By Carole Shifrin in Washington DC
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The Caribbean has become truly hot, luring US airlines, from troubled network majors to robustly expanding low-cost carriers. It offers a reliable mix of compelling holiday destinations and strong expatriate ethnic traffic visiting home. But the locals are responding to these outsiders, and some say the competition could overheat.
New inroads are being made by Delta Air Lines and low-cost carriers Spirit Airlines and JetBlue Airways, while there has been a substantial contraction by US Airways, both from previous service levels and its grandiose expansion plans of just two years ago.
Delta, which served only three destinations in Latin America and the Caribbean a decade ago, will serve no fewer than 20 points in the region this winter, including five in Puerto Rico and the US Virgin Islands. As the table shows (below right), Delta’s capacity between the US and Caribbean will rise sharply by 26% this summer.
In 12 months, Delta will have added 26 new “south of the border” routes, including six to the Caribbean. The six routes, all from Delta’s Atlanta hub, include five new destinations—Antigua; Barbados; Puerto Plata, Punta Cana and Santo Domingo in the Dominican Republic; and Kingston, Jamaica.
“Delta is the emerging leader in Latin America and the Caribbean,” Jim Whitehurst, Delta’s chief operating officer, told AvGroup’s 14th annual International Airline CEO Conference in May, “and we have our eyes set on becoming the second-largest US player in the region.”
The expansion is part of a huge overall international capacity increase designed to boost the percentage of revenues Delta generates from international flying from 22% to 35%.
Delta has flights to the Caribbean from New York and Cincinnati, but its build-up is primarily from Atlanta, which Whitehurst calls “the natural gateway” to Latin America and the Caribbean, citing its geographic position and feed. Delta and its Connection partners operate 1,000 daily flights to 230 worldwide destinations from Atlanta, he says, providing connecting traffic that mitigates the risks of entering new markets. Whitehurst also points to the rising US Hispanic population and its increasing purchasing power.
Continental Airlines, operating more than 530 flights a week primarily from its Newark and Houston hubs, is considered the second-largest US airline to the Caribbean in terms of passengers and destinations. Mainline Continental serves 18 destinations on 13 islands, generally using Boeing 737-700/800s and 767s during peak season. Its regional partners fly turboprops from four Florida cities to nine points on seven additional islands.
It is difficult to accurately assess Caribbean market shares because they differ sharply, depending on what is counted. Bermuda – located in the Atlantic Ocean 1,000km (640 miles) from North Carolina – is generally counted, as are the Bahamas, south-east of Florida. Puerto Rico and US Virgin Islands often are not included as they are US territories. Looking at Innovata data on capacity between the continental USA and the Caribbean American Airlines has a 36% market share, up from 33.4% five years ago.
Market share statistics that include Puerto Rico inflate the dominance of American in the region. Its share would be much higher if it included American’s large hub at San Juan and the 47 daily roundtrip flights it operates there. Of the total, seven operate to other Caribbean destinations. Another 60 daily roundtrips operate from San Juan by American’s Eagle partner using ATR-72s.
American also operates another 63 daily flights from the continental USA, mostly from Miami and New York, directly to Caribbean points. “We don’t disclose market share information,” says American. “But we have been serving the market for 35 years, so we are really mature in this market.”
US Airways two years ago unveiled plans, devised by Ben Baldanza, then senior vice-president of marketing and planning with the carrier, to use Fort Lauderdale as a gateway to the Caribbean and Latin America. Merged with America West, US Airways has pulled back Caribbean services considerably and is ending its remaining international service from Fort Lauderdale – daily flights to Kingston and Santo Domingo – in September. It will be left with 159 flights a week, including 101 from Charlotte and 48 from Philadelphia, to 17 Caribbean destinations.
As US Airways retrenches, low-fare carrier Spirit has filled in the gaps, especially at Fort Lauderdale where it is building its own hub to the Caribbean. The plan was again conceived by Baldanza, now Spirit’s chief executive. Since the beginning of 2005, Spirit has begun services to 10 Caribbean destinations from Fort Lauderdale, with connecting flights from 10 US cities. Spirit, currently operating 11 daily roundtrips, in December will operate at least 13 daily flights to the Caribbean including increased services to San Juan, Kingston and Santo Domingo.
Another recent newcomer is JetBlue, currently operating 19 daily flights to the Caribbean, including 13 to three Puerto Rican cities. It will add a 20th daily flight and a new destination when it begins service to Aruba from New York in September. The majority of its services are from New York, but it also flies from Newark, Boston and Orlando.
Pre-clearance boost
Except for a daily flight to the Dominican Republic, other JetBlue flights – to Bermuda, Nassau and Aruba – all have pre-clearance for travellers into the USA, and thus operate directly to domestic terminals instead of international terminals for customs and immigration. JetBlue says its destination selections are market-driven, but admits pre-clearance definitely makes it easier for both airline and passengers.
Despite increasing air services, US tourist traffic by air was up only an estimated 2% in 2005, according to the Caribbean Tourism Organization (CTO). Arley Sobers, CTO’s director, research and information management, says 2005 was an extremely challenging year and he predicts continued moderate growth this year. One thing is clear, he says: “Increased competition out of the USA has had a positive impact on both air fares and accessibility.”
Apart from tourists, an increasing factor in airline fortunes to the Caribbean – and Central and South America – are “ethnic” travellers who are not counted as tourists because they use local addresses on arrival entry cards.
Craig Jenks, president of consultancy Airline/Aircraft Projects, believes ethnic traffic has been growing faster than tourist traffic, thanks to rising incomes of US emigrants from the region and the lower cost of air travel. “Caribbean migrants in the USA are commuting in steadily increasing numbers, as both their number in the USA and earning power grows,” Jenks says.
Ethnic markets diverge from traditional tourism markets, he says, growing faster despite being less price-elastic and typically providing carriers with large excess-baggage revenue, as travellers carry back to family and friends goods purchased in the USA. “The economic fundamentals driving these markets are strong and enduring,” he adds.
Although some Caribbean officials have proposed that indigenous carriers merge, governments and business communities generally welcome with open arms any new US service.
Douglas Abbey, a partner with the Velocity Group, says air service is considered so fundamental to the well-being of the islands that there are no great concerns about nationalism. “These are the basic elements to fund tourism,” he says. “Anything that brings people in is fine.
“The key is that the region can’t count on its indigenous carriers to support the vast and growing tourism industry,” he adds. “So these places are very reliant on airlines headquartered elsewhere for key service.”
Michael Bell, partner with executive search firm SpencerStuart, told AvGroup’s CEO Conference that Caribbean carriers continue to suffer some old problems: they are too small and undercapitalised, with constant leadership turnover and government ownership or involvement without the ability to support carriers properly. Bell notes there have been discussions, but little action, about pan-regional airline groupings and a lack of meaningful cross-carrier co-operation.
New blood is flowing to Caribbean carriers, however. Air Jamaica, the largest Caribbean carrier with 16 Airbus aircraft, is again government-owned and regrouping under new management headed by former America West and National Airlines chief executive Michael Conway. Newly renamed BWIA Caribbean Airways, based in Trinidad & Tobago, is restructuring under the new management of Peter Davies, former chief executive of SN Brussels Airlines. Antigua-based LIAT Leeward Islands Air Transport has recruited former Unisys consultant Mark Darby as its chief executive to replace Garry Cullen.
Another newcomer is William “Skip” Barnette, former president of Delta Connection’s Atlantic Southeast Airlines. He joined Antigua-based Caribbean Star Airlines and its sister, Fort Lauderdale-based Caribbean Sun Airlines, as chief executive last autumn.
Carrier transformation
Since then he has set in motion many changes: new aircraft orders, flight schedule integration, internal codeshare capability, new routes, increased flight schedules, and a customer-service emphasis including creation of simplified fares with one-way pricing and an in-process upgrading of its reservations and check-in systems. The company is currently engaged in a major review to chart a new strategic development plan to be unveiled late July.
Owned by R Allen Stanford of Stanford Financial Group, the two airlines carry about 80,000 passengers a month to 19 Caribbean destinations – which will rise to 20 this month when Curaçao is added. They operate 20 Bombardier Dash 8 turboprops, and will take two more new Q300s this year.
Barnette believes new US services are good for the Caribbean. “As US carriers expand long hauls, it represents opportunities to connect those passengers to other islands,” he says. “We’re trying to position ourselves…so that we give potential carrier partners a way to get their passengers to other islands.” Discussions also are taking place with European carriers about connections and codeshares.
“I’m a firm believer there is the potential to get together and talk about some sort of alliance within the Caribbean,” says Barnette. A tie-up could provide carriers some of the benefits alliances can bring, such as combined purchasing power, he notes. “Like SkyTeam, carriers can have their own individual identify, but market under a single umbrella. It’s feasible.” ■
Source: Airline Business
