Towards a competitive air transport market in Africa: The role of bilateral air service agreements liberalization

Abstract

This study examines the impact of bilateral air service agreements (ASAs) on air passenger transport in Africa and quantifies the consumer welfare effects associated with air transport liberalization. Using an unbalanced panel of 71 country pairs from Africa observed over the period 2011–2019, the paper estimates the extent to which bilateral ASA liberalization affects: 1) passenger travel, 2) average air fares, 3) flight frequency, and 4) market competition within a country pair. Our empirical analysis employs the difference-in-differences estimation method and pays close attention to the endogeneity concerns coming from the simultaneity and reverse causality surrounding pricing, demand, and frequency decisions. Our results indicate that both partial and full liberalization of bilateral ASAs lead to a reduction in air fares, and to an increase in air travel demand and flight frequency, respectively. We find no evidence that market competition, as measured by the number of operating airlines, increases following liberalization. After quantifying all the channels through which the policy environment can affect air transport markets in Africa, we find that aviation liberalization generates consumer benefits that are equivalent to a 38 percent drop in air fares, i.e., the price equivalent effect of air liberalization.