7 - Air transport liberalization: a world apart

Summary

International air transport has traditionally been the subject of extensive regulatory controls. Imagine a world in which prices, the number of seats, the number of flights, the types of aircraft, and the cities to be served are all decided by agreements between states, in which no third-party competition exists, in which strict national ownership rules are applied, and in which the only unknown parameter for airlines is the number of passengers who will turn up in the end. This is the “Bermuda II” type of agreement, which served as the model for the organization of the post-war international air industry, and whose features, only partially “eroded” over the years, still largely underpin the regulatory framework of the sector.

The so-called “open skies” agreements are a simple relaxation of some of these regulatory constraints on prices, seat capacity, and choice of routes. The framework remains strictly bi-national, however, with strong ownership rules, and only marginal third-party competition via the allocation of fifth freedom rights. Liberalization through “open skies” is therefore, more a “bilateral deregulation” than a liberalization process stricto sensu. In any event, “open skies agreements” cover only about one-sixth of world traffic.

There also exists a third type of air transport liberalization, consisting of a “single market” between several countries (e.g., within the European Communities, or between Australia and New Zealand), in which airlines from the member states are allowed to fly without any market access restrictions to any destination, the role of the state being limited to the enforcement of safety and security regulations.