Hard business to make a buck – LIAT’s CEO: Difficult for airlines to make a profit

CHIEF Executive Officer of the longest standing airline in the Caribbean has laid some figures on the table to dismiss claims of price gouging in the industry. LIAT’s head, Ian Brunton, pointed out that contrary to popular belief, the aviation industry is very expensive to maintain and as a result it difficult for businesses to stay in the black.

Sharing his views during a recent panel discussion on aviation, which was broadcast  on the CMC channel last week, the former boss of Caribbean Airlines asserted that worldwide the industry has been experiencing negative profit margins for the past 30 years, and that since 2002 figures were in the red by 2.2 per cent.

Hugh Riley (left), Secretary-General of the Caribbean Tourism
Organisation, and LIAT’s Chief Executive Officer, Ian Brunton.

“Airlines are right at the bottom of the value chain. They take all the risks and make a negative return. The people at the top are the distributors, the GBSs [aviation maintenance companies] who are making 15 to 20 per cent profit. Airlines take the risks, there is the safety and security aspect... it is a difficult business,” he said.

Brunton explained that the Caribbean was not any different and that it was a big struggle to keep operation safe and timely, whilst ensuring shareholders some return on investment.

He painted a picture of killing taxes, pointing out that at least 30 to 50 per cent of the ticket costs went to governments alone in the from of aviation taxes.

Given the fact that the majority of the region’s airports were state-owned, he did concede that one could not label the large portion of fees and taxes as unfair, arguing that it took money to keep the infrastructure safe and ensure that all the navigation and security requirements were being adhered to. In addition to that, the region did not experience the levels of through puts (inbound and outbound travel) experienced in larger destinations, which would have helped to mitigate such overhead costs.

He also disclosed that aircraft maintenance for LIAT accounted to 18 per cent of its overall cost which amounted to EC$50-$60 million yearly. That figure excludes labour cost.

Referencing a 2008 study benchmarking Caribbean routes against North American and European routes, Brunton stated that regional carriers airlines like LIAT earned approximately 44 per cent less revenue on the ticket prices. The surcharge like fuel cost were 86 per cent less in this region and taxes and fees accounted for 61 per cent more than in benchmarked territories. Regional airlines, he suggested “are barely staying afloat, trying to keep our prices down and our fares less, they only seem higher because of the large amount of fees and taxes that have to go on”. (RA)