By David Jessop
Around the world the biggest airlines are reducing services, increasing fares, levying surcharges and abandoning destinations as the cost of fuel continues to rise. For a geographically fragmented and tourism dependent region such as the Caribbean, the potential for a new economic crisis is large.
Over the last twelve months the cost of aviation fuel has risen by ninety per cent and is still increasing. As a consequence the airlines on which the region depends for access to the wider world and to feed visitors into the region’s all important tourism industry are in the process of making cuts that will see by the year end a dramatic fall in services to and through the region.
Unlike many tourist destinations in Europe or North America where the majority of visitors arrive by road and by rail, the Caribbean depends on those who come by air to provide ninety-five per cent of the GDP that is earned by the Caribbean tourism sector (estimated at US$40 billion in 2008 by the World Travel and Tourism Council). This is in contrast to those who come by sea who leave almost all of what they spend with the cruise ships on which they travel rather than the destinations they visit.
Put another way, this means that most Caribbean nations depend on there being a high frequency of well-priced air lift to sustain the economic viability of their economies.
From media reports it is already clear that major US carriers will significantly reduce both their direct flights into the region from the United States and ‘restructure’ feeder services through points such as San Juan.
According to industry sources those destinations likely to be hardest hit as the year proceeds will be those served by American such as the Dominican Republic, the Dutch Antilles, and a number of Eastern Caribbean nations served by American Eagle’s San Juan hub, as this is replaced by less frequent direct services from the US mainland. They cite as reasons for the choice of these and possibly other regional points as increased fuel costs coupled with the high levels of operating cost and taxes levied in the countries concerned.
So severe could this process be that one senior industry executive believes that much of the last twenty years spent by one airline in building a Caribbean route network will have been wasted.
This in itself is bad news, but what is more alarming is that a consequence of cutting routes and reducing the supply of seats is that the cost of air fares on remaining services including those provided by low-cost carriers is expected to rise, not least to cover operating costs and to retain the overall viability of the service. If this is the case it will be happening just at the moment when the region has still not addressed the consequences of greater global competition from other destinations, the role of regional carriers and the high costs of inter-regional travel.
In 2007 visitor arrivals by air into the Caribbean at 22.55 million showed an increase of 1.49 per cent over 2006 while Cruise visitors at 19.5 million were two per cent higher than in 2006. In 2007 the US market grew by just under one per cent, Canada by 12.5 per cent; Europe by 2.5 per cent while all other arrivals, a figure which includes inter-regional travel, declined by 4 per cent. Given the fact that the Caribbean is still acknowledged to be one of the world’s premier tourism destinations these figures contrast starkly with average global tourism growth in 2007 of seven per cent.
To make matters worse there are signs in the domestic North American and European market and elsewhere that huge sums are being put into marketing and an extensive range of discounts introduced to keep consumers at home.
According to St Lucia’s Tourism and Aviation Minister Allen Chastanet, who is also Chairman of the Caribbean Tourism Organisation, time is running out for the industry in the region if it does not find ways to address cuts in airlift, the economic downturn in the US and growing competition from other warm water destinations. His views are echoed by St Kitts’ Tourism Minister Ricky Skerritt who believes that all Caribbean destinations are at risk from this combination of factors.
As this is being written Caribbean tourism and aviation ministers are meeting in Antigua in an emergency session aimed at identifying way to ameliorate the worst effects of the impending crisis. The intention is that their recommendations will be taken forward to an industry summit with Caribbean leaders to be held in Washington in mid-June and then to a one-day meeting during the Caribbean Heads of Government meeting to be held in Antigua in early July.
Many of the solutions being considered concentrate on ways in which government might reduce costs to the airlines and increase regional competitiveness. They focus on issues such as a reduction in landing fees, reform of the region’s aviation standards, reducing the region’s multiple air traffic control systems and navigation fees so that there is a single charge akin that in the European Union. They also focus on the ever growing range of passenger taxes and airport fees and surcharges levied by governments on air travellers – but not on cruise ship passengers – that are often hidden in ticket prices.
However introduction of changes in these areas may not be easy or rapid, despite the interdependent nature of the regional tourism and aviation industry. Such decisions are the prerogative of individual states. Moreover, they fall to hard-pressed finance ministers struggling to balance budgets distorted by rising food and energy prices, subsidies for the poorest, the high cost of social provision and before long, tariff reductions as a result of new trade agreements.
Another proposed response which in theory ought to be easier given the huge economic importance of tourism to the regional economy is the establishment of a regional marketing campaign of the type that many large nations in the Far East, for example, are now running internationally on cable television, the internet and in more traditional media. In 1993 and 2001, the years when agreement could be reached on the creation of an adequate fund financed by both industry and governments, the value of this approach in lifting tourism arrivals was more than demonstrated.
Other options include the encouragement of the inter-Caribbean market by adopting models used elsewhere that might waive departure and other air taxes for Caribbean nationals as well as the creation of a costless visa system for bona fide visitors travelling within an agreed single Caribbean space.
For years now the Caribbean tourism industry has been arguing for its concerns to have a much higher place on their regional and international political agenda. It finally achieved agreement on this when Caribbean heads of government met in Nassau earlier this year. The response to the present crisis facing the industry and the Caribbean economy will be the first clear indication of how seriously the region’s political leadership take this commitment.
Previous columns can be found at www.caribbean-council.org
