Caribbean airlines on the rocks

by Norman Girvan, secretary-general of the Association of Caribbean States

The severe financial woes stalking Air Jamaica, BWIA and LIAT are teaching some crucial lessons.

The conflict in Iraq has hacked down global traveling between 10 and 15 percent, a situation that’s had a harsh or immediate impact on the industry’s finances.

Airlines have been going through some tough economic tribulations since the war in Iraq broke out, and even at a much larger scale before the 9/11 terrorist attacks.

America’s aviation industry –made up of a walloping 6,500 aircraft compared to the 65 planes operated by Air Jamaica, BWIA and LIAT combined- made ends meet in the 1990s by scraping the bottom of the barrel.

They fought back the 9/11 attacks with dramatic cutbacks in costs and fares and, in a number of cases, by filing on Chapter 11.

Over 100,000 jobs were slashed and wages went south by 25 percent or more. They bounced back with lower costs and consequently panned out to be formidable competitors for small-time Caribbean carriers that were already walking a pretty tight financial rope at the time.

The problems bugging Caribbean airlines must be put in a long-term perspective.

BWIA was founded before World War II by British interests and was, for many years, the airline of the Caribbean. In the early 1960s, the government of Trinidad & Tobago bought the carrier.

LIAT saw the light of day in 1957, purchased and developed by BWIA, then sold and eventually bought deep in hardships by the regional governments in 1974.

Air Jamaica and Cayman Airways followed suit as state-run joint ventures and foreign airlines in the late 1960s. Then, they became absolute properties of the government when foreign partners pulled up stakes. Bahamas Air was also begotten by the island’s government in the 1970s.

The region’s governments promoted these airlines as a result of tourism’s growth and the risks of depending entirely on alien carriers. That was a time when the international industry used be heavily regulated with just one airline and one route per country.

The power crisis of the early 1970s that grounded many an airline altogether as a result of spiking oil prices and less flight demand, deepened this vulnerability even further.

As years rolled on, these airlines lost a considerable amount of money. Many pinned the blame on the fact that the companies’ ownership was in the hands of governments, so in the 1990s, all those carriers, save Bahamas Air and Cayman Airways, were quasi-privatized.

But for the most part, losses continued and even grew on.

At the end of the day, those losses –either under state or private property- were charged on taxpayers through direct government-sponsored bailout packages or loans granted under dicey reimbursement terms.

Air Jamaica grabbed an estimated $250 million in governmental aid between 1994 and 1999, with losses that peaked $80 million in 2002 and $35 million in 2003 (according to projected estimates). As we speak, the carrier is currying more favor from the government.

By the end of 2002, BWIA received a $13 million government loan preconditioned to overhauling actions. For a number of years, LIAT has also gotten a sizeable financial support on the part of the state.

Both airlines are currently seeking more money from the governments’ coffers to get by the impact of the Iraqi conflict. Bahamas Air and Cayman Airways are surely undergoing a similar situation.

The experience endured by five national airlines throughout a three-decade span of time, under public and private ownership alike, has been one of nonstop losses eventually hedged by the taxpayers.

Indeed, the current outlay of these airlines is raising a few brows as far as the feasibility of regional-scale commercial aviation is concerned.

As Bahamian prime minister Perry Christie puts it, “We must find a way to gather the top executives of all these airlines in one hall and refuse to let them out until they come up with a plan to reduce losses and increase flights toward the Caribbean.”

A cooperative concept for the whole region could set out to mend fences between the support for regional tourism (including the Diaspora) and the feasibility of airlines.