Bilateral Air Service Research Articles

Competition in the African air transport market

The air transport market in Africa is regulated and viable for designated carriers. Although there are some sub-regional liberalizations, airlines primarily compete based on the specifications of bilateral air service agreements. However, this competitive landscape has not been thoroughly investigated. This study examines market concentration in the African aviation industry and explores its impact on the output of African airlines. The competition was measured at the airport level using the Herfindahl-Hirschman index. Panel data were drawn from 54 countries, 339 airports, and 221 airline groups for the period 2015–2019. Kernel density estimation shows that the region’s market for air transport services is fragmented, with many small airlines. Strong competition is more prevalent at larger hub airports, airports near tourist destinations, and major airports far from larger African hubs, while markets tend to be concentrated where dominant and protected flag carriers operate. Competition is also low or limited at smaller airports offering limited flights. The results of panel regression analysis reveal a nonlinear relationship between market concentration and airline output, as strong competition may limit airlines’ output, and high concentration may promote a dominant airline or alliance that may hinder other airlines from entering or remaining in the market.

Negotiating international aviation: Analyzing the contribution of politics to the United States' open skies agreements through democratic peace theory

Operation of the civilian global aviation industry is a complex process that relies on intergovernmental collaboration while balancing issues of sovereignty. As such, the factors that drive the development of international air operations are more complicated than simply economics: international regimes must consider a variety of concerns when establishing diplomatic relationships. Bilateral and multilateral international Air Service Agreements (ASAs) have become more liberalized to reduce the extent of government interaction for establishing and maintaining international commercial operations with and between ASA partners, allowing a greater influence of basic market forces over government required mandates and limitations for airline operations. Utilizing Democratic Peace Theory (DPT) as a theoretical basis for driving Open Skies Agreement (OSA) development practices, a logistic regression was used to determine the likelihood of the US reaching an OSA with a partner State based on the democracy strength of the partner State, the ability to access the US through diplomatic international governmental organization (IGO) participation, and the frequency of aviation operations with the US. This study found that the United States was very likely to hold OSAs with more democratic governments compared to less democratic governments. In addition, mutual participation in IGOs moderated the relationship as less democratic governments sharing membership in fewer IGOs with the United States were more likely to sign an OSA than non-democratic governments sharing membership in many IGOs. Finally, total operations between the United States and its international aviation partners were also found to have moderating effects on the likelihood of an OSA. Implications of these effects are discussed.

The role of African airlines in air transport liberalisation

Background: The African aviation liberalisation process began in 1988, following the liberalisation processes in Europe and the United States (US). However, by 2023, Intra-Africa air services are still reliant on the Bilateral Air Services Agreement (BASA) by which international traffic rights are exchanged in terms of the 1944 Chicago Convention, a multilateral treaty. These impose restrictions on intra-African connectivity and are obstacles to liberalisation. African multilateral initiatives, such as the Yamoussoukro Declaration, have varying levels of implementation by African states. While liberalisation efforts have major impacts on airlines, thus far these have been led by government structures.Objective: The main objectives of the study are to determine the involvement of airlines in African liberalisation development and the likely impact of the liberalisation initiatives on airline operations.Method: Semi-structured interviews were conducted with 12 intra-Africa airline executives from four Regional Economic Communities (REC), which would be impacted by liberalisation.Results: The study finds that airlines do not fully participate in the development of liberalisation initiatives. Although sometimes consulted, their associations are usually only granted observer status at deliberations and negotiations. The likely impacts of the initiatives to airlines include direct connectivity, and harmonised African air transport access.Conclusion: The lack of airline participation may be a key reason for the slow progress towards liberalisation and full deregulation in Africa.Contribution: This study contributes to the body of knowledge, by being the first study to consider the role of airlines in the development of liberalisation initiatives.

Assessing the economic impact of the single African air transport market: The case of Tanzania

Tanzania is one of the 21 (out of 54) African countries that are yet to ratify the Single African Air Transport Market (SAATM) launched in 2018 as the first project of the African Union's agenda 2063. SAATM aims to create a single unified air transport market for Africa thereby opening skies across the whole continent and aiding the economic integration agenda. Using the two-stage least squares estimator that is robust to endogeneity bias, this study empirically assesses the economic effects of liberalization of air services between Tanzania and other African countries. The results show that removing restrictions on designation, flight frequency, and capacity for air transport between Tanzania and other parts of Africa would lead to a rise in the number of air passengers. Specifically, the results suggest that between 2010 and 2018, routes linking Tanzania and other African countries that were governed by liberal bilateral air services agreements (BASAs) enjoyed slightly lower fares compared to routes governed by restrictive BASAs. The results also suggest that air travel demand is not very sensitive to fare implying that the increase in the flow of passengers by an average of 16.9% between 2010 and 2018 can be attributed to the enhancement in service quality (as measured by flight frequency), and increased competition resulting from the entry of new players or intensified competition among existing ones. The policy implication of this study might be the need for Tanzania to embrace the SAATM initiative.

Flying flags: nationality, sovereignty, and airline liberalization

Nationality is a crucial element of the regime governing international airlines, the industry which is a key means of economic globalization. I argue that economic nationalist motives drive states to harness international economic flows to support sovereignty and national identity. Economic nationalism is conceptualized as a performative phenomenon, describing how states make sovereignty and nations real by enabling and controlling economic practices. Using a mixed-methods approach, I statistically examine an observable implication that dyads which have greater cultural difference tend to have less liberal bilateral air services agreements. I then investigate through analytic narratives how Canada and the EU dealt with the rapid growth and ambitious expansion of the Gulf state airlines, which were themselves economic nationalist projects. Canada restricted traffic rights while the EU has exerted control by enforcing concepts of fair competition and publicizing its scrutiny of foreign ownership and control over EU airlines. A key contribution of this article is to explore how trade policy is driven by symbolic politics, and to raise the possibility that material gains are pursed to support performances of national identity and sovereignty. This has further applications to other sectors with perceived implications for sovereignty.

Analysis of Bilateral Air Services Agreement Liberalization in Australia

This paper examines an assessment of the level of air transport services liberalization in Australia in order to generate recommendations on what key market access features of Air Services Agreements should be revised to reflect the changes in air transport characteristics, including the increase in air cargo traffic during the COVID-19 period. The different variants of the key market access features of ASA, levels of air transport liberalization and the extent of air transport service liberalization between Australia and 104 partner countries were analysed using descriptive study, comparison analysis and the ALI index. The ALI index is calculated for four different weighting schemes. Passenger capacity in 41 bilateral agreements contain restrictions of frequency, capacity and aircraft type. The analysis of cooperative arrangements indicated that Australia has a single aviation market only with New Zealand. The cargo capacity analysis identified different types of capacity restrictions based on weekly cargo service, volume, destinations, designated airline and aircraft types. In conclusion, cargo capacity analysis illustrates that the level of liberalization is high, but the air services agreements between Australia and other countries in the first and second cargo capacity groups should be revised to reflect the increase in air cargo traffic during COVID-19.

Rethinking the China-U.S. Bilateral Air Services Agreement from China’s Perspective: Approaches to Fair Competition

Bilateral relations between the People’s Republic of China (PRC) and the United States (U.S.) have never attracted the world’s attention more than today. This article analyses how two countries that are totally different in societies, economic systems, cultures, and values compete in the China-U.S. bilateral air services. With the trend of the liberalization as well as privatization of international air transport, the U.S. and China show two development models that influence their aviation sectors: complete liberalization vs. Socialist Market Economy (SME). The article focuses on the competition issues embodied in the China-U.S. bilateral air services and provides approaches to fair competition between the U.S. airlines and three major Chinese airlines impacted by China’s SME and the ‘Reform and Opening-up’ policy. The article further discusses the opportunity for deeper cooperation through a China-U.S. Open Skies agreement with convergent legal, economic, and institutional regimes. China, Fair Competition, Air Services Agreement, Open Skies

Erratum to: How are Disputes Resolved under Bilateral Air Services Agreements? A Typology

Erratum to: How are Disputes Resolved under Bilateral Air Services Agreements? A Typology

How Are Disputes Resolved under Bilateral Air Services Agreements? A Typology

Abstract After a dispute between India and Pakistan broke out concerning overflight rights, the International Civil Aviation Organisation (ICAO) Secretariat reviewed 204 bilateral aeronautical agreements between 1941 and 1951 and listed them according to the categories of dispute resolution clauses that they contained. Around 68 years have passed and the ICAO Council has exercised its dispute settlement power in multiple occasions. This article builds upon the research carried out by the ICAO Secretariat, which it supplements with up-to-date data of 709 agreements. It then provides a typology, a study of different types, of bilateral air services agreements (ASAs). The article concludes that the use of international arbitration is the primary forum for dispute resolution chosen by drafters of bilateral ASAs. However, a look at the cases brought to ad hoc arbitration reveals deficiencies, which leads us to discuss potential institutionalized reforms.

The EU-Qatar Air Transport Agreement: Bound to Succeed?

Created to provide for a new global benchmark by virtue of strong fair competition mechanisms in combination with ‘modern’ provisions on transparency, environmental protection and social aspects that have traditionally never been addressed in bilateral air services agreements (ASAs), the 2019 European Union (EU)-Qatar Air Transport Agreement has its ambitions set high. By analysing the Agreement’s content as well as the relevant legal environments it will operate in, this article signals certain flaws in the Agreement’s enactment that may trump its functioning. In particular, it identifies that it is the lack of a culture of competition enforcement in the aviation sector on the part of the State of Qatar combined with a potential overly aggressive approach when it comes to the achievement of fair competition objectives on the part of the EU that could impede the Agreement’s future success. bilateral air transport agreement, air law, European Union, Qatar, fair competition

What does Europe do about fair competition in international air transport? A critique of recent actions

The States’ perception of what constitutes fair competition in international air transport has evolved from a quid pro quo approach in the era of airline regulation to a laissez-faire approach in the era of airline de-regulation. However, no consensus has ever been reached as to, first, what constitutes fair competition in an industry whose market access is still contingent on bilateral air services agreements (ASAs), and, second, what the pre-requisites of a level playing field are. The commercial success of the Gulf airlines has obliged regulators and policymakers around the world to revisit this issue and demand compliance with global rules. The EU has responded by adopting Regulation (EU) 2019/712 on safeguarding fair competition, as well as by championing the inclusion of fair competition clauses in ASAs. The analysis examines the compatibility of unilateral action under the Regulation with mutually negotiated solutions under ASAs so as to assess the legitimacy and efficiency of the EU strategy in the area of fair competition in international air transport.

The impact of air transport market liberalization: Evidence from EU's external aviation policy

Following the decision of the European Court of Justice in 2002, which overruled its member countries’ Bilateral Air Services Agreements (BASAs), the EU has been negotiating Air Services Agreements as a block with third countries within the framework of its External Aviation policy. This paper explores whether routes governed by this policy have lower fares and higher service quality and load factors compared to those governed by BASAs, as would be expected in a liberalized air transport market. By analyzing traffic flows over 14 years between 28 EU countries and 27 external partners on 4 continents with which the EU has varying degrees of liberalization, we find that the external policy leads to 6% - 23% reduction in fares. Lower fares in turn spurred a 27% increase in demand and led to higher levels of capacity utilization.

Traffic impacts of EU horizontal air service agreements

Abstract The EU has signed a number of “horizontal air service agreements” to bring existing bilateral air service agreements (ASAs) into legal conformity with the European Court of Justice 2002 ruling on “nationality clauses”. These new agreements allow EU carriers to operate so-called 7th freedom routes from all Member States to third countries, and not only from their home countries (Community carrier designation). Based on schedules data analyses, we however do not see many positive effects on service levels. This is mainly because bilateral frequency restrictions remain in effect, or as long haul services remain to be concentrated at the carriers’ home hubs. A frequent use of 7th freedom rights is mainly observed for low cost carriers on short-haul, open sky markets, like between the EU and the Member States of the European Common Aviation Area (ECAA) or Morocco.

Airline Subsidies: Can the Law Play a Role in Regulating Them?

Airline subsidies have recently received attention largely because of US carriers accusing Gulf carriers of receiving subsidies. Although widely advertised allegations by the US carriers and counteraccusations by the Gulf carriers focus on questions of fact (i.e., whether the airlines in question received subsidies from their governments or not), there are more fundamental questions about whether airline subsidies can ground a legal action for unfair competition and whether the law can play a role in regulating airline subsidies. There are three obstacles to answering these questions. Firstly, there is no widely accepted legal definition of ‘subsidy’ in the context of airlines. Secondly, it is not clear which law applies to the subject matter because the Agreement on Subsidies and Countervailing Measures does not apply to air services and most bilateral air services agreements do not explicitly regulate subsidies. Thirdly, there is a question as to which international organization should be responsible for regulating airline subsidies. This article suggests that a transparency mechanism, based on subsidy provisions in newly developed air services agreements and the Chicago Convention of 1944, could play a significant role in disciplining unfair subsidies and thus contributing to fairer competition in the international aviation market.

Measuring the openness of Chinese international air transport policy

Based on the Standard Air Liberalization Index, developed by WTO in 2006, an improved indexing system is constructed with a new indicator of grant of O&D points, along with improvement of the variants for the indicators of grant of freedom rights, capacity, and withholding, as well as the adjustment of scores for some variants. All of China's original bilateral air service agreements (ASAs), and their amendments, by June 2016, are collected and first analyzed descriptively. The quantitative measurement results show that liberalization of China's ASAs is gradual, which is in agreement with the conclusions from the descriptive analysis. China's international air transportation has been liberalized progressively and significantly after 1992, and its degree of openness in June 2016 was three times that in 2000. Hitherto, there has been no long time series and comprehensive quantitative measurement on the liberalization of a country's international air transport policy, especially covering all ASAs and their amendments, which could help understand the development of China's policy. Furthermore, the results could form an essential dataset for further research on the impacts of liberalization of international air transportation.

An Empirical Evaluation for Passenger Markets Before and After Open-Sky Policy between Taiwan and Japan

Liberalization progresses in the air transport industry are obvious, in particular the growing numbers of bilateral Air Service Agreements (ASAs). Taiwan government has contracted with many countries for open-sky policies recently, including the deregulation of air transport markets between Taiwan and Japan. The purpose of this study is to evaluate the impact of their open-sky policy on the passenger markets in terms of numerical performance on tourism and air transport. The analyzed results of descriptive statistics from the officially published data in Taiwan reveal that the growth of Taiwanese tourists traveling to Japan was higher than the number of Japanese coming to Taiwan after performing the open-sky policy. However, the Chow-test results show significant differences before and after this policy on the two markets. Furthermore, the Taiwanese airlines had a greater performance growth than that of Japanese airlines on transport markets, including flight frequencies, numbers of new open operational airports, passenger market shares etc. However, both Taiwanese and Japanese airlines still less use the fifth freedom to extend their services.

The role of direct flights in trade costs

Effects of direct flights on trade costs are investigated using micro price data at the city level. After controlling for local retail/distribution costs, traded input prices are obtained to be further used in the measurement of trade costs across cities through arbitrage conditions. The existence of a direct flight enters trade costs regressions negatively and significantly. The results are shown to be robust to the consideration of many control variables, nonlinearities in the effects of distance on trade costs, possible endogeneity of having direct flights between cities and alternative definitions of the data. The direct flights that are shown to be determined by bilateral air services agreements are further shown to reduce trade costs through an endogeneity analysis; the main policy implications are twofold: (i) international trade policies through aviation services, such as Open Skies Agreements of the US, are alternative trade policy tools to reduce international trade barriers; (ii) direct flights facilitate the integration of internal markets as in the case of European Union.

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.

A STUDY ON THE POSSIBLE EFFECTS OF HORIZONTAL AGREEMENTS BETWEEN AIRLINES REGISTERED IN TURKEY: A MANAGERIAL PERSPECTIVE

The European Court of Justice declared that the nationality clauses in the open sky agreements among member states with the US that restrict international traffic rights to the national flag carriers of the countries concerned, are contrary to the Treaty of Rome. The Commission therefore desires to negotiate an agreement named Horizontal Agreement on behalf of the member states, in order to bring all existing bilateral air services agreements between member states and a given third country in line with the European Community Law. Turkey initiated this agreement and possibly this will affect the market conditions and the competition strategies of airlines registered in Turkey. Therefore, this study examines the changes that may result from the Horizontal Agreement , how these outcomes will have an affect on the competition strategies of airlines registered in Turkey. Some suggestions are as well presented.

What do we mean by a level playing field in international aviation?

Over the past several decades international airline markets have been progressively liberalized. An issue that has emerged is whether there is a level playing field (LPF) between the carriers of the two nations that are party to a bilateral air services agreement. While the International Civil Aviation Association (ICAO) has drafted a model LPF clause for air services agreements and the European Commission has negotiated a few agreements with LFP clauses, the issues involved are at best vaguely specified and often ignore key elements of economics. This paper represents an initial attempt to develop a more comprehensive discussion of aspects of LPF definition. The paper categorises issues as either legitimate concerns or as issues that are matters of comparative advantage in international trade or that can and should be dealt with by competition or general international trade law rather than by sector specific bilateral trade treaties. The topic of subsidies in LPF assessments is particularly addressed as economic welfare optimization can justify subsidies in some cases and because subsidy to infrastructure is more widespread than some stakeholders may realize.