As a response to a major disaster caused by large and periodic eruptions of the Soufriere Hills volcano that started July 18, 1995, Montserrat continues to rebuild its infrastructure to support a sustainable economic future. The loss in 1997 of the W. H. Bramble Airport in the east of the island and Port Plymouth on the west coast meant that Montserrat had to build a new airport in the Safe Zone, north of Nantses River, and a new calm water harbour at Little Bay, the new capital and town centre now under construction. Just these two projects alone have a development budget well over $100,000,000, a sum that is similar to one year of the island’s Gross Domestic Product (GDP) m 2007. The John A. Osborne Airport, which opened in 2005, cost $51,000,000 and the seaport development project now in the design stage and that is scheduled to open in 2013, is projected to cost in the range of $60,000,000.1
The closure of both the airport and the seaport coupled with large eruptions that made the front page of international newspapers including the New York Times2 and other publications in the summer of 1997, contributed to disruptions in travel to the island and, by extension, a downturn in the vital tourism sector. Tourist arrivals by sea, mostly excursion visitors who arrived at Port Plymouth on small cruise ships, fell from 10,988 in 1994 to 3,728 in 1997.3 Tourist arrivals by air also declined, from 23,613 in 1994 to 3,103 in 1998.
The loss of the airport was particularly problematic from an international transportation perspective as well. The closure of Bramble took Montserrat off the Caribbean air transportation map and forced the island to develop alternatives for access to Antigua, the gateway and transfer point for passengers on international flights. Between 1997 and 2005 Montserrat’s air transportation moved from a fixed wing service operated by LIAT4 with a capacity of 50 passengers per flight to a helicopter with seven seats. To make up for the loss of capacity, the government introduced an ocean going ferry with a capacity of 300 seats for most of its international transportation needs. The ferry brought many unplanned benefits but presented some challenges as well. One of the benefits was that for the first time, Montserrat had the ability to receive over 300 passengers on a single trip. This meant that the island’s immigration services, customs department, and other welcome desk services were, for the first time, processing large numbers of arriving passengers, a process for which there was limited planning. While Antigua, Barbados and other islands with international airports handle much larger numbers of arriving and departing passengers on a daily basis, the larger number was new to Montserrat. Another positive benefit of the ferry accrued to the passengers who received a bonus of higher freight allowances that many embraced. While at the same time international airlines were lowering baggage weight from two 70-pound suitcases to two at 50 pounds, Montserrat’s ferry operations paid very little attention to the weight of passengers’ luggage. Two pieces with a liberal weight allowance were accommodated at no additional cost. Another unscheduled benefit that came as a result of the emergency ferry service was the development of a brand new business: day tours for tourists visiting Antigua. The 30-mile trip on a modern, catamaran hull, fast ferry helped the market to stabilise at just over 5,000 passengers per year between 2001 and 2004.5
At the same time that the international gateways at the airport and the seaport were destroyed, Montserrat lost over 75 percent of its road network. These losses include the entire sectional alignment of two of the three main roads that linked Plymouth, the former capital, with communities in the south and east of the island. One-third of the third main road, the highway from Plymouth to St. John’s in the north, was rendered impassable. As well, the neighbourhood streets and other roads developed to cover the section of the island designated the ‘Exclusion Zone’, were lost. This includes the extensive street network of Plymouth, agricultural feeder roads on the foothills of Chances Peak, Gage’s Mountain, and the Soufriere Hills, and all the streets and paved alleys in 41 villages and residential subdivisions lost to the volcano. Most of the old road network remains buried under ash, rock, mud, and pyroclastic deposits and much of the evacuated south is inaccessible by road.
As the population declined and people moved to the safe north, bus operators, those small private companies that provided public transportation in Montserrat, reorganised. This adjustment of resources, though informal, took into account a number of factors. The population of Montserrat fell from 12,7016 in 1995 to 5,097 in 2008.7 A reduction of the population meant a corresponding reduction in demand for bus service across the island. Several long standing bus operators exited the market as the demand for their services dried up. Additionally, the smaller area that redefined Montserrat’s settlement geography meant that bus trips became shorter. These shorter trips created new options for commuters as many could now walk, thereby placing additional downward pressure on the demand for buses. Finally, the building of new villages and residential subdivisions, the largest of which is Lookout Village, meant that bus drivers also had to adjust their routes to account for the new settlement patterns of the island.
The organisation and planning of Montserrat’s transportation offers a special case for analysing the alignment of policy and planning with results. Since the arrival of motorized transportation in the Caribbean well over 100 years ago, Montserrat is among the first islands to have a brand new opportunity to develop a modern transportation system that incorporates new technologies, innovative transportation vehicles, attention to traveler demand patterns, system efficiency and passenger comfort. Importantly, the results of this planning exercise have the potential to offer lasting examples of exemplary planning practice that could be copied across the region.
While the development of a new airport, seaport, and a new bus transportation system appear to be foregone conclusions for an island seeking to rebuild its productive base, the issues surrounding these projects have not been straightforward. Public disputes over site selection for the airport, runway length for the new airfield, and the type of aircraft needed to meet long-term economic development goals, have all played out while the volcano was erupting. Now that the results of the initial stage of planning are beginning to take shape, there is a need to assess the results. The purpose of this paper is to analyse the transportation system in Montserrat and to offer three planning ideas that, if implemented, will have the potential to produce the type of positive benefits the economy needs.
Aschauer (1989) and many researchers after him set out to refute the long held claim that public sector spending on infrastructure does not contribute to economic growth through increased productivity. According to Aschauer:
The results of this paper suggest the importance of considering public capital expenditures in attempting to explain the productivity decline [in the US]. … The growth rate of the net stock of government capital fell from 4.1% during the period 1950-70 to 1.6% during the later period 1971-85. … Dramatically, the fall-off in productivity growth is matched, or slightly preceded, by a precipitous decline in additions to the net stock of public nonmilitary structures and equipment.
Aschauer’s work was a pioneering study that led to a number of follow-up research projects, both academic and practical. One of the questions that became important to researchers looking at the value of public sector finance in national productivity was first raised by Erenburg, whose study concentrated on the linkage between public investment and private investment. In summing up Erenburg’s research finding, Papadimitriou (1994) writes:
Past research by J. Bradford DeLong and Lawrence Summers provided evidence that a robust statistical relationship exists between private sector investment in plant and equipment and productivity. Private sector investment in plant and equipment can therefore be considered an engine of economic growth. … Sharon J. Erenburg argues that there is also a connection between public spending and economic growth by showing that public investment in infrastructure stimulates private sector investment in plant and equipment. In doing so she provides empirical proof that public and private investment are complements in production. Erenburg’s findings, therefore, serve as the missing link that explicitly ties public infrastructure to economic growth.
This conclusion is critically important in Montserrat’s context. The fact that many important decisions are now being made about the levels of investment in the public assets that the country needs to expand the productive base of the economy amplifies the need for good investment decisions by the public sector. The critical link is the relationship between public investment and private investment and how these two increases in capital act as complements, especially in a small, vulnerable economy. Put another way, it is important for the public sector in Montserrat, DFID,8 and the local government alike, to make investment decisions that optimise the use of relatively large investments in infrastructure so that they support private sector investment in plant and equipment. This critical planning exercise will determine whether or not Montserrat will be efficient and competitive in a regional and international context.
The argument has been made that the public sector in Montserrat is too large and that it crowds out the private sector by taking away human resources and capital that would otherwise have gone to the private sector.9 Whereas crowding out effects caused by large amounts of public sector borrowing that raises interest rates and reduce the availability of credit for the private sector is a reasonable argument in some countries, the analysis is not complete if it does not consider the crowding in effects of infrastructure investments by governments. Papadimitriou (1994) sums this line of argument quite well:
By empirically confirming the relationship between public and private investment, Erenburg refutes the argument that public investment limits, or “crowds out,” private investment by drawing from the pool of funds available for all types of investment in the economy. Her estimates show that the crowding out effect is smaller than the “crowding in” effect; in other words, the stimulating effects of public investment on private investment are larger than any limiting effects. Finally, Erenburg asserts that past low levels of public investment have limited earnings growth and stunted U.S. living standards. She substantiates this claim by confirming both short- and long-run relationships between public capital spending and productivity. Erenburg uses this relationship to serve as the core of her argument that past productivity declines were a function of the lack of public investment. Consequently, since wages are a function of productivity, stagnant levels of public investment have contributed to flat wage growth and the relative decline in U.S. earnings.
If it is true, as critics of public investment allege, that crowding out exists, then it is important from a policy standpoint to determine if these effects are exceeded by any crowding in effects.
While most macroeconomists working in the field now agree with Aschauer initial findings, the debate about the value of public capital continues.
A summary of the differences in conclusions reached by the research is captured by Aschauer himself (1998):
In the economic growth literature, there is considerable controversy regarding the relative importance of public and private physical capital in the economic growth process. In a sample of seventy-six countries, Barro (1991) finds that public capital investment and private capital investment have similar effect on economic growth. Easterly and Rebelo (1993), in a sample composed of one hundred countries (a subset of which comprises the sample of forty-six countries in the present paper), estimate an important role for infrastructure capital – especially transportation and communications - in economic growth. Hulten (1996) however finds little impact of public capital on economic growth – after controlling for the efficiency of the use of public capital.
Writing specifically on the contributions of public sector investment to productivity in the Eastern Caribbean Currency Union of which Montserrat is a full member, Roache (2007) concludes:
Public investment plays an important role in raising and sustaining economic growth in the region. However, public investment must be efficient if it is to have the desired growth effect and reduce the risks that it will add to public sector indebtedness. The evidence from the ECCU over the last 30 years suggests that public investment has had only a temporary and limited growth effect. To the extent that investment is financed by borrowing, this suggests that public investment has had a larger impact on the debt stock than on GDP.
Generally, economists realize that other factors of production, including private investment in equipment, and education and training of the labour force have been used by many emerging economies with positive results. In Montserrat’s case, spending on new infrastructure projects, taken as an important factor of production for a sustainable economic future, continues to be an issue for the UK Government and its aid agency, DFID. The difficulty for British officials, though not stated, appears to be the size of the investment relative to the island’s population. Concerns about the viability of the island as 14 years of unpredictable eruptions at the volcano continue, also appear to be a hindrance to the flow of reconstruction funds, the portion of the public purse that is controlled by DFID. Following on from Roache’s conclusions, while public sector indebtedness is not an issue for Montserrat (all of the redevelopment funds come from aid provided by the United Kingdom, the European Union, CARICOM and the Trinidad and Tobago financed Petroleum Stabilization Fund), the concern over the efficient use of public investment is certainly relevant in all planning exercises.
In most cases the macroeconomic research findings about the value of public spending on infrastructure to a national economy point to productivity gains and positive contributions to long term growth. Transportation and communications were singled out in one study as areas within infrastructure investment that have a net positive effect on economic performance. All of this signifies that new approaches to transportation planning are relevant to Montserrat’s reconstruction, especially which sectors of the economy that government invests the substantial aid funds it receives, mostly from DFID and the European Union.
The context in which an ocean going ferry service is proposed as part of a long term solution for Montserrat’s transportation needs is driven by two factors. First, the ferry service which emerged as a response to the loss of airline service when the Bramble airport closed in 1997 brought many benefits to the island. These include the bonus passengers got of being able to travel with heavier suitcases, a benefit that many travelers appreciated. There was also a moderate revival of trade in agricultural produce with Antigua, and the development of a day tours business for tourists in Antigua who wanted to visit an island with a unique attraction: a live volcano with a high level scientific monitoring team led by the British Geological Survey and UWI’s Seismic Research Unit.
The second reason why a ferry makes sense for Montserrat is that intra-regional travel is undergoing a transformation that is shifting some of the demand away from air travel towards the sea. As ferry services expand across the Caribbean and established routes add more boats and increase capacity, many small airlines, those smaller than LIAT, are showing signs of financial stress. The failure of Carib Aviation in 2008 and major route and destination cutbacks at WINAIR in 2009 are early danger signals of this stress. The indication is that small airlines carry too many business risks and therefore have a high failure in the Caribbean, especially when they are not supported by government subsidies. Some of the new ferry services that are now in place to provide inter-island travel and compete for passengers with the air travel include:
To date, ferry services do not provide seamless access across all the islands of the Caribbean but they now cover a more islands than at any time in recent history.
As the ferry alternatives provide efficiency, safety, and pricing advantages, a large portion of the travelling public continues to shift away from air travel to the sea. For Montserrat, an island that is now completely dependent on air travel, the danger is that soon the island could find itself with no airline to call on to provide the level of service required to sustain tourism and general travel. The reality is that the island is now down to one option, WINAIR. The short runway at Osborne Airport that does not accommodate flights by LIAT, a larger airline that operates a region wide network limits the range of travel options not available to Montserrat. Essentially, Montserrat locked itself out of regional air travel when the government decided to build an airport, at significant cost, with a runway that was too short for LIAT’s Dash-8 aircraft. The efficiency and productivity gains that LIAT offers have been lost by a public sector decision to insist on for a short runway at Osborne Airport (600 metres). Even though the airport decision was opposed by local citizen groups10 the government built the airport anyway and the results to date have not been encouraging. Already, Montserrat has lost over 12,000 visitors and other travelers on the route to Antigua. In 2004 travel to the island was 26,216 in 2004 and in 2006, only 16,949 arrived (Table 1). In the years before the volcanic eruptions started, total arrivals were over 40,000 with a median of 42,623 between 1993 and 1995.
Developing a homegrown, locally controlled, ocean going ferry service for Montserrat needs to be one of the projects high on the priority list for public sector investment. The ferry will allow Montserrat to connect with other islands, first to Antigua, with operational flexibility to add other destinations: St Maarten, Nevis, St Kitts and Guadeloupe easily come to mind.
The major hurdle to the project is the perceived high cost of acquiring a ferry and the additional cost of operating the service. Given all the benefits that a ferry service can provide, it is important to consider the costs and benefits using financial modeling under different conditions. The first is market conditions. The model begins by assuming that passenger demand will by 15,000 riders, 66 percent of passenger arrivals by sea on the route in 2004, the last full year in which the ferry operated. The price for a round trip ticket is set at $300, a saving of about $200 on current air travel cost for the same route. The results show that using reasonable costs11 gleaned from several sources including interviews with potential investors who considered setting up a ferry business, the financial loss will be in the region of $543,000 for year (Table 1). This loss is taken as the size of the subsidy that will be needed for a public-private partnership to operate the ferry. This sum represents less than 1 percent of the 2009 annual budget for Montserrat ($138,000,000), a small sum to invest for a significant improvement in access. Higher visitor arrivals will result in a GDP growth of up to $10,000,000. This growth will come from the day tours business ($3,500,000), increased occupancy in hotels, guest houses and other tourism properties ($4,500,000), increased attendance at festivals ($1,000,000), and other benefits to the economy ($1,000,000). Additionally, the financial model shows that in Year 2, the subsidy falls to $308,000, and declines further to $55,000 by the third year. In Year 4, the public-private partnership will begin to have net cash inflows, given the passenger movement will increase and ticket prices will also increase. Debt service and depreciation are two expense items that are projected to remain flat. All other income and expenses are projected to increase by 3 percent, the anticipated inflation rate based on the general movement of prices in Montserrat and the ECCU region.
Public officials have often stated that the size of a subsidy is too large relative to the government budget to consider a ferry. Given that the size of the subsidy was estimated to be $540,000 in the first scenario, the second model allows for a public-private partnership to be formed so that the system will function under Pareto efficient conditions (Table 2). The model also removes the debt service by assuming that the ferry is acquired as a gift to the people of Montserrat. The size of the subsidy given all the costs involved operating the service was estimated to be $95,000 (Table 3).
The financial forecasting methods used here throws up a range of possible alternatives that appear manageable from a public finance perspective, given the size of the government’s budget. Interestingly, a short-term ferry service provided from December 2008 to January 2009 at government expense, cost over $20,000 per day, about $600,000 for the 30 days of service provided. This means that the public authorities spent close to the amount needed for one year’s subsidy for a locally controlled ferry to provide service for one month.
| Visitor Arrivals, 1993 – 2008 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1993 | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | ||
| All Visitors | 22,618 | 22,959 | 19,369 | 10,047 | 6,179 | 9,427 | 12,909 | 14,356 | 15,642 | 14,995 | 13,565 | 15,221 | 13,085 | 9,500 | 8,704 | 8,319 | |
| Tourists | 20,994 | 21,285 | 17,675 | 8,703 | 5,135 | 7,707 | 9,885 | 10,337 | 9,822 | 9,836 | 8,390 | 10,138 | 9,690 | 7,991 | 7,746 | 7,360 | |
| Excursionists | 1,624 | 1,674 | 1,694 | 1,344 | 1,044 | 1,720 | 3,024 | 4,019 | 5,820 | 5,159 | 5,175 | 5,083 | 3,395 | 1,509 | 958 | 959 | |
| All Arrivals by Mode of Travel, 1993 – 2008 | |||||||||||||||||
| All Arrivals | 41,119 | 46,820 | 42,623 | 28,885 | 12,368 | N/A | N/A | N/A | 27,380 | 26,173 | 24,340 | 26,216 | 22,391 | 16,949 | N/A | N/A | |
| Sea | 9,714 | 13,365 | 10,236 | 7,370 | 3,738 | N/A | N/A | N/A | 23,280 | 21,529 | 21,102 | 22,657 | 11,146 | 293 | N/A | N/A | |
| Air | 31,405 | 33,455 | 32,387 | 21,515 | 8,630 | N/A | N/A | N/A | 4,100 | 4,644 | 3,238 | 3,559 | 11,245 | 16,656 | N/A | N/A | |
| Year | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Item | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| Operating Income | ||||||||||
| Round-Trip Ferry Fare | $250 | $260 | $270 | $280 | $290 | $300 | $310 | $315 | $320 | $325 |
| Passenger Movement | 15,000 | 15,450 | 15,914 | 16,391 | 16,883 | 17,389 | 17,911 | 18,448 | 19,002 | 19,572 |
| Fare Income | $3,750,000 | $4,017,000 | $4,296,645 | $4,589,453 | $4,895,963 | $5,216,733 | $5,552,343 | $5,811,154 | $6,080,496 | $6,360,769 |
| Freight Income | $416,000 | $457,600 | $499,200 | $540,800 | $582,400 | $624,000 | $665,600 | $707,200 | $748,800 | $790,400 |
| Other Income | $260,000 | $300,000 | $350,000 | $400,000 | $450,000 | $500,000 | $550,000 | $600,000 | $650,000 | $700,000 |
| Total Revenue | $4,441,250 | $4,790,310 | $5,162,029 | $5,546,924 | $5,945,536 | $6,358,422 | $6,786,164 | $7,137,117 | $7,498,618 | $7,871,066 |
| Operating Expenses | ||||||||||
| Debt Service | $873,559 | $873,559 | $873,559 | $873,559 | $873,559 | $873,559 | $873,559 | $873,559 | $873,559 | $873,559 |
| Fuel | $1,310,400 | $1,349,712 | $1,390,203 | $1,431,909 | $1,474,867 | $1,519,113 | $1,564,686 | $1,611,627 | $1,659,976 | $1,709,775 |
| Crew | $300,000 | $315,000 | $330,750 | $347,288 | $364,652 | $382,884 | $402,029 | $422,130 | $443,237 | 465,398 |
| Maintenance | $600,000 | $618,000 | $636,540 | $655,636 | $675,305 | $695,564 | $716,431 | $737,924 | $760,062 | $782,864 |
| Insurance | $1,000,000 | $1,030,000 | $1,060,900 | $1,092,727 | $1,125,509 | $1,159,274 | $1,194,052 | $1,229,874 | $1,266,770 | $1,304,773 |
| Docking Fees | $100,000 | $103,000 | $106,090 | $109,273 | $112,551 | $115,927 | $119,405 | $122,987 | $126,677 | $130,477 |
| Depreciation | $500,000 | $500,000 | $500,000 | $500,000 | $500,000 | $500,000 | $500,000 | $500,000 | $500,000 | $500,000 |
| Other Expenses | $300,000 | $309,000 | $318,270 | $327,818 | $337,653 | $347,782 | $358,216 | $368,962 | $380,031 | $391,432 |
| Total Expenses | $4,983,959 | $5,098,271 | $5,216,312 | $5,338,210 | $5,464,095 | $5,594,104 | $5,728,378 | $5,867,064 | $6,010,311 | $6,158,279 |
| Operating Profit/Loss | ($542,709) | ($307,961) | ($54,284) | $208,714 | $481,441 | $764,318 | $1,057,786 | $1,270,054 | $1,488,307 | $1,712,787 |
| Year | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Item | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| Operating Income | ||||||||||
| Round-Trip Ferry Fare | $250 | $260 | $270 | $280 | $290 | $300 | $310 | $315 | $320 | $325 |
| Passenger Movement | 15,000 | 15,450 | 15,914 | 16,391 | 16,883 | 17,389 | 17,911 | 18,448 | 19,002 | 19,572 |
| Fare Income | $3,750,000 | $4,017,000 | $4,296,645 | $4,589,453 | $4,895,963 | $5,216,733 | $5,552,343 | $5,811,154 | $6,080,496 | $6,360,769 |
| Freight Income | $150,000 | $154,500 | $159,135 | $163,909 | $168,826 | $173,891 | $179,108 | $184,481 | $190,016 | $195,716 |
| Other Income | $100,000 | $103,000 | $106,090 | $109,273 | $112,551 | $115,927 | $119,405 | $122,987 | $126,677 | $130,477 |
| Total Revenue | $4,015,250 | $4,290,210 | $4,578,054 | $4,879,306 | $5,194,513 | $5,524,241 | $5,869,077 | $6,137,386 | $6,416,510 | $6,706,859 |
| Operating Expenses | ||||||||||
| Debt Service | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
| Fuel | $1,310,400 | $1,349,712 | $1,390,203 | $1,431,909 | $1,474,867 | $1,519,113 | $1,564,686 | $1,611,627 | $1,659,976 | $1,709,775 |
| Crew | $300,000 | $315,000 | $330,750 | $347,288 | $364,652 | $382,884 | $402,029 | $422,130 | $443,237 | 465,398 |
| Maintenance | $600,000 | $618,000 | $636,540 | $655,636 | $675,305 | $695,564 | $716,431 | $737,924 | $760,062 | $782,864 |
| Insurance | $1,000,000 | $1,030,000 | $1,060,900 | $1,092,727 | $1,125,509 | $1,159,274 | $1,194,052 | $1,229,874 | $1,266,770 | $1,304,773 |
| Docking Fees | $100,000 | $103,000 | $106,090 | $109,273 | $112,551 | $115,927 | $119,405 | $122,987 | $126,677 | $130,477 |
| Depreciation | $500,000 | $500,000 | $500,000 | $500,000 | $500,000 | $500,000 | $500,000 | $500,000 | $500,000 | $500,000 |
| Other Expenses | $300,000 | $309,000 | $318,270 | $327,818 | $337,653 | $347,782 | $358,216 | $368,962 | $380,031 | $391,432 |
| Total Expenses | $4,110,400 | $4,224,712 | $4,342,753 | $4,464,651 | $4,590,536 | $4,720,545 | $4,854,819 | $4,993,505 | $5,136,752 | $5,284,720 |
| Operating Profit/Loss | ($95,150) | $65,498 | $235,300 | $414,655 | $603,977 | $803,696 | $1,014,258 | $1,143,881 | $1,279,758 | $1,422,140 |
The new airport, the John A. Osborne Airport, at Gerald’s was completed in 2005 and opened with much fanfare and great expectations. In terms of contribution to efficient travel and an infrastructure project that supports private investment in plant and equipment, the results have seen a major downturn in travel to the island, including the near disappearance of the day tours business that performed so well during the years when the ferry operated (Table 1). Since the start of the eruptions, travel demand on the Montserrat – Antigua route peaked in 2001, four years before the airport opened, when 27,380 passengers arrived on the island: 22,280 by ferry and 4,100 by air using the helicopter service. For this study, travel in base year, taken as 2004 or one year of full operations before the airport opened was similar to the peak in 2001. That year (2004), the number of passengers who arrived in Montserrat was 26,216: 22,656 by sea and 3,238 by air. By 2007, the first year in which there was no government supported ferry and most travel to the island had reverted to the air service, total arrivals had fallen to less than 65 percent of the 2004 level. Several business closed, including Jenny Tours, an Antigua-based day tours company, the business that pioneered the Montserrat day tours operations. Also, all respondents in a recent survey on tourism in Montserrat highlighted transportation access as the main factor limiting growth in the sector.
Generally, it appears that the Montserrat - Antigua route has the capacity to deliver 30,000 riders per year, with a potential for to increase to 40,000 riders if tourism picks up, new tourism properties built, and the price of tickets trends downward from $500 roundtrip in May 2009 to a more favorable number of $300 for a similar ticket. Several tourism companies have complained that potential customers overseas complain about the price of travel from Antigua to Montserrat. One visitor who was interviewed on local radio, referred to the route as the most expensive 15-minute flight he had ever taken. A lower price on the route will result in an increase in the number of passengers, higher load factors for the airline, and higher tourism expenditures on the island. At first glance, the subsidy for air transportation appears to be pointing to a $200 subsidy on each ticket but the pricing may be skewed because of low passenger loads and the relatively high fixed cost for operating a successful airline. In order for an airline to be profitable on the route it will need to operate with a capacity load factor of at least 75 percent of the seats. This means that an average of 14 of the 18 seats must be filled on each leg of the flight, arrival and departure. Such an airline will need to be well advertised and be in a position to expand service at peak travel periods and reduce service when demand is low.
In order to provide a justification for a subsidy for a fixed wing air service the connects the John Osborne Airport at Gerald’s to the V.C. Bird International Airport in Antigua at the same time that a subsidized ferry service is proposed, a case needs to be made for such a service based on its marginal contribution to transportation relative to the marginal cost to the government. Assuming that the demand for travel to Montserrat returns to the 2004 level and 15,000 riders are allocated to the ferry, approximately 12,000 passengers will be left over to travel on the subsidized airline. This creates the basis for analysing the viability of the air service and to estimate the level of subsidy that is required to keep the service going. The income for Year 1 will be $4,200,000. This sum appears to be in the range of what is required to provide a supportive service for those passengers who do not want to travel by sea and for those days when the ferry is not available, either because of sea conditions or low passenger demand. A subsidy of $800,000 is proposed and this brings the operating budget income for the air service up to $5,000,000. In agreeing to implement such a subsidy, the government may also consider reducing the subsidy annually as air travel demand picks up and more passengers are travelling on the route. For instance, a year in which 20,000 passengers arrive by air will create business income of $7,000,000 for the airline and the government could decide to withdraw the subsidy under such conditions or allocate the benefit to even lower fares in an attempt to increase travel to an even higher level. The weakness of this analysis is the lack of operating data for the cost of operating an airline. An application to the Tourism Challenge Fund12 included a budget for operating a much smaller charter airline had an annual budget of $900,000. Bearing this sum in mind, it appears reasonable to assume that $5,000,000 in operating income will create sufficient business to keep a subsidized airline that operates a DeHavilland Twin Otter 19-seater aircraft going.
In terms of the operations of the air service, the length of the runway at Osborne Airport, limited to 600 metres, means that LIAT, the regional airline that was founded in Montserrat in 195713 could not operate on the island. This places an additional responsibility on the government to come up with a viable air service solution and investing up to $800,000 on an annual basis, is reasonable.
Montserrat relies on private buses, mostly 15-seater vans built in Japan, for its public transportation. These buses provide a reasonable service in peak travel periods but are inconvenient in off-peak hours as there is virtually no bus service during the day and at evenings. Commuting across the island is therefore inefficient. Headway times on the bus route from Salem to St. John’s can be as long as two hours and this forces many potential riders to seek alternatives.
The idea for implementing a scheduled bus service has been mentioned by some organisations, including the Montserrat Chamber of Commerce and Industry, but the public sector does not appear to be sufficiently interested in designing and implementing a solution for the public transportation problem that currently exists. One of the best examples of a city that relies on scheduled buses as the foundation of its public transportation is Curitiba, Brazil, where public sector investment and private sector response have combined to create a citywide transportation system that works (Kruckemeyer 1999). The city has been able to encourage transit oriented development along the established bus routes by placing significant investment in the system, not only in the buses, but also in the stations along the routes, the scheduling, and the use of modern technology to engage commuters with information as they wait on buses to arrive and during their trip. While this expansive system will not make sense for Montserrat, a commute bus network that offers scheduled service from early morning to late evening will be sufficient to encourage passengers to park their cars or to forego investing in a vehicle. A shift in travel demand from private automobiles to public transport will create national savings, not only in fuel consumption but also in capital. The savings made when individuals and households make when they give up the car can be allocated to tourism investment and other business financing projects, vital economic activities in a country being rebuilt. In addition, as new vehicles emerge that use fuels other than diesel, a higher level of investment will be needed to justify acquiring these new types of vehicles. Higher travel demand on scheduled routes will give bus operators the confidence to make such investments. Also, long-term support from the government will help to fast track the investments. At the end, government investment in the sector will give the authorities more clout in helping to determine how the future of commuting takes place on the island. It will be the island’s benefit to be able to tell the outside world that it has successfully replaced all the fossil fuel vehicles with alternative fuels and that it accomplished this goal with minimal public sector investment.
Currently there is very little support, even involvement, by the government with the commuter bus service. Planning is an alien concept in the Ministry of Transportation, part of the Ministry of Communication and Works. While duty concessions are granted on new buses, there is no subsidy for fuel or other operating costs. Generally, the idea of a subsidy, paid to bus drivers on an annual basis will help Montserrat to have a scheduled bus service. Here is how the plan will work. The government will create a limited number of franchises that allocates a single operating license to each of the current bus operators. Transportation planners will work out the schedules that best meet the needs of commuters. Once these small companies deliver on the schedule, each one will receive a payment from government, once each quarter. The payment will be benchmarked for standard of living and the expected outcome is that the bus owners will be able to afford a decent standard of living at current prices. The estimate for the subsidy is based on 50 percent of the median wage of the civil service, which is in the range of $20,000 per year. The whole plan will cost about $400,000 for an estimated 20 bus franchises or hackney licenses that the government will issue.
A scheduled bus service will lead to many benefits as commuters will have a predictable schedule that they could use to access retail outlets, entertainment, education, and beaches with bus fares being held at the current rate of $3.00 per travel segment. A system with new vehicles that will eventually use alternative fuels, offers Montserrat a chance to leapfrog other Caribbean islands and emerge as a place with exemplary transportation planning designed for results.
The discussion began with an assessment of the potential contribution that public sector investment can make to the productivity of a country or region. The paper concludes with a positive outcome for spending public funds on infrastructure projects to support the Montserrat economy. Whereas further research is needed to expand the forecasting models and increase the reliability of the data methods, the preliminary findings show that it is clear that for the government to invest a total subsidy of $1,300,000 in three modes of transportation for the island has the potential to increase the productivity by a sum that is a significant multiple of this sum. This productivity gain can be taken as greater use of existing assets or an improvement in the business methods and delivery. The next stage of the research will be to estimate the benefits of such and investment, a sum that represents less than 1 percent of total government spending in the typical year.
1 Government of Montserrat Sustainable Development Plan, 2008 – 2011.
2 New York Times, August 11, 1997, Jittery Volcano Is Transforming Caribbean Gem Into Isle of Ash, by Larry Rohter.
3 Government of Montserrat, Statistics Department, Development Unit, Unpublished Statistical Summary in MS Excel ®.
4 LIAT is acronym for Leeward Islands Air Transportation, an airline that was founded on Montserrat in 1957 by a St Kitts national, Frank Delisle.
5 Government of Montserrat, Statistics Department, Development Unit, Unpublished Statistical Summary in MS Excel ®.
6 https://www.cia.gov/library/publications/the-world-factbook/print/mh.html.
7 http://www.theodora.com/wfb/1995/montserrat/montserrat_people.html.
8 DFID, Department for International Development, is the UK Government’s aid agency, responsible for funding the efforts to rebuild Montserrat. Montserrat is one of six Overseas Territories of the UK and the Montserrat-born residents are British Citizens.
9 Sue Wardell, DFID Director for the Caribbean, speaking at a press conference in Montserrat, February 11, 2009.
10 A group of Montserratians named Citizens for the Redevelopment of Montserrat, CRM, opposed the DFID decision to limit the runway length to 600 metres. CRM provided three alternative locations for the airport that were rejected by DFID.
11 Interviews with Mr John Osborne (former Chief Minister of Montserrat), Mr Beresford Allen (ship captain and prospective ferry investor), and Mr Simon Morson (retired police inspector and former ship captain with the Royal Montserrat Police Force marine division).
12 The Montserrat Tourism Challenge Fund is a grant programme that offers funding of up to $200,000 to support new or expanding tourism businesses in Montserrat. The fund is capitalized at $3,000,000 and distributed its first grants in 2009. Montserrat Airways, a new air service that operates with a 9-seater British Norman Islander aircraft is one of the recipients of a Challenge Fund grant. Colin Riley, the author of this paper, is the Fund Manager.
13 Interview with Cedric Osborne, former manager of the Vue Pointe Hotel, March 21, 2009.
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