Kingston Norman Manley Airport

Hopes of stability in the Caribbean are dashed as its namesake carrier struggles

Caribbean Airlines’ 2010 acquisition of Air Jamaica ushered in high hopes that a strong flag carrier would finally emerge in a fragmented region where home airlines have been constantly propped up and protected by the governments. But roughly three years after the landmark deal that was supposed to seal Caribbean Airlines’ fate as the leading carrier in the market, the airline continues to be dragged down by financial challenges that are at least partially attributed to ill-advised expansion into a long-haul route with Boeing widebody aircraft and the continuing integration of Air Jamaica.

Although the carrier has reportedly indicated that it is seeing signs of a return to profitability, Caribbean is cautioning that a complete turn-around is two to three years away. As the carrier’s current plight illustrates, benefits of consolidation in the region have yet to surface as its weak performance continues unabated.

Stability has evaded Caribbean since its purchase of Air Jamaica as it endured a management shake-up in late 2010 with the abrupt resignation of CEO Ian Brunton, who held the position for a roughly a year.

Air Transat and WestJet face heightened pressure as Air Canada applies Rouge

Air Canada is sticking to its strategy for its new low-cost carrier Rouge by introducing service in Jul-2013 to untapped long-haul leisure markets and operating flights to sun destinations - with a presumably lower cost structure.

The carrier is taking aim at both domestic rival WestJet and its vacations package business and large Canadian tour operator Transat. Now that Air Canada has unveiled the initial routes for Rouge, its competitors appear to be making schedule adjustments in response to the decision by Canada’s largest carrier to compete more aggressively in the leisure market.

Air Canada finally gained the green light to move forward with the establishment of Rouge after the government in 2012 stepped into contentious negotiations between pilots and management and ultimately allowed the carrier to impose a contract on pilots that included elements for the establishment of a low-cost carrier.

JetBlue sees an opportunity to mine Fort Lauderdale as Spirit turns its attention elsewhere

JetBlue Airways believes more opportunities exist to expand into Latin America from its southern Florida stronghold of Fort Lauderdale so it can capitalise on the short ramp-up to profitability afforded by those routes. Shifting market dynamics make the opportunity more ripe for JetBlue as Fort Lauderdale’s other major carrier Spirit Airlines has turned its attention to US domestic expansion from the airport.

At the same time JetBlue is not hesitating to increase competition with Spirit, betting that its higher-end product at an only marginally higher fare will entice some travellers away from Spirit’s bare-bones, no-frills service.

Fort Lauderdale was JetBlue’s first destination from its JFK base when it launched scheduled flights 13 years ago. Since that time Fort Lauderdale has played a key role in the carrier’s build-up of North-South passengers along the US eastern corridor. But during the last few years the airport and its geographical location in South Florida have played a particularly strategic role as the carrier worked to aggressively expand into the Caribbean and Latin America.

Spirit’s latest route changes indicate increasing pressure from JetBlue

Spirit Airlines in 4Q2012 is planning to rework its schedule on some routes from its Fort Lauderdale base to the Caribbean through the elimination of flights to Nassau, Bahamas and transitioning service to Kingston, Jamaica to a seasonal offering. In both those markets Spirit has a relatively small offering in comparison to its competitors, which includes JetBlue, on both the routes. Those market exits follow an earlier decision by Spirit to end service from Dallas/Fort Worth to Boston in late 2012 as JetBlue recently made its debut in the market. Three markets certainly do not account for a trend, but it does seem that Spirit would prefer to expand where JetBlue does not operate, concluding it can better stimulate traffic in markets with a higher concentration of legacy competition.

Spirit has a limited presence in terms of flights and seats on offer from its Fort Lauderdale headquarters to Kingston and Nassau. Spirit offers three weekly flights to Kingston, which accounts for roughly 11% of the total 4091 approximate one-way weekly seats (02-Sep-2012 to 08-Sep-2012) on offer from Fort Lauderdale. Caribbean Airlines accounts for 53% of the seat share and JetBlue holds a 37% share.

New Jamaican upstart faces challenges in building a viable business in the Caribbean

A little over a year after Caribbean Airlines formalised its acquisition of Air Jamaica and became the default national airline of the region, a new Jamaica-based carrier, Fly Jamaica, aims to launch service in the coming weeks to Guyana and inaugurate long-haul flights to North America in a bid to create new competition for Caribbean Airlines. As Fly Jamaica seeks to reclaim some of Air Jamaica’s former glory, the carrier faces an uphill climb in launching a successful operation in the unpredictable Caribbean aviation market.

Kingston-based Fly Jamaica has reportedly received its AOC from Jamaican authorities on 31-Aug-2012 after completing proving fights with a two class (12 first, 186 economy) Boeing 757-200 jet. The carrier on its website states it will operate flights from Kington to Guyana, New York and Toronto, routes already well served by both Caribbean and US and Canadian carriers.

Air Canada wins approval for low-cost carrier but now faces the challenge of defining the operation

Air Canada’s plans to create a new low-cost subsidiary to better compete in leisure markets is far from a foolproof scheme to wipe away the legacy cost elements that management believes make Air Canada mainline uncompetitive on various levels. The airline faces the danger of disrupting those markets with additional capacity those routes are unlikely to absorb. In its planned slow ramp-up, the new carrier will also likely create upfront costs that might not be recovered until the low-cost carrier reaches full scale, which will further pressure Air Canada’s costs in the short-term.

Other than touting the establishment of the low-cost carrier as a significant growth platform to allow Air Canada to compete in the crucial low-cost space, few details have emerged about the new airline. Air Canada has not stated if it will seek a separate operating certificate for the carrier, if there will be a separate management structure, estimated aircraft utilisation levels, seat density or how network planning and optimisation between the two carriers will be carried out.