THE DEMAND FOR INTERNATIONAL AIR PASSENGER SERVICE PROVIDED BY U.S. AIR CARRIERS

Abstract

In 1978, international air passenger service (provided by U.S. air carriers) was deregulated. Specifically, the International Air Transportation Act of 1978 gave U.S. air carriers the freedom to choose the international air markets they would serve. Prior to passage of this act, the U.S. Civil Aeronautics Board (CAB) would evaluate the financial status of a U.S. air carrier before authorizing it an international service. This freedom to enter international air markets is still, however, subject to the necessary bilateral agreements being concluded by the U.S. government with the country or countries in question. With the freedom of entry, not only have existing U.S. air carriers increased their frequency of flights in some markets and entered new markets as well, but also new U.S. carriers have entered international markets. Hence, greater competition has resulted among many U.S. air carriers as well as among U.S. and foreign carriers in international markets. One consequence of this competition has been fare wars. Fare wars, rising fuel and capital costs, and the generally depressed travel markets (until recently) have resulted in many U.S. international air carriers incurring operating losses. For example, the U.S. carriers, Pan American, and Trans World Airlines, incurred losses of $ 485.3 million and $ 44.4 million,

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