REGIONAL: No LIAT replacement can survive without subsidies – Dr. Thomson Fontaine

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(DNO) – Former International Monetary Fund IMF) economist, Dr. Thompson Fontaine has, in part, blamed the demise of LIAT on the low volume of travel between the islands.

Critics have attributed the financial turbulence being experienced by LIAT to bad management but Fontaine said: “Overall, the volume of people that you need to be traveling are simply not there”.

Six air carriers have expressed interest in taking over LIAT’s travel routes, in the wake of the carrier’s current financial challenge.

They are SVG Air, One Caribbean Ltd, Caribbean Airlines, InterCaribbean Airways, Silver Airways and Air Antilles.

However, Fontaine said whoever takes over LIAT may have to eventually increase the cost of travel.

“Any airline that comes will have a problem. It can decide to lower the cost of a ticket to encourage people to travel…But the marginal cost is practically standard,” he said.

Dr. Fontaine said the new airlines must be able to attract passengers and the only way that is possible is to lower price.

“Now, if you lower your price, it means you are now going to lower your revenue and there is no guarantee that you will get more passengers because the demand is not there,” he explained.

According to the former IMF economist, the notion that LIAT can successfully be taken over by six airlines is “problematic”.

He said LIAT survived because it was heavily subsidized by regional governments.

“They (LIAT) always expected that if they cannot generate the revenues, they will get the support of the region…now the question is, will the government be prepared to make the same level of subsidies?” he asked.

Dr Fountain also called out people, who he said, are rejoicing over the demise of LIAT, reminding them that they will be at the losing end.

“A privately owned company is not going to lead to a reduction in price. People will think LIAT is gone so there will be cheaper prices but they are not going to see it because fundamentally, price is driven by supply and demand,” he explained.

Barbados Prime Minister Mia Motley says CARICOM hopes to work with the six airlines and other private sector players who also expressed interest in working either on their own or with some of the existing players to fill the gap in airlift.

She said on Monday CARICOM working together with private sector players is needed as governments have to now use their funds to deal with health, water and transportation expenditure as well as salvaging a vulnerable tourism industry.

Mottley added that the CARICOM Heads of Government have agreed to assist the airline industry in the best ways they can.

However, Fontaine maintains that any airline that is allowed to take over the route, must be a subsidiary.

“…Even if it’s not making money because of passengers, then the parent company can put in money. But the question is how much money?” he asked.

Meanwhile, Antigua and Barbuda’s Gaston Browne is insisting that if LIAT 1974 Ltd cannot be saved, shareholders should invest in a new company to replace the airline and warned that he has started the process of forming a new company, LIAT 2020 Ltd, if his recommendation is not accepted.

Dominica’s Prime Minister Roosevelt Skerrit has said that the government and people of Dominica stand ready to invest in any new entity that is formed to replace LIAT. Dominica is the heaviest user of the regional airline.

LIAT does not have significant assets to satisfy the liabilities it owes. LIAT’s fleet consists of ten ATR aircraft—five ATR 42-600s and five ATR 72-600s—with LIAT only owning three of its aircraft.

One of LIAT’s biggest liabilities is a $29 million severance payment it contractually owes to its employees.

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