What is wrong with the regional state owned airlines?
What is wrong with the regional state owned airlines? The latest to claim difficulties is Bahamas Air. It is only the latest among the government financed air lines to incur a string of losses. The problems of HAT are legendary, Air Jamaica is almost out of business, BWIA is no more and now Bahamas Air. The government owners of LIAT have repeatedly sought to save that regional airline from bankruptcy. The management has changed, the staff was reduced and now LIAT has even absorbed another airline in its most recent metamorphosis. It has received several cash infusions or bailouts during its fifty-year history.
Despite the cash infusions, MAT was nearly bankrupt in 2002 and by July 2006 it needed $24 million. It has made mostly losses during its lifetime and competition from the new entrant to the market, Caribbean Star made the situation even more difficult The State airline of Trinidad and Tobago, BWIA was founded in 1939 and acquired by the government in 1960. Like LIAT it has made mostly losses, only showing profits in 1999 and 2000. However by 2003 it was under such financial difficulties that its viability was uncertain. The government of Trinidad and Tobago formed a committee to study recommendations on the future of the airline. The decision they arrived at required the government to provide $250 million dollars to close the airline and make severance payments and form a new company.
So BWIA is no more and out of it has emerged Caribbean Airlines. A Caribbean Development Bank report says that of the $250 million provided the greater part was used to pay suppliers and settle debts. In fact only 85 million dollars went to the airline itself. It remains to be seen whether the new LIAT and the new Caribbean Airlines will begin to perform profitably. Meanwhile in the northern Caribbean, the government of Jamaica's carrier Air Jamaica is also desperately in trouble. From 2001 the airline has made US $50 million in losses. At one point Air Jamaica changed its marketing strategy to emphasise quality service. It began serving champagne on flights and giving fashion shows to its passengers but even the International Monetary Fund recommended that the government close down the losing airline. It seems that the government of Jamaica has finally reached that decision for it has announced its intention of divesting its holdings in the airline by March 2009. The airline has tried to restructure by cutting unprofitable routes, but the government has declared that it is a "drag on the budget." Its losses have sometimes reached as much as US $398 million over time.
Are the airlines making losses because they are owned by governments? It does not seem so.
Air Jamaica made huge losses when it was controlled by a private sector group which sold it back to the government in 2005. Nowadays rising fuel costs would be a strain on all airlines irrespective of their ownership. Those airlines which make long haul flights from Jamaica or Trinidad to New York, Toronto and London would have high costs eating into whatever revenues they earn. In fact, all the airlines including the smaller ones like LIAT would have seen their costs increasing for the same reason. The regional airlines like the international airlines saw sharply reduced passenger loads after the September 11* attack in the United States.
Tourist arrivals by air decreased and even large companies in the industry like American Airlines had to receive assistance from their government to ensure their survival. Airlines generally had a difficult time for a couple of years. Competition was also a factor in their poor performance. There was it seems, with hindsight, not enough room in the market for two airlines such as Caribbean Star and LIAT running the same routes. They have also lost their market share to larger, better financed American and European airlines. Even among themselves, competition on the same routes by BWIA and Air Jamaica led to the Jamaican airline removing itself from those routes.
The population size and the size of the traveling public can also affect profitability of routes. As government owned airlines, they tend to continue to provide routes which are unprofitable and uneconomical but important to citizens. I would like to guess that some of their problems resulted from expensive and numerous labor costs. Air Jamaica paid very high salaries to their pilots; others had hundreds of workers especially in countries which acted as their home base.
The airlines also seem to have recurring industrial action problems as well, especially sick-outs and strikes. Perhaps at one time, they kept fares reasonable on economical routes, again because their government owners would wish to see some service rather than no service to areas and islands that would lose their air link otherwise. It has to be said though that the airlines have in many cases provided poor service with chronically late flights and lost baggage, cancelled flights and often long delays.
Where the passenger has alternatives he would avoid such inconveniences. Nothing really seems very optimistic about the airlines and their operations. For passengers who often have few choices, we hope that all of the latest restructuring or sell-outs would finally create something better.
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