Panama Jack
3rd Jul 2005, 22:42
Region's airlines lack financial rudder
Cash-poor governments seek ways to keep essential carriers in business
By Doreen Hemlock
Business Writer
Posted July 3 2005
For Caribbean islands, airline service represents a lifeline to the world, ferrying tourists, supplies and other basics to residents otherwise cut off by sea from major markets. Some governments sponsor their own airlines to guarantee transport -- just in case foreign carriers choose not to serve them.
So, how should the islands confront mounting losses at vital carriers like Air Jamaica and Bahamas Air, when those airlines now are mired like rivals worldwide in a money-losing industry plagued by rising oil prices, growing security costs plus increased competition?
The question is puzzling officials and taxpayers from Jamaica to Barbados to Trinidad, as such hard-nosed options as cost-cutting or mergers often run head-on into politics and nationalism. Few see quick solutions, even as cash-strapped governments pump more cash into Caribbean carriers that often are the butt of jokes.
"The regional airlines are a necessity, but they themselves can't get their act together to be more efficient," lamented Berthia Parle, president of the Caribbean Hotel Association during a conference in Miami. "The time has come for governments to sit all the airlines down and say: `You tell us how you're going to turn this around.'"
The financial stakes are high for the world's most tourism-dependent region, where more than half a dozen of the carriers operate.
Unaudited results show that Air Jamaica lost $83 million last year alone, boosting its accumulated deficit to $847 million. And losses accelerated to $61 million in the first five months this year, even after the island government assumed control of the carrier from a private group last December.
Plus, Trinidad-Tobago now is weighing options for its state-owned BWIA West Indies Airways, jokingly called "Bound to Wait In the Airport, but Will It Arrive?" A new study estimated costs for shutdown ranging from $170 million to $350 million and restructuring at perhaps $250 million, officials added.
Aviation consultants say the Caribbean carriers suffer from some maladies that make it even harder for them to show profits than some U.S. counterparts, such as American Airlines or Delta Air Lines.
For starters, they're small. That means they can't buy supplies in bulk and get volume discounts, and they can't spread the costs of such basics as computer systems, call centers or baggage handlers over a bigger customer base.
Furthermore, government shareholders tend to play a major role, often mixing politics into their operations. For instance, they may delay decisions to cut local staff to avert a political backlash. Experts urge management be left more to professionals, instead of politicians and bureaucrats.
Perhaps most critical, the carriers tend to be undercapitalized, with funds coming too little, too late from the Caribbean's cash-strapped governments.
"We should not try to resurrect either national carriers or regional carriers unless they're properly capitalized," said Ian Bertrand, a principal with El Perial Management Services of Trinidad and a former top executive with BWIA West Indies Airways. "Otherwise, we're going to find ... we're worse off."
The bottom line: Government subsidies must be a fact of life for the Caribbean carriers, given their limited scale and their role as an essential service role, said Noel Lynch, tourism and transport minister for Barbados.
"We heavily subsidize every other aspect of our tourism industry," added Lynch, referring to tax breaks offered for equipment for hotels, outlays on tourism marketing, incentives for cruise ships and other government aid.
To be sure, subsidies are common in aviation worldwide. Washington, for instance, subsidizes air service at U.S. rural airports under its Essential Air Service program, with funding topping $110 million last fiscal year. And the U.S. Virgin Islands government recently agreed to guarantee minimum revenues per flight to American Eagle to offer service between the islands of St. Thomas and St. Croix.
Small price to pay
But aviation analysts disagree over how much to subsidize Caribbean airlines and for how long.
Bobby Booth, who leads AvMan Inc. of Coral Gables, thinks subsidies should only be temporary, with airlines forced to become profitable, likely through alliances.
"Latin American airlines have shown that under private ownership, with intelligent strategies, they can survive and prosper," Booth said, citing as models the LAN Group in Chile and Grupo TACA in Central America, both of which operate as alliances between several carriers.
Yet Charles Clifford, the Cayman Islands minister of tourism, said his government sees a $7 million-a-year subsidy as a small price to help their money-losing airline, when studies show Cayman Airways sustains 12 percent of their economy and contributes roughly $230 million a year to tourism, commerce and other activities. Cayman Airways even helps build tourism by flying to new cities such as Chicago, sometimes prompting rivals to follow suit, spurring competition and opening new markets.
Studies show that Caribbean airlines could best stem their losses by sharing services such as call centers and even merging into a single regional carrier. But political will has been lacking. Though the island nations may be small, their pride is big, and governments still worry about losing control. Lofty ideas about island integration often fail amid politics and nationalism.
"Pigs will fly before we get BWIA, Air Jamaica and LIAT to merge," quipped Barbados tourism minister Lynch.
Meanwhile, the red ink keeps flowing. Losses at Bahamas Air alone are projected at more than $13 million this year, a princely sum for a nation of just 300,000 people. But the question remains: What price for a lifeline?
Doreen Hemlock can be reached at [email protected] or 305-810-5009.
The sky is red
Caribbean-based airlines offer vital transport to the islands, but they're notorious money-losers. Some examples:
Airline Headquarters 2004 losses:
BWIA West Indies Airways, Trinidad $15 million
Air Jamaica, Jamaica $83 million
Bahamas Air, Bahamas $11 million
Source: SunSentinel.com (http://www.sun-sentinel.com/business/local/sfl-sbairlinesbox03jul03,0,375245.story?coll=sfla-business-headlines)
Cash-poor governments seek ways to keep essential carriers in business
By Doreen Hemlock
Business Writer
Posted July 3 2005
For Caribbean islands, airline service represents a lifeline to the world, ferrying tourists, supplies and other basics to residents otherwise cut off by sea from major markets. Some governments sponsor their own airlines to guarantee transport -- just in case foreign carriers choose not to serve them.
So, how should the islands confront mounting losses at vital carriers like Air Jamaica and Bahamas Air, when those airlines now are mired like rivals worldwide in a money-losing industry plagued by rising oil prices, growing security costs plus increased competition?
The question is puzzling officials and taxpayers from Jamaica to Barbados to Trinidad, as such hard-nosed options as cost-cutting or mergers often run head-on into politics and nationalism. Few see quick solutions, even as cash-strapped governments pump more cash into Caribbean carriers that often are the butt of jokes.
"The regional airlines are a necessity, but they themselves can't get their act together to be more efficient," lamented Berthia Parle, president of the Caribbean Hotel Association during a conference in Miami. "The time has come for governments to sit all the airlines down and say: `You tell us how you're going to turn this around.'"
The financial stakes are high for the world's most tourism-dependent region, where more than half a dozen of the carriers operate.
Unaudited results show that Air Jamaica lost $83 million last year alone, boosting its accumulated deficit to $847 million. And losses accelerated to $61 million in the first five months this year, even after the island government assumed control of the carrier from a private group last December.
Plus, Trinidad-Tobago now is weighing options for its state-owned BWIA West Indies Airways, jokingly called "Bound to Wait In the Airport, but Will It Arrive?" A new study estimated costs for shutdown ranging from $170 million to $350 million and restructuring at perhaps $250 million, officials added.
Aviation consultants say the Caribbean carriers suffer from some maladies that make it even harder for them to show profits than some U.S. counterparts, such as American Airlines or Delta Air Lines.
For starters, they're small. That means they can't buy supplies in bulk and get volume discounts, and they can't spread the costs of such basics as computer systems, call centers or baggage handlers over a bigger customer base.
Furthermore, government shareholders tend to play a major role, often mixing politics into their operations. For instance, they may delay decisions to cut local staff to avert a political backlash. Experts urge management be left more to professionals, instead of politicians and bureaucrats.
Perhaps most critical, the carriers tend to be undercapitalized, with funds coming too little, too late from the Caribbean's cash-strapped governments.
"We should not try to resurrect either national carriers or regional carriers unless they're properly capitalized," said Ian Bertrand, a principal with El Perial Management Services of Trinidad and a former top executive with BWIA West Indies Airways. "Otherwise, we're going to find ... we're worse off."
The bottom line: Government subsidies must be a fact of life for the Caribbean carriers, given their limited scale and their role as an essential service role, said Noel Lynch, tourism and transport minister for Barbados.
"We heavily subsidize every other aspect of our tourism industry," added Lynch, referring to tax breaks offered for equipment for hotels, outlays on tourism marketing, incentives for cruise ships and other government aid.
To be sure, subsidies are common in aviation worldwide. Washington, for instance, subsidizes air service at U.S. rural airports under its Essential Air Service program, with funding topping $110 million last fiscal year. And the U.S. Virgin Islands government recently agreed to guarantee minimum revenues per flight to American Eagle to offer service between the islands of St. Thomas and St. Croix.
Small price to pay
But aviation analysts disagree over how much to subsidize Caribbean airlines and for how long.
Bobby Booth, who leads AvMan Inc. of Coral Gables, thinks subsidies should only be temporary, with airlines forced to become profitable, likely through alliances.
"Latin American airlines have shown that under private ownership, with intelligent strategies, they can survive and prosper," Booth said, citing as models the LAN Group in Chile and Grupo TACA in Central America, both of which operate as alliances between several carriers.
Yet Charles Clifford, the Cayman Islands minister of tourism, said his government sees a $7 million-a-year subsidy as a small price to help their money-losing airline, when studies show Cayman Airways sustains 12 percent of their economy and contributes roughly $230 million a year to tourism, commerce and other activities. Cayman Airways even helps build tourism by flying to new cities such as Chicago, sometimes prompting rivals to follow suit, spurring competition and opening new markets.
Studies show that Caribbean airlines could best stem their losses by sharing services such as call centers and even merging into a single regional carrier. But political will has been lacking. Though the island nations may be small, their pride is big, and governments still worry about losing control. Lofty ideas about island integration often fail amid politics and nationalism.
"Pigs will fly before we get BWIA, Air Jamaica and LIAT to merge," quipped Barbados tourism minister Lynch.
Meanwhile, the red ink keeps flowing. Losses at Bahamas Air alone are projected at more than $13 million this year, a princely sum for a nation of just 300,000 people. But the question remains: What price for a lifeline?
Doreen Hemlock can be reached at [email protected] or 305-810-5009.
The sky is red
Caribbean-based airlines offer vital transport to the islands, but they're notorious money-losers. Some examples:
Airline Headquarters 2004 losses:
BWIA West Indies Airways, Trinidad $15 million
Air Jamaica, Jamaica $83 million
Bahamas Air, Bahamas $11 million
Source: SunSentinel.com (http://www.sun-sentinel.com/business/local/sfl-sbairlinesbox03jul03,0,375245.story?coll=sfla-business-headlines)