Air Jamaica Limited

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Air Jamaica Limited

72-76 Harbour Street
Kingston
Jamaica
Telephone: 1876 922 3460
Toll Free: (800) 523-5585
Fax: 1876 967 3125
Website: http://www.airjamaica.com

Subsidiary of Air Jamaica Acquisition Group (70% Owned)
Incorporated: 1968 as Air Jamaica (1968) Ltd.
Employees: 3,000
Sales: $200 million (2001 est.)
NAIC: 481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air Transportation; 561520 Tour Operators

Air Jamaica Limited operates the national airline of Jamaica. Air Jamaica Acquisition Group, a collection of Jamaican investors, owns 70 percent of the company; the government of Jamaica retains a 25 percent stake, with the remaining 5 percent held by employees. Air Jamaica flies about two million passengers a year to two dozen destinations in the United States, the Caribbean, and Great Britain, and brings in half of the island’s airborne visitors. Marketing agreements with Delta, Cubana, and Air Canada help provide feeder traffic. U.S. traffic accounts for 80 percent of revenues.

The cargo division is headquartered at the Norman Manley International Airport in Kingston, Jamaica. Air Jamaica Cargo, which operates hubs in Montego Bay and Miami, accounts for 70 percent of Jamaica’s international air freight market, with agricultural exports to the United States accounting for a good deal of the total volume.

Origins

Jamaica gained its independence from British rule in August 1962. As Caribbean nations shed their colonial status in the early 1960s, they also made moves to form airlines that were more independent. The government of Jamaica decided not to invest in British West Indian Airways (BWIA), which was acquired by the government of Trinidad in November 1961.

According to R.E.G. Davies in his Airlines of Latin America Since 1919, the first incarnation of Air Jamaica was founded on August 27, 1963. Dubbed Jamaica Air Service Ltd., its shareholders were the government of Jamaica (51 percent), BOAC in association with the Cunard Line (33 percent), and BWIA (16 percent). BWIA’s employees in Jamaica were transferred to the new airline. Service to the United States, namely Miami and New York, began on May 1, 1966.

BOAC, Britain’s international airline, and BWIA had continued to maintain the leased aircraft. However, the Jamaican government preferred a more independent approach, and in November 1968 a new company, Air Jamaica (1968) Ltd., was created. Air Canada was the government’s new partner and 40 percent owner of the airline. The operating arrangement with BOAC and BWIA did not expire until the end of May 1969. The new Air Jamaica began operations in April with flights from Kingston and Montego Bay to Miami and New York.

Two DC-9 aircraft were soon acquired for the new airline, and a DC-8 was leased from Air Canada. A number of new North American routes were added in the early 1970s, with Air Jamaica planes reaching Chicago, Philadelphia, Toronto, and Detroit by the end of 1973. In April 1974, Air Jamaica began flying to London; Frankfurt was added in October of the next year. R.E.G. Davies notes that free rum drinks and attractive flight attendants (then described as “rare tropical birds”) kept load factors high.

State-Owned in 1980

Air Canada divested its 40 percent shareholding in 1980, making Air Jamaica fully state-owned. A new gateway at Baltimore/Washington International was established in February 1982. Service to Atlanta was added the following year.

The airline did not post a profit until 1984, when it made J$25 million, followed by a J$45 million ($7.5 million) profit in 1985, in spite of a decline in tourists and a serious drop in the Jamaican currency.

The fleet had been updated to four Boeing 727s, sold to Guinness Peat Aviation and leased back, and two Airbus A300s, acquired from the defunct Laker Airways. Air Jamaica was undercapitalized, and was paying about $13 million a year to service its debt. The carrier had accrued losses of $37 million since its start-up.

An operating profit equivalent to $6.8 million was achieved on 1986 revenues of $115.4 million. Air Jamaica had a 62 percent market share of the island’s scheduled passenger traffic. In early 1987, the airline signed up with British Airways to start a weekly Concorde service between New York and Montego Bay, meant to promote Jamaica as a destination for up-market travelers. While this was more a marketing gesture than an income opportunity, a twice-weekly service to London on British Airways’ Boeing 747s was profitable. Air Jamaica also had agreements with Aero Peru, Cayman Airways, and BWIA.

Partially Privatized in 1994

The Jamaican government announced plans for a privatization of the airline in the fall of 1989. However, it was not for another five years that a partial sell-off was announced. In May 1994, a group of Jamaican and Canadian investors agreed to acquire a 70 percent share of the carrier for $26.5 million. Another 5 percent share was earmarked for employees. The government retained responsibility for liabilities, which were considerable.

A further merger of Air Jamaica with other Caribbean airlines was already being proposed, with British Airways invited to take a 25 percent holding in the venture. In the first stage, Air Jamaica (Air J) was to have merged its operations with those of Trinidad and Tobago Airways, parent of BWIA. Bahamasair, Guyana Airways Corporation, and Leeward Islands Air Transport would be included in the venture later.

Air Jamaica Acquisition Group (AJAG) included National Commercial Bank and Mutual Life Insurance Company, and was led by the Moo-Young family, which had investments in the island’s agriculture, hotel, and construction industries. Cochrane Investment Group, which had pledged to contribute $10 million to $14 million for 25 percent of Air Jamaica’s equity, dropped out due to difficulty raising the money.

A prominent local entrepreneur, Gordon “Butch” Stewart, soon stepped forward to acquire 30 percent of the airline. Britain’s Financial Times dubbed Stewart “the Caribbean’s equivalent of Richard Branson.” Beginning by selling air conditioners, he built up and headed three manufacturing companies, and also ran the Sandals chain of luxury resorts. The secret of his success in all these ventures: an emphasis on service.

Stewart would serve as chairman of Air Jamaica. In November 1994, ownership was transferred to AJAG, and former British Caledonia Group executive Trevor Boud became CEO. Air J revenues were $128 million in 1994.

In November 1995, Air Jamaica bought a 55 percent stake in domestic carrier Trans Jamaican Airlines, which was also being partially divested by the government, for $1 million. It was renamed Air Jamaica Express. The Jamaica Air Tours subsidiary was also set up in 1995.

Air J’s new management had immediately set out to improve the airline’s productivity and image. New logos and livery were introduced. The airline plied customers with free champagne, Red Stripe beer, and rum punch. It was able to survive a price war with American Airlines.

Just a year after its partial privatization, Air Jamaica was again profitable, at least on an operational level. In January 1996, the first of an order of a dozen Airbus A310s was delivered. However, it had to be grounded as the U.S. Federal Aviation Administration (FAA) found Jamaica’s Civil Aviation Department—not the airline itself—failing to meet international safety standards. This action by the FAA cut off opportunities for Air Jamaica to add new routes in the United States. The carrier was also adding a half dozen A320s to its fleet. Most of the Airbus aircraft were leased; the majority of these planes were grounded for 18 months, costing the company an estimated $150 million.

Ridership increased 38 percent in the first two years after the privatization. Stewart then began marketing the carrier as the best choice for air cargo between Jamaica and the United States. In July 1996, Air Jamaica added a thrice weekly DC-8 freighter run to Miami, in addition to its allotted cargo space aboard passenger flights.

AMR Group, parent of American Airlines, had been in talks to acquire a minority stake during Air Jamaica’s privatization. This did not pass, and governments around the Caribbean grew supportive of Air Jamaica as a challenge to American’s overwhelming dominance in the region; some islands were entirely dependent upon American Airlines for international air service. In June 1997, plans to pursue a marketing agreement with Delta Air Lines were announced. Air Jamaica intended to develop its Montego Bay (MoBay) base as a regional hub, in competition with Miami.

Company Perspectives:

Our objective is simple and straightforward: to make Air Jamaica a productive, efficient and profitable carrier which offers a quality of service that is second to none. The new Air Jamaica is designed to be professional, with a Jamaican flair, a national carrier that we can all be proud of.

New MoBay Hub in 1997

Montego Bay Sangster International Airport, MoBay for short, was officially inaugurated as a hub in June 1997. By this time, the airline had amassed a debt of more than $50 million, largely blamed on operating restrictions imposed by the FAA. Air Jamaica got a $50 million capital injection in 1997 and an $80 million one in 1998 to help offset $100 million in losses in two years. The FAA restrictions only lifted in late 1998.

Air Jamaica then began a three-year “Way Forward” plan to restore profitability. Losses of $33 million in 1998 were down 66 percent as revenues grew 25 percent. Air Jamaica was expanding its marketing arrangement with Delta, though its best interline feed came from Japan Airlines via New York, noted Aviation Daily.

By 1999, the Air Jamaica fleet had proliferated from two types into four: Airbus A320s, A321s, and A340s, plus Boeing MD-83s. Air Jamaica Express was flying two Shorts 360s and two Dornier 328s on its smaller hops.

Air Jamaica set up a new subsidiary, EC Xpress, to expand its service in the Eastern Caribbean in cooperation with St. Lucia-based HelenAir. However, HelenAir abandoned the proposal in favor of a relationship with Air J rival BWIA. EC Xpress folded after about a year.

Expanding After 2000

By this time, Air Jamaica was regularly achieving winning rankings for on-time performance and in-flight service. Air Jamaica boosted its West Coast service, adding flights from Phoenix and increasing its number of flights from LAX. New destinations in 2001 included Newark, New Jersey, and Curacao, Venezuela. A nonstop to Manchester, England, was added in June 2002; the United Kingdom was one of Air Jamaica’s fastest growing markets. Air J planned to nearly double its fleet of 11 Airbuses to 20 planes by the end of the year.

Domestic unrest in July 2001 complicated Air J’s role as ambassador for Jamaican tourism. The airline was also challenged by the terrorist hijackings of September 11. Air J cut its capacity 20 percent following the attacks, and marketing efforts were stepped up. Within a few months, the company was back to a full schedule, and was adding new routes again. It even reintroduced Concorde service, to Barbados. It was considering launching services to Dublin (via Manchester), Frankfurt, and Milan in 2003. However, the company was still hoping for its first net profit since privatization.