Competition and subsidies in international air transport

Abstract

The proponents of international air transport deregulation claim that increased competition would follow, benefiting travellers and increasing carrier efficiency. But there are major differences between the US domestic market and the international market. The pursuit of noneconomic goals by subsided state enterprises may cause large losses in efficiency. State-owned airlines may engage in ‘predatory’ practices, to past on high costs in a relatively unregulated market. Private- enterprise carriers may have to withdraw or acquiesce to a noncompetitive structure. The author stresses that international markets are largely structured by bilateral negotiations between governments — competition should be safeguarded in such negotiations.