“Worst fears” over Blackstone seaplane buyout now a reality, warns hotel group

Several multinational hospitality groups have alleged that the decision to sell the Maldives’ two main seaplane operators to US-based private equity fund Blackstone is having a “significant” negative impact on industry profitability – potentially compromising local jobs.

Blackstone announced back in February this year that it had purchased a controlling stake in both the Maldives’ seaplane operators, Trans Maldivian Airways (TMA) and Maldivian Air Taxi (MAT) for an undisclosed sum. Since the merger, the company has been operating under the TMA brand.

Major resort groups – speaking on condition of anonymity – have alleged that a number of properties were losing money on a monthly basis as a result of being reliant on services provided by the now-consolidated national seaplane operator.

“Worst fears”

In a letter addressed to the Secretary General of the Maldives Association of Tourism Industry (MATI) – obtained this week by Minivan News – one of the largest multinational companies operating in the country expressed concern that “our worst fears about the [seaplane] monopoly situation are becoming a reality.”

“You are of course aware that The Blackstone Group’s recent entry into the market has had the effect of eliminating competition and creating a monopoly in the charter seaplane market in the Maldives,” wrote the multinational’s CEO in a letter dated August 5, 2013.

“We were concerned from the outset about the potential disruptions this could cause in the market and have been monitoring the situation closely.”

The CEO added that, with discussions ongoing over securing a seaplane charter contract for its resort properties in the country, the company was particularly concerned at several contractual points being “forced” onto the group by TMA.

According to the letter, these concerns include:

  • A significant increase in prices from previous seaplane contracts
  • A reduction in services and benefits being offered to hospitality groups
  • An exclusivity clause forbidding any deals between the company and other seaplane operators
  • A “contractual link” to use landplane operations it alleges are set to be launched by TMA
  • Minimum contract term of three years for seaplane operations

“As you can see, the terms being forced upon hotel owners are highly anti-competitive and will have a significant negative impact on the market. We are being forced to accept unfavourable terms and TMA is trying to lock itself into a monopoly position by insisting on long-term exclusive contracts,” the multinational hospitality group’s CEO continued in his letter to MATI.

“Ultimately, these costs will be passed on to tourists, which will make the Maldives an even more expensive tourist destination and ultimately deter tourists from visiting , this will cost Maldivian jobs and damage the industry and economy.”

“Sensitive issue”

A senior official for another major multinational hotel group using TMA’s services said it had been experiencing a number of problems in recent months related to transporting clients by seaplane – describing the matter as a “sensitive issue”.

As well as general concerns about service costs, which it said were now “quite high”, the resort source claimed they had also noted issues with TMA cancelling flights without providing prior notification to the resort or its passengers.

In some cases, the resort official alleged that the resort had been given no choice but to provide customers with free meals and even additional nights stay on their property as a result of what it said were last minute cancellations by TMA.

“Although we have had no complaints from guests themselves, this has become quite expensive for the resort,” added the resort official. “I speak with many other resorts and many have said they are losing money monthly by having to provide these transfers [by seaplane].”

The source also noted what they believed was a decline in service in recent months, personally finding travelling with TMA a comparatively “unpleasant experience”.

“Right now, there is no competition as it is only TMA offering services,” the source said.

Domestic alternatives

Meanwhile, the general manger of a resort based in the north of the country, which is currently in negotiations with TMA to renew its contract, also raised concerns over the recent services being provided to guests since the takeover by Blackstone.

“We are not the only resort I know of who believes the services are not as good. There are less flights and more island hopping,” the source claimed.

The manager said that with the recent inauguration of a domestic airport in the country, the resort’s own reliance on TMA was no longer as strong, though they added that many guests preferred the opportunity to travel the country by seaplane where possible.

Despite the preference of many tourists to fly by seaplane, the general manager said that tour operators were now opting to use domestic air travel for customers travelling to the resort as “standard”.

“We are expecting more clients to travel by domestic flights, although some would rather pay to upgrade and fly by seaplane,” added the general manager.

Minivan News was awaiting responses from TMA, Blackstone, MATI Seceretary General Ahmed Nazeer, and Tourism Minister Ahmed Adheeb at time of press.

Investment climate

Speaking this week during a live question and answer session ahead of the upcoming election on September 7, President Dr Mohamed Waheed took full credit for securing Blackstone’s purchase of the country’s seaplane operators.

He cited the deal as an indication of the health of foreign investment under his administration, amidst criticism over his government’s termination of two high-profile foreign investment contracts, including a US$511 million valued agreement with India-based GMR to develop and manage Ibrahim Nasir International Airport (INIA).

“It is ridiculous to claim we are not getting foreign investments now. They are very eagerly coming, even more now. One example of a great investor that I brought in recently is Blackstone,” President Waheed said during the televised event.

Attorney General Azima Shukoor last month accused the previous government of failing to conduct sufficient research before signing several major foreign investment projects that have since been terminated by the present administration.

Speaking at the time of the sale back in February, former Minister of Economic Development Mahmood Razee, also former Minister of Civil Aviation, noted that the purchase of a controlling stake in the only two seaplane operators by a single company had effectively monopolised the market.

“This is a very exclusive market, and critical to the tourism industry. Even though both MAT and TMA operate the same aircraft, they have not previously been willing to cooperate,” Razee said, explaining that the Maldives did not have anti-monopoly laws which may have otherwise obstructed the sale.

Previously, resort managers could approach both companies seeking the better price for seaplane services, upon which they were reliant for the vast majority of their guest arrivals: “Now there is no effective competition, as the major shareholder is one and the same,” Razee said at the time.

He acknowledged that “in an ideal world” prices could come down, as the two companies have been operating identical aircraft but duplicating maintenance and other services.

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Tourist facilities to be developed on local picnic island Kuda Bandos

Additional reporting by Neil Merrett

Tourist facilities are to be developed on Kuda Bandos, the only picnic island located near Male’ accessible to for Maldivians, following the island’s owner Vice President Mohamed Waheed Deen submitting the sole bid for its development.

Vice President Waheed Deen, also the owner of Bandos Island Resort, previously leased Kuda Bandos for US$6000 annually. However, the after the island was opened for bids on November 16, 2012  Deen submitted the sole proposal and won Kuda Bandos again for a rent of US $180,582, according to local media.

A joint venture company will be established with the Government of Maldives to develop the island, including “certain tourist facilities”, Minister of Tourism, Arts and Culture Ahmed Adheeb told local media.

The new facilities will “modernise the island” and increase government revenue, according to Adheeb.

“We don’t want to renew the agreement every two years. Now it is to be handed over through the Tourism Act and the rent will be paid just the same as the resorts,” said Adheeb.

Currently Maldivians have exclusive access to Kuda Bandos, which is located next to Bandos Island Resort, on Fridays, Saturdays and public holidays, when local families are able to travel to the picnic island for a day of relaxation on the beach.

Adheeb claimed that even after Kuda Bandos is developed Maldivians will have full, unrestricted access to the picnic island.

“After development, safari boats can go there with tourists. It will be developed so that everyone will have the opportunity,” said Adheeb. “The tourist facilities will be established to make it easier for the tourists who visit.”

Maldivian picnic island access

Despite Adheeb’s claims that Maldivians will have “unrestricted access” to Kuda Bandos, the former Secretary General of the Maldives Association of Tourism Industry (MATI), ‘Sim’ Mohamed Ibrahim, believes that developing the picnic island for foreign tourists will still limit locals’ ability to enjoy the island.

“There are less places for Maldivians to go. The problem would be solved if Mr Deen created a small island in front of Kuda Bandos [for locals]. It’s not ideal but it should serve the purpose,” Ibrahim told Minivan News today (July 18).

Whether Maldivians will have unfettered access to the sole remaining picnic island near Male’ once it is developed remains to be seen, Ibrahim does not think Maldivians enjoying the island together with tourists should be an issue.

Specifically, safari boats coming to Kuda Bandos with alcohol or foreigners sunbathing in bikinis “is a grey area”, according to Ibrahim.

“It is up to a person to decide what he wants to do or not, I don’t understand why this would be a problem,” he said.

“The question of [drinking] alcohol is not a problem, the issue doesn’t arise, because Maldivians as Muslims don’t drink,” he continued.

“[And] why would there be a problem with foreigners sunbathing in bikinis, if a lot of Maldivians are working on and visiting resorts [every] day?” he asked.

“It happens on Bandos [Island Resort] or any other resort for that matter,” he added. “As it is there is nothing to prevent Maldivians from going to resorts or accessing their facilities.”

Picnic island development

A new tourism regulation entitled the “Procedure to Follow Where the Government Undertakes Joint Venture Investment in Islands or Land”, allows a company with at least a 10 percent share held by the state to develop a resort from land set aside for tourism use, such as a picnic island like Kuda Bandos.

Land used for water sports or diving would also be included once the lease for the area is acquired by a joint venture company.

Published in the Government Gazette Volume 42, number 17 – dated January 28, 2013 – the regulation requires any joint venture partner working with the state on a tourism projects to have a minimum financial worth of US$300 million and make a minimum initial capital investment of at least US$100 million.

Tourism Minister Adheeb told Minivan News in April that the regulations applied to land such picnic islands that were effectively being used “almost as a resort”, such as areas licensed to serve alcohol to tourists, something not allowed on islands designated as “inhabited”.

“The only difference [to these islands] is that tourists cannot sleep there for the night,” he said. “Now they can stay there the night, but [operators] have to pay land rent. It is to stop the concept from being abused.”

However, an island owner involved in the country’s burgeoning mid-market holiday sector has slammed new regulations imposing financial restrictions on tourism joint venture projects with the government, claiming the legislation outright excludes small and medium-scale investors.

These recently implemented amendments to the Tourism Act served to “shut the door” on small and medium-sized investors, alleged the island owner, speaking to Minivan News on condition of anonymity.

“The real issue here would be that only those with very high net worth can be venture partners with government. Very, very few tycoons are in that wealth bracket,” the source said.

“[Former President] Nasheed’s government tried to be inclusive in offering business opportunities. This regulation is exclusive and shuts the door for medium to small-size investors to partner with the government,” the source added.

Meanwhile, the Ministry of Tourism, Arts and Culture has announced a public tender to lease several other islands across the country for development as resort properties.

Through the tender, applicants will bid for a 50 year lease to develop one of several islands including, Kunnamala in Noonu Atoll, Kudafushi and Fasmendhoo in Raa Atoll, Vanabadhi and Kani in Thaa Atoll, Dhigudhoo in Gaafu Alifu, and Ismehela Hera in Seenu Atoll.

Additionally, seven parties have expressed interest to develop tourist resorts on the islands of Madifushi in Meemu Atoll, Keradhdhoo in Gaafu Alifu Atoll, and Ismehela Hera in Seenu Atoll.

While Ismehela Hera was also included as one of the three islands the Tourism Ministry invited bids for in April, the ministry did not clarify why the island was listed twice, according to local media.

Bidding documents will be made available to Maldivian nationals for a non-refundable payment of MVR 2000 (US$130) or US$300 for foreign nationals, until July 28.

All bids must then be submitted before 1:00pm on August 1, 2013 to the ministry, where they will be opened at a ceremony held later the same day.

Former MATI Secretary General Ibrahim said the process for tenders was “pretty much standard” for obtaining an island lease.

“The investment climate is better than a year ago and source markets are improving,” said Ibrahim.

Tourism Minister Ahmed Adheeb was not responding to calls at time of press.

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