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Wednesday, December 11, 2013
Trinidad & Tobago Guardian Online
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Howai on fuel subsidy removal: CAL needs push to profitability
Finance Minister Larry Howai has denied that the removal of the subsidy to Caribbean Airlines Limited (CAL) was as a result of the criticisms by St Vincent and the Grenadines Prime Minister Ralph Gonzales about the facility offered to the airline. In mid-May, Gonsalves had said the fuel subsidy was “unfair and disadvantageous” to Liat and that the Caricom multilateral air services agreement had been breached as a result of the T&T Government’s continued support to the airline through the subsidy.
But speaking to T&T Guardian on Tuesday, after the T&T Chamber of Industry and Commerce post-budget news conference, Howai said the Government made decisions in the interest of T&T. “In a sense we run the Government on the basis of what is good for us, as opposed to what other people might say,” he said. “Yes, we hear what Mr Gonsalves said, we take it into consideration whenever we do have to interact with him, in any way. At the end of the day, we have to do what is right and best for T&T.”
Howai said, however, that he was convinced removal of the subsidy was the right thing, since operating CAL should be like operating any business, which means the airline should strategically position itself to deal with competition as well as other factors in the external environment it operates in. “I think moving the fuel subsidy and pushing CAL to become competitive and profitable, even if I don’t get them exactly where I want them to be—at least, if I could get them starting to move in the right direction, I think it’s a start.”
Howai added that the airline has potential to become competitive, though the airline industry is “notoriously fickle.” He added that CAL challenges were not unique to the airline, as international carriers like American Airlines, Delta Airlines, United Airlines and other carriers have experienced their own challenges. “They (CAL) must become profitable. They must strive to become much more efficient and much more customer-oriented, much more effective in the delivery of their service, so we have to push them to do that.”
He said the time had come for the airline to become more independent. “In addition, I think they have the capacity and I have seen it,” Howai said. “We have the capacity to make ourselves competitive and to become efficient and effective, I think CAL has that capacity and I want to see them achieve that. Taking this (the subsidy) is helping them to become a little bit more effective in what they do.”
Since Howai’s announcement of the decision in Monday budget presentation, there has been much debate as to whether CAL would increase its airfare despite a promise not to do so, and whether it could survive without Government support. In a statement on the airfare structure, CAL said “the airline has no intention to change the broad pricing strategies as it seeks to compete within the current regime of filed airfares.
“The caveat of course is, that there are no significant increases in market fuel prices,” it said. “These strategies recognise seasonal demand, consumers’ demands for value for money fares, as well as the potential increased competition.” Referring to its future without a fuel subsidy, the airline said: “Caribbean Airlines accepts the challenge to move to a new performance model of how we must manage our operations.
“We recognise that a lot of work needs to be done on the road to self-sustainability and in making the changes to meet the service quality expectations of our customers,” CAL said. “We will face many hurdles on the way, but our staff look forward to making this a positive journey for the airline in partnership with all our stakeholders in the region.”
Howai has said that the $400 million in capital injection given to CAL in this year’s budget was part of the new restructuring plan for the airline. He said it would not continue indefinitely, however, as this injection would only continue until CAL gets to the break even point. Board members met at a regular meeting yesterday at which it was believed that the decision to remove the fuel subsidy and the way forward was high on the agenda.
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