OT 306: Note from Mike Summers - Falklands Airbridge – Pricing issues

 

1. Civilian access to the airbridge and pricing mechanisms are governed by the Joint Policy Statement (JPS) agreed between the MoD and FCO.

 

2. The primary purpose of the airbridge is to provide a safe, regular and reliable service between the UK and the FI, via ASI, for MoD personnel and freight in support of British Forces South Atlantic Islands (BFSAI). In addition, the air-bridge is vital to help deliver HMG’s responsibilities for the social and economic development of the South Atlantic Overseas Territories (SAOT).

 

3. The mechanism for calculating airbridge fares is set down in section 13 of the current JPS. In practice this has not been followed by MoD for several years.

 

4. The current JPS is based on use of the RAF Tristar which is no longer available. A commercial charter is in place until the route is served by the Future Strategic Tanker Aircraft (FSTA). It is expected that FSTA will enter service to the Falklands around 2013, at which point MoD does not anticipate a continuing requirement for current contract arrangements. The introduction to service of the FSTA will need to take account of the continuing need to provide an airbridge for non-MoD passengers and freight.

 

5. The MoD requested a rewrite of the JPS largely because of these changes; Falklands Island Government agreed since it has a strategic requirement to improve the volume and quality of N-S flights. The text of the new JPS has been largely agreed for implementation on 1 April 09. The new arrangements are satisfactory with slightly more capacity and some improved seating. The move to civilian charter improves cabin service, though booking arrangements are cumbersome and archaic, and check in services remain the same. FIG has the option to on-charge fares at whatever price it wishes, but all child/student concessions have been withdrawn.

 

Ecomomic Issues

 

6. Sustainable development in the Falkland Islands is a key priority in HMG foregn policy in the region, and is essential to the future of the Falkland Islands. This requires regular and affordable airlinks. There is currently no commercial alternative N-S, and capacity E-W through Chile is restricted by Argentine refusal for additional flights, with no current prospect of improvement.

 

7. FI economic activity and future development currently relies on fishing, tourism and agriculture, with the longer term prospect of hydrocarbons development. Each of these, with the exception of agriculture, requires the movement of considerable numbers of people to extract increased economic benefit.

 

8. The Falklands economy in recent years has become static, and growth is to a large degree frustrated by inadequate communications. This applies particularly to land based tourism and developments in fisheries. Hydrocarbons would bring a new demand and a new dimension. Land based tourism is particularly valuable to the rural areas bringing diversification and new opportunity. It also has an important educative/political value.

 

9. The British Antarctic Survey (BAS) rely on access to the Falklands to support their logistics base for South Georgia and the Antarctic. BAS ships are replenished, crews and scientists exchanged, and planes operate from the Islands to the Antarctic. This is an important part of HMG foreign policy in the region.

 

Social Issues

 

10. The people of the Falkland Islands are mainly British, and maintain strong ties with the UK. Access to the UK at affordable prices is an important issue for many people.

 

11. Students from the age of 16 attend 6^th form college in the UK. It is essential that they have the ability to return regularly to the Islands to maintain contact with their families. Students in Higher Education also return home regularly for similar reasons; this is one of the reasons why we are able to attract back to the Islands so many of our young people.

 

12. FIG recruits a large proportion of its contract staff in the UK for both technical and cultural reasons. This includes particularly medical and education staff, but also many other essential Government services. A lack of affordable communication makes recruitment very much more difficult.

 

Proposed Prices

 

13. The proposed basic fare of £1328 return (reduced from £1498 due to fuel price reductions) for all seats including children is simply unaffordable to many people. With the average wage in the Islands at around £15,000 a return fare to the UK is well in excess of 10% of annual wage for all working class people. For a family of four to visit the UK would cost in excess of  £5,000 in airfares alone.

 

14. The withdrawal of the child/student fare has the greatest impact on both families and Government, since it will now cost each twice as much to transport students. The inevitable consequence is loss of opportunity to young people.

 

15. For FIG to retain the child/student fare without increasing local fares and without incurring major cost increase will require us to increase other business and tourism fare categories by 36% and 46% respectively. This will be a huge dis-incentive to tourism, certainly creating reduction rather than growth.

 

16. Retention of the student/child fare at 50% of the local fare (as has been the case for the last 20 years) would enable FIG to retain all classes of fare at current levels, including the local fare at around £1350.

 

17. However the local fare remains unaffordable and other classes unlikely to encourage any further growth or sustainable development. We proposed therefore to Ministers a revised set of fares illustrated in the attached spreadsheet. This was passed on from the FCO to the MoD without any real expression of support, and was rejected by MoD citing Treasury rules.

 

18. Because of the nature of the current contract the revised pricing scheme has fuel at 38% of total cost, compared to 52% of total cost in the old fare schedule. The scope for reductions along with a return to normality of fuel prices is therefore lost.

 

 

19. The proposed arrangement is for only 3/4 years until the new FSTA is in operation, at which point we would anticipate moving back to marginal costing. It makes little developmental sense therefore to cause this major problem for three years.

Conclusion

 

20. We have warned for some years of the likely strangulation of the Falklands ecomonmy through an unwitting alliance between the Argentines and the MoD. There are clear signs this is happening.

 

21. FIG would urge a rethink of the basic policy behind this pricing scheme, and reconsider the social and economic difficulties that will be occasioned by this new pricing schedule.

 

 

16 February 2009