With increasing losses due to the drop in tourism, Caribbean airlines are being encouraged to merge to create a single regional carrier for the region’s $1bn a year airline market.
Patrick Manning, prime minister of Trinidad and Tobago, is pushing the proposal with support from several governments in the eastern Caribbean, many of which are investors in regional carriers.
However, there is resistance from some companies, which claim a merger is not the solution. They would rather have increased co-operation in services that could bring efficiencies.
The reduced business has compounded problems of privately run international carriers Air Jamaica and BWIA of Trinidad and Tobago, and state-owned Bahamasair and Cayman Airways. LIAT, an island-hopping commuter based in Antigua, is also in trouble.
“Airlines in the region have discussed deepening relations for many years but competitive rivalry has stalled real co-operation,” says Franklin Khan, Trinidad and Tobago’s transport minister. “Governments cannot continue indefinitely to provide financial assistance to regional airlines.”
The airlines had misplaced hopes of being unaffected by the impact of September 11 on tourism, the main pillar of the region’s cash-strapped economies. Tourism managers say there are no prospects for an early recovery for a sector that, in good times, brings about $20bn per year, accounts for 30 per cent of gross domestic product and provides one in four jobs in the region.
BWIA has made redundant 40 of its 215 pilots, reduced its fleet of five aircraft types to two and is closing its island-hopping commuter arm. Trinidad and Tobago’s government, which privatised the carrier in 1995 but remains a minority stakeholder, is extending a $13.75m loan. The company had an $8m net loss in the first six months of 2002, against a $6m net profit last time.
Air Jamaica, in which the government has a minority interest, plans to seek government guarantees to cover a $70m shortfall in revenues. The carrier says its finances have also been affected by increased security demands from the US Federal Aviation Administration.
State-owned Bahamasair has been losing money over the past few years and the government is providing a $12m subsidy for this year. The company is cutting staff by one-fifth as part of restructuring, says Bradley Roberts, the Bahamian utilities minister.
LIAT, an island-hopping commuter based in Antigua owned by several governments, lost $11m last year, says Gary Cullen, chief executive. Its owners have provided a letter of credit so it can raise capital.
“There are two ways of getting the carriers together,” says a senior Jamaican government official, where the administration has not commented publicly on the proposal.
“One is the merger of all the carriers involved under one holding company. The airlines could operate under their current names or be put in new, common livery.
“The alternative is staying separate but with joint operations in matters in which they can create economies such as maintenance, ticketing arrangements, code sharing, staffing and route rationalisation.”
The second arrangement is more appealing to Gordon Stewart, chairman of Air Jamaica. He says a single regional carrier is not a feasible proposition and there could be room for greater co-operation among regional carriers in services such as marketing and maintenance.
There is little enthusiasm for a merger from Caribbean Star, a privately owned regional commuter. It recently created another carrier, Caribbean Sun, that US authorities have allowed to service several destinations from Puerto Rico.
The governments’ concerns about airlines are heightened by fears that a collapse of carriers, or reduction in seat capacity, could further depress tourism.
One concern is that other carriers such as American Eagle, owned by AMR Corp of the US and a significant operator in the region, could cut back on routes that might be even marginally profitable, reducing access for tourists to some islands.
“There can be no rejuvenation of Caribbean tourism without the simultaneous reinvention of Caribbean air transportation,” says Perry Christie, prime minister of the Bahamas.
John Gilmore, a consultant who was involved in the privatisation of Air Jamaica, concludes that integration of regional carriers is sensible. “The present situation is clearly unsatisfactory. Losses all round are funded by taxpayers and there is no prospect of profitability.”
By Canute James, The Financial Times
