Air Transport Liberalization Research Articles

Economic effects of air transport market liberalization in Africa

Although the aviation industry is increasingly becoming important for Africa’s economic development and integration, the ability of airlines to access foreign markets remains hindered by restrictive regulatory policies. Attempts have been made to fully liberalize the intra-African air transport market. Except for general assertions about the merits/demerits of liberalization, our empirical understanding of the welfare effects of such polices in Africa remains rudimentary. This study empirically measures the economic effects of air transport liberalization, mainly on two supply side variables: fare and service quality, measured as departure frequency. The empirical models evaluate how air fares and departure frequency respond to measures of openness in air services agreements, while controlling for other determinants. The results show up to 40% increase in departure frequency in routes that experienced some type of liberalization compared to those governed by restrictive bilateral air service agreements. Furthermore, there is a relatively larger increase in departure frequency in routes which experienced partial liberalization compared to fully liberalized ones. This can be explained by the diminishing marginal effect of progressive liberalization on departure frequency. While the effect of liberalization is substantial in improving service quality, there is no evidence of its fare reducing effect.

Shifting patterns and determinants of Asia-pacific tourism to Australia, 1990–2010

ABSTRACTAustralia is an increasingly important international holiday destination. Especially travel demand from Asia-Pacific countries has increased, which has led Australian policy-makers to believe the Asia-Pacific region will remain the largest growth market for holiday tourists. This article first presents an overview of the evolution and shifting geographical patterns of Asia-Pacific tourism to Australia between 1990 and 2010, and relies on this to explore the major determinants underlying these changes using a bootstrapped loglinear multiple regression analysis. Results indicate that income (GDP per capita) remains the most important factor explaining tourism demand, albeit that the Australian holiday market is becoming increasingly mature. Distance, as a proxy for travel costs, has large negative elasticity that has slightly increased over time as the effects of air transport liberalization have been off-set by oil prices’. The paper is concluded with an outlook on some possible opportunities and challenges for future tourism demand to Australia.

Deregulation of the ASEAN air Transport Market: Measure of Impacts of Airport Activities on Local Economies

ASEAN Member States are currently in a step through liberalization of air traffic market in their region. The target is the 5th freedom right for South-East Asia in 2020. Two opposite effects might be observed following the deregulation: one negative on flag carrier due to increase in competition, one positive on national and regional economies. One main issue concerns the impact of expected development of airport activity on national and regional economies. We propose an estimation of these impact, using a two stage econometric model applied to four ASEAN countries. We show that GDP is the most sensible to air traffic growth in region where only international airports are located, that is for region that exhibit the highest level of development. We show that up to the 5th freedom right, given the expectation in tourism development, national GDP is expected to increase by 9% (Myanmar) to 51% (The Philippines) depending on the country. The magnitude of the impact depends on the tourism development expectation as well as on the tourism contribution to GDP. The analysis show then that economic benefit of air transport liberalization are non-negligible for the ASEAN countries. Given the magnitude of the estimated effect, the benefits would certainly overlap the negative effect of competition on the flag carriers.

Assessing the impacts of aviation liberalisation on tourism: Some methodological considerations derived from the Moroccan and Tunisian cases

At a time when the liberalisation of air transport is increasingly being promoted as a means to induce the growth of the tourism business, it is striking that there is little evidence to suggest that such liberalisation has indeed led to a growth in tourism. Furthermore, the evidence is usually restricted to the impacts of sole low-cost airlines on tourist destinations newly served by such airlines. In contrast to various ideological or naïve statements, this paper shows that assessing the relationship between liberalised air markets and trends in tourism is challenging. On the transport side, aviation liberalisation is rarely considered as a dimension that can be measured accurately; similar protected markets are not considered for comparison; and trends in charter flights are neglected. On the tourist side, broad definitions of so-called tourists are usually considered and include immigrants visiting their home country; nights spent are neglected, despite a possible trend in declining length of stay; and substitution between places is usually disregarded, as are the long-term effects.

Limits to the Low-Cost Niche? Finding Sustainable Strategies for Low-Cost Long-Haul Airlines

Entrepreneurs taking advantage of air transport liberalization have searched for ways to challenge the network airlines using the low cost carrier (LCC) model cloned on Southwest Airlines. Low-cost long-haul flights (LCLH) is an extension of this model gaining increased attention around the world. LCLH carriers have followed what we already know about low cost airline business models over shorter distances, with adjustments through innovation and trial and error. Entrepreneurs and analysts tend to list service features and operational characteristics that such airlines should have and not have. However, underlying principles of the LCLH business model remain largely unclear. Some analysts have even stated that LCLH cannot work, because the cost advantage such airlines gain over the network carriers, is too low to provide sustainable competitive advantage. Then we observe carriers like Air Asia X that appear to have overcome at least some of the shortcomings of past LCLH airlines. The question is if there are some guiding principles we can use to make the LCLH model work better? This article suggest such principles, but argues that LCLH airlines will continue to struggle assimilating and keeping to these principles.

Airport privatisation in Japan: Unleashing air transport liberalisation?

In 2013 the Japanese government established policy to reform the ownership and management structure of all Japanese government-owned airports in a bid to reduce its large financial burden by involving private entities. However, several constraints and structural issues in Japan’s air transport market affect the outcome of this process. This paper discusses the opportunities and challenges for a liberalised air transport market in Japan.

Greek airports in transition: From public ownership to PPP concessions

The third air transport liberalisation package in the EU was fully implemented in Greece in July 1998. Nevertheless, little has changed since then in terms of the geographical dispersion of air traffic flows. The recent financial downturn of the Greek economy led to a substantial deterioration of traffic, particularly in the domestic market. The Greek state concluded an airport concession tender process in late 2014 with potentially important repercussions not only for the 14 regional airports in question but also for the wider aviation market in Greece. Nonetheless, a newly elected government announced in early 2015 that it will re-examine the whole issue, building, among other factors, on the opinions, concerns and reactions expressed by various interested groups including senior staff in affected airports. On these grounds, the present paper discusses the findings of semi-structured telephone interviews with all 39 Greek airport managers to identify the rationale behind this stance. Moreover, issues related to airport operations and development prospects are addressed from various viewpoints. The paper concludes with policy suggestions, taking into account the existing literature on airport management and ownership while combining the findings from desk and empirical research undertaken by the authors.

In the wake of liberalisation: long-term developments in the EU air transport market

Using a 24-year analysis period (1990–2013), a new perspective is offered on long-term first- and second-order developments following liberalisation of the intra-EU air transport market. The focus of the analysis is on supply-side issues, such as airline output, structure of supply, yields, business models, and the position of (former) flag carriers.We find that air transport liberalisation in the EU internal market has facilitated significant growth in both the number and frequency of routes. Greater competition and lower fares at the route level went hand in hand with ongoing consolidation. The first and second liberalisation packages have enabled former flag carriers to develop into full-service hub-and-spoke carriers. It was only after the third package (1993–1997) that low-cost carriers were able to fully develop Europe-wide, point-to-point networks. They rapidly achieved a substantial market share after 2000. Following the adoption of the third package of liberalisation measures, charter operators launched scheduled operations as leisure airlines and adopted in part the new low-cost business model.Until 2013, direct competition between low-cost carriers and former flag carriers was limited due to different route development strategies. This picture has changed in recent years since more low-cost carriers have begun to focus on primary hubs. The competitive impact of the rapidly expanding new generation of hub carriers from Turkey and the Gulf has further increased competitive pressure on the former European flag carriers. Consequently, consolidation of the European airline industry is likely to continue, as well as the ongoing effort to reduce costs. Finally, rising competitive pressure may incentivise EU member states to develop a more protective national aviation policy.

Air transport liberalisation and airport dependency: developing a composite index

Air transport liberalisation in Europe has produced some major changes to the networks operated by airlines and the services available at airports. Within this context the degree of airport dependency in terms of market, spatial and temporal concentration is important to know from an economic geography and risk management perspective. A composite index called the Airport Dependency Index (ADI) is developed to measure airport dependency based on the concept of the relative Gini coefficient. Liberalisation has had varying impacts depending on the size and type of airport and so a comparison is made of the degree of dependency at a large sample of European airports using the ADI. The ADI has the potential to provide insight on the sustainability and worthiness of financing airport projects, and on whether airports should diversify further their activities by investing in the growth and expansion of their network.

ASEAN SINGLE AVIATION MARKET AND INDONESIA - WILL IT SURVIVE AGAINST THE GIANTS?

To say that Indonesia is an enigma in air transport is an understatement. On the one hand, the demand for air transport in Indonesia is higher in proportion to its GDP per capita. Its economy can be expected to grow 6% to 10% annually. A single aviation market could add another 6% to 10% growth in sheer demand. It is one of the wealthiest countries in the world, being the 16th richest country currently, and, according to an Airbus forecast, will be the 7th richest in 2030. Yet its airports are badly in need of expansion, its infrastructure is bursting at its seems, and above all, its airlines are strongly resisting liberalization of air transport in the region for fear of being wiped out by stronger contenders in the region. Against this backdrop, it is incontrovertible that Indonesia's civil aviation is intrinsically linked to regional and global considerations. Indonesia's archipelagic topography makes its people heavily reliant on safe, regular and reliable air services that may connect them not only internally but also to the outside world. A single aviation market in the ASEAN region will bring both benefits to Indonesia and challengers to its air transport sector. This article discusses the economic and regulatory challenges that Indonesia faces with the coming into effect of the ASEAN Single Aviation market in 2015.

Aeropolitics in East Asia: An institutional approach to air transport liberalisation

This article analyses the endogenous factors that influence the development of aeropolitics on the global scale, in general, and in East Asia, in specific. A mixed methods approach was used to uncover the relationships between factors related to institutional organisation and polity size, on the one hand, and aeropolitics, on the other. It is argued that, while the direct effects of geographical, demographic, and economic factors remain limited, the importance of the polity-level institutional framework to aeropolitics cannot be overstated. More precisely, economic institutions have a direct impact on the development of aeropolitics, whereas political institutions set the boundaries within which economic institutions operate.

A Cournot model for analysing the effects of an open skies agreement

In the last decades there has been a gradual liberalisation of international air transport markets through the implementation of open skies agreements which seek the deregulation of the air transport industry and consequently the functioning of the market in a freer way. The objective of this work is to study the effects of an open skies agreement in order to understand if the airlines and the consumers will benefit after the market deregulation. With this purpose, we develop a Cournot model to compare the initial situation (without agreement) and the situation after the implementation of the open skies agreement.Based on the model developed we conclude that after market liberalisation the prices on international market segments where competition increases should decline, thus benefiting consumers. Regarding the incumbent airlines in the market, an open skies agreement should jeopardize the airlines that fail to operate new routes, leading to decreased profits.

European air transport liberalization: Possible ways out of the single European sky gridlock

This article presents the gradual liberalization of European air transport, especially its most recent problems in the case of the Single European Sky (SES). Indeed, after successfully liberalizing airlines and, to a certain extent, airports, the European Commission has embarked on the process of creating an SES. The article describes the process and the main actors. It focuses in particular on the identification of the various actors' interests, and explains the current gridlock of the SES as a result of conflicting objectives among the main players, which include, among others, the member states and the European Commission. A way out of this gridlock may reside in a novel approach to unbundling different types of services, and introducing competition in some of these services.

Has liberalisation stalled?

This paper addresses the concern expressed in some quarters that the process of liberalisation of international air transport has lost its momentum. The paper argues that any assessment about whether liberalisation has stalled needs to be based on an understanding of the outcomes expected to be achieved. One view is that liberalisation is beneficial because it can deliver specific outcomes. Another view is that liberalisation is a process leading to the evolution of a system of regulation by market forces. Accordingly, the status of liberalisation can be measured in terms of specific deliverables or it can be measured according to whether shared values and beliefs take precedence over the interests of individual members. The paper examines these views and discusses factors that will drive or inhibit further liberalisation. Particular attention is paid to the role of ICAO since this organization considers that it is the forum in which global solutions on this matter are to be pursued.

Open Skies or Closed Airports? Europe's Dilemma for a Sustainable Aviation Strategy

On the 20th anniversary of Europe's 'Third Package' of air transport liberalisation, it seems appropriate to examine its effectiveness in terms of susdtainability. The relaxation and elimination of restrictions greatly opened up air travel both within Europe and between Europe and the world. However, it also had dramatic consequences for CO2 emissions and airport congestion. In essence, the question being posed is: how does Europe propose to reconcile the conflicting objectives of air transport liberalisation and environmental sustainability? This paper assesses the current strategy in light of recent information on the capacity status of Europe's top airports. Based on increasing CO2 emissions, the absence of a global agreement on how to tackle same and increasingly congested hub airports, resulting in longer flight delays, the evidence would suggest that the challenge is substantial and some type of re-regulation may form part of the solution.

The Single European Sky gridlock: A difficult 10 year reform process

This article presents the gradual liberalization of European air transport, especially its most recent problems in the case of the Single European Sky (SES). Indeed, after successfully liberalizing airlines and, to a certain extent, airports, the European Commission has embarked on the process of creating an SES. The article describes the process and the main actors. It focuses in particular on the identification of the various actors' interests, and explains the current gridlock of the SES as a result of conflicting objectives among the main players, which include, among others, the member states and the European Commission. A way out of this gridlock may reside in a novel approach to unbundling different types of services, and introducing competition in some of these services.

The impact of Air Service Agreement liberalisation: The case of Nigeria

The positive impact of air transport liberalisation as suggested by economic theories and empirical studies has inspired many developing countries like Nigeria to liberalise some of its Air Service Agreements (ASAs). This paper seeks to examine the extent to which international air service liberalisation has impacted upon Nigeria ten years after it was introduced. The research developed a cross-sectional model with passenger traffic as the dependent variable, while macroeconomic factors (trade and GDP), historical links, distance and ASAs (a proxy for liberalisation) served as independent or predictor variables. The analysis revealed a set of ASA stages in the country's policy-making process (restricted Bilateral Air Service Agreement, Open Skies Agreement and Yamoussoukro Declaration). Further analysis showed that the predictor variables were all significant in explaining passenger demand. The model demonstrated that the liberalisation of market access to the Open Skies Agreement level could stimulate traffic growth by at least 65 percent. The findings can assist in guiding policy and industry stakeholders in future decisions relating to liberalisation and ASAs.

Air transport liberalization and airport slot allocation: The case of the Northeast Asian transport market

We develop a differentiated Bertrand high speed rail and airline network game which analyzes the effects of international air transport liberalization, regional open skies policies, domestic inter-modal competition and airport slot allocation. The model is applied to the transport market in Northeast Asia using a counter-factual approach, demonstrating the model’s capability of evaluating practical policies utilizing market data observed on the routes under investigation. Our modeling results suggest that air transport liberalization will benefit both consumers and the aviation industry in the region albeit not necessarily on an equal basis across or within groups. Much of the welfare gains are derived from higher frequency after liberalization, which increases service quality, hence consumer utility. Open skies policies that include pure cabotage which permit carriers to compete in the domestic markets of a foreign country, will increase competition, frequency and reduce fares below current levels. Airport slot allocation policies play an important role in the realization and distribution of potential welfare gains related to liberalization. Therefore, government agencies should implement liberalization and airport slot allocation policies jointly.

Socially-oriented flight scheduling and fleet assignment model with an application to Norway

One of the direct results of air transport liberalization has been the development of publicly supported links on thin markets in remote regions when service is deemed necessary. We present a flight scheduling and fleet assignment optimization model that may assist public authorities to establish the level of service requirements for subsidized air transport networks. With the results of the optimization model, a welfare analysis of the network is carried out, distinguishing between passenger, airline, airport and government surpluses. The optimization model and subsequent welfare analysis were applied to the PSO network of Norway, which is currently the largest in Europe. The results indicate that improvements over the current network can be obtained for all relevant stakeholders simultaneously, with savings in the order of $1.2 million daily.

Aviation Policy in Indonesia and Its Relation to ASEAN Single Aviation Market

The study seeks to clarify the development of Indonesia’s aviation policy, primarily in relation to the proposed air transport liberalization in Southeast Asia region, ASEAN Single Aviation Market (ASAM). The study begins by reviewing aviation policy and industry development in Indonesia related to air passenger services. The study also highlights Indonesia’s progress towards ASAM. Challenges and opportunities are then identified. Indonesia is still reluctant toward full implementation of ASAM due to the issue of benefit reciprocity. Ratification of agreements is conducted in stages to give time for airlines and airport sectors to adjust. Infrastructure capacity and quality remain as the biggest challenges for Indonesia.