Global airline competition under open skies policies and cabotage

Abstract

Given the criticality of civil aviation policy for developing countries such as India and China and developed countries such as Japan, Britain and the United States, we review global airline competition to shed light on the seemingly varied approaches adopted by different countries. What are the forces operating in the global airline business? What are the sources of protectionism in aviation? What are the implications of the above for public policy? In this paper we review growth/share factors, regulatory evolution and sources of protectionism to chart global trends in foreign investment and strategic alliances in aviation. Bermuda 1 and Bermuda 2 seem to have given way to Open Skies I and Open Skies II. In order to access the funds which airlines acutely need and improve customer welfare, we foresee relaxation on foreign investment in domestic airlines and even cabotage i.e. foreign airlines on domestic routes. Will EU-style cabotage prove a prelude to lifting of cabotage elsewhere especially in the US? Policy-makers should prepare for this eventuality in their planning and decision making for civil aviation.