Criticisms, Kudos for REDjet Initiative
Posted: Tuesday, November 2, 2010
By Derren Joseph
November 02, 2010
Last week I wrote about REDjet, the soon-to-be-launched Barbados-based Low Cost Carrier (LCC) and its declared US$9.99 (before tax) fares. Regarding its Fleet, I mentioned the negative blogs on REDjet’s MD82’s which were previously operated by American Airlines. In one of the many emails that found its way to my inbox was one that explained that despite the MD82 critics, it remains the equipment of choice for fast turnaround, short haul routes served by Curacao-based Insel Air, and LCCs like US-based Allegiant (REDjet’s technical partner), South Africa’s 1Time and Spain’s Spanair.
In terms of its Distribution (that is how we buy tickets) strategy, they recognize low credit card penetration means that e-commerce is limited. To compensate, they may allow customers to book online or through their call centre and pay at offline payment points (such as those we use now for bill payments).
One point that I hear repeatedly however, is that a key reason for high intra-regional airfares is the tax system imposed by the regional governments. A tax system where it is not uncommon for the fares on some intra-regional routes to be as much as 60% tax (according to the Caribbean Airlines' CEO) – so the ticket cost we pay is sometimes made up of more taxes/fees than airline revenue. But is it enough to simply demand our regional governments stop being hypocrites that chastise the UK government for its Airline Passenger Duty (APD tax) while our region levies passenger taxes that are much higher (as a percentage of total ticket cost)?
The reality is that many of our regional economies are struggling at best. The IMF recently released its Regional Economic Outlook for the Western Hemisphere on its website. It is recommended reading for those of us who are passionate about understanding the regional tourism industry better. Page 75 reminds us that Caribbean countries are among the most highly indebted countries in the world with five of the thirteen Caribbean countries having public debt-to-GDP ratios of more than 100% with an additional four having debt levels above 70%. So given their dependence on tourism, if they do not tax the tourism industry, how else would they pay their bills?
Three key insights that I took away from this IMF publication would be as follows. Firstly, to assess destination performance using only visitor numbers may be deceptive. On page 35, the report notes that a closer look at the data suggests that destinations that significantly reduced hotel prices following the crisis experienced milder declines in arrivals. The name of this game is growing the economic contribution of tourism which is measured in dollars, not heads.
Secondly, we need to watch Cuba. The IMF report says that all things being equal, U.S. restrictions have likely allowed higher prices for Caribbean tourism providers, and thus better terms of trade and higher real wages in Caribbean economies as a whole, than would otherwise have been the case. Liberalization however, may not have an immediately negative effect on tourism in other Caribbean countries given capacity constraints in Cuba, particularly in terms of adequate hotel supply. So a surge in demand from U.S. residents would likely “crowd out” visitors from other countries, likely sending many, for example, Canadians, to other islands. But after the initial surge, some scenarios do not look good for us in other destinations.
Thirdly, we need to watch our productivity. Again, we do not need the IMF to tell us that our collective survival is tied to productivity. Of course this is a sensitive topic given our ongoing public sector wage negotiations so I will leave it there for now.
Bottom line is that this is crisis time, and a look at arrivals to Trinidad and Tobago in particular reveals that this decline started before the present economic turmoil. In the wider Caribbean, many destinations depended on intra-regional traffic and the disappearance of Caribbean Star, Caribbean Sun, BWIA together with cut backs at LIAT and American Eagle have drastically impacted on available inter-island airlift. Fewer seats meant fewer visitors. REDjet has come along when we need her most.
Aside from boosting intra-regional traffic, with reliable connections (sorry LIAT) from a hub like Barbados, REDjet will eventually make it easier for extra-regional visitors to connect to smaller islands. I recently heard an industry veteran say that when you think you know everything about Caribbean tourism – it is time to get out! This industry is incredibly complex with each stakeholder group having an important piece of the bigger puzzle. So let us get together and work this out.
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.
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