Red flag for REDjet
Low-cost carrier REDjet is yet to receive official clearance from the Trinidad and Tobago government, but its presence in the market has already triggered a price war and concerns that its model is unsustainable.
It was just over a week ago that the airline announced plans for a May 8 start-up, unveiling fares out of Barbados as low as US$9.99 to Trinidad, Guyana and Jamaica. This prompted an immediate response from rivals LIAT with a US$22 fare to any two destinations and Caribbean Airlines with a US$94 special to Trinidad and US$144 to Kingston.
REDjet’s plan, however, hit a snag after Trinidad’s Minister of Transport and Works Jack Warner admitted last week that he was in the dark about the low-budget carrier’s ability to secure permission to operate in his country. Since then, the carrier has initiated efforts to safeguard its permission to fly there.
When contacted last night, director general of the Civil Aviation Authority in Port-of-Spain, Ramesh Lutchmedial, said the application was being processed but could not say exactly if or when permission would be granted.
“It is too early to say how long it is going to take, but it is being processed right now. We are treating REDjet the same way we treat any carrier who has applied for permission to fly to Trinidad and Tobago,” he said.
But LIAT’s chairman Jean Holder is today raising a different red flag.
“If you are producing a service or a product of any kind and trying to sell at a lower cost than the cost of production, it doesn’t matter what you are selling; it is not a sustainable business model,” he told the SUNDAY?SUN.
President of the Barbados Travel Agents Association, Ann Sealy, is also cautioning that the airline industry could run into turbulence as other airlines try to match REDjet’s fares.
She argued that the current price strategy could work “up to a point”, but could also serve to “dilute the revenue and cheapen the value” of airline services.
“While I have no problem with reduced airfares, they must be on a sustainable basis and should not be to the detriment of the industry.”
“Already most [airlines] are not giving meals and you have to pay for bags. They are trying to collect revenue from all different areas, and if your main revenue of ticket fares has been significantly reduced, what else will the airlines remove to remain competitive?” Sealy asked.
She added: “If at regular fares, carriers are going bankrupt, what will happen here?
“We have to learn from our experiences with Caribbean Star, Caribbean Express . . . who came with budget specials, like ‘buy one get one free’ deals, and they don’t last long in the market. Unless you are travelling with full loads, it is not possible to sustain these fares.”
But Stephanie Von Oppen-Taylor, chief executive officer of Virgo Communications, responsible for REDjet’s public relations, believes the airline has a sound business plan and that the low-cost structure can be maintained.
“REDjet is not recreating the wheel, it is the same business model as others around the world,” she told the SUNDAY?SUN, noting that already there had been an overwhelming response to REDjet’s offers.
The initial price of US$9.99 does not take into account the cost of food and baggage. REDjet, which is operating 149-seater jet aircraft, also charges passengers more for priority seating.
However, Sealy cautioned travellers to be aware of the advertising strategies of some airlines.
“The average person looks at what looks cheaper initially, and when you hear $9.99 you are hooked,” she said, pointing out that an entire aircraft would never operate at the special rate, particularly in this current environment where fuel costs were high.
In LIAT’s case, for example, Holder said it had been made to pay the full price of US$140 a barrel for fuel. He added that the airline had not been subsidized by governments since 2006.