Geraint Harvey and Peter Turnbull
On both sides of the Atlantic, the emergence of low fares airlines (LFAs) was contingent on the liberalization of air transport services. Prior to the late-1970s in the USA and the mid-1990s in Europe the civil aviation sector was governed by strict rules on market access in the domestic market and bilateral air service agreements (BASAs) between countries that regulated international routes. BASAs typically specified the destinations (city pairs), carriers (typically the national ‘flag’ airline of the respective countries), flight frequency, capacity, and prices. Some BASAs even included revenue sharing. As a result, an airline only had to be as efficient as the other airline on an international route and there was little or no incentive to drive down costs or drive up productivity. After all, prices were predetermined, capacity was agreed (reducing any scope for economies of scale), and any additional revenue generated might ultimately be shared with the rival airline/state.