09
June, 2008 - Published 10:01 GMT
Sir Ronald Sanders
The writer is a business consultant and
former Caribbean diplomat
Tourism Crisis Soars: Caribbean Airlines
Sink
Tourism in the Caribbean Community and
Common market (CARICOM) countries is in
deep crisis as trumpeted by St. Lucia’s
Minister of Tourism, Senator Alan
Chastanet, at an emergency meeting of
the Caribbean Tourism Organization in
late May.
The
crisis was looming for some time but
recognition of its magnitude was
triggered by the decision of American
Airlines to reduce its flights by 10% as
oil prices increased to $130 per barrel
from $80 in January and $40 in 2004.
American Airlines alone provided over
one-third of the total flights
(including Europe) into the Caribbean
and within the region. The three
Caribbean based airlines, Air Jamaica,
Caribbean Airlines and LIAT collectively
provided 28%.
So,
the Caribbean has been particularly hard
hit by American’s cutbacks. Over 50% of
the American flights from the US into
its major hub at Puerto Rico has gone,
and so too has over 40% of the American
Eagle flights within the region.
The
crisis worsened as other US airlines
followed American’s lead. United
Airlines and Continental announced
reductions as have the new Low Cost
Carriers including Spirit which has
major operations throughout the
Caribbean.
Facing the crisis
To try
to deal with the crisis, Caribbean
Tourism Ministers set up four committees
to develop specific plans: on regional
hub airports; on revenue guarantees for
the airlines; on marketing; and finally
on the regional carriers - specifically
the way forward for the government owned
Caribbean airlines.
These
plans are to be discussed at a meeting
in Washington on June 21 and the
“crisis” is on the agenda of the CARICOM
Heads of Government when they meet in
July in Antigua.
There
is nothing that governments can do about
the price of oil except pray that it
won’t increase even further. They can
look at regional hub airports to improve
flight schedule connections and they can
improve their tourism marketing efforts.
On the
latter point, they will have to
determine whether they can afford to
continue subsidizing flights by
international carriers into their
airports – a practice to which they
succumbed and which the carriers now
regard as a norm.
Making up for losses
So
what can be done with the regionally
based airlines? Year after year, their
government owners – and the taxpayers of
the Caribbean – spend huge amounts of
money making up for their losses.
Air
Jamaica last year lost US$171 million
after losing US$128 million in 2006 and
US$132 million in 2005.
In its
40-year history Air Jamaica has never
made a profit. Earlier this year, with
the price of oil under US$100 per barrel
the official forecast was a loss similar
to last year’s, but with the oil price
now at US$130, that dream has
evaporated.
In the
case of Caribbean Airlines the
government of Trinidad and Tobago spent
US$250 million to close down BWIA, an
additional US$100 million to set up
Caribbean Airlines (on a scaled down
basis with no European service) and a
further US$25 million to acquire Tobago
Express.
The
CEO of Caribbean Airlines was quoted in
January of this year, when oil was at
US$ 80 per barrel, as saying that the
airline would break even this year and
make a small profit in 2009.
At
US$130 per barrel for oil, that forecast
is also a pipedream.
LIAT
received a US$ 16 million bail out in
2006 and a further US$60 million last
year to take over Caribbean Star –
giving it a monopoly within the Eastern
Caribbean.
It
radically increased fares, dramatically
reducing intra regional business and
leisure travel to howls of outrage from
the Caribbean people and the tourism
industry.
LIAT’s
officials were speaking cautiously of
breaking even this year, again when oil
was at US$80 per barrel. With a barrel
of oil at US$130, LIAT too will be
looking at a major loss – to add to the
losses in each of the past 25 years or
more.
Caribbean governments that own these
three airlines have tried with different
managements, different business
strategies, and different ownership
structures to find a solution to
consistent, large losses stretching back
half a century.
The
one solution that has been shunted aside
by governments, even though it has been
recommended by experts time and again,
is a regional airline comprising all
three existing airlines.
The
most recent proposal was made in 2005.
The airline would have one head office
instead of three, one ticket counter at
each airport instead of three, greater
economies of scale, more bargaining
power on terms of purchases, and a
larger network to provide better
utilization of their aircraft.
Viable solutions
The
World Bank suggests that if the
government-owned Caribbean airlines are
not profitable, they should be shut
down. The Bank argues that the demand,
if profitable, will be met by
non-regionally based airlines.
This
has been the case in the Dominican
Republic which has no national airline
and the Bahamas whose national airline
has Florida as its only international
destination.
The
Jamaican government has asked the World
Bank to help restructure and divest, if
possible, Air Jamaica. This will
probably be unsuccessful at this
particular time as investors are scarce
for profitable airlines let alone ones
that have a consistent 40 year record of
unprofitability.
But,
the World Bank has a mandate to promote
regionalization. It also has capital and
access to expertise that could create
one viable regional airline from those
that now exist.
The
CARICOM Heads of Government at their
July meeting should request the World
Bank to use its expertise to develop a
viable regional airline solution and to
put its capital behind that solution to
make it happen.
The
objective should be a private sector
regional airline, owned by regional
investors, responsive to market demand
and operating on a commercial basis with
the goal of long term self sustaining
profitability and, where requested,
providing government-subsidized service
on non commercial but ‘essential
service’ routes.
An”
Airlines of the Caribbean” could be the
silver lining in the cloud of oil at
US$130 per barrel that now hangs darkly
over the region’s tourism and
transportation industries, and the
livelihood of its people. There is need
to put national pride aside and to
pursue a rational, regional solution.
