CAL’s London challenges…
By Vernon Khelawan Thursday, June 28 2012
NOW that the howls and hoots over the launch of Caribbean Airlines’ (CAL) new London route via Gatwick International has subsided, the airline has to now deal fully with the many challenges facing its operations on the transatlantic service.
Because the airline is experiencing some serious financial challenges the launch of the new service two weeks ago, was for all intents and purposes a carefully planned, low profile, no frills event, but it did attract major press and most of the airline’s senior executives as well as the former line minister, Senator Devant Maharaj.
Adding to its many current challenges – impeded cash flow; airplanes for which it cannot now readily pay and two large jets sitting in Mexico which cannot be brought into service, but which lease fees have to be paid — and still undergoing the effects of new chairman Rabindra Moonan, who is still getting settled in and acclimatised to his new responsibilities of running the State-owned airline, comes the announcement from Prime Minister Kamla Persad-Bissessar last weekend that brand new Finance Minister Larry Howai will be the man responsible for the cash-strapped carrier.
The ex-minister, speaking to the press on the occasion of the launch, did not mince words when he warned the airline’s management team that should the service not meet its profitability goals within the prescribed period (one year)it could mean “goodbye London” again. In spite of this statement however, Minister Maharaj hit an optimistic note when he said that British Airways reduction of its flights to the southern Caribbean, could mean better load factors for CAL.
Even more optimistic was Chairman Rabindra Moonan, who gave the assurance that Caribbean Airlines would make a turnaround on this route. “There would be no last flight to London,” he boasted. Whether Minister Howai will respect these predictions is a question that would certainly come up whenever the board, management and Mr Howai meet, as must they would.
But the rationale of the decision-makers at the airline relative to the London service defies business logic, moreso as the London service was really a dream of former chairman George Nicholas III, calmly accepted by an obviously intimidated board. It is a well-known fact in the aviation world that airlines based in the Caribbean have traditionally under-performed, since the complexity of operating a small fleet of wide-bodied aircraft tended to stifle profitability.
Even more perplexing however, are statements by government officials and board members that they know the service was going to lose money. Initially it was put at two years, but subsequent pronouncements kept changing that forecast, first to 18 months, then 12 months and most recently nine months and that was after it became known that the airline would have to wet lease an aircraft to operate the service, while at the same time paying for two-wide-body jets that it cannot now use because of oversight problems affecting certification of the aircraft.
The precedents are there and the history is there. BWIA serviced London through Heathrow for decades, but always lost money except for the years the service was operated by the L-1011 TriStar. The discontinuance of the TriStar and the introduction of the four-engined Airbus-340, the losses returned.
Air Jamaica, which is now owned by Caribbean Airlines, lost heavily on its Kingston-London Heathrow service, which it discontinued in 2007, the same year Caribbean Airlines was introduced to the aviation fraternity. The year before that (2006) Air Jamaica lost (US)$27 million and that was projected to increase to (US)$30 million in 2007, should it have continued operating the service.
And while there might be some argument that the fuel subsidy enjoyed by CAL would go some way in mitigating the expected losses, there is the question of competition. British Airways (BA) now operates six weekly flights between London Gatwick (LGW) and Port-of-Spain, via St Lucia and to Tobago via Antigua, providing some 6000 plus one-way seats from London to the Caribbean through September. And while CAL could bite into that by luring passengers who would prefer non-stop flights, there is no certainty it could achieve that break-even load factors and that could prove quite challenging.
Caribbean Airlines, which originally talked about four flights per week, but this has been reduced to two, with the possibility of a third sometime in the future. Is this enough to ensure the route becomes profitable?
The experts, outside of CAL, seems to believe it would have been better to work with a codeshare partner that feeds into Trinidad and Tobago. The better deal therefore, would have been to codeshare on the London service with high brand recognition in the United Kingdom, where most of the traffic would originate, rather than incur the substantial startup expenses, including branding, distribution and sales, flight crew training the carrier has already spent and adding another fleet type to its existing three type fleet.
Airline officials, while not willing to disclose the millions already expended in the run-up to the launch of the London Gatwick service, seemed convinced that two flights to London per week would help the airline out of its present financial troubles, but the pundits of the aviation world all have a different view.
Caption. New line minister. New Finance and Economy Minister Larry Howai (right) and Trade and Industry Minister Vasant Bharath (left) at Knowsley on Monday. Howai is the new line minister for Caribbean Airlines.
PHOTO BY SUREASH CHOLAI