Deregulation

Airlines were (and still) operate in strict compliance with traffic rules between countries known as “traffic rights” . Those rights are agreed upon on bilateral basis in ‘Bilateral Air Service Agreements’ which define how many flights can operate between two countries, to which destinations, by which airlines and, sometimes, how many seats can be sold. This system was necessary between countries especially in the world environment after World War II. Nowadays, governments are realizing slowly that this system has been a hurdle on airline development, consequently on the flow of goods and people between countries and ultimately on the state of commerce and the economy in general. 

The process of liberalizing the airline traffic between countries is sometimes called “deregulation”.  

Developed countries have realized long time ago that opening the market to competition will bring benefit on the long term to the market in spite of loses on the short term. Researchers in the United States have studied the effect of deregulation in the United States when they opened the domestic market. 

With the rise of the capitalist thinking and market economy theories, and the huge growth in the developing economies, many countries are now realizing the importance of deregulation on the market. Furthermore, industry bodies have made tough demands for governments to liberalize air traffic. 

The most important achievement for deregulation will be the implementation of open sky agreement between Europe and the United States. This agreement entered its first stage on April 2008 and will be moving towards full implementation in the coming couple of years. Another achievement is the liberalization of one of the busiest routes in Asia between Kuala Lumpur and Singapore in Nov 2008. Other examples of deregulation are here and there on the globe especially in emerging markets like the ASEAN , GCC, China-US, etc. 

However, many important routes are still under government control with no intention to liberalize in the near future (like traffic between Australia and USA). 

Open skies:

It is well know that planes travel between countries on specified routes which are very much longer than the actual straight distance between those countries. Many airline bodies (especially IATA ) have demanded more freedom in air traffic routes. They argue that the liberation of those routes will dramatically reduce CO2 emissions and provide fuel consumption saving for airlines (12 million tons of CO2 annually according to Mr. Giovanni Bisignani IATA’s Director General & CEO). 

Ownership restrictions: 

The airline business is one of very few domains in the world with states control over ownership. As discussed earlier, the nationality of the airline determines which traffic rights it can access and to which countries. Many states demand majority share holding stake in the companies and others have only state-owned airlines. 

This system is changing rapidly as well. Many airlines now are performing mergers with others in different countries and many are taking new hubs in other countries.