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Why no air transport talks including REDjet?

Sir Ronald Sanders

Sunday, April 08, 2012    

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WHAT prohibits a meeting of representatives of Caribbean Community (Caricom) governments on the crucial matter of air transport within the region, even as the situation worsens, is beyond comprehension.

Three blatant realties are these: Caribbean Airlines Ltd (CAL) is losing money once its massive fuel subsidy from the Trinidad and Tobago Government is subtracted from its declared profits; LIAT, the smaller Caribbean airline, is also losing money in part because it is competing with CAL on an uneven playing field; and REDjet, a low-cost carrier, has had to suspend its much sought after service because of what it says are broken promises by the Barbados Government and long delays by some Caribbean governments to grant it licences to fly into their countries.

It has long been the case that air transport in the region requires rationalisation that takes account of costs, wasteful expenditure, and a means of satisfying the pent-up desire by the people of the Caribbean to travel within the region at reasonable prices.

Today, the need for such rationalisation is urgent.

If matters continue as they are, LIAT — whose majority owners are the governments of Antigua and Barbuda, Barbados, and St Vincent and the Grenadines — will grind to a halt. It cannot compete much longer with CAL when it pays US$110 a barrel for oil while CAL is paying the highly subsidised price of US$50.

Because of the subsidy by the Trinidad and Tobago Government, which also owns CAL, the airline can set a lower price for tickets than LIAT. To compete, LIAT has to lower its prices and this adds to the factors that cause it to lose money. Other factors are that LIAT employs 150 more people than it needs, and the maintenance and breakdowns of its ageing fleet are costly.

Long ago, CAL and LIAT should have held discussions to work out how the two airlines could co-operate to ensure the survival of each while providing an affordable service to the people of the Caribbean. One element of such a discussion could have included agreement for LIAT to service CAL's long haul flights from key Caribbean hubs such as Barbados, Antigua, and Trinidad. In other words, share the Caribbean routes.

The most satisfactory approach would be an agreement for CAL and LIAT to amalgamate into a single airline with all the governments that are now shareholders in CAL and LIAT becoming shareholders in the new company on the basis of some agreed principles. Among such principles would be that the subsidy now enjoyed by CAL would be extended to the new amalgamated airline.

This would help to bring down the costs of travel for Caribbean people. Another element would be recognition by all governments that some routes in the Caribbean will always be unprofitable and would need to be subsidised by all governments.

There is nothing novel in the suggestion of a subsidy. As has been pointed out repeatedly, many Caribbean governments are subsiding flights of foreign airlines, such as American, British Airways and Virgin Atlantic, to the tune of millions of dollars a year. They do so to keep tourists coming into their countries and to protect jobs in the tourist industry.

But there is little appreciation that Caribbean people are tourists too. In some countries, they represent the third largest number of tourists, and could be so for others if the cost of airfares were to be reduced.

The recent (third) resignation of CAL Chairman George Nicholas could be an opportunity for CAL and LIAT to work out a co-operative arrangement or amalgamation. Mr Nicholas had shown no interest in discussions with LIAT's management that had begun under his predecessor. But such a meeting, while highly desirable, is not a substitute for Caribbean governments to hold an extraordinary session on the matter.

Neither the purposes of regional integration nor enhanced tourism is served by the current situation and, in this connection, the suspension of flights by the low-cost carrier REDjet is particularly to be regretted. There is great sympathy for the airline's employees, and for potential passengers who paid for flights and are waiting in hope for the airline to resume flying. But there must also be sympathy for REDjet's investors who began their operations on the basis of written agreements and promises that have not been met.

Much was made recently of concessions to REDjet by the Barbados Government where the airline is headquartered. And while these concessions are not to be dismissed, they are no more than are given to other investment companies. They did not give the airline an advantage over LIAT and CAL which also do not pay many of the taxes and dividends from which REDjet is exempted.

Two years ago in April 2010, REDjet was assured by the Barbados Government that "a policy decision has been taken" that "it should be recognised as a Barbadian carrier" and that it would be provided "with the requisite aeropolitical support" to secure authorisations to fly into countries "with which Barbados has air services agreements".

Those agreements exist with all Caricom countries. Yet, both Trinidad and Jamaica delayed licences while the airline haemorrhaged money.

In January this year, before REDjet announced suspension of its flights, there was a written understanding that the Barbados Government would "pursue particulars of a possible guarantee for a loan facility" to assist with a US$4-million injection into the company. This did not happen, even though subsidies to foreign airlines continued.

The Government of Guyana has indicated a serious interest in helping REDjet to resume its flights, particularly as the demand for airlift is currently increasing by 25 per cent a month, and authoritative indications are that a leading Caribbean bank is prepared to lend the airline money if the governments of Guyana and Barbados come to the table.

The Caribbean public and REDjet employees would certainly welcome the airline back in the air. A Guyana-Barbados government arrangement offers that prospect, and we must hope that it is pursued.

But what is really needed is a comprehensive approach to affordable regional air travel.

Sir Ronald Sanders is a consultant and former Caribbean diplomat

Responses and previous commentaries at: www.sirronaldsanders.com

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