The coronavirus crisis is likely to have lasting implications for the aviation industry, including Cayman’s national airline, according to two industry experts.
In an analysis shared with the Cayman Compass, aviation consultant Edward Jerrard and former LIAT executive Lloyd Carswell forecast that Cayman Airways could be facing a 50% market reduction if and when the islands’ borders reopen.
They argue that the government-backed airline is uniquely positioned to help revive Cayman’s tourism product post COVID-19.
But they believe restructuring could be necessary to limit the costs to the public and to prepare the airline for a new reality.
They also suggest ditching the controversial Boeing 737 MAX 8 jets – still grounded by civil aviation authorities – and using smaller aircraft to give the airline more flexibility and cut costs.
With the repercussions of the coronavirus crisis being felt across the industry, Carswell and Jerrard believe US carriers are unlikely to resume service into the islands at anything close to 2019 levels.
Demand from US customers is expected to be dramatically reduced and global travel is likely to be impacted for some time.
A moment of opportunity
This presents opportunities, as well as challenges, for the airline, the analysts claim.
“If Cayman Airways can absorb some of the losses in the first few months and survive, the future could present a near monopoly on a number of routes,” the report said.
In the face of a potential deep recession, the analysts said, the partnership between the Department of Tourism and the national airline will be key to securing inbound traffic to the islands.
Even if Cayman’s borders open before the end of the year, Jerrard, a former manager of airport services at Cayman Airways and a former lecturer at the University College of the Cayman Islands, believes key routes like New York and Chicago may not be considered safe or attract sufficient numbers to justify recommencing service.
“With a dwindling market in the US and competition from other Caribbean islands all vying for the same customer, it is going to be difficult times for Cayman Airways and the other Caribbean-based airlines,” the report stated.
Jerrard believes government’s historic willingness to cover Cayman Airways’ operational losses as a strategic tool to support tourism means it is likely the national carrier will survive the lean period – albeit at an increased cost to the public purse.
He thinks that strategic element will be more useful than ever – allowing Cayman to be flexible about which cities it services.
“The role of Cayman Airways is paramount to the success of the Cayman economy, once COVID-19 has been managed and a vaccine is available,” he wrote in the piece, co-authored with Carswell.
The increased pressure on the public purse and the reduction in revenue from Cayman Airways should necessitate a rethink of the airline’s role post COVID-19, the analysts argue.
They believe a significant restructuring of the airline will be required to cut costs and make it more efficient for a new reality.
One aspect they believe will have to be addressed is the MAX 8 planes. The aircraft type has been grounded by every civil aviation authority in the world since early 2019 after fatal accidents in Indonesia and Ethiopia.
Though Boeing is compensating airlines and leasing companies for the losses incurred, the consultants believe there will have been significant financial repercussions for Cayman Airways from having two jets out of service for so long.
With Boeing’s facility in Seattle shut down amid the coronavirus outbreak in Washington state, they say it is difficult to forecast if and when the aircraft would be cleared to fly again.
In any case, they argue, it is not certain that the MAX 8 will be the right aircraft for Cayman Airways in a post-COVID world.
They wrote, “What is clear is the airline needs to look at the legal and financial implications of cancelling the lease and sourcing alternative aircraft at a cheaper rate, sized to meet the market and the destinations to be served at an optimal operational cost.”
They suggest 30-seater aircraft like the Saab, which has been deployed as a commuter service between Cayman Brac and Grand Cayman, could be used for shorter regional routes, like Montego Bay, Ocho Rios, Havana or Isle of Pines.
“This smaller aircraft could make it financially feasible to operate with low traffic numbers, once the borders are open,” their report stated.
Similarly, they believe Cayman Airways would benefit from running mid-size planes on a regular service to a hub like Fort Lauderdale, and negotiating ‘code-share’ agreements with larger airlines for onward travel.
Such deals would facilitate travel from a range of destinations, strategically timed to link with Cayman Airways’ flight schedule.
“Jet Blue could provide enormous feed into Cayman Airways from all its US network served into Fort Lauderdale,” the consultants wrote.
“Similarly, COPA in Panama could feed significant passenger numbers from the Central and South America market through their Panama hub to Cayman.”
Cutting management salaries, advance-ordering fuel at current low prices, analysing and assessing route performance, and renegotiating ground-handling contracts are also identified by the two men as ways to minimise costs.
They believe there will also need to be much thought given to which routes would become viable on what time scale after the coronavirus crisis subsides.
Cayman Airways will need to develop an operating and marketing plan for returning to service leaner and more efficient, and more able to meet the changed demands of travellers, they wrote.
“With social distancing being the norm for a considerable length of time to come, it may be worth considering implementing a ‘European-style fake business class’ – with the middle seat unsold – for an increased price over the economy fare.”
The analysts conclude that the crisis offers an opportunity for the Cayman Islands to re-assess the role of the national airline.
“Cayman Airways has, for some time, been in dire need of total restructure,” they said. “The current climate is a compelling driving force, for the survival of people, businesses, economies.
“Could there conceivably be a better time to plan, strategise and execute such vital changes for the long-term viability of the company and the people it serves?”
- The Cayman Compass contacted Cayman Airways to contribute to this article but had received no response by press time.