Caribbean Airlines Ltd (CAL) will no longer have the benefit of government-subsidised fuel effective October 1. The subsidy for the Tobago air bridge will, however, remain.
In his Budget presentation yesterday in Parliament, Finance Minister Larry Howai said the debt-ridden State airline must move towards the adoption of a financially-sound business model for positioning the airline in targeted segments of the global tourism market.
“The new CAL board has completed the first phase of a revised business plan for the airline to achieve financial viability. The subsidy for the Tobago airlift will remain. These factors have been incorporated into the business plan which I expect to receive on September 17, 2013,” Howai said.
The fuel subsidy for CAL is estimated to be $300 million.
Howai said he had been assured by the board that there will be no impact on ticket prices.
“What is anticipated and consultants have asked us to do is design our business model around that assumption, so all the procedures and options put in place are designed to be sustainable and viable without a fuel subsidy,” Caribbean Airlines communications director Clint Williams told the Express in a brief telephone interview.
“At the end of the day it really does not matter because if the airline finds itself in difficulty the State as the owner will have to put money in,” former People’s National Movement government minister Conrad Enill said yesterday.
He said CAL should be a viable entity because when it was established in 2007, it was set up on the basis to have reduced cost and greater efficiency. If it followed that model faithfully, he said, it would have achieved its objectives and been able to stand on its own.
“CAL today should be a company operating with a good cost structure so the need for money from the State should not be an issue. In those circumstances what it means once the subsidy comes out then the airline should be able to pay for that from internal profits,” he said.
He said the airline will have to be more competitive and get its cost down while delivering a better product to the consumer.
“The consumer has a lot of choices so if prices become uncompetitive it will start to suffer losses,” Enill said.
Economics lecturer at the University of the West Indies Dr Anthony Birchwood said he suspected Howai’s announcement came as a response to arguments from other Caribbean islands that the fuel subsidy was harming regional airline LIAT.
“Because of regional integration he has taken a Caricom position. How successful that will be is another question because fuel is a large percentage of an airline’s cost. Removing that subsidy and then saying there will not be a rise in ticket prices how can that be? Because it will have to be that you are subsidising the ticket price,” he said.
Howai also announced the introduction of two new airlines to the country, low-cost American-based airline Jet Blue from July 2014 to Trinidad, and Greek airline Apollo Airlines will soon launch flights from selected cities in Europe to Tobago.
“I’m not sure what sector these airlines will be competing in but hopefully not directly with CAL, who still has to deal with the burden of Air Jamaica,” he said.