April 8, 2007
By: David Jessop
For more than two decades, the region has been searching for a viable aviation policy.
In the process individual governments have sought to limit routes, control schedules and fares and find ways to develop national carriers.
The consequence has been that national self-interest has triumphed over regional integration and huge sums of money – some suggest as much as US$1.5 billion – have been spent on subsidising and restructuring national or sub-regional carriers.
In recent months, the Caribbean aviation sector has once again been in a state of flux: BWIA, Trinidad’s state-owned national airline, has been replaced by a slimmed-down variant in the shape of Caribbean Airlines; LIAT, also government owned, has merged with a private sector-owned rival, Caribbean Star; Bahamas Air has returned from private hands to government control; and the future of government-owned Air Jamaica has once again become the subject of speculation.
While all of this has been happening full-service airlines from beyond the region have been seeking ever greater subsidies to maintain a service or to guarantee capacity while low-cost and ultra low-cost carriers have begun to explore how they might extend services into the region from North America and Europe.Towards a single economic space
In short the Caribbean is proceeding towards a single economic space, the CARICOM Single Market and Economy (CSME), without a coherent long-term aviation policy or any consensus on how a viable private sector-operated regional carrier might be created from the loss-making entities that make up the Caribbean aviation sector.
Part of the reason for this is that Caribbean governments are cautious about the political implications of the physical isolation of citizens and the economic consequences, not least for tourism, of any rationalisation ofair services.
As a consequence, national and regional airlines remain subject to a restrictive regulatory environment and are heavily subsidised, whether government- or private sector-owned, while external carriers are incentivised to continue to fly into regional airports and provide the seat guarantees that small states depend on.
Liberalisation of aviation
Despite this there is clear evidence that a well-considered liberalisation of aviation in other parts of the world has resulted in an expansion in services, increased competition, lower airfares, and increased reliability of service.
While the United States and the Europe Union provide prime examples of the economic benefits of domestic and inter-regional air services liberalisation, there are other models much closer to home. Nations that more closely parallel the Anglophone Caribbean, including Mauritius, the Dominican Republic Aruba and Chile have shown that an increased and reliable airlift can be achieved at negligible costs to government.
What is surprising is that the case for a reliable, efficient and cost-effective transport system run on private sector principles has not been more widely promoted as being central to the development of the CSME.
In a long overdue response to the problems of Caribbean aviation, Caribbean heads of government agreed in February to convene an urgent meeting of COTED (Council on Trade and Economic Development) while urging the creation of a regional air carrier on a commercial basis and the introduction of a private sector-led fast ferry inter-island service.
Late last year the Caribbean Tourism Organisation (CTO) received a study that looked at options for promoting sustainable regional air services. This sought to provide Caribbean governments with policy advice by identifying the steps necessary to establish an effective air transport system that would enable the implementation of the CSME and enhance the regional tourism economy.
The report, which has still to be considered, made a number of recommendations.
It proposed that Caribbean governments should adopt a regional open-skies regime as the ‘aviation corollary’ to the CSME. This, it suggested, would allow more efficient and profitable operation of regional airlines by allowing them to ‘find the optimum mix of destinations within a framework of fairer competition’.
Second, it suggested that unserviced or unprofitable routes could be subsidised within agreed parameters.
Third, it recommended that the Caricom Multilateral Air Services Agreement should be amended to enable the creation of a single economic space, be extended to non-Caricom regional countries and allow for the Caricom Competition Commission to have jurisdiction over unfair competition disputes.
Fourth, it suggested that Caricom negotiate ‘open-skies’ agreements for international air services with the U.S.A., U.K. and others that allow for a ‘community of interest’ designation for Caricom airlines so that regional airlines have a reciprocal opportunity to compete.
Fifth, it recognised the legitimate concerns about the sustainability of inter-island air services in the Eastern Caribbean if the market is liberalised and argues for the retention of public-service obligations. It suggested that this should not result in generalised financial subsidies, but in a flexible policy that grants, where necessary, subsidies to airlines for selected routes and services that cannot be sustained.
And finally, it argued for the creation of a new regional airline or airline-holding company based on commercial principles and an effective regional aviation policy capacity based on international best practice.
Whether every Caribbean government is yet prepared to go this far is uncertain.
So much so that there are now indications that at least one Eastern Caribbean island may very soon act unilaterally and adopt an open-skies policy that would permit airlines from outside the region to carry freight and passengers on to other destinations in the belief that this competition will encourage new routes, lower fares and the island’s role as an aviation hub. It may also go further and establish a competitive fast ferry service able to transport passengers and freight on a roll-on, roll-off basis to up to five neighbouring islands.
A single economy cannot flourish if communications remain difficult and expensive. If the CSME is to succeed, a far more liberal, private sector-friendly but socially conscious regional aviation policy is required.
David Jessop is director of the Caribbean Council. Email: email@example.com