Airline industry rethink urged
A study commissioned by the Caribbean Development Bank (CDB) has recommended a major rethink of the regional airline industry and for the setting up of a CARICOM Airlines Association to identify opportunities to reduce costs, create greater synergies and earn more revenue.
It has also proposed the creation of an Air Transport Reform Authority to address longer-term strategic issues at the regional level. These were among the steps identified to place the industry on a firmer footing to facilitate its relaunching into the global marketplace as a stronger competitor.
Findings of the study Making Air Transport Work Better For The Caribbean were presented at a seminar today as part of the CDB’s 45th Annual Board of Governors’ Meeting in Basseterre, St Kitts and Nevis. The overarching recommendation is for greater cooperation among regional governments and carriers and with other foreign airlines and a harmonizing of administrative and regulatory policy and operations.
The study looked at the history and present make-up of the regional air transportation industry and, in particular, the performance of the state-owned airlines Caribbean Airlines, Air Jamaica, LIAT, Suriname Airways, Bahamasair and Cayman Airways.
To ensure completeness of analysis, the study covered the 15 full member states of CARICOM, two CARICOM associate members of the Organisation of Eastern Caribbean States (OECS) –– Anguilla and the British Virgin Islands, and one non OECS associate member –– the Cayman Islands.
The study, carried out between the last quarter of 2014 and March, 2015, was undertaken against the background of airlines continuing to make losses and shareholder governments, under tight budgetary constraints, concerned about having to prop them up indefinitely. It found that regional airlines were consistently recording losses with the aggregate of accumulated deficits for Caribbean Airlines (CAL), LIAT and Bahamas Air (BA) –– estimated at approximately US$1billion.
Specifically, the study recommended a double-pronged approach if a turnaround was to be achieved. The first is for the airlines to set up a “quick wins” CARICOM-centric airlines association to share best practice and identify cost reduction and revenue enhancement opportunities that could be pursued jointly. The second is the establishment of a high-level Air Transport Reform Authority to address the longer-term structural, institutional and industrial barriers. The authority would consist of proven aviation professionals, accountable to the region’s taxpayers.
The aim of the new aviation policy would be to craft a safe, efficient and reliable regional air transport sector, which operated at a reasonable cost level, was compliant with international safety norms and standards, and followed global industry best practices as much as possible. The authority would also review the aviation network and connectivity needed of the region as a whole, with a view to integrating network schedules using all the available assets –– including the smaller aircraft of the third-tier carriers.
From this policy, a detailed aviation plan (including airlines and airports) would be developed. The authority would have the responsibility to supervise the implementation of the plan in the shortest possible time with the full support of government and private aviation shareholders. Transparency and accountability of the authority would be achieved by mandated and regular disclosures, the report said.
The research, which sought participation from a broad range of air transport industry stakeholders, including the region’s domiciled carriers, cited a number of reasons for continuing losses. Among them were market share, operational costs, fuel costs, inadequate information and communications technology (ICT) systems, industrial relations issues, competition from foreign airlines which serve the region, high taxes and charges compared to basic fares, and therefore lower demand
In analysing the findings, consideration was given to efforts elsewhere in the world to improve airline performance. These include:
Reforming the governance structure of airlines to ensure independence of boards from shareholders.
Increasing professional involvement and improving transparency with respect to appointments and compensation. The independence of boards, once objectives and targets have been agreed, was another imperative.
Greater use of hubbing to lower unit costs and increase connectivity. The report stated that there was no shortage of airports in terms of numbers, but there were clear limitations in relation to the ability of airports across the region to handle larger aircraft and/or to handle more frequent take-offs and landings.
The creation of hub or minihub operations has been limited due either to lack of connecting potential or, in cases where there has been connecting potential, incumbent airlines have not shown the inclination to create consistent interlining activity to increase the number of transit passengers.
Consideration of unbundling ticket prices to provide passengers with greater choice and take advantage of willingness to pay for ancillary products.
Operation in isolation should cease and a more cooperative approach adopted, with other domiciled and foreign airlines.
Clearer rules on route revenue guarantees and social routes; consideration of more flexible third tier operators on the thinnest routes; possible franchising of some routes.
Consideration of public/private partnerships to increase revenues
from nonaeronautical sources, thereby minimizing burden on both passengers and general taxpayers.
Increased price discrimination by varying tax charged on individual tickets, to equate to overall tax burden.
Progressive moves towards further liberalisation.
The report also suggested that standardization of regulatory responsibilities would create cost-saving opportunities for the region’s airlines, by avoiding costly duplication of capital and labour investments.