The ups and downs of regional aviation

In the middle of the second quarter, the region saw the consummation of the Caribbean Airlines – Air Jamaica deal whereby Trinidad and Tobago’s Caribbean Airlines Limited completed the takeover of Air Jamaica, which in the end left the Jamaican government with a 16.4 percent shareholding in Caribbean Airlines.

Initially the deal was to merge both airlines into a single entity – Caribbean Airlines – with majority interests being held in Port-of-Spain. However, a few months before finalisation, CAL chairman George Nicholas III changed that decision and came up with the new branding — “Two brands, One airline”.

The Nicholas–led board lost no time in making a fleet change in Air Jamaica, by ridding the company of its Airbus fleet in exchange for an all-Boeing fleet, acquiring six B-737-600 aircraft bringing it in line with the rest of the CAL fleet. But even before that, CAL, in January, signed in Port-of-Spain, a contract with the French aircraft manufacturer Avion Transporte Regional (ATR) for nine of that company’s most modern turbo prop aircraft – the ATR-72-600 at a cost of $200 million.

Since that time much has happened with Caribbean Airlines. It has received two of those nine aircraft, which have already been pressed into service on the airbridge. Additionally, it has added two B-737 Generation Next aircraft to its Piarco-based jet fleet, while at peak times acquiring leased aircraft to satisfy its rising passenger demand, especially on its North American routes.

Caribbean Airlines experienced its first major catastrophe at the end of August, when one of its 737s (PBM) skidded off the runway at the Cheddi Jagan International Airport shortly after midnight in wet and foggy weather after a long landing, coming to halt just short of a 200-foot precipice. While there were few serious injuries, one passenger sustained a broken leg following a jump from the wing of the stranded aircraft. The aircraft was a total wreck. An official report is expected sometime in the next few months.

At the corporate level, 2011 saw two big upheavals. The first when chairman Nicholas and line Minister Jack Warner butted heads over decisions taken by the board. Although there was a semblance of reconciliation between the two, it ended with Warner being relieved of the Transport section of his ministerial portfolio and given to neophyte Senator Devant Maharaj.

Towards the end of the year, Caribbean Airlines added another service to its impressive list – a door-to-door Caribbean cargo service called Jetpak, using a dedicated jet freighter to ensure customer satisfaction.

In the middle of all this controversy, there were constant calls for the removal of chairman Nicholas because of continuous bickering among Board members, which ended with the dismissal of board member Allan Clovis and corporate secretary, Jamaican Nerine Small.

As budget time approached last September, there were renewed calls from several respected local economists and even the Central Bank, to end or reduce the fuel subsidy to CAL, which was calculated to cost taxpayers in the vicinity of (US)$75 million for 2011.

And although during the run up to the budget speech, there was talk that the government was seriously looking at reducing the subsidy or possibly removing it altogether, there has been no official word either from the government or airline officials and as such it has to be assumed that the existing subsidy would remain in place, at least for some part of 2012 or the government might simply decide to renew it in some form for the remainder of the year. In the midst of this debate however, chairman Nicholas raised many eyebrows and provoked numerous questions when he announced the airline was expected to declare a profit of $200 million for 2011, although no documentary evidence of this has been forthcoming. Complete, audited financial statements for years 2009, 2010 and now 2011 are yet to be laid in Parliament. The chairman promised that these would be released shortly.

Other notable achievements by CAL in 2011 include -:

Increased airlift between Port-of-Spain and St Georges, Grenada;

Bumper Carnival season with an 18 percent increase in passengers carried;

Launched direct twice-weekly service between Port-of-Spain and Orlando, Florida;

Won the prestigious World Travel Award as the Caribbean’s leading airline; and

Has maintained a 91 percent average in On Time Performance to October 2011.

ENTER REDjet

Enter privately-owned REDjet, the region’s first and only Low Fares Airline (LFA) based at the Grantley Adams International airport in Bridgetown, Barbados. But severe political turbulence thwarted its takeoff as it was anticipated that it could give serious competition to the other two large carriers controlling the Caribbean skies – CAL and LIAT.

Even Barbados, which had initially granted the new airline operating rights, at one time turned on the screws and delayed the start up of flights on certain routes. It took months before REDjet was allowed to begin service between Port-of-Spain and Bridgetown, and between Port-of-Spain and Kingston, when the regulatory bodies in both countries cited safety issues regarding REDjet MD-80 aircraft, but in fact, it turned out that those moves were purely protectionist in terms of possible adverse effects it could have on LIAT and Caribbean Airlines, both of which are owned by different Caribbean governments.

By the end of the year however, REDjet was operating some seven routes connecting seven Caricom states with several non-stop flights weekly. The airline expects to add more similar airplanes to its fleet as it aggressively pursues introducing additional services to countries both within and outside of Caricom, including some of the Dutch islands and destinations in Latin America.

Chairman Ian Burns said late last year that REDjet was looking seriously at setting up an additional base at the Norman Manley International Airport in Kingston, Jamaica. While it has not been said officially, the move could be considered the first step in preparation to launch services from the Caribbean (Jamaica) to destinations in the United States and Canada, which is part of the company’s original business plan.

This strategic move derives from the situation where soon after it set up shop in Barbados, that country was downgraded to Category 2 by US authorities, and as such debars any Barbados-based airline from operating services into the United States, while Jamaica, being upgraded to Category 1 several years ago, can prove a real boost to REDjet, if it still aims to introduce services to the US and Canada.

STRUGGLING LIAT

For struggling LIAT, which has been doing everything possible to keep its planes in the air, 2011 was definitely a bad year and the airline expects to post astronomical losses, close to US$20 million.

It has survived two pilot strikes; forced to close down most, if not all, of its City Offices throughout the Caribbean; dismiss workers and is in dire need of new aircraft and more importantly operating capital, which at this time it seems unable to do anything about because of financial constraints.

There was hope a little more than a year ago when talks were started with Caribbean Airlines, but these crashed with the departure of Ian Brunton, former CEO of CAL.

Chairman Nicholas has said he was not prepared to hold any talks with LIAT because the airlines were very different in their business models and in their product lines.

It would seem therefore that chances of another merger of two regional airlines is not on the cards and since the governments which now own LIAT – Barbados, Antigua and Barbuda and St Vincent and the Grenadines – are not now in a position to inject new capital into the company, the airline’s future looks quite gloomy.

In addition, there are still outstanding industrial disputes which the company has to settle and there is nothing to prevent a recurrence of staff turbulence. Further, dismissed senior pilot and former head of the pilots union has threatened to file suit against his dismissal, which he claims was unfair.

Aviation observers suggest if the airline is not able to attract a substantial injection of working capital soon, the airline’s demise might not be far off. Whether Caricom would allow such a tragedy to befall this Caribbean institution is left to be seen, but many believe that the matter cannot wait to be dealt with at the next Summit in July, so something must be done soon to save the airline.

Meanwhile it seems CAL is just waiting for the airline to fold to move in and operate services LIAT might be forced to drop. Chairman Nicholas’ announced he would place an order with ATR for a second tranche of ATR airplanes, possibly 11 more, increasing his ATR fleet to 20, speaks to CAL’s readiness to fill the traffic void should LIAT go belly up.