Let the Airline Wars Begin!
Posted: Sunday, January 30, 2011
By Derren Joseph
January 30, 2011
Last October, Redjet launched in Barbados. Then, everything just went quiet. As always, in the absence of official information, the rumors started. Were they just like the regional fast ferry service which, on at least three occasions, was 'launched' but never moved a single passenger?
In the meantime, travel industry opinion leaders like Alec Sanguinetti, Director General at the Caribbean Hotel and Tourism Association (CHTA), continued to lament that the Caribbean region is the only area in the world with 35 countries and a total population of approximately 40 million persons and still does not have a low cost carrier (LCC). Sanguinetti charged that - "Nobody is prepared to invest in a low-cost carrier as the aviation policies of the region are not attractive for such investment." After all, not a single action from the San Juan Accord (regional aviation agreement) has apparently been implemented. So I wondered to myself whether Redjet got scared off?
Last Monday, I managed to meet up with Robbie Burns, founder and Business Development Director from Redjet who was here in Trinidad, with a team on a mini media tour. Robbie confirmed that the Barbados government had given permission for them to be their designated carrier but Redjet was going through the certification process. When pressed as to the actual start date, he was reluctant to commit because it was largely dependent on the government mandated certification process.
I have to admit that I am skeptical. Among the many questions I had for him, there were three key issues that I wanted to raise. Firstly, given low credit card penetration, and their aversion to Travel Agents, what is their distribution strategy? Secondly, given that Caribbean Airlines (CAL) is getting spanking new ATRs and enjoys a fuel hedge / subsidy, how can they survive? Thirdly, what makes them different from Caribbean Star / Sun and the other failed airlines that came before?
Firstly, in terms of distribution: yes passengers can purchase online or via their Barbados-based call centre but there are options for those without credit cards. In Barbados, they can pay via Sure Pay. I mentioned that Sure Pay in Trinidad may not be as widely available (it is mainly in Hi Lo supermarkets here) or as technically up-to-date as in Barbados. He explained that certain Digicel outlets will facilitate ticket sales and payments, as well as Travel Agents, who like Liat, are willing to use a Travel Agent portal. Definitely a stronger distribution strategy than the one I heard last year.
Secondly, Robbie explained that he is not worried about CAL. His MD-80s may not have a fuel subsidy but their engines are separately leased. This means they created a deal where they pay a per hour charge for their use over X number of hours – and then simply exchange them. So their overall cost structure (excluding fuel), in his estimation is 60% cheaper than CAL's. Furthermore, there are those that believe that CAL is of late, making mistakes that are loading up their cost structure. These include returning to Heathrow – which some insiders say is not profitable; adding an entertainment system to the ATRs – which is extremely costly to maintain; and not completely integrating the Air Jamaica operation.
Thirdly, regarding the many regional airlines that have come and gone over time, he explained that many were premised on Liat either going out of business or Liat's routes eventually being fully incorporated. Redjet is built for permanently low fares – not just a short-term price war.
I admire the entrepreneurial spirit behind Redjet and more importantly, I am among the many who have experienced first-hand, poor customer service with Liat as recently as this month. At the same time, since BWIA became CAL, it is hard to ignore their strong on-time performance, incredibly low lost-baggage rate, and (in my opinion anyway) decent customer service levels. Now the cherry on the CAL cake is the fuel hedge. Can Redjet survive a head-to-head battle with CAL?
Bottom-line is that Redjet believes that it is the Caribbean's first, genuine, LCC. The business model is premised on CAL and Liat actually responding by cutting their fares. The logic being that consumer demand is stimulated by lower fares, as has happened in Europe, which benefits all players. Let the airline war begin!
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.
Derren is a travel and tourism consultant. The views and opinions expressed here are solely the views of the writer and do not necessarily reflect the views of any company or institution affiliated with the writer.
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