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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 board of the governors of the Caribbean Development Bank attending the 45th annual meeting in St Kitts and Nevis yesterday.

The board of the governors of the Caribbean Development Bank attending the 45th annual meeting in St Kitts and Nevis yesterday.

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
and revenues.

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.

Source: (PR)

4 Responses to Airline industry rethink urged

  1. James Lynch May 22, 2015 at 10:25 am

    The problem with the government-owned regional carriers is simple: Political interference and involvement which results in an incompetent, uncaring, unresponsive and unaccountable Board and management.

    The politician shareholder representatives (usually Prime Ministers) who oversee such airlines should approach these national and regional entities as a business, not as a political resource, appoint Boards of individuals who have qualifications, knowledge and experience in aviation, and mandate them to break even or make a profit.

    If the management the Board appoints cannot break even or make a profit, then the Board should replace them. And if the Board cannot perform their function then the shareholder/s should replace the Board.

    The Caribbean taxpayer has supported this sheer incompetence financially for over four decades; for once the shareholders should “get their act together” and themselves start acting professionally – get OUT of aviation and let the professionals do their work.

    As long as politics continues to make all of the decisions in Caribbean aviation, the taxpayer will continue to bear the heavy financial burden of incompetence.

  2. Tony Webster May 22, 2015 at 5:03 pm

    @ James Lynch: touché, Sir.
    I can offer only two other points-
    1. Fortunately, we currently are fortunate to have at C.D.B., possibly our only chance of a competent airline professional , who just also happens to hold the purse-strings required to give birth to any sustainable solution. If we cannot make this fly now….we never will.
    2. As happened with the conception and botched C-section birth of the Caribbean Court of Justice, do not be surprised if every breathing CARICOM Prime minister now happily signs up to whatever consensus arises from current CDB efforts…and then proceeds to torpedo it, either by deliberate scuttling, or by employing the same “dead hand” approach employed with our CCJ.
    Some people…”like it so”.

  3. James Lynch May 25, 2015 at 11:58 am

    Mr. Webster, Sir… if by “competent airline professional” you are speaking of Mr. Warren-Smith, from personal experience I must burst your bubble.

    That gentleman was doing research inside of LIAT immediately out of University when he was appointed CEO of the airline – and completeley floundered as an executive and as a manager.

    I can tell you that because I was working for LIAT as a pilot in Antigua at the time and observed it first hand.

    Mr. Warren-Smith – with an Agricultural Degree – was not the first non-aviation unqualified person to be appointed to lead LIAT to “see what he could do” or to “just try a ting”. Current Chairman Holder cannot even function properly in Tourism and he also leads LIAT towards the cliff. But he keeps his position through hundred million loss after screwup after “meltdown” because he has political friends.

    Under Mr. Warren-Smith I was then LIALPA Secretary during the first pilot sick-our ever at LIAT – which was precipitated by over ten years of negotiations with his incompetent managers, strictly following due process as written in agreements and contracts, and – let me remind you, after ten years – still getting nowhere. Ten years of a cost of living in Antigua above 8% and no raises. Figure it out… the cost of living more than doubles and you are still trying to feed, clothe and educate your family, not to mention save for the future.

    When we finally met with Mr. Warren-Smith afterwards – along with his sneering, snickering and incompetent management – with a trail of paperwork we proved to him that we had followed every letter of our contracts and agreements, and without another word he got up and walked out, dragging his ridiculous managers with him.

    So if you think Mr. Warren-Smith has a grasp of aviation – or of LIAT – you would be sadly mistaken. In fact, If Mr. Warren-Smith and his CDB continues to lend hundreds of millions to LIAT there will be much “wailing and gnasjhing of teeth” when LIAT finally drops out of the financial sky and its creditors set the bailiffs to chain the doors – and airplanes – shut across the entire netwotk.

    Caribbean Prime Ministers may come to believe they are super-Gods who know it all and force-feed the rest of us with their commanding presence, but when businesses want their money they will do wnatever it takes – including siezing those precious new ATR aircraft – and closing the airline down.

    The Vincy Comrade REFUSES to do the right thing and install a competent Board and management. The result WILL BE closure, whether that takes six months, a year, or three years.

    And when that happens it will not be from my lack of trying for decades now to influence our “leaders” to behave professionally when it comes to aviation and hundreds of millions of taxpayer dollars flushed down the drain through poltical expedience and favouritism.

    From day one all I have asked is that they do it right. But all they do is appoint one amateur yard fowl after another to do the work
    which requires a professional approach.

  4. James Lynch May 30, 2015 at 4:48 pm

    Open Letter To The Majority Shareholders Of LIAT


    Since before 2012 I have repeatedly heard of calls by the current majority shareholders of LIAT, through Prime Minister Dr. Ralph Gonsalves of St. Vincent, to take up more shares or to simply contribute towards the airline’s losses.

    Gentlemen, I can reveal to the Press that you know my own name well by now, it has been before you literally hundreds of times both privately through letters, emails, faxes, text messages, and recently in public in the Press.

    For almost a decade I have been trying to communicate with you mostly for just one reason, and that is to take the politics and non-competence in aviation out of eastern Caribbean aviation, whether that is at the Civil Aviation Department (or Civil Aviation Authority) level or at the airline level (meaning LIAT).

    Example: Barbados is ICAO Category Two for one simple reason – incompetence, lack of proper regulations and lack of oversight. With a little more interest, Barbados could be Category One, but for the last decade nobody has been interested. Last time the FAA visited to conduct an evaluation, when they left they told the Civil Aviation people it was so bad that they ought not to bother to call for the next evaluation for at least another ten years.

    But for some five decades LIAT has been abused as much as your own taxpayers for no good reason. Board after Board, management after management continue to be politically appointed buffoons – whether they are your “friends” or not – who know little or nothing about aviation (which is NOT the same as tourism) and continue to lose money and market share to the point where the airline is now on the brink of the precipice.

    And you need not respond that this is not the case, because if all were well you would not be out in public DEMANDING that other governments join you in throwing money at the existing form of LIAT to keep it alive.

    Since at least 2012 Dr. Kenny Anthony has told you, in public, that his country’s taxpayers would not be supporting LIAT’s excesses, and that if you wanted St. Lucia at the airline’s table you had to make major changes in its oversight (Board) and management.

    NOTHING HAS CHANGED, yet now here you are again making the same demands.

    And in the process you are also trying to rope a brand new Prime Minister into the fold before he can catch his breath after the election. SHAME!

    Dr. Kenny Anthony asked you from the start to review management – not once, but several times.

    Hoteliers through the islands have called for the resignation of Dr. Gonsalves and/or the Chairman of LIAT – also not once, but several times.

    The current Board have sailed through screwup after multi-million dollar loss after “meltdown” after endless delays and cancellations after customer complaints, and there seems to be no responsibility, and no accountability. How can a Board and management perform SO BADLY, and yet continue on with “business as usual” – as if disaster after disaster were all perfectly normal?

    Let’s talk business: My considered forecast is that LIAT has less than two years to exist before either the CDB – or some other creditor group – chains its doors and sells the airplanes for debt. There is good reason for this forecast… LIAT’s total passenger load (= income, revenue) in the last year was HALF what it was the year before, yet the expenses remain the same – or even greater, considering the constant arrival/delivery of new airplanes.

    As LIAT’s light grows dimmer, users of the airline are gladly moving to other carriers, making other arrangements, finding some other way to travel than the still-late, still-cancelled, still-abusive LIAT. Hoteliers are deliberately telling their overseas guests how to get there without touching LIAT. New airlines are starting up and taking market share away, simply because so few people are willing to put up with the LIAT nonsense any more.

    I will repeat my simple request to you so that the entire reading public can see it and make up their own minds as to whether I am a raving lunatic or a frustrated professional.

    1. Take the politics – and politicians – OUT of LIAT. No more political commissars on the LIAT management payroll drawing a fat salary to ensure some politician’s orders are being carried out.
    2. Take the political appointees out of LIAT, at all levels. All of them.
    3. Remove the entire current Board and install new Board Members composed of intelligent and knowledgeable persons, with the primary required practical knowledgeset of how an airline should be run, give them the basic mandate and and let them be the overall deciders of where the airline should be headed.
    4. Remove the current Executive of LIAT – no matter the cost, given what they are costing the shareholders now – and require the new Board to find qualified competent people with drive and imagination who can turn the airline around in less than six months.
    5. Make it clear to the Board that their mandate is that the airline should at least break even.
    6. The Board in turn is to make it clear to the executive management that their job is to turn the airline around, and that the airline should at least break even – or that they will lose their jobs. Executive management has no claim to tenure.
    7. If the Board cannot get management to at least break even, then they will also lose their jobs. A Board has no claim to tenure either.

    In short, turn LIAT over to real aviation professionals, and demand that they perform or be removed.

    Regardless of what PM Gonsalves claims, there can be no doubt whatsoever that LIAT is, in truth and in fact, currently a “black hole” into which he and his partners are throwing away their money. For those too young to know, LIAT did have a subvention scheme before where each government made up their portion of the loss, but that disappeared at one shareholders meeting – in St. Lucia – where they all agreed to disagree on the percentages, they all walked out, and LIAT was thrown to the wolves.

    I personally have no objection to LIAT going back to a subvention arrangement, for the same reasons stated – multipler effect, regional inter-island transportation, etc. – but the cost will be so great that most shareholders will repeat the long-ago St. Lucia meeting performance and eventually disconnect from the whole sorry and disgusting performance.

    I have a final suggestion – and request. While you take LIAT out from under the political bedsheets, also make its annual accounts public, so that the taxpayers whose hard-earned dollars go towards supporting it at are least able to see how their money was spent. And please, don’t let us be told again, in no uncertain terms, that LIAT’s accounts are “none of our damned business” – the airline is paid for by public money and that public has a right to an accounting.

    In my opinion, if LIAT is to survive there is required massive CHANGE at the airline. Change of Board, change of management, change of attitude, and change in the way things are done – from the politicians at the top all the way to the employees at the bottom, and very soon.

    Gentlemen, the ball is in your court. Change LIAT, or the airline will die. And don’t say nobody warned you… I am not the first to make such appeals for sanity and logic when it comes to our once-loved inter-island bus service.

    James C. Lynch, Captain (ex-LIAT)


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