opinion

The Greater Caribbean This Week...

There are crucial lessons to be drawn from the severe liquidity problems now besetting Air Jamaica, BWIA and LIAT. Although the Iraq conflict has depressed world travel by 10-15 percent, this has had an immediate and severe impact on the industry's financial position. The airlines had been in financial distress before the Iraq conflict and, for the most part, even before 9/11/2001.

The North American airline industry --- 6,500 aircraft compared to the 65 operated by Air Jamaica/BWIA/LIAT --- had been operating on diminishing margins during the decade of the 1990s. They responded to 9/11 by slashing fares and costs and in some cases securing court supervised bankruptcy protection. Over 100,000 jobs were eliminated and salary costs were cut by 25 percent or more. They emerged as lower cost, more formidable competitors for Caribbean airlines that were already in a fragile financial position.

The current problems of Caribbean airlines should be set in a longer-term perspective. BWIA was set up by British interests before World War II and for many years was "The" Caribbean airline. In the early 1960s it was acquired by the Trinidad and Tobago government. LIAT was founded in 1957, bought and developed by BWIA then sold and ultimately acquired in distress by the regional governments in 1974.

Air Jamaica and Cayman Airways were formed as joint ventures between the government and foreign airlines in the late 1960s and became wholly government owned when the foreign partners withdrew. Bahamasair was created by the government in the early 1970s.

Governments promoted these airlines because of the growth of regional tourism and the risks of reliance on foreign carriers. The international industry used to be highly regulated, with one airline per country per route. Hence, route cutback by any one airline would severely impact tourist airlift. The energy crisis of the early 1970s, when many airlines cut services in response to rising fuel prices and shrinking demand, dramatised this vulnerability.

Over the years these airlines lost a great deal of money. Many blamed government ownership, and in the 90s all except Bahamasair and Cayman Airways were semi-privatized. But in most cases the losses continued and even grew.

Ultimately these losses, whether under government or private ownership, were borne by taxpayers through direct government bailouts or government guaranteed loans with dubious repayment prospects.

Air Jamaica received an estimated US$250 million in government support in 1994-1999 alone. With losses of US$80 million in 2002 and US$35 million in 2003 (projected) it is seeking additional government support.

Late in 2002 BWIA received a government loan of US$13 million, conditioned on restructuring measures. LIAT has also received substantial government support over the years. Both are now seeking more money from government to survive the impact of the Iraq conflict. Bahamasair and Cayman Airways are almost certainly in a similar situation.

The experience of five national airlines over three decades, with both government and private ownership, has been one of consistent losses at taxpayer expense. It calls into question the viability of the regional airline industry as it is presently structured. In the words of Bahamas Prime Minister Perry Christie, "We must find a way to lock the CEOs of these carriers in a room and refuse to open the door until they have a plan that will reduce our losses and increase our services to and throughout the Caribbean."

A regionally cooperative approach would seek to reconcile support for regional tourism (including the diaspora) with airline viability.


Professor Norman Girvan is Secretary General of the Association of Caribbean States. The views expressed are not necessarily the official views of the ACS. Feedback can be sent to mail@acs- aec.org.

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