The question to ponder is ‘Whither Caribbean air transport’?
Historical perspective
BWIA – British West Indian Airways – originated as a subsidiary of BOAC – British
Overseas Airways Corporation – forerunner of British Airways – BA.
In the 1950s BWIA was the de facto regional air carrier, linking Jamaica and Belize with the Eastern Caribbean and Guyana.
Shortly after the dissolution of the Federation and independence the Government of
Trinidad and Tobago ‘nationalised’ BWIA by purchasing it from BOAC.
BWIA continued to be the de facto regional carrier; but de jure it was T&T’s national carrier, since ownership and control resided exclusively with T&T. T
This set the stage for the eventual emergence of other ‘national’ carriers in competition with BWIA, especially Air Jamaica.
In the mid-1960s the Government of Jamaica set up Air Jamaica—JM--as its national (state-owned) carrier. My recollection was that national carriers were entitled to 50% of the air traffic between the host state and every other state. JM therefore exploited this situation by starting as a ‘shell’ airline. It owned no planes, but leased aircraft to operate heavily travelled routes between Jamaica and the metropolitan centres. Initially JM was quite profitable.
During the 1970s and 1980s JM moved from being a shell airline to owning and operating its own aircraft. This must have seemed to be a logical business decision at the time, but it set the stage for JM’s progressive loss of profitability in the era of deregulation.

(I am not au fait with the origins and evolution of LIAT and how it fits into this picture).
JM was privatised in the early 1990s. The context was the Washington Consensus, structural adjustment and the persistent fiscal crisis of the Jamaican state. JM was losing money at the time of divestment but the losses were much less than those which were going to be incurred after privatisation.
GOJ has always regarded JM as an adjunct to Jamaica’s tourist industry and, to a lesser degree, as a Jamaican Diaspora air service.
In divesting JM therefore, GOJ sought to ensure that these objectives would continue to be served. This must have been the thinking behind the choice of the
Butch Stewart-owned Sandals Hotels regional group as the investor.
The privatised JM engaged in an ambitious and aggressive expansion programme of new routes into US gateways and the Eastern Caribbean, backed by a heavy advertising and promotional programme (e.g. ‘champagne’ breakfasts); and a push to make Montego Bay, Jamaica, into a regional hub.
But JM’s deficits continued to mount in the 1990s. And the GOJ continued to underwrite these deficits with loan guarantees and cash (equity) infusions; with JM routinely promising GOJ, and GOJ promising the Jamaican public, that profitability was ‘just around the corner’.
Eventually in the mid-2000s JM was ‘returned’ to the GOJ by the investors, I believe for a token amount ($1?). By my recollection, JM’s debt had by then reached
US$800 million.
Since then GOJ has been seeking an investor to which to privatise JM. The sticking points have always been (i) operation of the tourist and Diaspora routes, and (ii) treatment of the accumulated deficit; reportedly now US$1,200 million. These are likely to be the sticking points for the T&T talks.
.BWIA
Line Air Jamaica, BWIA incurred losses under state ownership, was privatised in the
1990s and continued to make losses, and has reverted to state ownership. Its rebranding as ‘Caribbean Airlines’ however, was a strategic move and may reflect its long-term ambition.
Unfortunately, as pointed out by Afra Raymond in his column, the audited accounts for Caribbean Airlines have not been published; so it is impossible to assess the long-term viability of the new entity.

The operating environment
As everyone knows, the operating environment for the airlines industry today is vastly different from what it was when BWIA and JM were set up and in their heyday.
Deregulation and IT have brought a large number of new players into the industry and changed the way of doing business. Low-cost operating, no frills services, discounting, differential pricing etc. are among the hallmarks of the new business models. Fuel price increases, security and environmental concerns and global recession; have greatly increased the cost and volatility of the business environment.
All full-cost airlines are under pressure. Bankruptcies, mergers and acquisitions are the order of the day.
Among countries which seem to be able to maintain a vibrant tourist economy and adequate Diaspora travel capacity without maintaining a subsidised national airline for that purpose are Barbados, the Dominican Republic and Cuba.
The regional option
As previously pointed out, in the 1960s BWIA’s status as a regional carrier became a casualty of the break-up the Federation and insular independence; although it continued to serve this purpose in the Eastern Caribbean to some degree.
There is a long history of proposals for functional cooperation/integration of regional airline companies, especially of JM and BWIA.
As early as 1967 Steve De Castro of the Mona UWI Economics Department published a paper on collaboration in the West Indian Air Transport Industry, as part of the UWI/ISER Integration Studies.
De Castro pointed out that under international rules, a single West Indian airline could secure an outright monopoly on all intra-regional routes as ‘cabotage’ routes—i.e. routes on points within the same country (e.g. Trinidad and Tobago,
Kingston and Montego Bay). The monopoly could be used to engage in crosssubsidisation from heavily travelled (e.g. tourist) routes to less profitable (e.g. intra-island) routes. De Castro’s model was Scandinavian Airlines--SAS.
The De Castro proposal, like all other subsequent proposals for collaboration, fell on deaf ears.

Essentially both T&T and Jamaica wanted to retain control over their ‘flagship’ carriers to serve what they perceived to be their respective national interests.
Misplaced national pride—and even management egos—have also played a part.
During the 1990s several initiatives took place on promoting functional cooperation, or even merging, of BWIA and JM. In one instance talks took place between the
Ken Gordon-led BWIA and the Butch Stewart-led JM. After Gordon’s departure from
BWIA this fell down.
Ian Bertrand conducted a study, I believe called the ‘Miami option’, which showed that functional cooperation between the Caribbean and Central American airlines using the Miami gateway—check-in facilities, bulk procurement of fuel and catering services—would generate savings of over US$50 million/year. The ACS tried to get the different airlines to get together to work this option but they wouldn’t cooperate.
Another option actively lobbied for was for JM and BWIA to come together under a holding company—Caribbean Airlines Group—with each retaining its operational identity with central common facilities (check-in, bulk procurement, aircraft maintenance, reservation systems, code sharing, etc.)
This was ‘put on the desk’ of both the GOJ and GOTT in the 2000s, to no avail. But it is still an option worth considering.
The current GOJ/JM dilemma and the IMF
GOJ is now under pressure from the IMF to privatise JM as one of the conditions of a $1.2 billion loan under the IMF Stand-By facility.
This gives GOTT considerable leverage in any negotiation for Caribbean Airlines to acquire JM.
The issues will be
(i)
(ii)
(iii)
(iv)
‘Cleaning up’ JM’s balance sheet: who will foot the bill?
Valuation of JM’s assets including brand recognition, routes, aircraft, facilities etc. continuation/elimination of JM’s tourist and Diaspora routes; possible subsidies from GOJ to sustain desirable routes the degree of operational integration of JM with CA—staff, check-in, fleet, procurement, brand name, etc. in order to effect economies while retaining the goodwill of JM’s Diaspora customer base.

One can argue the pros and cons of different outcomes from the different ‘national’ interests concerned.
From the regional point of view however, a desirable model would be for CA, in acquiring JM, to simultaneously become a genuinely Caribbean (CARICOM) airline which (a) exploits the synergies available from combining 14 separate national jurisdictions for operation of extra-regional routes; and (b) helps to integrate the region by providing a reliable, competitively priced service for intra-regional transport.
On the face of it there should be synergies from combining the Eastern/Southern
Caribbean/Mainland South American network of CA with the Western/Northern
Caribbean/North American network AND Central American potential of JM; into a
‘Caribbean Airlines’ family; with strategic advantages derived from this network.
A ‘genuinely regional’ airline implies ownership by CARICOM governments and the private sector; but operated along business lines and insulated from political interference. This is a tall order because of the culture of governance implanted in the region. There is also the question of the relationship with LIAT.
Ideally, therefore, CA acquisition of JM should be used as a stepping stone to establishment of a truly Caribbean airline; or Caribbean Airlines Group (as distinct from a company). LIAT and Bahamas Air could be potential participants in this group.
The BIG question is: Can a networked Caribbean airline at one and the same time
(i) serve regional interests for intra-regional and extra regional travel, (ii) meet the competition from low-cost no frills airlines and (c) be profitable?
January 11, 2010.