BWIA gears up for premier position in the Caribbean

Max Kingsley-Jones/TRINIDAD


Over recent years, BWIA International Airways has regularly pledged to turn itself around financially and to update its fleet. Those promises, however, have been empty, and efforts to restructure the airline have come to nothing - until now.

Late last year, chief executive Conrad Aleong promised that the Trinidad and Tobago carrier would upgrade its short-haul aircraft, establish an island-hopping feeder service and announce the airline's first profit. That he has achieved this, and more, underscores Aleong's determination to establish BWIA as the Caribbean region's premier - and strongest - international airline.

By the end of last year, the airline was in the black for the first time in its 58 years, recording a $9.1 million net profit, compared to a loss of $18 million the year before. "We blew past the $230,000 target set by the strategic business plan," says Aleong.

Next on the agenda is an initial public offering (IPO) and a brand relaunch, which could result in a name change, further regional expansion and restructuring into separate business units - not to mention a decision on the airline's new long-haul fleet and a US airline partner.

Alongside Air Jamaica, BWIA is one of the Caribbean's leading international carriers. It dominates in the eastern Caribbean, with its regional services extending as far as St Maarten in the north and Caracas, Venezuela, in the south.

Medium-haul destinations include Georgetown, Guyana; Kingston, Jamaica, and three North American destinations - Miami, New York and Toronto. The airline's sole transatlantic destination is London, which it serves daily from its Port of Spain base, with flights via St Lucia, Antigua or Barbados.

BWIA's origins can be traced to 1940, when a small private airline formed in Trinidad and Tobago by New Zealander Lowell Yerex was absorbed into the British Overseas Airways (BOAC) group as British West Indian Airways - BWIA. When BOAC disposed of the airline in 1961 (a year before the country's independence from the UK) it was purchased by the Government of Trinidad and Tobago.

As a state-funded enterprise, BWIA's constant losses were subsidised for many years by the national treasury. While Trinidad and Tobago enjoyed income from its natural resources during the oil boom years, BWIA's predicament was tolerable. By the early 1990s, when oil prices had tumbled, the government reluctantly accepted that privatisation was the way forward.

Run-up to privatisation


The formal decision to privatise was made in March 1993, and Port of Spain-born Aleong (left) was immediately appointed to lead the airline in the run-up to its privatisation in 1995. But before 66.5% of the airline was sold to the private sector (including 15.5% to employees), Aleong had left to run Dutch Caribbean airline ALM, frustrated by certain aspects of the BWIA's new business plan.

Straight after privatisation, the carrier underwent three years of turmoil and false starts, as chairmen and chief executives came and went. Deals were made for an all-new fleet of Airbus A321s and A340s for short- and long-haul networks, and Embraer RJ-145s for regional routes - all later terminated.

By late 1997, with BWIA having lost $47 million since its privatisation, Aleong again became involved. Initially, his airline consultancy, CA International, was signed by chairman Lawrence Duprey to undertake a customer service improvement project, but within three months Aleong was back at the helm. In February last year, his consultancy was contracted to manage the airline.

Aleong had the mandate to turn BWIA into "a customer driven, on-time and profitable carrier" and had less than two months from his appointment to draw up a three-year business plan, parts of which have already yielded tangible results.

"During my first tour I realised that the culture of the airline would have to be transformed to change the way the employees view themselves and their roles," says Aleong. There is a strong union movement among the 2,200 employees. Aleong realised that changing their attitudes would require an intelligent, rather than belligerent, approach - something previous managements had failed to grasp.

First profit recorded

The new strategy was designed to provide a better business and operational focus and improved yield management systems. It also reaped huge cost savings - to the tune of $4 million (excluding fuel) - an area in which he had begun to make gains during his earlier tenure. Revenues were also up by $15 million on 1997, despite 7,000 fewer passengers being carried, thanks to a better yield-management strategy.

Buoyed by the new strategy's overnight success, BWIA has taken the first steps to a major fleet expansion and aims to boost funds further with an IPO later in the year.

With the airline's short-term prospects brightening, Aleong's primary aim was to shore up the airline's short-haul feed. To that end, BWee Express, a new low cost regional division operating two 50-seat Bombardier Dash-8s, has been set up.

The short haul airline was a departure for BWIA, which has traditionally concentrated on medium- and long-haul operations. The carrier's smallest aircraft is the Boeing MD-80, five of which are operated, and the fleet includes four long-range Lockheed L-1011 TriStar 500s. "We are building a hub-and-spoke network at our Port of Spain base, and the regional feed was important to make this work," says Aleong. The airport is spending $200 million to upgrade its facilities, with a new terminal and parallel taxiway due for completion late next year, and plans for the area to be turned into a free-trade zone.

BWIA had hoped to link with incumbent east Caribbean regional airline LIAT, in which it has a 29% shareholding, and to hook up to its established regional network to provide feed. It appeared to make sense for the two carriers to cement operational links, as they face increasing competition in their regional markets from San Juan, Puerto Rico-based American Eagle carrier Executive Airlines and from Air Caribbean, which is based on BWIA's doorstep in Port of Spain.

But Antigua-based LIAT has its own financial problems and is working to a different agenda. "We have tried to link with a commercial agreement and a merger - neither has worked," Aleong says, and so he has decided to pursue his own strategy.

BWee Express launched services with its two new Dash 8s on 1 March, operating a network in the southern and eastern Caribbean from Port of Spain. Initial destinations include Barbados, Caracas, Grenada and St Lucia.

Funding BWee Express Dash 8s


"We used cash from our 1998 profit to pay for the deposits on two Dash 8s, plus options for two more," says Aleong. The third aircraft, is on order and will be delivered in October, while the fourth is due around next March.

BWee Express performance has beaten all expectations, with load factors running about two months ahead of the plan. "We are already seeing loads that we did not expect until the July/August peak season when we generate 40% of all our revenues for the year," says Aleong. He thinks that the new operation could boost travel throughout the islands by up to 50%, because of the improved services BWee Express offers.

When the third aircraft arrives, more frequencies and new destinations will be added, including Georgetown (Guyana), St Vincent, Tobago and an eastern Venezuelan point, probably Maturin. Aleong says that two more Dash 8s may be taken next year, depending on discussions with LIAT on joint operations, and the aircraft may be taken as the larger, 70-seat, Q400.

"We are keeping our hand open to LIAT on a link, but we are disposing of our shareholding as it does not gives us much say in the airline's strategy," says Aleong. Discussions are under way about the sale of the stake with the Antigua and Barbuda Government, which owns 31%of LIAT, with other Caribbean states.

Aleong envisages that an interline or codeshare agreement with LIAT could enable BWIA to concentrate on the southern Caribbean, while LIAT would focus on its northern Caribbean network and Barbados. "Logically, St Lucia would be our most northern point, and we could feed each other's hubs," he says. If the two sides fail to reach a co-operation deal, BWee Express will expand into the northern Caribbean, Aleong adds, and will go head to head with LIAT.

The prospectus for the IPO has been completed, which Aleong expects to take place in the fourth quarter of this year. "We had been aiming to raise $50 million, but we are looking for slightly less now," he says, adding that the investment is being used "mostly to fund the new fleet acquisitions". The plan had originally called for the IPO earlier in the year, but "there have been so many things to go through" that the target has slipped, he says.

Aleong next turned his attention to the short-haul jet fleet update. This process was initiated in 1995 by a predecessor, who signed a lease deal for two 180-seat A321-100s from International Lease Finance (ILFC). The choice of Airbus made sense because the airline also planned to acquire the long-haul A340 and had signed a co-operation agreement with Air Jamaica - an established Airbus operator.

The two A321s were delivered during 1996 on five-year leases, but they proved unsuitable for the airline's network as they could not operate non-stop services to points such as New York in certain conditions, says Aleong. In 1997, BWIA subleased the Airbuses to Turkish charter airline Air Alfa, and rethought its fleet renewal plan.

In the meantime, under the co-operation agreement, some BWIA A321 pilots were seconded to fly A320s for Air Jamaica, where they remain.

Early this year, BWIA selected the Next Generation Boeing 737 to replace its MD-80s. A deal was signed with ILFC for six 154-seat 737-800s for delivery from November, plus a secondhand 737-700, which arrived in May on an 18-month interim lease. The remaining -800s will be delivered by the end of next year. Aleong adds that the ILFC deal untangles the airline from the A321 leases, as the deposits have been transferred to the new narrowbody aircraft. BWIA has taken the 737s on 10-year leases, with a purchase option.

The new 737-800s will supplement, and eventually replace, BWIA's five 141-seat MD-80s, all scheduled for removal by 2001. They are operated on the airline's US services, as well as on certain inter-island services, some of which are being taken over by BWee Express' Dash 8s. The 737s will also replace the airline's 240-seat TriStars on North American trunk routes (New York and Toronto), to allow increased frequencies.

In-flight entertainment

As well as being able to serve all the existing and planned North American destinations all year round non-stop, the 737s will enable BWIA to improve its in-flight service, by offering the latest drop-down video screen in-flight entertainment (IFE) system.

When the business plan was drawn up in March last year, Aleong was targeting a break-even for the first year, followed by larger profits in the second and third. With the impressive and sudden turn-around in year one, Aleong says he hopes for, and expects, to achieve similar earnings this year. "One swallow does not a summer make-we are not going to rest on our laurels," says Aleong, as he works with the BWIA board to push through second-year strategies.

The most significant restructuring so far of the airline is at hand, with four separate profit centres created, covering international operations, regional services, maintenance/training and cargo, under a central holding company. "There may even be a charter airline division," says Aleong, who adds that the carrier is also aiming to boost revenue through additional third-party maintenance contracts.

The group restructuring, which could be implemented before year-end, will incorporate more competitive employment contracts to ensure costs remain under control.

Also due later this year is the selection of a new long-haul aircraft for the airline's transatlantic services to London. Orders for two A340-300s to replace BWIA's four TriStars were cancelled in 1996 after continued losses, combined with a rethink on the carrier's long-haul strategy.

Discussions were even held with Virgin Atlantic, which could have seen the UK carrier take over BWIA's transatlantic flights.

The TriStars will remain with BWIA in the short term, and a major refurbishment of the 17/19-year-old aircraft is under way. Two are being equipped with new, two-class, interiors and improved IFE systems.

As the new 737-800s assume the North American routes, two will be fitted with a higher density one-class (280-seat) cabin to serve the recently created BWIAVacations inclusive tour division and could form the backbone of a new charter airline division. The higher density cabin will enable the airline to compete better with rival charter carriers and could pave the way for additional European destinations beyond London, such as Frankfurt, Munich, Stockholm and Zurich. The freeing up of the TriStars may also enable new South American destinations to be added, such as Rio de Janeiro and Sao Paulo.

TriStar replacement decision

The TriStars are leased until 2001/2 and a choice on their replacement lies between the A340 and Boeing 767-300ER, says Aleong. "We aim to make the decision this year, and are in preliminary discussions," he says.

BWIA has a joint fares agreement with Lufthansa in London. BWIA is also close to tying down a US airline partner to boost its US feed and to enable it to compete more effectively with American Airlines. "We are talking to Continental, United and Delta," says Aleong and, although the former appears to be the front runner, a decision is not expected to be made until July.

Potential new US destination points include Atlanta, Boston, Houston, New York Newark and Washington Dulles, but a decision will depend upon the partner selected.

With BWIA transformed almost unrecognisably from its former self, a rebranding would be logical - its first in almost 30 years. Details are still being hammered out, including selection of the new name, but "West Indian" appears to be a front runner for the planned October relaunch.

Source: Flight International