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Airline Integration: Biting the Bullet

Norman Girvan (1)
The Greater Caribbean This Week

At a meeting at the ACS headquarters in Port of Spain on April 9-11, agreement was reached on the draft text of an ACS air transport agreement. When implemented, the agreement will substantially liberalise air services among most of the 28 countries in the ACS Greater Caribbean region.

In the same week a report out of Washington D.C. drew attention to the fact that several U.S. carriers have been increasing their services to Caribbean destinations in response to sagging domestic air travel. Notably, U.S. Airways has introduced services to the Bahamas, the Dominican Republic and Puerto Rico and is building an intra-Caribbean operation, the Go-Caribbean network, which includes marketing arrangements with Dutch Antilles Winair and with Caribbean Star.

As the regional airlines of the English speaking Caribbean desperately seek government financing to keep operating, they face the prospects of heightened competition in a declining market still affected by the fall-out from war and terrorism.

Yet new opportunities are being opened up by traffic liberalisation, such as the proposed ACS air agreement, and by the growing interest in intra-Caribbean trade, investment and tourism.

If the current liquidity problems of Air Jamaica, BWIA and LIAT lead to another round of government bailouts; with restructuring so that the airlines can compete again with each other and with the restructured North American carriers; a significant opportunity will have been missed. If history is any guide, the airlines will continue to lose money at taxpayer's expense.

Yet is hardly likely that governments will allow the airlines to go out of business, leaving the region's airlift exposed to the vagaries of the commercial objectives of the North American airlines.

Surely it is time to bite the proverbial bullet: to condition government support on a co-operative, integrated approach among the region's airlines aimed at achieving sustainable profitability while providing adequate services.

Experts argue that a cooperative system would have the size to be competitive on an international scale and enjoy economies of scale, while eliminating the costly competition and duplication that currently exist.

Competition will continue to be provided by the international carriers both extra regionally and intra regionally.

Rather than immediate integration or merger, a phased approach might be adopted.

Each airline might retain its operational identity under an umbrella regional organisation responsible for planning, scheduling, purchasing and other aspects of functional cooperation.

Eliminating the three-way competition for intra-regional traffic, they say, would give the co-operative airline much greater scheduling flexibility. Aircraft upgrades would become feasible, as increased traffic volumes would allow transition from the existing turboprops to 50 - 75 seat regional jets offering faster, more direct and more frequent service on intra regional routes with convenient on-line connections to more frequent longer haul services via regional hubs.

Miami's position as a hub for intra-regional travel would be minimized. This would facilitate business and commerce and greatly improve tourism access to the smaller island destinations from both North America and Europe. Overall lower costs driven by increased aircraft utilization and fleet commonality would result in lower fares, further stimulating travel volumes. A common fleet would also sustain a viable major maintenance and overhaul base for the airline.

A Caricom airline alliance could also seek expanded alliances with other national airlines in the Greater Caribbean region, contributing to the goal of establishing the Caribbean as a zone of sustainable tourism and of uniting the Caribbean by air and sea.

1) Professor Norman Girvan is Secretary General of the Association of Caribbean States. The views expressed are not necessarily the official views of the ACS.

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April 22, 2003

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