Abstract:
Like other transportation modes the airline industry
has a long history of government regulation. In recent years however the theoretical and empirical
bases for air service regulatory schemes have been
questioned by opponents of such policies. In Western Europe there have been pressures for relaxation
of regulation of the air transport industry with respect to air fares, service frequency and market access. Because changes in such public policies are
likely to have a major impact, there is a considerable interest in their possible implications.
It is the objective of this study to explore the
interactions between fare and service frequency in
different competitive environments, and to examine
the rivalrous behaviour of airlines and their possible equilibrium position under deregulation. The
study also considers the effect of a competing mode
(rail) on air carriers performance under various competitive conditions. The individual carrier's performance is quantified in terms of fare, service frequency, resulting generalised costs, market share and
financial results.
A competition model is developed by which the objectives set above are achieved. The study is divided
into three parts. The first part provides a framework within which the competition model can be built.
This part also generates the policy questions which
must be addressed, should relaxation of regulation
take place in Europe.
The second part explains the structure of the competition model and its characteristics. The assumptions
upon which the model is built and its limitations are
also discussed. The model consists of three
sub-models: the market share model, the costing model
and the reaction model.
In the third part, with the aid of the model the
policy questions generated in the first part are addressed and the general implications for carriers operating under different competitive conditions are
discussed. Finally the technical and the policy conclusions are discussed. It is generally concluded
that: competition results in lower fares and a more
efficient airline industry; the impacts of competition are not evenly distributed amongst markets,
routes and carriers; and the competition on equal
terms amongst carriers plays an important role in
maintaining the effectiveness of deregulation.
