96227 Connections Transport & ICT Want to Keep Tourists Away? Keep Flying Solo A Lesson from Small Caribbean States Cecilia Briceño-Garmendia, Heinrich Bofinger, Diana Cubas, and Maria Florencia Millán-Placci $ 150 The island states of the eastern Caribbean are wastefully competing with each other for the lucrative, yet stagnant, stay-over tourist trade by MILLION “flying solo”: separately building long-haul airports and agreeing to expensive bilateral subsidy deals with airlines.1 Instead, they could vastly increase Estimated additional tourism their tourist revenue and lower their costs through revenue per year for the collaboration to remove barriers to inter-island travel. eastern Caribbean region as The linchpin of such joint efforts would be a hub-and- a whole, given a shift of just spoke airline system that funnels stay-over tourists to 10% of cruise-ship visitors to the edge of the region and then allows them to easily an average on-shore stay. fly to their final destination. Cruise Ships vs. Stay-Over Tourists one of the larger Caribbean destinations, including the Dominican Republic, Puerto Rico, Cuba, and The overall contribution of tourism to the eastern Jamaica. Without a strong inter-island air service Caribbean economies ranges from about 22% in in the eastern Caribbean, international arrivals to Grenada to 65% in Antigua and Barbuda. However, individual OECS states are not likely to generate more than two-thirds of the tourists in the region much of the potential boost in stay-overs that is are cruise-ship passengers, whose on-shore spend- available. Hence, for each OECS country to build its ing may be as little as one-tenth the consumption own international airport to capture the stay-over of stay-over visitors (those who use on-shore lodg- market is inefficient and mutually destructive. Yet ing and typically arrive by air). The region’s rela- that is the current trend. tively untapped stay-over market is a potentially huge economic opportunity waiting to be grabbed. The region is far better suited to a hub-and-spoke system in which international arrivals could be concentrated in a couple of hubs outside the edges Coordinated Local Air Transport Is Key of the region (say, in Jamaica on the north and Barbados or Trinidad on the south). From there, Air transport is the critical pipeline for hotel arriv- a network of regional airlines whose schedules als in the eastern Caribbean and generally for other are coordinated with international arrivals would small, “sea locked” economies. But no single OECS distribute the tourists to their final destinations country is as strong a draw for stay-over tourists as throughout the region. 1 The countries covered here are members of the Organisation of Eastern Caribbean States (OECS): Antigua and Barbuda; Commonwealth of Dominica; Grenada; Montserrat; St. Kitts and Nevis; St. Lucia; and St. Vincent and the Grenadines. For technical reasons, the data here exclude Montserrat. DECEMBER 2014 NOTE 01 However, no such local airline network exists. The ing subsidies that guarantee the airlines a minimum inter-island system consists essentially of one amount of traffic, have become a common practice. carrier, LIAT, which is plagued by low revenues, frequent equipment problems, and both thin and In 2012, the net fiscal effect of these agreements unreliable schedules. For example, flying to St. Kitts for OECS states ranged up to 0.2% of GDP, or up from any other OECS country can take 4–9 hours, to 1% of tax revenues and up to 0.3% of public or even overnight travel, and up to two connec- debt. These payments are ultimately an indirect tions. Hence, the binding constraint on efficiently government subsidy to the hotel industry that boosting stay-over tourism in the region is the lack captures the stay-over visitors. If the region instead of an extensive local spoke system that integrates developed a more efficient and coordinated air frequent inter-island flights with international arriv- travel system, the need for such subsidies could be als at regional hubs. reduced and the funds redirected. Heading Down the Wrong Runway Getting Cleared for Takeoff The lack of good local air service is driving each An efficient hub-and-spoke system would country in the region to fight on its own for a • Better attract stay-over tourists to the region greater share of the stay-over market. by pooling arrivals from long-haul flights into OECS states are currently served by two interna- local loads that would make the inter-island tional air hubs: Antigua in the north and Barbados, transport system more sustainable; and just outside the southern edge of the region. Trini- • Allow the OECS countries to negotiate with dad also serves as a connection point. However, airlines as one block from a position of greater three other OECS countries under review—Grenada, market strength. St. Kitts and Nevis, and St. Lucia—also handle wide- The benefits could spill beyond the tourist in- body aircraft. Hence each relies on direct or semi- dustry by allowing a better matching of supply direct long-distance flights in the absence of an with demand during the low tourist season, when adequate inter-island connectivity system anchored inter-island business and government travel drive in two hubs. Unfortunately, both Grenada and St. the demand. Lucia have considerable excess capacity in their air terminals (with utilization rates below 50 percent), With a robust hub-and-spoke air service in place— significantly raising their overheads. along with other regional moves to create a seamless inter-island travel experience, including Other OECS countries are starting to follow this the build-up of ferry services, smoothing luggage model, likewise locking themselves into excess- transfers, and easing customs and immigration capacity infrastructure investments to bypass a procedures—each OECS country can anticipate dysfunctional inter-island air system. St. Vincent is rising tourist revenues that will drive and support building a new airport with an annual capacity of other tourist infrastructure improvements. 1.4 million passengers, yet it had less than 150,000 passengers in 2013. Dominica is considering op- In sum, the best way for OECS countries to cap- tions for a new airport or extending its main runway ture more of the highly valuable stay-over tourist into the ocean. market is to stop competing with one another and instead cooperate in overcoming the small size of The overbuilding helps drive each OECS country to their economies and their isolation. It is time for secure for itself a minimum flow of tourists. Bilat- OECS countries to stop flying solo. eral agreements with international airlines, includ- For more information on this topic: https://openknowledge.worldbank.org/handle/10986/20080 Connections is a series of concise knowledge notes from the World Bank Group’s Transport and, Information and Communication Technology (ICT) Global Practice. The series is available on the internal and external online platform of the World Bank Group. Connections discusses projects, experiences, and front-line developments in Transport and ICT. The series is produced by Nancy Vandycke, Shokraneh Minovi, Adam Diehl, peer-reviewed by experts of the Practice on a bi-weekly basis, and edited by Gregg Forte. For more information on Connections, and to read other notes in the series, please visit: http://www.worldbank.org/transport/connections DECEMBER 2014 NOTE 01