(BARBADOS TODAY) – With the imminent closure of the current operations of regional airline LIAT, one former development banker is calling for a private sector-led airline in its place, lower taxes on airfare and a single air service agreement for the region.
Dr Justin Ram, Chief Executive Officer of the securities trading firm GSEC, told Barbados TODAY what is going on with LIAT right now is “almost inevitable”.
Adding that the situation facing the cash-strapped airline had been “exasperated” by the impacts of the COVID-19 pandemic, he maintained that the high taxes on regional travel were a major issue, pointing out that a study several years ago showed that up to 60 per cent of airfares were taxes and fees.
“That is almost unsustainable in this type of environment,” said the former Caribbean Development Bank Director of Economics.
The Prime Minister of Antigua and Barbuda Gaston Browne announced last weekend that the airline would be liquidated and a new entity formed.
Ram said the winding up of LIAT’s operations should create an opportunity for a new private sector-led operation while governments focus on ensuring safety and ironing out air services regulations.
“I think there should be a significant component that is private sector led. If we were to ratify the multilateral air services agreement between all CARICOM states, there are a number of private sector entities that are currently operating within their own countries. Take for example in Guyana, they could start coming out and start servicing other routes in the Caribbean, and that is the same for other airlines in the region,” explained Ram.
“If it is that there could be a public-private sector approach to this, perhaps if we want to have a larger airline group within the region, the shareholder governments could come together and take a stake, but I think still the majority percentage shareholding should be privately held,” he said.
“If that is the case, I would say to Government, have a timeline for when you plan to divest your shares in that particular venture so that it does not become a continuous state-owned entity, because we all know the challenges associated with state-owned entities across the region,” he added.
He further explained that the creation of a new entity could be the “perfect opportunity” for citizens to invest and have their debt securities converted into equity, giving them an ownership stake.
This, he said, would result in an increased interest among individuals in the profitability and longevity of the airline.
However, the economist stressed that there was need for lower taxes and fees on air travel.
He said in addition to focusing on regulation and safety, governments in the region should also consider a model that would allow them to provide some form of subsidy in order to have greater capacity on routes that required such.
He added that governments would then easily recover some revenue from Value Added Tax (VAT) and other taxes on island due to shopping and accommodation.
According to Ram at this stage there was still a level of uncertainty about the new direction for air services in the region.
“We can only hope that we take on board the lessons from the past and seek to incorporate a new model for aviation in the region, with greater reliance on the private sector,” he suggested.
Expressing sympathy for the hundreds of affected LIAT staff, Ram said he was pleased with the work of “the last group of managers” under the stewardship of the CEO Julie Reifer-Jones, adding that the workers could easily be absorbed into a new entity.
Should a new airline not start by the time the current operations wind up, Ram said a lot of the impact would be felt in the revenues collected by governments for landing fees.
“I think if the governments move quickly it doesn’t have to be a situation where these challenges linger for a long time. We should be encouraging whatever private sector entities there are now to try to take up any of the slack, and the regulators should really be focused on safety and if it is that some routes require a subsidy or some sort of revenue guarantee of course you do that, but first and foremost you must incentivize a load factor,” he said.
Meanwhile, head of the Leeward Islands Airline Pilots Association (LIALPA) Captain Patterson Thompson warned that not having an airline to take the place of LIAT before its operation is folded would be a “mistake”.
Pointing to the role of LIAT in getting people and goods around following recent hurricanes, the former LIAT pilot said it was no longer about support from a few shareholder governments.
“We need a regional fix for this. This is not about four prime ministers. This is for all the prime ministers,” said Thompson.
The main shareholder governments are Barbados, Dominica, Antigua and Barbuda and St Vincent and the Grenadines.
Thompson also called for a new model for the next airline, a single air space agreement and a “flat tax” for intra-regional travel.
“To fold LIAT and not have a replacement would be a mistake. I am assuming that the prime ministers have a plan. The issue becomes though, one of registration,” he said.