Fares flying low over REDjet fears?

The appearance of the low-cost carrier, REDjet, in the relations between the countries of the Caribbean Community and Common Market (CARICOM), has tossed up a number of issues, especially the conviction by the public that the cost of air travel in the region is exorbitant.{{more}}

The complaint about the high cost of travel was being made well before REDjet made an appearance. At one point, it caused LIAT – the airline owned by the governments of Antigua and Barbuda, Barbados and St. Vincent and the Grenadines – to publish its fare structure, which revealed that government taxes on flights originating in most countries are extremely high.

So, the first point is that the cost of air travel within the Caribbean is high, in part because Government taxes are high. And, whereas governments might argue that they need the taxes to maintain and expand airports, the airlines will counter argue that they pay landing fees, which should be segregated and put into a fund for airport upkeep and improvements. LIAT, incidentally, is a huge contributor to the revenues of governments into whose countries they fly. In the case of some countries, LIAT is the biggest contributor of landing fees to government earnings.

The cost of LIAT’s operations, when compared with that of Caribbean Airways Ltd (CAL), the successor airline to BWIA and owned by the Government of Trinidad and Tobago, is higher because of one very important reason. LIAT has to buy its fuel at commercial prices, but the government of Trinidad and Tobago (an oil producing country) subsidies fuel to CAL – not just the fuel it buys in Trinidad, but fuel wherever bought, for all its operations. LIAT (and incidentally REDjet) is suffering from an unlevel playing field, in the context of the fuel subsidy which CAL alone enjoys.

The Bahamian-operated airline, Western Air, has become CAL’s first casualty. The airline has announced that it is suspending flights to Jamaica, due to what it says is “competition” from CAL.

In 2008, the last year for which audited statements were laid before the Trinidad and Tobago Parliament, the Fuel Subsidy for CAL was US$36 million on consumption of 26 million gallons. Airline expert John Gilmore says that “it is likely that current fuel consumption is now more than double as CAL’s operations have increased”.

That is a hefty price for the taxpayers of Trinidad and Tobago to be paying simply to maintain CAL’s flight operations. If this large subsidy were not being made to CAL, the money could have been spent on education, health and social welfare projects desperately needed in the country. What exactly Trinidad and Tobago gets from subsidising CAL, apart from being able to claim that it has a national airline with a limited regional role, is unclear.

In any event, it appears that the travelling public in Trinidad and Tobago are more loyal to their pockets than they are to CAL. According to the Chairman and CEO of REDjet Ian Burns, the demand for bookings from July 28, when the airline starts flights into Trinidad, is more than when they first launched on April 13. It seems, therefore, that not even the fuel subsidy will save CAL from competition over prices.

In the wake of a successful lawsuit by REDjet in the Courts of Trinidad and Tobago, the airline was given clearance to fly into Trinidad and then, separately, Jamaica gave permission. But, these permissions came only after the most amazing filibustering by both governments. Few persons believe that the refusals, denials, and demands for safety checks were anything more than measures to protect CAL from competition.

In the case of Jamaica, the reluctance of the government to allow REDjet entry, while the deal for CAL to buy out Air Jamaica was not yet fully sealed, is understandable, though not by any means fair to REDjet. If the deal between CAL and Air Jamaica had fallen though, the Jamaica government would have found itself with a huge hole to fill in the arrangements under which the International Monetary Fund is providing the government with a Stand-by facility.

Remarkably, the Chairman of CAL George Nicholas has now indicated that the airline will be lowering its fares. He is adamant that the airline is not doing so because of competition from REDjet. He says, “(The) efficiencies that we get now with joining with Air Jamaica, common fleeting, the use of one reservation system, pooling our intelligence and pooling our resources, so we have economy of scale that very few carriers in the region have.”

What is truly remarkable about Mr. Nicholas’ statement is that he has identified efficiencies arising from the “joining with Air Jamaica” as the basis for dropping fares. This same notion of the nationally-owned Caribbean airlines “joining” a shared arrangement to reduce costs and decrease fares has been suggested time and again, without an appropriate response. If CAL, Air Jamaica and LIAT had sat down to share out the routes within the Caribbean and into it from external locations, and to divide up some operational costs, the three airlines could have had a chance to serve the region’s people and its tourism better.

Instead, what the Caribbean public saw was a display of selfish nationalism at the political level in Trinidad and Jamaica, crude boardroom politics, and a disregard for the Caribbean travelling public and tourism. As Ian Bertrand, a regional airline expert, puts it: “Imagine CARICOM countries knew for years that the Multilateral Air Services Agreement was incompatible with the Revised Treaty of Chaguaramas (the CARICOM treaty) and did nothing. Imagine that despite recent political statements embracing open skies, the very recent bilateral discussions between Trinidad and Tobago and Barbados did nothing to change the closed sky structure of their Air Services Agreement”.

What is even worse, at no time was St. Vincent Prime Minister Ralph Gonsalves brought into the wounding discussions over permitting REDjet to fly – and he is the person in the CARICOM quasi-cabinet with responsibility for overseeing air transportation.

REDjet may have been given permission to fly to Trinidad and Jamaica, thereby adding to their Guyana route, but that is only a battle; a real war is yet to come, unless good sense infects the thinking of CARICOM’s leadership and a sensible aviation policy is established, taking account of both commercial realities and public good. One of those realities may be an examination of the value of the REDjet model. Another would be the establishment of a CARICOM Aviation Authority to set common aviation rules throughout CARICOM, funded by CARICOM wide aviation charges.

(The writer is a Consultant and former Caribbean Diplomat)

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