Economic and environmental effects of airline deregulation

Abstract

Economic deregulation has been described as the state’s withdrawal of its legal powers to direct the economic conduct of non governmental bodies’. The airline industry stands out as an important case in significant trend in economic policy: formerly an almost completely regulated sector, it has been and is going through a process of deregulation both at the national and the international level. Making a few simple assumptions on behaviour under the respective regulatory regimes, economic theory suggests a number of straightforward results regarding the market equilibrium under deregulation. In terms of equity an unfavourable development takes place for hub airports where local environmental conditions worsen relative to the situation in non-hub airports. Deregulation in the US airline sector has had a strong impact on fares, network structures, and the level of concentration. The overall conclusion reads that in the US consumer welfare has increased owing to the decrease in fares and the increases in frequencies.

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