On airlines, tourism and Caribbean integration

Toward the end of last year, as a row raged between the Board of Directors of Caribbean Airlines Ltd (CAL), owned by the government of Trinidad and Tobago, and the Minister of Transport Jack Warner, alarm was expressed by several commentators at published reports in Port-of-Spain that CAL might not proceed with plans to finalise a merger with Air Jamaica by April 30 this year.{{more}}

These reports emanated from conflicting statements credited to the former CAL Chief Executive Officer, Ian Brunton, in which he had publicly declared himself fully in support of the Air Jamaica merger, but had simultaneously advised the CAL Board not to consummate the deal.

The cause for alarm was two-fold: the first was the effect that failure to complete the Air Jamaica deal would have on the Jamaican government’s economic support arrangements with the IMF; and the second was the irreparable damage that would have been done to Caribbean integration if the Trinidad and Tobago government left Jamaica deep in distress by reneging on the deal. Dr. Eric Williams arithmetical calculation of “One from ten leaves nought”, that effectively ended the West Indies Federation, would undoubtedly have been invoked again – this time by Jamaica.

Reassuringly, since then, the CAL Board has made it clear that it is in fact proceeding with the Air Jamaica transaction. New planes have been brought into service and the reopening of Air Jamaica flights to London’s Heathrow Airport has been announced.

Like many others in the region, who place some store in a truly regional airline to ensure that the Caribbean Community (CARICOM) countries have some measure of independence from the vagaries of foreign carriers, I am gratified that the merger between CAL and Air Jamaica is proceeding and that Jamaica will own shares in the merged airline.

It is to be hoped that this is a first step in the direction of a single regionally-owned airline that will serve all CARICOM countries, not only for tourists, but also in the vital area of moving Caribbean people and goods around the region as the regional integration process is deepened.

This raises the question of what happens with the smaller airline, LIAT, which is essential to inter-CARICOM transportation, especially for Caribbean people. For some countries, LIAT is, indeed, an “essential” service, for without it, these countries – especially Dominica and St. Vincent and the Grenadines – would have to rely on small, private airlines that are insufficient to service their tourism needs and their inter-regional trade.

LIAT is owned by three governments – Antigua and Barbuda, Barbados and St.Vincent and the Grenadines. All three are strapped for cash and if LIAT is not profitable year after year, these governments will have to dip into their already depleted treasuries to support the airline. The prospect of that happening is not good. But, the other governments into whose countries LIAT flies have shown no interest in supporting the airline, largely because they too don’t have the financial resources.

In this regard, a merger between the new CAL (including Jamaica) and LIAT would appear to make good economic sense, although CAL’s decision to purchase French ATR aircraft, instead of the Canadian dash-8’s that LIAT has traditionally flown, would pose a problem of amalgamation.

But, even if that problem was overcome, the further difficulty would be devising a scheme for operations and service that would persuade the governments of the countries now served by LIAT that they would not be at the mercy of Trinidad-centred considerations by CAL. This will require very careful negotiations, diplomatic skill, and political resolve to reach and implement a workable consensus. How much of this political resolve exists at the moment in CARICOM is a question to which there is no easy answer.

The answer is made more difficult by the recent announcement by CAL that it will shortly introduce flights that will compete with LIAT on some of its routes. The response of St. Vincent’s Prime Minister Ralph Gonsalves to this announcement is instructive. He says that he is not opposed “to any competition for LIAT, but that competition must be on a level playing field.”

His latter point may be an allusion to the fact that CAL enjoys the facility of fuel at a price less than the market price which LIAT has to pay. Paying less for fuel will give CAL an advantage over LIAT in one of two ways: either by allowing it to drop its prices to customers below LIAT’s, and, therefore to grab a larger market share; or by maintaining the same price as LIAT and, thereby, increasing its revenues, making it more viable than LIAT. In either scenario, LIAT will suffer from CAL’s competition by having to share the customers it now has.

One possibility that could give a CAL-LIAT merger credibility and confidence is the involvement of the International Finance Corporation (IFC), as a disinterested third party with experience in these matters. Such a merger should try to ensure that the present owners of LIAT end up with shares and a voice in the merged CAL operation.

In the meantime, the people of CARICOM complain of the high cost of travel within the region. Of course, this is not only because of the charges by CAL and LIAT for their fares, but also because of the taxes that each government charges passengers for the use of their airports.

There has always been a need to rationalise air transportation within CARICOM in ways that serve tourism and the movement of people and goods within the region. That need has now become urgent.

Dealing with it requires empathy among CARICOM Heads of Government and Ministers of Transport and a firm resolve to deal with the issue in ways that would result in a regional consensus. Can they do it? Yes, they can, if every effort is made to put aside narrow chauvinism, by balancing it with the other benefits that regionalism brings to everyone’s national development. But, we shall see.

(The writer is a Consultant and former Caribbean Diplomat)

Responses and previous commentaries at: www.sirronaldsanders.com