By Tony Fraser, writing from St Kitts
Countries served by at least eight Caribbean air routes now heavily subsidised by the major regional airline, Liat, will have to decide whether they will take over the subsidy or lose its flights into their airports.
“We intend to approach those markets to provide support on the uneconomic routes. If the support is not given, we shall have to wean out the flights,” says Liat’s chief executive officer, Capt Ian Brunton, who has a mandate to make the 56-year-old airline at least self-sufficient.
Liat (Leeward Islands Air Transport) is the Caribbean’s main operator of inter-island routes, stretching from Puerto Rico and the Dominican Republic in the north to Guyana and Trinidad and Tobago in the south.
It also flies into the US and British Virgin Islands, as well as the French Caribbean islands of Guadeloupe and Martinique.
Not surprisingly, Capt Brunton has said that the airline “cannot continue to meet the cost of these social routes”.
That message was conveyed to Caribbean tourism ministers and tourism directors at the recent Caribbean Tourism Organization (CTO) discussion on the Challenge of Regional Transportation in St Kitts.
Thirty-nine of Liat’s 112 daily flights around the Caribbean are described by Capt Brunton as “social, uneconomic routes”.
Capt Brunton, a former CEO of Trinidad’s Caribbean Airlines (CAL), says the subsidy now given by Liat on the 39 flights amounts to 35% of the cost of providing the service.
Shocked by the level of support given to these unprofitable routes, the former CEO of BWIA from 1979 to 1993, Ian Bertrand, who participated in the discussion in St Kitts, described it as “madness”.
“I don’t know of any business which can survive in such circumstances,” he said.
Liat is owned by just three Caricom governments (Barbados, St Vincent and the Grenadines and Antigua).
The rest of Caricom and seven non-Caricom territories all benefit from the island-hopping service.
Capt Brunton has declined to name the subsidised routes.
Taxes and tariffs
But eliminating the costs of uneconomic social routes is not the only problem faced by Liat. Other issues include: high operating costs,fees and taxes placed on the airline industry by governments desperate for sources of revenue, stifling regulations and security challenges, competition from other airlines and a steady fall-off (20%) in intra-regional travel over the last five years.
Capt Brunton identifies further problems, including thin and fragmented markets, limited economies of scale, high employee costs and aggressive trade union activity. All these, he says, are having a negative impact on Liat’s operations.
“Finding the capital to replace an aging fleet, even if the 30-year old planes are still working well,” is also a major challenge to the airline, says Capt Brunton.
The Liat CEO is anxious “to expel the myth that Liat is gouging customers”.
He explains that factors outside of the airline’s control account for much of the high cost of a ticket.
Airport fees and other forms of taxes (66 in all) account for between 30% and 50% of the fare paid by the passenger, says the Liat CEO.
He admits to airline delays and, at times, less-than-ideal efficiency in customer service.
The Liat CEO says that 34% of the delays in September 2012 were caused by industrial disputes with unions and 39% by technical problems.
Capt Brunton, who came into the job in August of this year, projects a turnaround of the airline’s fortunes in 12 months.
One of the bases for the turnaround is the hope that “Caribbean governments will find innovative ways to increase the volume of passengers, rather than imposing high fees and charges”, he says.
The Tourism Minister of St Kitts, Richard Skerritt, who was the CTO’s last chairman, added to the debate.
He argues that, while agreeing that “every Caribbean government has to encourage travel around the region, regional airline companies should get bold and begin to co-operate with each other to incentivise travel”.
Dominica’s Tourism Minister, Ian Douglas, says the airline industry must approach governments with the research figures to demonstrate that reducing taxes on airline tickets and airport charges will lead to an increase in the volume of travel and revenue to the governments through other means.
He notes that Caribbean governments, strapped for revenue, cannot simply forgo tax revenues without assured returns in other parts of the economy.
Air travel consultant Ian Bertrand puts it slightly differently.
He suggests that the airline industry has “to understand what motivates the behaviours of ministers of finance to change what they are doing”.
“How can they lower taxes to get more revenue to fund all of the social programmes?” he says. “Until we do that, we are not advancing.”
On the basis that easy and affordable travel around the region is vital for tourism, the newly elected CTO chairman, US Virgin Islands tourism commissioner Beverly Nicholson-Doty, has established a CTO aviation committee.
Its task will be to facilitate air transportation into and throughout the Caribbean and to enhance airlift.
“The CTO recognises that air transportation is crucial to the success of Caribbean tourism and it is imperative that we seek convenient, affordable and reliable air service if we are to realise our vision of positioning the Caribbean as the world’s most desirable destination,” says Ms Nicholson-Doty.
One Caribbean, fewer airlines
Ultimately, one part of the solution of regional air transportation is “airline consolidation,” says the Liat CEO.
At present, regional governments own many of the approximately 10 airlines operating in the Caribbean.
Capt Brunton says that consolidation of this kind is already under way among many of the world’s great legacy carriers in North and South America, Europe and Australia.
“Individual states continue inconsistencies which frustrate the smooth flow of the aviation system in the region. Customer service and on-time performance are often severely impacted,” Capt Brunton explains.
He points to the drawn-out process of bags belonging to in-transit passengers being screened and re-screened, even though they have been “sterile” since being checked in at one Caricom territory.
Change is coming
Proposals for consolidation of the many airlines around the Caribbean have been on the table since the 1970s without making any progress.
This does not put off St Kitts’ Tourism and International Transport Minister, Richard Skerritt.
“A number of the players [in the airline industry] have changed. Months ago, many of the players were not even speaking to each other,” Mr Skerrit explained.
“I believe the opportunity is right and we must not miss this opportunity to consolidate the airlines,” he added.
One silver lining Liat expects to see in March 2013 is the demise of the competing American Eagle service based in San Juan, Puerto Rico.
“It is an opportunity to acquire new aircraft; I wish we could have had some more time to be ready, but we shall have to make use of the opportunities by the departure of the American Eagle service,” says the Liat CEO.
Capt Brunton says Liat is also having talks with international airlines which fly into the Caribbean on the topic of interlining – that is, allowing passengers to change airlines to complete their journey to a destination.
The immediate challenge for Liat and the eight unnamed member states of Caricom is to take over the subsidy from the airline, or else they could actually lose the service altogether.