The Regulatory Framework of International Ratemaking

Abstract

The basis of the regulatory framework of postwar international civil aviation was laid by the International Civil Aviation Conference, held at Chicago in 1944.(1) This Conference, a great success in the technical field of civil aviation, left many economic questions of postwar international civil aviation unresolved. Among these questions was the problem of international air fares and rates. The Conference not being able to agree on an international ratemaking system, the airlines themselves took the initiative, created IATA in 1945, and equipped this new Association with a ratemaking machinery, generally known as IATA’s Traffic Conference machinery. This IATA ratemaking machinery came to be recognized by the American and British Governments in their Bermuda Agreement of 1946. (2) In this bilateral air transport agreement, the U.S.A. and the U.K. delegated to the IATA ratemaking machinery the task of setting fares and rates for scheduled air services between their respective territories, subject to Government approval. The great majority of bilateral air transport agreements, concluded after the Bermuda Agreement, follow this example and delegate international ratemaking to IATA, again subject to Government approval. In this fashion the system emerged, whereby fares and rates for scheduled international air services are set by IATA, under Government authority - given in the bilateral air transport agreements - and under Government control - retained in those bilaterals. The IATA ratemaking system is a worldwide one, and can as such be regarded as a “multilateral” system. Paradoxically, it derives its authority from a bilateral system, the existing network of bilateral air transport agreements.