by Kathryn Creedy, Orlando, FL, USA
Taxes and Caribbean gateway customs and immigration bottlenecks are hurting the competitiveness of many Caribbean destinations including St. Maarten. In addition, the differing regulatory and air traffic control requirements make for a complex operating environment.
There are many in the region wanting to lower taxes, harmonize regulations and air traffic control and eliminate intra-Caribbean bottlenecks that discourage not only innovative products but tourism and business.
Regulatory and Governmental Barriers
Tropic Ocean Airways CEO Rob Ceravolo, a frequent CaribAvia attendee, discussed the development of seaplane operations around the Caribbean, expanding his Cessna Caravan and Grand Caravan operations with the development of seaplane bases which do not require the high cost or environmental impact of creating new runways in a region where land is scarce.
Ceravolo talked about the barriers to creating inter-island operations especially dealing with so many governments. Existing regulations are also woefully outdated – true around the world – and must be updated. Air traffic management must be integrated.
“What is needed is a region-wide coalition with all the stakeholders – government, the tourism community, regulators, operators and resorts – to reduce the barriers to improving airlift,” he said. “The coalition should identify operators who have cracked the nut on developing air service with so many competing aviation interests to learn how it can be done. This government coalition would also identify the best operating practices and assess existing regulations for updating and it would decide together on the regulatory approach that will cover and benefit the entire region. It must allow for scalability and it must set a high bar for safety.”
The seeds of such a coalition are actually found at CARIBAVIA but Ceravolo is right a more formal coalition is needed.
The Caribbean Community known as Caricom is actively working on lowering taxes while others streamline processing in the region.
“I think this is where we need to go,” Regional Economist Dr. Justin Ram, told Caribbean National Weekly. “I think having a single Caribbean airspace is critical also for the passengers. It means that once I enter the Caribbean through immigration, I should not have to go through immigration, customs, again. We really need to have one set of rules so that we have that single airspace.”
The problem is making it actually happen with so many nations involved. What was interesting at CARIBAVIA was the number of private partnerships being leveraged to implement some of the changes needed.
Born Out of Tragedy
For instance, an innovative program developed by Tropic Ocean Airways, the Bahamas government and the National Association of Black Hotel Owners, Operators and Developers (NABHOOD) was implemented in the wake of Hurricane Damien, a Category Five storm that destroyed Abaco and Grand Bahamas. With the Bahamian government, they created
created a Bahamian pre-clearance presence in Fort Lauderdale to pre-clear emergency relief supplies into the archipelago which helped to speed relief.
NABHOOD was instrumental to the efforts said CEO Andy Ingraham who explained his network of African-American investors made it happen because there was otherwise no money to pay for such a facility.
“The Bahamas was hailed for its stroke of genius in creating the private-public partnership for pre-clearance,” explained Ingraham. “It was a game changer. Once pre-clearance opened up, volumes went up 100% and the private aviation market to the Bahamas almost doubled.”
That facility is now permanent, Ingraham told conference attendees. He described how it is opening up new markets and enabling private aviation flights direct to destinations without stopping at overcrowded gateways.
“Pre-clearance is the future of travel to the US, but it should be the future of travel to the Caribbean,” Ingraham said. “That means when you pre-clear you can fly direct to any of the Bahamian islands without stopping at airport ports of entry. This has led to an increase in private-island purchases. It brings in more investment and new projects. It’s about opening up new markets including using seaplanes to deliver passengers to their yachts out on the ocean.”
Similarly, St. Maarten is also a customs and immigration bottleneck. Quick, inter-island flights between SXM and its surrounding islands or any other international archipelago is immediately bottlenecked at the gateways.
“The ease of a 20-minute flight to St. Maarten is destroyed when you are stuck for an hour and a half in immigration processing,” said Ceravolo, urging reform.
Increasing Competitiveness by Lowering Taxes
CARIBAVIA Founder Commander Bud Slabbaert described Caribbean aviation taxes as causing economic strangulation in the region. He called on governments to drop departure and other passenger taxes if islands want to reap the economic benefits of becoming international, or even regional, hubs.
“Despite global policies calling for a reduction in passenger taxes, the past decade has seen an unprecedented proliferation of taxes levied on air passenger tickets in the region,” Slabbaert said in a commentary. “This trend is causing serious concerns and has a negative impact on the sustainable development of air transport, which, ultimately negatively impacts the tourism industry and the overall national economic development.”
CARIBAVIA speakers related how tourism and airport taxes are counterproductive and leave visitors with less money to spend at local businesses.
An “evergreen” issue at the CARIBAVIA Summit held each year in St. Maarten, the subject was no less important this year as Bryan Winter, managing counsel, Aero Attorney Group cited taxes as the most important reason it is difficult to come to and travel within the Caribbean.
Perhaps no better support for opposition to tourism taxes could be had than that from Frontier Airlines Vice President Network & Operational Design Josh Flyr, who explained the new service to St. Maarten the airline is launching in July is hampered by taxes.
“We are America’s lowest fare, lowest cost airline and our system breakeven fare is $37 per passenger but we can’t do those fares because of taxes,” Flyr told participants. “The idea of really low fares is to get people traveling who otherwise wouldn’t. However, certain destinations inhibit our ability to offer low fares for people who are truly price sensitive. Taxes, alone, make such vacations unaffordable.”
Speakers at previous conferences concluded taxes are an important determining factor on where travelers go. The higher the taxes the lower the demand. They point out each destination is in competition not only with each other but other destinations such as Florida and Disney World where the majority of visitors come by car because of airport hassles and airline costs.
Antigua and Barbuda Prime Minister Gaston Brown, incoming chair of Caricom, a15-member organization, said he will prioritize a regional tax reduction of 50% on air travel within the Caribbean citing a 20,000-signature petition from Caribbean citizens done in 2019.
He was joined by outgoing Chair Dr. Ralph Gonsalves, Prime Minister of St. Vincent & the Grenadines who said there is general acceptance within the region for lower taxes on inter-Caribbean travel.
“St. Vincent & the Grenadines have already cut taxes from US$40 to US$20 and Grenada announced they are also doing that while the prime ministers of Dominica and St. Lucia are talking about doing the same thing,” he told Caribbean news outlets.
The problem with the Caricom proposal, however, is it only applies to inter-Caribbean travel rather than travel to the region which it is needed to stimulate business and Caribbean-bound traffic.
Furthermore, taxes inhibit diversifying economies in the region so when hurricanes or pandemics destroy tourism demand, islands have more resiliency.
“The region is too dependent on tourism,” interCaribbean Airways CEO Trevor Sadler said. “If Covid taught us anything it is how bad it is to rely only on tourism.
“Governments see business only as tourism rather than how local businesses can expand across the Caribbean,” he continued. “We can achieve a high level of inter-Caribbean travel if we find countries across the spectrum willing to embrace regional tax reductions and create regional trade initiatives that help small and medium business to establish a foothold and pave the way for entrepreneurs to build independence across the region. We can also develop multi-island packages and help lay the foundation for regional business in the next generation.”
Sadler used one route – Dominican Republic-Turks-Jamaica – to illustrate why there is no inter-Caribbean traffic.
“The Dominican Republic charges $95, Jamaica charges $144 and Turks & Caicos charges $50 and all that is on top of the air fare,” he said. “Taxes and airport fees for a one- or one-and-a-half-hour flight makes inter-island flying unaffordable.”
He pointed to the developments within Caricom. “Some governments are being very bold focusing on how they can develop greater movement of people across the region,” he said. “It takes political courage. For those who resist, the question then becomes whether governments wish to participate in the benefit. With government willingness to embrace lowering taxes and improving service, we could make a difference in inter-Caribbean service.”
While one could argue St. Maarten visitors keep on coming, that begs the question of how much new business is left on the table and how much they would gain if taxes were lower.
An indication of what is at stake was described by Slabbaert who pointed to the elimination of passenger ticket taxes at Amsterdam in order to halt declining traffic at Schiphol. The tax, disguised as an eco tax between €11 and €45, was designed to raise US$395 million but ended up costing the economy $US1.7 billion in lost revenue as passengers favored neighboring airports. The same thing is happening in the Caribbean.
Business Aviation Important to SXM
St. Maarten is a hub for business aviation as elite travelers connect to regional carriers such as St. Barth Commuter and Winair to get to the region’s nearby islands.
Private aviation specialist Adam Twidell noted that those private aircraft benefit St. Maarten caterers, fuelers and hotels. Similarly, the same facilities benefit from yachts provisioning with 65% if private aviation traffic connecting to yachts which then head to St. Barth.
In fact, the region’s focus on connecting North American and European tourists really puts locals at a competitive disadvantage as they try to conduct inter-island business.
Traveling from his base in St. Croix, Bohlke International Airways CEO William Bohlke Jr. described how private aviation connects the dots around the Caribbean making such services extremely important in the region given the limited regional commercial service. But for small and medium businesses, that, too, is prohibitive.
Even so, improving airlift helps businesses already in the Caribbean. Bohlke and other speakers noted the similarities in clientele traveling to the Riviera and the Caribbean noting economies rely not only on business aviation but yachts and helicopters.
Three speakers from the Riviera – Marketing & Business Development Manager at Groupe Aeroports de la Cote d’Azur Umberto Vallino, Wolton Sky Managing Director Capt. Kristina Tervo and Managing Director Heli Rivera Caribbean Emma Watson, discussed their operations and pilot training. Watson’s Heli Riviera Caribbean is already operating out of Grand Case Airport in St. Martin, the French side of St. Maarten.
As Princess Julianna Airport (SXM) finally begins its recovery program, another speaker – Decision Services International CEO Dr Patricia Ryan – explained how airports must be reimagined as not just transit points but a resource for a community such as SXM that is already steeped in aviation. She sees the next generation airport developing pre-security dining and other facilities to develop non-aeronautical revenues and provide tighter connections between community and one of its greatest resources.
Interestingly, Regional Economist Dr. Justin Ram told the Caribbean National Weekly, high taxes resulted from the fact Caribbean airports are “huge cost centers” because the archipelago requires more airports than if it were a single land mass. But airports around the world are creating non-aeronautical revenue resources to mitigate rising airport costs and that could be duplicated in the region which is exactly what Ram suggested.
Opportunities From Homeporting
Winter was excited about the trend of cruise lines to home port at different Caribbean gateways including St. Maarten. “It creates a huge opportunity to charter operators connecting their passengers to cruises because airline schedules do not meet cruise schedules,” he said. “It also creates opportunities for passengers to come in before their cruise or stay at the home port after their cruise to experience these destinations.”
While there are many challenges both serving and getting around the Caribbean, the ideas springing from CARIBAVIA clearly show the many solutions available that would benefit both tourism and businesses in the region.