Pricing airfare below real costs sure way to bankruptcy – says LIAT Chairman

ANY airline seeking to operate intra-Caribbean routes by offering low airfares which do not reflect the real costs of the carrier will fail. This is particularly so if their operations are not subsidised.

The contention was made by Chairman of LIAT , Jean Holder, during his opening remarks at a press conference held last Friday in Antigua. Holder, who’s been chairing the company since 2004, argued that contrary to what was being thrown around in discussion, the real barrier to private sector airline competition entering the region was not LIAT or any policy of LIAT’s shareholders, but the “realistic fear of failure”.

He cautioned against the rationale of price wars, adding the perception that competition leading to lower airfares would solve the woes of the aviation industry. Rather, using the examples of Caribbean Star, Caribbean Sun and REDjet, pricing far below real costs would result in bankruptcy and severe loss to investors.

Currently, Holder argued, the operations of all Caribbean carriers offering fares not covered by their commercial costs, were subsidised on an annual basis by their governments.

Said the Chairman, “From 2000, Caribbean Star, and from 2003, Caribbean Sun, owned by Alan Stanford, competed head to head with LIAT on price. As a direct result of these price wars, both airlines haemorrhaged cash and were in danger of going out of business. In 2007, after Stanford’s
airlines had lost some Bds$660 million, he approached LIAT to discuss a merger.”

Holder further noted that those negotiations ended with LIAT taking over his assets with the help of a loan provided to the LIAT shareholders by the Caribbean Development Bank.

He maintained that persons or entities looking to get into the region’s aviation business should instead invest in LIAT.

“[We] have stood the test of time [and] I am confident that this would lead to us having an airline which will perform successfully both in and outside the region,” he posited. (RA)