The state owned national carrier Air Jamaica has been getting a lot of attention as the country grapples with what to do with the perennial
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11 Responses to “Air Jamaica – Let it Go, Let it Go, Let it Go”
Richard G. Williams
Following a range of discussions during the Christmas season, I came to the conclusion that JA is in dreamland when it come to managing troubled assets and resolving critical issues. Many loose sight of reality and readily drop common sense to cling to false spiritual/religious dogma or try to argue concepts (e.g., macro/micro-economics) for which they only have a cursory understanding.
For instance, it should be clear to any reasonable person that if you continue to spend more than you earn, that you will eventually be in great debt. Unless the overspending is for carefully planned growth, the solution should be to cut spending to achieve breakeven or surplus levels. However, we let smooth talkers and politicians evade the facts then sell us out as we sleep.
The JLP government is obviously seeking a deal that will maximize the inflow of foreign currency at the risk of loosing a national asset that can be profitable, which clearly supports the formal and informal economy. Hence, it conveniently will ignore offers/solutions by local JA investors and seasoned professionals who have the ability to turnaround the airline at no major cost.
What the JLP government wants us not to see is that selling Air J or its routes and hubs to a foreign entity will attain a very short-term benefit (like a narcotic fix) but in the medium and long term, will hasten the downward spiral of the JA economy. In other words, they are cutting our throats to spite their nose. Perhaps training in Operations Research is needed here.
If other regional airlines that have a smaller market base can survive and be profitable, then the “Love Bird” can rise from the ashes like the Phoenix once these jokers’ hands are off its neck.
Stan, I believe the three choices Air Ja. have are: a) merger; b) sell it to the pilots, et al; and c) shut it down permanently. My point is that the Jamaican gov’t simply cannot continue to financially prop up Air Jamaica in these times when it’s hard-pressed to find money to address other issues in society. Therein lies the conundrum: sell it, less the debt, and you might get decent money for it or sell it and let the buyer assume the debt as part of any sale and then you’d literally be paying the buyer to take it off your hands. In either case, the gov’t can’t possibly expect to profit from selling it to anyone if you factor in the debt AJ is carrying. Shut it down and then you have redundancy payments and pensions for vested employees. No matter how one looks at it, operating Air Jamaica has been and continues to be a costly proposition. Folks clamoring for it to be sold to its employees are doing so more out of emotion and sentiment and, dare I say it, jingoism – things that should not factor into rational business decisions/transactions.
Gee, Richard, I’m surprised it took you until this past Christmas to realize what most Jamaicans with half a brain already knew about government management of troubled assets and resolving issues. If you read Stan’s response, you’d see where he talks about a former Digicel exec who wanted to start a low-cost airline based in Jamaica but was denied the opportunity by Don Wehby, then Audley Shaw’s right-hand man at MOF, because of supposed ‘delicate negotiations’ that were in the works regarding Air Ja. This is the nonsense that has defined governments and governance in Jamaica (for the most part) since Independence. Air Jamaica has not made money since 1969 and it will show a loss this year – again. Air Jamaica could not even make money when Butch Stewart and the Moo-Young family were majority owners in the late 90s to the first half of this decade. I think that any Jamaican who wants to start/run an airline should be able to do so but just not with Jamaican taxpayers’ financial support nor any hopes/expectations of it when times are tough.
Richard G. Williams
Using the Boston Consulting Group matrix, Air J is more of a “cash cow” than a “dog”, meaning that it commands a relatively high market share, but has a low growth rate. More people prefer to fly on Air J not only for tourism but for commercial trade, hence the high market share. Because it is a public asset, profit making was never the focus, but public service. When a product or service is considered a “cash cow” the appropriate intervention is restructuring its operations and/or debt but NOT dissolving.
The BCG matrix is just one of many tools that are used to develop effective policies and design successful strategic plans. From the field of Operations Research, Linear programming and Time series analysis can be used select the optimal/best routes/hubs as well as the mix of resources needed to attain breakeven or net profit levels. Maybe because the MBA or MPA degrees did not exist in JA until recent years, few decision makers lack the breadth of skills needed to manage troubled assets and/or resolve critical issues.
The overriding issue is discipline, from fiscal discipline to disciplined travelers. Air J’s problems are symptomatic of Jamaica’s problems, which cannot be solved by “cutting off our necks to spite our nose” but require careful assessment and effective strategic planning by contemporarily educated Jamaicans. The “chop it down” mentality must be eliminated and replaced with rational-critical thinking. Ignoramuses, philanders, and drunkards must not head public agencies or be allowed to influence public decisions.
Is that a new definition of cash cow? It used to be a product or a business unit that generates unusually high profit margins. Richard, could you please post a link or some stats to show the percentage of tourist traffic transported to Jamaica by Air J – for the carrier and against all carriers? I’ve been searching for this info with no luck. Thanks.
Richard G. Williams
It is not a new definition; as per the BCG, there are two axes (i.e., relative market share and market growth rate) which range from low to high. The “cash cow” represents a product, service, or organization that has a high market share but has a low market growth rate. A unit can represent a single product/service within an organization or the entire organization that has multiple products/services or a single product/service.
If we dissolve or under fund a “cash cow” such as Air J, a huge chunk of JA’s market share will be lost as opposed to dissolving a “dog” that has low market share AND low growth rate – in that case the decision would be to offer a different product/service due to low demand or dissolve. Additionally, informal commerce and remittances (cash or kind) we depend on will suffer.
To burden the country with Air Jamaica, is like mandating a young man to buy fine stuff for a girl week after week that he has no hopes of ever getting even a “chuups” from. The sooner Air Ja. is sold, given away or just wound, up the better.
I’m not so sure that Air Jamaica is a cash cow. What it has been is primarily a (misplaced?) source of pride for the common man/woman in Jamaica and a money pit. The problem you have is that the government decided to get involved in a business venture it should not have been in. There is pride that comes from starting and owning a business and there there is pride and satisfaction that comes from starting and owning a business that is thriving, profitable and not drowning in debt. Air Jamaica has been a going concern not because it’s a cash cow but because it’s a ward of the Jamaican state. The plain, simple, ugly and inconvenient truth is that if AJ had been a private company from the start it would have likely ceased to exist years ago. AJ had a stint as a private company for almost 10 yrs and the owners failed to reverse its fortunes and they handed it back to the gov’t.
There comes a time when certain events happen in the life of a country and priorities have to be (re)considered and certain decisions made. This is one of those times. Richard, you’re right that fixing a ‘cash cow’ should involve restructuring its ops and debts but that’s all the more reason for the private sector to do it and not the gov’t. Let fixing AJ’s problems/issues be someone else’s responsibility – just not the government’s/Jamaican taxpayers.
Richard G. Williams
Probably because of a major power surge and a thunderstorm on February 12, I had to split my Friday comment. The second part of my comment that gave sources on Air J’s market share, profitability, and opportunities for growth is still “awaiting moderation” along with a third comment that gave more sources to bolster my position.
The sources I found give a contrary view to premise of this article and certain comments. They show that Air J is viable and still holds a leading market share, but is suffering due to liberalization and failed attempts at privatization plus governmental bungling. Ergo, it is not Air J that failed but a JLP government that wants to shirk its responsibilities.
Running a national airline is not like running a private bus, taxi, or handcart. Depending on access to equity or debt financing (or ability to turn an existing asset into a transport concern), a single individual may easily join the many individuals and/or groups in those forms of transportation, and breakeven in less than a year with good management.
The same is not true for an airline, which requires a high level of investment that few individuals/groups have. Further, the infrastructure (e.g., airports, baggage, security, immigration, customs) to sustain air services (whether local or foreign airlines) must be properly managed and are subject to the US’ FAA regulations and penalties.
Along with the direct and indirect contributions to the formal and informal JA economy, Air J with its signature brand and JA Diaspora supported market niche is bonded to our Tourism industry. It is because of this bond, that our government must maintain a 25% to 33% share in our national airline along with an expanded staff share.