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Commentary: LIAT threat to shrink Caribbean airline network
Published on March 17, 2014 Email To Friend    Print Version

By Robert MacLellan

The board of LIAT airline is clearly feeling the pressure of mounting ongoing criticism of its consistent inability to achieve a stable business model and to provide a vital intra-regional air service in the Eastern Caribbean on a reliable basis.

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Robert MacLellan is CEO of MacLellan & Associates, the largest hospitality, tourism and leisure consultancy based in the Caribbean. He has nineteen years experience in the hospitality industry in the Caribbean and was a cruise ship hotel officer and vice president, hotel services, of a cruise line earlier in his career.
Unfortunately, the announcements of 6th March from the LIAT chairman, Jean Holder, strongly suggest a strategy still devoid of any coherent business sense. Take on huge investment in multiple new aircraft but then shrink the airline’s network? “Passing strange” and “wondrous pitiful”, to quote Shakespeare. If, instead, this is Dr Holder’s idle threat, designed to panic other regional governments into investing in an airline with such a tarnished reputation, then that also is a strategy likely to fail.

Investors seek companies with proven management expertise. Yet, in his 100-day strategy announcement last week, Dr Holder stated that the current directors and senior management have invited “some experts” to undertake route analysis of the LIAT network. Outside consultants are needed for a basic management task -- even after 57 years of LIAT operations? No wonder there are accusations of amateurism in LIAT management and no wonder years of persuasion by Dr Holder have failed to elicit much new investment in the airline from other governments in the region.

Over the years, one of LIAT’s competitive advantages, which it still failed to exploit strategically for further growth, is the economy of scale to be derived from a fleet of 19 aircraft. That size of fleet has always dwarfed most new competitor airlines in the region and, at least, allowed LIAT to drop fare prices for long enough to put the new players out of business.

If LIAT shrinks its route network and its fleet, as Dr Holder is threatening, then that competitive advantage is lost and with it there is an increased likelihood of LIAT’s demise at the hands of today’s many and growing competitors, all of whom already serve some of the current LIAT network.

Jet Blue continues to take over many of American Eagle’s former island routes out of San Juan. CAL is expanding its routes from Trinidad northwards and Seaborne is growing its network south through the islands. Winair is expanding from its St Maarten base and BVI Airlines has just announced that LIAT is a target in its expansion under new wealthy ownership. Real competition is brutal and the wolves are sensing and circling the wounded LIAT prey.

There, finally, seems to be an understandable sense of panic at LIAT but most observers doubt that the current airline’s directors and management can devise an effective survival strategy. This time the debt is too big and the previous financial lifeboats are leaky.

The litany of mistakes and mismanagement at LIAT has accelerated in recent times. The ultimate price may yet be paid for the continual churn of CEOs and acting CEOs, the poor planning, the excessive staffing levels, the poor marketing and the loss of business volume. LIAT employees are openly calling for the dismissal of the airline’s senior management.

The latest and potentially fatal error is the disruption and expense of converting the LIAT fleet over to different aircraft -- brand new ATR planes, which cost around US$20 million each and which the loss making airline simply cannot afford.

Possibly due to better maintenance, Air Canada’s Jazz subsidiary continues to operate the same two types of Dash 8 aircraft as LIAT, even though the Canadian fleet is several years older and flies in difficult weather conditions. If some LIAT aircraft had to be replaced, slightly newer Dash 8s are readily available on the secondhand market. The 34 seat SAAB turbo prop aircraft, recently purchased secondhand by Seaborne to compete with LIAT, cost around US$4 million each. These comparisons are so stark that there is little need for a detailed knowledge of aircraft maintenance costs or seat-cost-per-mile operating economics.

A sudden collapse of LIAT operations due to seizure of aircraft by creditors, as reportedly nearly occurred in January this year, must be avoided. That would certainly be disastrous for LIAT and leave no value in the company. However, it would also be disastrous for the Caribbean Development Bank, as senior lenders, and be equally disastrous for the wider economy of the Eastern Caribbean – at least until competitor airlines could fully take over LIAT route capacity.

Many in the region are prayerful for the airline’s salvation – but who is going to save LIAT and when is Dr Holder going to be held accountable for his ten years of LIAT stewardship?
 
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