An Empirical Study of the Socio-Economic Effects of Supporting Flag Carriers: The Case of the Caribbean community (Caricom)

Abstract

Access to efficient and affordable air transport services is indispensable to economic communities made up of dispersed islands. It is often claimed that the contribution of the sector would be greatly debilitated however without the presence of national or regional flag carriers. A multi-method, net economic impact assessment indicates that the direct impact of the sector in terms of employment and contribution to GDP increases with the presence of local flag carriers. Yet the more significant indirect macroeconomic impacts of the sector, in terms of consumer surpluses, incoming visitor expenditures and business investments are all found to be better facilitated by foreign carriers. The magnitude of impact was primarily determined by exogenous factors namely, relative size of a state’s real GDP, relative contribution of other sectors, relative level of trade dependency and relative level of socioeconomic development, with larger impacts being noted in smaller, poorly diversified islands, chiefly dependent on sustaining a net surplus of air transport facilitated incoming visitor expenditure. Improvements to the performance of the sector are aligned with increases in aggregate incoming demand, thus far better supplied by cheaper, more frequent foreign carrier services providing a higher quality of service to and from the main source markets. Positive direct impact levels in those states with home carriers, low levels of service importing and an inverse relationship between local carrier absence and levels of connectivity show local carriers also play a significant facilitating role in the region’s air transport sector.