Fares Flying Low over REDjet Fears?

Fares Flying Low over REDjet Fears?
By Ronald Sanders

The appearance of low-cost carrier REDjet in the relations between the countries of Caricom brought to the fore a number of issues, in particular the conviction by the public that the cost of air travel in the region is exorbitant.

The complaint about the high cost of travel was being made well before REDjet made an appearance on the aviation scene. At one point, it caused LIAT — the airline owned by the governments of Antigua and Barbuda, Barbados and St Vincent and the Grenadines — to publish its fare structure, which revealed that government taxes on flights originating in most countries are extremely high.

Therefore, the first point is that the cost of air travel within the Caribbean is high in part because government taxes are high. Whereas governments might argue that they need the taxes to maintain and expand airports, the airlines will counter-argue that they pay landing fees that should be segregated and put into a fund for airport upkeep and improvements. LIAT, incidentally, is a huge contributor to the revenues of governments into whose countries they fly.

The cost of LIAT's operations when compared with that of Caribbean Airlines (CAL) is higher because of one very important reason: LIAT has to buy its fuel at commercial prices. The Government of T&T subsidies fuel used by CAL — not just the fuel it buys in Trinidad, but also the fuel bought elsewhere for all its operations. LIAT (and incidentally REDjet) is suffering from an unlevel playing field in the context of the fuel subsidy which CAL alone enjoys.

The Bahamian-operated airline Western Air has become CAL's first casualty. The airline has announced that it is suspending flights to Jamaica due to what it says is "competition'' from CAL.

In 2008, the last year for which audited statements were made public, the fuel subsidy for CAL was US$36 million on consumption of 26 million gallons.

That is a hefty price for the taxpayers of T&T to be paying simply to maintain CAL's flight operations. That money could have been spent on education, health and social welfare projects that are desperately needed in the country. What exactly T&T gets from subsidizing CAL's operations, apart from being able to claim that it has a national airline with a limited regional role, is unclear.

In any event, it appears that the people in T&T who travel are more loyal to their pockets than they are to CAL. According to the chairman and CEO of REDjet, Ian Burns, the demand for bookings from July 28 when the airline starts flights into Trinidad is higher than when they first launched on April 13. It seems, therefore, that not even the fuel subsidy will save CAL from competition over prices.

In the wake of a successful lawsuit REDjet was given clearance to fly into Trinidad and then, separately, Jamaica gave permission. But these permissions came only after the most amazing filibustering by both governments. Few persons believe that the refusals, denials, and demands for safety checks were anything more than measures to protect CAL from competition.

In the case of Jamaica, the reluctance of the government to allow REDjet entry, while the deal for CAL to buy out Air Jamaica was not yet fully sealed, is understandable though not by any means fair to REDjet. If the deal between CAL and Air Jamaica had fallen through, the Jamaica government would have found itself with a huge hole to fill in the arrangements under which the International Monetary Fund is providing the Government with a stand-by facility.

Remarkably, the chairman of CAL, George Nicholas, has now indicated that the airline will be lowering its fares. He claims that the airline is not doing so because of competition from REDjet. He says, "(The) efficiencies that we get now with joining with Air Jamaica, common fleeting, the use of one reservation system, pooling our intelligence and pooling our resources, so we have economies of scale that very few carriers in the region have.''

What is truly remarkable about Mr. Nicholas' statement is that he has identified efficiencies arising from the "joining with Air Jamaica'' as the basis for dropping fares. This same notion of the nationally owned Caribbean Airlines "joining'' a shared arrangement to reduce costs and decrease fares has been suggested time and again without an appropriate response. If CAL, Air Jamaica and LIAT had sat down to share out the routes within the Caribbean and to the Caribbean from external locations, and to divide the operational costs, then the three airlines could have stood a chance at serving the region's people and its tourist industry better.

Instead, what the Caribbean public saw was a display of selfish nationalism at the political level in Trinidad and Jamaica, crude boardroom politics, and a disregard for the Caribbean travelling public and tourism.

At no time was St Vincent Prime Minister Ralph Gonsalves brought into the discussions and he is the person in the Caricom quasi-cabinet with responsibility for overseeing air transportation.

REDjet may have been given permission to fly to Trinidad and Jamaica thereby adding to their Guyana route, but the real war is yet to come unless good sense prevails among Caricom's leadership and a sensible aviation policy is established, which would take into account both commercial realities and public good. One of those realities may be an examination of the value of the REDjet model. Another would be the establishment of a Caricom Aviation Authority to set common aviation rules throughout Caricom funded by Caricom-wide aviation charges.