Published On: Mon, Dec 10th, 2012

High fuel cost, maintenance, manpower drive airfare cost up

ST JOHN’S, Antigua – Chairman of the financially strapped regional airline, LIAT, has defended the high cost of airfares charged by the Antigua based airline.

“There are those who argue that all the problems of air transportation in the region will be solved by competition which will lead to lower fares. They point out that when Caribbean Star, Caribbean Sun and REDjet, were operating and offering cheap fares, a great deal more people were travelling,” said LIAT’s chairman Jean Holder.

He told regional journalists that “if indeed, such airlines had decided, instead of offering cheap fares , to offer no fares at all, the number of people travelling would be so great that it could not be contained by the regions’ airports.

“The people, who argue in this manner, seem to take away no lessons from the fact that all the airlines mentioned above, went bankrupt and ceased to operate and the investors lost their money.”

He said currently, the operations of all Caribbean carriers offering fares not covered by their commercial costs, are subsidized on an annual basis by their governments. He said the situation is also the same in the United States.

“The fact is, that any airline operating on these intra-Caribbean routes, which charges fares that reflect its real costs, cannot offer cheap fares, and any airline, not in receipt of subsidies, offering fares that do not reflect its true costs, will not survive.”

Holder said there seems to be a general belief abroad in the Caribbean that somehow LIAT has been exempt from the pain and suffering caused to all businesses by the poor state of the global economy, especially the economic difficulties in our tourism source markets, including the Caribbean market.

He said LIAT is not exempted from the extremely high cost of fuel, maintenance and manpower.

“Perhaps the reason for this, is that through all these difficult times, LIAT has continued to deliver its extensive services, many of which are not commercially profitable and amount to nothing more than a public service. This situation cannot continue, especially when only three of the 21 destinations served by LIAT come to its aid when it is in financial difficulties.

“Unlike all the other Caribbean airlines in the region, LIAT does not enjoy the luxury of an annual subsidy in its annual budget up front to cushion annual financial losses. It also does not frequently enjoy the marketing support and flight guarantees that several foreign operators receive.

“As far as its daily operations are concerned, LIAT stays alive by negotiations with its bankers, the skills of it management, and being forced to charge the customer a level of fares that meet its costs. LIAT has no control over the level of taxes charged. It simply collects them.”

Holder told regional journalists that the real barrier to private sector airline competition is not LIAT, which is owned by the governments of Antigua and Barbuda, St. Vincent and the Grenadines and Barbados.

He said it is the realistic fear of failure, urging the private sector to invest in the regional airline “which has stood the test of time.

“I am confident that this would lead to us having an airline which will perform successfully both in and outside the region,” he said, as the airline Friday unveiled a new business plan that it said would reverse years of economic problems.

Holder said that for the last six years, LIAT has not gone to its shareholder governments for any financial support for its daily operations.

But it now has no option but to approach its shareholders for some capital investment in a new fleet, he said, adding that the capital investment now needed would be a lot less onerous if it is shared among those for whom LIAT provides services every day.

“It is time, as was suggested by the President of the Caribbean Development Bank, to feed the cow, rather than drinking its milk, using a straw through the fence,’ Holder said, adding that he was “very encouraged by the promises of financial support” made by the Dominica government.

“I hope that others will follow this excellent example,” he said, reminding journalists that the airline faces daily challenges providing network services to 21 countries in the English, Dutch, French, Spanish Caribbean.

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