Caribbean Airlines Confirms No Ticket Price Increase Following Removal Of Subsidy

PORT OF SPAIN, Trinidad CMC – The Trinidad-based Caribbean Airlines (CAL) has confirmed that it will not be increasing ticket prices after the Kamla Persad Bissessar administration announced this week that it was ending its subsidy to state-owned carrier.

Finance Minister, Larry Howai, delivering the TT$61.3 billion (One TT dollar=US$0.16 cents) national budget on Monday, said that the subsidy, which was estimated at US$40 million last year, would come to an end from October 1 this year.

Howai told legislators that CAL must move towards the adoption of a financially-sound business model for positioning the airline in targeted segments of the global tourism market.

In a statement, CAL said that the board of directors had since June requested that all operating financial information and financial targets be calculated without the fuel subsidy.

It said that the management had accepted the challenge, with the result that for the month of July 2013 the airline achieved a profit of US$6.2 million at market fuel prices, as opposed to an original forecast of US$0.64 million and, in comparison with the month of July 2012, a loss of US$3.7 million.

CAL said the trigger price level for the subsidy has been increased each year over the last two years.

“In other words, if the price of fuel remained the same over the years, the subsidy per gallon was decreasing each year. Secondly, Caribbean Airlines has not used the fuel subsidy as a competitive pricing tool,” the airline said in its statement, adding it had “no intention to change the broad pricing strategies as it seeks to compete within the current regime of filed airfares.

“The caveat, of course, is that there are no significant increases in market fuel prices. These strategies recognise seasonal demand, consumers’ demands for value for money fares, as well as the potential increased competition.”

Howai had told legislators that the new CAL board had completed the first phase of a revised business plan for the airline to achieve financial viability.

The fuel subsidy issue had been among the items discussed during the Caribbean Community (CARICOM) summit here in July, with St. Vincent and the Grenadines Prime Minister, Dr. Ralph Gonsalves, indicating then that the subsidy was a violation of the CARICOM rules.

In addition, Gonzales, who chairs the shareholder governments of the regional airline, LIAT, said they had agreed to provide a summary of a legal opinion to Prime Minister Persad Bissessar regarding the “unfair” subsidy as he insisted that the Antigua-based airline did not want a fight with Port of Spain on the issue.

Gonsalves said  as a result of the legal opinion given to LIAT, the shareholder governments had various options including taking the matter to arbitration, going before the tribunal of the Trinidad-based Caribbean Court of Justice (CCJ) as well as citing “rules of impermissible subsidies” under the articles of the CARICOM treaty.

Speaking with reporters during the fifth annual Management Consulting Business Symposium here, minister in the Ministry of Finance, Vasant Bharath, said capital injections to CAL may be looked at toward the end of the year, if necessary.

“A lot of the fleet at CAL is relatively old. As you know, technology is changing all the time, we are now flying to new routes–the London route is a new route–we are going to be looking at developing possibly routes to Panama, where we just signed a partial scope agreement.

“So as a direct result we are going to be looking at renewing the fleet and upgrading it. So that is what the capital injections would be for,” he said.