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318 international aviation liberalisation
US airline deregulation began at a specific point
in time, when the air cargo industry was deregulated.
The passenger airline industry followed in
1978. Often this approach is referred to as the big
bang theory, where governmental economic regulations
on pricing, route additions or deletions
and most requirements for new entrants are
eliminated all at one point in time. Airline
managers could immediately change prices, add
new routes in profitable markets, discontinue
service in unprofitable markets and form new
airlines with a minimal amount of government
interference. Soon, many new carriers had entered
the marketplace. The general results were lower
fares for the consumers and increased frequencies
in several markets.
The logical next step was to transform international
aviation services in a similar manner.
However, this was a much more challenging
undertaking. The vast majority of international
airlines were state-owned and considered to be
national flag carriers, whereas US carriers were
privately owned. International aviation bilaterals
govern most air services beyond the domestic arena
of each nation. The two participant countries
selected the airlines to serve a route, set frequencies
and capacities, regulated fares, and in some cases
allowed share or pool revenues.
The major objectives of the two countries were
to insure profits for the national flag carriers and to
limit competition from other `foreign' carriers.
Each government exhibited very protectionist
attitudes. The United States found it impossible
to transfer its total and immediate deregulation
approach to other regions of the world, as most
countries wanted to maintain their traditional
bilateral approach to international aviation services.
As a result of this situation, the big bang
approach to deregulation was deemed inappropriate
in other parts of the world. Instead, the term
liberalisation was widely used. This means a more
gradual, progressive process of removing governmental
economic regulations from airlines, the
privatisation of formerly state-owned carriers and
an opening up of international markets to carriers
from other countries. The most significant international
aviation liberalisation programme to date
has been in the European Union, whose officials
felt that the more gradual approach was most
appropriate given the fact that there were twelve
countries involved �fifteen from 1998), each of
which had different approaches to liberalisation.
These differences included existing international
bilateral air agreements; the degree of privatisation
of state air carriers; the appropriate model for
economic development; change methods and
techniques; and administrative procedures, as well
as cultural differences. In addition, this air market
is different from that of the United States, in that a
very significant volume �over 40 per cent) of air
service consists of charter flights rather than
scheduled service.
The European airline liberalisation was to take
place over three distinct phases beginning in 1987
and ending in 1997. In the first stage in 1987
bilateral capacity controls were gradually changed
from a 50±50 split between the carriers of the two
countries involved. A carrier in one country could
capture up to 60 per cent of market share.
Additionally, more than one airline per country
could serve a route, a practice which is termed
multiple designation. Further, it became much
easier for airlines to file discounted airfares which
met certain prescribed conditions. The second stage
in 1990 made it much easier to file more heavily
discounted airfares, allowed extensive competition
in markets, often adding three or more carriers per
route and authorised market capacity shares to go
to 75±25 percentage splits. The third and final stage
began in 1993, and again more freedom was
granted in terms of capacity limits, setting fares and
gaining access to new markets.
Much work still remains, as the European
Commission must resolve issues such as airport
capacity restrictions and allocating landing and
take off slots to new entrants. Additionally, the anticompetitive
aspects of computerised reservation
systems and continued state subsidies to certain
airlines, which greatly distort a free market
approach to competition, need to be addressed.
Another challenge is the transition away from
bilateral agreements to multinational aviation
agreements in which the European Community
would negotiate on behalf of countries and/or
airlines in determining international air service
agreements. This would mean that individual
European countries would give up some of their