Caribbean governments back LIAT’s war against rival Star

 - January 9, 2008, 5:09 AM

Government shareholders of Antigua-based regional airline LIAT have pledged to support the ailing carrier’s efforts to combat competitive threats from the likes of regional newcomer Caribbean Star. A committee of regional governments led by St. Vincent prime minister Ralph Gonsalves and composed of Barbados, Guyana, St. Vincent and Antigua has promised to inject $11 million into LIAT, whose CEO, Garry Cullen, has accused fellow Antiguan carrier Caribbean Star of engaging in predatory pricing in the region.

Established just two years ago, Caribbean Star has rapidly become one of the largest airlines in the region, and now claims to control 50 percent of the eastern Caribbean market. Flying a fleet of six 37-seat de Havilland Dash 8-100s and three 50-seat Dash 8-300s to 14 islands, the airline has doubled its passenger numbers in the past year, after losing roughly $30 million during its first year of operation. Cullen has criticized Caribbean Star’s chairman, Texas billionaire Allen Stanford, for what he characterized as an unwillingness to cooperate with neighboring established airlines.

Caribbean Star CEO Paul Moreira countered that cooperation must start with open-skies agreements between neighboring countries. He also lobbied for a single joint aviation authority in the region and railed against governments’ anti-competitive practices, namely regulation of air fares and capacity. As a result of the lack of a cohesive regulatory environment, he said, the FAA imposes Category 2 safety restrictions on some members of the Organization of Eastern Caribbean States, and carriers based in the region cannot compete for business into the U.S.

Caribbean Star recently navigated through a loophole in those restrictions by establishing a new carrier based in Fort Lauderdale, Fla., called Caribbean Sun. In November the new airline won an FAA certificate for public convenience, allowing it to fly between the U.S. and Category 2 countries in the Carib-bean and compete directly with former AMR subsidiary Executive Airlines. Its plans call for scheduled services between San Juan, Puerto Rico, and Antigua, Barbuda, St. Maarten, the British Virgin Islands, St. Kitts and Nevis. It expects to place four Dash 8s at its San Juan base by the end of the year.

Meanwhile, LIAT, which also flies Dash 8-100s and -300s, hopes to complete its restructuring during this year’s first quarter. Aside from the $11 million pledged by the shareholder countries, the airline continues to explore private investment options as well, according to Cullen. But as it tries to win back some of the ground it has lost in its turf war with Caribbean Star, other airlines have accused LIAT of practicing the same predatory pricing strategies of which LIAT accused Caribbean Star.

Nevis Express, for example, claimed it had to suspend its new US Airways code-share service between Nevis and San Juan after LIAT opened its own route on the same day with $100 round-trip fares. “There was not enough volume in general and then LIAT starts its service,” said Nevis Express president Allen Haddadi, according to a report in the St. Maarten Daily Herald. LIAT now serves the San Juan-Nevis route only on weekends. “They saturated it with extra capacity and then afterwards [dropped] their non-stop flights,” said Haddadi. “[LIAT] is crying that it’s losing money, yet it is moving into a market with a Dash 8 that cannot support a Dash 8. That certainly didn’t help.”