LIAT Unveils New Business Plan

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Business News

Saturday, 08 December 2012 02:30

By caribarena news

Antigua St. John's - On the shoulders of a projected 2012 revenue loss of US$23 million, the management of LIAT is holding on to a subtle but welcomed estimated growth of 2 percent (or EC$7million) in 2013 as the regional airline moves to implement an ambitiously new business plan.

The plan was unveiled on Friday at a regional media conference held here in Antigua. According to the airline’s newly appointed Chief Executive Officer, Ian Brunton, the initiative comes as something of a road map to turn around the fortunes of the embattled airline in the shortest possible time.

Over the past five years, Brunton said, LIAT has lost a combined total of EC$92.7 million. But with the new plan, the airline stands to realize a “modest” positive net profit margin of just over 2 percent by the end of next year and another 9 percent (or EC$40 million) annually in years to come.

LIAT Chairman Jean Holder, who was also present, made a point of noting that the airline was indeed the longest serving Caribbean air carrier in operation. With the announced expiration of operations from American Eagle in March 2013, LIAT stands to capitalize on the market and increase its revenue base.

“Operating any airline is challenging … it is fraught with difficulties, given many aspects of the financial and operating environment,” Holder said.

He added at present LIAT is faced with many daily challenges, but shutting down the operation is not an option, since this would certainly result in a “paralysis” on air travel in the region.

With that obvious dependence, Holder said the company could not continue to operate in a charity-like manner, and the time has come for it to revise its approach and look to realize some inkling of benefits.

“This situation cannot be allowed to continue, especially when only three of the 21 destinations assist. LIAT does not enjoy the luxury of an annual subsidy in its budget like some other airlines. It does not enjoy the marketing support and flight guarantees that several foreign flight operators receive,” Holder said, adding that the airline is forced to keep its head above water through constant re-negotiations with banks and other creditors.

The LIAT Chairman noted also that no airline that does not receive subsidies could survive on reduced fares that don’t cover their operating costs. He cited recent sizable investments into starting new competing airlines in the region that could have been better channeled in the direction of LIAT, making it a stronger and more viable enterprise.

“Such investments should be made in LIAT which has stood the test of time and is capable of performing successfully throughout the region,” Holder said.

With that, Holder pointed out that LIAT’s new business plan aims at relieving major shareholders of the reality or threat of burdensome costs.

THE PLAN
The first part of that plan is the anticipated fleet renewal operation that will take place in short order. “The plan hinges on a complete fleet change for LIAT. By employing assets that are economical to run and provide superior passenger appeal and service, both revenue and costs are dramatically improved,” explained CEO Brunton.

LIAT plans to bring new 50-seat and larger Turbo-Prop aircraft to service both the existing core markets and an expanding market base that will include countries like Haiti, Panama, Jamaica, Aruba and Punta Cana.

Attempts will also be made down the line that would see LIAT penetrating north and south American markets through the acquisition of medium-size jet equipment. This, the airline’s CEO said, would provide “welcome direct air links” to many of the region’s “under-utilized” airports.



“We intend to enhance our cargo operation by acquiring two dedicated freighters of the same type as the new fleet. The demand for cargo service in the Caribbean archipelago is ever-increasing and provides a healthy revenue stream for LIAT,” Brunton concluded.

EXECUTIVE DOWNSIZE
Executives of the airline have also been made part of the plan, having recently been reduced from 13 individuals to a mere six, as part of efforts to increase efficiency.

“By restructuring the top echelon of management to an executive management team of six persons and the CEO, and by fostering a culture of autonomy with accountability throughout the organization, the airline will function much more efficiently, and both operational and financial performance will improve,” said CEO Brunton.

LIAT has in the past come under scrutiny for the quality and agility of its decision-making process which was said to be less than acceptable, due to a top-down decision process by an “overly large executive management team”, with very little evidence of delegation of authority.

SOCIAL FLIGHTS
On the matter of schedule optimization, CEO Brunton said LIAT is underperforming within its current network due to low overall load factors. This has resulted in the company taking a “strategic decision” to reduce its schedule on “poor performing” sectors.

CEO Brunton opted not to be to specific on what territories were indeed under-performing and would see cutbacks. He said the decision was taken as part of efforts to improve profitability by increasing the overall load factors to an average of 75 percent.

“Many flights are in effect performing a social function without financial support from the territories benefiting. There are 39 social (unprofitable) flights affecting 18 territories. LIAT cannot continue to meet the cost of these social routes,” Brunton announced.

FLEET RENEWAL COSTS
Regarding the financing of the fleet renewal, Brunton said LIAT is looking for 20 percent equity contribution to fund the capital costs of the move. This breaks down into 15 percent from the three major shareholder governments and an additional 5 percent from other regional governments, like Dominica, who have expressed an interest in investing in LIAT. The remaining funding will come through a long-term commercial loan.

“Shareholder contributions for fleet renewal inclusive of transition, training and spares investment costs will amount to just over EC$787.6 million (US$29.1 million),” Brunton said.

Added to the fleet renewal, LIAT announced that through negotiations with the manufacturer of the new ATR 42-600 aircraft, the region stands to see the creation of its own Maintenance Repair and Overhaul (MRO) facility, which could provide service to the nearly 200 ATR turbo-props in the region.

“This initiative would be a huge boost to the employment opportunities and human resource development of the region, while at the same time providing an increased revenue stream for LIAT,” Brunton said.

He noted that the airline would look to forge alliances with one or more metropolitan air carriers in order to increase its reach into new tourist and visiting-friends-and-relatives (VFR) markets.

“WE SELL YOU FLY”
Further to that, Brunton announced that LIAT would be looking to partner other commuter carriers in order to properly serve all regional markets and complement its present inter-line feed.

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This will be done on a “we sell you fly” basis.

“We can help them to grow… Anything that moves in the Caribbean will do so under the auspices of LIAT,” Brunton said, adding that talks have already begun with one of more of these “third tier” commuter carriers.

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