Caribbean air transport - Documents & Reports - World Bank

91 Pages·2006·6.62 MB·English

by  World Bank Group

R Report No. 36863-LAC
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Finance, Private Sector and Infrastructure Department (LCSFP)
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Table of Contents
Acknowledgements .......................................................................................................................... i
..
Technical Terms .............................................................................................................................. .1.1.
Executive Summary ....................................................................................................................... iii
I. Introduction and Objectives ......................................................................................................... 1
I1. Civil Aviation, International Trade and Tourism in Caribbean Economic Development .........2
I11. What Can Air Services Do For Tourism Development? .......................................................... 5
IV. Policy and Regulation of Air Services. ................................................................................... 12
V . Regional Airline Services ........................................................................................................ 24
VI. Where Do We Go From Here - and How? ............................................................................. 36
Annexes ......................................................................................................................................... 41
Annex 1 - Caribbean Air Transport Services Symposium, Barbados: June 1-2, 2006 ................4 2
Annex 2 - Caribbean Regional Organizations and their Membership.. ........................................ 45
Annex 3 - Caribbean Tourism and Transport Statistics ................................................................ 46
I. Trends and composition oft ourist arrivals ............................................................................ 46
I1. Dominican Republic - Tourism trends and air transport services ........................................ 48
Annex 4 - Air Transport Services Case Studies ............................................................................ 50
A . Aruba .................................................................................................................................... 50
B . Barbados ............................................................................................................................... 56
C . Mauritius .............................................................................................................................. 64
Annex 5 - List of Reports and References .................................................................................... 75
Annex 6 - List of Persons Met and/or Interviewed ....................................................................... 77
Map IBRD 34974 .......................................................................................................................... 82
.
List of Tables Main Text
Table 1: Caribbean Arrivals by Air. 2004-2005 ............................................................................................................ 4
Table 2: Intra-Caribbean Movements by Air. 2000-2003 .............................................................................................. 4
Table 3: Aviation Safety Status in Selected Caribbean Countries ...............................................................
Table 4: Caribbean Airlift Capacity - by Airline .......
Table 5: Caribbean Airlift Capacity - by Country ...................
Table 6: OECS - Analysis of Intra-EastemC aribbean Airlift .
Table 7: Regional Airlines Operational Performance
.
List of Boxes Main Text
Box 1: Airport Security in OECS ...................
Box 2: Air Services Policy in Aruba and B
Box 3: Key Features of the CARICOM MASA . ............................................ 15
Box 4: Recent International Experience in ................................................................... 16
Box 5: Examples ofS ubsidized Air Services .............................................................................................................. 20
Box 6 : The Fiscal and Economic Impact of LIAT Operati
Box 7: The Experience of Mauritius. ....................
Box 8: Jamaica - One Approach Towards Estimat
-
List of Charts Main Text
Chart 1: U.S. - Caribbean Traffic Compared to Other Regions .................................................................................... 3
Chart 2: Passenger Arrivals by Carrier in 2003 ........................................................................................................... 25
-
List of Tables Annexes
Table A4- 1 : Weekly flights by Airline and Destination CountryRegion: February 13-19 , 2006 .............................. 60
Table A4- 2: Weekly flights by Airline to USA Airports: February 13-19, 2006. ...................................................... 61
Table A4- 3: Weekly flights by Airline to European Airports: February 13-19, 2006 ................................................ 61
Table A4- 4: Tourist Arrivals in Mauritius from Country of Origin ........................................................................... 65
Table A4- 5: Overview of key Bilateral Air Services Agreements ............................................................................. 66
-
List of Charts Annexes
Chart A3- 1: Tourists Arrivals to Selected Caribbean
Chart A3- 2: Tourists Arrivals to Selected Caribbean
Chart A3- 3: Tourists Arrivals per Capita in Selected
Chart A3- 4: Tourists Arrivals per Capita in Selected
Chart A3- 5: Tourists Arrivals by Main Market (in percentage of total) .....................
Chart A3- 6: Dominican Republic: Tourist Arrivals by Main Market (in percent)
........
Chart A3- 7:T otal Passenger Movement by Air
Chart A3- 8: Total Passenger Movement by Air (perc
Chart A3- 9: Total Scheduled Passenger (Arrivals and Departures) by Airport. ...................................... .49
Chart A3- 10: Total Charter Passenger (Arrivals and Departures) by Airport ............................................................ 49
Chart A4- 1 : Tourist (Stop-Over) Arrivals per Capita in Selected Countries, 2004 .................................................... 50
Chart A4- 2: Aruba Real GDP and Tourism Sector Performance (percent change) .................................................... 50
Chart A4- 3: Tourist Arrivals by Country in 2004 (in percent of total) ....................................................
................
Chart A4- 4: Tourist Arrivals by Country (Non-US)
Chart A4- 5: Air Passenger Arrivals to Amba by Carrier. .....................
Chart A4- 6: Real GDP and Long-Stay Tourist Arrival Growth Rates .
Chart A4- I:B arbados: Tourist Arrivals by Country of Residence .......
......
Chart A4- 8: Tourist Arrivals by Market, 2004
Chart A4- 9: Passengers (EmbarkedDisembarked
Chart A4- 10: Passengers (EmbarkedDisembarkedTransit) Carried by Charters in 2004 ......................................... 60
Chart A4- 11 : Load Factor on Selected Routes ............................................................... .68
Chart A4- 12: Destination and Share of Cargo
Chart A4- 13: Contribution to Passengers Tra
Chart A4- 14: Contribution to Freight Traffic and Revenues ..............................................................
Chart A4- 15: Shareholding of Air Mauritius Ltd. (March 2005) ........................................................
Chart A4- 16: Number of Hotel Rooms and Annual Growth Rate ..........................................................
Chart A4- 17: Hotel Occupancy Rate .............................................................................
Chart A4- 18: Average Length of Stay in Hotels ................................................................
AcknowledPements
This report was prepared by Douglas R. Andrew (Lead Infrastructure Specialist) and Stephen J.
Brushett (Lead Transport Specialist).
The report takes into account the results of a stakeholder symposium that was held in Barbados,
June 1-2,2006, details ofw hich are provided in Annex I oft his report.
The report also takes into account the findings of a “Caribbean Air Transport Services Study -
Air Fares Yield Analysis and Best Practices Simulation Model” carried out by a team from Inter
VISTAS Consulting Inc. led by Douglas Wilson, Director of Transportation, Forecasting and
Planning under funding provided by the Bank.
Specific contributions to the preparation of the report were made by: Ingrida Rosa (Consultant
Economist), who collected and analyzed data for this report and who prepared the Aruba and
Barbados case studies and by Vickram Cuttaree (Infrastructure Economist), who prepared the
Mauritius case study. Marc Forni (Consultant) provided information concerning air transport
infrastructure, safety and security improvements in the OECS countries. Additional research was
carried out by Julieta Abad and Nicolas Serrie. Annette Minott assisted in the organization oft he
above-mentioned stakeholder symposium and of the various country visits. Maria Constancia
Mallo provided assistance in the editing and formatting of this report.
Peer reviewers were Charles Schlumberger (Senior Transport Specialist), Pierre Pozzo di Borgo
(Senior Transport Specialist) and Jordan Schwartz (Senior Infrastructure Specialist).
Special thanks for their contributions and insights are due to McHale Andrew (Research and
Development Adviser, Caribbean Tourism Organization - CTO) and Ian Bertrand (Civil Aviation
Consultant, El Perial Management Services) responsible for carrying out the parallel EU funded
study on air transport services under the Caribbean Regional Sustainable Tourism Development
Program (CRSTDP).
Technical Terms
International air service among states is governed by the International Air Services Transit
Agreement (IASTA) and by complementary bilateral air services agreements (BASA) which
cover the rights of airlines of one state to fly (and carry passengers and cargo) into and beyond
another state. The rights permitted in terms of airline entry, the frequency and capacity of flights,
pricing and regulation of airline co-operation as well as other operational issues, are normally
covered in these agreements which are categorized by defined "freedoms oft he air" in ascending
order of "liberalizationy', i.e.:
1" freedom - aircraft of one state flying over another state
2"df reedom - landing for technical reasons in another state
3'd freedom - carriers from state A setting down passengers in state B
4'h freedom - carriers from state A picking up passengers from state B
5'h freedom - carriers from state A picking up passengers in state B destined for state C
or setting down passengers in State B originating in State C
The 1" and 2nd freedoms are included in the IASTA. The other freedoms would normally be
included in the BASA, though 5th freedom rights are rarely granted.
"Open Skies" (OS) bilateral air service agreements usually have the following characteristics:
unlimited airline designation provided the airlines have at least their principal place of
business in the designating state;
an open route schedule;
open traffic rights;
open capacity;
airline investment provisions which focus on effective control and principal place of
business, but protect against flag of convenience carriers;
third-country code-sharing;
a minimal tariff filing regime; and
application ofn ormal competition law
The Multilateral Agreement on the Liberalization of International Air Transportation
(MALIAT) provides for:
an open route schedule
open traffic rights
open capacity
designation based on effective control and principal place ofb usiness but protection
against flag ofc onvenience carriers
multiple airline designation
third country code sharing
minimal tariff filing regime
retention ofc abotage
11
Executive Summarv
Introduction. Safe and secure air transport services, provided cost effectively in response to
demand, are key contributors to the economic development of the Caribbean region. The present
study builds on the results of earlier analyses of the constraints to improved air transport sector
performance and seeks to provide guidance to the Caribbean governments on available strategic
options centered on two specific areas: (i)im proving sector policy and regulation for air services
at both the national and regional level, including approaches to securing service continuity on
potentially unprofitable routes; and (ii)a ddressing the future role of regionally-owned and
operated airlines and the contribution of governments thereto.
Background. The report has been prepared in response to the demand initially expressed by the
countries of the Organization of Eastern Caribbean States (OECS) further to which the required
study was included in the FY06-09 Country Assistance Strategy. The audience for this report is
however the Caribbean Community as a whole, given the broad regional interest and topicality
of the subject matter, and Jamaica, Barbados and Trinidad and Tobago in particular given their
ownership interests in airlines which play a critical role in inter-island interconnectivity in the
Eastern Caribbean.
The report takes into account the results of a stakeholder symposium held in Barbados June 1-2,
2006 which was attended by 37 participants - from 7 different Caribbean countries representing
governments, airport authorities and regionally- based airlines and from various regional
organizations involved in civil aviation, tourism, economics and development finance. The
symposium notably confirmed the strategic importance of sustaining effective regional services;
making foreign based airlines want to fly to the Caribbean; and making regionally based airlines
viable. Participants also noted that effective air transport services would be a critical
underpinning to the successful implementation of the Caribbean Single Market and Economy
and to exploiting opportunities for regional, multi-destination tourism.
Conclusions and Recommendations. Four main sets of conclusions and recommendations
emerge from the report:
1. Evidence from international experience supports the view that a policy of liberalization is
effective in securing cost effective, reliable and quality air transport services in most cases.
Competitive forces and technological change in the industry (smaller, efficient aircraft) increase
the opportunity to provide services to various markets at a profit. This holds true inter alia in the
Caribbean sub-region where recent empirical evidence suggests: lower fares fiom the United
States to destinations adopting an “open skies” regime compared to those that do not; some
examples of where private sector airlines are able to profitably service small island markets.
Caribbean nations would thus be advised to adopt a fully unrestrictive policy towards air
services provided that: (i) local airlines have a right to compete, with the “community o f
interest” principle applying; and (ii) adequate arrangements are put in place to ensure fair
competition. In this regard negotiated “open skies” style bilateral agreements should be
complemented by a revision to the CARICOM multilateral agreement to open new competitive
opportunities for the provision ofr egional air services.
...
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2. Evidence from international experience indicates that there are few cases where the
public sector has been able to run an airline efficiently and profitably. For specific historical
reasons, there are, however, a number of airlines in the Caribbean sub-region which currently are
part or wholly publicly owned. These airlines are undercapitalized and are generally facing
serious operational and financial problems, with consequent negative impact on the quality and
reliability of regional services. Caribbean nations with ownership interests in regionally based
airlines would be advised to adopt clear and appropriate policies and to take necessary actions
to allow such airlines to compete, to become projtable and earn appropriate returns or else go
out of business. Open-ended, non-transparent and unpredictable government support for these
airlines should not continue. A formal ownership agreement between each government and the
airline board could be struck covering, inter alia: target rates of return; lines of business; risk
management policy; dividend policy; Board accountability to the government; and financial
support from the government necessary to implement the policy.
3. Continuity of inter-island air services - especially in the Eastern Caribbean - in a
liberalized market is a legitimate concern. International evidence suggests that there are many
countries adopting liberal air services policies that have recognized the importance of securing
social services (public service obligation). There are a number of working schemes in place for
addressing this need, though relatively few so far in developing countries. Caribbean nations
would be advised to adopt appropriate policies in regard to public service obligation which
would underpin, for example, the award of subsidies to airlines for selected routes and services
on the basis of a competitive process - that is to ensure “competition for the market ’’ where
“competition in the market cannot be sustained. The policy should clearly establish inter alia:
”
objectives; target beneficiary groups or communities; payment arrangements; and performance
monitoring.
4. A liberal environment for the provision of air transport services does not obviate the need
for effective policy and regulatory capacity. Governments will need the capability and the know
how to effectively manage the opportunities created by competition for services to ensure
overarching policy objectives can be met and satisfactory services to the consumer can be
secured. A good start, for example, has been made in this direction in the Eastern Caribbean in
regard to the management of air safety and security. Further to this, Caribbean nations would be
advised to take the opportunity to now generally review and selectively strengthen public sector
capacity, in order to assure effective monitoring of air transport services, to critically assess
policy options and their impact on sector performance, and to develop and sustain knowledge o f
air transport best practices.
iv
I.I ntroduction and Obiectives
1.1 Safe and secure air transport services, provided cost effectively in response to demand,
are key contributors to the economic development of the Caribbean region. The present study
builds on the results of earlier analyses of the constraints to improved air transport sector
performance and seeks to provide guidance to the Caribbean governments on available strategic
options centered on two specific areas: (i)im proving sector policy and regulation for air services
at both the national and regional level, including approaches to securing service continuity on
potentially unprofitable routes; (ii)a ddressing the future role of regionally owned and operated
airlines and the contribution of governments thereto.
1.2 This report has been prepared in response to the demand initially exP ressed by
stakeholders in the countries of the Organization of Eastern Caribbean States (OECS) , further to
which the Bank agreed to the inclusion of an air transport rationalization study in the FY06-09
Country Assistance Strategy. The audience for the report is however the English speaking
Caribbean region as a whole, not the OECS alone. Air transport policy reform and the
improvement of Caribbean air services are matters of broader regional concern and in fact a
matter of specific attention at this time in the Caribbean Community (CARICOM). Island
interconnectivity, .especially in the Eastern Caribbean, is impacted inter alia by the status and
performance of various regionally-based airlines, in a number of which Caribbean governments
have significant strategic and financial interests - particularly in Air Jamaica, BWIA (British
West Indies Airways) and Leeward Islands Air Transport Services (LIAT). Thus, in addition to
the OECS, particular attention is paid in this report to the issues and options for Jamaica,
Barbados and Trinidad and Tobago (TT).
'
Comprising Anguilla; Antigua and Barbuda; British Virgin Islands; Dominica; Grenada; Montserrat; St. Kitts and
Nevis; St. Lucia; and St. Vincent and The Grenadines.
11. Civil Aviation, International Trade and Tourism in Caribbean Economic Develonment
EfJicient demand responsive air transport services are critical for international trade and
economic development. This applies with particular force in the Caribbean in view of its
geography, its openness and its dependence on the tourism sector. While Caribbean tourism
growth has lagged world average growth rates, the sector has responded well post 9/11 and is
diversifLing to meet new market demands. The Eastern Caribbean may be more vulnerable
however than other parts of the region to trends towards new destinations. Whereas the cruise
market is an important one, air arrivals account for most of the time - and money - spent in the
Caribbean market. The most signflcant sources o f tourism are North America and - less so -
Western Europe, but there is also a substantial amount of intra-Caribbean travel.
2.1 A well functioning air transport sector offers significant economic development benefits2.
Integration of developing nations into global and regional markets - and the concomitant
benefits that come from increased trade and economic diversification - is inconceivable without
adequate air transport infrastructure (ATI) and the transport services to make use of them. The
attractiveness of developing nation markets for new business opportunities will depend critically
on how effectively rising demand for air travel, both passenger and freight, can be met.
2.2 The arguments for a strong, responsive air transport sector apply with particular force in
the Caribbean region. This is a region essentially comprised of a large number of diverse, small
island economies which are highly dependent on international trade. Geographical realities thus
also place serious limits on the traditional role of land transport in meeting demands for mobility.
Additionally, maritime transport has thus far had a limited economic impact and is largely geared
to meeting the demands of niche markets for passenger travel (cruises, yachting) with a limited
number of ferry services available to the traveling public. As discussed below, the tourism
sector, accounting for about 18% of GDP and 34% of employment, is now, and is likely to
remain, a driving force for Caribbean economic growth and uniquely reliant on good air linkages
to its main markets, in North America and Western Europe. Economic diversification in the
region is giving rise to additional demands for good connectivity, though both transport and
telecommunications in such areas as financial and information services, and other “offshore”
businesses such as in education and health3. Most nations also have important “diaspora”
communities: cost-effective air services contribute to their continued linkages to home countries
with the associated economic benefits.
2.3 The Caribbean region is recognized as one of the world’s leading tourism destinations,
traditionally driven by “sand, sea and sun” opportunities packaged to suit a variety of demands.
Proximity to the USA - accounting for over one third of all tourists and same day arrival to the
primary destinations in the north of the region - and recent diversification into new niche
markets - adventure, nature and event based tourism - are among factors that should fuel future
tourism sector growth. Tourism in the Caribbean is, however, subject to intense global
competition and inevitably there is significant price sensitivity. In this regard, it should be
remembered that the USA is simultaneously an important source of tourist traffic as well as a
World Bank 2005e.
This paragraph owes largely to World Bank 2005c.
2