Operating out of paradise is no vacation. The heads of two small carriers, one in the heart of the Caribbean and the other in tropical Guyana, talk about their survival strategies.

Report by Brian Homewood in Antigua and Guyana

Liat's new chief executive, Garry Cullen, likens himself to the manager of a soccer team threatened with relegation to a lower league. The Antigua-based airline, which for 40 years has been the backbone of the transport system between the small islands of the eastern Caribbean, has chopped and changed its chief executives before any of them has had a chance to put the carrier back on its feet. "It's been like a team struggling at the bottom of the second division," he says. "You dump the manager before you get a chance to work your way back up."

Cullen, former group chief executive of Aer Lingus, has been coaxed out of retirement to try to rescue an airline that has become a Caribbean institution, but which is now threatened by competition from a start-up airline. He is drawing up a three-year plan to make LIAT solvent, and company chairman Wilbur Harrington has made it clear that Cullen represents LIAT's last chance.

LIAT, which has its headquarters at Antigua's VC Bird International Airport, is partly government-owned and partly private. A 29% stake belongs to Trinidad-based airline BWIA, and shares are owned by the governments of Antigua, St Lucia, Dominica, St Vincent and the Grenadines, Grenada and St Kitts. LIAT provides essential links between the islands using a fleet of nine de Havilland Dash 8 36-seaters and three Dash 8 50-seaters, flying from Puerto Rico down to Guyana.

The airline used to have a near monopoly on its routes, but is now confronted with a host of competitors eager to move in as LIAT struggles with a raft of financial woes. Cullen says: "The problem, as has happened with many airlines in the world, is that LIAT had a monopoly on 90% of its network for many years, and a monopoly for too long is not a good idea because you become sloppy."

LIAT had such a bad end to 1999, with hurricanes in November and December wiping out traffic, that reports spread about its imminent demise. "LIAT has faced difficult times before, but it's gone through a horrendous time over the last year," says Cullen. "With Y2K and whatever, people did not travel as much as in previous years, so November and December were pretty awful."

The airline's new opposition includes BWee Express, a commuter service owned by BWIA; EC Express, a similar operation started by Air Jamaica; San Juan-based American Eagle; and four tiny operations that shuttle passengers between the smallest islands - Helenair, Winair, Mustique and Carib Aviation. "There are too many players here in the intra-Caribbean market and there's more on the way," says Cullen.

But the biggest threat is posed by newcomer Caribbean Star, which started operations in June and is expected to put up direct competition in Antigua, operating Dash 8s and replicating LIAT's schedule. "Unfortunately, their plans seem to be based on LIAT not existing," says Cullen, "because there is not enough market for two carriers in Antigua, each operating seven or eight Dash 8s over the same routes. At least with BWee Express, its main goal is to be a feed for BWIA, and EC Express is to feed Air Jamaica. But with this airline, its main purpose appears to be to try to take out LIAT and its network."

But Cullen believes LIAT can emerge victorious. Providing he wins the board's approval, he hopes to begin implementing his restructuring plan at the start of the company's next financial year in November with the aim of breaking even in the first year and making a small profit in the second.

The first move - adjusting the schedule to improve punctuality - has already been made. "A lot of the airlines in this region do not have a good reputation for punctuality," says Cullen. The next step is to modernise the fleet to all Dash 8-300s, adding capacity for passengers and luggage.

Cullen says the company must be more aggressive in the marketplace and leverage the LIAT brand. "Unfortunately, most of the media coverage of LIAT in the last year or two has been entirely negative: 'Will LIAT survive?' - that sort of thing. We need to get out and say what LIAT stands for. It's a 40-year-old airline and nobody knows the intra-Caribbean network better."

LIAT's 850-strong workforce is too big and will have to be reduced, says Cullen. "What I'm working on at the moment is setting productivity and efficiency targets for every department in the company. The critical thing is whether we have enough time to make that turnaround. Competition is coming in just at the wrong time, but they probably wouldn't be coming in unless they thought LIAT was vulnerable. It's a sort of Catch-22." If the restructuring starts to pay off, LIAT plans new routes. The Dominican Republic is one possibility - LIAT used to fly there under licence to a Dominican carrier. Caracas and Jamaica might also be considered.

Alliance talks

Cullen is also working to improve LIAT's relationships with the major carriers that fly into the region, including Virgin Atlantic, BWIA, British Airways, American Airlines and Air Canada. About a quarter of LIAT's passengers are visitors to the region who use LIAT for their onward connections after arriving from Europe or North America.

Cullen, who brought Aer Lingus into the oneworld alliance, says LIAT wants to form a codesharing alliance with BWIA. "We are holding talks with BWIA with a view to strengthening the relationship to see if we can form a true strategic alliance that would make sense for LIAT. I believe BWIA would be strengthened by having a partnership with LIAT because they could offer not only the BWee network, but also the intra-island connection. I'm hoping we can find enough common ground that we can form a true alliance and codeshare. We're engaged in that discussion at the moment. It's part of the strategy to get out of the corner we're in."

But such efforts to work together have been tried many times before, and almost all have fallen victim to Caribbean politics and the strong rivalry that exists between islands.

The Caribbean's popularity as a tourist destination is also being challenged as attractive alternatives emerge. "The US market has been flat," says Cullen, "but islands like Antigua remain popular because they are virtually crime-free, they're quiet and the currency is stable. The European side has built up quite a bit. The arrival of Virgin as a competitor to British Airways has certainly stimulated the market from London."

However, Cullen believes the most important key to LIAT's survival lies with its acceptance by the local population. "Customer loyalty and support for LIAT is very strong in this region because people have a love-hate relationship with it. It's part of them growing up; it's part of how they travel among the islands; it's a very strong brand name.

"We can't shrink the airline because it doesn't make sense. It'll implode, it'll be too small. LIAT's core strength is its network and its presence in all the islands, so we need, in parallel with judicious growth, to add more capacity to our aircraft while taking costs out."

But will Cullen be granted what has been denied to a string of chief executives before him - enough time to see through his plan? He believes the board is prepared to wait and take a long-term view. "There has been an indication of commitment from the shareholders," he says. "If they see an operating plan that they believe is sound and see that LIAT is implementing it, they will keep to that commitment. There's one last chance to get it right now and I believe the board is united in its support." He adds: "Employees are also rallying. People want to engage the enemy and take on the fight. They understand that if you don't go out there fighting, you've no chance."

Source: Airline Business