CAL's flight into the black

Caribbean Airlines Ltd (CAL) is not profitable. It has not been for years. This fact was bluntly stated by the state carrier’s new chief executive officer, Garvin Medera. The company, Medera says, acknowledges and accepts its fundamental challenge—returning the entity to profitability while at the same time maintaining its mandate to service the air bridge, which is inherently a loss-making endeavour.

The company, he told Business Day in an interview last Wednesday at the airline’s Golden Grove Road, Piarco headquarters, has a two-year plan to get back into the black.

“Our plan is two years: 2018/2019. So, we expect by financial year 2019 to at least break even. We plan to reduce losses in 2018 and by 2019 break even,” Medera said.

So far, he said proudly, the company has made progress, especially in its technology department.

Tracking the company’s financial progress is complicated, since the last time it presented its books to taxpayers was in 2015, reporting a US$60 million loss for 2014.

Medera, though, gave some insight into the company’s performance over the last year. In 2017, CAL made a 57 per cent improvement in terms of profitability. (Profitability, in this case, isn’t making a profit, but making financial gains—or improving on losses.) In the first quarter of 2018, he added, the company’s profitability was 103 per cent compared to the same period last year. In January, CAL even turned a profit.

“We are moving from a position where we were making losses every year, and when you think about it, what we want to do is move to a position where we are in the black. Realistically that’s not going to happen in a few months— it’s going to happen by steadily improving bottom-line performance. We’ve started in that journey,” he said.

Medera acknowledged the burden CAL currently has on the taxpayer, but he said if the company can maintain its current trajectory, it can have a positive story to eventually tell.

Government’s subsidy to CAL is $37,049,090, up from $35,043,800. Most of that goes towards fuel, primarily to subsidise the inter-island air bridge. Given the importance of the air bridge, CAL’s line minister, Finance Minister Colm Imbert told Business Day that he is “quite prepared to assist CAL with the cost of the air bridge.”

“CAL does not make money on the air bridge. We charge TT$300 for a return ticket. The break-even fare is $550 (on an ATR). That’s a significant loss on every flight. The Government subsidises those tickets partially ($100), the rest CAL absorbs in terms of financial performance,” Medera said, elaborating on Imbert's point.

Since there’s not much CAL can do to mitigate the cost of the air bridge (its price is set by Cabinet), the company has to find new ways to improve efficiency. It’s doing that through technology. Some of these improvements include insourcing its website, which has saved US$11,000 a month. It’s also made changes to its Type B messaging system (how airlines share customer information between stations), saving an estimated US$60,000 to $90,000 a month.

“We’ve reconfigured that and now are saving US$1 million annually,” he said. Other cost management efforts include fuel management, general spending— for example, meals and other services. But key, he explained, is “optimisation,” where the airline is looking to reduce expenses in some places, and increases them in others.

Two main spending areas are marketing and branding, and hiring. Regarding marketing, he noted CAL’s increased visibility during peak seasons like Carnival throughout the region, new routes like Cuba, as well as new promotions and products, including an island hopper ticket that allows passengers to travel to as many as five Caribbean islands all on one CAL ticket. It’s also using technology to improve its scheduling and revenue management for ticket pricing through analysing customer trends to determine when and where its best performing routes are. Medera noted there are profitable routes currently for CAL, but he preferred not to discuss them.

“It’s about market dynamics and becoming agile to take advantage of opportunities,” he said.

We need the best

In terms of hiring, Medera was quick to defend the airline’s policy and stressed the importance of creating a sustainable, stable and capable team at CAL to help it grow. He’s also come under intense scrutiny since several new hires—including a controversial general manager of cargo who has no experience in that field—have come from Medera’s previous stomping ground, Digicel. Before moving to CAL, Medera was the chief executive of Digicel Play. Two weeks ago, the airline was skewered by a Joint Select Committee of Parliament who questioned the company’s hiring practices.

“Just to be clear, this is not a team I assembled. I’ve only been on the hiring panel for three of the new hires, because they report to me,” he said, adding that initial interviews went through the company’s human resource department.

There have been several vacancies—over 100—he said. He has approved hiring 60 people, and so far, the company has hired 30. There are 30 more to go in this first batch, including pilots and marketing people. Most of the new hires so far have been in technology. Eleven have come from Digicel.

“We are building a technology function that can do a lot of things. This team has already generated US$1 million in a year, so they’ve already paid for their salaries over. We’ve proved that by bringing in these people we have generated value,” he said.

It’s the same, he claimed, for the general manager of cargo. The role involves overseeing CAL’s cargo operations at all its destinations in the Caribbean and North America—wherever the airline flies. Medera said CAL needed someone who was strategic and entrepreneurial—a manager who understands what it means to run a business. Since the new appointment, Medera said, the sector—traditionally a major earner for airlines, but not for CAL—has improved.

He also justified the position’s TT$71,000 monthly salary. It’s less than what the previous person who held the role was paid, he said, and is on par with the lower end of what the company’s senior managers are paid. Medera also noted that this position was last filled in a permanent capacity in 2016, which made it difficult for decisions to take place.

“The people we are bringing on have to be the best. We are a small country. Looking for a small skill set makes the pool even smaller. We are committed to bringing in the best. I don’t want to be prejudiced to say someone can’t work at CAL because the CEO worked (at the same place they did) before,” Medera said.

The last publicly listed wage bill for CAL was about $460 million for an average of 1,600 employees, presented in a JSC for 2014. Medera, while unable to give the exact figures, said it’s not that high now. He also reminded that that was before his time. He’s only six months on the job, and while he does not shirk the responsibility for owning up to the public, he pointed out that it was a different time.

“Moving forward, the way I see it, we have a choice. As a business we have to invest and grow or stagnate and decline. I choose to grow. Every person we put in place to improve the company’s structure has to be backed up by a solid business case with a return on investment.”