On Tuesday last I wrote a fairly long letter to your newspaper in an attempt to explain the grave need for the careful safety and commercial certification of start-up air carriers. This letter is again for your ease of reference. In the final piece of that document I threw in a suggestion, which I had made publicly before, about a possible way to bring down airfares in the region. I deliberately used a very provocative phrase in the relevant sentence: "...the creation of a standing forum between the governments and aviation players of the region, by way of partnership to fix fares (new emphasis) at a fair level."
I was very disappointed that there was little reaction to that contentious choice of words. As far as I know, Tony Lee, of i95.5fm, was the only commentator who took issue with that somewhat mischievous phrasing. And as he quite rightly pointed out-contradictory in the context of the earlier paragraph. I am grateful to Tony for giving me the opening to expound a little on a topic close to my heart: the high cost of intra-Caribbean air travel. Dr Jean Holder has pointed out in his recent scholarly work on Caribbean aviation, Don't Burn Our Bridges: The Case for Owning Airlines (University of the West Indies Press), a clear case for the need for affordable, quality air services in the region-if Caricom and CSME are to become more than merely incipient institutions. At page 212 he writes:
"Air transportation that moves people and goods both to and between the territories is probably the single most important element in facilitating and strengthening the regional integration movement. Like any bridge, its true value will not be realised until it no longer exists." Indeed, the need to move people and goods around this region in the face of the German U-boat threat to surface shipping during the Second World War was reputed to be the prime motivator for the birth of BWIA. So why are airfares in the region so high? Why does it cost almost the same to fly to Barbados as to Miami? The answer to this enigma is two-fold:
First of all, the management of an airline's pricing structure is a complex art (often more esoteric than a science). It involves a careful and constant analysis of the market and a capability to react quickly to adjust the pricing structure as the market changes on individual routes or in different market segments. It is common knowledge that the airline business is rarely lucrative for its shareholders: it is highly capital intensive and the product enjoys no shelf life. The Airline Monitor of June 2009 pointed out that, over the last 30 years, the net profit margin for the global aviation industry was negative. Even during the best of those years, the highest net margin did not reach four per cent. The enigma starts with the fact that, despite the undisputed need for regional airlines to provide intra-regional air services, on sometimes very thin unproductive (for air travel) routes of the region, the public cries out for these services to be provided cheaply but at the same time denying subsidy of any kind for the airlines.
One of the main price drivers in regional airfares is the need to cover costs. The airlines have to try and survive on their operating revenues. (I will leave the constant attacks from "armchair aviation analysts" re the government fuel arrangement with CAL for a later debate. Suffice to say at this stage that there can be little wrong with a shareholder, who gains on the upside of rising fuel prices, agreeing to give some stability and predictability to its wholly-owned airline's cost structure by providing a non-commercial fuel hedge.)
The second driver of high airfares in the region is the aggregation of the multitude of taxes and charges applied by governments and airports. A cursory examination of CAL's Web site offering for a Trinidad-Barbados roundtrip, May 8 to 11, tells a revealing story: whereas the return airfare is a mere US$108, the taxes and charges add up to an additional US$72. This works out to a massive two-thirds of the fare charged by the airline.
My suggestion is driven by the firm belief that Jean Holder is spot on in his thesis that if we are to unite these small airline states into any sort of feasible economic entity, intra-regional air travel must not be approached from a purely "market" or "profit" posture. Air travel around the Caribbean should be regarded almost akin to road infrastructure-as an essential service to be provided to citizens of the region. The airlines would be willing to partner with the local authorities to ensure that regional air travellers are provided with safe, high-quality and affordable air services. I believe that this is eminently possible in the short rather than the long term.
Ian Brunton
Former CEO, CAL