Kurt Krummenacker, Vice President at Moody's Investors Service, talks about specific credit trends for the new year. He looks at the toll road, airport, port and the public power sectors and gives the agency's outlook for them in 2016, looking at possible positive and negative developments.
KRUMMENACKER: Moody's expectation of strong economic growth, specifically, gross domestic product growth of 2% to 3% in 2016 underpins our outlooks for all of our infrastructure sectors. Strong economic growth will push demand higher, which will leave only cost and supply as key points of concern. For the toll road sector, specifically, strong economic growth coupled with low gasoline prices will combine to drive traffic growth in excess of 3%, which is high for a sector that's, typically, sees only about 1% growth in the good years.
In addition, many toll road issuers will be able to raise their toll rates, which will drive revenue in excess of 5% and allow that to outpace increases in both operating expenses and debt service requirements. Things could not be going better for the airport sector. The strong growth in the US economy is driving demand for air passenger travel. Then demand is being met by the airlines that are expected to increase their seat capacity offerings between three and four and a half percent in 2016.
As these two factors combine, enplanements of passenger boardings will increase by over 4% over the course of the year. We're not expecting that growth to be uniform. We're expecting smaller airports to see less growth or struggle to see any growth at all as the airline industry moves away from the use of smaller regional jets to larger aircraft that are more economical to operate.
The US seaport picture is a little bit murkier given their relationship with the international economic conditions, particularly, slower growth in China and in Europe. However, US economic conditions will push shipping container growth between 3% and 4% higher. That's going to be aided by lower shipping rates which stem from the continued overcapacity issues in the shipping industry. This outlook is tempered a bit by current high inventory levels in the US, which will dampen demand in the first quarter, and by the fact that many port issuers will need to continue to make capital investments to accommodate the larger ships that are calling on US ports today.
The public power sector is the picture of stability. For 2016, the biggest issue is likely to be the stagnation or contraction of demand for electricity. This is likely to force public power issuers to push their rates higher, but this will easily be met and passed through to the consumer because of the strong US economic conditions. A secondary concern is additional environmental regulation or the use of clean energy which also, has the potential to increase costs or reduce system reliability.
Now, this is a mild concern because the industry has faced these kinds of challenges in the past and has historically met them with little financial impact.