The Caribbean Airlines merger with Air Jamaica

The following is a post written by Tourism Development Company (TDC) Marketing Consultant and Trinidad & Tobago Guardian columnist Derren Joseph on the proposed acquisition of Air Jamaica (AJ) by Caribbean Airlines (CAL).

A Caribbean Airlines plane flies in to Crown Point International Airport, Tobago. 

Photo: Giancarlo Lalsingh, published in Discover Trinidad & Tobago 2010

Is the merger a good or a bad thing? I propose that this question is best answered by analysis of the key issues rather than speculation. For those interested in this topic, the best column so far has to be the one from William Lucie-Smith done a couple weeks ago in the Trinidad Express. Before I proceed I thought I should disclose that I am in no way connected to CAL or AJ, but I have previously held relatively senior positions with CAL, British Airways and Thomas Cook. So I am somewhat familiar with the travel industry including aviation – particularly in Western Europe and the Americas.

There are five "Airline Myths" that I would like to first address.

Airline Myth #1 – the aviation industry is at the mercy of normal market forces. It is not. In my opinion, there is no airline in the “West” that does not enjoy some measure of state support or protection. Governments influence airline behaviour through a dizzying array of legislation, taxes and subsidies. Whether it is a law in the USA mandating that an airline be 75% owned and controlled by US citizens (ask Virgin America) to operate, to landing rights, landing fees, traffic rights, restricted competition on routes, preferential slots, preferential terminals, seat guarantees, tax concessions, etc.

Airline Myth #2 – the governments suddenly want to merge airlines. Again this is wrong. As far back as April 1969 Kamaluddin Mohammed, then Minister of West Indian Affairs, spoke about efforts “being made to have BWIA designated the Regional Air Carrier with participation by the other regional governments”. The number of CARICOM and Caribbean Tourism Organisation (CTO) reports done on this are probably too numerous to mention.

Airline Myth #3 – state owned airlines, almost by definition cannot be run efficiently and profitability. Obviously wrong considering the historical performance of Aer Lingus (Ireland), Emirates (Dubai) and Singapore Airlines. Of course, I qualify this with my response to myth #1. Regardless, CAL’s on time performance and customer satisfaction levels since its launch speak to it heading in the right direction.

Airline Myth #4 – there is no local/regional talent and we need foreigners to do everything. LIAT’s Jean Holder wrote that there is no shortage of talent but suggests that the reason behind the apparent lack of implementation of consultant recommendations lies in regional political realities.

Airline Myth #5 – Barbados doesn’t have a national carrier, why should we? Holder suggests that prior to 2007, BWIA operated “in many ways as the national carrier of Barbados and under the Community of Interest Principle of 1983, also as that of other Caribbean countries”. Since 2007 (when BWIA closed), I suspect that Barbados has increased its “incentives” (see myth #1) to encourage increase capacity from North American and European carriers.

Now regarding the merger, I have no clue what the details are beyond the speculation in the press but there are three reasons why I think it should be seriously considered.

Reason #1 – the press has reported or speculated that to consummate the deal, there would be no need for a cash injection from CAL and the AJ debt burden would remain with the Jamaican government.

Reason #2 – the 3 biggest costs for any airline are its fleet including fuel, staff and distribution costs. This deal, as reported, may provide the opportunity for rationalising two of these three costs. Fleet costs would go down once they harmonise equipment, i.e. they decide to use one type of aircraft which positively impacts on maintenance costs and allows for better cross utilisation of crews. Distribution costs would decrease if they manage and sell all inventory from a single global distribution system. A lower cost base should benefit both shareholders (less state support needed) and consumers (both regional and international).

Reason #3 – not only does this deal take us one step closer to thinking regionally but it creates a mechanism for facilitating greater regional integration and development. This of course leads us to the biggest potential sticking point.

The biggest potential obstacle to realising the full range of benefits from the reported merger would be the absence, as far as I am aware, of a single CARICOM/CARIFORUM level aviation policy. Such a policy would not only address technical issues and its implications for airline operation but it would also define the role that air transportation plays in our regional socioeconomic and political development.

This is the context within which I see the proposed merger. 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 our country, as we move towards Vision 2020.

Republished with permission. The views expressed in this post do not necessarily reflect those of MEP, its staff, or its publications.