Regulation, Market Structure and Performance in Air Passenger Transportation

74 Pages Posted: 12 Oct 2000

See all articles by Rauf Gonenc

Rauf Gonenc

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Giuseppe Nicoletti

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Date Written: August 2000

Abstract

The paper uses a data base on regulation, market structure and performance in the air passenger transportation industry, to analyse the links among liberalisation, private ownership, competition, efficiency and airfares at national and route levels. Covering the 1996-97 travel season, 21 aggregate indicators have been developed for 27 OECD countries, and 23 micro indicators for 102 air routes connecting 14 major international airports. These data, summarised by means of factor analysis show that i) regulations affecting the air industry vary heavily across countries and routes; ii) in most markets, air services are still provided by a few carriers, generally dominated by an incumbent flag-carrier or by an airline alliance between incumbents; iii) only in a few cases new entrant airlines play a significant role; iv) in a large number of airports, a single airline controls more than half of the available slots; v) as a result, few international routes are truly open to competition; vi) regional aviation markets and open sky agreements constitute an important but limited step toward liberalisation. Controlling for market size, network length and other technological and economic differences, and combining national and route-level characteristics, cross-country and cross-route regressions show that i) productive efficiency increases and fares decline when regulations and market structures become friendly to competition; ii) productive efficiency is sensitive to actual competitive pressures, as proxied by low market concentration; iii) fares react to liberalisation independently from market structure, but in liberal environments their decline is amplified by actual competition between carriers; iv) business and economy fares tend to decline when they are liberalised and market concentration is reduced, but tend to increase when markets are dominated by airline alliances on the route; v) discount fares are affected by the overall market environment at route ends, charter regulations and the actual presence of challenger airlines on the route; and vi) airport congestion and dominance tend to increase fares in time-sensitive market segments.

JEL Classification: K23, L51, L93, L32, L1

Suggested Citation

Gonenc, Rauf and Nicoletti, Giuseppe, Regulation, Market Structure and Performance in Air Passenger Transportation (August 2000). Available at SSRN: https://ssrn.com/abstract=238207 or http://dx.doi.org/10.2139/ssrn.238207

Rauf Gonenc

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France
331-45249404 (Phone)

Giuseppe Nicoletti (Contact Author)

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France
+33 1 4524 8730 (Phone)
+33 1 4524 1347 (Fax)

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