The fight is on

Dino D'Amore
By Dino D'Amore February 17, 2016 22:01

The fight is on

Yesterday the U.S. Transportation Secretary Anthony Foxx, Assistant Secretary of State for Economic and Business Affairs Charles Rivkin, Cuban Minister of Transportation Adel Yzquierdo Rodriguez and President of the Cuban Civil Aviation Institute (IACC), Ministry of Transportation Colonel Alfredo Cordero Puig, signed an arrangement that provides for the re-establishment of scheduled air services between the United States and Cuba. Immediately following the signing, the U.S. Department of Transportation (DOT) invited U.S. air carriers to apply for an allocation of the new opportunities to provide scheduled passenger and cargo flights.

The new arrangement provides each country with the opportunity to operate up to 20 daily roundtrip flights between the United States and Havana. The arrangement also provides each country with the opportunity to operate up to 10 daily roundtrip flights between the United States and each of Cuba’s nine other international airports, providing U.S. carriers with the opportunity to operate up to a total of 110 daily roundtrip flights between the United States and Cuba.  The arrangement does not limit charter services, meaning that no DOT allocation procedures are needed and charter flights can continue as before.

Airlines now have until March 2, 2016 to get their applications in, although it is becoming clear that yesterday afternoon just about every major airline in the USA has applied for access into Cuba – So there are going to be quite a few losers in this process, that is clear, but should there be? Spirit Airlines, American and JetBlue are the obvious three airlines that simply have to ensure that good access into Cuba is awarded, and these are the three that will fill flights and do well. Following on is United and Delta, which should have access, along with Southwest and maybe Frontier that will each look to feed their networks. But we have to be realistic in all this: Cuba has a total population of just over 11 million with a middle class estimated to be at around 35% of the total population, so 3.33million fall into that bracket. Putting some sort of perspective onto this is quite easy as this is roughly the same size as the number of middle class citizens in the Republic of Ireland. However the Cuban diaspora is far smaller than that of the Irish at an estimated 2.2million in the USA and a further 0.8 million spread across the Americas and the rest of the world, with a low percentage of these being middle class. In addition, Ireland has a vast upper middle class (in terms of percentage of population) but Cuba does not. Ireland also has a growing financial centre in Dublin but Cuba has very little to offer at this time. Cuba does however have a very impressive number of hotels and a vast tourist industry with 253 protected areas, 7 UNESCO World Heritage Sites, 7 Natural Biosphere Reserves that it can add to its good weather and culture, but the tourist industry is not year round, due to the hurricane season. Cuba should be able to absorb with ease ten flights per day and more will no doubt be required beyond that number within the coming years as the Cuban economy recovers. But, in the near term at least, beyond those US airlines mentioned above, it is hard to see that aircraft can be filled each day beyond the magic 75% load factor unless the ticket price is very low indeed. We shall see soon enough.

Meanwhile in Singapore, ST Aerospace Resources is trying again to make a mid-life aircraft leasing venture work after the WingStar venture collapsed. This time ST will collaborate with Sojitz Corporation. ST Aerospace Resources signed an agreement to divest 50% of its equity stake in Keystone Holdings to SJ Aviation Capital, for a consideration estimated to be US$10.7m. Upon completion, ST Aerospace Resources and SJ Aviation Capital will each own a 50% shareholding in Keystone Holdings. The plan is to continue to build up a portfolio of mid-life and end-of-life single-aisle aircraft assets. Good luck to them.

Dino D'Amore
By Dino D'Amore February 17, 2016 22:01