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The End of High Fares
Posted: Monday, April 18, 2011

By Derren Joseph
April 18, 2011

Last 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.

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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