Abstract:
Unfettered competition in the US and Canada has resulted
in a much more efficient airline industry, but the considerable
economies derived from the resulting structural change has lead
to greater levels of concentration than previously existed.
Arguments postulated in the early 1980!s concerning the
contestability of airline markets have been clearly shown to be
erroneous. Megacarriers now have substantial power which they
use to organise and manipulate their markets in order to
extract economic rent and restrain potential rivals. Wresting
organisational control from an increasingly powerful group of
carriers in order to obtain a more equitable distribution of
the benefits that deregulation has brought will be both
expensive and highly controversial.
In Europe similar opportunities exist for efficiency
gains, but here it should be possible to achieve these without
having to hand over market control to powerful airlines. In
order to do this however a considerable reorientation and
modification of existing regulatory policy is required. The
priority of protecting producers' interests by limiting the
competitive pressures they face is no longer warranted.
Sustaining competition should now form the primary concern of
regulators. The adoption of a system of route franchising with
carriers being forced periodically to compete for licences
provides a means by which this could be achieved.
