By Max Lambie, Contributor
AIR JAMAICA'S recurring need for emergency government and bond-issue financing indicates that a permanent solution is overdue, as the nine-year effort to be self-sufficient has been elusive.
Whereas the operations and service quality has had an unparalleled turn-around since divestment in November 1994, not much has been done about straightening the basic economics of the airline. To be sure, its current financial problems has been aggravated by the post '9/11' financial fall out that has afflicted large US carriers such as American and United airlines.
It is also a fact that BWIA is undergoing similar problems. But the vulnerability of both Air Jamaica and BWIA to every ill-wind known to the industry was there long before '9/11' and in fact Air Jamaica's loss of Caribbean-destined passengers is much less than the US based American, Delta and United airlines.
Back in 1993, this writer sat up to eight hours a night extolling to Chairman Gordon Stewart how important it was to rescue Air Jamaica for the benefit the island's tourism industry. That conviction still holds.
In fact, one missing strategy for solving Air Jamaica's financial dilemma is to devise a formula that accepts the reality that Air Jamaica will not be financially viable any time soon. It will forever need to be subsidised. The question to be established is how much subsidy does Air Jamaica deserve? The answer to this query should equate the amount of subsidy Air Jamaica permanently deserves with the amount of tourism that it by itself generates for the country.
Air Jamaica's problem can be applied to most national airlines in the Caribbean and Central America, according to airline expert Robert Booth. In the August1993 edition of Latin Trade, Mr. Booth wrote: "All across Latin America, airlines are scrambling to cut costs, streamline operations, form alliances and focus on niche markets."
Almost overnight, the invasion of Latin America ,through its Miami hub, has virtually transformed the region's aviation industry.
There has been a spate of suggestions, that Air Jamaica's problems could be solved by a merger or cost sharing with BWIA. None of the advocates, however, have made the technical analysis that shows that such a merger is feasible.
But the article that comes closest to presenting technical analysis of the problem is the article by Al Edwards in the Financial Gleaner of May 30 entitled "Can Regional Airlines learn from British Airways?". The article enumerates a seven-point retinue of operating strategies that BA has used to increase profitability even in the anti-airline scenario of post 9/11. Skeptics might be quick to overlook this powerful article as being applicable only to mega-carriers. But that would be a case of tunnel vision.
Granted, BA is a giant compared to Air Jamaica. But there are operational strategies that has permitted BA to achieve profitability even in an otherwise bad year for the travel industry that should be a formula for both big and small.
(1) airlines of all sizes should develop partnerships with both large and small carriers,
(2) rigorous cost-cuttings and manpower economies,
(3) explore low-competition short-haul routes where higher revenue yields can be had ,
(4) configure fleet with a strategic mixture of planes (such as narrow-bodied and commuter-jets) to permit entry into smaller routes.
There are two distinctions that should be made between Air Jamaica and BA, however.
Al Edwards uses the words "regional airline" to refer to AirJ and BWIA. But a regional airline cannot achieve the economies of scale and opportunistic routes as BA has done.
BA, though the de-facto national carrier of the United Kingdom ever since its divestment and take-over by ex-Avis market whiz executive Colin Marshall in 1992, has ceased to be the 'British only' airline and has been transformed, instead, into what Marshall calls a 'Global Airline'. BA has achieved high seat occupancy exceeding 80 per cent compared to 69 per cent for the internationals by finding routes wherever in the world the demand can be found.
Singapore airlines, too, has done the same thing. Air Jamaica has neither the resources or available routes to follow the regional or global model. Even in the Caribbean, the intra-island travel is too small to make it profitable for integration of regional carriers.
Latin American airlines now recognise the dangers of going into international markets by concentrating on what the Bolivian CEO of Aerosur Carlos Gonzalez Wiese calls 'niche markets'. He says: "We don't compete in the international market as much as Air Jamaica does. Our strategy is to be a complimentary airline domestically, and a feeder airline for major foreign airlines."
In practical terms, Latin feeder airlines take passengers back and forth to Miami and achieve transfers to partners in a smooth manner that is as easy as if it were the same carrier.
Oliver Johnson, President of the Barbados Tourism Authority, suggests "consolidation in routes, common fleets and sharing of maintenance" of Caribbean airlines. As far back as 1993, TACA CEO Robert Bloch predicted that "there is no way the small carriers of the small countries were going to be able to survive if we went it alone".
The basic reason that Air Jamaica has no merger partners is adverse geography. The distances between Jamaica and Trinidad are too great and the dispersed island markets too small to permit synergies expected of mergers. In fact, a cursory study shows that the financial problems of both carriers could be further exacerbated .
Those who extol the Caribbean common market fail to recognise that this is an impractical goal as the US mainland and Central America is much closer to Jamaica than Trinidad or Barbados. The average distance of 1,100 statue miles between Jamaica and Trinidad is twice what should be economical for a regional airline. There are two merger candidates that operate within a 500-mile radius of Jamaica. One is ALM and the other TACA. ALM operates on an east to west minor trunk route of Virgin Islands to Panama but is not interested in penetrating the US gateways.
The prime candidate, then, is the much acclaimed TACA group that is the 1993 merger of the national airlines of Guatemala, Nicaragua, Honduras, Costa Rica and El Salvador. Its CEO Bloch is considered one of the leading creative airline marketers in aviation. He has achieved in the Caribbean/Central America what Southwest Airlines has been able to do in the United States. That is, be small yet achieve profitability by avoiding head-on competition with the mega-carriers American and United Airlines.
There is much to be learnt also from the merger of American and Aero Mexico. Consultant Booth says that "The TACA model is the wave of the future". There are many synergies that are not that practical, especially in meeting seasonal and equipment usage. If Air Jamaica does not find a merger partner it may ultimately have to become a feeder airline. That possibility is workable without threatening the lift-capacity for Jamaica's tourism industry.
