The End of High Fares

By Derren Joseph
April 18, 2011

REDjetLast Monday, a message from the REDjet CEO appeared on their Facebook Fanpage which announced that they were taking bookings as of April 13th with flights starting May 8th. The first destinations to be offered are Barbados, Guyana, Jamaica and, of course, Trinidad.

Many of us will be trying to buy one of the US$9.99 one-way fares or one of the 250,000 seats for US$49.99 or under. But would this necessarily mean the end of high fares? Time would tell, but it would be difficult to ignore the similarities between what is expected to happen between REDjet and Caribbean Airlines (CAL) and what happened between Digicel and TSTT some years back. I was not living in Trinidad at the time, but I did follow the events with great interest. There are two areas that interest me. Firstly, there is the impact on consumers. Secondly, there is the impact on the incumbent service providers.

Firstly, in terms of the impact on consumers, we observed that handset prices fell dramatically at the height of the battle for market share. As the market became saturated, they have climbed to much higher levels. Regardless of what the eventual outcome is, in the near term, we consumers should see cheaper airfares. Good for us! What happens in the medium to long term is a function of whether REDjet is able to adhere to its LCC model.

Secondly, in terms of the impact on the incumbent / dominant service provider, Jamaica’s C&W / Lime may have been slightly arrogant and underestimated the market response to serious competition and, as a result, they received a severe beating at the hands of Digicel. Digicel then moved south along the chain of islands and by the time they got to Trinidad, TSTT knew exactly what to expect and responded accordingly. TSTT ensured that they did not repeat the mistakes of their Jamaican counterparts and the results speak for themselves.

Now let us return to the triangular route that is Barbados – Trinidad – Guyana; and the Trinidad – Jamaica route. Right now the duopoly of CAL (dominant carrier) and LIAT own the game. One is considered expensive and the other considered a provider of a very poor quality service – I will leave you to figure out which is which! So the million dollar question is whether our CAL will respond like Jamaica’s C&W and be complacent or like our TSTT / bmobile, fight for its very life to defend market share.

The stakes are very high for CAL. Unlike TSTT that had a history of profitability, it has been reported that without the fuel hedge / subsidy, CAL is not profitable. The Trinidad – Jamaica route in particular makes one or two stops along the way. If REDjet goes non-stop, CAL will obviously suffer market share loss.

Thankfully, so far it appears as if CAL is fighting aggressively to retain market share. Direct North America – Guyana flights will start in July, I understand, and the Trinidad – Jamaica run has undergone some changes. Presumably, this was all done with REDjet in mind.

As a consumer, I like the idea of healthy competition that encourages all players to keep prices, low and service levels, high. I do hope that CAL takes the threat seriously and controls its costs rather than just block / attack REDjet. By focusing on cost reduction and efficiency gains, CAL can emerge from this attack a leaner, stronger company. For CAL, this may actually be a blessing in disguise as, like TSTT / bmobile, it is an opportunity to review its entire operation and find ways to enhance its value proposition so that we customers feel confident that we are getting value for our money. If I were LIAT however, I would be very, very nervous. With CAL’s new ATRs on one side, and REDjet on the other side, LIAT will be under some serious pressure.

For REDjet’s LCC model to work, the low prices need to stimulate market demand and encourage an increase in the number of people flying from island to island. It is a volume game. Good luck to all players! If this LCC model works, it promises to bring us, as Caribbean nationals, closer together.

My name is Derren Joseph and I love my country. As always, I end by saying that despite our challenges, we are so blessed to live in this beautiful land. Let us continue to have the audacity of hope in the future of our beloved country.

5 thoughts on “The End of High Fares”

  1. REDjet yet to apply
    REDjet has still not applied for permission to operate flights into or out of TT, Civil Aviation Authority director-general Ramesh Lutchmedial revealed yesterday. Asked if the Air Services Agreement between Caricom countries allows regional carries to operate in each other’s countries, he said it was subject to individual laws.

    REDjet: We got OK from Barbados
    Low cost carrier REDjet has so far not responded to statements made by Works and Transport Minister Jack Warner that he did not know where, when or how it obtained its approvals to operate in T&T, but the company yesterday said it has got its air operator certificate from the Barbados Civil Aviation Department. Even as the airline, through its local public relations company, Sandra Welch-Farrel and Company (SWF&CO) issued a statement about its Caribbean operations, it did not address the issue to operate in T&T. The statement said the airline’s obtaining its air operator certificate last Friday was a “major milestone” for the new airline. However, REDjet did not respond to e-mailed questions from the T&T Guardian asking whether the airline applied to the Civil Aviation Authority of T&T (CATT) for permission to fly from Port-of-Spain.

  2. REDjet’s May 8 flight in jeopardy
    REDjet’s plans to fly from T&T on May 8 are in trouble. Ramesh Lutchmedial, director general of the Civil Aviation Authority of T&T (CATT), said yesterday he had ordered REDjet to immediately cease all advertising of its fares to the three destinations to which it had been marketing its $63 rate.

    …Warner: REDjet must comply
    EVEN if there is an air services agreement between TT and Barbados, Minister of Works and Transport Jack Warner said new regional carrier REDJet must still comply with local regulations before it commences operations.

    …Brunton recommends inquiry into new airline
    A local aviation expert is recommending that low cost air carrier REDjet complete an exhaustive certification process, conducted by the Trinidad and Tobago Civil Aviation Authority (TTCAA), before it is allowed to operate in this country.

  3. REDJet applies
    REDJet on Tuesday formally applied to the TT Civil Aviation Authority to operate flights in TT, Director General of the authority Ramesh Lutchmedial disclosed yesterday, adding: “The application is being evaluated.”

    No approval as yet for REDjet, says Jack
    THE GOVERNMENT has the power to deny Barbados-based carrier REDjet the right to operate in Trinidad and Tobago, says Works and Transport Minister Jack Warner.

  4. Though matter how Jack keep saying that he is not afraid of competion
    he is terrified ,especially when he sees the overwhelming response that
    Red Jet got from the population. And i hope that he will will respect
    the will of the people, just like how the push it in our face all the
    time that they are in power because of the will of the people for change.I hope that he gives the population their will with Red Jet. BE A MAN JACK like it or not.Because Caribbean Airline and LIAT had no care or concern for the travelling public,but now they are touting lower fares,they are suddenly able to do that now how come. Well for me i am pleasantly looking forward to take a trip with them.Hurry up Jack and stop stalling on giving Red Jet their operating papers.

Comments are closed.