The State and Liberalization: The Airline Industry in the East Asian NICs

Abstract

This study of airline liberalization in South Korea, Taiwan, Hong Kong, the Philippines, Thailand, Malaysia, Singapore, and Indonesia examines the evolving relationships between states and carriers. The airline industry of East Asia has been an arena for significant liberalization initiatives in the last decade. State-owned carriers have been privatized; new carriers have been allowed to enter domestic and international markets; and government controls over such dimensions of airline competition as equipment choice, fares, and route selection have been eased. Yet, the state remains deeply engaged in the airline industry. Indeed, the most striking feature of airline liberalization in the region is its incompleteness. States have, for example, stopped short of relinquishing ultimate control of flag carriers to the private sector. The liberalization process has been influenced by a variety of factors. Among these are the size and growth of markets, the need to improve the competitiveness of state-owned carriers, the political environment, and the relationship of the airline industry to economic development. For the capitalist developmental states in these newly industrializing countries (NICs), the airline industry's contribution to economic development is of paramount importance. Given the importance of this industry, the region's governments have sought to balance the risks and benefits of liberalization via policies that are selective, incremental, pragmatic, and deliberative.