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Decision time on CAL’s future

Published: 
Wednesday, March 15, 2017

As of now, the expectation of profitability from cash-strapped Caribbean Airlines (CAL) is little more than an unrealistically optimistic projection by the management of the state-owned carrier.

There is as yet no evidence of any real and sustained effort to turn around the carrier which continues to be kept airborne with injections of cash from its main shareholder, the Government of T&T.

The airline has been in a poor financial state for most of its existence and in many ways, in terms of its operational and financial performances, seems to be now in as bad a state as BWIA, the failing entity it replaced just over a decade ago.

It was therefore nothing short of scandalous to hear senior officials of the airline admit to a Joint Select Committee (JSC) of Parliament on Monday that CAL is paying a monthly lease of US$270,000 for two 767 aircraft that are no longer part of its fleet.

According to Captain Jagmohan Singh, the latest in a long line of short term CEOs at CAL, US$135,000 is due for each of the 767s which once operated on the London route but are now being used by Air Canada.

This looks like another in the many bad business decisions that have made the airline more of a liability than an asset. This one had its genesis with a decision to discontinue CAL’s services to London’s Gatwick Airport. The reason given was costs associated with maintaining the Boeing 767s and a plan to simplify the fleet and focus the airline’s limited resources on its North American and Caribbean markets.

That decision had been preceded, taxpayers were told, by a detailed review of the airline’s network.

A few short years later comes the news that the airline is now losing money on the deal—scarce US currency that T&T can ill afford to fritter away on a bad lease arrangement.

The best CAL has even been able to achieve since its launch was a break even position in its first year. In 2010, after it merged with Air Jamaica, there was a plan to restructure. Outdated and costly processes and systems were supposed to be overhauled to restore investor and customer confidence in the carrier.

There has been no evidence since then, however, of CAL developing a strategic direction for generating additional revenues and improving its operating efficiencies.

In fact, the airline turned in one of its worst financial performances over the 2011/12 period when its losses almost doubled from US$43.6 million to US$83.7 million. Government’s response was a 2014 injection of $1 billion into the loss-making carrier for restructuring and debt servicing.

With not even a tiny hint of a turnaround at CAL, or a streamlining of operations, managers who went before the JSC on Monday had all kinds of bad news to report, including $3.25 million being lost annually through credit card fraud and low morale among staff.

It is now clear that some tough decisions must be taken about CAL to staunch the haemorrhage of scarce revenue at this time of painful economic adjustment for the country.

If there had been any semblance of restructuring and a development plan, the airline should have been weaned off its heavy dependency in the Treasury by now.

As it now stands, unless the carrier can be quickly turned around so that it contributes to growth in GDP and can be leveraged to boost the country’s struggling tourism sector, it might be time to give up on the idea of a state-owned airline. It has hardly ever been of benefit to the country, in any case.

CAL must demonstrate that it can withstand increasing competitive pressure from low-cost carriers and significantly improve its reliability and operating performance. Otherwise, it makes no sense holding on to a loss-making entity.