Government should remove itself from ownership, management of airlines

Tue, Aug 7. 2012

Editor: The Eastern Caribbean is faced with a grave problem of inadequate, costly, frustrating and time-consuming air transportation arrangements to serve, in a satisfactory manner, the needs and wishes of the travelling public.{{more}}

This situation/condition poses great challenges for the countries. Such satisfactory services would serve to underpin the Economic Union in the Organisation of Eastern Caribbean States (OECS), as well as facilitate the workings of the Caribbean Single Market and Economy in the wider Caribbean Community (CARICOM). These services would have a very positive impact on tourism and tourism earnings, as well as increase travel among the islands. They would also facilitate and enhance the development and adjustment processes in the OECS and the Eastern Caribbean.

There are three categories of airlines which now service the region:

1. Type 1 – Airlines which fly jet type equipment, such as Caribbean Airlines (formerly BWIA);

2. Type 2 – LIAT and the former Caribbean Star, which fly the DASH 8 Turboprop, with seating capacity of 37 to 50 passengers; and

3. Type 3 – Very small carriers which now fly charters and use various types of aircraft ranging in seat capacity from nine to 19 seats.

For a number of years, LIAT has been severely challenged by inadequate financial and technical resources required for efficient and effective management. The LIAT network encompasses at least 22 destinations, spanning from Santo Domingo in the north to Guyana in the south. This is quite a burdensome responsibility, given LIAT’s financial and managerial capability constraints.

One of a number of measures that should be included in a comprehensive restructuring plan for placing LIAT on a viable path is a phased withdrawal of LIAT from certain routes to reduce its operational challenges and costs. The withdrawal should begin with the short sectors – those that are about 50 nm.

LIAT currently operates the fifty-seater Dash 8 aircraft which is very sophisticated and expensive to operate. As a consequence, the deployment of this aircraft on short routes presents significant maintenance challenges and costs. The main reason for this is that among the Dash 8’s many features, are a pressurisation system to enhance passenger comfort at high altitudes and retractable gear to permit faster cruising speeds and the ability to fly long distances (at least 800 miles). As such, when LIAT operates these aircraft on short routes, the frequent recycling of the gear and use of pressurisation places a heavy toll on these systems thus necessitating more frequent maintenance. The impact on operating costs is substantial.

An opportunity is thus presented for the growth of the small aircraft operator sector to offer services on these short sectors. Many of these smaller aircraft are not as sophisticated – unpressurised and with fixed gear – thus minimising their operating costs. By relegating the short sectors to the small operators, LIAT can focus on the longer sectors (at least 100nm), thus easing its operational challenges and costs.

Further steps could be taken to assist LIAT in fulfilling its mandate of providing air transportation services in the Eastern Caribbean by strategic, measured, incremental and manageable interventions by non public sector entities.

The expectation is that these entities would apply their managerial expertise and financial resources in a reasonable manner. This discreet, structured and gradual interventionist approach is less daunting and more practical than the myriad ‘grandiose’ plans previously attempted, but which eventually “fell out of the sky” e.g. Carib Express (1995),

EC Express (2001), Bwee Express (2002), Caribbean Star(2006), Redjet (2012) .

I am of the firm view that, ultimately, government should remove itself from ownership and management of airlines and/or commercial assets to allow the entrepreneurial sector to thrive and to permit government to focus its resources on its core responsibility of proper management of the social sector – education, health, housing, the justice system, economic infrastructure e.g. roads and drainage. Government would play a critical role in development by ensuring proper management of this sector.

The situation of LIAT is similar to that of government, in that both entities, though well-intentioned, are assuming too many responsibilities and are ‘overreaching’ themselves. This discourages economic and commercial growth, by displacing and/or discouraging would-be entrepreneurs from ‘getting involved’ in commerce and the economy.

It is through entrepreneurship and innovation – creation of new businesses or the expansion of existing businesses to provide a variety of goods and services to consumers – a country would generate vibrant economic growth and minimise the likelihood and urge for government to intervene in the commercial and economic sector.

Kwame Venner
Economist/Commercial Pilot