Two days before the 162nd meeting of the Organisation of Petroleum Exporting Countries (OPEC) on June 14, the price of Brent Crude fell US$0.86 to US$97.14 per barrel. How does the 20 percent decline in the price of oil since May 1 affect the aviation industry? In particular, how does it affect Caribbean Airlines Ltd (CAL)? Chairman Rabindra Moonan spoke to the Business Guardian before the June 14 inaugural flight to London.
It is not unusual for fuel hedging to be used by airlines. Fuel hedging is a contractual tool companies such as airlines use to reduce their exposure to volatile and potentially rising fuel costs. Commenting, Moonan said there is need for CAL to be cognisant of the movement of crude oil prices in the market and the airline is being guided by experts in this area. “It may not be prudent when we hedge, to hedge for a very long time, if the market trend is downwards. The people who we have deployed and who we are in conversation with, they are advising us in the right direction,” he said. With competition the biggest concern, Moonan said varying the price of the airfare because of the movement of oil price is not an option as the market determines price.
In early June, the International Air Transport Association (IATA) predicted that Europe’s airlines would experience a combined loss of euro $1.1 billion, but Moonan is not daunted. “What we are going into really is niche marketing and we are not flying all over the world. We are going into particular niche where we feel that there is a demand for our services and that is why we must be more prudent when we look at new routes we want to engage in.” Moonan said once there is a strategy in place, there is no reason to be worried by IATA’s predictions. IATA also predicted the passenger numbers are “going to be hit hard by the crisis in the Eurozone.” Moonan said: “We must always be worried because people do not fly only CAL, they use other airlines to come to the Caribbean, which affects our trade and tourism. If I narrow it down to the airline itself. We are very prudent in which markets we engage ourselves in.”
Parcel bombs, terrorists organisations and other illegal activities are threats which the aviation industry faces. Now that CAL has relaunched its London route, security is heightened. “I am not worried, once the proper measures are in place. We must approach wherever we go with an increased concern for security. It is part of a growing global type of terrorists. We are cognisant of it and we take the necessary steps to minimise any negative fallout from it.”
At the June 14 ceremony to launch the London route, Transport Minister, Devant Maharaj announced he would be giving a deadline of one year for the route to become profitable. Commenting on the deadline, Moonan said he supports the minister’s deadline of one year. “I don’t have a problem at all, we will look to see how it pans out next year. What we really are looking for are the trends. In this business, you don’t look at the bottom line alone, you look at the trends to see how quickly you would turn the corner.” There is need to do constant market surveys for CAL’s routes in order to keep up with competition and determine their feasibility. “In the last month, we made the strategic decision to drop the Montego Bay to Florida route because the trends there were not positive at all. This is what we are doing on an ongoing basis: every week or every month, the management would be presented with facts or figures and based on that, we would make decisions.”
Planning beyond 2012
Moonan is to accompany the team going to Jamaica before the end of June. Among the issues on the agenda is the non-cash acquisition of Air Jamaica. “One of the issues we will be looking at is the double branding issue of CAL and Air Jamaica. We need to speak to the authorities there to get their views (on this matter).” Asked how difficult it was to get the Jamaican authorities to co-operate, he said the passion which Jamaicans have for their airline is the same T&T nationals had for BWIA.
“It depends on how we handle the Jamaica situation, to have dialogue which would give us consensus in what we do, to rekindle their national pride within the scenario of CAL.” Moonan added: “We are not concentrating on new routes at the Air Jamaica leg of it. In fact, we are reviewing the revenue reports and looking to see whether we would rebrand the type of service being offered there, may be looking at a low-cost carrier.” “We have now engaged ourselves in talks with financial institutions to ease our cashflow position because the previous board or the previous chief executive officer had engaged a lot of our cash in long-term financing for the ATRs, and it has put a severe strain on us.”
Moonan said Tobago is being looked at and a technical team was set up to meet with Tobago hoteliers. The prospects for having increased flights to Tobago is being explored, including a flight from Barbados to Tobago. “If the Government bails out the hotels, for the hotels to survive, an airline must bring people and we feel CAL is obligated to partner with the Government in its quest to increase hotel room occupancy and assist in the social and economic development of T&T.” He said CAL is exploring the options to increase flights and once it proves to be viable and feasible. “We will engage in it, but we do that in the context of assisting Tobago development.” We will also look at the New York, Georgetown to Toronto route as the “summer” period draws nearer and there is more travelling.”