Sunday, December 1st, 2002
: RCN Administrator
At a mid-November meeting of Caribbean aviation officials, Trinidad and Tobago’s transport minister called for rapid movement toward merging the operations of the various loss-making Caribbean air carriers into a larger regional airline. According to Airline Industry Information, an industry news service, regional officials are discussing a merger between the three largest airlines -- Antigua-based LIAT, Air Jamaica and Trinidad-based BWIA.
With tourism revenues down in the Caribbean and state-subsidized local carriers losing money, the region’s political leaders are pushing for a merger of several airlines as a way to generate efficiencies and avoid an economically damaging reduction in service or, worse, the failure of one or more regional airlines.
Some industry and union officials oppose a merger, suggesting that more extensive coordination -- such as joint marketing and fuel purchasing -- is the answer. But some governments, such as those of Trinidad and the Bahamas, are wary of becoming trapped in a cycle of indefinite subsidies, and they harbor deeper concerns about the health of their tourism-dependent economies in the medium term. Governments have the power to force the issue, making a true merger of several Caribbean airlines likely within the next year or two.
Tourism generates $20 billion each year for the Caribbean economy, accounting for 30 percent of the region’s GDP and providing one in four jobs, according to the Financial Times. The airline industry therefore is a lifeline for the regional economy. But the air travel and tourism market in the Caribbean, as in many other areas, is facing hard times.
Following the Sept. 11, 2001, attacks, regional leaders hoped that Americans would replace trips to Europe and Asia with shorter vacations to the Caribbean, but that hasn’t happened. In fact, tourism arrivals to the Caribbean have declined by 10 percent in the past year, according to the Caribbean Tourism Organization.
The dropoff is showing up in airlines’ revenue figures and is forcing governments in the region to pump scarce funds into national carriers, most of which are at least partially state-owned. Air Jamaica has lost $70 million in the last year and is seeking government handouts. Officials at Trinidad’s BWIA expect to lose around $13 million in 2002 -- after the company posted a $6 million profit in the first half of 2001 -- and they recently requested a $13 million loan from the government, Caribbean Media Corp. news agency reported Nov. 13. State-owned Bahamasair will receive a $12 million subsidy this year, and Cayman Airways and LIAT are also in financial trouble, the Financial Times reported Nov. 28.
Despite the subsidies, Caribbean governments fear that growing losses at regional airlines will lead to sharp cutbacks in air service. Cash-strapped airlines might be forced to reduce the size of their fleets and number of routes or even face financial collapse. BWIA recently laid off 40 of its 215 pilots; it also is selling some aircraft or terminating aircraft leases, while Bahamasair is cutting staff by 20 percent.
This concern is compounded by the fact that U.S. carriers -- particularly American Airlines, which controls about 70 percent of the Caribbean market -- are plagued by financial problems of their own. Like other carriers, American is looking to cut costs, and some Caribbean routes might not survive the chopping block.
Reduced seat capacity would restrict the inflow of tourists and also make travel to the Caribbean more expensive, since travelers would have fewer carrier options. That, in turn, would impact government revenues, making it even more difficult to keep national airlines like BWIA, Air Jamaica and Bahamasair aloft.
Trinidad and Tobago Prime Minister Patrick Manning is leading the charge for a solution -- in the form of a merger of the multiple regional carriers into a large, single airline servicing the Caribbean. The idea reportedly has the support of Manning’s counterparts in the Bahamas and in St. Vincent and the Grenadines.
In addition to combining assets such as aircraft and pilots, a merger would allow the various airlines to engage in collective fuel purchasing, marketing and maintenance -- while cutting back-office costs and eliminating redundant routes. Theoretically, these measures would result in major savings without reductions in service.
Merger opponents -- including unions, which fear job cuts, and some airlines such as Air Jamaica -- argue that many of the savings could be attained simply by deepening regional cooperation between carriers.
But their arguments for a moderate approach probably will not persuade the powerful political advocates, who fear that anything short of mergers would not generate the needed savings. Mergers also are the best way for politicians to extricate themselves from the trap of subsidies. In addition, countries with majority state-owned carriers, such as the Bahamas and the Cayman Islands, might benefit financially if a merger included the privatization of their shares in what are now national carriers.
Manning will make those arguments to his fellow regional leaders -- who by way of subsidies and state ownership hold sway over the airlines. As a result, a merger of at least two or three regional carriers is probably on the horizon.