The pivotal role of air transportation in CARICOM

Within the past week, Caribbean Community (CARICOM) nationals got wind of the imminent liquidation of LIAT, a process which if carried out, would bring an end to over 60 years of aviation history for the airline. Since the announcement that LIAT is heading for liquidation, various types of perspectives have been shared, both with respect to the future of the airline itself and the wider issue of the future of air travel within CARICOM.

In some quarters, there is a view that LIAT can and should be reincarnated as a new airline. Meanwhile, others have called for a private sector-led effort to fill the void left by LIAT. However, for me, what is even more important than the form of any new entity or entities are the measures that will be implemented to sustain regional travel.

Air transportation plays a crucial role in not only moving people and goods across CARICOM, but there are broader benefits as well. These benefits include the contribution of air travel to government revenue in the form of fees and taxes, and its role in promoting economic growth and job creation, especially given its centrality in facilitating both intra and extra-regional tourism and business travel.

LIAT was heavily criticised for two main reasons. First, some felt that governments were too heavily involved in decision making. Second, some were of the view that taxpayers’ funds were being wasted on an airline that rarely, if at all, turned a profit, and which was also operationally inefficient and unreliable. Flowing from these concerns, there was an attendant unease or perception that government involvement had disincentivised the need to have an efficiently run, reliable and profit-making airline. Furthermore, as is sometimes the case when governments are heavily involved in certain types of economic activities, there was somewhat of a crowding out effect of private sector players from the regional aviation market, namely those players that wanted to compete on the same routes as LIAT (remember Caribbean Star anyone?)

Largely due to the negative perceptions surrounding government involvement in LIAT, some are now agitating for any successor initiative(s) to fill the LIAT-sized hole to be private sector led. On the surface, this is a reasonable petition. Afterall, a private sector-led effort is unlikely to rely on government funding in the same way that LIAT did, thereby reducing the charge on the public purse. Furthermore, the private sector might be more likely to run a leaner and more profitable enterprise (at least in theory).

However, there are some questions that must be asked in a private sector-led scenario. Will taxpayers subsidise unprofitable routes? When there are exogenous shocks, as is now the case with the novel coronavirus pandemic, will taxpayers be expected to provide bailouts? Is the regional market sufficiently voluminous to sustain healthy competition among multiple players? If the regional market cannot sustain healthy competition, is a monopoly inevitable?

These questions take me back to where I started – for now, we should be less preoccupied with form and spend more time thinking through how best we can guarantee regional air travel on a sustainable basis. There is definitely a role for the private sector (immaterial at this point whether it is leading or supporting) and of course, government has a role to play as well. The private sector might see its role in terms of providing capital, managerial expertise and the kind of business savvy not ordinarily associated with government. Government’s role is likely to be in terms of regulating the sector to ensure fair competition, safety and consumer welfare. Governments also have and will continue to have purview over fees, taxes and access to their markets (on fees and taxes, the issue of rationalisation is paramount). Furthermore, as occasionally happens in Europe, North America and elsewhere, government’s role may also include on occasion, bailouts when the market conditions demand this and when public finances can support such. Of course, there is also nothing precluding regional governments from maintaining an ownership stake in any entity or entities that succeed the last incarnation of LIAT.

Finally, air travel, and more broadly, connectivity within CARICOM is of systemic importance to the success of regional integration as well as to national economies. As much as LIAT was among the favourite things to hate in the region, its demise has exposed its true value as a bridge which linked many countries across CARICOM. However, there is now an opportunity to build a new and more financially sound bridge.