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The Role of Caribbean Airlines
Posted: Tuesday, December 21, 2010

By Derren Joseph
December 21, 2010

Over the past few weeks, Caribbean Airlines Ltd. (CAL) has become associated with one thing – confusion. Some may have started reading this in the hope that this column would fuel the flames of this bacchanal. In that case, please accept my apologies. I am looking at CAL from a different point of view. What is CAL's role in national economic development?

There is no need to remind anyone that the world supply of natural gas is increasing and according to BP's Chief Economist Christof Rühl, the global demand for oil/gas may have adjusted to a lower level from the previous peak. In economics, an increase in supply plus a decrease in demand, equals downward pressure on market prices. This is not good news for gas producers like Trinidad and Tobago. Tourism however, offers a credible path to economic diversification and employment growth.

But what does this have to do with a national airline? That is exactly the problem – the apparent disconnect between airline business strategy and tourism development strategy. One reason is the popular myth that the aviation industry is at the mercy of normal market forces. It is not. In my opinion, there is no airline in the “West” that does not enjoy some measure of state support or protection. Governments influence airline behaviour through a dizzying array of legislation, taxes and subsidies. Whether it is a law in the USA mandating that an airline be 75% owned and controlled by US citizens (ask Virgin America) to operate, to landing rights, landing fees, traffic rights, restricted competition on routes, preferential slots, preferential terminals, seat guarantees, tax concessions, etc.

Having proposed that airlines (especially national) are rarely (if ever) allowed to operate without state influence, the next logical question is - for what reason, do states use airlines? Particularly those nations with state-owned airlines? A 1990 article in the Asia Pacific Journal of Management provides some insight. In his analysis, Douglas Sikorski from the National University of Singapore, compares two airlines, British Airways and Singapore Airlines. Both of which were originally state-owned and are now privatized. It is clear that while state-owned, their organizational objectives were not just financial, but were also socio-political. Although privatized, both still operate in their home markets with certain state-sanctioned advantages.

If we are serious about driving growth in Tourism GDP and employment, we in Trinidad and Tobago have an incredible opportunity to leverage CAL in a way that does not compromise its economic viability. To do this only requires us to intelligently use the resources we have.

We sometimes forget that the state controls most of the high-end rooms in Trinidad (Hyatt and Hilton) and Tobago (Vanguard). From what is available in the public domain, one can only conclude that there is very little coordination of state hotels with airlines and with tourism marketing. Entities operate in near isolation rather than seek marketing synergies that benefit the entire destination. How much more of an impact we would have with coordinated marketing thrusts!

Now let us focus on the national airline – CAL. It may be faithfully following its mandate to maximize return on financial investment, but it is doing so at a price. Consider what we have observed over the past few years.

Spirit Airlines, the self-titled ultra low cost carrier, tried its hand on the Fort Lauderdale – Trinidad route. Remember the US$10 (plus taxes of course) fares? For quite a few months Spirit went head to head with American Airlines and CAL. Between the US and T&T, there were more available seats and cheaper prices as CAL lowered prices to arguably drive Spirit out. Spirit left and prices went back up. It is argued that a similar strategy was successfully used against Constellation (charter between NYC and Trinidad) and Delta. It is also argued that a similar approach is still being used to pressure Travelspan (charter between NYC and Trinidad). The unfortunate consequence of CAL's approach is higher consumer prices and fewer seats on key routes as these potential competitors scale back.

Please do not misunderstand me. CAL is probably doing a great job given its present mandate. All I am proposing is that we join the dots and consider ways of exploiting the synergies between our airline and hotels. On one hand the state is paying for extra airlift (to Tobago in particular) while on the other hand, carriers are being driven away. Tobago's tourism industry is in crisis and Trinidad hoteliers are praying that Carnival 2011, which already looks bleak, is better than 2010.

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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