In the first month of 2014 Caribbean regional media reported that LIAT has had to choose between paying employee salaries and paying aircraft lease charges in order to maintain flight operations. Even before the news of LIAT’s latest financial crisis, the flight chaos of last summer was nearly repeated in December 2013, at the start of the Caribbean’s tourism high season, and was only averted through last minute decision changes by LIAT’s board of directors and its temporary CEO.
The LIAT fleet was reportedly due to reduce to only nine aircraft last December. At the same time, aircraft conversion training for flight deck crew was planned to be ongoing and flight deck crew annual vacations were scheduled to peak that month. With a similar mix of factors to those which caused LIAT’s summer meltdown, the potential for major disruption to flights appeared to be equally great for this winter. Unbelievably, the LIAT board and senior management had authorised this disastrous scenario to coincide with the Christmas holidays and the start of the international tourism high season in the Caribbean.
Having just avoided that mismanagement disaster in December, LIAT executives have been faced in mid January with the imminent grounding of six company planes by the aircraft leasing company. Lease payments are reportedly tens of millions of dollars in arrears and a collapse in flight operations has only been avoided by delaying payroll for LIAT’s long suffering employees.
Ongoing disarray at LIAT
The hotel and tourism industry in the Eastern Caribbean is extremely concerned about the ongoing disarray at LIAT, as most hotels are still suffering from low room rates and poor occupancy levels. This is the result of the significant drop in regional travelers and British visitors in recent years, as well as from the negative publicity, related to the Harlequin Resorts collapse and the demise of the former Almond Resorts. Some European tour operators are threatening not to sell packages which include LIAT flights, as a result of this past summer’s delays and missed flight connections. This is understandable, as it is their European Union tour operator guarantee bonds that are at risk for passengers’ associated costs, which are not recoverable from LIAT.
While LIAT faces yet another serious and immediate crisis, the airline’s overall financial future appears to be as precarious as ever. The former CEO’s business plan for LIAT collapsed in tatters by September last year, with missed summer revenue targets and massive additional costs linked to the service disruption and stranded passengers. As a burden on the airline going forward, the additional debt and increased aircraft leasing charges, associated with the new fleet, are likely to outweigh the higher maintenance and fuel costs of the old fleet. The company’s poor marketing efforts could not adequately fill the previous 36 seat and 50 seat fleet but nothing of substance has changed in LIAT’s marketing management to drive increased levels of business for the new larger 46 seat and 64 seat aircraft.
In the meantime, Caribbean Airlines – also loss making, but the beneficiary of ongoing Trinidad & Tobago government subsidies – continues to cannibalize LIAT’s southern routes and now new competition has appeared on LIAT’s northern route network. JetBlue is currently flying modern 110 seat jets between San Juan and four northern islands, while that company evaluates potential routes to more destinations further south. Seabourn has added inexpensive 34 seat turbo prop aircraft to its existing fleet and has expanded its route network south from Puerto Rico and the Virgin Islands to St Kitts and Dominica. All this now presents a competitive “perfect storm” for LIAT and its expensive new aircraft.
Led by a chairman, who has reportedly resigned twice in recent years, LIAT board members are a dim shadow of the airline’s founders and the current directors urgently need to be replaced by people with greater business acumen. LIAT is more over-staffed than ever, employee relations are at an all time low and the board and acting CEO appear to have no coherent strategy in coping with a looming financial disaster in the shape of high levels of company debt and growing competition. Few banks or governments in the region currently have the resources to provide ongoing financial support to LIAT and even fewer have any confidence in the airline’s management abilities.
The only sustainable solution for LIAT is to find a private sector joint venture partner which can provide a viable long term financial structure, along with the professional management and marketing expertise necessary to survive. For LIAT, it is now a case of pick a partner or go out of business. Some experienced Caribbean business minds seem to favour the latter outcome. However, regional air services are vital to the social cohesion and commercial activity of the Eastern Caribbean islands and a joint venture “soft landing” for LIAT would be preferable.
Robert MacLellan is Managing Director of MacLellan & Associates, the region’s leading hospitality consultancy since 1997. He is a Fellow of the Institute of Hospitality, a Member of the International Society of Hospitality Consultants and has a Masters Degree in International Hotel Management. This is his eleventh article published in Barbados Free Press.