAX or SFO.

In fact, Cayman Airways has looked at serving the London, UK a distance of around 4,170 nm but possibly by way of Bermuda another BOT, makes sense and better than getting a single widebody aircraft which makes no economic sense (like SLM and its 1 x A340-300).
It is just 1,180 nm to Bermuda (2:24) from GCM and then 2,995 nm to LHR (6:09) from Bermuda, so around 9:15 with a quick stop, interesting for sure.

With 1 x B737-800, 3 x B737-300, 2 x Saab 340B and 2 x DHC-6-300 the airline is a big money loser for the BOT (British Overseas Territory), $33 million budgeted for 2018 to pay for tourism, inter-island flights and debts of Cayman Airways, but now add another $4.5 million thanks to the B737-8? that is a lot of money for 4 big jets that I estimate should cost around $US 75 million at most with average utilization and local operating costs.

In 2017 Cayman Airways had "US$60 million a year in passenger revenue, $10 million in other sources and $20 million in services provided to, or on behalf of, government.”? surely not just Cayman Airways Express services to Little Cayman and Cayman Brac for $20 million.
So $90 million in total revenue and still burning cash?

Look, I get airlines need state aid at times but I do not agree with state owned airlines being subsidized by the state forever, it distorts competition, so airlines like JetBlue face them to JFK, United to O'Hare, American to Miami soon Air Canada and Westjet to Toronto, is this right? to compete with taxpayers money against privately owned airlines?

I don't think so, it is time for WTO and states to look at price dumping and state aid in the airline industry, and state airlines should be punished with tariffs and duties just like goods, when local companies are hurt by state backed competitors.

Look at the whoe Bombardier and Boeing fiasco last year over Canadian illegal state aid and price dumping in regard to the CSeries being sold to DAL at a 72% discount, 42% below cost with state backing, just so wrong on so many levels of free trade and capitalism.

Cayman Airways is losing money, when United, JetBlue, American, Air Canada, Westjet are making money? yes, it is pricing its service below its cost and expects state aid to keep it going, and its time for all state airlines to swim or sink, it is an outdated business model that keeps dozens of crap airlines around the world alive that should be dead if were not for state aid (Air India, Biman, SriLankan, PIA, SAA, Tunisair, etc.).

We have see state airlines collapse in Hungary, Cyprus, Nigeria, Ghana and guess what, other airlines moved in and picked-up where the state airlines failed, market forces are such that competitors move in quick, IF Alitalia fails, you can bet Ryanair, easyjet, IAG, LH will soop in and keep air connectivity as it was and better in time.

Anyway, food for thought, as many readers out there are conservatives and state aid smells of socialism to many Americans especially, yet only when dealing with the ME3 do the US3 airlines raise a stinker about state aid? they should expand that to all state owned players the compete with, CAL, SLM, etc. no? it is the right thing to do in the year 2019, its not the 1950's anymore, state owned flag carrier business model is a 'dinosaur' needs to become extinct.

Cayman Airways for whatever reason is not releasing the lease rate of the B737-8 for competitive reasons? though using current CMV (current market value) it would be around $US +/-375,000 per month and not the quoted "less than the $205,000 per month the airline currently pays for a 15-year-old Boeing 737-800 aircraft that it has on temporary lease right now" according to CEO Mr. Fabian Whorms, that would be one hell of a lease rate from Air Lease Corporation that would have airlines knocking on their door especially from a small airline like Cayman Airways.

Why state owned airlines cannot be truthful? I get it they lose taxpayers money, but even more reason to be honest with those that keep you afloat.

Anyway, all the best to Cayman Airways, it needs to replace its 3 x B737-300 soon as well, and sooner then later it will be an all B737-8 operation, plus its turboprops for Cayman Brac and Little Cayman.

User avatar
bimjim
Forum Administrator
Forum Administrator
Posts: 30891
Joined: Fri May 12, 2006

Re: Cayman Airways new planes could add $10M to annual costs

Unread post by bimjim » Wed Dec 19, 2018

https://www.linkedin.com/pulse/cayman-a ... ine-tomas/

Tomas's Comment:

The arrival of the new leased B737-8 is good news for Cayman Airways, 3 x B737-300 are old and expensive to operate, but cheap to lease or buy.

The B737-8 will allow non-stop flights to the US West Coast and Brazil, all good future markets, once the runway at Grand Cayman's Owen Roberts International Airport (GCM) is lengthened from current 7,070 feet by at least 1,000 feet, $20.5 million westward extension and accommodating the longer hauls and heavier loads of the next generation aircraft, which it should have been done before the aircraft's arrival, as now the aircraft is good to do Denver but not LAX or SFO.

In fact, Cayman Airways has looked at serving the London, UK a distance of around 4,170 nm but possibly by way of Bermuda another BOT, makes sense and better than getting a single widebody aircraft which makes no economic sense (like SLM and its 1 x A340-300).
It is just 1,180 nm to Bermuda (2:24) from GCM and then 2,995 nm to LHR (6:09) from Bermuda, so around 9:15 with a quick stop, interesting for sure.

With 1 x B737-800, 3 x B737-300, 2 x Saab 340B and 2 x DHC-6-300 the airline is a big money loser for the BOT (British Overseas Territory), $33 million budgeted for 2018 to pay for tourism, inter-island flights and debts of Cayman Airways, but now add another $4.5 million thanks to the B737-8? that is a lot of money for 4 big jets that I estimate should cost around $US 75 million at most with average utilization and local operating costs.

In 2017 Cayman Airways had "US$60 million a year in passenger revenue, $10 million in other sources and $20 million in services provided to, or on behalf of, government.”? surely not just Cayman Airways Express services to Little Cayman and Cayman Brac for $20 million.

So $90 million in total revenue and still burning cash?
Look, I get airlines need state aid at times but I do not agree with state owned airlines being subsidized by the state forever, it distorts competition, so airlines like JetBlue face them to JFK, United to O'Hare, American to Miami soon Air Canada and Westjet to Toronto, is this right? to compete with taxpayers money against privately owned airlines?

I don't think so, it is time for WTO and states to look at price dumping and state aid in the airline industry, and state airlines should be punished with tariffs and duties just like goods, when local companies are hurt by state backed competitors.

Look at the whoe Bombardier and Boeing fiasco last year over Canadian illegal state aid and price dumping in regard to the CSeries being sold to DAL at a 72% discount, 42% below cost with state backing, just so wrong on so many levels of free trade and capitalism.

Cayman Airways is losing money, when United, JetBlue, American, Air Canada, Westjet are making money? yes, it is pricing its service below its cost and expects state aid to keep it going, and its time for all state airlines to swim or sink, it is an outdated business model that keeps dozens of crap airlines around the world alive that should be dead if were not for state aid (Air India, Biman, SriLankan, PIA, SAA, Tunisair, etc.).

We have see state airlines collapse in Hungary, Cyprus, Nigeria, Ghana and guess what, other airlines moved in and picked-up where the state airlines failed, market forces are such that competitors move in quick, IF Alitalia fails, you can bet Ryanair, easyjet, IAG, LH will swoop in and keep air connectivity as it was and better in time.

Anyway, food for thought, as many readers out there are conservatives and state aid smells of socialism to many Americans especially, yet only when dealing with the ME3 do the US3 airlines raise a stinker about state aid? they should expand that to all state owned players the compete with, CAL, SLM, etc. no? it is the right thing to do in the year 2019, its not the 1950's anymore, state owned flag carrier business model is a 'dinosaur' needs to become extinct.

Cayman Airways for whatever reason is not releasing the lease rate of the B737-8 for competitive reasons? though using current CMV (current market value) it would be around $US +/-375,000 per month and not the quoted "less than the $205,000 per month the airline currently pays for a 15-year-old Boeing 737-800 aircraft that it has on temporary lease right now" according to CEO Mr. Fabian Whorms, that would be one hell of a lease rate from Air Lease Corporation that would have airlines knocking on their door especially from a small airline like Cayman Airways.

Why state owned airlines cannot be truthful? I get it they lose taxpayers money, but even more reason to be honest with those that keep you afloat.

Anyway, all the best to Cayman Airways, it needs to replace its 3 x B737-300 soon as well, and sooner then later it will be an all B737-8 operation, plus its turboprops for Cayman Brac and Little Cayman.

------------------------------------------------------------------------------------------------------------

Government is likely to have to inject significantly more cash into Cayman Airways to help fund the cost of its new fleet of aircraft at a time when the airline is suffering from falling revenues, legislators heard Thursday.

Government and airline chiefs declined to reveal the exact cost of leasing the four new state-of-the-art 737 Max 8 aircraft, the first of which arrives on island next week.

But they defended the expenditure saying the airline’s current fleet of older planes was reaching the end of its useful life and had to be replaced. They also expect the new aircraft to lead to savings in fuel and maintenance costs that will partially offset some of the rental cost.

Cayman Airways initially calculated it would need to increase revenues by 5 percent – around $4 million – to cover the costs associated with fleet replacement. But various factors, including the opening up of Cuba to direct flights from the U.S., mean the airline’s income has actually gone down in 2018.

Cayman Airways is projected to lose $4.5 million in 2018 over and above the $33 million government budgeted to help fund tourism and domestic routes and to pay off historic debts. Questioned over the cost implications of the new fleet during a Finance Committee hearing Thursday night, Cayman Airways CEO Fabian Whorms and Tourism Minister Moses Kirkconnell declined to give precise details of the lease agreement, citing reasons of commercial sensitivity.

Mr. Whorms said the base rental costs would be less than the $205,000 per month the airline currently pays for a 15-year-old Boeing 737-800 aircraft that it has on temporary lease right now.

Cayman Airways currently owns the bulk of the planes in its fleet. But those 737-300 jets are between 20 and 25 years old and are being removed from service. Mr. Whorms acknowledged that leasing brand-new aircraft, straight off the Boeing production line, would mean extra costs, but he said the airline had no choice but to renew its fleet,

Leader of the Opposition Ezzard Miller questioned why the cost of the new planes could not be made public now that the negotiations have been concluded. He said a conservative estimate, based on the ballpark numbers quoted, was that the four new planes would ultimately add at least $10 million every year to the airline’s costs, before the additional “reserve costs” associated with aircraft upkeep were considered.

He questioned the wisdom of spending that much money on new aircraft at a time when the airline’s revenues are declining.

“Where is the revenue going to come from to service that lease?” Mr. Miller asked.

Mr. Whorms said the airline had got a very good deal and was leasing the new aircraft at “virtually half price.” He said the planes would bring significant savings in terms of fuel and would create new route opportunities for the airline and the island. “It was the best option we had,” he said.

“There was no choice when it came to retiring the 300s. At 25 years old, they become so expensive to maintain.

“There is a cost in terms of the leases and those costs are higher than the depreciation rates on the aircraft we now own – obviously they are higher, so that is new additional costs and it is a cash cost versus depreciation on the 300s."

He emphasized the new planes would mean a 20-percent saving on fuel burn (versus old B737-300, not the B737-800) as well as significantly less expenditure on upkeep and less costs associated with delays.

“Substantial savings come from newness. There are also savings from the reliability of the aircraft, which means when it is supposed to fly, it will fly and we won’t incur all of the expense that we have from with irregular operations, delayed flights and bad customer service,” he said. “There are tremendous benefits that offset the costs. Will it offset the costs completely? No.

“Our business case did say we will have to grow our revenues by 5 percent, and that was a reasonable target. The situation is that revenue has been falling for a variety of reasons so the growth will have to be more.”

Tourism Minister Moses Kirkconnell said the airline was contributing significantly to the record tourism arrivals that Cayman has seen over the past few years. He said the new planes were necessary and would increase the options for opening new routes, including a direct flight to Denver starting next year.

“The value of the airline to this country is multiplied by the number of people it brings to these islands,” he said.

“We have the top performing tourism product in the region and part of the reason for that is Cayman Airways." - Sure, there are going to be times when it needs more money. That’s business.”??

Post Reply

Return to “Cayman Airways”