Fri | May 25, 2018

LIAT flying into the black?

Published:Sunday | December 9, 2012 | 12:00 AM

The Antigua-based regional airline, LIAT, Friday unveiled a new business plan it said would help reverse an EC$43-million loss last year while projecting a two per cent profit in 2013.

Recently appointed Chief Executive Officer Ian Brunton told a regional news conference that the airline is expected to record EC$23 million in losses at the end of this year.

"The projections show strong revenues and significant bottom- line improvement. LIAT is projected to reverse its current losses and record a profit of EC$7 million in 2013 and by 2017, profits in excess of EC$40 million are projected," said Brunton, who noted that since 2009, the airline has had to deal with high fuel costs and lower passenger traffic that have seriously affected its finances.

In 2010, LIAT, whose principal shareholders are the governments of St Vincent and the Grenadines, Antigua and Barbuda and Barbados, recorded losses of EC$20.2 million, which increased to EC$43 million in 2011 "largely driven by higher fuel costs combined with lower passenger volumes," he said.

Brunton told reporters that the overall costs have been reduced by 10 per cent since 2011 despite the higher fuel costs, adding that "the decrease year over year was mainly attributed to a reduction in both headcount and fleet size".

High cost base

He said the major cause of losses for the regional airline is also the high cost base, mainly driven by very high aircraft maintenance costs as well as by significantly high employee costs.

"LIAT's fleet assets are at an age range where maintenance care is very cost intensive, both in parts and labour to keep them serviceable.

"But worse, the management of these ageing assets may not have been the most optimum in the past," Brunton said, adding that overuse results in "inevitable breakdowns and groundings to effect essential maintenance both routine and non-routine. This causes schedule disruptions which are often very costly."

Brunton said that while LIAT's market can be described "as relatively wide", they are also "very thin since many of the islands have a population that is less than 100,000 persons.

"These realities have significant implications for LIAT's operating costs. LIAT's ageing fleet requires constant maintenance attention and is a significant contributor to poor on time performance and customer service," he said.

Brunton said that over the last few years, LIAT has seen a gradual reduction in competition on most of its markets, predicting that by March 2013, American Eagle, a significant competitor, "will finally pull out."

Brunton said the new business plan "puts LIAT in a position to take the opportunities presented by these gaps in the market and increase its revenue base in a cost-effective manner."

Addressing the high cost of airfare in the region, Brunton defended the position of the regional airline, noting that taxes account for nearly 50 per cent of the cost of regional fares.

"We administer 66 taxes," he said, coupled with thin and fragmented markets, limited economies of scale, and high fuel costs as the main drivers for the high regional airfares.

"LIAT currently generates annual revenues of EC$300-350 million. This revenue, like most airlines, has significant peaks and troughs. Our peak volumes are in the summer months with smaller peaks at Easter and Christmas," Brunton said, reiterating that the airline would be reviewing some of the routes on which it operates because of poor returns.