Ronald Sanders – Tourism Crisis Soars: Caribbean Airlines Sink

Jun 08, 2008 Features / Columnists, Ronald Sanders

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By Sir Ronald Sanders
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 Organisation 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 have gone, and so too has over 40% of the American Eagle flights within the region.
The crisis worsened as other US airlines followed America’s lead. United Airlines and Continental announced reductions as have the new Low Cost Carriers including Spirit which has major operations throughout the Caribbean.
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.
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 utilisation of their aircrafts.
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 un-profitability.
But, the World Bank has a mandate to promote regionalisation. 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.
(The writer is a business
consultant and former
Caribbean diplomat)
Responses to: [email protected]

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