Ambassadors of Theair

Ambassadors of theAIR SAMOA’S LOW-COST CARRIER TAKES OFF Photo © Virgin Australia As a small, isolated country in the Pacific, neighboring destinations such as Fiji, Tahiti, and Samoa is heavily dependent on tourism for jobs Cook Islands. Recognizing the seriousness of and economic development. The government’s the situation, the government approached IFC objectives for the aviation industry included to find an alternative to liquidating Polynesian providing safe, modern, efficient, and affordable Airlines. international air transport to Samoa to support After recommending that the government imple- expansion of the tourism industry. Operat- ment a public-private partnership (PPP) with ing Polynesian Airlines in a commercially and an international aviation investor, IFC served as financially sustainable manner was also a high lead advisor to the project. government priority. But prior to 2005, neither objective was being A SIGNIFICANT IMPACT met. Polynesian Airlines’ inappropriate route and fleet structure, expensive aircraft leases, overstaff- The PPP that has paved the way for Virgin ing, and uneven demand levels contributed to Samoa (the rebranded airline which took over a $7.5 million loss (70 percent of the govern- the jet operations of Polynesian Airlines) has had ment’s total budget deficit) in 2004. Tourism a significant and lasting impact on the nation’s was growing only 4 percent a year, far below tourism business. Specifically: 66 | IFC.ORG/HANDSHAKE LOW-COST CARRIERS • Increases in direct flights and frequency of flights between Samoa, Auckland, New Zealand, and Bris- bane/Sydney, Australia have resulted in increased FINANCIAL RESULTS travel choices for travelers: the re-branded Virgin (AS OF 2010) Samoa currently runs 14 flights per week to Apia from • The realized level of private sector Auckland, three flights from Sydney and one flight investment for the evaluation from Brisbane. Air New Zealand has daily flights period is $10 million (2009), between Auckland and Apia, and Air Pacific operates compared to the expected level of less frequent flights to Fiji’s Nadi Airport and Hawaii. private sector investment of $5 • Increased seat capacity on international flights has million. resulted in increased competition among airlines • Since 2005, indirect taxes col- and in lower cost of travel for consumers. lected from additional tourist • Increased tourist arrivals from 101,807 in 2005 to arrivals is estimated at $1.86 172,713 in 2012 has led to increased investment in million per annum. tourism infrastructure and related services. • From 2005-2009, 243,000 people The transaction model was designed to take advantage of have been positively impacted by the international partner’s cost structure, leverage market- the improvement in airline ser- ing and distribution strengths, and maximize profitability. vices and improved services to the Significantly, the structure allowed a low-cost carrier to Samoan economy, compared to an participate, a first in airline privatization. original estimate of 80,000 people benefitting from the partnership. The restructured Polynesian Airlines, which retained the turbo prop operations focusing on servicing the • Indirect benefits of the additional domestic and international flights to American Samoa, tourist facilities resulted in new has also achieved profitability. It is now being prepared employment for 671 people and by the government for privatization. contribution to national salaries and wages of $1.4 million (2009). Kolone Vaai, the co-Managing Director of KVA Consult, LTD, a Samoan consulting firm, was involved in the • Consumer savings from the gen- team assembled for the PPP transaction. He shared the eral reduction in regional airfares same positive assessment of the benefits realized by the since the joint venture over the restructuring of the airline to date. However, he pointed 2005-2009 period is estimated out that the key challenge now facing the local tourist at $57.7 million. About 243,000 industry is mapping out how Virgin Samoa and Polyne- people have benefitted by the sian Airlines can diversify the international airline routes reduction in airfares over the same to develop effective and sustainable air links to the grow- period. ing and developed markets in the northern hemisphere and Asia. IFC | 67.

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