Bienvenido Cuba! New air-service agreements to boost travel to Central America (including the Caribbean)
Despite economic and political uncertainty in various regions of the globe, the North American airline industry is on a trajectory of continued growth in passenger traffic and capacity. Domestic service in the United States recorded the highest growth rates from all airline business segments. The Big 3 network carriers filled on average 86 percent of their domestic (mainline) seats as demand outpaced supply, with a year-over-year 3.5 percent increase of traffic and an increase of only 3 percent year-over-year in capacity.
As passenger traffic to Europe and South America face short-term headwinds, other regions are experiencing growth in travel to North America, notably Central America and the Caribbean. For the first time in more than a half century, there is a new air-services agreement between the United States and Cuba, signed between the respective governments in 2015. Several US airlines have applied for the initial flight frequencies to Cuba: 20 daily round-trip flights to the capital, Havana, and ten round-trips to nine other Cuban international airports. The United States Department of Transportation will award the initial frequencies to Cuba in the summer of 2016. Currently, the only scheduled air service from North America to Cuba is from Canadian gateways.
In addition to the Cuba agreement, the United States and Mexico also signed an expanded air-services agreement in December 2015, replacing the previous bilateral agreement that dated back to 1960. The current agreement restricts air service to a maximum of 30 transborder routes, with two or three airlines from each country permitted to serve. Under the new liberalized bilateral agreement, all air-service restrictions between the two countries will be lifted, a move that is viewed as the next step toward a future full open skies agreement.
Due to these new, expanded air-service agreements with Cuba and Mexico, the traffic forecast between North America and Central America increased 1.1 percentage points to 5.3 percent per annum predicted over the next 20 years. As previously mentioned, with six years of sustained growth within North America the traffic forecast has also been increased to 2.6 percent per year, up slightly by 0.2 percentage points. The expectation for a liberalized air-services agreement between the United States and China is also anticipated in the near future, which will further boost travel and trade between the two countries.
Over the next 20 years, we are forecasting a need for 8,330 new airplanes. Single-aisle airplanes are the largest forecast category, with an estimated 5,440 units representing 65 percent of demand. Due to a large installed fleet that is nearing economic retirement and the offering of new fuel-efficient airplanes, 65% of all new airplanes will be for replacement needs, slightly more than 5,400 airplanes.