Optimal Air Service Agreements

Abstract

Air Service Agreements are goverment-to-goverment negotiated bilateral agreements which determine a nation’s permitted passenger carrying capacity between origin and endpoint nodes on particular international air routes. This study determines how social surplus-maximising agreements can be constructed under various demand and bargaining assumptions. The analysis is exposited in terms of the Australia-Japan air route although it is quite general. The role of marketing and downstream inter-industry effects are examined. Problems of computing optimal agreements are discussed.