This year's hurricane season has been unkind to the Caribbean, with Georges cutting a particularly devastating swathe through many of the region's islands. But for the local airlines, hurricanes are the least of their worries.
Just ask Conrad Aleong, who stepped in this year to take the helm of BWIA International Airways and who will lead it through an initial public offering early in 1999. "The process of privatisation for BWIA people has been a painful one," admits Pat Ganase, a representative of the airline. "It is still fraught with risk and struggle. But the vision endures."
Aleong's mandate is to make sure that this time it is finally the right vision. But the president and chief executive officer seems to have doubts. Yes, the airline is expected to make a profit this year - its first in 58 years. No, he cannot guarantee what effect that profit will have on employees and productivity. "The challenge now is to keep up the momentum in a way that employees can accept. Up until this point, they have been focused on change because they have had an imperative to change. But people soon forget," he says.
Aleong would prefer that they do not forget, for example, that the company was "right on the brink" in March. "It was not a comfortable position for the shareholders, the customers or the employees," he says. The disturbing lesson for the employees was that there was no lifeguard this time. BWIA's initial play into privatisation took place in 1995, when private investors took a 49% share of the airline in return for a $20 million investment and employees gained a 15% share in their company. That responsibility cuts both ways, the employees discovered. "We were on the brink and no-one came to the rescue, and that made people realise that we were no longer owned and controlled by the government of Trinidad and Tobago. So the employees did what they had to do to save their own airline," says Aleong. "Everyone has worked hard and rallied round the new management team." In April, when the new business plan was announced, employees committed to individually buying up to 100 shares each - a total of some 90,000 shares.
Aleong predicts a 1998 profit that will beat the budgeted $200,000 "by quite a margin" - but the storm is by no means over and Aleong's plan for riding it out will disappoint the pan-Caribbean advocates.
Caribbean unity?At the annual Caribbean Tourism Conference, held in Jamaica in September, the perennial calls were made for unity. The pilot strikes earlier this year at Northwest Airlines and Air Canada - although not nearly as damaging to the region as the threatened strike in 1997 by American Airlines' pilots would have been - once again raised the issue of dependence on North American carriers for the all-important tourist traffic. Tourist organisation representatives and government heads alike are acutely concerned about what they see as deliberate cutting back of services to the Caribbean by US carriers and they argue that a strong air transport network of their own would protect them from the whims of outsiders.
But a recent attempt to begin such a network has largely failed. The Montego Bay hub was launched only last year by Air Jamaica and its flamboyant chairman, Gordon "Butch" Stewart, with promises that it would grow to become a hub for all of the Caribbean. Air Jamaica was supposed to join hands with BWIA and also become the national carrier for some other islands. Arguably, Mo'Bay is working for Air Jamaica, which has moved forward on a code-share with Delta Air Lines and which uses its "champagne" flights in and out of the hub to feed holidaymakers to Stewart's various Sandals resort hotels scattered throughout the Caribbean. But there is precious little involvement or support for the hub by other Caribbean airlines and no hint of more cooperation on the azure horizon.
Local industry observers shrug and say it was inevitable, although they believe Stewart - something of a hero in Jamaica because of his entrepreneur business-style - genuinely thought he could stitch together the region's airlines. "Butch had been told so many times that he walked on water, he actually believed it," remarks one.
Growth versus volumeAleong, meanwhile, has had more down-to-earth discussions with his Jamaican colleague. "A memorandum of understanding was signed with Air Jamaica, but nothing happened," he says. "When I talked to Butch, we came to a common understanding that we had different strategies. Air Jamaica is looking for growth through volume. We are looking for more focus on the bottom line. We could not wait until 1999 or 2000 to make a profit - it had to happen this year."
This split in the Caribbean between high-yield and high-volume markets has become a recurring theme. Jamaica is now viewed as a high-volume market that is consequently losing its appeal to the high-yield focused carriers in the USA and Europe. For example, British Airways' general manager Americas, Jamie Cassidy, pointed out at the CTC that his airline can reap year-round, high-yield traffic to islands such as Barbados - to the point that Concorde is added during winter. But Jamaica and other low-yield islands are more seasonal and less attractive markets.
Aleong is keen for BWIA to change its focus to the high-yield markets. That means hooking up the local West Indies business as well as concentrating on top-end tourist islands such as Antigua, Barbados and St Lucia. Aleong also has his eye on Nevis and St Kitts. "We had 6% fewer passengers in July over 1997, but 12% more revenue," he says. "That affects your costs as well. We are using less fuel, less food. But we are not denying so many boardings. We will probably generate about $6 million more in 1998 just by changing our yield and distribution mix."
Aleong was asked by BWIA's directors to perform a business audit before he was invited to replace former chief executive Gilles Filiatreault. His assessment of the previous management is harsh. He says matters had been allowed to deteriorate since he was last at BWIA, in 1994. "A lot needed fixing. The company was not structured. People were not up to the mark. The chief operating officer was taking care of everything and the chief executive was somewhat removed," he says.
Others argue that, in fact, Filiatreault deserves more credit for having the right long-term ideas for BWIA. But Aleong is still seen as the right person to put those ideas into action.
"We have got to get back to the core and stick to the knitting," says Aleong, who clearly has next year's IPO always at the fore of his thinking. "New investors in the privatisation tried to make this an American carrier and they went away from the West Indies market. But the West Indies market brings in a higher yield." So Aleong has switched a Lockheed TriStar L1011 for a Boeing MD-83 that had been operating on the Guyana-New York route. "With the MD-83, we could handle either all the passengers but no bags, or fewer passengers. This allows us to give them the capacity they require."
Aleong has also taken in hand operational reliability. A new engine overhaul programme deal struck with Rolls-Royce has helped push up on time performance in the first six months of 1998 to 80% over the 65% for the same period in 1997.
America and beyondAleong wants to hang on to the airline's four L1011s and plans a $6 million refurbishment programme for them. Their 249 seats are "exactly right" for the London market, he says, which is the airline's most significant route and accounts for 25% of revenues. Aleong is looking for a new narrowbody fleet to replace five MD-83s. The Airbus A320-200 and the Boeing 737-800 are being considered and Aleong plans to decide soon so that deliveries of up to eight aircraft can start in late 1999.
New York is another major focus. BWIA signed in September a memorandum of understanding with Continental Airlines that Aleong hopes will lead to a code-share and "comprehensive strategic alliance agreement" being implemented in December. The importance of New York to BWIA, and Continental's Newark hub, makes this the obvious US partner, says Aleong. "After American, with its Miami hub, there really is not much else out there. But when you pick Continental, you get Newark, Miami and Houston. And you get Northwest and, therefore, Air France and Alitalia. I am not presumptious enough yet to think we could be part of that alliance, but if we were invited-"
Over the next two years, Aleong plans to grow the airline by between 10 and 14%, after which it will slow to between 7 and 10%. The trick will be to manage that growth while keeping down costs. The current low cost per available seat mile of ó8.6 (ó5.3 per kilometre) will be a tough target over the next few years. "What we need to do is to start to move on our costs in terms of productivity," says Aleong. "Going from a state enterprise to the private sector, it's very important to grow." The IPO, which Aleong hopes will raise $50-60 million, will go to the US market in the first quarter 1999 and to the UK market at the end of the year.
Increasing productivity in preparation for the next step of privatisation is what Aleong describes as the risk strategy. "We have 19 strategies that we are working on. We know they work and that we can do it. But one of those strategies is productivity and that is the where the risk lies. The key to all of this is the employees and how they cope with change."
Aleong makes it clear that his priority is BWIA and not a politically correct pan-Caribbean airline effort, but has not dismissed his fellow airlines totally. There have been talks with Air Jamaica about a possible cargo joint venture and about sharing check-in and ground handling services at Miami. There are also talks with LIAT about wet leasing de Havilland Dash 8s and with Air Aruba, which has offered an overhaul service. "We can be pragmatic and help each other on a spot by spot opportunity basis," says Aleong.
Source: Airline Business
