Op-Ed: How to Fix LIAT

By: Caribbean Journal Staff - September 23, 2013

By Robert MacLellan
Op-Ed Contributor

SOME MIGHT believe that, for the second time in only three years, Captain Ian Brunton has been made a scapegoat by the board of directors of a Caribbean airline company – fired as CEO of Caribbean Airlines Limited in late 2010 and, last week, when he resigned as CEO of LIAT.

Indisputably, the overall operation of LIAT has continued to be disastrous during the last four months, but so has the marketing/PR/ communications function — and yet, the senior management there appears unchanged going forward. More importantly, the chairman, Jean Holder, and the LIAT board — which has authorized the strategy, business plan, operating budget and bank loans underlying the recent chaos and financial uncertainty – also appear unchanged going forward.

While Captain Brunton has resigned, Mr Holder has been in his position since 2004 and submitted his own resignation in 2011, although this was not accepted by the LIAT government ownership group at the time.

“Plus ca change, plus c’est la meme chose.”

When Mark Darby, an undoubted airline industry expert, was fired from the LIAT CEO position in 2009 (and subsequently reached a settlement for unfair dismissal) Darby pointed to “the lack of focus of the shareholder governments and the board of management as major stumbling blocks to the regional airline moving to higher heights.”

He spoke of the complexity of three governments owning the airline, which involved conflicting agendas. Darby commented that this problem was compounded by weak corporate governance, with a board where few directors had held senior roles in major companies.“

Instead, LIAT “operated more like a government department”, he said. Darby continued, “Board members got themselves involved in operational areas. This is one of the company’s greatest weaknesses”.

In evaluating these comments, clearly, Darby was unhappy about the circumstances of his departure from LIAT. However, his predecessor was also short lived as CEO at LIAT and Brian Challenger resigned last year as acting CEO — all of which confirms a serious problem at the board level.

This is where the real change is self evidently required, if the airline is ever to achieve operational and financial stability. In the face of LIAT’s biggest-ever operational crisis and with greatly increased debt related to the new fleet, now is the crucial time for that change.

There are cries for other Caribbean governments to invest in LIAT – arguably, if they had any confidence in LIAT’s board, they might do so – but it appears they do not. If that is the case, then the failed board, the business model and the ownership structure has to change.

Many airlines around the world, previously government owned, have been privatized successfully in recent years, but for LIAT this raises issues as to the airline’s vital role in the socioeconomic cohesion of the islands and concerns about the viability of some low-volume LIAT routes. Economies of scale, more effective marketing, code-sharing on low volume routes and a “low cost airline” style of operation could combine to achieve a sustainable business model — but it appears extremely doubtful that LIAT, as presently constituted, can attain that goal on its own.

However, an initial merger of loss making LIAT with loss-making Caribbean Airlines Limited — if they then enter together in to a new public / private sector company on a 50-50 joint venture basis – might create an airline ownership structure that successfully addresses all issues, combining social responsibility with profitability and professionalism. A deal like this would best be evaluated and negotiated by a specialist airline industry management consultancy – Lufthansa Consulting is but one example.

Which are the potential private-sector joint venture airline partners for such a deal? JetBlue has a successful low cost airline business model, flies to an ever increasing number of Caribbean islands from the USA and has already taken over five of the former American Eagle inter-island routes out of San Juan.

Southwest Airlines/AirTran is another successful US-based low cost airline and is continuing its expansion of Caribbean routes.

Insel Air, based in Curacao, is profitable and operates a mixed jet and turbo prop fleet on routes to the Dutch islands, Dominican Republic, Haiti, Venezuela, Colombia, Miami and Charlotte.

Seabourne Airlines, based in the US Virgin Islands, is profitable and is expanding its inter-Caribbean route network with larger 34 seat Saab 340 turbo prop aircraft, but still operates 19-seat Twin Otter aircraft on low volume routes.

There has never been a more appropriate time to end LIAT’s vicious cycle of operational and financial instability and to reconfigure an airline which can serve the Eastern Caribbean’s vital needs on a sustainable basis. The damage inflicted has been immense, the financial outlook is grim, the time for change has arrived and the need is urgent.

Robert MacLellan is Managing Director of MacLellan & Associates, the region’s leading hospitality consultancy since 1997. He is a Fellow of the Institute of Hospitality, a Member of the International Society of Hospitality Consultants and has a Master’s Degree in International Hotel Management. MacLellan previously held board level management positions at major UK companies in the hospitality, cruise line and property sectors.

He can be reached at robert@machospitalityconsultants.com

Note: the opinions expressed in Caribbean Journal Op-Eds are those of the author and do not necessarily reflect the views of the Caribbean Journal.

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