Raphael John-Lall

Af­ter the nar­ra­tive that the last Gov­ern­ment cre­at­ed to close down the Petrotrin re­fin­ery, econ­o­mist Dr Vanus James is warn­ing the pub­lic to be wary of the Unit­ed Na­tion­al Con­gress (UNC) Gov­ern­ment’s crit­i­cisms of the fi­nan­cial per­for­mance of state-owned Caribbean Air­lines (CAL).

CAL made its first flight in Jan­u­ary 2007 and al­most 20 years af­ter it was born out of the clo­sure of the now de­funct British West In­dies Air­ways Ltd (BWIA), fi­nan­cial trou­bles still dog the trou­bled air­line ac­cord­ing to the Gov­ern­ment.

On Au­gust 11, Prime Min­is­ter Kam­la Per­sad-Bisses­sar is­sued an ul­ti­ma­tum to the man­age­ment of Caribbean Air­lines (CAL) to “sort out the mess” in two years.

She spoke at the UNC’s Mon­day Night Re­port in Cou­va and ac­cused man­age­ment of fail­ing to do its job, pay­ing $60 mil­lion to EY and Price­wa­ter­house­C­oop­ers (PwC) for au­dits de­spite a large in­ter­nal fi­nan­cial team, fail­ing to sub­mit au­dit­ed fi­nan­cial state­ments, and op­er­at­ing un­prof­itable routes.

She claimed CAL had not pro­duced an au­dit­ed fi­nan­cial state­ment for the last nine years and not one route is prof­itable.

“No longer will we ac­cept tax­es paid by or­di­nary cit­i­zens, paid by teach­ers, paid by po­lice­men, small en­ter­pris­es…to up­keep CAL,” she added.

Ac­cord­ing to its web­site, CAL is joint­ly owned by the peo­ple of T&T and Ja­maica, head­quar­tered in T&T, and with an op­er­a­tional base in Ja­maica. Caribbean Air­lines em­ploys more than 1,600 peo­ple. T&T owns rough­ly 88 per cent of CAL, with the re­main­ing 12 per cent own­er­ship held by the Gov­ern­ment of Ja­maica.

Ac­cord­ing to a Guardian Me­dia re­port dat­ed Au­gust 12, 2021, Caribbean Air­lines it­self re­leased unau­dit­ed fi­nan­cial re­sults show­ing an op­er­at­ing loss of US$48 mil­lion for the first half of the year.

In a 2024 Cus­tomer Ap­pre­ci­a­tion Event, then Fi­nance Min­is­ter Colm Im­bert, who was then CAL’s line min­is­ter, said the air­line had moved from an op­er­at­ing loss of US$36 mil­lion, ex­clud­ing debt ser­vice, in 2022 to a 2023 op­er­at­ing prof­it of US$24 mil­lion, mi­nus debt ser­vice.

How­ev­er, one year lat­er, Im­bert re­vealed an op­er­at­ing prof­it of just US$12.1 mil­lion – a drop of 51 per cent. He at­trib­uted the de­cline to an in­crease in main­te­nance costs, han­dling costs and se­cu­ri­ty flight op­er­a­tions.

Sev­er­al ex­perts at­tempt­ed to ex­plain why CAL is in the po­si­tion it is in and what is next for the air­line.

In an in­ter­view with the Busi­ness Guardian, James ar­gued that the pre­vi­ous Gov­ern­ment al­so cre­at­ed a neg­a­tive im­age of Petrotrin be­fore it was closed down.

“Re­mem­ber Petrotrin - it turns out that the Gov­ern­ment of T&T was much more cul­pa­ble in shap­ing its con­di­tion be­fore clo­sure than met the eye. It might well be that Gov­ern­ment pol­i­cy on mat­ters like the pas­sen­ger busi­ness mod­el on the air­bridge and the re­gion­al flights have much to do with drag­ging down the prof­its made. State­ments about CAL’s prof­it mar­gins must be based on facts, not con­jec­ture or rank po­lit­i­cal in­nu­en­do.”

He added that the “au­thor­i­tar­i­an ap­proach” of Cab­i­net to man­age­ment of the pub­lic en­ter­pris­es is per­haps more the is­sue than the fact that CAL is pub­licly owned, so that is the di­rec­tion in which one might have to look rather than any knee-jerk de­c­la­ra­tion of the need for so­lu­tions and any move to pri­vati­sa­tion.

“Gov­ern­ments can run busi­ness­es prof­itably if the gov­ern­ment it­self is run prop­er­ly. Our gov­ern­ment is not, now or in the past, so that house must be cleaned up as a mat­ter of pri­or­i­ty. You can tell from the way the new Gov­ern­ment is pro­ceed­ing that this is not a pri­or­i­ty.”

James, who said as an econ­o­mist he has spent decades study­ing the per­for­mance of com­pa­nies and busi­ness­es, said he would be sur­prised if this is as sim­ple a mat­ter as the Cab­i­net is mak­ing it out to be – “as if some­thing ne­far­i­ous is go­ing on that is caus­ing CAL to be a fail­ure.

“Like many mod­ern air­lines, CAL is to­day a very com­plex busi­ness that com­petes in the cur­rent busi­ness en­vi­ron­ment with a strong car­go di­vi­sion and the pas­sen­ger di­vi­sion and I would be sur­prised if both were in some kind of trou­ble or if over­all the com­pa­ny is los­ing mon­ey. If both were in trou­ble, the loss­es would have long ago bur­dened the gov­ern­ment suf­fi­cient­ly to force pub­lic dis­clo­sure of that fact. In fact, just the ex­plo­sion of on­line sales in the re­cent decade alone would lead me to the ex­pec­ta­tion that at least the CAL car­go busi­ness is quite prof­itable.”

James added that there has been not enough pub­lic in­for­ma­tion about CAL’s fi­nan­cial per­for­mance and on­ly then can a crit­i­cal analy­sis be made of what should be done with the air­line.

“The Gov­ern­ment of T&T (over the years) has pub­lished no ev­i­dence of the fi­nan­cial state of CAL, giv­en its busi­ness mod­el, so the pub­lic has to take its word that some kind of turn­around is need­ed. In a trans­par­ent and ac­count­able sys­tem of gov­ern­ment, the pub­lic would be able to call up that ev­i­dence through the over­sight process. This is sure­ly a ma­jor mat­ter in this dis­course, more im­por­tant than the sen­sa­tion­al­ism of ul­ti­ma­tums sug­gest.”

Econ­o­mist Dr Ronald Ramkissoon told the Busi­ness Guardian that state-owned com­pa­nies must be re­viewed reg­u­lar­ly to en­sure ef­fi­cien­cy.

“The op­er­a­tion of CAL like all state en­ter­pris­es must be re­viewed from time to time for ef­fi­cien­cy, fit for pur­pose etc. Prof­itabil­i­ty is crit­i­cal but ought not to be the on­ly cri­te­ria for a state en­ter­prise such as CAL where air trans­port is high­ly con­se­quen­tial in the con­text of a small-is­land econ­o­my like T&T. Based on the above, I do not know about CAL be­ing turned around. The com­pa­ny’s chal­lenges may have to do with both its own­er­ship and small prof­it mar­gins.”

Air­line prof­itabil­i­ty

Strug­gles to at­tain fi­nan­cial prof­itabil­i­ty is not just a CAL prob­lem, but it is faced by most if not all in­ter­na­tion­al air­lines.

In a CNN ar­ti­cle dat­ed Ju­ly 3, 2024, the Amer­i­can writer Chris Isidore asked if record num­bers of pas­sen­gers are fly­ing, why air­lines’ prof­its are still plung­ing.

“Air­lines face nu­mer­ous prob­lems, in­clud­ing high­er costs, such as fu­el, wages and in­ter­est rates. And prob­lems at Boe­ing mean air­lines have too few planes to ex­pand routes to sup­port a record num­bers of fly­ers. Strong book­ings can’t en­tire­ly off­set that fi­nan­cial squeeze.”

He said in­dus­try an­a­lysts ex­pect air­lines to re­port a drop of about US$2 bil­lion in prof­it, or 33 per cent, when they re­port fi­nan­cial re­sults for the April to June pe­ri­od this year. That would fol­low loss­es of near­ly US$800 mil­lion across the in­dus­try in the first quar­ter.

Ac­cord­ing to Duke Va­len­tour, who works as an in­dus­tri­al and sys­tems en­gi­neer at Ball Aero­space, a part of BAE Sys­tems, in an ar­ti­cle pub­lished last week on the web­site Vo­cal Me­dia, mod­ern avi­a­tion is more than just the move­ment of peo­ple and car­go—it is an in­tri­cate busi­ness mod­el where every de­ci­sion has fi­nan­cial im­pli­ca­tions.

“Air­lines op­er­ate in one of the most com­pet­i­tive and cost-sen­si­tive in­dus­tries in the world, with prof­it mar­gins of­ten ra­zor-thin. Tick­et sales, op­er­a­tional ef­fi­cien­cy and cus­tomer sat­is­fac­tion all must align for a car­ri­er to re­main prof­itable.”

In Jan­u­ary, In­di­an busi­ness an­a­lyst, Ra­jveer Singh wrote on his blog, that at first glance, the air­line busi­ness might seem lu­cra­tive. In 2023 alone, the glob­al air­line in­dus­try gen­er­at­ed over US$850 bil­lion in rev­enue, trans­port­ing near­ly 4.6 bil­lion pas­sen­gers.

How­ev­er, the net prof­it mar­gin for most air­lines hov­ered be­tween 2 per cent to 5 per cent – a frac­tion of what oth­er in­dus­tries en­joy. For con­text, tech gi­ants like Ap­ple, Mi­crosoft, or Google op­er­ate with mar­gins of­ten ex­ceed­ing 20 per cent to 30 per cent.

He at­tempt­ed to ex­plain why the air­line in­dus­try is one of the least prof­itable sec­tors based on fac­tors like high op­er­at­ing costs, fu­el costs and air­craft ac­qui­si­tion and main­te­nance.