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Yahua Zhang and Anming Zhang

China and India have attracted the attention of the world in the last two decades as powerhouses of economic growth. However, scholarly studies comparing the development of two aviation markets and the market outcomes for the two countries are lacking. This chapter offers the first such comparative study, with a focus on the efficiency of airlines of the two countries. The study reviews the evolution of the air transport industry in China and India, and then assesses the efficiency performances of the state-owned and privately-owned airlines in the two markets. It is found that Indian carriers tend to be more efficient than their Chinese counterparts, and that Air India and Spring Airlines are the leaders in terms of achieving technical efficiency. The dominant status of the private airlines in the Indian market does not come by chance. The analysis shows that China’s aviation policy has long been hostile to the private carriers, and various obstacles to their expansion and growth still remain. In contrast, Indian private airlines, especially the low-cost carriers, have enjoyed more freedom and received support from a comprehensive air liberalization programme.

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Gianmaria Martini and Davide Scotti

This chapter analyses the evolution of the African airline industry by looking at the main policies that have been adopted, trends in the various airline markets within and without Africa between 1997 and 2013 and changes in the airline industry in the near future as it confronts continuing institutional challenges. Despite the growth in traffic in both intra-African and intercontinental flows and the increases in both the number of airlines and the level of competition, air transportation in Africa is still suffering from some long-standing weaknesses, including a lack of interconnectivity, an unbalanced traffic distribution, higher (compared to the rest of the world) fares and airline costs, and sparse demand. In sum, the market for air services in Africa is, overall, clearly healthier than in the past but, with a few notable exceptions, still lacks the capacity and service levels found in most other parts of the world.

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Air Transport Liberalization

A Critical Assessment

Edited by Matthias Finger and Kenneth Button

This groundbreaking book offers a critical and wide-ranging assessment of the global air transport liberalization process over the past 40 years. This compilation of world experts on air transport economics, policy, and regulation is timely and significant, considering that air transport is currently facing a series of new challenges due to technological changes, the emergence of new markets, and increased security concerns.
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Sean Barrett

Ireland played a leading role in advocating the liberalization of European aviation. It has also been a major beneficiary of the policy. Before liberalization in 1986 on the Dublin–London route, the sole Irish airline, Aer Lingus, had 2.3 m passengers in 1985. Under liberalization four Irish airlines had 130.5 m passengers in 2016. Ryanair carried 117 m passengers, more than any other airline in Europe. It has reduced fares by increasing productivity compared to legacy airlines, using secondary airports, increasing its load factors and the number of seats per aircraft, using a single aircraft type, achieving 25-minute airport turnaround times, replacing most free inflight services by sales and by ending ticket sales through travel agents. Liberalization of the airport market has increased Dublin’s market share in Ireland because of greater competition there, reducing road travel times since the completion of Ireland’s motorway network and ending the compulsion to have a stopover at Shannon.

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David Gillen and William G. Morrison

In this chapter we catalogue the evolution of air policy and airline competition in Canada’s domestic, international and transborder markets. We examine how Canada’s air transport sector transitioned from being highly regulated, government-controlled and subject to public utility style regulations to one of ‘differentiated’ liberalization. Yet despite deregulation, privatization and ‘open skies’ agreements, the status quo of dominance by a small number of airlines in Canada remains. While air service agreements have led to market growth in some dimensions the evidence is that airline market power has not been eroded. In particular Air Canada, once a government-created monopoly, continues to dominate as part of the Star Alliance. We discuss what a new air policy might look like for Canada and the balance between consumer welfare and wider economic benefits to aviation-dependent sectors versus policy that seems focused on the economic well-being of a small number of private airlines.

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James Peoples

This chapter reviews the history of aviation liberalization policy in the United States, with the objective of revealing whether competitive opportunities have increased for carriers serving US-international routes. Empirical analysis using US Department of Transportation data at the route level shows routes covered by liberal air service agreement charge fares that are 5.7 per cent lower than fares charged on routes that are not covered by such agreements. Mean findings also show greater frequency of service to passengers and a large number of carriers serving routes covered by these liberal agreements. These findings are consistent with previous research examining welfare gains associated with aviation policies that loosen restrictions on fare setting and entry. Findings from this study are interpreted as suggesting that additional welfare gains are available from negotiating with the remaining countries who have not negotiated more liberal aviation service agreements.

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Peter Forsyth

This chapter surveys the liberalization process in Australia’s domestic and international aviation. Australia deregulated its domestic airline industry in 1990. Initially, the lack of gates was a significant barrier to effective deregulation, but the collapse of Ansett and the privatization of the airports meant that gates became available. Currently there are two major full service carriers and two major low-cost carriers, though the latter are owned by the former. International liberalization has been a gradual process, and it still continues. In the 1980s Australia bowed to the inevitable and allowed sixth freedom carriers onto the Australia–Europe market. Individual bilateral markets were gradually liberalized; for example, the US market (with pressure from the US) and the Japan market (where the main impetus for liberalization was from Australia). While most forms of regulation have been removed, there are still (mainly slack) capacity controls in many markets.

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Clinton V. Oster Jr, John S. Strong and C. Kurt Zorn

This chapter analyses the safety record in the era of aviation liberalization. The chapter describes different types of liberalization and how aviation safety performance might be affected. Effects of industry growth, industry structure, and the regulatory environment are discussed. The pre- and post-safety records for specific country and region liberalizations are analysed. Overall, we find improvements in aviation safety following liberalization, especially for scheduled services. The safety record does vary by region and by industry segment. The relatively poor safety record of non-scheduled charter services in both developing regions is identified. The challenge for aviation safety is that an increasing share of fatal accidents involves regions and airlines where little information is available to help understand and improve safety performance.

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Rui Neiva

While liberalization has made great strides in both airlines and airports, the third, critical, component of the air transportation system still lags behind: air navigation services, and the entities that supply them, the air navigation service providers. Still, since New Zealand first started experimenting with commercialization in 1987, the air navigation services industry around the world has evolved tremendously. From being traditionally provided by the government or the military, air navigation service providers now come in a variety of institutional arrangements, including government corporations, non-profit private entities and public–private partnerships. This chapter explores those changes and their impacts, with a focus on two case studies in North America: the US and Canada. These are two interesting contrasting ANSPs: one that underwent institutional reform (Canada) and one that did not (US).

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Marc C. Gelhausen and Peter Berster

The purpose of this chapter is to analyse empirically how hub airports and hub-and-spoke systems have evolved over the last 15 years. First, we take a look at the cumulative distribution of the supply of flights at airports. We begin with the global distribution, and then move on to analysing regional distributions. There is a very high concentration of flights at a fairly small number of hub airports. Over the years, concentration has remained very high. These findings indicate that the hub-and-spoke system is still very effective. The majority of flights are still operated by full-service network carriers, but low-cost carriers are also starting to play an important role. Finally, we take a look at how the supply of flights in airline alliances has evolved over the last 15 years, especially in the light of the development of low-cost carriers.