Starting in the USA where deregulation of air transportation began in the late seventies, this trend was observable throughout Europe in the eighties and Australia at the beginning of the nineties. The major arguments for liberalisation were in general a reduction of capacity constraints and a simplified market access (Himpel & Lipp 2006, p.26). Constitutional for these ideas is the theory of contestable markets which assumes the efficiency of competition with a free market entry and market exit. Therefore deregulation processes aim at providing a better, safer and more efficient industry. However, Geoffrey Thomas (2008) among others points out that in reality the liberalisation of air transportation has caused predominantly negative outcomes which is why there should be a return to some degree of regulation. Based on Thomas’ train of thoughts, this research paper is aimed at critically evaluating the effects of liberalisation both on the aviation industry and on the consumer. The paper is therefore structured as follows: after revealing the limitations of the evaluation, positive effects of liberalisation in Europe, the United States and Australia are outlined which are then opposed to negative effects. Based on these findings, a conclusion is finally drawn.
Table of Contents
1. Introduction
2. Evaluation
3. Conclusion
Objectives and Topics
This research paper aims to critically evaluate the effects of airline industry deregulation on both the industry itself and the end consumer, balancing the observed positive outcomes with emerging negative challenges.
- Theoretical background of market contestability and liberalization.
- Positive welfare effects: pricing, route diversity, and service quality.
- Financial challenges: bankruptcy, market concentration, and legacy airline volatility.
- Regional comparisons: United States, Europe, and Australia.
- Policy recommendations regarding the potential for re-regulation.
Excerpt from the Book
Evaluation
When evaluating the effects of liberalisation of air transporation, especially with regard to welfare effects, one have to keep in mind a constitutional methodological problem: at the national level, the regulated and deregulated environment never existed contemporaneously (Morrison & Winston 1986, p. 11). Another difficulty in measuring the effects is to isolate the extent to which changes are primarily imputable to liberalisation in contrast to other factors, such as technological progress (GAO 2006). That is why comparing the effects of regulation and deregulation on the industry and on the consumer is not easy to accomplish and is build on several assumptions, also called ‘counterfactual construction’ (Morrison & Winston 1986, p. 11).
After liberalisation of air transportation several positive outcomes occurred. One new freedom for airlines has been the ability to structure their networks independently and acquire new routes. In the intra-EU market new entrants especially low-cost carriers made use of this new possibility and started to serve routes between secondary airports or even between secondary airports and foreign hubs. As a consequence, connecting passengers have a greater choice between the increased number of alternative transfer points (Gillen et al. 2001, p. 37). Like in Germany’s example which can exemplify the European market, flight frequencies between these secondary airports and international hubs have increased as another consequence (Boss et al. 1996). At the same time competition between networks and between airports has increased as well. Moreover, deregulation in the EU countries has lead to lower costs and prices particularly for discount tickets. Also former flag carriers improved their productivity due to deregeulation. (Gillen et al. 2001). Finally, accident and fatality rates decreased after deregulation (Knorr 1997).
Summary of Chapters
1. Introduction: Outlines the historical context of aviation deregulation in the USA, Europe, and Australia, while establishing the core research objective of evaluating its dual impact on industry welfare and consumer benefits.
2. Evaluation: Analyzes the positive outcomes of liberalized route structures and competition against the complex challenges of financial instability, market concentration, and legacy airline struggles.
3. Conclusion: Summarizes that while consumers are the primary winners of deregulation through improved service and lower prices, a balanced policy approach is needed to support the long-term viability of the industry without reverting to restrictive regulation.
Keywords
Deregulation, Aviation Industry, Liberalisation, Welfare Effects, Market Competition, Consumer Benefits, Airfares, Route Structures, Legacy Airlines, Market Concentration, Hub-and-Spoke, Airline Productivity, Industry Reform, Public Interest, Antitrust Policy
Frequently Asked Questions
What is the core focus of this research paper?
The paper examines the economic and operational impacts of deregulation within the global aviation industry, contrasting the benefits gained by consumers with the challenges faced by airlines.
What are the central themes of the analysis?
Key themes include the shift towards market liberalisation, the development of hub-and-spoke networks, consumer welfare gains, and the financial volatility of incumbent carriers.
What is the primary research goal?
The goal is to critically evaluate whether the liberalization of air transportation has been beneficial or harmful by assessing the outcomes for both the industry and the passengers.
Which scientific methodology is applied?
The study uses a comparative analysis of regional markets (USA, Europe, Australia) and relies on the concept of 'counterfactual construction' to measure the impacts of deregulation versus other economic factors.
What topics are covered in the main body?
The main body addresses the positive welfare effects, such as lower airfares and increased service frequency, as well as negative effects like bankruptcy risks for legacy carriers and increased market dominance by incumbents.
Which keywords best characterize the work?
The work is defined by terms such as deregulation, liberalization, welfare effects, market competition, and consumer benefits.
Does the author suggest returning to full-scale regulation?
No, the author concludes that while some targeted policy measures may be necessary, returning to strict, far-reaching regulation would likely diminish the positive competitive gains achieved thus far.
Why are airlines often considered the 'losers' of deregulation?
Airlines have faced intense competitive pressures, leading to reduced financial profitability, increased volatility, and the need for significant restructuring or even bankruptcy due to their legacy cost structures.
- Quote paper
- Barbara Bilyk (Author), 2009, Effects of Deregulation in the Aviation Industry, Munich, GRIN Verlag, https://www.grin.com/document/137523
