The most significant air service provider in the region is the still developing, but potentially powerful BWIA/LIAT/Tobago Express/Air Caraibes/TIA/Carib Aviation alliance. The major partners are BWIA with its regional and international route rights and LIAT with its regional route rights.

However, both airlines have negative net worth and are currently dependent on very reluctant creditor financing and government guaranteed short-term loan financing for immediate survival. Their individual business plans assume functional cooperation with each other (but to different degrees) and concessionary regional government financing to cover critical cash needs. Their private sector shareholders have not committed to further investments.

Both airlines, therefore, have the same short-term requirement, to survive and lay the foundation for achieving sustainable investment-attracting profitability in an environment that is more competitive and has more demanding customers looking for increased value.

Rationale for a Merger
There is a significant degree of overlap of the regional route rights of both airlines. Collaboration on services to city pairs made available by common regional route rights reduces the level of competition, has the potential to reduce costs but raises the risk of monopolistic behaviour. Other aspects of functional cooperation also have the potential to reduce costs. If used conscientiously by management, this potential permits profitability at lower airfares, a wider flight network and a broader spread of services across the day between city pairs.

A full merger as opposed to aggressive functional cooperation leads to further cost reduction as duplicate head office and support functions are rationalised, a likely greater commitment to a single corporate objective and potentially faster and more flexible decision-making. In the current air transport market environment, optimum cost reduction, passionate commitment and the ability to anticipate and quickly respond to changing market conditions are significant contributors to survival, creating the potential to allow BWIA and LIAT to operate at a profit while fulfilling their socio-economic obligation to the region.

A merger of the operations of BWIA and LIAT, but in a competitive environment that rewards risk-taking and innovation, is therefore to be preferred to functional cooperation between the two airlines.

Brand Retention
The strengths of the individual BWIA and LIAT brands are such that they should be maintained as separate entities, at least in the short term. The LIAT brand has high regional and some international recognition, significant regional support and is embedded in the social and business life of the Eastern Caribbean region.

The BWIA brand has high regional and international recognition, very high domestic support and high regional support and it, too, is embedded in the social and business life of the Eastern Caribbean region. It represents 'home' at international airports to the regional community and excellent in-flight service and safety.

Both brands, if infused with improved efficiency, customer focused sensitivity and low cost structure, would have significant sustainable value.

The challenge of the integration process is to enhance and operate the two brands as complementary products to effectively serve the Eastern Caribbean region and ensure sustainable, private-sector attractive profitability using the most cost effective mix of operational resources (including aircraft) available to both airlines. In so doing the planners will have to carefully identify the target markets of the two brands and profitably develop and deliver a product mix that continuously provides superior value to those markets at the lowest possible cost. Operating costs would have to be further reduced with employees making an unprecedented contribution to this achievement. This is a task requiring the disposal of all emotional baggage and political prejudices.

Corporate Culture Integration
` Critical to the success of the merger process would be defining the appropriate culture for the merger and to ensure staff 'buy in'. This is a task that is traditionally underestimated.

There has always been a certain degree of tension between the two airlines, which the corporate culture integration programme will have to address.

However, there now exist valid conditions for successful corporate culture redefinition and integration. There exists a Strategic Alliance Programme between the two airlines that is partially implemented. The implementation of a common marketing management was a significant step in providing the foundation for a common corporate culture. Both airlines have made significant painful progress in reducing costs and mitigating the long-standing corporate dependency syndrome.

Both airlines bring value to the integration programme and there must be overt recognition of this by the shareholders, boards and management of each airline.

If a credible business plan consistent with the above requirements can be quickly developed, then a merger should be a viable option.