Please note that this version contains corrections to pages 214, 218, 219 and 303 which do not figure on the paper version.

2 1 Boeing 747Boeing earlier. years did30 way that thesame that the to transform intheworld, theindustry aircraft ispredicted passenger the largest 2005, inearly aircraft 380 theunveiling Also, of atamuchlowercost. theAirbus routes existing and servicing newservices byestablishing regions andinternationally incertain air travel domestically moreaccessibleboth (LCC), have model, carriers is,of made through bad.Lowcost course, not anewbusiness news always The system (Section 6). international wouldmake contribution of thetrading apositive airtransport functioning to theefficient competition arehowto ensure facing theindustry issues key isthat policy from thetwo theanalysis A clearmessage (Section 5) and to for implications international andits continue trade. in theinternational industry airtransport thenature of competition assesses 4,which to are brought intheanalysis steps inSection together two These debate whether 3). (Section of isfollowed theinternational by This of areview system theeconomics 2). airtransport (Section or not contributes to international airtransport bywhich trade themechanisms is accomplished by, clarifying first, multilateral ingeneral. This andservices andtrade ingoods oninternational services their impact trade inairtransport rules andexamine in theinternational industry isto developments review airtransport of thisessay purpose The on market access incompetition. remain asto play andquestions therole that can inensuring theinternational issues system of outstanding andprofitability. Consequently, of international services ensuring airtransport adequate delivery anumber of goals conflicting thesometimes to satisfy uniqueformula has No exists varied. policies success of these triedby have anumber of been nationalrestrictions atdifferent governments levelsof The development. entry, market atderegulating increasingforeign liberalizing ownership, andeasinginfrastructure access targeted easy. has ranging not been of policies wide Aset of ensuring international industry acompetitive airtransport towards However, still. international has not stood Government airtransport policy thechallenge addressing conducted. be can business internet asameans by airtransport which in the context of employment loss and in some cases, loss of face especially consequences, theycollapse,make andsocial economic andwhen theyhave thenews widespread when it is a national carrier that folds. into get israrely trouble, profitable. majorcarriers When they consistently that highlight the industry thefact reports Media for survival. struggle inaconstant to be appears to thehumanappeal population, theindustry has, for that alongtime, airtransport andthefact had acertain services of airtransport theimportance Despite range of inabroader countries. of more accessible customers set to awider transport innovation, andenhanced deregulation market access for foreign are companies, which allmakingair to asaresult increase of technological isexpected commercial of importance many This decisions people. role of international role intheleisure and incontributing aviation andits civil to process thedevelopment highlight theimportant also studies These 2004). ofto thegainsfrom (WTO, ensurethematerialization trade countries, indeveloping especially infrastructure, andreliableairtransport effective ofanefficient, importance have highlighted Numerous studies the astourism). (such andservices of trade, of goods both inthedomain for right. itisakey many own Second, other kinds intermediate inits service asaservice istraded transport air First, ways. international distinct with isassociated trade intwo like services, transport, other transport Air INTRODUCTION 1. INTERNATIONAL INAIRTRANSPORT: TRADE B A modified version of the Boeing 747 which is capable of non-stop trans Pacific flights, the 747-400, was launched in1989. launched 747-400, was the flights, Pacific trans 747 ofnon-stop Boeing ofthe iscapable which version A modified countries. African West by11 owned was Afrique Air in2002. Afrique in2001 andAir inAustralia Airlines Ansett include collapses profile high Recent RECENT DEVELOPMENTS ISSUES ANDPOLICY 2 Complementing innovations themechanical istherapid acceptance of the 213 1

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT 3 Desp therefore, amore by general approach us adopts i between the between and thenat the country where theyd where the country k country to another can be recorded asan recorded to be another can country and thecomplex Industry spec Industry i fre 2002, th d Chart 1 captures theoverallChart econom 1captures bus s Events that such asthose occurred on11 2001 September event have of are can howanexternal anexample of of The performance of thea performance The Output and performance of the industry (a) INTERNATIONAL SERVICES INAIRTRANSPORT TRADE trad The 2. strong performance of performance strong thesusta context, performance trade as revenues over expenses have been stat have been as revenues overexpenses i are presented i and serv performance of the performance A broader set of performance of performance set A broader i labour, andproduct ncreased stead ncreased n theChart nd nd ncreas i i i gn lometres performed by the lometres performed fferent from other i i i i ght-k i rect expend rect cat nd i ness to customer contact, to contact, customer ness f A tonne-k k i . i te these l te these i Th cant consequences forcant consequences the lometres, th i i cators i ve of thek ngly ngly i i i i t ces, and growth ces, andgrowth i lometre data s f s approach, however, i onal approach to sectoral trade analys onal approach to sectoral i i gure had r onal . i . . mportant Th i i These These F i lometre f ndustry and ndustry i i c factors are also arealso c factors n Table 1 i i i i tures can be class be tures can i ly rst, overall traff rst, m i i s would be s s weak performance s weakperformance ty of the company that transports them of thecompanyty that transports i . ty of the ty i i i 3 ned econom tat nds of results that onewouldobta nds of results The only two except two only The i i v i i i ndustry has been fa has been ndustry s def ndustr nclude growth growth nclude i i ons, theava . ty ga . In aggregate, In i In 1991, sen to 34 per cent per to 34 sen i nternat . i ned as the carr the as ned These data showthat data These i i sembark can also have also balance can sembark of payments n other i r transport r transport i i i nternat i i x tonne-k ns es - exogenous shocks can exert pos exert can shocks -exogenous es ndustry i ndustry . i i i nd i s another example c growth exper c growth i onal trade has translated s d i i i i c ndustry mportant mportant nternat i i i cators, for amore recentcators, t f ndustr i i i i i onal trade patterns . n the ff lable data onthecharacter lable data ed accorded i lometres For example, data on the number of passengers transported from one transported onthenumber of example, passengers data For i i c performance of the c performance i n gross domest n gross . cult for the i i i nternat age of one tonne for one k one for tonne ofone age i ndustry depends on the same broad factors that determ factors broad onthesame depends ndustry s aga . i i i i S onal travel accounted for 23 ons are es that use a thates use rly stat rly . i i S ndustry, asmeasured i c . m i i . n determ mport or an export, depend oranexport, mport i i Taken together, two these nst abackdropnst of m i i i larly, therap ng to anumber of categor onal a i i enced by the worldeconomy lar i i 214 s c i i i . i i ng gener nternat n 1991 and2001 nternat

s to exam i i n absolute terms anddecl terms n absolute ncreases were recorded for passenger-k wererecorded ncreases i i r transport accounts for 68 per cent accounts per for of thetotal-tonne- 68 r transport i c product (GDP), growth growth (GDP), c product n i i . r travel as a mode to transport cargo andpeople cargo r travel to transport asamode n i ng performance i . f a full set of trade data wasava of trade data f afullset i Furthermore, theexpend i i onal a nto pos astrong i onal travel, as a share of total travel, d r i i ndustry dur ndustry c a i i ne the pattern, volumeandvalueofne thepattern, me per i i lometre se of the use of of the theuse se i r transport data to data r transport i i i ncreases ncreases r transport sector,r transport dueto thepauc i t st i i ve andnegat n tonne k i cs and performance ofthe andperformance cs i . . od andspec od Accord Second, realy Second, . 5 per cent of all passengers carr cent5 per of allpassengers i i . mpl ng the past 40 years, us years, 40 ng thepast Here, thea i i nd i es, creat i ng ontheor n costs of n costs i i t ngly, i i i cat cators, suggest that thef suggest cators, ve trend for i i i lometres performed (TKPs) has (TKPs) lometres performed n the past two decades andthe decades two n thepast n i i i i n ons ve effects on ve effects ng when measured measured ng when i f three tonnes were carr were tonnes f three i f i i i i nternet, espec nternat cally for cally ng anest i . i dent tures of the passengers tures of thepassengers Consequently, d i i elds have been decl elds have been r transport r transport i nputs, suchasfueland nputs, i g i fy the broad l thebroad fy i i n of the passengers n of thepassengers i nternat onal trade i lable i nternat i i lometre data and lometre data mat i ts performance ts . i i Th i i i ng a number ng anumber ndustry ndustry ally forally d ne econom i on problem i i i onal traff nternat ndustry are ndustry s becom i onal travel i i ty of data of data ty s Sect i i n logs as n logs i i ed for two two for ed rect and rect n goods n goods i i . nkages nkages nanc In th i ed i i i n i onal s no rect rect i . on, i i i In ng ng c i i al i i . n . c s

.

Source: andmailcarried. freight Note: 1991-2002 airlines, ofscheduled output International Table 1 1960-2002 industry, airtransport ofthe Performance 1 Chart Source: (Logarithm scale) 02553. 726 891. 44109 62255 67.8 67.3 66.8 265650 66.4 259520 67.7 66.1 247610 86.2 231440 86.7 271400 85.8 227390 100590 65.2 85.5 64.4 95950 86.1 63.3 59.3 85.3 64.4 93280 206870 101520 189430 87050 62.9 62.0 173080 55.6 87740 143600 61.6 84.7 19.0 62.3 84.6 155490 59.6 18.0 83.8 128280 81.0 75510 59.5 17.3 58.9 70340 81.9 18.8 64700 79.3 15.8 58.6 50750 58.6 1732160 15.7 58.6 56050 58.9 58.0 1715740 57.6 46410 57.5 52.8 33.7 13.6 1778110 56.9 57.1 13.0 1622250 32.8 48.6 11.8 1512040 32.5 9.3 545 56.8 31.6 1468150 10.3 55.6 532 31.1 8.5 2002 54.4 1380680 538 30.1 2001 1249160 53.7 50.9 493 29.6 2000 1143180 458 46.7 28.8 1999 1047380 438 982490 28.1 1998 412 861530 27.9 1997 375 26.1 1996 347 23.4 1995 319 1994 299 1993 266 1992 1991 in Hong Kong,in Hong China, entire fleet. to grounding have its considered atonepoint isbased which for Cathay severe weresufficiently PacificAirways, China Kong, andHong China. effects These in Syndrome of (SARs) Acute theSevere Respiratory in2001, setback toserious theeffects partly attributable a suffered industry, also of the airtransport Pacific region, accounts which for asignificant portion Asia The 4). inSection ofmajor countries newforms (discussed andtheintroduction of business insome andliberalization of deregulation effects combined the included These 1990s. the during occurred that changes andregulatory of thisfeature orvolume.explanation of isthenumber structural One passengers A noticeable feature inTable of thedata ininternational 1isthegrowth output, measured interms of either 1000 100 10 1960 1 Share of total refers to the sum of domestic and international figures. Total tonne-kilometers is the aggregate of passengers, ofpassengers, aggregate isthe Total tonne-kilometers figures. andinternational sumofdomestic tothe refers Share oftotal ICAO. ICAO. Millions asnescridPsegrklmte rih onscridFegttneklmte Total tonne-kilometres Freight-tonne kilometres Freight tonnes carried Passenger-kilometres carried Passengers 63

Share oftotal Share 65 Tonne-Kilometeres Performed Real Yield Revenues/Expenses Real InputPrices Productivity (per cent) (per

67

69 Millions 71

73 Share oftotal Share (per cent) (per 75

77

Millions 79

81 Share oftotal Share 215 (per cent) (per 83

85

87 Millions

89 Share oftotal Share 91 (per cent) (per

93

95 Millions

97

Share oftotal Share 99 (per cent) (per

2001

2002

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT registration, 1991-2002 registration, ofairline toregion according traffic ofscheduled kilometres tonne total distribution Percentage 2 Chart Source: rates and trade growth rates duringthe1990s,rates have theirshare andtrade growth markedly. increased of traffic GDPgrowth thehighest region, Pacific experienced which Furthermore, of theAsia worldtraffic. two-thirds GDP. capita on per GDP, capita thehigherper regions account with The America, for almost Europe andNorth inChart figures 2andTableThe significantly depends that for thedemand indication airtransport 2are astrong kilometres. passenger per costs lengthof route passenger has flight That also oneofhas stage. thelowest thelongest route, also which istheNorth/Mid-Pacific average number of route thelargest seats with The of 258 seats. route,2002 thebusiest anaverage with lengthof anaverage 5737 with aircraft with kilometres, isserviced example, in For flight andlonger stages. shares of traffic larger with areutilized onroutes aircraft the larger that indicates of It thedifferent routes. Table andfinancial characteristics on theoperating data provides 2also region, account, for respectively, 16.5 cent per and13 cent. theAsia/Pacific Pacific andwithin per Europe andAsia/ routes, between 19.2 important most two cent per of total international next The traffic. travelled that Atlantic, themost international2 shows accounts which route for istheNorth approximately of travel. inthedirection Table concentration strong thethree across reflected regions isalso The inairtransport cent. travel. share from that 2.5 of Chart that worldtraffic 2shows its cent has region increased per to 3.6 per of for of thedemand companies international thatexample advantage are taking travel, relative to domestic regions of theworld account over10 for just are cent an from theMiddleEast per Airlines of worldtraffic. Europe’s 26 Although remaining for accounts cent. athirdof itisstill thetraffic. The per still share declined, by isdominated which States theUnited America, North ofand nowaccounts worldtraffic. for aquarter 1991 ininternational increase between thelargest years traffic Pacific experienced region and2002, theAsia thechanging the11Chart share In by 2shows region, traffic. of traffic measured interms of passenger 41.2 WTO based on ICAO data. ICAO on based WTO 2.1 (1845 billion) 1991 19.5 2.5 4.8 Asia/Pacific Latin America Africa 29.9 216 36.8 North America Europe Middle East (2942 billion) 2002 26.7 2.2 3.6 4.5 26.2 Table 2 Basic operational data and financial results for scheduled passenger services by international route groups, 1998 and 2001

Operational data Financial results2

Percentage Average Average Average Number of world’s length of number passenger Average Average passenger Ratio of international traffic flight stages of seats load factor revenue (cents) costs (cents) revenue/ airlines (available seat-km) (km) per aircraft3 (percentage points) per pass-km4 per pass-km costs4,5 (1) (2) (3) (4) (5) (6) (7) (8)

Route group (short title) 1998 2001 1998 2001 1998 2001 1998 2001 1998 2001 1998 2001 1998 2001 1998 2001

All world international routes 386 473 100.0 100.0 2037 2050 231 224 69 70 7.81 7.24 8.0 7.92 0.97 0.91 International route groups North-Central America 34 34 1.9 1.8 1553 1629 171 161 69 71 7.8 7.7 8.9 9.4 0.90 0.80 Central America 21 22 0.2 0.2 713 815 128 131 ...... North America 64 60 4.4 3.8 1330 1378 134 126 64 65 7.6 7.7 9.5 10.5 0.80 0.75 North-South America 38 45 4.2 3.4 2807 3044 202 194 59 64 8.1 8.0 8.3 8.5 0.95 0.95 South America 30 32 0.7 0.7 1069 1198 145 141 58 60 11.5 9.8 12.4 11.6 0.95 0.85 Europe 171 199 11.5 12.9 953 983 136 131 65 65 16.9 13.7 15.6 14.0 1.10 1.00 Middle East 18 18 0.4 0.5 783 826 180 187 ... 57 ... 14.0 ... 14.5 ... 1.00 Africa 53 54 0.7 0.6 1131 1225 159 148 ...... 217 Europe-Middle East 62 66 2.5 2.7 2657 2789 212 212 63 65 9.9 8.5 10.0 9.1 1.00 0.95 Europe-Africa 89 105 5.1 5.4 2678 2729 234 241 69 71 7.6 6.9 7.9 6.9 0.95 1.00 North Atlantic 68 66 19.2 19.2 5624 5737 268 258 77 74 6.6 6.0 6.5 6.8 1.00 0.90 Mid-Atlantic 29 35 3.3 3.6 5584 5969 302 299 75 77 5.5 4.9 6.0 5.9 0.90 0.80 South Atlantic 23 20 2.3 2.4 5377 6724 287 265 71 71 6.7 5.7 7.0 6.5 0.95 0.90 Asia/Pacific 105 104 12.7 13.0 1978 2070 263 267 65 69 7.7 7.6 7.8 7.4 1.00 1.00 Europe-Asia/Pacific 121 124 16.8 16.5 4857 5029 298 303 72 74 6.2 5.7 6.5 6.2 0.95 0.90 North/Mid-Pacific 30 27 12.4 11.5 6662 6864 342 331 71 72 4.9 5.0 6.0 6.5 0.80 0.80 South Pacific 15 17 1.7 1.8 6093 6630 349 318 69 72 5.8 5.2 5.9 6.0 0.95 0.90

1 Excluding operational and financial data attributed to supersonic and propeller-driven aircraft. 2 The margins of uncertainty which should be considered in relation to these results are discussed in Appendix Table 2 at the end of this Section. For routes between and within Central America and Caribbean and within Africa, the representation was inadequate to justify separate presentation, but the data have been included in the world averages. 3 As defined by available seat-kilometres divided by aircraft-kilometres flown. 4 These figures do not generally include incidental operating revenues. For all international routes, that part of this additional revenue which may be directly attributed to international passenger traffic is about 0.14 and 0.19 cents per passenger kilometre for 2000 and 2001, respectively. On individual route groups, it may represent up to an additional 4 and 5 per cent over the average passenger revenue quoted for 2000 and 2001, respectively. 5 Rounded to the nearest twentieth for individual route groups. Source: ICAO.

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT Canada Japan 18967 USA Extra-EU (15) Exports Russ Ta 2002 airtransport, ininternational traders Leading Table 3 4 Ta Source Malays Israel Mex Mex Malays Ch Argent Russ USA Israel Ch Canada Japan 14066 Extra-EU (15) Imports Pak not spec 63 and56 i countr about the data thedata about The concentratThe A number of observat breakdown ofA country total and dom shows that theUn shows total tonne-k total In contrast, smalleconom contrast, In Nevertheless, the demand for thedemand a Nevertheless, Ch Current ava posted f transport f ranked country nternat i gures, both rankgures, both i i pe pe i i na na i i stan i i na andS i i co co i i a a , Ch , Ch i Un For nance : i i i a a na WTO based on IMF and Eurostat data Eurostat and IMF on based WTO i es i i i ted K ted nese nese i i onal PKP accountsonal for PKP 25 cent per of total PKP nternat i i gures tw gures f . For example, For i i ndustry ndustry . c to developed countrc to developed 8 per cent8 per respect i i lable forecasts of lable forecasts n therank i i ngdom ngapore are at the extreme arengapore attheextreme i lometres performed (TKP) are developed countr are developed (TKP) lometres performed (M i i Dollars onal TKPs the second ranked country was Germany and for for and Germany was rankedcountry second the TKPs onal on of a global 69 458 6n 26 5787 74 16291 . 98 047 0n 20 4878 80 19189 i In terms of In n Append i 397 941 6 16 11 11265 9 962 18 1994 74 8309 386 323 n 36 1352 64 2398 383 106 n 63 2190 37 1308 513 272 083 8712 7867 38 3018 29 2287 33 2561 016 n 64 2021 075 7 4663 9312 1973 34 676 14 270 52 1027 245 6 3512 079 2077 28 591 13 262 59 1224 125 8 2542 1116 2161 25 534 22 486 53 1142 ll 146 3 3n 33 539 67 1114 8 610 07 809 1870 4 78 70 1306 26 486 6 1131 9619 8 1198 6 69 14 163 81 966 8 77 3132 7 13 575 20 113 13 74 67 388 8 8n 68 689 6 25 2 06343 643 20 128 8 50 72 465 7 48 4 910 11 1201 29 345 7 83 64 773 8 4172 1 2525 522 22 114 24 127 54 281 7 2594 0 313 5 1230 33 401 45 559 22 271 i 1 4n 74 712 ons) i ce as large as those of the second ranked ofce thesecond aslarge asthose countr i . i asne Fre Passenger i s ted States ranks f Statested ranks n thetop 10 i llustrated by the fact that by thefact llustrated i i ngs ofa ons about the ons about i n theUn percentage i i es report very lowdomest very report es x Table 1 of total i i 54 63 r transport traff r transport i nternat i i nternat vely andforvely Canada theyare 61 rl i i nes nes r travel i i es n theworld i ted States,ted . . i i The f The S nternat n terms of passenger traff n termsofpassenger i onal travel i i i rst onal TKP and passenger k andpassenger onal TKP nterests of d of nterests . i Refers only toeconom only Refers m (M Dollars i n these econom n these i i 3046 i lar f 4280 n every category and that seven of andthat thetop tencountr seven category n every ll i i rst i n th ons) i . . . onal traff n a n a n a i c i i gures are reported for Braz gures are reported i s the i nternat i n terms of e i n East As n East i s regard i i ts total TKP total TKP ts h Other ght nd 218 i percentage i fferent countr cate thatcate th i of total mportance of thedomest mportance i c f i i onal TKP accounts for 33 only onal cent and TKP per of total TKP c for 1993 and2003 . . 14 . 12 a a a . i . i As c . . . gures and very h andvery gures S a, North Amer a, North i i es es that these data report i i m ther TKP orPKP ther TKP i i s nearly s s nearly s such that evenonthebas i i i larly, c (Append ty states, the states, ty . i i s concentrat 5 and57 es (M Dollars i i lometres performed (PKP) theUn (PKP) performed lometres es . 9095 6639 i 153 158 3165 36 1145 i The ll nternat 4 6916 961 26 249 2 211 8 1016 32 327 i i nternat ons) i i . . . . . es n n a n a n a n a n a i x t i . i nternat ca andWestern Europeca i 4 i . mportance of theUSto a theglobal mportance x Table 2) and i 6 per cent6 per respect i mes larger than larger Germany,mes thesecond onal PKP the second ranked country was the the was rankedcountry second the PKP onal i i gh l, Ind l, percentage i i on w i onal TKP and PKP for Austral andPKP onal TKP . r domest of total i s prov i nternat i . c market to geograph i

22 35 . . . . i onal a . a a a a a andCh 27 8 22078 a . . . . i ll cont ll i ded i i i onal f c market r travel can also be made made r travel be also can 99 10 29894 46 11 24067 i Total 64 9 26147 n cargo (Append n cargo i nue (Append 488 3498 634 1653 798 3749 i i n Append i s only ofs only na i i vely gures .

commerc i percentage of total . i s reflected s reflected s non-ex Th i A es . i Hong Kong, Hong i r transport as as r transport i nternat x Table 1 i s pattern s pattern i i i i al serv i n termsof x Table 4) ted Statested cally large cally i x Table 3) i i stent i ces trade ces a are i i onal n the . It i i . s r .

i r .

6 5 or The f The for Malays exports transport S and aux (fre themovement of goods passengers, serv The fre Car also transportat serv a goods and serv goods tour serv Passenger transact i i arr The real In countr i A International trade in air services transport (b) tour sector have d sector related to thea goods One of the most not of themost One Pak as such Although thecollect Although be shown to account shown be for approx class that be can a that a nternat mport goods through a goods mport mports andexports mports i i i i r transport astheyrelate d r transport m r transport r transport i r transport can have can d r transport g i i ght are vals for tour i i i bbean bbean i i i i larly vary larly i i nates or ces performed w ces performed ces that are performed byces res that are performed sm, can be facsm, be can expend Other procured related Some a repa w sm serv nd mportance of a mportance i ncluded ncluded i i i rcraft gures gures i i r transport r transport i thout crew ( ty, however, a es, such asthe50countr i rect rect i i i onal trade i ons l rs ofra rs i ary serv ary i . tems tems i i i i tures on food, dr food, on tures i s 55 cent per (ATAG, 2003) ncluded ncluded on of non-res of on stan, a i i mpact of a mpact i i i ces andthe i i n Table 3refer to aggregate trade n ports bynon-res n ports s used i i ng f mports, butthef mports, s del rect rect i i n th i lway fac lway i ces purchased i i ces covers allserv ces covers ncluded ncluded i sts i tems that are excluded from transportat from areexcluded that tems i f ncluded ncluded i i i i gures can also be found be also can gures s an ces ed asbe ed i i i i r transport accounts for as much as 43 per cent of serv mpl l vered vered i i i . s def i i n a tated through a tated i n Afr on of data on on of data i r transport for tour r transport n theother category . i i . The Table The traff that passenger shows also ceable features of theTable r transport r transport i i i 5 th l r transport r transport Athreefold class i i i i i t cat mportant component of worldtrade mportant i r transport r transport r transport for allcountrr transport i n th i es, harbours, anda harbours, es, i i i i r transport i n aneconomy by non-res r products n operat rect and rect n i i i i n thereport nk, or other dents by res by dents ca arr ca i i i ons for thetour t ng on goods ng ongoods i i s def i rectly to serv rectly i on i a, the same f a, thesame dent carr dent i n afore i . gure 6 i i i i Fre ved by a mately 10mately cent per of worldtrade onal leas onal n i i i es class s extremely s extremely i ndustry, butnot d i i t i nternat nd i s captured s captured . . on are charges for excess baggage, veh baggage, excess for arecharges on i i i Th r transport, or other modes of travel orother modes r transport, ces transacted between two fore two between ces transacted i dents of oneeconomy fordents of another, those i i ght serv i tems passengers purchasetems on board carr passengers i s 80 per cent per for theUn s 80 ers andrepa ers rect rect i i i . gn economy ng economy dent carr Th i s i i sm i ng serv i i i rf i f ces trade i s i i ght), rentals (charters) of carr ght), rentals (charters) . ncludes thefre ncludes i f r (ATAG,2003) i i i i

onal trade i cat eld fac i i s f gure for Japan i i mpacts on mpacts n the ed by theUn sm gnored i s i i i gure i ces are onthebas calculated i on, wh i n two ways n two llustrated by the fact that bythefact llustrated i mportant to themasameans by wh mportant ces) i ndustry i i i i rs oftransportat rs l ers and that of res of that and ers es i i t mport data mport . i i . . es ( on serv Ind i i i . . i When theava When s the dom s the . nd n serv Th dent carr Wh All other transact All i rectly l rectly i n a i i ncluded ncluded ch d i i cates very clearly that developments that clearly developments very cates i i rect trade through the travel category andexpend trade through thetravelrect category . nternat s component, wh i i le i i i r transport r transport ces arefre ces ght ted Nat . 219 . i i The comparable f The The f ces i s 33 cent per andfor Ch st i i nked to themovement of persons t accounts for asmuch81 cent per of total a . Table on data 3presents i i . i ngu ers such asfares of areers apackage that are part i Passenger traff Passenger n construct . i nvolved nvolved i nance of theEC andtheUn In th i i ted Statested on equ onal trade, s i rst i i ons as Least-Developed, may seem l may seem ons asLeast-Developed, shes between passenger, fre between shes i i i ght lable data are aggregated,lable data a c i i i n serv i s through expend dents by non-res by dents s st i i i s context, therole of small develop s context, s by nomeans thedom pment (both are treated as goods, not serv not goods, as aretreated (both pment i nsurance ( nsurance i i i cles, or other personal accompany personal other or cles, n other countr ons that are not l i i . i on serv i ers w ers ers ll The second second The . i i i ch n 2000 half of thetotal n 2000 gn econom

i i i ces exports n ces ; and passenger serv and passenger i i nce i ts i s most commonly assoc s most s of costs s of costs i i i . i c gure for Lat th crew, andrelated support For some develop some For ces) i i ncluded ncluded nfancy, theava i s only 54 per cent per of ECs total 54 s only i t covers alla t covers ; and rentals or charters of carr of charters or andrentals i nese Tanese i i i nvolv s through expend . ch they can export the export ch theycan i i i i

dent carr es ture bynon-res es aslongthefre es i n i mports and exports of andexports mports i i ncurred to export or toncurred export i nsurance serv nsurance sted i n the i i n Amer ng thecarr i i i ted Statested i n thea pe ces such as rentals of . i i r transportat i i i lable data show lable data i n passenger or n passenger nant aspect of nant aspect

i i r transport can can r transport ers ght andother i s 26 cent per i ng countr i i nternat nternat i . ca andthe ca i Passenger Passenger r transport r transport i i i ated w ated ces) i ng effects dents on dents i i i ture on on ture i n both n both age ofage m ; goods i tures tures i i i onal onal i ted i ces) ght i i i i es, es, i ng ng on i ers ers th i i r r . . ; ;

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT 10 10 9 8 7 United States. Europe. Similarly, inAustralia, Japan andthe airfreight Pacific to use countries customers access intheSouth byairto products andhorticultural vegetables theirfresh Kenya, for example, export ZimbabweandZambia, freight countriesAir has many allowed to developing fashion. have markets inamoretimely access to distant andfish(OECD, 1999). trees/plants live cutflowers, of countries airfreight istheuse todeveloping export to important Also, arecent isextremely which development items instruments. andhightech electronic andthat have timesensitive ahighvalueto of weight being ratio air. via include characteristics Such products that make figures have thedual intuitive These sense, more to since profitable itwouldbe shipproducts operating firms that would otherwise be inthemarket. be firmsthat wouldotherwise operating asadeterrent to can, act entry, butnot always, of costs therebythe existence fixed reducing thenumber of orpassenger), cargo (either of of traffic thevolume Regardless oversmalldistances. smallaircraft only fly of which some operating, airlines reality, In aircraft. thereareover900 that the large airlines fly thelarge with arefamiliar people Most firmsofallsizes. andencompasses anddiverse islarge industry airtransport The seat. per atalowercost that aircraft alarger theservice could with provide serviced could be traffic dense more with contrast, acity-pair In smalleraircraft. with more efficiently serviced be can a lowlevelof traffic with is thedensity, orsize of average themarket. costs declining Acity-pair with associated factor A related already incurred fixed costs andhave ableto unitcost. large levelsof produce be outputwill atalowerper costs fixed incurred already barrierto entry, asastructural since firmsthat incumbent have act also circumstances, certain can, under market. there isasufficient where They pairs inmarkets orcity only so do itwill to aservice, in order provide three times higherthanthree times thevaluein1992, anaverage of 11.1 with annual growth cent. per 1.9 reached shipment ofairfreight thedaily in2004 Furthermore, by air(OECD, is milliontons, which 1999). cent iscarried per of volume thevalueof cent worldmerchandise isthat trade and2per 40 of its estimate international of trade isthrough cargo. One thecarriage affects other by mechanism airtransport which The depends to a degree on fixed costs in order to inorder operate. costs onfixed to adegree depends andtelecommunications, like industry, such asmaritime other transport airtransport similarindustries The Market (a) structure an overview of some of the main economic aspects of the industry. presents Section This of theflights. aswellthefrequency to selected, be of needs theaircraft the capacity thisisdone, Once routes). (or number to of of isthepairof choices, not which service destinations theleast to another from a involves onedestination orcargo passengers –transporting nature of itself competition to andregulatory. entry, of barriers isthe istheset Second andforemost structural both amongthese First INDUSTRY ECONOMICS OFTHE AIRTRANSPORT performance. its determines which characteristics anumber of structural possesses industry airtransport The 3. Fixed costs can partly explain why certain pairs of destinations areserved. of destinations pairs why certain explain partly can costs Fixed average cost of producing output will decrease as output incurred the have been costs of these output.Once andare independent increases. of aservice prior to thedelivery depending on the terms of their lease. oftheir terms the on depending conditions, todemand in response fleet their contract and expand can and aircraft ofthe costs bythe down tied be not 2004. 31 December Group, www.cargofacts.com, Management Cargo Air bythe arepublished figures These It should be noted, however, noted, shouldbe are It aircraft that inmany cases of competition context inthe below discussed be will differentiation Product product. ahomogenous isassuming This toentry. abarrier as toact likely more are costs such sunkcosts), (called recove be cannot costs fixed the where cases In costs. fixed of the reversibility the intoaccount totake important isalso It 220 8 leased and not owned by airlines. This means that airlines need need that airlines means This byairlines. andnotowned leased Fixed costs are Fixed expenditures costs that needto beincurred 9 Since a firm has to invest in capacity Since afirmhas incapacity to invest 7 red red 10 11 11 Distribution of operating revenues and expenses, 2002 3 Chart Source: The price elasticity of demand is an indicator that is often used to differentiate between types of demand. types to between differentiate used that isanindicator of isoften demand price elasticity The determinant of theoutputof theindustry. isanimportant demand such asChristmas,seasons orduringthesummer break ineitherhemisphere. Therefore, nature thevaried of such to relating duringholiday moreindemand istypically year. pairs international any city two example, aticket For between requirements, particular have often consumers asthetimeof delivery, day, eitherinterms of thespecific matters that thetimeof day, timeof the orthespecific note to important is it side demand the On “contestable” islow. barriers ifthelevel of entry anaccurate be ofcompetition. indicator Even of asmallnumber firmscould markets with be necessarily of But,asisnowwellknown, thenumber of thefirms. behaviour firmsinamarket may notoligopolistic the isolates for operating aconsiderable havenational lengthof been time. typically carriers analysis This surprisingly,Not large isonthenature muchof thefocus where inthemarkets of andanalysis competition seek to reduce labour costs in conjunction with increased productivity. increased with inconjunction to costs reduce labour seek airlinesnot arise, surprisingly onprofitability Therefore,or pressures increase, asfuelprices costs. cent oftotal per that itaccounts 40 for suggest almost inChart 3, separately estimates isnot listed labour some Although are of fuelandlabour. airlines structure of thecost publicaspects most two The ofremainder theexpenses. account for the costs orindirect Ground costs, 45 areapproximately cent of per total costs. running expenses and of aircraft much, includingthecost Flightchanged althoughitmay operations, have airlines. for specific has of not airlines structure that side, to cost over timetheaggregate thecost Chart 3indicates respect With intime, sizes andfor usingdifferent sample atdifferent different points markets. were conducted studies than economy class, except for long-haul domestic business class (Canada, 2001). It should be noted that these of andmore isprice class flight. inelastic general, inelastic for In thedemand business byconsumers type andalso across that differs to demand correspond that thefact values indicate themedian results The services. transport of themarket for segments indifferent air of studies variety Table fromawide values elasticity 4summarizes Demand is said to be price elastic if the value is greater than one, inelastic if it is less than one and unit elastic if it is it if elastic andunit one than isless it if one, inelastic than isgreater value the if elastic price tobe issaid Demand isim ofdemand elasticity price ofthe value Accordingly, absolute negative. the only isalways ofdemand elasticity price the pric in change cent per one a by caused of value the sloped, isnegatively demanded demanded andquantity price between relationship the quantity measures which in curve, demand the Since change percentage the as defined is demand of elasticity price The ICAO. Mail Passenger Freight itiuino eeu Distributionofexpenses Distribution ofrevenue Non-scheduled operations Incidental 221 Maintenance Depreciation User charges Flight operations Administrative Passenger services Ticketing, sales,promotion Ticketing, equal to one. portant. 11 e. e.

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT Own-price: Long-haul international leisure international Long-haul Own-price: business international Long-haul Own-price: Own-price: Short/medium-haul leisure Short/medium-haul Own-price: leisure domestic Long-haul Own-price: Own-price: Long-haul domestic business gc.ca/consultresp/Airtravel/airtravStdy_e.html). Note: Source: Summary of absolute elasticity values of absolute elasticity Summary Table 4 Income Elasticity Own-price: Short/medium-haul business technology identified be can 2003): (ICAO, through of theinternet. different information the advantages approaches links tocustomer Four exploiting to of business wasthestrengthening intheindustry developments influentialone of themost technological recent of In years, aircraft. range andcapacity Technological have to limited thespeed, not been developments industry. intheairtransport competition examines which Section, taken be upinthenext will issue This base. customer its broaden itwill such asrail transport, androad of transport, to relative other modes decline commenced to itwaslimited only air travel thewealthy.When first of airtravel thecost continues As to has iteasier for to made airlines penetrate different international choice markets. of types broader aircraft by changing Second, A aircraft. of thecomposition thefleet. cost-effective andotherwise more fuelefficient through First, mechanisms. through achieved two has of This consumers. been set to awider accessibility its to of airtravel lowerthecost andincrease theability of ofhas thedevelopment newaircraft been A key aspect of 555. capacity have aseating also arange will of with 14,500 It to enter into kms. service is expected A380, commercial theAirbus aircraft, thelargest in2003. 2006 In service theplane wastakenwhen outof active of created all,aircraft anewera aircraft theConcorde, for airtravel, supersonic This butended entered service. continued development of technological through 1970s to theearly when, arguably, andfamous visible themost the industry, buttheConstellation’s gave 707. way to andtheBoeing thejetage performance pace spectacular The cut thetimeto revolutionalized travel This of from States theUnited to onecoast hours. theother to seven under Constellation example, War post-World intheimmediate erathedominant that For planewastheLockheed II lives. that Since not theindustry, butpeople’s changed 563 kilometres. then, only anumber of were developed aircraft wastheDouglas Corporation incommercial DC-3,aircraft service andarange of km/hr of 346 had which aspeed 1935, andrange of In theaircraft. theevolution of has thecapacity of been technology impacts modern themost orreceive. significant andtangible of to themost send One date that of thepackage theyare expected delivery airtickets ontheinternet, the orchecking booking with travelling identify nowreadily The publiccan industry. than more theairtransport so change, by few technological are are affected impacted allindustries Although Technology (b) Passing grade studies are studies, wich the authors deem to have passed certain academic quality criteria (http://www.fin. criteria quality academic certain tohavepassed deem authors the wich arestudies, studies grade Passing Industry Canada. Industry Category 222 (1 st .4 .6 .0 2.0489 0.807 2.169 0.840 qatl)(3 quartile) .9 .0 .8 0.595 0.783 0.608 0.798 .7 .9 .7 0.198 0.475 0.198 0.475 .2 .3 .2 0.836 1.428 0.836 1.428 .7 .8 .2 0.787 1.228 0.887 1.472 .4 .8 .4 1.288 1.743 0.885 1.745 .50551700.560 1.700 0.535 1.65 Elasticity Values Elasticity All Studies All einMedian Median 1301.140 1.390 0700.700 0.730 1501.520 1.520 1101.150 1.150 .6 0.265 0.265 .9 1.040 0.993 .2 1.104 1.120 rd qatl)(1 quartile) st qatl)(3 quartile) Passing grade studies grade Passing Elasticity Values Elasticity rd quartile) notable exception is some airports intheUnited States of for international theallocation slots. exception airports notable issome IATA Coordination Schedule only Airline The Conference, used. iswidely mechanism This but thisisvoluntary. ininternational isthe used mechanism One airtransport environmentcompetitive carriers. by favouring certain andtransparent, suchfor isnot amechanism If efficient slot could slot allocation. allocation createananti- isthrough amechanism congestion way airport theonly to expansion, address of theabsence capacity In to circumvent inorder of congestion. theproblem airports ofsecondary have increasinguse of airlines made Anumber implications. policy competition has direct atHeathrow, slots asatother airports, landing/takeoff 13 13 12 are limited, however, for anumber of problem. majorports creating possibilities acongestion expansion (1994), Kuala theproblem. Capacity to with Lumpur(1998) deal andShanghai (2002) have builtnewairports Kong, such asHong China international Osaka (1998), Anumberof ports, highgrowth decade. over thepast anissue has become atanumber of constraints airports capacity inairtraffic, thecontinuedGiven growth accounting forof cent expenses, approximately total aircarrier 4per of total costs. component areanimportant charges inChart 3, asindicated airport Furthermore, to service. choose airlines of routes which determinants arefundamental of landingslots andtheavailability of airports location The (i) Airports of theindustry. theperformance andenvironmental considerations affect how themanagement of airports examines that ithas ontheenvironment. take Section also This into must account effects thenegative industry the groundhandling, Furthermore, leasingandcatering. such asairport, services, variousancillary includes also onecomponent are only of andcargo thesector. sector of people The including government transport policy. The arange of upon factors, depends success andefficiency International isacomplex industry, whose airtransport Infrastructure(c) the authorities have decided to build a new terminal and a short runway. to buildanewterminal havethe authorities andashort decided congestion, to with of deal struggling constraint decades problem. After for notable thecapacity particularly environmental, include London’s limitations is andother constraints. of physical these Some Heathrow airport substitution away from the traditional bricks-and-mortar service provided by provided travel agents. service substitution away from thetraditional bricks-and-mortar theyprovide. change may This induce further for theservices nowpay directly travelresult, customers agents a As eliminatingpaidto travel thecommissions agents. cases andinsome reducing inairlines has resulted internet of growth The fees. their of terms in transparent more become to forced been also have Travel agents of forces prices, which tomore airlines transparent be intheprice andmore offerings. competitive have ticket. comparison cost anincentive internet forcustomers to aquickandeasy allows The search outthelowest inTable noted inticket pricing.As transparency for isprice Therefore, leisuretickets 4,thedemand elastic. leisure of ticket increased onincreased through sales theinternet significantPerhaps theimpact aspect has themost been thecompany andthecustomer. between links the of tickets aswellstrengthening costs inthedistribution asignificant share through inasaving sell of theinternet. theirtotal results sales This LowCost called Carriers (LCC) airlines, These onthe theirtickets. internet exclusively haverelied tosell airlines measured interms when of theirshare of total ticketSome channelsEach of effective have these sales. been Websites of theairlines themselves. • bygroups Websites of managed airlines; • Website travel that donot have agents conventional "bricks andmortar" outlets; • of by Websites theirnormalservices; travel asanextension established agents • Transport entitled Paper White inthe isdetailed problems capacity airport tohandlingthe approach Kingdom United The of water. in20 mete shore from 5kilometers isbuilt airport Osaka The projects. land reclamation Kong, China toundertake Hong havehad a such others while airport, their toconstruct inorder inland-use ofchanges advantage havetaken airports new ofthese Some , 16 December 2003 http://www.dft.gov.uk/ 223 13 Nevertheless, the allocation of theallocation Nevertheless, The Future of Air of Air Future The rs 12 s

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT 16 16 15 14 domestic airline sector. The statutory test to be met for carriers to enter met for to from be carriers newmarkets waschanged test the airlinesector. statutory The domestic Deregulation Act market countries States, wastheUnited the domestic adopted to which liberalize of thefirst its One viable andpreferable andMiller, alternative (Douglas 1974; Economic Council of Canada, 1981). Findlay, 1985; to 1982) were minimalregulation Jordan, a that competitive markets subject thecase andmade 1970; that (Jordan, regulation entailed Economic thecosts documented studies Douglas andMiller, 1974; 1972). any inthe1970s In case, questioned. and1980s to wasincreasingly theprevailingapproach regulation fares (Stigler, andmaintain higher-than-competitive to limitentry seeking 1971;from carriers incumbent Jordan, pressures to political regulation that, responded inmany cases, inherently suggests unstable. Evidence also aprevailing that view reflected This 1990). wasunworkable or (Button, and exit inthissector competition regulation of fares, to inmany extensive entry countries wassubject airlinesector thedomestic thepast, In 6. in Subsection attheinternational levelare discussed to that theindustry adopted govern have variousapproaches been The of change driver intheinternational sphere. animportant havebeen which context, inthedomestic industry relevant trendsinthe some reviews Section This andliberalization. towards deregulation has been industry Since andinternational regulated. then,highly aclearandunambiguous trend inthedomestic airtransport charged, to andfirmbehaviour. were be controls onentry andtariffs International routes, aswellcapacity government strict environment World wasoneof very War regulatory for post immediate airtransport II The Domestic (i) Regulatory (d) regulation environment newest passenger aircraft destined to service predominantly international 787 to routes, theBoeing service destined aircraft passenger newest 70 example, to ago. thetwo be arecent For estimated newer aircraft than years per 30 more fuelefficient general, however, andhave In than arelouder smalleraircraft. which greateremissions aircraft, long-range bylarger ischaracterized international large Traffic airports andflight of aircraft schedules. the age between thesize of aircraft, of airports, such asthelocation of factors, avariety upon depends This isdifficult. traffic international with specifically environmental footprint how muchof isassociated theairtransport Isolating (ii) Environment environmental damage arising from the manufacture of arisingfromenvironmental aircraft. themanufacture damage are not the to limited include can flight They andground operations. services of airtransport effects relates environmental exacerbate theproblem. to Aglobal environmental fuel use. obviously impact will The expansion orairport of newairports construction The problems. andairnoise noise aircraft include impacts andinternational, ontheenvironment. both domestic impact transport, Local Air andglobal has alocal andwaste. landuse congestion, ofarising from fuelandnoise. aviation thecombustion are emissions mainissues terms of– flight In flight andground operations thetwo operations. operations, headings broad come two under industry theairtransport with associated environmental issues Specific environmental footprint of any thesmallest to date. aircraft areboasting A380, Airbus acceptance that environmental considerations taken be into must account of alleconomic activity. inthecontext isonethat isconsistent amore general with theindustry across to adopted have thatapproach been appears however, industry, The airtransport issues. The isnot environmental uniqueinhaving sustainability to address which indicate the extent to which they take environmental considerations into account in their production techniques. production intheir intoaccount considerations environmental take they to which extent the indicate which and www.airbus.com, www.boeing.com on their websites; and each Airbus Boeing publish environmental statements effects. environmental global and/or havelocal of these vapour. andwater All hydrocarbons unburned dioxide, sulphur oxides, nitrogen dioxide, carbon include emissions Aircraft 7E7. the toas referred was model this 28 January Until in1978. eliminated controls onentry, largely andpricingintheUS legislation This exit 224 15 In terms of ground operations, these are terms noise, of In ground these traffic operations, 16 14 andthe Airline scope of government intervention in this sector (Stanbury, theappropriate regarding and achange inthinking elsewhere approaches leading eventually to 1989; newpolicy Anderson inother countries, changes are highlighted insimilarpolicy inBox 1. interest generated also USexample The from airlinesector. thisexperience andfar-reaching lessons intheUS changes domestic Some entry structural competitive theirfinancial andoperational competence. to led extensive to This simply establish required and able”. barrierto entry, newentrants thelatter were under asaneffective theformer Whereas had served oneof “public of “fit, restrictive to themore convenience willing standard liberal andnecessity” pre-existing • Contrary to fears expressed atthetime, that there Contrary resulted isnoevidence deregulation inlower to expressed fears • isthat themere inthisandother sectors for Arelated implications economic policies findingwith • law of in (antitrust) competition application for effective theneed has Deregulation increased • have has come andsmall) andgone,not large deregulation (both many carriers individual Although • inperformance, resulted improvements andcompetition in substantial Enhanced of entry freedom • Akey markets, by of existing wasto both into deregulation benefit promote particular newentry • asfollows: summarized of intheUSmay deregulation be of theeffects to from emerge analyses lessons of thespecific Some ofcompetition and benefits theviability withairline from theUSexperience deregulation: Lessons Box 1: the above-mentioned controls onentry, andpricing). exit the above-mentioned Transportation rather, andother authorities; of regulation (i.e., ontheeconomic aspects itfocused of bythe Department controls administered safety US didnot of any involve legislated relaxation risks for passengers. In making sense of this picture, it makes itatleast clearthat is didnot deregulation usherinanera of heightened improved technology), important to note that deregulation in the (e.g., developments to extraneous dueinpart thismay be While period. than inthepre-deregulation levelsfor 1997; consumers (Jordan, safety airtravel safer isnowdemonstrably fact, In Kahn, 2002). hypothesis” suffice; that implied wouldoften themere which threat of entry “contestability into the so-called has called This question et al., andWinston, 1990). Morrison 1994; (Joskow markets isrequired competition incity-pair –actual pricingintheairlinesector competitive has to not proven prevent generally sufficient to higher-than- entry barriers elimination of regulatory Borenstein, andWinston, 1990; 1992;(Morrison Kahn, 1988; Jordan, 2002); andconsumer markets welfareincreased wasdiminished concentrationto proceed, incity-pair or enhance theirmarket were allowed power. airlinemergers where cases anumber of actual In preserve (potentially) andalliances areenvironment, akey can mergers meansby carriers which aderegulated In alliances. andstrategic to mergers respect with the airlinesector, particularly 2002); centper (Kahn available to such towns by andcommunities has departures 35-40 increased number of scheduled for small towns thecontrary, andrural On communities. inservice to the led significant reductions operations that deregulation provided (Borenstein, 1992; of by theenhanced freedom possible made adjustments andoperational strategies new competitive Kahn, 2002); through inpart achieved, gainswere also Significant productivity Kahn, 1998; 2002). (Winston, terms infares inreal, for inflation-adjusted consumers cent reduction per 30-33 including anaverage From 1978 carriers. and start-up to 2003, 129 2005); (Jordan, entered theindustry newcarriers 225 et al 1998).

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT as with respect to all aspects of governance, credible institutions are essential. to allaspects respect as with of smaller, thecontext in Finally, countries. particularly developing structures, inregulatory changes competitive to the former. for tools promoting pro- respect regional important integration be can andcooperation Fourth, not with andshouldnot compromises imply need to regard thelatter with andpricing.Liberalization of entry from regulation economic separated regulations be andother technical safety-related that necessary important may of be maintenance attenuated. the to given is attention particular throughcompetition theenforcement of relevantof deregulation andother laws measures, thepotential unless benefits This Second, markets. important aviation international in access market issue is further to barriers for mayhave theremainingregulatory implications This inperformance. improvements substantial elaborated in subsequent with inmany associated countries has airtransport been onentry, andpricingindomestic exit of restrictions Sections that clearly theelimination therecord indicates First, anumber of lessons. highlights sector airtransport domestic of this essay. inthe cooperation to of regulation, approaches foregoing andregulatory briefdiscussion deregulation The Third, it is (Goldstein, 2001). intheregion international afocus promoting of while variousUSinitiatives has efficient been linkages safety airline this,improving aconcern. been Reflecting has also services of airtransport Saharan Africa, thesafety inSub- particularly cases, some In andgovernance structures. inownership changes andrelated privatization to promotion competition andenforcement, achoice that has putatriskthepotential welfare gains from alack of attention has been deficiency that aspecific suggests He performance. andenhanceFDI export attract to tourism increase flows, efforts has impeded This America. andLatin OECD andinAsia economies of theworld, amongthe both intherest reforms implemented sector aviation regulatory inthecivil behind According (2001), to havethe region results. Goldstein mixed thecontinent achieved trailed has historically within service andachieve more efficient infrastructure to promote investment innecessary Africa, efforts In 6,below). Section the EC see Commission discussion, (for further by initiative market-opening complemented byamajorexternal has been recently, deregulation Most intra-EC airservice. markets for passenger significant fare for city-pair triggered consumers inmany reductions intra-EC has 2001). Goldstein, carriers from competition lowcost 1990; Since thenextensive the Community (Button, across by theEC Commission, promoted of flexibility pricingandoperational havefreedom further advocacy byvarious regulations theEuropean issued Council, reinforced by relevant enforcement andpolicy actions Market played initiative akey andpricing.Subsequently, role intheimplementation of of entry greater freedom later than continental intheUSandfollowedIn aslowerpace. Europe, 1992 The started deregulation Single for some countries. The Government of India, for example, stated its intention Governmentfor countries. national its to of The for some India, privatize example, carriers its stated to implement policy aneasy norhas itbeen isnot universal, trendtowards strong, while privatization, The 1996). andLeinbach, in1985 theirairlines privatized andMalaysia Singapore (Bowen countries suchas Developing France). and France (Air Germany (Lufthansa) Canada), Canada (Air (Qantas), countries such asAustralia yearandanumber of that other indeveloped same airlines Lines by JapanAir (1982). wasfollowed This wasBritishAirways duringthisperiod privatized to airlines be of the first region. One ininternational Pacific phenomenal growth trade andincome, by theAsia largely driven wasbeing which had to accommodate the industry ensured andthesecond of that theairtransport any assessment industry of how tonational led are-thinking should regulate governments theairtransport factors of these first The deregulation in the of were theprocess for change occurred during the1980s. These US catalysts biggest thetwo Arguably domestic market (see Box 1) and strong economic airports. to andfrom owned publicly freight andpassengers transporting carriers owned by publicly past growth in the Asia inthe wasdominated international Thus, airtransport onairports. holds often Pacific Asimilarview towards airlines. region. view theprevailingpublicpolicy remarkhighlights This Nations. intheUnited akinto having membership years has noted anational that owning wasfor of flag carrier international many policy airtransport observer One Privatization (ii) 226 23 22 21 20 19 18 17 parties have reached an intermediary agreement on steps towards resolving their disagreements (Box 2). (Box theirdisagreements agreement towards onsteps resolving have reached anintermediary parties 2005, thetwo January In industries. large agreement of to government limit theuse fundsintheirrespective Canadian government’s use of its funds to subsidize exports of Canadian aircraft. fundstoCanadian subsidize exports of government’s its use has recently returned to government control after a nine year experience with privatization. with experience year nine a after control government to returned recently has production of large civil aircraft. civil of large production to the European Communities ofThe States respect andtheUnited adispute with areinthemidst also (EC) the international istherole played inthemanufacture trade by context of governments aircraft. in inthisdebate prominent of themost issues One ofairlines. thefinancial survival andassisting airports of theindustry, amongst competition such manufacturing, asaircraft many across different aspects cuts debate aidintheinternational This industry. therole of state about debate airtransport isanon-going There State (iv) aid alliances. price intheform competition of non-equity create can anincentive to innon- aircarriers engage alliances amongst of equity Furthermore, therestriction intheindustry. asananchorto growth acts arguethat liberalization foreign investment Many people airlines. later in Section inmoredetail discussed be of will regulation, which current system The industry. the international airtransport 6, allows many contentious oneof inthegovernance isperhaps foreign themost regulations of investment issues Liberalizing national governments to Ecuador andPeru. Republic, intheDominican airlines affiliate grant market inChile, isbased which has foreign LAN, entry, America, permitted buthas thisstake. since Latin access sold In only to once theAustralian government (Australia), inQantas stake purchased anequity BritishAirways mixed. been designated ‘national’ of noted different countries that be foreign theexperience shouldalso with It owernship regulation has internationalcompetitive airlineindustry. regulations onthecontrary,foreign has not ownership occurred; such regulations remain abarrierto amore Certainly, isnot uniform,practice different different countries limits. complete with of applying liberalization asnapshot that regulations5 provides of by the shows different applied foreign countries. It ownership isnot toa keyonly privatize, to to competitiveness increase strategy butalso allowforeign entry. Table of ontheforeign international Therefore, ownership to restrictions carriers. has ease been decade the past andfinancial akey thebackdrop pressures, Against inworldtraffic in development of increasing growth Foreign (iii) ownership Indian Airlines and Air India. However, more than five years later, it is still trying to do so. Countervailing Measures. Countervailing theAgreement and onSubsidies under commitments its of wereinconsistent Brazilian with aircraft exports up to 150 seats. approximately commuter with aircraft, of short-range exporters important Canada of themost are two In 2002, Canada successfully argued that Brazil’s use of government funds to subsidize B._Zoellick_Regarding_US-EU_Agreement_on_Terms_for_Negotiation_to_End_Subsidies.html http://www.ustr.gov/Document_Library/Press_Releases/2005/January/Statement_of_U.S._Trade_Representative_Robert_ ofthe centre atthe models aircraft The hubs. large between totravel designed are that 100 seats than more with toaircraft aremade references cases, most In aircraft. oflarge definition precise isno There WT/DS222. document found inWTO be can Full details WT/DS46. document foundinWTO be can Full details package”, 2001. 23November, www.cnn.com, Becker, precedent”, abad Gary “Airline sets bailout control”,“Air tostate returns Jamaica Airline Business toIndia”, Passages “More travel between smaller ports that are a shorter distance apart with a smaller passenger and freight loads. andfreight passenger asmaller with apart distance areashorter that ports smaller between travel , February 2005. , February 20 In 2002, the In against agreement Brazilian thesame wonasimilarchallenge under Economist 22 In 1992, an of In –signed such producers aircraft –theonly parties thetwo , 2 December, 2004. www.economist.com. “India moves to modernise its market”, its tomodernise moves “India www.economist.com. 2004. , 2December, Airline Business Newsweek , February 2005. 2005. , February 227 , 26 November, 2001, bailout “Bush signsairline p. Also, 28. Brazil-Canada 21 dispute are designed to designed are dispute 17 Also, Air Jamaica Jamaica Also, Air 18 19 Brazil and 23

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT hiad49% 49% (25% voting) 49% 1997. since toair-cargo apply 50% airlines, Domestic There are no formal on of ownership restrictions Singapore companies. 33% Sources: 40% United States Since 1997. Thailand Turkey 70% 40% Taipei, Chinese Switzerland 2000. to45% in July 30% from changed Airlines, toMalaysia Applied Singapore 49% Federation Russian 25% (voting) Initially abolished by 49%, a Presidential decree in 2000. 45% Poland 49% Philippines Peru 40% less than 50% New Zealand 33.33% inChile. ofbusiness place principal haveits must airline but restriction No Mexico bynationals. controlled and 51% owned At are least voting and shares Malaysia Korea, Rep. of 20%). 1997 Since (previously Since May 1994, intended toKenya change to 49%. authorities. 49% regulatory competent bythe granted maybe Exceptions 35% (25% voting) Indonesia 49.50% 25% (voting) less thanIndia 50% Japan 49% EU Member States (15) Republic Czech China 49% Chile Canada Brazil Australia Argentina Foreign ownership regulations in air transport, 2002 inairtransport, regulations ownership Foreign Table 5 could still offer incentives, but had to do so in a non-discriminatory fashion. inanon-discriminatory incentives, buthad to offer so do could still exclusive. Accordingly, result of therulingisthat theairport Ryannair had The of to thefunds. pay backsome that of theauthorities Charleroi apubliccompany, airport, financial offered incentives to Ryannair that were andRyannair, nearBrussels Charleroiinvolving aLCC airport European Commission The inIreland. ruled based case inarecent isillustrated issue This assubsidies. regarded to that incentives maybe could resort airports isintense, thecompetition If business. compete to will obtain capacity excess with surprisingly,Not airports ICAO, IATA. onr ii Notes Limit Country must be national. Could be subject to control test. tocontrol subject Could be national. be must control effective and nationals be must ofdirectors board ofthe Two-thirds 15% from to30%. changed was limitation equity foreign 51%. Air’s Angel to 70% from reduced International inThai ownership ofstate Requirement byTurkish nationals. managed and controlled inTurkey andmajority-owned, incorporated be Turkish must airlines States. EU Member for as rules same (ECAA), Area Aviation Common European the joining After airlines. venture injoint ownership majority foreign bar would which rules introduced Government 1997In Russian the Transport and Maritime Economy. of Minister bythe authorization requires 65a) of1962 (Article Law Air nationals. be must officers managing and executive All utilities. public tobe considered are Airlines airline). (SAM nationals Zealand New and/or byAustralian control board effective and ownership 50% At least airlines. foreign 35% total for and airline, foreign 25% single 1996, for Since investment is than less of 50% voting stock. foreign where firms through investment 25% if over limit allows 1994 Since nationals. Korean with remains control Raised from 20% to 49.99% on 12 February 1998, 1997. April since allowed not are investors airport provided or airlines foreign from investments but airlines, domestic private in 40% that effective two- than thirds more by Japanese nationals. by managed and controlled owned, be must carriers Japanese States,Member on but from investments no restriction EU States. Member non-EU from investors for carrier) (community 2407/92 byEURegulation Bound airline. foreign of25% single any for amaximum with airlines, byforeign held tobe to35% up allowed with to49% islimited ownership of1992. foreign Act Aggregate Sale Qantas ofthe provisions the under interest”. isregulated national Qantas tothe iscontrary “unless this to 49% is limited foreign internationalAustralian shareholder participation operators, For operators. domestic purely for restrictions ownership foreign no are There allowed. was US etc.) (Spain, byInterinvest 85% shareholding Argentinas, ofAerolineas case the In 228 24 24 have been controversial anumber ofhave other with European been governments. Anumber of measures of that to Alitalia. ithas ways ensure contemplatedgovernment seeking thesurvival September, 2001 events. 11$15 after States of bytheUnited istheprovision weeks case A recent two airlines toits billionavailable considerable debate. has airlines caused of its to some financial to assistance provide permitted should be to governments which extent financial situation. The poor analready September, exacerbate can 2001 andSARs profitability. such addition, as11 In events inits fluctuations cyclical experiences airlineindustry The survival. contributions to to ensuretheirfinancial airlines isdirect attention that has received A thirdareaof state-aid incentives, theLCC may not survive. model eachother, against inhowtheycompete onfiscal arelimited through limits especially if regional airports contribute which to regional Aconcern development. here isthat thecreation of prices, has city-pairs been consequence of of One thedevelopment LCC, owned. publicly andlowering growth inadditionto stimulating that are andairports of the ofnewcity-pairs inthecontext development implications rulinghas broader The Source: panelsrelating to the of WTO establishment not request will Duringthenegotiations theparties (a) 5. to subsequently worktogether theagreement will broaden to asparties include parties (b) These to andapply States theUnited andtheEuropean between negotiated Agreement be will The 4. (a) three months. within negotiated Agreement be will The 3. andinthe At principalshareholders, present, thecompanies concerned intheEU andits are Airbus 2. acomprehensive isto agreement secure to producers endsubsidies toaircraft civil large objective The 1. civil aircraft for large Agreement toendsubsidies ontermsfor negotiation US-EU Box 2: 8. In negotiating the Agreement the parties will establish agreed terms andconditions agreed which under establish will 8. theAgreement negotiating theparties In procedures. enforced Agreement be will The dispute settlement andstrong through transparency 7. of list anillustrative agree will parties The of intheASCM. subsidies thedefinition use will parties The 6. will in paragraph Duringthenegotiations, thetimeframe foreseen within 3above, theparties (b) gpo.gov/cgi-bin/getdoc.cgi?dbname=107_cong_bills&docid=f:h2926enr.txt.pdf http://frwebgate.access. 47-102, No. L. Pub. Act, Stabilization andSystem §103(b)(2)(A), I, Safety Transportation Airline US, Boeing. European States. UnionandtheUnited fair market ofin away LCA that establishes for inthe competition andproduction alldevelopment to prevent circumvention of its objectives and to justify its continuation. its andto justify to prevent circumvention objectives of its initissufficient on international progress participation includingwhether operation, its review will of theAgreement, theparties either may atafuture withdraw date. theoneyearanniversary On to orpermitted. reachlist agreement form onwhich prohibited, actionable of shouldbe subsidy coveredsubsidies to this be by use will theAgreement elaborates which theASCM definition. They European Commission and Office of the United States Representative. States United ofthe Office and Commission European objective of theAgreement.objective orcountries risk-sharing with industries, other aircraft countries civil with relevant roles to the Union. make for commitments LCA nonewgovernment or production. development support pending disputes. pending 24 A similar issue has arisen in the European Community in the context of the Italian of theItalian intheEuropean has inthecontext Community arisen Asimilarissue 229

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT 25 The granting of the first two freedoms has typically not been controversial. not been has typically freedoms two granting ofThe thefirst manner.and inwhich means that national have have governments theright access carriers which to to thevariousfreedoms decide of thisright Exercise borders. its within toairtraffic regulate country byevery rightbasic sovereign possessed routes from inaforeign have the country. evolved freedoms ondomestic The freight andpassengers carry to theright another to country to overfly freedom range from thefirst These 3). (Box freedoms has called of international it which airtraffic, eight has different defined types theindustry point, astarting As routes. andprices on capacity to establish routes andtheflexibility onspecific of carriers these theentry carriers, Market accessby ininternational of anumber isdefined of includingthedesignation variables, airtransport (v) Market oninternationalsubsidization trade patterns. access ishowfar of of international thisquestion limittheimpact will cooperation aspects of themore important inthenearfuture, ofnot thisessay, disappear overtheiruse. thecontext thecontroversy norwill In one –will infinancial andairlines difficulty airports manufacturing, –to aircraft forms of three state-aid These achieve the desired objectives. objectives. achieve thedesired to are which of allowed take may additional not liberalization advantage thecarriers agreement that restricts to Abilateral foreign ownership. islinked issue directly This ofprovisions. theliberal to take advantage area theyhave ambitiousisinthenational where One and routes. not allowed of been designation thecarrier approaches have remained predominantly bilateral, butbecome more liberal to pricing, withrespect capacity have different governments taken thevariousapproaches to liberalize 6reviews market These access. Section isdelivered. theservice onhowandwhere any without restrictions freedoms same different from granting onlyone the dayflight with isvery per freedoms Grantingaccess. thirdandfourth overcapacity,level of of intervention plane fares, and therefore frequency, market limited routes andtype high byasubstantially wascharacterized also This II). another Agreement signed (Bermuda US andtheUK until 1978, BermudaIAgreement wasthetemplateThe for industry theinternational airtransport the when bilateral (Loy, 1996). I, agreement, Bermuda for thefirst to thecase have been appears This liberalization. end result inlittle isanagreement that results market significant intention The timeminimizingtheirconcessions. ofsecuring gains,while access atthesame enter into the negotiations with market typically access bargainingamongnations. means that This states failure resulted inmercantilist of The themultilateral in1944 approach quiterestrictive. have traditionally been controversial has inabilateral not althoughtheterms andconditions been freedoms context, of access fourth S/C/W/163/Add.3, p. 9). (WTO debate extensive matter the been has access Freedom First for charges Federation Russian the inwhich manner The 230 25 Similarly, granting thethirdand 26 that onmarket limitations access for international prices. raises aircarriers 2001) (2000, etal. andNicoletti (2001) andDoove Gonenc recent to show themost studies are amongst international governing airtransport. structure thepolicy that haveexamined ofstudies number ina welldocumented has been consequences for prices andefficiency positive trend andits This airlines. national that have most of thefact governments their despite not fullforeign allowed emerges, ownership andinternational markets inthedomestic andliberalization of deregulation operate. Aclearpicture must Together,air transport. carriers andcargo environment theoperating theydefine passenger which within andvalueof volume trade ininternational thepattern, impact Each of above identified thefour issues broad Summary (e) comments found to have the lowest premiums. These findings support the conclusions of Forsyth’s (1998) theconclusions of general review Forsyth’s findings support found to premiums. have These thelowest the regime, thehigherprice premium example, andwas regime liberal onair fares. theUShas For themost theyshowthat from ranged cent. themore 3to restrictive 22per Indeed, fares restrictions arisingfrom these in35 andfound economies of that restrictions theprice for increase domestic theeffects example, examined noconnectionwiththehomecountry Box 3: Air freedom rights in air services agreements home country of anothercountryonaroute withorigin/destinationinits To carryfreight andpassengerswithinacountrybyanairline EIGHTH FREEDOMORCABOTAGE with itshomecountry an airlineofathird country onaroute withnoconnection To carryfreight andpassengersbetweeentwocountriesby SEVENTH FREEDOM in itshomecountry an airlineofathird country ontworoutes connecting To carryfreight andpassengersbetweentwocountriesby SIXTH FREEDOM in itshomecountry an airlineofathird countryonroute withorigin /destination To carryfreight andpassengersbetweentwocountriesby FIFTH FREEDOM from anothercountry To carryfreight andpassengerstothehomecountry FOURTH FREEDOM to anothercountry To carryfreight andpassengersfrom thehomecountry THIRD FREEDOM To makeatechnicalstopinanothercountry SECOND FREEDOM To overflyonecountryen-route toanother FIRST FREEDOM To carryfreight andpassengerswithinaforeign countrywith TRUE DOMESTIC See also Dresner and Tretheway (1992), which contains similar conclusions. similar Tretheway and contains (1992), which Dresner also See 231 oecutyCutyACountryB CountryA Home country CountryA Home country CountryA CountryB Home country CountryA CountryB Home country CountryA Home country oecutyCountryA CountryA Home country CountryB Home country CountryA Home country onr oecutyCountryB Homecountry Country A 26 The Doove etal. (2001) Doove The study, for

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT 27 27 a domestic base, survive on the basis of being hubs onthebasisof to for being Europe traffic Pacific. base, ortheSouth survive a domestic aresult, places Kong, such asHong As Chinamore hubs were established. andSingapore, donot which have majorhubs, for butasdemand airtravel declined, ofor two grew international providing andthecost services Initially, America. had eachregion one Europe andNorth into Asia, three mainregions –East divided be can conceptThe of hubs before, andspokes indicated isnot airtraffic newto global international As airtransport. network. on theoriginal linear transportation through anumber of hubs that were not serviced be can point afinal where destination reached thestage has now services of transport delivery The into theirinternational airports. services feeder as hubs anddevelop theirairports togrew larger, establish services started cities for demand airtransport As and thefinal stops. theintermediate stops feasible, andwhere between points, routes separate were established two between thetravelling time to shorten wereby-passed stops intermediate expanded, andchoice ofaircraft of aircraft capability thetechnical Once for refuellingstops. as linear, wereused points Intermediate to point. orpoint that described could be inanetwork were offered era, international services airtransport thepre-jet In years. 30-40 have inthepast occurred industry inthe airtransport aredelivered inhowservices ofA number changes Networks (a) to environment. thischanged of by themechanisms which some airlinesare ischanging responding examines rapidly.operating Section This INDUSTRY COMPETING INTHE AIR TRANSPORT are environment aircarriers which andexternal within that showed the regulatory Section previous The 4. by10 trade to increase andSerebrisky, cent 2004). cent isestimated per (Micco per of 8 costs intransport example, international areduction For of conducting trade transactions. on thecosts andthereby onfreight that have thetrendshown costs towards can animpact more liberalized agreements byvariousforms ofhas regulation. Recent research that isaffected of airtransport isanother aspect cargo Air and discount fares in100 city-pairs. (2001) theairline. andNicoletti business be will Gonenc analysing comeefficient to similarconclusions after andYu Oum of theissues. (1995,1998), environment, showthat themore theregulatory liberal themore can only be established through cooperation with other governments. This means that entry ininternational means that This entry other governments. with through cooperation established be only can theirterritory. that within are origins international ordestinations In points markets, networks and between exercise theirsovereign markets countries right simply can to control overtheirairspacein domestic airtraffic isbecause This andinternational airtransport. indomestic arequitedifferent conditions of establishment The thisgap. Asimilarsituation ininternational could arise entering to markets. service is that ifthe different by spokes anairline, are not thenthat connected airlinecould result incompetitors on thebasisof hubs ontheir‘spoke’ rely into markets to traffic thehubs. feed Aconsequence of thisstrategy, market, markets for isoneof which airtravel that thelargest compete that solely in theworld, carriers shows of theUnited States’ experience The domestic increasing output,orfrom agglomerating different activities. returns isthedecreasing that come from of of costs inthepresence competing fixed aspect important An freedoms. to fifth demand position are economies inastrong two means that also these It of theirairlines. profitability for the that theyhave freedoms negotiated intheirbilateral are important the thirdandfourth agreements maintain due to the possible conflict of servicing both the spokes and the hubs. the and spokes the both ofservicing conflict possible tothe due maintain to difficult was this spokes, various the between competition some was there While competed. carriers major the which on basis the as emerged model andspoke hub the deregulation, After infrequent. was andservice expensive very typically were services However, these serviced. were cities major manyofthe regulated market heavily was the When States. United inthe market airtransport for domestic in the model andspoke hub ofthe emergence the about is written Much 232 27 In this context context this In 29 28 considering establishing an LCC in the next two to three years. anLCC years. to three establishing considering two inthenext of yet,neitherhas anLCC,countries. As that indicate anumber are of enterprises reports althoughmedia for markets growing international andfastest airtravelChina of thelargest indeveloping aretwo andIndia competitive pressures. competitive to as national airlines, ifanairlineisnew. especially ofnumber Older, international ways, that airlines arereferred moreestablished or legacy by theirname, suggested LCCs a achieved As be can This by loweringtheircosts. theiradvantage obtain airlines, have cost structures andRyanair inEurope quitesuccessful. have that States become andEasyjet in theUnited make them less Blue inAustralia, Southwest suchasVirgin of anumber airlines inservices, information thereduction about nimble in responding andfull inadditionto thetravel. fares cheaper offering to By to passengers abundleof services opposed to as points, theLCC driving basichypothesis two areThe purchasing travel isthat passengers between model lowerlevelsofprice services. tickets, butcorrespondingly lower emphasises which model, by anewbusiness decades threat under two for has thepast been of services arange airlinethat delivers of traditional afull-service compete. onhowairlines profound model The impact emergence inWestern EuropeThe andtheUnited States (LCC) of carrier thelowcost concept has had a Price (b) competition than aninternational spokes. to establish hub domestic difficult with spokes with that are indifferent countries Anetwork ismore that anairlinemay to wish establish. network of international thetype later, affect will discussed freely. barriers relatively these enter As andexit can airlines markets faces considerably higher barriers than in domestic markets, where in most countries domestic in the new states, attempting to take advantage of to market. thesingleaviation take advantage attempting in thenewstates, of theEuropeanexpansion Community to 25 countries resulted has also inanumber of LCC entrants, based market The and Thailand. usingtheLCC Singapore Malaysia, Asian inIndonesia, based airlines include model fordemand airtravel inthat andthenumber region of countries involved. Recent entrants into theSouth-East be showing strong growth, especially in East Asia (Hooper, conceptThe of aninternational LCC, iftheEU iscounted infancy, asonemarket, to inits isstill butappears 2004). This is not altogether surprising given the airlines. for tool compare easily can price quotes, therebycustomers ensuring that prices remain akey competition strategic of theinternet onairtravelresult isto isthat theeffect make thepricing of airtickets more transparent, since of end theinternet. use The to are travel makingextensive LCCs. some agents andnowalso carriers Legacy of airlineticketsisnot theinternet confined use to book The charges. onadministration save the airlinecan LCCsagents, ticket means not which do have isissued, anelectronic to pay andinmany commission cases, outtravel theirtravel cutting examine By options. can number of by potential which novel ways customers purchasing of availability secure ontheinternet a The has provided theirservices. to sell contact customer means by LCCs andtangible which visible of themost One ableto have compete isby usingdirect been 2004). andLall, (Gillen anaircraft unload and inthetimeonground to service leadsto italso areduction of dueto service, theuniformity costs, maintenance lowers not only This LCC type. route to byusingasingleaircraft service, costs reduce also can of onetype only induration. selecting hours By than two of predominantly less flights focused onshort-haul require profitable. consolidation of to routes inorder make LCCs, of theprovision theservice far, so have flights of Long-haul aircraft. use isintheefficient advantage cost significant. Another oneofto themost be “Spreading Wings: Yet more low cost startups”, Yet cost low more Wings: “Spreading Turbulent Skies”, airlines: ofLCC andfuture in“Low-cost isexamined impact airlines evolution, The 28 Of these, labour costs, which account for up to 40 per cent of total costs, appear Economist , 13 2004. May 233 29 Economist , 8July, 2004.

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT Kong, China (Cathay Pacific)andSydney (Qantas). Pacific, thehubs are andtheSouthern Hong for Europe. Asia for East thealliance, In BritishAirways asdoes hubs intheUS its uses example, hubs for alliance, inotherwith Airlines For regions. theOneworld American way, This forregions airtraffic. to connect claimto used have eachairlinecan be that ahub intheregion can feature istheinclusionof alliances important amajorairlinefrom oneof of thethree these important An Star Oneworld, andSkyTeam. Alliance exist: three only intheindustry, consolidation butnowafter alliances, Table of thecurrent alliances 6illustrates across 2002 international there landscape In major were five carriers. are: potential advantages perspective, From thepassengers' From the carriers’ perspective, some of theprincipalreasons some for are: codesharing perspective, From thecarriers’ anumber of provide benefits. can networks and thecoordination across of schedules oracontrolling shareoutright of another establishment, international airline, that alliances codesharing involve of theabsence In foreign airlines. against barriers to entry responses pro-competitive such alliances aresimply that made argument be can An alliances. common istheformation themost of non-equity these Of routes. oninternational amongairlines competition has newforms triggered barriers of non-price entry regulatory has promoted healthy price of of thederegulation competition, anumber theindustry While of theexistence Non-price (c) competition like in the medium term. One is the view that demand will be accommodated by a few very large international large accommodated byafew very be will thatlike demand istheview term.One inthemedium look international Two, will of airtraffic as to airtransport. what thelandscape exist views competing, perhaps of trade in isthepattern positive, what isnot look predictable for airtransport prospects thegrowth While for airtransport. agreaterdemand be therewill reduced, are to international andservices for andrestrictions international trade ingoods trade are clear–astariffs implications The andderegulation. movetowards privatization environment from thesystematic has emerged to themany ithas faced. resilience, challenges positively has Apro-competitive shown responding industry The industry. airtransport isof adynamic painted that by has Sections theprevious picture been The Implications for international trade (d) common programmes. frequent flyer • of and thethrough journey; supervision singlecarrier • of lowerfares orgreater fares; choice of special thepossibility • transfer; facilitates carriers partner shared terminals between • journeytime; elapsed shorter possible • theconvenience for of allowing improved connections; coordinated schedules, • to obtain• increased and of partners; theorbit codesharing within by drawing traffic to foster competitiveness market• access to points hitherto not do justify volumes traffic where service viable to to a operate enable joint carriers operation restricted• by capacity not do fly, onroutes presence marketing carriers to achievebetter tool; asaninexpensive • provisions in bilateral with links kindofcooperative environment, to competitive form some ofanincreasingly inthecontext air • acodeshare is where incases systems incomputer display reservation position to achieveabetter • services agreements. agreements. services traffic; feeder andto obtain operations, individual andimprove to market maintain, protect other carriers positions; than interline inlisting service; ahigherpriority with service treated asanon-line 234 Source: Note: oa 982492 651976 59224 479026 12271 137483 36605 199872 932887 42727 9963 82870 100426 63952 89064 19013 7979 217798 55930 13792 26081 16837 39480 679883 7592 9991 920 88580 34815 60736 44773 9972 6596 124166 68923 265199 13255 5143 167136 41956 336498 8641 11329 26733 12012 23781 81297 5434 20387 411 63816 41251 16623 Total 96617 6514 193135 Qantas 23520 79630 5509 66526 31041LAN 5831 Iberia 25087 26537 5556 5841 Finnair 16156 52077 788120 Pacific Cathay 14537 3252 Airways British 13124 71366 628 44477 American 88798 9113 58284 142573 6622 Lingus Aer 59018 192975 22689 11703 590750 43388 39023 125593 Total 6895 Varig 56555 110199 39936 131719US Airways 19965 4784 19857 143478 United Airlines 10123 Thai Portugal TAP Air 295622 28170 Spanair 94783 Airlines Singapore 52788 18741 SAS 99863 21270 12982 Lufthansa 84124 3344 LOT Blue1 bmi 22259 39856 Austrian Airlines Asiana 44405 ANA 8835 Zealand New Air Canada Air Total Northwest Air Korean KLM Delta CSA Continental Alitalia Air France Aeromexico 2 1 Alliances between air carriers Table 6 substituted volume by that traffic “closes thespokes”. hubs be will thisview, between In volumes thetraffic service. accommodated through point-to-point not will disappear, isthat thehub while andspoke view be will Another demand system increased andservices. theirgoods toin order export predominantly countries, lowerincome wouldbe which to developing gainingaccess wouldlook to thehubs prevails,thenthesmallerports, thisview If (spokes). of byanumber smallerports serviced be hubs, will which ASKS – Available seat kilometers. seat –Available ASKS kilometers. passenger –Revenue RPKS All data sourced from IATA WATS 2004; figures relate to 2003. TAP Air Portugal joins the Star Alliance in March 2005. inMarch Alliance Star the joins Portugal TAP Air to2003. relate figures IATA from WATS sourced 2004; data All IATA. ebr asnes(huad)RPKS (Thousands) Passengers Members ebr asnes(huad)RPKS (Thousands) Passengers Members ebr asnes(huad)RPKS (Thousands) Passengers Members STAR ALLIANCE ONEWORLD SKYTEAM 235 1 1 1 (ceue ilos ASKS Millions) (Scheduled ASKS Millions) (Scheduled (ceue ilos ASKS Millions) (Scheduled 2 2 2 (Scheduled Millions) (Scheduled Millions) (Scheduled (Scheduled Millions) (Scheduled

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT 30 countries face relate to demand for tourism and fresh fruit and vegetable exports. countries face for relateto fruitandvegetable tourism demand andfresh Two thatthat tointegrate these into theyrequire theworldtrading of system. thedifficulties prime examples growth is the extent to which smaller, continue will It to grow regions. that three way.concentrated However, andbetween of this within oneaspect lesser developed countries isheavily before, indicated airtraffic As co-exist. cannot reality, why views In both thereisnoreason will be marginalized from the infrastructure aircraft that will be needed so that points can be serviced regardless that size, medium ontheother hand, longrange Boeing, predicts constraints. hubs faceas these capacity of distance. aircrafts larger necessitates that to hub theview traffic subscribes Airbus andBoeing. Airbus manufacturers: aircraft largest inthecommercial ambitions embodied of thetwo are best inpredictions differences These the regulation of competition in the air transport sector. The primary focus will be on issues that have onissues arisen be focus will sector. primary ofthe regulation The intheairtransport competition key will explore of specifically, theessay More conceptual, relating issues andempirical this to Section practical of thisSection. thesubject be will latter The lawcompetition andpolicy). inrelation and onpublicpolicies tobehaviour such (i.e., andbehaviour strategies of ontheapplication and onfirmstrategies However, depends also of inairtransport competition 6,below). thestate Section in that attheChicago discussion wasadopted Conventionregulation of thissector further (see in1944 inturn, from These, the“piecemeal derive agreements. bilateralism”air service to approach international inbilateral pricingthat are embodied cases) some and(in onentry by limited constraints has been sector above, of intheinternational competition for thedegree many years, described airtransport to As markets. theconditions access governing much) and(very infrastructure of necessary conditions, theavailability demand and changing technology include of thisessay. These Sections inprevious described have been which already of of many some variables, isafunction of intheinternational competition sector state The airtransport THE ROLES OFCOMPETITION LAW 5. benefits for their service suppliers andconsumers. suppliers for theirservice benefits in international partners alliances aspossible –generating of carriers further developing country attractiveness bodies. Strengthened wouldalsoenhance market the product competition (andhence improved efficiency) are likely to enhanced require intergovernment reforms, inturn, These and eventually multilaterally, advocacy. andcompetition investment, infrastructure of theregion market within liberalization privatization, atleast access includingfurther initiatives, policy countries options islikely indeveloping to of require interdependent mix acomplex service Expanding (ATAG, developed of Africa ismuchless indifferent parts majordestinations 2003). between service of thecontinent, while sub-regions particular within routes and therefore onmajorAfrica-Europe competition) 2001).regions of theworld(Goldstein, Currently, African consumers enjoy of areasonable choice degree (and Africa andother Africa, andbetween within both cultural links, encouraginginvestment, tourism andboosting wouldpromote inAfrica development by facilitating trade, system attracting airtransport A more efficient better, for competitive them. theirinterests ifitiscost butonly wouldserve to system point countries, apoint these Pacific countries. of For and Australia, States theSouth JapanandtheUnited inthecase to markets that are away, aconsiderable distance such products of such asEurope African countries inthecase Many countries such asFiji, Kenya andvegetables. fruits onexporting as fresh fish, andZimbabwerely flowers, such exports of time-sensitive inthecase arise andproblems Similar difficulties efforts. todetrimental theirbest to could potential prove thetimeandnumber that of connections increases customers hub andspoke system A theirtourism services. to sell onairtraffic dependent andmany arehighly competitive smalleconomies very See Milner et al. (1998) for a review of how transport costs can act as an export tax in developing countries. indeveloping tax export an as act can costs transport ofhow areview for (1998) al. et Milner See AND RELEVANT ENFORCEMENT AUTHORITIES al cooperation through regional andmultilateral appropriate al cooperation 236 30 The tourism industry is tourism industry The 31 31 this sector. in changes policy and, specifically, play can inpromoting therole that agencies competition pro-competitive Akey concerns concerns of enforcement theinteraction themeinthisconnection discussed. andadvocacy be also will sector of theairtransport inthecontext of agencies competition function balance. advocacy The enforced this to inthis reflect area seek by experience authorities thecompetition with of leadingjurisdictions policies The pricingandother practices. orpro-competitive re-structuring inter-lining necessary arrangements, that are harmful genuinely therefore to (and competition coming to intheway without of consumers) efficient andconduct amalgamations structural identifies which authorities byrelevant approach adiscerning requires asinother economic sectors) airtransport (in practices regulation of anti-competitive effective seen, be will As competition rules. of by theapplication sound deterred/remedied be can such inwhich ways practices andof the practices, by anti-competitive affected adversely be can sector intheairtransport competition of inwhich both isto thevariousways of thepaper asense provide of thisSection overall purpose The in thisregard. maintenance sector, for mechanisms of appropriate intheairtransport andtheneed cooperation competition concerning overlapping onissues touch the regarding national briefly also will jurisdiction discussion The in better service for consumers (see, e.g., for (see, consumers 1999). Bingaman, service 1996; Nannes, in better threat ormay coming to result intheway without benign competition of that the larger subset iscompetitively a genuine of that such pose arrangements theminority regarding andtake appropriateis to action identify challenge for relevant The basis. authorities evaluatedthey are normally ona“rule of reason” orcase-by-case accordingly, markets; prevailinginparticular much, onthecircumstances very depend, or similararrangements mergers of particular 1992; 1989 effects andWinston, 1988 The andJordan, Morrison and2002). and 1990; 1990 levelsfor consumers and (Borenstein, service of market liberalizationbenefits andraising fares/reducing createmarket can alliances andstrategic power, that mergers both indicates the reducing sector air transport inthe experience 1995). andKhosla, Nonetheless, by iswarranted public authorities intervention (Anderson or even beneficial are economies benign in theirrespective andrelatedarrangements mergers findthat most typically authorities in terms of their competition fact, In of resources andfor service. more efficient achieving forlegitimate tool there-allocation impact on competition;be approached it is only must intheairlineandother alliances industries joint ventures andstrategic of mergers, regulation The with in caution: a small minority it Therole joint of mergers, ventures and strategic is alliances widely of such cases recognized that that (a) such arrangements can, in particular cases, be a themaintenanceregarding of ininternational competition airtransport. passenger receive particular attention: particular receive • the contribution of competition advocacy –i.e., thecontribution of advocacy competition interventions by national authorities competition • (i.e., conduct to thetreatment potential through exclude firmsmay which of seek predatory practices • publishing ofinter-airline tariff collusion, concerning thepossibility includingthroughelectronic issues • (IATA) forInternational and the Transport of Air immunity theimplications antitrust Association • • the role of mergers, joint ventures and strategic alliances (including code-sharing arrangements) inthe arrangements) code-sharing (including joint alliances ventures andstrategic of therole mergers, • main focus of this Section is on private anti-competitive practices rather practices main is focus on than private of measures on anti-competitive this state Section that limit competition. However, the Community). European the (notably jurisdictions insome authorities ofcompetition purview the falls within for industr (subsidies) aids ofstate question below, the arediscussed that issues tothe inaddition that, noted be should It international sector. airtransport –inthe processes innational related with andinternational interests and other policy-making parties and intheairlinesector; rivals from markets) channels; and related inthisarea; ofarrangements for theassessment arrangements code-sharing individual airline sector, for theirimplications andtheirtreatment competition by authorities; competition in the airline industry airline the in 237 31 The following issues will will issues following The y

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT 33 32 in the Air France/KLM merger - is provided inBox 4. -isprovided merger France/KLM in theAir –namely of of intheairlinesector thisapproach theuse example referred approach. An to asa“fix-it first” issometimes This by newcompetitors. to facilitate entry atairports andlanding slots additional take-off through measures such asmakingavailable addressed have, of amerger been inanumber of cases, effects altogether.of orother barringamerger transactions example, concerns For regarding theanti-competitive short of that relevant stop arrangements impact theanti-competitive for measures redressing possible consider are prepared to to warranted, be typically isdeemed authorities competition intervention where Even incases 1999, Nannes, thought (see for discussion). acareful than previously –are more extensive to entry) inresponse competitive (i.e., for areputation price-cutting effects reputation observers) of some theview and(in city-pairs for infrastructure some orother airport slots andlanding of take-off of –arising,for ascarcity thehub example, andspoke from theimpact system, sector inthis e.g., to thatentry (see, barriers arecognition officials 1991 Willig, reflects This 1999). andNannes, for prices and the extent of consumerfor prices andtheextent choice inthemarkets are assessed. alliance orstrategic merger of theimplications therelevant aproposed Once delineated, markets have been 1975). Jordan, for discussion, related areas(see, geographic over wide sold be can therole of given theInternet) tickets for such services thatrecognizing (particularly city-pairs, particular between services marketto therelevant define of astheprovision product transportation is approach Another 1996). (Bingaman, purposes areinconvenient times arrival business-related for specific asadequate route for substitutes are eachother, viewed or thedeparture city-pair given because perhaps relevant economic literature (see, e.g., literature(see, economic relevant Borenstein, etal.Baumol 1982 andBailey, 1981). inboth rejected largely has However, since been of theindustry thisview of “hit e.g., andrun” bythepossibility (see, forestalled be entry levelswill raising competitive fares above “contestable” market –i.e., to exercise market that by any power easy effort isso amarket entry inwhich of a asaleadingexample cited waswidely theairlinesector readily transferable Indeed, markets. across were such asaircraft wereminimalinthat key assets intheairlineindustry to entry that barriers assumed States, in the United of airlinederegulation, itwasoften years theearly particularly In by newcompetitors. into themarket of entry ofany consideration isthefeasibility intheanalysis merger shares, animportant market route andtheirrespective city-pair aparticular additionto serving In thenumber of competitors by competitors.absorbed that asource of innichemarkets are provide competition smallercarriers inwhich to regard mergers with However,of inaregion through cities “hub concerns arise also can 2004). andspoke” (McDonald, systems “hub that wouldeliminate from competition existing mergers carriers” –i.e., number alarge that airlines serve regarding authorities relevant than city-pair routes. than city-pair are findthat nolarger authorities andother relevant arrangements markets for of airlinemergers theanalysis inajoint venture, Typically, alliance firmsparticipating orsimilararrangement). strategic (or competition of themergingfirms orservices that asreasonable consumers view substitutes for theproducts or services therange of products of thisexercise is to identify purpose The markets. andgeographic relevant product of the delineation with begins typically inother industries) (as sector intheairtransport analysis Merger See US Department of Justice and Federal Trade (1997). Commission andFederal of Justice USDepartment See far if instead Cleveland to go not will City Kansas to Washington increase.” City from to Kansas travel to needs who “A passenger out, points Bingaman As 32 Relevant markets may be narrower than city-pairs if, for Relevant narrower example, markets ona may not be than allflights city-pairs the maintenance of competition in the passenger air transport sector relates to relates sector airtransport inthepassenger the maintenanceofcompetition 238 1992) lawenforcement andinthework of competition 33 A particular focus of concern for Aparticular es 34 concessions to alleviate the anti-competitive effects or even seek to prohibit oreven seek thearrangement outright. effects concessions to alleviate theanti-competitive markets, therelevant may thesame authorities require serving carriers reduce oreliminate between competition available be theother to hand, On consumers. such where arrangements that would not otherwise new services or that enhanced acceptable theyprovide approach, are to theextent normally deemed arrangements efficiency or“rule of reason” this Under basis. asacase-by-case evaluated onwhat isknown by authorities competition arenormally alliances orstrategic such ascode-sharing arrangements andrelated sum,In mergers both appropriate itmayprohibited that outright. be itbe case inwhich arrangement), (i.e., ormarket-sharing to analogous may acartel be apure price-fixing effects its provided be otherwise that wouldnot orjoint services not involve any efficiencies analliance does tangible where circumstances In Bingaman(1996) states: As airline mergers. asthat principles of law competition thesame involves under arrangements treatmentThe of code-sharing andscheduling. onfares,joint decisions capacity Alternatively, integration involve amuchmorecomprehensive of theycan marketing including andoperations aninterlining (essentially, arrangement). directly compete itcannot onarouteinwhich planes onits seats morethananother to oneairlineallowing sell little maycomprise Sucharrangements sharing arrangements. achievedthrough be strategic alliances sometimes orcode- can efficiency superior additiontoIn mergers, Source: remedies the on part in by theEC to Commission, of prohibit didnot Justice themerger. seek exacted theUSDepartment Based Paris. or Amsterdam in over stop to wishing carriers other to rights traffic andassurances by theDutch andFrench that theywouldgive themselves) governments to establish (agreement to refrain from increasing frequency freeze” of asurrender a“frequency 47 slot included pairs, landingandtakeoff on These Europe markets. affected routes to give new entrants a fair chance andbeyond intra-Europe inboth effects anti-competitive to of commitments possible alleviate a set theEuropean with reached negotiations agreement Commission,In on by carriers theparties thetwo pairs. ofcity hundreds on ofthelikely effects examination requiring alliances, to alliances. of Therefore, belonging merger these all carriers asaworldwide intheUS,itwasanalysed of have to coordinate created theincentive (potentially) theactivities would also andability the merger (SkyTeam ofalliances competing weremembers France Air respectively), andKLM andWings, Because airline,largest asmeasured by revenue. wouldcreate merger theworld’s The remaining while carriers. nominally separate their operations, andcoordinate theirownership plansto announced merge 2003, France Air andKLM September In case France/KLM Air the airline industry: inthe Aconditionalapproval effects ofamergerwithtrans-national Box 4: (1978), 13. chapter Bork see firms, between arrangements cooperative benign andpotentially cartels “naked” price-fixing between distinction the On from the former is crucial for aviation policy-makers and antitrust enforcement andantitrust from theformer authorities.” iscrucialfor policy-makers aviation thelatter to distinguish ability The of consumers. from allto markets, rivals theultimateinjury foreclose orpotential markets, to limitcapacity, competitors allocate actual raise fares, or between arrangements amaskfor be anticompetitive of also thetravelling token,the benefit can thesame public. By code-sharing allto efficiency, andincrease lowercosts service, improve existing create –itcan newservice, competitive andacquisitions, ...code-sharing mergers with has thepotential pro- significantly to As be agreements. andtraditional outrightmerger arm’sintegration that fall between lengthinterlining somewhere “To forms are law antitrust simply of enforcement agreements corporate authorities,code-sharing EC Commission (2004a) and McDonald (2004). McDonald and (2004a) ECCommission 239 34

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT agreements for law competition agreements enforcement inBox isprovided 5. ofbilateralairtransport oftherelevance example An framework. regulatory bytheapplicable that isprovided of of competition for law competition andthedegree andscope intervention theneed between interaction the illustrates This 1996 1999). andNannes, (Bingaman, oralliances of mergers effects anti-competitive rights to facilitate new entry, a bilateral air service agreement can help to allay concerns regarding potential potential regarding toallayconcerns help can agreement tonewentry, facilitate abilateralrights airservice to theprincipleof “Open landingandtake-off Skies” for ismade andprovision thesharing of airport theother hand, On adhere bilateral where agreements market defeated entry). by be competitive will power bythemergingfirmsto exercise that anattempt oreliminatethepossibility theyreduce suspicion(since with viewed that be route will firmsserving incumbent between alliances orstrategic likelihood that mergers that the increase theywill route that routes haveinthepast, by carriers not served international city-pair the enforcement into of law. competition of entry particular, In limitthepossibility such agreements where generally. for implications have also specific can sector Such agreements of intheairtransport competition onthestate bearing factor arean important agreements 4above, bilateral airservice inSection discussed As Theimplications of bilateral air and agreements of antitrust service (b) enforcement byBingaman(1996): arediscussed of IATAs implications from nationalarrangements for The law competition laws. competition immunity (IATA) for exemptions IATA both andrelated Association rate conferences code-share andindividual of authoritiesrelates competition to therole of theInternational Transport from Air theperspective industry intheairline and similararrangements code-sharing mergers, inanalysing factor complicating A further Source: At thesame and other conditions airlinealliance, ontheproposed consumers. to inorder protect inlate2001, round of proceedings, asecond In theDOT variousdivestitures theDOJ to urged impose agreement. for anopen-skies autumn of 1998 proposals wasnot that with prepared itwasdetermined theUK to when come forward available. were to made inthe thealliance) DOT wassuspended proceeding The party (not other carriers to andground allowfor facilities 24 sufficient ifslots alliance wasinthepublicinterest round trips by daily that theDOT of theposition took Justice couldavailable findthat the Department for newentrants. The facilities wouldhave andrelated made to slots be washowmany inthereview take-off/landing question Acritical of (DOJ). Justice inputfrom with theDepartment of Transportationby theDepartment (DOT), to hearings alliance wassubject proposed Europe The andtheUS. between service andcargo passenger of andcoordination code-sharing for approvalto enter into extensive amajornewalliance involving (DOT) 1997, January In of Transportation to applied theUSDepartment Airlines andAmerican BritishAirways alliance Airlines Airways/American British the lawcompetition enforcement: and agreements bilateral air service between interaction The Box 5: in a deregulated environment,in aderegulated in addition to thepotential agreements. of significance market-opening activities of law competition enforcement illustrate theinter-related developments andadvocacy effects These andcontinue inthe“Oneworld” together London) to participate alliance. to covering (not transatlantic arrangements have services subsequently inlimited code-share engaged plans for Although amore airlines comprehensivetheir proposal. alliance were withdrawn, thetwo tolanding by response asubsequent theDOT, ‘slot’ In decision allocations. airlinesabandoned thetwo for upairport emphasizing freeing theneed also andpricingwhile onentry government restrictions Skies’ arrangement wouldremove afull‘Open which with StatesUnited Kingdom andtheUnited the between treaty airservice for replacement called restrictive time, of anexisting, theDepartment Nannes (1999), US Department of Justice (2001), Monti (2003) and British Airways (2004). Airways British and (2003) Monti (2001), ofJustice USDepartment (1999), Nannes strategic arrangements for alliances/code-sharing competition policy immunity for the International Air Transport Association (IATA)/individual 240 35 Bingaman (1996) states asfollows: Bingaman (1996) states that thisregard, to to are those In challenge detrimental only consumers. andseek effects pro-competitive for recognize that consumers, authorities given thepotential competition for to such have arrangements orlowerprices for that enhanced provide genuinely arrangements service needed exemption wouldbe asto why an arises thequestion arrangements, to regard exemptions antitrust With for code-sharing from theConferences Commissionbenefits 2005a). (EC arelimited potential” of IATAhigh restrictive Tariff Conferences that any suggesting potential also consumer while Stragier, Subsequently, 2002). itrefers inwhich to DGCompetition paper the“very adiscussion has released and, for EC Commission, background, andconsumer groups (see 2004b from industry numerous inputs ofimplications continued exemption of IATA andslot conferences. generated consultation process tariff The apublicconsultation of into theEC Commission the undertook theCompetition Directorate-General 2004, In Co.) to facilitate price-fixing have arisen in both Tariff by theAirline operated Publishing the systems (specifically, systems tariff Unitedrelating of to electronic theuse States and Brazil. inBox 6,concerns shown As price). cartel from anagreed anddepartures fare-matching both (including to informationfacilitate fare price coordinationresponses oncompetitors’ by instantaneous providing changes also it can purposes, efficiency-related important serve obviously thiscan While routes. onparticular carriers information onfares bycompeting charged up-to-the-minute provide Such systems information systems. tariff oftheairlinesector, byelectronic the case facilitated collusionIn orprice coordination been has sometimes them. to tools address that may lack effective economies ondeveloping –especially economies onallaffected costs heavy impose present,Where cartels Moreover, inmanyoperate industries. international of their isoften operations thescope orevenglobal. andahalf, or market-sharing has evidence that decade surfaced cartels thepast In extensive arrangement). (i.e., isthat of acartel aprice-fixing inanyA key industry thwarted means be through can competition which concerning Issues the possibility of collusion in this sector, including (c) dollar burden on developing countries annually, see Evenett (2003). annually, Evenett see countries developing on burden dollar amulti-billion impose cartels Such goods. input toindustrial andinrelation sector agri-food inthe prevalent particularly tobe appear cartels International levels. competitive above cent per of20-30 range inthe imports ofsuch price the increased cartels present, where Furthermore, imports. countries’ indeveloping billion forupto$81 accounting in industries operated (2001) year, inasingle andSuslow found that, cartels known Levenstein Bank, World for the prepared astudy In prevent implemented.” from any being anticompetitive agreements to immunity, andseek seek theparties where includingthose agreements, continue allcode-share to review will Justice] of Department [the perspective, our From immunized. less much permitted, be shouldnot that laws theantitrust wouldviolate andconduct would not laws; theantitrust violate for any agreement that to immunity antitrust receive partners for code-share “It isnot necessary can be achieved.” IATA of thealliance anticompetitive alternative wouldconstitute means aless by thebenefits which of fares independent its alliance setting any particular, harm. In acode-share weevaluate whether from withdrawal IATA andwhether to achieveany benefits wouldreduce isnecessary membership continued whether IATA analysis, overall competitive of its aspart considers, theDepartment effects, not. agreement Moreover, has andanticompetitive procompetitive both code-share ifaproposed itwould horizontal insituations competitors otherwise where between challenge code-sharing to of thepresence IATAThus, markets may leadtheDepartment coordination inaffected tariff it make ... onprices theycompete. inmarkets where to expressly agree for carriers member legal) (and easy conferences tariff IATA consumers.... harms that way a in behavior their coordinate to able thelikelihood thatarrangement increase thefirmsremaininginmarket will better be will orjoint to amerger venture which theextent weexamine Guidelines, Merger “Under the[US] through electronic publishing tariff and related channels 35 241

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT etc.) andother actions. counter facilities, andlandingslots, (e.g., take-off of airlines, infrastructure inthecase toover access necessary of expansions capacity, targeted theexercise price cuts, of control may selective employed include practices firms outofcompeting themarket The more to by frequently) newcompetitors. prevent or(perhaps entry firmsto byincumbent that employed drive may be arepractices These potential fromexclude markets). rivals concerns (i.e., practices the treatment orexclusionary of predatory through to practices firmsmay which seek sector intheairtransport andrules of of policy competition theapplication aspect important A further Thetreatment of predatory and conduct exclusionary practices in the (d) 2004). market (McDonald dominance for Orbitz found of didnot Justice that result inhigherfares thisclause orcreate Department online travel The sites. any oronother websites available to itwith ontheirown publicly provide fares listed of that Orbitz thecarriers associates andcharter theowners that required clause wasa“most interest favoredparticular nation” (MFN) airlines, were likely atravel majordomestic by to five website facilitate owned price coordination.Orbitz, Of of of practices whether thequestion of amore analysed recent Justice In case, theUS Department benefits. andconsumer majorefficiency provide can foregoing isnot, however,The systems tariff to deny that electronic Source: filing. tariff “price-matching”collusion butto byelectronic independent facilitated cent.per Subsequently, not to any that actual argued theprice theairlines wasattributable increase Pauloby 10 Janeiro of increased and Sao Riode thecentral airports four between for airlines flights thefaresBrazil’s byall charged the meeting, after inahotel. four days mettogether Five majorairlines publishing andmore traditional forms of collusion, inBrazil. 2003, of arose August In thepresidents tariff later, years electronic involving of concerns,According asimilarset (2003), possibly to Owen fare through changes ATP of tenyears. for aperiod to proposed communicate theirability compliance program andrestricted ananti-collusion institute to thedefendants required intentions. theparties with theevent, consent In anegotiated decree eachother’s about pricing infares reduceuncertainty including changes not available for sale, and(iv) monitor eachother’s changes, and(iii) inother markets andchanges markets; one ormore city-pair fare in changes proposed between links establish (ii) andelimination ofdiscounted fares; restrictions, future oneanother about with fare increases, communicate more effectively toamong theminorder (i) interaction coordinated facilitated inaway that unnecessarily thesystem toan agreement operate thatof the fare itwasalleged Second, defendant changes. andATP airlines had conspired andreached exchange mutual assurances concerning thelevel, scope, and(iii) andtiming inother markets; changes inexchange markets for fare fare trade incertain changes (ii) fare andnegotiate changes; proposals exchange (i) that to: Specifically, ATP’s used itwasalleged had been computerized fare exchange system fares, eliminate airtravel. discounted for fares, tickets purchased for fare andset domestic restrictions to increase actions andconcerted understandings, includingagreements, other airlinedefendants, with to invariouscombinations have thedefendant werealleged andconspiracies engaged airlines First, inaway werealleged. collusion. that facilitated fare Two of exchange action system, causes specific TariffAirline PublishingCompany (ATP) for ATP, price andoperating fixing theairlines’ jointly-owned andthe USairlines eight sued of 1992, thelargest December In of (DOJ) Justice theUSDepartment information systems tariff of computerized therole ofairline Allegations pricefixingintheUSandBrazil: Box 6: McDonald (2004) and (2003). Owen McDonald (2004) airline sector airline 242 36 travel selected by parties other than those responsible for payment (Levine, 1987). other than responsible for create those payment by (Levine, strategic They parties travel selected travel, for business are faresagent resulting that, problem frequently from especially and schedules thefact economic-theoretic In and economic efficiency. terms, such programmes take of advantage aprincipal- such programmes raise potential concerns of competition travellers), from thestandpoint business (especially of alleged predation against American Airlines ( Airlines American predation against of alleged judgment case grantfor thedefendant of court’s summary inahigh-profile upheldadistrict ofCourt Appeals isnoteworthy,It remainrare. predation of though, successful theUS,Tenth that In proven instances Circuit 1997; andStanbury, Ross 2001 andStragier, 2002). 1999; Fones, (Nannes, inthisindustry of attention worthy asaproblem viewed widely predation has been of andthepossibility conduct of predatory allegations thefocus of repeated has been the airlineindustry inrecent years, andCarlton, Nonetheless, Bamberger 1999 2005). andLall, for perspectives, sceptical (see, susceptible pricingisnot shared by to allobservers predatory isparticularly that theairlineindustry view The more thanbe usually susceptible to successful predation: may industry airline the that argues (1999) Nannes regard, this In 1982). Roberts, and (Milgrom cases some in entry, barrierto atleast post-predation that a“reputationview asthenecessary for predation” serve may itself onthe inpart, isbased, This circumstances. for firms,insome incumbent strategy aviable predation may be modernapproaches toNonetheless, competition law enforcement that recognize atleast thepossibility Group Ltd. v. Tobacco andWilliamson Brown Corp condition for for onthismatter, afindingof example, predation (see, theleadingUSdecision necessary that of emphasize “recoupment” andthefeasibility conduct of theidentification such barriers predatory asa thishas ledto jurisdictions theadoption of some of legalapproaches to In alleged theassessment recouped). be of predation are from to theperiod losses eventually do itmust ifits levels(as competitive prices above to raise its eventually seeks predator(s) thealleged when of competitors re-entry) that (or preventbarriers subsequent entry expansions are unlikely to profit-maximizingor capacity for strategies be thefirmsinvolved of intheabsence from amarket orpotential competitors through price-cutting to existing exclude literature highlight that efforts (1981) Easterbrook see andreferences specifically, More enforcement cited therein). andrelevant experience that (for theyyield of development thisbasicperspective, inthepay-offs toare implement costly anduncertain strategies literature, thatpredatory scholarly byrelevant view, supported awidespread reflects This scepticism. of adegree with conduct allegations of approach predatory authorities competition Generally speaking, by the majority of carriers providing transcontinental service inthe1990s. providing transcontinental of carriers by service themajority were programmes, which introduced 1980s intheUSearly andwere adopted frequent flier(loyalty) byairline israised practices exclusionary of (potential) falling category of inthebroad issues set A different Box 7). and2001 (see were in2000 CanJet) recently settled and (WestJet carriers start-up low-cost two against acts thatallegations Canada Air inpredatory had engaged see Borenstein (1992) (2001). Borenstein andStanbury andRoss see dis For agents. travel for byairlines provided arrangements ofincentive role by the israised ofissues set A closely-related “recoupment scenario” isnot implausible atall.” a short, In other industries. of most forpredation calculation ahub inaway uncharacteristic carrier alter many from significantly the“cost-benefit” entering thiscan other hub its carriers markets; encroachment against turf” inafew create carrier markets can a“reputationby astart-up for its predation” start-up that deters “defending carrier hub a Sixth, practices.... predatory to vulnerable islikely carrier andisthus to have capital limited inthemarket. astart-up Fifth, established it gets outbefore easierto acarrier drive afoothold itisobviously inthehub: develop carriers start-up have before anincentive hub to carriers act overnight. Fourth, virtually markets fares inaffected andreducing by increasing capacity carriers by start-up to respond entry easily can hub carriers highfares, by asdemonstrated hub premiums. to Third, exact inaposition to be appear hub carriers “plausible.” morethan merely theory that make apredatory characteristics certain exhibits airlineindustry “The First, hub carriers dominate hub markets, as demonstrated by market share. Second, U.S.v. AMR Corp U.S.v. AMR ., U.S. 509 209, 113 S.Ct. 2578 (1993)). 243 ., 335 F.3d 1109 (10 36 While popular with consumers with popular While th Cir. Canada, In 2003)). Brooke cussion,

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT been condemned by theSwedishbeen 2004). Competition (Arhel, Authority 1992). has such concerns, of afrequent the use airtransport flierprogram Reflecting inSwedish domestic terms of foregone to (in ofenhancing switching (Borenstein, alternative rewards) travellers’ carriers costs reduce thethreat also of They potential competition, isenhanced by by therange offlyers markets served. orinter-firm airlines for larger to inthat individual thevalueof rewardsgenerated alliances advantages at least in many jurisdictions (Anderson and Jenny, 2005). Indeed, in the past, thereform inthe past, of government andJenny, Indeed, 2005). (Anderson inmany jurisdictions at least role of agencies competition the preparation is awell-established orother of means.This research studies, proceedings, in publichearingsorregulatory intervention through beforecommittees, testimony legislative of markets, whether on theoperation potentially impacting processes especially processes, development term “advocacy functions” refers to therole inproviding inputto of authorities competition publicpolicy The functions. of markets, through functioning theiradvocacy andtheefficient impinging oncompetition questions aswell. questions Competitionthese valuable provide policy authorities inputto often wider authoritiesmay competition have arole to Nonetheless, play bodies. inrelation to other policy-making by national decisions and implicate competition legislatures and governmentwith measures that affect therole of law beyond competition go enforcement, clearly Such issues inthat concerned theyare principally and consumer welfare of continued exemption for IATA rate conferences from national laws. competition for theimplications about competition raised noted, have been questions provide. also can As carriers based that foreign- that limitentry, agreements foreign andtheservices investment andbilateral airservice polices innational embodied those to remain, competition particularly andpricing,many obstacles of entry freer infavour has evolved theinternational sector airtransport decades two inthepast speaking, broadly Although inadditionto strategies of thecompetitive firmsandrelated by authorities. competition responses sector onnationalsignificantly andinternational market governing policies access andforeign inthis investment depend sector inthe airtransport of thisstudy, emphasized andefficiency competition inother parts As Theevolution of national and international policies governing the air (e) etal., 2000). (Liu andcompetition efficiency consequences for andthereby generating enableof adverse without carriers themto cover costs theirfixed environment, enhance competitive frequent thefinancialwider sometimes performance can flierprogrammes such asmarket onfactors theother hand, sharesOn that andthe made theargument depending has been Source: of phase thecase. inthepublicinterest thesecond tonot be pursue thattime andsignificant changes had that inthe occurred itwould theCommissioner industry, decided of asimilarnature. relevant for be will futurecases However,in thedecision of inlight of thepassage theCommissioner, Bureau, supports which that established has theprinciples that indicated itbelieves June2003,In theTribunal Competition oneof phase regarding thecase. The decision its released of adominant abuse Canadian position. with dealing Competition Act 79 of the section under inculpableconduct have Canada ifAir engaged determined had actually of an“avoidable theapplication with Phase onedealt would Phase two insuchparts. cases. test” cost Canada atfares convenience, intwo that For didnot cover wasdivided theiravoidable thecase costs. ineastern routes Tribunal oncertain Canada prohibiting Air anorder flights fromoperating seeking MarchIn 2001, theCanadian Commissioner of theCompetition Competition with anapplication filed airlinemarkets inCanadian conduct ofpredatory Box 7:Allegations Canada, Competition Bureau (2004) Bureau Competition Canada, activities the sector: potentialtransport contribution of competition advocacy 244 37 WTO, as part of the current round of multilateral negotiations initiatingany against negotiations have intheframework decided onthis issue of clearly the Members WTO (the Doha Round). that countries. thepresent,arrangements link however, For authoritiesof thecompetition major developed bilateral to cooperation theexisting andare not party practices vulnerable to anti-competitive are especially countries that of smallerdeveloping theinterests to protect important particularly maybe Such arrangements for background, related Clarke 2003, 1999, andLawrence, andEvenett, Birdsall andJenny, Anderson 2005). (see, industries indiverse of a dominant position andabuses mergers bytransnationalthat cartels, areposed problems oranother forum, to theinternational action address are needed intheWTO whether collective in enforcement broadly, More arrangements, approaches. cooperation that argued itmay expanded be enforcement authoritiesof In moresuch thepotential than circumstances, for onejurisdiction. arises conflicts and thelaws implicate will of such arrangements of concernsresolution effects thecompetitive regarding of the thetreatment of alliances,inmany international discussion andstrategic above cases airline mergers from isevident the As of inthisandother national andlegislation sectors. application policies competition of enhanced coordination inthe concerns of questions set sector, thepossibility transport afurther framework for theinternational thepolicy regarding air of from advocacy competition theissue Apart have a contribution to make in advocating reforms in this to thedetriment process of thecompetitive allmeasures consumers, theymay with that themselves impede area, as well. To however, 6below). theextent, inSection related that concern authorities competition discussion (see this is a multi-faceted agreements”. of WTO why reason airtravel that isnoserious “There part shouldnotsuggest be course, Of Taking bilateralagreements. (2001) further, thepoint andStanbury Ross restrictive themselves many cases) question which, than thepresent patchwork toapproach governance of sector (in of theinternational airtransport passenger if atper se all, would need Clearly, of policy andcompetition authorities competition thepurview gobeyond theforegoing observations to be resolved by WTO ...”. of zeroidea market sum andafree diplomaticexchanges system Members collectively asimilar vein, theChicagoIn Havel (1997) between that is... “There incompatibility abasicsystemic observes (2001) state: Chicago Convention, constitute which thecore of theinternational regime for andStanbury aviation. civil Ross by the1944 underpinned agreements, bilateral airservice of often-restrictive by thepresent network served arewell consumers (2001) whether question andStanbury thefundamental have Ross and regulations, raised of theCanadianpolicies review andrelated for Transportation arecent official Act undertaken inresearch still, of legislation on foreign many inrelevant broadly countries. investment that More regulatory are embodied istherestrictions anatural sector advocates, competition focus concerning of attention For theairtransport the previous Section. intheconclusion of world, asdiscussed inthedeveloping internationally andparticularly systems transport that such “cooperationsuggests to promote competition” to will air vital establishing more be efficient changes, both nationally andinternationally. aimed atpromoting pro-competitive further activities Experience reforms of attheinternational advocacy andtheconduct of thecommissioning research levelcould imply of similar pursuit etal., The at thenational 1998). States andCanada intheUnited level, atleast (Anderson activities akey has been focus of advocacy competition intheairlinesector competition measures affecting Decision adopted by the WTO General Council on 1 August 2004 (WT/L/579, 2 August 2004). 2August (WT/L/579, 2004 Council 1August on General WTO by the adopted Decision protection andpromotionprotection economic of interests.” domestic of ontheeconomic mercantilism ideas focus onthe isbased which It tradingliberalizing system. to anomaly theworld’s isanutter fast system inawebof The bilateral agreements. permitted to that say allinternational isforbidden, except that trade inaviation isspecifically which services by isnot means strong too of It basis) bilateral onareciprocal agreements. (usually by governments “Chicago“The one–access to system” international isaclosed airtravel markets isgranted only . The issue raised by Ross and Stanbury (2001) is whether the world community can find a better (2001) findabetter can andStanbury byRoss theworldcommunity raised iswhether issue . The 245 37

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT how air transport istreated intheGATS. how airtransport isfollowed by of anexamination This thetrend by countriesaccess issues. to signbilateral and agreements market reviews Subsection next market regulated. The heavily that access asoneof isstill theprincipalissues capacity. Recent bilateral however, agreements, of pricingandcapacity, leaving have liberalized many aspects covering market has traditionally policies international involved pricing and Regulating access, airtransport level. international makers atthe facing toto of thedifferent policy issues approaches market review aset access andidentify is today, of thisSection of governance. exist purpose The multilateral system creatingacomplex instruments aresult, anumber of different bilateral, As regional and into came effect. World Trade (WTO) Organization addition,In in1995 by isadministered the which theGeneral Agreement onTrade (GATS), inServices more more involving than than signed bilateral have 3,500 a100by June2004, been agreements countries. to where thepoint has evolved Since thenthesystem andtariffs. of routes, capacity in theestablishment the overall result bilateral was a cautious agreement for government that substantial provided intervention contents, its about aresult views of conflicting As abilateralconcluded I. asBermuda agreement known 1946 Kingdom States industry. andtheUnited In theUnited andchanging nature oftheairtransport evolving notof conducive to international the To wasdeemed in1944 airtransport. developed some, thesystem longevity, theChicago its Despite Convention has come criticismasaconstraint under to thedevelopment national to theirspecific inorder meet objectives. traffic Chicago today. for howcountries international Convention regulate thestage air has set It ineffect andisstill the successful conclusion of Chicago the1944 Conference. outcome The of that conference asthe isknown achievement inthisarea was conferences important atregulating most international aimed The airtransport. flight in1903. for anumber of additional thestage set noagreement wasreached, Although thisattempt GOVERNANCE OFTHE INTERNATIONAL INDUSTRY AIRTRANSPORT manned airplane thefirst after international atgoverning place took attempt shortly airtransport first The 6. contribute can to andreinforcepolicy of international thegoals trade liberalization. therole of inwhich competition This isanother respect functions. in theairlinesector, through theiradvocacy haveauthorities also arole to play changes in to promoting promote widerpolicy competition andefficiency Competition pricingandother practices. pro-competitive or re-structuring inter-lining necessary arrangements, that harmful aregenuinely amalgamations orconduct to coming inthe way without competition of efficient rather,for consumers; structural by with approach adiscerning itrequires relevant deals which authorities gainsandbenefits that can,or code-sharing depending onthecircumstances, generate significant efficiency orblanket intervention such notprohibition asmergers of involve sweeping practices does law inthissector of competition application the sound inthisSection, indicated by As competent administered laws authorities. to response this logical concern The is theimplementation actions. of competitionor other anti-competitive inpredatory orto alliances orengage joint collude market ventures andstrategic through mergers, power to create unwarranted are permitted eroded ifcarriers be inairlinemarkets will entry of liberalization/freer that indicates thepotential benefits experience airlineindustry, extensive intheUS deregulation domestic with experience of past andintherelated discussion inthis outlined Section international As markets. airtransport to liberalize to efforts adjunct are animportant practices anti-competitive private toMeasures address Concluding(f) remarks 246 40 39 38 Main open skies principles Table 7 Source: if threat to competition) (double-disapproval rates and offares Freedom frequency) capacity, ofroutes, determination (free Free market access for designated carriers 5th freedoms) (including rights traffic basic five ofthe exchange Complete liberalization. of eight (APEC) principleson air transport Pacific Economicby theeconomies of Co-operation theAsia of bilateral andplurilateral complement network interesting istheadoption An approaches to theexisting countries. amongdeveloping is thenumber of agreements of theinformation inthetable aspect Anotable Freedoms. Fifth to theyprovide which of theextent indication number of to A bilateral agreements. to international liberalizing have restricted notApproaches been airtransport regional agreements otherwise. specified “positive unless –nointernational list” ispermitted, traffic have as described be best also can agreements The foreign carriers. owned asmajority isneverdefined cases recently theconcept retain also of They inmany Freedom. which national carriers, theFifth beyond ofabsence rights been adopted. These are listed in Table 9, along with an on theseprinciples (Findlay, 2003). Commission, and2005c). 2005b countries brought wouldbe into EC States European andnon-EU conformity with Member law (see between Russia andChina. with bilateral addition, agreements In existing services liberalized trade inairtransport tonegotiate create majornewagreements an“open airspace” States theUnited with andto establish theCommission agenda, majorelement has of asecond signalled its anintention to As rules. and safety common under security operating borders, eastern countries andalongits neighbouring intheMediterranean to create arrangements Skies a“common Open existing wouldgobeyond 2005 airspace” withtheEU’s by theEC Commission wasputforward which relations inMarch for agenda airtransport external The claim that not who far theydo go are enough. many detractors there towards created thestep byskiesagreements, liberalization Despite theimplementation of theopen not to limited States. theUnited Anumber of (Table countries have such agreements signed also 8). are inTable outlined agreements skies of mainprinciples theopen The 7.agreements. agreement Skies are Open bilateral skies open 2002, fashion thirdcountries. By against States 59 had theUnited signed in adiscriminatory toward albeit liberalization, astep wasclearly theUSinitiative regime to compared theexisting when Nevertheless, inBox 3. listed of allthefreedoms inrespect binding access to theparties not aremisnomer, meanthat more that liberal, theyprovide theagreements thefact butdoes since itreflects a bilaterals, theterm‘open extent termisto than alarge provisions This wascoined. skies’ the existing 1992,In however, containing moreliberal theNetherlands abilateral States signed with theUnited when of bilateral agreements. by asystem isgoverned above, theinternational system explained airtransport As Bilateral ‘Open Skies’ and regional agreements (a) Details of the agreement can be found at: http://www.maliat.govt.nz. at: found be can agreement ofthe Details CaseStudies/ApecConsensus_En.pdf. www.icao.int/icao/en/atb/ecp/ at: found be can liberalization toairtransport byAPEC taken approach ofthe overview An December, 2005. (http://www.iccwbo.org/home/statements_rules/statements/2000/need_for_greater_liberalization.asp). ofairtransport”, 7 liberalisation for greater need “The statement Chamber ofCommerce inits International the example, For OECD, DSTI/DOT (99), 1 June 1999. 1June (99), OECD, DSTI/DOT Combined passenger/cargo services All-cargo services All-cargo Combined passenger/cargo services 39 Seven members of APEC went further and adopted a regional open skies agreement based agreement skies based aregional andadopted open went of further APEC members Seven 40 apply) countries two ofthe regulations charter restrictive least (the services cargo ofnon-scheduled treatment Liberal charges) user intermodal rights, (self-handling, groundPro-competitive’ support carriers) combination for as regime (same rates and rights traffic on provisions liberal Same 247 38 Of particular concern to these critics isthe concern critics to these particular Of

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT Source: similarclause. or annex ofatrans existence the Tdenotes and parties; of the byone suspension SSdenotes cases); insome Protocol its (and Agreement ofth intoforce toentry due suspension Sdenotes agreements; skies open inother ones comparable than liberal less provisions ex an Rdenotes provision; ownership aliberal Odenotes requirements: filing tariff without scheme tariff disapproval a double scheme; pricing afree denotes FF services; all for rights Freedom” “Eighth 8denotes services; all-cargo scheduled and cargo 1998 New Zealand – Sweden 2002 New Zealand –Tonga (7, Zealand FF, New O) (7) Emirates Arab –United Singapore (T, S) Chile –Peru Uganda – United States (7C, 2002 FN) (T) States –United Jamaica 2002 2002 2002 -Tonga Samoa 2002 2001 M States (7C, States -United FN) Verde –United Lanka Cape Sri 2001 2002 Note: T) (7C, States FN, -United Poland Republic of Korea – United States France - United States (7C, FN) (7C, T) S, States –United Peru 2001 Turkey 2001 1998 - United States (T) –Sweden Zealand New -Samoa Islands Cook 1998 -Zimbabwe Africa South (FF) 2000 –Norway Zealand New 2001 1998 States –United Italy 2000 (7C, T) States -United Oman 1998 Emirates Arab Slovakia –United Ethiopia - United States (7C, T) 1998 2001 (FF) Zealand -New Denmark 2000 1998 Chile –Panama (7C, T) States -United Morocco 1998 T) (7C, FN, States -United Senegal (7C, S) O, FF R, Zealand Chile -New T) (7C, FN, T) States S, (O, -United -Samoa Rwanda Zealand New 1998 2000 (7, Zealand FF, 8, -New O,S) Darussalam Brunei 2000 (T) States -United Namibia 1998 2000 2000 Chinese Taipei - United States Nigeria - United States (7C, T) (7C, States T) -United Gambia 1998 2000 S) (7SC, States -United Singapore (7C, T) States -United Malta 1997 2000 2000 Romania - United States (T) 2000 1997 Ghana - United States (7C, T) (7C) States –United Panama 1997 (7C) States -United Faso Burkina 2000 Nicaragua - United States (7CC) (O) Zealand -New Islands Cook 1997 S) (7C, FN, States -United Zealand New 2000 1997 2000 Benin - United States (7C, (7C) O, S) FF -Singapore Zealand New 1997 Netherlands Antilles - United 2000 States (7C) 1997 (7C, T) States -United Malaysia Qatar - United States (7C) Tanzania, United Rep. of - United States (7C, T) 1997 FF) (O, Zealand -New Malaysia (7C) States -United Emirates Arab United 1999 1999 1997 -Netherlands Kenya (7C, FF, 8, Zealand -New O) Australia 1999 1997 (7C) States -United Honduras R) (O, -Switzerland Zealand New Pakistan - United States (7C) 1997 2000 Guatemala - United States (7C) (7C, S) FE -Peru Zealand New Portugal - United States (7C, T) 1999 1997 1999 -Panama Guatemala 1999 1999 1997 (7C) States -United ElSalvador 1997 States -United Rica Costa (R) Rica Chile -Costa (7C) States -United Republic Dominican 1997 (7, Zealand R) 8, -New Ireland Chile - United States (7C, S) 1999 (7C) States -United Bahrain 1999 1997 (7C, States S) -United Darussalam Brunei 1999 1997 (S) 1999 -Singapore Darussalam Brunei Uzbekistan - United States (7C) 1997 Aruba - United States (7C) United Arab Emirates - Uganda 1997 1998 Jordan - United States 1998 1997 Germany - United States (7C, FN) T) SS, (7C, States FN, Emirates -United Arab -United Argentina Turkmenistan 1996 Switzerland - United States 1996 1998 1999 States –United Sweden 1995 States –United Norway 1995 (7C) States -United Luxembourg 1995 (7C) States -United Iceland 1995 States –United Finland 1995 States -United Denmark 1995 (7C, States T) -United Republic Czech 1995 Belgium - United States 1995 Austria - United States 1995 States -United Netherlands 1995 1992 Open skies agreements completed, 2002 Table 8 7 denotes “Seventh Freedom” rights for all services; 7C, 7CC and 7SC denote “Seventh Freedom” rights for all-cargo, charter al charter all-cargo, for rights 7C, Freedom” 7CC “Seventh denote 7SC and services; all for rights Freedom” “Seventh 7denotes ICAO. 248 FN denotes e “Korea” istence of istence ition l- Source: Source: 42 41 rights freedom with fifth agreements Regional Table 9 Fifth: Yes Fifth: To Fifth: be Yes Fifth: invoked only where obligations or specific commitments have been assumed by the concerned Members, and by assumed the concerned haveinvoked commitments Members, been orspecific obligations where only may be provisions, of procedures such theWTO that dispute thedispute settlement settlement pre-existing of Agreement. force Furthermore, they have the exhaustion regarding onaprovision agreed of theWTO into onthedateof entry that areineffect bilateral ormultilateral under agreements obligations a Member’s theGATS commitment under wherebyprovision any assumed orobligation specific shall not reduce oraffect covered have of ona“grandfathering” theGATS, by agreed the scope addition, Members In evenintheservices since 1995 to the WTO thispicture. have marginally changed only of newMembers to the most favouredto themost nation principle. by asexceptions theGATS offered agreements theflexibilities to have these maintain used simply Members of theGATS of theGATS. from thescope Negotiators have Rather, road transport not excluded WTO sharing bilateral agreements. cargo dominantly organized intheform isalso of 50/50 transport road International of transport. bilateral isnot uniqueamongthemodes The to approach regulation inair transport General TheWTO Agreement onTrade in Services (b) pursued. ifthemultilateral had been approach exist would system are more airtransport of ornot liberal, agreements amore whether butwecannot open say newgeneration The agreements. thewelfare about of implications discriminatory apriori concluded be can little very of merchandise trade agreements, inthecase As 2004). (WTO, services for trade inairtransport suited ornot amultilateral, bilateral –whether are best andregionalagreements agreements ordiscriminatory here are by similar issues raised thespread to of those The regional trading agreements. generated by these isthenature fromof another thearchitecture bilateral question of discrimination agreements, Aside computer reservation systems (16) and of the selling and marketing of air transport services (17). (16) systems andmarketing services andof theselling computer of airtransport reservation intheareaof inparticular listed, havebeen exemptions numerous MFN relatively while services, for these commitments concerned –have undertaken of delivery andthemodes on the service –depending WTO 25 of the and45 original Between Members services. (CRS) system computer reservation and(c) services; andmarketing theselling of airtransport (b) andmaintenance repair aircraft services; (a) –namely: transport relevant to air that three services theGATS decided shall to apply measures affecting nevertheless Members related rights. to theexercise of traffic directly andtheservices rights or traffic of GATS thecore to from exclude –the“hard of thepurview commercial decided airtransport They rights” Andean Pact (5 States) 1991 Further details on the commitments undertaken by Members in these areas can be found in WTO (2001). foundin WTO be can areas inthese byMembers undertaken commitments the on details Further members. WTO toall granted been have would acommitment such since transport ofroad supply cross-border on ofcommitments anabsence with Coupled WTO based on ICAO data. ICAO on based WTO members. between basis liberal and a reciprocal on exchanged (CARICOM) Community (14 States) Caribbean Caribbean 1996 concerned. States of consent only with permitted traffic Freedom Fifth of Carriage gemn Banjul Accord Agreement (6 States) Fortaleza 1997 41 In the case of aviationhowever, thecase adifferent In route. chose Members 3 no where unrestricted Yes,Fifth: carriers. non-African for reciprocal with 3rd/4th; of capacity to20% limited operations; Freedom rd and 4 and (6 States) 1997 th traffic. onlimitation No Fifth: gemn OEAAA MALIAT ACAC COMESA Agreement 249 (4 States) CLMV CLMV 1998 tions. will be no restric- there Eventually Freedoms. 4th tions on 3 capacity limita- are 30-40% Initially, there operations. freedom 4th and 3rd no are ted where there Unrestric-Fifth: (21 States) 1999 rd and by 2005. restrictions No Fifth: (16 States) 1999 42 Accessions Accessions (7 States) Fifth: YesFifth: 2001

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT 44 43 dedicated meetings of the regular session of the Council for Trade in Services. These extensive debates of theCouncil of theregular extensive meetings session fordedicated Trade These inServices. duringfour 2003, essentially andNovember 2000 September washeldbetween reviews of these first The of theAgreement application inthissector.” further to considering thepossible aview with of andtheoperation thisAnnex sector intheairtransport developments years, five every at least Council for Trade shall periodically, review and that “[T]he stipulates clause review inServices This the Annex. through inparagraph contained theinclusionof clause achievedatthetimeonthisquestion areview be 5of coverage. could agreement only its An regarding particularly negotiated, was heavily of theAnnex text The far, suchasgroundhandling. So commitments. services, these regarding nodisputehasthese arisen from hotels and restaurants. orcatering fromadulteducation, flight trainingschool from advertisement, suchasaerialadvertisement service, Finally, of agiven some part have theairtransport from theircommitments excluded Members other instances, In services). Members have felt andrestaurants (hotels andcatering services) franchising (distribution services), it leasing(business dry services), necessary to list MFN financial leasing(financial storage andwarehousing (ibidem), exemptions (ibidem), freight forwarding of transport), modes on some of to all auxiliary suchasgroundhandling (services sevices, intheCPC airtransport under not listed services cover Wet intheschedules commitments leasingisonesuch example. Other GATS MTN/GNS/120. document the of Some –theCentral in Classification abbreviated version of theUnited Nations andits (CPC) sectors Product in most Annex. the in listed services three the Members by most used classification beyond of thenon-compulsory part intheairtransport go appear services scheduled these of some that shows Members by undertaken of thecommitments analysis An commitments. of Members’ intheschedules inconsistencies are reflected These for allother used services. generally andtheclassification of theAnnex classification the aswellby thelack of any linkbetween the exception to that exclusion (thethree covered services), and related rights) to theexercise of traffic directly andservices rights the general exclusion (traffic between by complicated of theabsence acleardistinction isfurther problem from The of thisabsence definitions. arises by theGATS to services onapproaches thecoverage of airtransport amongMembers of divergence views The discussions and diverging views. The parameters of this discussion are the following: arethefollowing: of thisdiscussion parameters The views. anddiverging discussions of many by theGATS controversial thesubject has been of services thecoverage question of airtransport The into force since theentry ofamongmembers of any theAgreement. discussion the subject have have theybeen Neither arisen. services onairtransport cases far sincetested, so nodispute settlement sector. have not They been have provisions inany noequivalent other services two These exhausted. been procedures inbilateral have disputewhere settlement andother orarrangements multilateral agreements • Paragraph 2 of the Annex stipulates that the Agreement, including its dispute settlement procedures, procedures, Paragraph dispute that settlement theAgreement, stipulates 2of includingits theAnnex • valueastheGATS legal has thesame Paragraph (which Transport onAir 1of theAnnex Services • designation of airlines, including such criteria as number, ownership, and control. andcontrol. number, as criteria ownership, such including ofairlines, designation for andcriteria conditions, andtheir charged tobe tariffs provided, tobe capacity carried, tobe oftraffic types operated, tobe routes served, tobe points including ofaMember, territory the over or to, hirefrom, within, or remuneration mail for and cargo passengers, tocarry and/or tooperate services andnon-scheduled scheduled for right the mean “Traffic rights” respectively 3 August 2000, 25 October 2000, 10 November 2 10 November 2000, 25 October 2000, 3August respectively (dated 6addenda and its S/C/W/163 indocuments meetings for those secretariat WTO bythe provided documentation complete the and 2002 17 dated October S/C/M/62 and 2002 13 dated February 2001, 5March dated S/C/M/57 S/C/M/50 2000, 1December dated S/C/M/49 indocuments found be can meetings dedicated four ofthese reports complete The August 2001), as well as in documents S/C/W/200 dated 3 October 2001 and S/C/W/200 Add 1 dated 28 February 2002. 28 1dated February Add 2001 and S/C/W/200 3October dated S/C/W/200 indocuments as well as 2001), August “services directly related rights” to atall. theexercise of traffic have defined directly “services not been to the exercise of traffic rights. While traffic rights are extensively and precisely defined by theAnnex, defined andprecisely are extensively rights traffic While rights. to theexercise of traffic related directly services or(b) howevergranted; rights, traffic (a) shall to affecting: not measures apply services" andnorare isnot "ancillary defined services"; in services" have been widely defined services”. andancillary by ornon-scheduled, "measures While trade scheduled whether subsequent affecting services, dispute settlement cases, "trade “applies that theAnnex stipulates trade inairtransport to measures affecting agreement itself), in air transport 250 000, 13 2001,000, August 15 2001, August 13 2001 and16 August 44 have have 43 45 this should not] prejudge Members’ interpretation of paragraph 5 [the review clause] of theAnnex.” interpretation of paragraph clause] review 5[the this shouldnot] Members’ prejudge take of place regular theCouncil meeting atthelast [would] review for that Trade [and of 2005 inServices The only agreed conclusion of of GATS. GATS thescope wasonemore not reason for This to hard extend purview rights. of this the place outside wastaking liberalization whereas to inregard thethree coveredliberalization services, review was on that theGATS added They had not had questions. any forum these effects discernible proper to discuss “to decide that the formal commencement of the second autonomous process of liberalization. inthe negotiations, asabrake multilateral wouldact ontheongoing liberalization other subjects with made that wouldbe andlinks universality of its that argued because wasfurther It regional andplurilateral context. inabilateral, had not wasoccurring andthat anyway changed scope liberalization the rationale existing of its of theGATS of thescope any onthegrounds extension that opposed evengreater numberAn of Members thisview, In . of3 of theAnnex theAnnex”). there thescope wastherefore inclarifying nopoint traffic rights and of services directly related to the exercisewas nospace for a“grey of area,” traffic were anexception to since thegeneral thethree exclusion covered of sectors rights (“except as provided in paragraphthat listed by theGATS explicitly paragraph theirview, In 3of only theAnnex. applied to there thesectors andargued invoked theother hand,On many exercise history inthereview thenegotiating other Members andplurilateralProcurement) agreements. Plurilateral Agreement onGovernment intheWTO (as such conditional astransitionapproaches MFN periods, suggested Members these rights andtraffic of theproblem to MFN order address In (WIPO). Organization Agreement Property built ontheworkof theWorld Intellectual fashion TRIPS similar to that by theWTO which of ina earnings,andmovement of personnel, remittances andairnavigation facilities andservices, airport of to/use onaccess provisions rights, landingoperational andtechnical onoverflight (ICAO) Organization buildingontheworkof theInternational suggested also Civil They Aviation than rights). interms of traffic rather issue 3establishment asamode (seen services airtransport anddomestic services, charter regard), to workof thesubstantive notably theOECD (referring inthat services transport such asallcargo activities Furthermore, some of themnegotiations. argued of theDoha inthecontext management services andairport in such areas asground in handling services favour of therefore andtherefore for rights commitments covered called already traffic Members by theGATS. These the extension were not related for to airtransport theexercise of services andfreight forwarding management services, of the coverageconcerned? From of theactivity to undertake necessary rights traffic wasretaining test: afunctional suggested Members those GATS this test, to they “hard concluded related rights” to theexercise of of of traffic theabsence what adefinition constitutesIn directly a“service rights” that services such as catering, related rights. to theexercise of traffic directly orservices rights traffic leasing, in included norbe services) systems computer reservation andmarketing services, the selling of airtransport ground handling, andmaintenance repair services, (aircraft would neitherfall covered services into any explicitly of thethree airport of theGATS. inthescope the“grey wastermed included This area” concept, whereby arange of services related rights”, to theexercise of traffic were related already rights to theexercise of traffic not directly services directly the“services contended excluded that only since theonehand, theAnnex On Members several of of theGATS thescope sector.regard to extension to any theairtransport possible norwith of theAnnex, to scope led noconsensus of regard clarification to theexisting with any possible annual publication of ICAO “The World 13 3dated add 2001 andthe August of Civil S/C/W/163 document Aviation”. notably see process liberalization ofthe account adetailed For 45 Those inclined to this view also considered that the ICAO was the 251

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT rather of more than narrowly through agreements. drawn anetwork handled atthemultilateral more efficiently be level can the governance of international services airtransport remains over time, whether complemented question andhas by been ahandful The of regional agreements. of by more international bilateral made has liberal be become currentcan agreements The system cooperation. of international the context In and liberalization. of clarification thecontribution trade, that thismeans further number of policy challenges, continuously to reinvent faces ability a itself, itstill andits shocks resilienceto external theindustry’s Despite including in taking full advantage of intheairlinesector. infavour changes benefits of andefficiency competition policy promoting wider that can flow in from functions pricing.Competition have also authorities arole to play through theiradvocacy pro-competitive deregulation or re-structuring tointer-lining coming competition, intheway without of necessary efficient arrangements, that areharmful amalgamations andconduct atpreventing structural aimed iscase-by-case, the approach for Rather, consumers. gains andbenefits generate significant efficiency can asthese orcode-sharing, mergers suchas blanket or ofpractices however, prohibition not, intervention does sweeping involve law inthissector of competition application sound The orsimilar laws competition instruments. implementation of effective appropriate to The response this concern actions. isthe or other anti-competitive inpredatory or engage to createunwarranted orto alliances, joint collude market ventures andstrategic through mergers, power are permitted ifcarriers eroded be will inother in airline markets (as industries) entry of liberalization/freer to that liberalize thepotential indicates theinternational sector. benefits airtransport Experience efforts to adjunct are animportant practices measures anti-competitive private to inother address industries, As theindustry. serve best can andrules of howmultilateral cooperation understanding GATS butarecontinuing agreement, abetter to seek from the theissue excluded have To largely theWTO. treatment within Members is uniqueinits date, WTO Market sector of plurilateral bilateral with agreements. access intheairtransport agreements their network of Anumber of theindustry. countriesthe needs have is noandcomplemented that concluded theanswer continue will welcomed andthedebate asto or notwidely to thebilateral whether meet issufficient process has been process This agreements. many butto of relax inthese theprovisions thebilateralmaintain system, to has been to thispressure response predominant regulatory thepace The ofwith changeintheindustry. to pressure onbilateral conceived asittries in1944, isunder cope based agreements, process regulatory The of the industry must take place in an environmentally responsible that oninsistence expansion framework premised a regulatory have within changes occurred these base. All manner. to consumer abroader extended have been Carriers into services theresult theindustry, with that airtransport of LowCost of resulted has competition also intheentry of thedesirability Recognition airfares. and lowered served, therange of being routes theglobe, expanded alliances across andnon-equity inequity in agrowth of has competition resulted introduction ago. The years from what itwas30 markedly theindustry changed have initiatives inacontinuing thetermsof to competition. Policy define isengaged struggle industry The planning.development component of inthefuture. to trends shouldconstitute these animportant andreacting Monitoring industry development developing countries andgrowth, evolution challenged may be of byexport thestructural the to ensure services priced airtransport adequate andcompetitively of from securing trade. thetask Quite apart for countries for significant questions that developing onairtransport rely of pose which some decades, several overthelast ways ininteresting has changed industry services of theairtransport structure The initiatives. and liberalisation deregulatory significant with combined andperformance, innovations capacity intermsof aircraft measure to technological inlarge remarkable, has been attributable years 30 overthepast intheindustry growth The in other sectors. contribution to international direct of its trade andasafacilitator of international andservices trade ingoods component of theinternational interms both important andincreasingly trading system, isavital transport Air 7. CONCLUSIONS 252 Act Review Panel Review Act H.(1978)Bork, R. Canada (2001) Review Transportation Act J.(1990) K. Button, Codeshares“, Regional BA-AA “First 15. Release, January (2004) Press British Airways forInstitute International Economics. andC.Hufbauer Findlay (eds) inG. inASEAN” Bowen, T. J.andLeinbach, airlineindustry The (1996), “Development andLiberalisation: Reform inCanada, 1986-1997’, D., R. Anderson, Hollander, Monteiro, A., J.andStanbury, W.T. ‘Competition (1998). andRegulatory Policy Perspective’, D. R. andKhosla, S.D.Anderson, (1995) ‘Competition aComparative asaDimension of Economic Policy Policy: System’, ed., inErlinda Medalla, D. R. andJenny,Anderson, F. ‘Competition (2005) Policy, Economic andtheMultilateral Development Trading P.Arhel, ‘Transparence (2004) tarifaire etpratiques restrictives’, Africa TransportAir Group (ATAG) Action (2003) BIBLIOGRAPHY Washington, DC: Institution. Brookings The Douglas, G. W. and Miller, J. C. III (1974) Paper, Ausinfo, Canberra. 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III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT Owen, B. M. (2003) andCompetition’, Pricing of Airline Dynamics (1990) ‘The – system,” andWinston, C. (1989) “Enhancing S.A. Morrison, of airtransportation thederegulated theperformance – (1998) Management Oum, T.H. andYu, C. (1995) ‘A of comparison theworld’s major airlines’, productivity OECD. (1999), Cargo Paris: Air Transportation’, DSTI/DOT (1999) Reform inInternational ‘Regulatory (OECD) andDevelopment forOrganization Economic Co-operation of Justice, July 20. Nannes, J. M. (1999) – (2004) – (2004) liberalization of Tradefor further inServices (2001)World ‘Air Trade (WTO) Transport Organization Services’, in 3, Summer: 89-110. Winston, C. Adjustment to Economic (1998) Deregulation’, ‘US Industry 60, Issue 2. D. R. Willlig, (1991) theDOJ Experience’, ‘Antitrust Industry: from theAirline Lessons Washington, D.C.: of Justice. Department Trade of andFederal Justice US Department Commission (1997) Ross, T.Ross, W. andStanbury, W.T. (2001) and Economics, Stragier, J.(2002) 3-21.2, Spring: Stigler, G.J. (1971) of Economic Theory Regulation’, ‘The Reform Age of Regulatory Stanbury, W.T. (1989) Regulation inCanada’ ‘Reforming Direct inK.W. andDennis Swann Button (eds.) prepared for theCanadaReport Transportation Review. Act Conditions on American Airlines/British Airways Alliance Airways Conditions onAmerican Airlines/British US Departmentthe Annual Conference of the Guild of European Business of Travel Agents (GEBTA), Justice Lisbon, 22 March). (2001) Amsterdam: Kluwer Academic Publishers. Academic Kluwer Amsterdam: 393. Brookings Papers on Economic Activity: Microeconomics onEconomic Activity: Papers Brookings World Trade Report Winning Airlines – Productivity andCost of Competitiveness theWorld’s MajorAirlines Winning –Productivity Airlines 2:181-195. Working Paper EC Competition Policy in the Aviation Sector: State intheAviationEC Competition Sector: Policy of Play andOutlook Competition Policy inLatin America Competition Policy The importance of entry conditions in analyzing airlineantitrust conditions issues of inanalyzing entry importance The (Oxford: Clarendon Press), pp. 49-78. Clarendon Press), (Oxford: 268, October. 268, , Geneva: WTO. , Geneva: Justice Department Urges [Department of Transportation] toImpose [Department Urges Justice Department Policy Proposals forEnhancing Markets Airline Competition inCanadian Proposals Policy , Geneva: WTO. , Geneva: 256 , Stanford Law School, John M. Ohlin Program in Law inLaw Program M.Ohlin John , Stanford School, Law (Press Release, 17 December). Bell JournalofBell andManagement Economics Science American EconomicAmerican Review Antitrust Guidelines onHorizontal Mergers , pp. 61-112. Guide to the GATS: An overview ofGuide issues to theGATS: overview An Journal of Economic Perspectives Journal of TransportJournal Air Antitrust Law Journal Antitrust Law (Paper prepared for 80, 2, May: 389- , US Department , USDepartment 12, 12, The , , , APPENDIX TABLES Appendix Table 1 Share of countries in international air traffic, 2003

1 1 Country or group TOTAL TONNE-KILOMETRES PERFORMED (millions) PASSENGER-KILOMETRES PERFORMED (million) of countries (whose Total operation International operations Total operation International operations airlines performed more than 115 Rank in Estimate Actual Change vs Rank in Estimate Actual Change vs Rank in Estimate Actual Change vs Rank in Estimate Change vs million total tonne- Actual 1993 kilometres) 2003 2003 1993 1993 (%) 2003 2003 1993 1993 (%) 2003 2003 1993 1993 (%) 2003 2003 1993 (%)

United States 1 128356 89617 43.2 1 42506 29327 44.9 1 1016018 773311 31.4 1 259088 219691 17.9 Germany 2 21937 10109 117.0 2 21097 9542 13 3 149672 52941 182.7 3 141313 47808 195.6 United Kingdom 3 20687 17387 19.0 3 19940 16970 3 2 166498 124882 33.3 2 157479 119950 31.3 Japan 4 20479 14668 39.6 4 14066 10031 -11 4 144054 106360 35.4 5 70394 53979 30.4 China 2 5 16906 4848 248.7 12 5527 1842 2 5 124591 45000 176.9 17 74346 11171 565.5 Hong Kong SAR3 10278 10278 -5 46402 46402 Macao SAR4 198 198 -16 1516 1516

France 6 15667 9795 59.9 7 12450 7508 1 6 115571 59919 92.9 4 82866 37940 118.4 Republic of Korea 7 14036 7246 93.7 5 13293 6717 1 11 63099 34083 85.1 8 55550 28762 93.1 Singapore 8 13062 6826 91.4 6 13062 6826 -8 10 65387 41262 58.5 7 65387 41262 58.5 Netherlands 9 11382 6512 74.8 8 11374 6507 1 9 69236 38544 79.6 6 69156 38495 79.6 257 Australia 10 9855 6895 42.9 10 6212 4781 -7 7 86675 57343 51.2 10 49244 36015 36.7

Canada 11 8854 5151 71.9 13 5446 3355 -15 8 74418 40426 84.1 11 42889 24936 72.0 Gulf States5 12 8068 2023 298.8 9 8052 2017 10 14 50653 14489 249.6 9 50519 14424 250.2 Spain 13 6100 3025 101.7 16 4272 2168 6 12 57594 27105 112.5 13 38723 18551 108.7 Russian Federation 14 6018 23 2513 5 13 53894 20 20478 Thailand 15 5871 3167 85.4 11 5564 2941 -6 15 44773 22874 95.7 12 41731 20609 102.5

Malaysia 16 5542 2178 154.5 14 5126 1898 4 18 36824 17445 111.1 14 32309 14431 123.9 Brazil 17 5504 4084 34.8 20 2809 2514 -5 16 44045 29555 49.0 21 20234 16866 20.0 Italy 18 5067 4044 25.3 17 3934 3393 2 17 37934 29702 27.7 16 26087 22751 14.7 Luxembourg 19 4397 15 4397 5 98 548 94 548 Switzerland 20 3657 3007 21.6 18 3641 2977 -2 25 23797 17704 34.4 18 23639 17443 35.5

Scandinavia6 21 3485 2365 47.4 19 2824 1757 0 21 29116 20607 41.3 19 22374 14167 57.9 India 22 3410 1661 105.3 27 2011 1032 12 19 31197 14396 116.7 24 17221 7858 119.2 Mexico 23 3337 1746 91.1 31 1743 811 3 20 29305 18216 60.9 27 13555 8016 69.1 South Arica 24 3137 252506 8 23 24873 23 18847 New Zealand 25 2945 1823 61.5 21 2581 1622 5 24 23822 14163 68.2 22 19870 12194 62.9

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT

Appendix Table 1 Share of countries in international air traffic, 2003 (cont’d)

1 1 Country or group TOTAL TONNE-KILOMETRES PERFORMED (millions) PASSENGER-KILOMETRES PERFORMED (million) of countries (whose Total operation International operations Total operation International operations airlines performed more than 115 Rank in Estimate Actual Change vs Rank in Estimate Actual Change vs Rank in Estimate Actual Change vs Rank in Estimate Change vs million total tonne- Actual 1993 kilometres) 2003 2003 1993 1993 (%) 2003 2003 1993 1993 (%) 2003 2003 1993 1993 (%) 2003 2003 1993 (%)

Saudi Arabia 26 2739 2415 13.4 26 2014 1816 -1 26 20801 18572 12.0 26 13693 12646 8.3 Ireland 27 2573 467 451.0 22 2572 463 47 22 27441 4209 552.0 15 27433 4157 559.9 Israel 28 2538 1654 53.4 24 2507 1638 4 32 12495 8747 42.8 29 12157 8581 41.7 Chile 29 2236 1018 119.6 29 1913 844 7 34 12186 4425 175.4 34 9139 2772 229.7 Turkey 30 2065 842 145.2 30 1754 676 -3 28 16396 7519 118.1 28 13317 5669 134.9

Austria 31 1983 669 196.4 28 1971 665 7 29 14558 5629 158.6 25 14440 5595 158.1 Indonesia 32 1861 2416 -23.0 35 1031 1700 -6 27 17979 19846 -9.4 33 9371 12850 -27.1 Philippines 33 1751 1650 6.1 32 1495 1478 0 30 14183 13085 8.4 31 11753 11295 4.1 258 Portugal 34 1455 897 62.2 33 1312 778 12 31 13562 7917 71.3 30 12141 6833 77.7 Colombia 35 1432 1014 41.2 38 981 746 13 38 8714 5296 64.5 50 4504 2376 89.6

Pakistan 36 1425 1322 7.8 34 1235 1069 8 35 11755 9898 18.8 32 10059 7533 33.5 Argentina 37 1228 1117 9.9 43 787 780 42 33 12485 9231 35.3 37 7762 6072 27.8 Finland 38 1086 662 64.0 37 991 590 7 36 9056 5529 63.8 36 7981 4712 69.4 Qatar5 39 1000 36 1000 - 40 8003 35 8003 Belgium 40 961 1003 -4.2 39 961 1003 8 54 3958 6484 -39.0 53 3958 6484 -39.0

Egypt 41 960 606 58.4 40 908 562 -10 39 8055 5277 52.6 38 7481 4786 56.3 Sri Lanka4286443698.24186443611436910362490.7396910362490.7 Iran (Islamic Rep.of) 43 857 519 65.1 60 393 223 19 37 8798 5045 74.4 55 3681 1868 97.1 Viet Nam 44 819 47 602 7 42 7227 42 5300 Kuwait 45 795 632 25.8 42 795 632 -8 44 6715 4054 65.6 40 6715 4054 65.6

Greece 46 759 848 -10.5 46 612 755 -19 41 7354 7899 -6.9 41 5881 6964 -15.6 Bangladesh 47 704 278 153.2 44 697 270 3 51 4662 2556 82.4 49 4583 2470 85.5 Mauritius 48 667 334 99.7 45 661 333 0 46 5212 2677 94.7 44 5144 2658 93.5 Poland 49 608 357 70.3 49 589 351 4 45 5434 3335 62.9 43 5213 3272 59.3 Jordan 50 602 581 3.6 47 602 580 4 52 4498 4004 12.3 51 4498 3993 12.6

Kenya 51 525 191 174.9 50 509 178 14 53 4224 1459 189.5 52 4050 1325 205.7 Morocco 52 505 449 12.5 53 485 437 -20 50 4776 4395 8.7 48 4584 4264 7.5 Jamaica 53 503 155 224.5 51 503 154 -15 47 5005 1488 236.4 45 5005 1474 239.6 El Salvador 54 487 203 139.9 52 487 203 58 49 4833 1738 178.1 47 4833 1738 178.1 Czech Republic 55 485 196 147.4 54 483 196 28 48 4938 1900 159.9 46 4923 1897 159.5

Ethiopia 56 484 259 86.9 55 474 244 10 58 3573 1717 108.1 58 3460 1571 120.2 Brunei Darussalam 57 472 211 123.7 56 472 211 -5 57 3588 1623 121.1 57 3588 1623 121.1 Uzbekistan 58 424 58 401 1 56 3889 56 3646 Cyprus 59 408 230 77.4 57 408 230 15 55 3935 2175 80.9 54 3935 2179 80.6 Fiji 60 400 126 217.5 59 397 125 9 62 3221 983 227.7 61 3178 964 229.7

Iceland6137821972.661378212-8632998196852.3622998190557.4 Peru 62 344 214 60.7 67 224 143 8 66 2443 1926 26.8 76 1345 1205 11.6 Hungary 63 333 147 126.5 62 333 147 7 60 3397 184 1746.2 59 3397 1484 128.9 Algeria 64 327 296 10.5 65 258 207 3 59 3415 2901 17.7 63 2672 1991 34.2 Trinidad and Tobago 65 276 364 -24.2 63 275 362 -6 64 2671 3232 -17.4 64 2662 3205 -16.9

Tunisia 66 261 173 50.9 64 261 172 -2 65 2459 1877 31.0 65 2459 1875 31.1 Lebanon 67 253 260 -2.7 66 253 260 4 73 1905 1459 30.6 69 1905 1459 30.6 Cuba 68 232 138 68.1 68 219 118 4 71 2029 1321 53.6 68 1939 1069 81.4 Ukraine 69 231 70 211 47 67 2352 672115 Yemen 70 225 124 81.5 69 217 113 26 72 1956 1217 60.7 70 1876 1099 70.7

Kazakhstan 71 222 7676 -40 69 2149 75 1404 Malta 72 209 117 78.6 71 71 117 -68 68 2174 1250 73.9 66 2174 1250 73.9 Bolivia 73 186 120 55.0 77 77 96 -27 74 1740 1092 59.3 77 1307 843 55.0 Venezuela 73 186 784 -76.3 92 92 589 -38 70 2043 6880 -70.3 86 834 4676 -82.2 259 Surinam 74 183 7272 -29 79 1470 74 1469

Syrian Arab Republic 75 171 73 73 -56 75 1727 71 1710 Romania 76 161 161 0.0 74 74 148 -51 76 1706 1810 -5.7 73 1644 1657 -0.8 Panama 77 156 7474 -77 61 3371 60 3371 Serbia and 77 156 7878 -10 80 1199 791061 Montenegro Turkmenistan 78 150 86 102 -7 78 1538 81 1005

Namibia 79 139 79 136 43 85 930 84 904 Azerbaijan 80 135 84 111 6 90 751 95 497 Costa Rica 81 122 189 -35.4 80 120 188 14 77 1674 1432 16.9 72 1654 1425 16.1 Nepal 82 118 82 116 -7 81 1105 78 1084 Uruguay 82 118 81 118 84 83 1029 80 1029

1 2003 data are estimates. 2 For standard purposes the data for China excludes the traffic for Hong Kong and Macao Special Administrative Regions (Hong Kong SAR and Macao SAR), and that of the Taiwan province of China. 3 Traffic for the Hong Kong Special Administrative Region (SAR). 4 Traffic for the Macao Special Administrative Region (SAR). 5 Four states in 2002 - Bahrain, Oman, Qatar and United Arab Emirates. At the end of 2002, Qatar withdrew from Gulf Air, hence in 2003 the Gulf States are composed of Bahrain, Oman and United Arab Emirates. 6 Three states – Denmark, Norway and Sweden. Source: ICAO.

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT

Appendix Table 2 Ranking of airlines on the basis of passenger traffic, 2003

Ranking: Seat Ranking: passenger passenger Passenger Traffic (RPK)2 Capacity Load Factor Passenger Number traffic Airline Fleet Size1 Country number (ASK)3 2003 2002 2003 million change (%) change (%) change (%) change (%) million change (%)

1 1 2 American Airlines 714 United States 193222 -1.4 -4.2 72.8 2.1 88.8 -5.7 2 2 3 United Airlines 484 United States 168083 -4.6 -8.2 76.5 2.9 66.2 -3.5 3 3 1 Delta Air Lines 473 United States 158766 -3.3 -5.2 73.4 1.4 104.5 -2.4 4 4 6 Northwest Airlines 432 United States 110247 -4.9 -5.2 77.3 0.2 51.9 -1.5 5 6 12 British Airways 229 United Kingdom 103092 3.0 1.5 73.0 1.0 36.1 -5.0 6 7 9 Air France 245 France 101644 1.7 2.4 75.6 -0.5 43.7 1.9 7 8 11 Continental Airlines 356 United States 95259 -0.3 -2.2 75.5 1.4 39.9 -2.8 8 5 5 Japan Airlines - Japan 93847 -10.4 -5.7 64.3 -3.4 58.2 -4.8 9 9 8 Lufthansa Airlines 224 Germany 90708 2.4 3.5 73.1 -0.8 45.4 3.3

260 10 12 4 Southwest Airlines 399 United States 77342 5.6 3.7 66.9 0.8 65.7 4.1 11 10 13 Qantas Airways 116 Australia 77225 2.8 -11.4 77.6 -0.7 28.9 6.5 12 11 29 Singapore Airlines 86 Singapore 64685 -12.8 -10.4 73.3 -1.2 13.3 -13.4 13 13 21 Air Canada 195 Canada 60962 12.2 -8.4 73.8 -1.5 20.0 -14.5 14 14 10 US Airways 280 United States 60814 -5.7 -3.6 73.2 2.2 41.3 -12.5 15 15 23 KLM 100 Netherlands 57784 -2.7 -0.9 80.2 0.7 19.0 -2.3 16 16 7 All Nippon Airways 177 Japan 55807 -5.6 1.0 63.6 -3.2 48.1 -5.6 17 18 25 Thai Airways 83 Thailand 44396 -4.7 -6.0 69.6 -4.1 17.0 -6.9 18 17 43 Cathay Pacific 87 China 42774 -12.8 1.3 72.2 -5.6 10.1 -18.4 19 20 14 Iberia Airlines 149 Spain 42100 4.0 32.2 75.0 1.9 25.6 3.8 20 24 42 Emirates 63 United Arab Emitates 40110 26.7 0.7 73.4 -3.2 10.4 22.8 21 19 17 Korean Air 123 Korea, Rep of 39981 -4.2 2.6 68.1 -3.5 21.7 -1.9 22 21 26 Malaysia Airlines 103 Malaysia 37659 0.0 3.3 67.6 -1.8 15.4 -5.8 23 23 20 America West Airlines 142 United States 34283 7.1 -2.3 76.4 2.8 20.1 3.1 24 22 24 Air China 129 China 33477 -1.8 4.2 66.0 0.3 18.1 -0.5 25 25 16 Alitalia 151 Italy 31626 5.3 6.6 71.6 0.8 22.5 1.2 26 27 - Virgin Atlantic 29 United Kingdom 26931 -0.3 6.3 75.6 -5.0 3.9 1.3 27 29 38 Varig 95 Brazil 26546 1.7 -2.3 71.4 2.3 11.0 13.8 28 26 19 China Southern Airlines 112 China 26387 -8.8 -7.6 64.6 -0.8 20.5 -4.8 29 30 37 Swiss 81 Switzerland 25059 6.1 4.4 72.5 1.2 11.2 -9.0 30 28 - China Airlines 58 Taipei, Chinese 23734 -11.5 -4.2 69.5 -5.7 7.1 -13.1 31 35 27 Alaska Airlines 108 United States 23432 10.4 7.5 70.0 1.9 15.0 6.3 32 36 28 Saudi Arabian Airlines 90 Saudi Arabia 23372 12.3 22.7 62.3 -5.7 14.5 -2.4 33 37 35 ATA 68 United States 23118 15.9 20.0 68.0 -2.4 11.2 11.7 34 33 45 Air New Zealand 39 New Zealand 22691 5.6 2.7 74.4 2.1 9.6 5.7 35 34 - South African Airways 68 South Africa 22262 4.6 7.4 67.1 -1.8 6.6 3.0 36 31 22 SAS 129 Sweden 21901 -5.6 -2.2 65.7 -2.4 19.3 -11.9 37 32 - My Travel Airways 30 United Kingdom 21432 -2.1 -0.4 90.1 -1.6 7.9 6.6 38 39 - Britannia Airways 33 United Kingdom 18739 1.7 2.4 90.3 -0.6 8.0 -0.2 39 65 49 Jet Blue Airways 59 United States 18547 68.5 65.4 84.5 1.6 9.0 56.7 40 40 30 China Eastern Airlines 136 China 18269 0.3 7.8 60.6 -4.5 12.2 6.1 41 42 - Aeroflot 92 Russia 18203 3.2 1.7 69.4 1.0 5.8 6.4 42 38 - EVA Air 42 Taiwan 18113 -7.0 -0.6 72.5 -5.0 4.3 -10.1 43 41 50 Austrian Airlines - Austria 17965 -0.1 0.1 72.4 -0.2 8.5 -4.1 44 68 18 Easy Jet 84 United Kingdom 17735 92.6 95.2 84.4 -1.1 21.1 85.7 45 44 32 Asiana Airlines 61 South Korea 16798 -3.1 2.2 68.0 -3.7 11.8 -4.5 46 65 15 Ryanair 66 Ireland 16755 54.6 61.0 74.5 -3.1 23.1 47.0 47 47 - LTU International Airways 24 Germany 16700 3.7 4.4 83.4 -2.7 5.6 -1.8 48 43 - Condor Flugdienst 36 Germany 16261 -6.6 -6.4 84.4 -0.1 4.8 -14.3 49 45 41 THY Turkish Airlines 52 Turkey 16112 -2.9 -0.1 67.0 -1.9 10.5 1.1 50 46 - First Choice Airways 33 United Kingdom 15878 -2.6 -2.2 90.0 -0.3 6.3 -2.8 261 1 Includes aircraft for passenger, cargo, and combination 2 RPK = Revenue Passenger Km 3 ASK = Available Seat Km Source: ICAO.

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT Source: Ranking of airlines in terms of cargo traffic, 2002 traffic, ofcargo interms Ranking ofairlines Table 3 Appendix Ranking 2003 44 68 Easy Jet United Kingdom United Jet Easy 68 44 84 odrFudes Germany Condor Flugdienst 43 48 04 hn atr ilnsChina Airlines China Eastern 40 40 66 yni Ireland Ryanair 65 46 34 33 Air New Zealand New Zealand New Zealand New Air 33 34 02 hn ilnsTaipei, Chinese China Airlines 28 30 38 39 Britannia Airways United Kingdom United Airways Britannia 39 38 50 46 First Choice Airways United Kingdom United Airways Choice First 46 50 63 A Sweden SAS 31 36 39 65 Jet Blue Airways United Kingdom United Airways Blue Jet 65 39 22 aasaArie Malaysia United States America West Airlines Malaysia Airlines 23 21 23 22 94 H uks ilnsTurkey Turkish Airlines THY 45 49 34 utinArie Austria Airlines Austrian 41 43 93 ws Switzerland Swiss 30 29 42 38 EVA Air Taipei, Chinese Taipei, Air EVA 38 42 45 44 Asiana Airlines South Korea South Airlines Asiana 44 45 37 32 My Travel Airways United Kingdom United Travel My Airways 32 37 35 34 South African Airways South Africa South Airways African South 34 35 33 37 ATA United States United ATA 37 33 82 hn otenArie China Airlines China Southern 26 28 02 mrtsUnited Arab Emirates Emirates 24 20 32 36 Saudi Arabian Airlines Saudi Arabia Saudi Airlines Arabian Saudi 36 32 52 ltlaItaly Alitalia 25 25 26 27 Virgin Atlantic United Kingdom United Atlantic Virgin 27 26 72 ai Brazil Varig 29 27 74 T nentoa iwy Germany Airways International LTU 47 47 42 i hn China China Air 22 24 13 lsaArie United States Alaska Airlines 35 31 01 otws ilnsUnited States Southwest Airlines 12 10 81 ahyPcfcChina Pacific Cathay 17 18 61 l ipnArasJapan Airways Nippon All 16 16 21 19 Korean Air Korea, Rep of Rep Korea, Air Korean 19 21 14 14 US Airways United States United Airways US 14 14 92 braArie Spain Airlines Iberia 20 19 14 eoltRussia Aeroflot 42 41 51 L Netherlands KLM 15 15 31 i aaaCanada Singapore Canada Air Airlines Singapore 13 11 13 12 71 hiArasThailand Airways Thai 18 17 11 atsArasAustralia Qantas Airways 10 11 aa ilnsJapan Germany France United States Kingdom United Airlines Lufthansa Japan Airlines 9 Continental Airlines 5 France Air United States 8 Airways British 7 9 Airlines Northwest 6 8 Lines Air Delta 4 7 United Airlines 3 6 American Airlines 2 5 1 4 3 2 1 ICAO. Ranking 2002 iln Country Airline ntdSae 19-. 39100 70000 63000 -1.7 -6.1 -17.0 3189 2048 2758 United States United States United States 262 million change (%) change million 99-. 78900 -0.1 2909 061. 15352 13.2 7066 416051939 6.0 4461 85-. 6411 -0.1 2805 264223000 2206 4.2 09-. 34559 -1.0 7089 42-. 71654 -0.2 5432 292314673 2.3 5299 428512277 8.5 1442 61-. 14010 -2.1 6691 324634529 4392 4.6 07-01- -10.1 1057 352. 16435 27.5 1305 352. 7300 21.0 1305 700525531 0.5 1780 50-. 34872 -4.3 1530 251. 17569 16.9 1205 893. 15173 32.5 2819 79-. 21197 -0.9 4749 175518000 2187 5.5 931. 4469 4913 19.1 311137680 1.1 1341 081. 7519 13.9 1018 34-. 20653 -0.3 1374 6 . 26202 868 2.1 Cargo Traffic (RTK) Cargo 8 2610239 -2.6 382 0 0332487 10.3 206 6 . 7137 2.7 465 7 54- 879 15.4 2 . 10165 824 8.3 1 . 14714 9.1 614 7 832100 58.3 174 77210040 77 7.2 5-01- 85 -90.1 3-281522 -12.8 33 1-722034 -17.2 11 -3226-- 4704-- --100.0 3175 --2288 -9147-- -7918-- 9124-- --12755 ------31700--29198 Employees number Appendix Table 4 Forecast of world traffic by regional flow, 1985-2023

RPKs in billions 1985 1990 1995 2000 2001 2002 2003 2013 2023 2004-2023 %/year

Africa-Africa 13.5 14.7 14.8 19.4 19.9 21.2 22.5 42.6 63.4 5.3 Africa-Europe 43.0 47.7 57.2 99.4 96.2 97.2 99.1 182.4 269.3 5.1 Africa-Middle East 5.2 7.4 6.5 9.8 10.6 13.2 13.9 28.0 41.5 5.6 Africa-North America 1.2 1.3 2.6 4.4 4.6 4.3 4.4 11.6 17.2 7.1 Central America-Central America 12.8 14.3 18.3 24.0 23.0 23.4 24.8 53.4 95.3 7.0 Central America-Europe 17.9 27.6 44.2 66.4 73.0 69.7 72.5 117.3 177.1 4.6 Central America-North America 43.3 63.7 71.1 93.9 93.5 95.8 100.1 150.5 232.1 4.3 Central America-South America 3.3 3.5 4.3 7.3 7.2 7.1 7.1 15.2 25.6 6.6 China-China 8.4 18.3 56.6 73.6 84.6 97.2 95.3 236.9 452.1 8.1 China-Europe 9.6 16.9 26.6 40.1 40.2 42.6 34.5 94.5 143.1 7.4 China-North America 7.8 13.4 21.6 33.2 36.2 33.2 24.9 56.2 87.8 6.5 China-Northeast Asia 6.8 10.9 16.0 19.4 18.4 24.5 20.1 44.3 73.1 6.7 China-Oceania 3.0 5.8 9.2 12.1 12.4 13.2 10.6 20.4 29.4 5.2 China-Southeast Asia 8.1 14.5 23.0 29.3 31.7 36.9 27.7 58.3 90.3 6.1 CIS Region-CIS Region 175.8 224.2 63.4 41.7 46.7 51.9 57.3 89.1 137.4 4.5 CIS Region-International 15.9 24.1 33.9 43.3 43.5 42.7 45.7 99.8 156.6 6.4 263 Europe-Europe 170.1 258.3 306.8 440.1 449.3 453.8 474.7 733.6 1061.6 4.1 Europe-Middle East 43.4 41.5 44.9 65.0 59.8 58.6 58.9 116.9 171.9 5.5 Europe-North America 158.6 230.7 278.9 420.0 377.5 349.2 347.5 619.1 903.0 4.9 Europe-Northeast Asia 17.0 29.3 46.6 63.6 55.8 53.3 48.3 114.2 175.3 6.7 Europe-South America 12.3 22.3 32.9 53.2 52.1 49.2 49.5 106.3 170.6 6.4 Europe-Southeast Asia 26.6 46.4 65.9 95.8 95.9 96.4 95.0 170.9 253.2 5.0 Europe-Southwest Asia 11.9 17.5 20.7 26.2 27.5 27.6 29.5 57.7 94.9 6.0 Middle East-Middle East 17.7 19.5 20.7 27.8 27.1 27.5 29.3 49.3 73.0 4.7 Middle East-North America 5.0 6.6 10.3 16.1 12.0 10.4 9.6 25.8 39.1 7.3 Middle East-Southeast Asia 15.1 11.0 20.6 24.0 22.9 24.0 26.4 47.5 70.8 5.1 Middle East-Southwest Asia 14.5 16.6 23.2 29.4 29.9 31.1 33.8 60.1 97.3 5.4 North America-North America 470.6 589.1 670.5 866.9 808.0 791.0 798.9 1214.4 1797.0 4.1 North America-Northeast Asia 46.9 95.2 121.5 140.2 127.5 121.2 105.4 233.0 364.5 6.4 North America-Oceania 11.0 19.0 24.1 30.0 27.6 26.5 25.9 39.8 59.8 4.3 North America-South America 14.5 19.6 35.9 47.2 44.8 42.7 37.6 89.2 147.5 7.1 North America-Southeast Asia 8.0 15.3 25.9 32.1 29.3 30.5 26.8 55.3 84.9 5.9

III THEMATIC ESSAYS B INTERNATIONAL TRADE IN AIR TRANSPORT WORLD TRADE REPORT 2005 III THEMATIC ESSAYS WORLD TRADE REPORT 2005 B INTERNATIONAL TRADE IN AIR TRANSPORT

Appendix Table 4 Forecast of world traffic by regional flow, 1985-2023 (cont’d)

RPKs in billions 1985 1990 1995 2000 2001 2002 2003 2013 2023 2004-2023 %/year

Northeast Asia-Northeast Asia 32.3 50.0 67.4 79.0 80.2 85.0 86.1 152.6 244.7 5.4 Northeast Asia-Oceania 6.1 12.9 31.8 24.1 22.5 24.5 22.8 42.1 62.9 5.2 Northeast Asia-Southeast Asia 16.0 32.5 44.3 48.5 47.8 54.4 45.7 94.0 150.3 6.1 Oceania-Oceania 18.6 26.2 42.7 49.2 50.7 50.2 55.5 68.5 93.1 2.6 Oceania-Southeast Asia 12.2 24.3 33.1 46.2 47.6 46.6 42.0 74.2 109.1 4.9 South America-South America 29.5 33.8 39.7 53.5 50.8 52.7 47.9 125.2 223.0 8.0 Southeast Asia-Southeast Asia 17.7 29.9 53.8 53.7 57.0 60.6 59.4 115.5 189.3 6.0 Southeast Asia-Southwest Asia 5.7 5.8 8.1 10.9 11.6 12.6 12.5 24.6 42.1 6.2 Southwest Asia-Southwest Asia 10.5 11.6 15.2 16.0 16.6 17.4 17.7 45.2 87.8 8.3

Rest of the World 6.0 8.2 12.4 18.4 20.1 21.1 21.8 44.7 67.9 5.9 World total 1573.2 2181.5 2567.2 3394.4 3293.8 3292.1 3268.9 5820.3 8925.6 5.2

264 Source: Boeing.