Open skies

zoom

Bilaterals may generate increased passenger loads between two nations. But Aytac Aras believes they can also hinder countries with inferior aviation markets.

On December 17, 1903, the Wright brothers made history after launching the world's first powered aircraft flight. Within five years of their breakthrough, passengers were boarding flights as commercial aviation began to take off. The emergence of international air travel forced global authorities to regulate the aviation industry.

Some states agreed on basic commercial aviation issues by signing the Paris and Habana Conventions in 1919 and 1928 respectively. Some 16 years later, the 1944 Chicago Convention was signed by several countries and still governs many aspects of civil aviation.

An area that the Chicago Convention doesn't cover is the economic regulations of commercial aviation. States need to establish bilateral agreements to specify these matters. Economical aspects of commercial aviation are crucial to a country because they relate to competition with other nations' airlines.

With this in mind, bilaterals control fares, frequencies and air service capacities, making them crucial to a country's commercial aviation industry. The result of airline deregulation in the US, which lifted the economic controls and constraints (except safety-related ones) on domestic aviation, was a positive move.

People started to ask: do bilaterals restrict international routes' efficiency, or are they necessary for protecting a nation's airline from much stronger forces? Saying yes or no is vital, because it may lead to the demise of a major national airline. On the other hand, it could be the catalyst for a better civil aviation system with a stronger and larger national airline.

Determining the advantages and disadvantages of bilateral agreements hasn't been easy, especially since the Airline Deregulation Act was approved by the US Congress in 1978. Having liberalised the domestic air transportation market and abolished the Civil Aeronautics Board, which set fares, routes and schedules, US authorities decided against liberalising the international air transportation market.

The argument was simple: it stated deregulation was successful in the US so why not the world? Although it caused three major airlines (Eastern, TWA, and Pan Am) to collapse, the International Air Transport Association says deregulation led to higher load factors and more flights between major hubs.

According to the aviation body, reducing red tape also opened up more destinations. The Federal Reserve Bank of San Francisco showed that the US' airline industry experienced a 225% growth and more than 50% decrease in fares between 1975 and 2000. This tremendous change was undoubtedly caused by deregulation. It also allowed air carriers to offer passengers more price/quality options.

Southwest revolutionised, the industry by introducing new marketing strategies and the low-cost airline model to the world. Canada and Australia, both liberalising their domestic airline systems in 1987 and 1990 respectively, have also benefited from deregulation. Besides these developed countries, Turkey liberalised its domestic market in 2003, leading to 50% price decreases and 300% traffic hikes.

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM