Air transport liberalisation and traffic growth in tourism-dependent economies: A case-history of some US-Caribbean markets

This study looks at the relationship between air traffic/capacity growth and recent air policy reform pertaining to some Caribbean member states. The hypothesis is tested that changes to extra regional air policy can facilitate traffic growth that may result in substantial tourism growth for the region. A time-trend evaluation for three US-Caribbean markets shows that the country-pair which did not make efforts to further liberalise free carrier designation rights between 1995 and 2003 saw less traffic/capacity growth as those that had. The number of competitors, along with low-cost carrier expansion, has increased more notably on US-Bahamas markets than on US-Dominican Republic and US-Jamaica markets. A non-linear air traffic model, modified to include an intuitive liberalisation scale, is used to better reflect the fragmented approach towards air policy development. It is found that a unit increase in air policy liberalisation produced annual log traffic growth coefficients of between 2.55% and 3.02% with the upper estimate affected least by multicollinearity within the US-Bahamas traffic model. These findings challenge current restrictive practises in the region.