The economics of LIAT

I was somewhat taken aback by Mr. Gregor Nassief’s preposterous and unmerited open letter to Dr. Hon. Ralph Gonsalves on LIAT. Fortunately, there has been a very helpful clarification of LIAT-related issues by the Vincentian Prime Minister’s Press Secretary and an announcement on the commercial policy of the airline by its shareholders since that baseless letter appeared. Mr. Nassief obviously overreached when he pronounced with what could only have been an imagined authority on air transportation in the OECS. The Dominican hotelier would do well to stick to his field.

It has been concretely established that Gregor Nassief has no reason whatsoever to call for the resignation of Prime Minister Gonsalves as Chairman of LIAT’s Shareholders Committee. The tried and true Vincentian leader never advocated indefinite subsidies and LIAT was given a mandate to operate as a commercial entity which at least breaks even. It is fair to say though that the company’s shareholders do not expect very large financial returns on their investment, but this is acceptable and consistent with sensible policy given the enormous broader economic returns which are generated as a result of the airline’s service. The British government subsidised London train lines for many years because of similar reasons. The Government of St. Vincent and the Grenadines just announced massive subsidies for an important private sector ferry service to the Grenadines. I’m sure that Mr. Nassief benefited from fiscal incentives for his hotel development. We should always look at the bigger picture and never allow ourselves to be constrained by debilitating narrow-mindedness. Very often, subsidies are simply the price we have to pay to realise millions of dollars worth of profits from tourism and in the various economic sectors. Through it all, it is important to underscore the fact that LIAT has received no recent subsidies.

History has shown that the market base for the air transportation industry is not sufficiently large to support competition between multiple airlines (even though there are no restrictions on market entry apart from compliance with the relevant air services agreement). It is also true that travel is too important for a private sector monopoly to control the skies. That’s why we couldn’t afford to allow LIAT to succumb to pressure from Caribbean Star. God forbid that we see a day when a man like Allen Stanford singlehandedly dictates the terms of travel. Almost any private sector monopoly with fiscal incentives and market guarantees could make huge profits at the cost of economic efficiency. Is that what we want? Do we want air transportation to be only accessible by a privileged few at exorbitant prices? Have we learnt nothing from our bad pre-deregulation experience with telecommunications? The other thing to note is that LIAT ticket rates may have been more affordable if the airline was not bogged down by all manner of onerous government taxes. Far from being a drain on public resources, LIAT may well be propping up state treasuries.

What’s so wrong with LIAT’s plan to increase its revenues through a higher load factor and route expansion to new destinations? That’s the natural thing to do! Contrary to Mr. Nassief’s claims, inter-island tourism has not fallen by anything near 60 per cent over the last seven years, and there are good future prospects. It may well be that his share of the tourism business has fallen off precipitously because of his own bad management and he just wants to take it out on someone.

Gregor Nassief’s arguments are not only underpinned by inaccurate statistics, they also lack any real depth. The Dominican hotelier turned expert on aviation criticised LIAT’s recent change of aircraft. He said that it costs twice as much to lease an ATR as it does to lease its closest Dash 8 equivalent even though the ATR only gives 36 per cent more seating capacity. What about the gains in fuel efficiency and the reduction in maintenance costs? Mr. Nassief should also bear in mind that the original aircraft is no longer in production.

It’s not hard to figure out why a hotelier would have a problem with an airline. We would all like to see LIAT provide a more efficient, affordable and reliable service. We would be happy to witness a resurgence in inter-island travel and greater confidence in the regional airline. I’m quite sure that LIAT’s managers and directors know about the factors which lead to the turnaround of Singapore Airlines and Air Malaysia. They would also know that the vast Asian airspace is in no way comparable to tiny OECS skies.

Mr. Nassief should think twice before asking anyone to step down. Ralph Gonsalves knows a lot more about the air transportation industry in the OECS than Gregor Nassief. Prime Minister Gonsalves is an experienced politician with a great deal of business acumen and insight. He has transformed the economic fortunes of St. Vincent and the Grenadines and I am confident that he would also help to turn LIAT around. I would like to see him remain Chairman for a very long time.

By Honourable R. T. Luke V. Browne
St. Vincent and the Grenadines
[email protected] 

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