As a small, isolated country in the Pacific, Samoa is heavily dependent on tourism for jobs and economic development. The government’s objectives for the aviation industry included providing safe, modern, efficient, and affordable international air transport to Samoa to support expansion of the tourism industry. Operating Polynesian Airlines in a commercially and financially sustainable manner was also a high government priority.
But prior to 2005, neither objective was being met. Polynesian Airlines’ inappropriate route and fleet structure, expensive aircraft leases, overstaffing, and uneven demand levels contributed to a $7.5 million loss (70 percent of the government’s total budget deficit) in 2004. Tourism was growing only 4 percent a year, far below neighboring destinations such as Fiji, Tahiti, and Cook Islands. Recognizing the seriousness of the situation, the government approached IFC to find an alternative to liquidating Polynesian Airlines.
After recommending that the government implement a public-private partnership (PPP) with an international aviation investor, IFC served as lead advisor to the project.
A significant impact
The PPP that has paved the way for Virgin Samoa (the rebranded airline which took over the jet operations of Polynesian Airlines) has had a significant and lasting impact on the nation’s tourism business. Specifically:
Increases in direct flights and frequency of flights between Samoa, Auckland, New Zealand, and Brisbane/Sydney, Australia have resulted in increased travel choices for travelers: the re-branded Virgin Samoa currently runs 14 flights per week to Apia from Auckland, three flights from Sydney and one flight from Brisbane. Air New Zealand has daily flights between Auckland and Apia, and Air Pacific operates less frequent flights to Fiji’s Nadi Airport and Hawaii.
Increased seat capacity on international flights has resulted in increased competition among airlines and in lower cost of travel for consumers.
Increased tourist arrivals from 101,807 in 2005 to 172,713 in 2012 has led to increased investment in tourism infrastructure and related services.
The transaction model was designed to take advantage of the international partner’s cost structure, leverage marketing and distribution strengths, and maximize profitability. Significantly, the structure allowed a low-cost carrier to participate, a first in airline privatization.
The restructured Polynesian Airlines, which retained the turbo prop operations focusing on servicing the domestic and international flights to American Samoa, has also achieved profitability. It is now being prepared by the government for privatization.
Kolone Vaai, the co-Managing Director of KVA Consult, LTD, a Samoan consulting firm, was involved in the team assembled for the PPP transaction. He shared the same positive assessment of the benefits realized by the restructuring of the airline to date. However, he pointed out that the key challenge now facing the local tourist industry is mapping out how Virgin Samoa and Polynesian Airlines can diversify the international airline routes to develop effective and sustainable air links to the growing and developed markets in the northern hemisphere and Asia.