Domestically, entry into the air passenger business, initiating service on specific routes, operating aircraft above given sizes, reducing or discontinuing services, investing in airlines, establishing andapplying various categories of passenger fares is subject to a detailed set of rules and regulations.
International regulations compound these domestic rules. They govern the conditions of entry and ownership, the selection of operable destinations, and the freedoms to set capacity and fares on international routes, which represent more than 60-70 per cent of all passenger-kilometers performedin most countries, with the exception of continental size countries.
The policies and regulations which have governed the air transport industry for several decades have various motivations (including safety, national prestige, national defense, regional and urban development, environmental sustainability, public service and other non-commercial objectives) specific to each country.
However,there is a growing consensus that unnecessarily restrictive regulations may have led to significant losses of economic efficiency, and thereby failure to secure low-cost air transportation to the largest possible proportion of the population - the ultimate objective of air transport policies. Recognizing these shortcomings, several governments have initiated reforms in the past two decades.
B.European Airline Industry Regulations Issues
1. Competition Issues
Competition between air carriers takes place in a multiplicity of separate markets. Passenger services between individual cities, and at different times, form a web of markets with little cross-substitutability of demand between them. Connections between cities can be further segmented into time-sensitive (business travel)versus non-time-sensitive (tourist travel) services, and operations between individual end-points (airport-to-airport routes). In servicing this web of markets, airlines exploit a wide range of scope economies.
The inherently competitive character of the airline industry may be threatened by obstacles to airport access and anticompetitive behavior of incumbent carriers. The terms of access ofcompeting airlines to airport and air traffic infrastructures (runways, terminals, and air traffic control) may have an important bearing on the degree of competition in downstream airline services. The development of "hub-and-spoke" networks over the past two decades, which resulted from the exploitation of both scale and scope economies, has added new dimensions to competition in air transport. Ina hub-and-spoke network, traffic is collected from feeder points and consolidated at a hub before being redistributed by further flights to other destinations (short "spoke" or long "trunk" destinations). One airport or no more than a small number of airports become the focus of the operations of air carriers, permitting the use of smaller numbers of larger aircraft and more frequent flights.The quality of infrastructure access is particularly important for efficiency and competition in hub-and-spoke networks where operations are organized in closely timed “flight banks”, and delays in individual landing or take-off operations perturb and may paralyze the entire network. Access problems are compounded when airport runways, terminals and traffic control infrastructures come in short...