NCPA - National Center for Policy Analysis

AIRLINES NEED DEREGULATION

February 20, 2006

Many people wrongly believe that deregulation is at the root of airlines' troubles. However, governments never truly deregulated airlines in the first place; they have only implemented half-measures that offer the illusion of unregulated competition. Carriers remain at the mercy of monopoly suppliers -- airports and air traffic control -- that cost more than $42 billion each year, says Giovanni Bisignani, CEO of the International Air Transport Association.

Airlines do not need special treatment. They simply need the basic freedom to do business like any other business. This means serving markets where they exist, merging or consolidating where it makes sense, and making money or going bankrupt if they die, says Bisignani.

Consider:

  • Airlines are stuck with 60-year-old ownership rules largely preventing them from consolidating across borders.
  • This outdated bilateral system was designed during an era in which many carriers were run by the state and international air travel was reserved for the elite.
  • Airlines were beholden to Cold War foreign policy which simply will not work in a world where airlines are intensely competitive businesses operating a mass transit system for billions of travelers.

Governments need to review the international regulatory framework that controls air transport. Airlines ostensibly operate in a free market, but so far, only Europe has truly liberalized, says Bisignani.

The United States and the European Union are in negotiations to permit greater airline access across the Atlantic. Such an "open skies" deal will help, but governments could lift restrictions on the flow of commerce even further, says Bisignani.

Source, Giovanni Bisignani, "Airlines," Foreign Policy, No.152, February, 2006.

 

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