Frigate Bay, St Kitts: Thirty-five per cent of 112 daily flights by LIAT are described by the airline’s new chief executive officer Captain Ian Brunton as “social (uneconomic) routes.”
“LIAT cannot continue to meet the cost of these social routes,” Brunton told the state of the industry conference of the Caribbean Tourism Organisation in St Kitts last week.
The airline operates the intra-regional routes in the Caribbean going as far north as Puerto Rico and the Dominican Republic and Guyana and T&T in the south, also flying into the US and British Virgin Islands and the French Caribbean, Guadeloupe and Martinique.
Ian Bertrand, former CEO of BWIA from 1979-1993, in his presentation at the conference expressed shock that such a large percentage of flights are 35 per cent of its flights are subsidised.
“This is madness. I don’t know of any business which can survive in such circumstances,” Bertrand said.
What is more, the airline is owned by only three of the 11 Caricom governments—Barbados, St Vincent and the Grenadines and Antigua—and seven non-Caricom territories which benefit from the service LIAT provides. Those non-Caricom territories are: US Virgin Islands, the Dominican Republic, Puerto Rico, Curacao, Aruba, Guadeloupe and Martinique.
Without saying which markets are uneconomical, Brunton says the routes are in and out of eight countries.
“We intend to approach those markets to provide support on the uneconomic routes,” says the former CEO of T&T’s Caribbean Airlines Ltd. “If the support is not given, we shall have to wean out the flights,” Brunton told ministers and directors of tourism from the Caribbean at the CTO discussion on the Challenge of Regional Transportation: Where are the Solutions?
Bearing the costs of uneconomic social routes is not the only problem faced by LIAT. High operating costs, fees and taxes on the industry, stifling regulations and security challenges, competition and a steady fall-off (20 per cent) in intra-regional travel over the last five years as a result of the international recession that goes back to 2008, are significant elements of LIAT’s problems.
So, too, are thin and fragmented markets, limited economies of scale, high employee costs, coupled with aggressive trade union activity.
In addition, Brunton says “finding the capital to replace an aging fleet, even if the 30-year old planes are still working well,” is also a major challenge.
The Liat CEO wants “to expel the myth that LIAT is gouging customers”.
The cost of a ticket, he says, is made high by factors outside of the control of the airline. Airport fees and other forms of taxation (66 in all) account for between 30 and 50 per cent of the fare, says the airline’s CEO.
The LIAT base fare, insists Brunton, is competitive with other international airlines on the basis of miles travelled to a destination.
He admits, though, to delays and at times less-than-required efficiency in customer service. The CEO says 34 per cent of the delays in September 2012 were caused by industrial action on the part of the representative unions and 39 per cent due to technical problems.
Brunton, who came into the job in August 2012, projects a turnaround of the airline’s fortunes in 12 months. The basis for the turnaround is hinged on a number of factors. One is for “Caribbean governments to find innovative ways to increase the volume of passengers rather than imposing high fees and charges,” says Brunton.
Regional incentives to travel
While agreeing that “every Caribbean government has to encourage travel around the region, regional airline companies should get bold and begin to cooperate with each other to incentivise travel,” says Tourism Minister of St Kitts, Richard Skerritt, who is the immediate past chairman of the CTO.
But the airline industry must approach governments with the research figures to demonstrate that reducing taxes on airline tickets and airport charges will result in an increase in the volume of travel and revenue to the governments through other means, says the Tourism Minister of Dominica, Ian Douglas. He said Caribbean governments, strapped for revenue, cannot simply forgo tax revenues without assured returns in other parts of the economy.
Airline consultant Ian Bertrand says a similar thing a little differently, suggesting 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? Until we do that, we are not advancing.”
CTO sets up task force
Beverly-Nicholson-Doty, newly elected chairman of the CTO, Commissioner of Tourism of the US Virgin Islands, is to establish a task force to advise on the implementation of the San Juan Accord on the reorganisation of the regional airline industry.
Among other recommendations, the 2007 Accord proposed the revision of the Association of Caribbean States Multilateral Air Transport Agreement, the creation of a single air space within Caricom and the wider Caribbean, the promotion of functional cooperation amongst regional airlines and the interlining of airlines to facilitate passenger travel on different airlines.
Those proposals were supposed to have begun to be implemented since September 2008.
Brunton believes “airline consolidation” amongst regional governments which own many of the approximately ten airlines operating in the Caribbean is absolutely necessary.
Such consolidation is being pursued in North and South America, Europe and Australia, amongst many of the world’s great legacy carriers, says Brunton.
“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,” states Brunton.
He sites the humbug of the luggage of intransit passengers being screened and rescreened, “despite the fact that they have been sterile since the upstream screen in another Caricom or even another OECS (Organisation of Eastern Caribbean States) state.”
New players, right opportunity
That such proposals for consolidation of the many airlines around the region go back to the 1970s does not faze the Tourism Minister of St Kitts, Richard Skerritt.
“A number of the players (in the airline industry) has changed. Months ago many of the players were not even speaking to each other. I believe the opportunity is right and we must not miss this opportunity to consolidate the airlines,” says Skerritt.
One major opportunity opening up for Liat in March of 2013 is the end of the American Eagle service out of its hub 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.”
Liat is also said to be talking with international airlines which fly into the Caribbean with regard to interlining, allowing passengers to change airlines to complete their journey.