Economist discusses impacts of Delta and HK Express route cancellations

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“I don’t think that it’s gonna be as catastrophic as a lot of people are saying. Delta services were kind of on the decline anyway and HK Express never really started that route between here and Japan,” – Bank of Guam Economist Joe Bradley.

Guam – Now that HK express has decided to delay its route to Japan and Delta Airlines has announced that it will cease services on Guam in January, what GDOE this all mean for tourism, the economy and ticket prices? Why will one domestic airline be allowed to have a monopoly on travel to the U.S.? We spoke to Bank of Guam Economist Joe Bradley to find out.

“I don’t think that it’s gonna be as catastrophic as a lot of people are saying. Delta services were kind of on the decline anyway and HK Express never really started that route between here and Japan,” said Bradley adding, “we are still seeing rapid growth in our arrivals from South Korea.”

But South Koreans spend less than Japanese visitors. “They stay a little bit longer than the Japanese like half a day longer yet on a per day basis they spend somewhat less money. But I’m not sure that we’re even capturing all of that because a lot of the Korean tourists are free and independent travelers or FITS. They will rent a car directly they will go for an air BNB lodging which doesn’t necessarily show up in GVB’s statistics,” said Bradley.

The Delta pullout means there will only be one U.S. carrier and hence only one airline, United Airlines, that can provide flights to the U.S. “It’ll probably drive prices up somewhat. Now I don’t think it’ll change much in terms of foreign carriers coming in to Guam,” said Bradley.

Foreign carriers can’t offer direct flights from Guam to the U.S. because of federal cabotage laws. All countries have cabotage laws in order to allow their domestic carriers to have an edge in competition in their country against foreign carriers. However, Guam is unique, it’s a territory of the U.S. that is closer to foreign ports than U.S. ports. The U.S. travel market here mostly comprised of flights from Guam to other U.S. ports and not the other way around. The small population of Guam means there aren’t a lot of domestic airlines who want to do business here. After Delta pulls out it will mean there will be only one domestic carrier here and only one airline that can offer flights to the U.S.

“How is that not a monopoly?” asked PNC. “Well it is a monopoly and in that regard, I don’t believe that United’s airfares are regulated. I think that they can charge whatever the market will bear and in the absence of direct competition they can charge whatever the market will bear,” replied Bradley.

How is a monopoly allowed on guam? “Pretty much all of the United States’ anti-trust laws prohibit interference with competition in and amongst the several states…they don’t apply here,” said Bradley.

This means that while federal cabotage laws which limit foreign competition applies here on Guam, federal anti-trust laws which encourage competition don’t apply here. A perfect storm for a monopoly.

Ultimately, Bradley says that the Guam military buildup will likely pick up the slack from lower tourism numbers so his overall outlook on the Guam economy is not bleak. However, Bradley does still believe that Guam sorely needs a third economic pillar to add to tourism and the military.