Environmental Engineering Reference
In-Depth Information
have seen the financial benefits of divesting themselves of airline ownership and are
considering forms of privatization - for example, India, Jordan and Portugal. Avia-
tion is increasingly striving to meet demands of private shareholders, whereas previ-
ously it had been operating to a solely public utility mandate.
Economic regulation and deregulation
Air services have traditionally been strictly regulated. Regulators have controlled safety,
routes, timings of services, aircraft type, frequency and airports to be served. Inter-
nationally, fare levels were decided through collaboration in the form of IATA fare
conferences. Inefficient airlines and poor levels of customer service were two of the
key reasons for pressure to introduce market deregulation. Market forces were intro-
duced first in the US with the Domestic Market Deregulation Act of 1978, which
by the mid 1980s had removed restrictions on fares, frequencies and routes. Europe
followed with liberalization of air services, a gradual introduction of market forces
over three packages spanning 1988 to full implementation of the final package in
1997. European Union (EU) registered airlines are now free to fly on any intra- or
inter-EU route, fly whatever capacity, frequency and times, and charge whatever fare
they like provided that the airline is deemed safe, and financially and professionally
sound by the relevant civil aviation authorities.
The example of profitable airlines that do not require a subsidy has led many
governments to seek to subsidize their airlines less and to liberalize their inter-
national, bilateral air-service agreements. It should be noted that aviation inter-
nationally is still regulated on a route-by-route basis by over 200,000 bilateral air-
service agreements negotiated between governments and controlling airline access to
routes, fares, frequencies and, in some cases, revenue pooling.
The bilateral agreements between the US and countries in Europe have become
increasingly liberal, and the US has negotiated a number of open skies agreements
with the countries of Europe and is pushing to gain more liberal agreements world-
wide. Strategically, this makes sense for the US because it has the largest, most wealthy
domestic market in the world and can consolidate passengers at a single hub point.
This allows favourable competition with foreign carriers who do not have access to
the US domestic online feeder traffic (hubbing is explained further below). Interest-
ingly, the US itself does not believe in free market forces within its domestic market
for international carriers and has frequently refused to allow access to foreign carriers
to this market.
The implications of liberalization and deregulation on the organization and struc-
ture of the air transport industry depend upon the specific context. Generally, com-
petition has led to increased frequency, route network reorganization, duplication of
services on busiest routes and lower load factors as a consequence of this and reduc-
tion of aircraft size as airlines have opted to give the market the increased frequency
of service. These factors have resulted in increased fuel burn per passenger carried
and raise a key question for the industry: how should the goal of competition be bal-
anced against the goals of sustainable aviation? Long-term sustainability goals need
government intervention in the market because airlines are increasingly governed by
the short-term financial bottom line of their shareholders.
