St. John’s, Antigua – Over three dozen “uneconomic” flights provided by regional carrier LIAT will be chopped next year – affecting more than a dozen Caribbean countries.
The decision comes as the severely undercapitalised airline embarks on a plan it hopes will rake in profits next year, instead of a repeat of the $20.2 million financial loss in 2010, the $43 million losses last year and the $23 million in losses projected for this year.
LIAT’s Chief Executive Officer (CEO) Ian Brunton told reporters yesterday, “There are really 18 countries that are affected by these routes and this is a cardinal principle that we are saying now. LIAT cannot afford to go on being a charity and losing the kind of money that we have to go back to shareholders and eventually the taxpayers to support the airline.”
While Brunton did not disclose the countries to be affected and the exact timeline the cuts will come into play, he said if the respective governments want to save the 39 uneconomic daily flights, they must offer financial support to the company.
He warned, “If you need them flown, do what every country does when they need that kind of flight, and that is to give financial support – commercial support – in order that the flight at least breaks even. We don’t want to make money off it but we want to be able to pay our costs on those flights.”
Brunton was keen to note that non-profitable flights rather than territories, would be dropped from the airline’s itinerary.
Though a relatively small airline, LIAT operates a total average of 100 daily flights to 21 destinations to include Anguilla, Antigua, Barbados, Canouan, Curacao, Dominica, Dominican Republic, Grenada, Guadeloupe, Guyana, Martinique, Puerto Rico, St Croix, St Kitts, Nevis, St Lucia, St Maarten, St Thomas, Vincent, Tortola and Trinidad. Some of the markets are very thin because the population in some of the destinations are below 100,000.
The CEO noted that because the fleet is aging, fulfilling that amount of flights per day is taking a toll on the airplanes and contributing to high maintenance costs. LIAT said its youngest aircraft is approximately 15 years and the oldest is about 23 years.
Brunton reiterated that apart from cutting non-flourishing routes, LIAT is also keen on renewing its fleet. Once the fleet is changed, Brunton said the company could save at least half the $40 to $60 million spent on maintenance annually.
He noted the airplanes were not maintained to the optimum level over the years as they were “overused”, resulting in “inevitable breakdowns and groundings to affect essential maintenance both routine and non routine.”
“Maintenance cost between $40 and $60 million a year and that is high. Older airplane assets can be as reliable and as safe as brand new airplanes but what it takes is double maintenance,” Brunton said.
To finance the refleeting project, the LIAT CEO said, “We are targeting a 20 per cent equity contribution; 15 per cent from the existing major shareholders – Barbados (49 per cent), Antigua & Barbuda (32 per cent) and St Vincent & the Grenadines (11 per cent) – five per cent from at least three new shareholders who wish to invest in LIAT (namely) Dominica, St Lucia and St Kitts.”
This means shareholder contributions will amount to just over $78 million, he said. St Vincent has already set aside $3.8 million for the project.
The airline official noted that if the carrier does not get that level of support from shareholders, it could embark on a back-up plan that has already been discussed.
“We can realise, with our own assets, US$24 million so it is not a major leap if we are disappointed with the equity but I think our business plan is so outstanding we will encourage investors. The remaining funds for the fleet will come via long-term commercial loan,” he said.
The airline projects it needs a total of about US$105 million to purchase six ATR 42s (aircraft) and cover costs incurred for transition, training and investments among other expenses.
The business plan projects that with the review of management structure and assets, it would make modest $7 million in profits at the end of 2013 and about $40 million in 2017.
In anticipation of the “usual” public criticism, the LIAT executive defended the airline’s decisions and said it has to find ways to cut its costs.
He stated that while LIAT currently generates annual revenues of about $300 to $350 million, it is spent on operational costs which includes high cost of labour and maintenance and the “66 taxes” the company administers among other expenses. The taxes, he said, account for about 50 per cent of the carrier’s expenses.