CAL needs realistic budget to cover losses, says OAG
(CNS): Between 2018 and 2022, the Cayman Islands Government gave Cayman Airways Limited more than $152.5 million in funding, but each year the money was not enough to cover expenses. Over the same period, it received almost $24 million in supplementary appropriations after total losses of $34 million due to unrealistic budgeting.
A new report from the Office of the Auditor General urges the CIG and CAL to review the funding framework used to subsidise routes and improve how the national flag carrier is performing against government goals.
“CAL’s budgets are unrealistic,” Auditor General Sue Winspear said in the report, The Efficiency and Effectiveness of Cayman Airways Limited, which was released Monday.
“This results in consistently high losses. CAL told us that it involves the Government in discussing price changes for Strategic Domestic routes. CAL also told us these routes are subsidised essential services, so there is a reluctance to impose additional costs. This position is reasonable, but it makes it unclear why CAL continues to request budgets for [domestic air services] that will result in losses.”
The report reveals that auditors struggled to measure CAL’s performance against its goals and key performance indicators because of a number of problems that make it difficult to assess value for money. But where the OAG was able to do so, the results were mixed.
The report notes that Cayman Airways plays an essential role in providing an inter-island air bridge and contributing to the economy. It is also critical in the aftermath of natural disasters and with emergency repatriation flights, as demonstrated in recent years when the airline helped Cayman navigate the pandemic.
But despite having a range of goals and performance measures, CAL does not report effectively on its performance to parliament or the public, hampering scrutiny as to whether or not the airline is providing value for money in relation to government subsidies.
The CIG uses CAL to support its national priorities for domestic air services and to destinations it identifies as key to attracting visitors and economic development. These are funded through the Airlift Framework, which specifies four route categories: Core, Strategic Domestic, Strategic Tourism, and Surplus. The report found that CAL made losses in three of the four categories and ran a deficit each year during the timeframe that the audit covered.
“CAL received over $150 million in government funding in the five years 2018 to 2022,” Winspear said. “However, it is unclear what that government funding is intended to cover. Without this clarity, the government cannot hold CAL’s management and board to account for CAL’s financial performance… CAL is not fully funded by the Government for Strategic Domestic routes that provide essential lifeline services between the three islands. It is not clear why the funding model does not cover all costs that are not covered by passenger fares.”
She urged CAL and the government to “urgently revise the Airlift Framework to make clear what the Government’s funding is intended to cover”.
The report also states that CAL does not usually receive the funding it requests as part of the budgeting process and often receives supplementary appropriations.
“It is disappointing that CAL and the Government do not set realistic budgets,” Winspear stated in the report. “I have commented many times before on the shortcomings of the current budgeting framework and how inadequate budgeting consistently results in the need for supplementary appropriations. This is yet another example. Combined, the funding model and budgeting process impact CAL’s financial performance and the level of deficits incurred.”
The period of the report does not cover the reintroduction of the Panama route or the Barbados route, which was added to the schedule at the request of the Barbados government and falls into the Surplus route category with charters, for which costs are guaranteed. The report noted that CAL has said it expects this route to be profitable.
The OAG did examine the process for the Los Angeles route and found that the tourism ministry had collaborated effectively with the airline, with both parties working in tandem to market the route.
The report makes 14 recommendations, covering CAL’s funding model, financial and non-financial performance, strategic direction, governance, workforce planning and management.
“In our view, the most important recommendations are those on the funding model and financial performance, including budgeting,” Winspear said. However, she pointed out that Cayman Airways cannot implement the most important recommendations alone and urged the government to work with the airline to implement the recommendations as soon as possible.
See the full report in the CNS Library.
- Fascinated
- Happy
- Sad
- Angry
- Bored
- Afraid
Category: Government Finance, Government oversight, Politics
Who in their right mind, sends a flight into MIA at midday??? Oh wait, the geniuses at KX do. Why can’t we have back the old KX42 (now 102) flight to MIA which departed at either 7 or 8AM and a return flight like the old KX247 (now 107) which arrived back 830/900PM same day. On some days there was even a KX046 flight in the early afternoon. These flights were always at least 65-75% full with persons going up for some day shopping. As a former pilot with KX, I know what I am saying. Please KX, use those nice toys that you have wisely and not on flights that rotate with 18-27 paxs per flight I.e your Barbados flight.
Does anyone know what the flight loads are on Barbados so far?
I understand from some KX staff that these numbers are miniscule and normally in the teens each way. This can’t be sustainable either for Cayman Airways or Barbados. I there something we are missing here? Any political favors being doled out? Has anyone followed the money?
How about pulling that aircraft out of Barbados where it causing wear and tear on the aircraft for nothing more than maybe break even on the operational costs for the airline and send it to Austin Texas this summer where it can make some money?
Barbados does nothing for us tourism wise. We all know that the USA has been our bread and butter for tourism and assisting Barbados to get their tourism numbers up can only serve to diminish ours.
$30M to operate an airline over 5 years, with two of those years being during covid is not a lot of money for operating an airline the size of Cayman Airways particularly if the injection to the overall economy is $200M per year.
The airline was never supposed to be a profit center for the Cayman Islands but the objective was to create a vehicle or a means to develop tourism in the Cayman Islands. Injecting $200M into the economy by subsidizing it with 30M seems a good return on investment.
I don’t think there has ever been an OAG that has seen it that way. The see it as a business that doesn’t make a profit each year. The Government needs to do a better job of providing this information publicly so that the average person can understand the value of the airline to the economy.
This is not to rocket science but one would think by now that would be ideal for the OAG is to provide to Cayman Airways or for that matter to the Government a framework that they could follow that could justify whether or not it is simply a business that needs to make a profit or is it a tool for developing tourism..Government would need to identify ways that could make up the $200M shortfall per year into the economy by some other source and something tells me that short or raising work permit fees there is no other profit centre that could raise that amount of money.
But there IS a Jamaican rocket scientist on the CAL board, and he should be able to clear this up for you
How much of the financial burden is due to the sunk cost insistence of sticking with the Boeing 737 programme, and, in particular, the latest lease financing of four incredibly costly Max jets?
CAL should have transitioned to smaller Embraer or Bombardier (now Airbus) regional jets long ago. And, yes, that is always an option. We don’t have to be perpetually anchored to one jet model like an old whelk.
Embraer does not work in the Cayman Islands. It is a much smaller aircraft, very little flight range (2400 miles) vs the B737-8 with just over 4000 miles and cargo capacity is limited which would mean restricting seats from sale on those flights where weight from baggage and cargo come into play.
The B737-8 is the ideal aircraft in terms of fuel costs, flight range and cargo carrying capacity.
Transitioning to the A220-300 would be the closest comparison and the cost to switch over from Boeing aircraft to Airbus for a small airline like Cayman Airways would be cost prohibitive in terms of pilot training, maintenance training, parts and other ancillary items and would would wipe out any cost savings.
We need new management. We have got to limit our patriotism and love of our own airline to take a hard look at all positions at CAL.
And when/if we do get new management, let’s hope they won’t be harassed by our tourism minister’s ego.
I wonder if Ms Winspear knows the Trumanomics Golden Rule of Cayman Airways finance as enunciated in the Legislative Assembly many years ago: “Cayman Airways makes a profit after subsidy”. Nothing else, such as load factors, efficiencies, strategic planning, multitude of freebies for various hangers on, matters. The taxpayer ensures its “profitability”.
OAG shouldn’t be worried. The ‘profitable’ Barbados arrangement should soon be filling the coffers! Eh Kenny?
It was never ran as a business from its beginning. I know that Government has an obligation to provide services to its populace but should be done in a fiscally prudent manner
And then you have the self styled genius , Kenneth the dishonorable minister of tourism, enjoying wasteful vanity jaunts to Barbados.
I wonder what that really costs us, and really what benefit it brings to Cayman.
CAL is probably one of the worst run airlines in the world. To begin with the biggest reason they may put 200 million into the economy is only due to how top heavy they are. They operate a total of 8 aircraft i believe. 4 which require 3 flight attendants and 2 pilots per aircraft. 4 aircraft only require 2 pilots per aircraft. How many pilots and flight attendants do they employee. Let’s just start there. We could go one about crew leaving here in the morning to Florida a total of less then 2 hours flight time and then do a layover. The list goes on.
Why don’t the people of cayman listen to the OAG?????????
The OAG is a colonial imposition. No one listens and the UK do not care either, so it will change nothing.
Well then thank God for the Colonial imposition, without which we would really have a Jamaica or Haiti situation, except it would be run by Mac and Kenneth.
Drop the Kenny and friends club. Family and friends, maintenance and friends club, friends of family and friends club and in fact stop all the freebies then sell this loss making failure all together really. Its been loosing millions every year tbh. Its only because Cayman wants its own flag carrier it’ll keep pumping money into it i guess forever and a day.
Taxing the crapp out of the traveler and building longer runways into the north sound yet the airline still losing after being subsidized by again tax payers money? This is a joke?
The airline is a different entity from the airport authority.
If the airline really contributes $200M to the economy and then one day the airline ceased to exist would the economy slump by $200M?
No, the visitors would just come in on other commercial airlines. They would add routes and planes that make economic sense.
Not to forget the $150m of taxpayers money that would be injected elsewhere – or in a miraculous world – released back to taxpayers in the form of duty reductions, which taxpayers could spend in the economy as they wished rather than government de ide it should be spent on CAL.
But then everyone would have to pay for their air travel
You do realize that it is not as simple as that right..you would have about 300 unemployed people, possibly about the same in mortgage default, unable to pay rent, less money spent in grocery stores, gas stations, restaurants and the list goes on..Just shutting down the airline doesn’t work..
All of the other US airlines fly from the same ports that Cayman Airways does, save for Denver, LAX and Tampa. would United consider giving up one aircraft for Denver Cayman once a week.maybe, but I doubt it just to build tourism for Cayman. If so they would have done it a long time ago. There would be no reason for AA to put on two extra flights to Miami just because Cayman Airways dropped out.They just dropped one rotation already since covid. Tampa is not a good connection city for any airline so that would likely not be replaced. There are no airlines that could pick up the slack from Kingston. Caribbean Airlines tried it and gave it up because of the high cost to operate that route. There are no airlines in Honduras that could bring passengers from there. In fact the only international airline period that flies into La Ceiba is Cayman Airways. Havana flights could only be operated by Cubana and That route would basically dry up as no one would want to fly on those ancient and unsafe Russian made aircraft.
What about an air bridge between the islands? What airline would be able to operate these flights as cheap as Cayman Airways currently does? Would the prices go through the roof and those two islands or would the Government be asked to subsidise the service so that Caymanians and tourists have an affordable means to travel between the islands and in order to make it profitable for some airline to come in and do it? The prices they are currently charging on these flight barely pays for fuel much less crew, insurance, ground handling etc. any airline coming it would have to raise the fees in order to cover their costs and unless they are subsidized in would be unprofitable and a losing proposition for any airline that would even consider flying there.
I would suggest the small mindedness of the idea that shutting down the airline that $200M could be made up by the other airlines throwing ina few extra flights is just asinine.
Cancelling the VIP, friends & family ride for free program and dropping the just because Kenny and friends wants a shopping/gambling trip, pow wow with CTO buddies routes might enable this CIG money sinkhole to turn a modest profit.
But it’s hard to stop a carnival for circus clowns.
What an embarrassment.
If we divide the accumulated subsidies and losses by 5 years that leaves every man, woman and child in Cayman over $600 a year in cash (based on a 70k population). Can we just have the money (our money) back?
Passing up a huge opportunity to the east. One Haitian Presidential charter a week could result in the long imagined profit.
are we actually making a profit on the LA flight?
The world’s biggest welfare state at work as per usual.
If only 30% of the total population of these islands are Caymanians then I think it would be good to know the percentage of the working age population of that demographic are employed by CIG and the tentacles of companies it props up.
Would anybody be shocked to learn that perhaps 70% or higher of the working age Caymanians are paid for by the tax payers and consumers?
I would guess it’s closer to 90% when you include senior citizens on the various benefit schemes and NAU (both of which are essential).
Lots of Honduran and Cuban wives of ex sailors on the payroll as well.
Where is our value for money?
A question that may be more germane to this article is, what percentage of airport employees are on work permit vs. Caymanians?
Recall that the majority of employees at the airport work for contractors not CIAA or the airlines.
And who own those companies..
….politrikians
The fundamental problem with state owned airlines is that in e you introduce “strategic”goals, which suppisedly support sone other part if the economy or the national interest, they are then used as an excuse for loss making and inefficiency across the airline, even the commercially viable operations that should make money. As the AG indicates, one way is to allocate a set amount of funding for those strategic goals, or pay for them – for example, CIG pays $x for every passenegr lifted to the family islands in addition to the fare charged. Of course, that will NEVER happen because a) it would require the government to price the value of the goals and services and justify that specifically to the public, instead of vague waffle about hurricane evacuation and infrastructure, and b) it would mean CAL actually had to make a profit or break even on its commercial operations and meet industry performance indicators like revenue per km. cayman is not big on accountability, so the AGs report will join alll the other in the basement that never ever get looked at.
We need to cover our National Carrier no matter the cost.
Why. Simple question. When answering explain why the benefits could not be acquired by contract with other carriers and insurance, or why that would be more expensive.
I have a sneaking suspicion that a commenter with the name “WBW Czar” may be (shockingly) a $hitposter.
The perfect trickle down embezzlement scheme, we’ll provide the money, do whatever you like with it, ✈️💸
‘CAL does not report effectively on its performance to parliament or the public’
No mention if Barbados are up to date with their “charter fees”. Are they paying per person or per trip?
Let go to Barbados and discuss this
The flight was completely empty recently
Caymanian Pride is about spending money more and more, bigger and better. Sad really. Kids go to school hungry and come out ignorant, mental illness is everywhere, crime is up, RCIPS under funded, driving here is dodging uneducated drivers.
Time to get back to basics.
Starts in the home.
Legalise abortion
And that, 7:25. is precisely the problem.
RCIP is hardly underfunded. If you look at the numbers we have a massive investment in policing. It is just ineffectual.
And certain people like it this way!
People would be outraged if they knew what CAL spends to operate jet service to the Brac. Cal needs to limit transparency to attempt to whitewash where the money is really spent.
The OAG report will just go on the shelf with all the other dusty reports.
Jet service to the Brac are mostly full with Caymanians. How can CAL be losing money on full or nearly full flights?
This is what you get when there is zero accountability.
Management knows they will get bailed out by politicians so nobody cares!
Time to fire the management team and bring in real airline expertise this lot are jokers
Cayman Airways has never operated as a real business with realistic goals and financial forecasting. The management is woeful as it knows that it is a political tool that that has not been held accountable by successive Tourism Ministers starting with Jim Bodden, McKeeva Bush, Moses Kirkconnell now Bryant.
shocking performance…esp when you consider they charge $US400 for a 1 hour flight to miami.
question, how many passengers on average are flying for free?
(will wait for answer)
This is a waste of money. Sell the airline and turtle farm now
You should ask the other caribbean islands where the avg price is $1000 for the same flight
Around $400 on American return from TCI to Miami.
Completely agree. These figures should be published.
free money making solution:
sell cal… cig should not be running an airline.
condition of sale…in event of national emergency (hurricane/pandemic) planes must be reserved to service residents of the islands.
problem solved.
I’m sure we could charter planes for less than the current cost of subsidizing in the event of an emergency…
Who would buy it and why?
yet another report to be ignored that shines a light on the shambolic performance of cig and the civil service.
just another day in wonderland.
Being a Bracker or working at Air Jamaica should not be a qualification to hold an executive position.
Working as a mechanic nonetheless, and he was pitiful at even holding a screwdriver.
The government service cannot manage a patty shop much less caymans airline
Will anybody at Cayman Airways get fired as a result?
Yes. Very happy you said it. When does the sitting government ever listen to the auditor general ? Creating these reports must be a hobby.