The Liberalization of Infrastructure
Edited by Matthias Finger and Rolf W. Künneke
Chapter 14: Liberalization of Air Transport
Sveinn Vidar Gudmundsson INTRODUCTION Several countries1 and regions2 have liberalised air transport markets, spearheaded by the US Deregulation Act of 1978.3 In this chapter we examine the historic and political drivers and expectations associated with liberalization and how the regulatory environment developed during the post deregulation years both in the USA and Europe. There have been four principal areas of regulatory reforms in air transport: (1) domestic markets; (2) air services agreements; (3) associated services; and (4) inter-regional open aviation areas. Deregulation in the USA and liberalization in the European Union (EU) are an example of the first; open skies air services agreements4 of the second; ground-handling, charter and air cargo liberalization of the third; and European Common Aviation Area (ECAA) and the Open Aviation Area (OAA) of the fourth.5 We discuss these aspects of economic regulatory reform and conclude by reflecting on the accomplishments and failures. US REGULATORY REFORM OF AIR TRANSPORT As early as 1946 the state of California had had liberal views on new entry into its intrastate market, leading to 18 new airlines starting service over a 20-year period from 1946. Some of the proponents of deregulation, Levine (1965) and Jordan (1970), reported that liberalized policies in California resulted in the lowest air fares in the world, with large increases in passenger volume. The state of Texas similarly allowed price competition, but not free entry. Airlines like Air California (1967) and Southwest Airlines (19676) had, therefore, experience with discount pricing in a competitive market before the...
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