Can LIAT survive the REDjet – Caribbean Airlines squeeze play?

“Clearly LIAT will be at a tremendous disadvantage…”

by Adrian Loveridge - Small hotel owner

Like thousands of people around the region, I share the excitement of impending competition and all the benefits hopefully it will bring to us with the launch of REDJET.

Frankly, it could not come at a better time as we face the daunting prospect of near eight month softer summer season.

Our Government should be happy too, as if the majority of those seats transit or are purchased in Barbados they will collect up to a whopping BDS$15 million in ‘departure taxes’ and what could be another BDS$4.37 million in VAT.

Lots of discussion has taken place regarding the potential commercial damage to LIAT by REDJet, and clearly they will face some real competition on the Georgetown route. However, I would have thought LIAT faces a far greater threat from Caribbean Airlines, especially after the recent announcement that the carrier ‘has officially signed a contract for the purchase of nine (9) ATR 72-600 aircraft, valued at some US$200 million’ to replace its current fleet of five Dash-8 300’s.

The European Turboprop manufacturer confirmed that first deliveries will start in October 2011.

“Whether these planes have been purchased on any preferential or subsidised financial terms is unsure.”

What we do know is that according to a former BWIA and CAL Director, William Lucie-Smith, the airline did receive a fuel subsidy of ‘US$43 million for the 3 years ended 2010’ from the Trinidad and Tobago Government. Some publications have also indicated that these subsidies have continued this year at around US$6 million a month after the acquisition of Air Jamaica.

Meanwhile LIAT with an ageing fleet, averaging around 17 years, higher maintenance and operating costs are forced to pay the world market price for fuel.

Clearly LIAT will be at a tremendous disadvantage, as and when the ATR larger aircraft compete on the same routes.

In fact the CAL turbo prop fleet will move from a seating capacity of 250 to 702, a massive 180 per cent increase, presumably giving them a substantially lower seat cost per flown mile.

While this all goes on it might surprise readers to know that if an article recently written by Vernon Khelawan in the Jamaica Observer is accurate, then the ‘highly touted deal’ which would see Caribbean Airlines buying out Air Jamaica is yet to ‘be consummated’.

‘As it stands, Caribbean Airlines has until April 30, the unfettered right, without penalty, to walk away from the deal’.

Adding, ‘As far as the Trinidad and Tobago public is concerned, they have never been told whether or not any independent economic and operational analysis was undertaken to demonstrate the economic viability of the merged airline’.

One is left to wonder how a decision to commit to the purchase of nine new aircraft was made prior to any agreement being finalised.

If it has not been concluded, then you really have to think where could this equipment be viably deployed and would that only add to the upcoming challenges for LIAT?

Adrian LOVERIDGE, the writer has spent 45 in the tourism and travel industry as a travel agent, tour director and tour operator working in 67 countries. For the last 23 years he has with his wife owned and operated a multi-award winning small hotel on Barbados.

Tourism MATTERS is published every Monday in the Barbados Business Authority and at Barbados Free Press when we get around to it!

20 Comments

Filed under Aviation, Barbados, Barbados Tourism

20 responses to “Can LIAT survive the REDjet – Caribbean Airlines squeeze play?

  1. Anonymous

    BFP take your lips off Andrian’s butt cheeks, they are more successful hotels in Barbados, namely ACCRA BEACH HOTEL AND SPA, BUT YOU ARE NOT BLOWING THEIR TRUMPET.

  2. what will they think of next

    sorry, that should be “what will they think of next”

  3. Step up to the plate

    Anonymous

    If you have something positive to say about Accra Beach, whats holding you back?

    We are all interested in success stories and why?

  4. what will they think of next

    not “Anonymous” should have been , “what will they think of next”.

  5. just want to know

    some time ago there were two airlines which came on stream to drive LIAT out of business, and what happen they went out of the market, and LIAT still flying. Why doesn’t the other Caribbean islands that LIAT service put their money where their mouth is and help. LIAT has been a great airline to most of the Caribbean islands, and all they do is complain about it, do something constructive, put heads together, and get things done, or are most politicians just self centred opportunists.

  6. yatinkiteasy

    I booked a flight on Liat to T and T today for two people, at the advertised special rate of US 22 per person//would you believe the US 44.00 return fare(two tickets) turned out to be $294 US when airport taxes and vat was added? Our Caricom Governments are screwing inter regional air travel…I mean $22 becomes $147…just like that?

  7. J. Payne

    Read the RedJet FAQ there’s some interesting tidbits.

    http://www.flyredjet.com/en/under/faqs/frequently-asked-questions

    “More seats per plane”… Well I’m a tall man so I probably cyar fit on them…. I have tough time fitting in a ZR and I don’t plane to take a multi-hour flight with one leg out over so, and a next round so…. There’s also questions about “Why was a charged a _blank_ fee” and all kinda thing so I doubt it’ll be as low as ppl think.

  8. REDjet’s pledge is to ensure 15% of their fares are 60% lower than their competition’s, PLUS? Their Permission to fly Barbados & TRINIDAD is approved! http://bit.ly/ecxzej

  9. rasta man

    @IB: All that says is that Barbados gave permission not Trinidad

  10. Read it carefully, says BOTH TT & BGI

  11. eddie

    let us recognise that liat is owned by the governments and is subsidised by them therefore if it were privately owned it would have been bankrupt long ago.

    the purpose of liat is not as a commercial company but one of providong a service to the OECS particularly in promoting trad and business. maintaining communication and transportation links where it is not commercialy profitable but the benifits are seen in terms of economic activity in the OECS. sure you cant leave them without air links.

    Caribbean Airways (barbados not BWIA) and Air Jamaica were established to create independence for the tourist board to explore new destinations for tourists. the benifits were seen in increased tourist arrivals.

    therefore let us get over this obsession with profitability and recognise that the government must subsidise them so as to make the fares affordable and fullfill their main objectives

  12. FearPlay

    yatinkiteasy….s $147…just like that? You hit the nail right on the head! LIAT fares suffer the same fate. But then again the same thing happens with automobiles, musical instruments, electronic gear and the list goes on. Check price on Amazon.com, import it, pay shipping costs, duties, levies and what do you get? Five times the price. That old say “We are living above our means” should be re-written “Government is living above OUR means”. Give Caribbean Governments a little more time to work it out and RedJet too will suffer the same fate i. e. low initial fare + taxes = exorbitant price to end user. Look out for the inter-island ferry fare structure being raped by taxes and levies also. We just grumble and pay up so why stop milking us like cows?

  13. Adrian Loveridge

    I have just tried booking one seat with LIAT to/from St. Lucia in early May.
    Going out no problem at 6am (non stop) but to qualify for the lowest fare on the return means leaving St. Lucia at 7.05am and travelling via St. Vincent, Port of Spain and Grenada to arrive in Barbados at 4.20pm.
    Lowest fare US$309 which includes US$139.57 in taxes.

    Tell me please how it can be more cost effective to fill a seat St. Lucia to St. Vincent then St. Vincent – Port of Spain, then Port of Spain -Grenada and finally Grenada-Barbados than offer a direct flight St. Lucia-Barbados?

  14. J. Payne

    @rasta man. As was said on the CBC last night. If Barbados granted RedJet National Airline status (as Air Jamaica had in Jamaica, or CAL in Trinidad), then there might be no way to stop them from flying to Trinidad according to the revised Treaty of Chaguaramas.

  15. MULTILATERAL AGREEMENT CONCERNING THE OPERATION OF AIR SERVICES WITHIN THE CARIBBEAN COMMUNITY http://bit.ly/fepZIF

  16. yatinkiteasy

    I`m not a lawyer, but the agreement seems to say that a Member state has to receive an application, and that it has to be approved, before an airline can fly in and out of their territory from another Member state.I think Trinidad is right about this. Oops!

  17. yatinkiteasy

    Article 2 (c) states that ownership must be by a Member State or individuals of the Member State So how does RedJet qualify for a license in Barbados?

  18. Colin L Beadon

    Sorry for Redjet. They’ll be sucked into the same old sinkhole.
    Does not matter how we look at it. Redjet can’t survive without cow-towing to Island governments. No Island airline has ever been able to stay out of political fingers for long without being forced to fold, or get into the lumpy political bed.
    You just have to look at what happens when an airline in these islands, does get under local political covers, not matter how well it is run, or how well it is patronized, filled, by island travelers, like BWIA and Liat always were. How many billions of tax payers money,… I don’t have to end that sentence.
    Sooner or later it has to apply for government help, to keep its aircraft flying, the reason being that local governments treat it as a free taxi service between island, and, fill the airline with governmental appointees who have to be found jobs too.
    Redjet will face the exact same problem. It seems they are facing it already in Trinidad, and Redjet hasn’t even landed in Trinidad yet .

  19. You are so terrified of REDjet? You just make me want to fly it ALL THE MORE! You identity thieving bas****! At least you were original when you had Beaverhausen?

  20. ira mclaren

    I worked for an airline in North America for 32 years. Airlines are expensive to operate as parts and equipment are commodities and are based on the US dollar. Customer service is so important in this business and i dont see much of that on the airlines in the caribbean; i’ve overheard agentsand flight attendants being very rude to passenges show just grin and bare it as there are not many choices. these employees see their jobs as glamouras and secure and corruption runs wild: more friends fly these aircrafts than paying passengers. These factors will kil any business especially an airline!!!!!!