Working Paper Series 2008-03 Mozambican Air Transport Liberalisation Report a discussion document Myriam Velia, Cornel van Bastern and Arthur Dykes July 2008 indigenous growth indigenous growth January 2008 P.O. Box 11214 Tel: +27 12 431 7909 Hatfield Fax: +27 12 431 7910 0028 Mozambican air transport liberalisation report A discussion document Authors: Myriam Velia TIPS Cornel van Basten TIPS Arthur Dykes Indpendent consultant Date: July 2008 MOZAMBICAN AIR TRANSPORT LIBERALISATION REPORT Contents Acronyms......................................................................................................................................................................................................................... 4 Executive summary ........................................................................................................................................................................................................ 5 1. Introduction................................................................................................................................................................................................................ 11 2. What does air transport liberalisation entail? ......................................................................................................................................................... 15 2.1 Air transport services and the GATS ..................................................................................................................................... 16 2.2 Barriers to entry into the air transport sector ......................................................................................................................... 18 2.3 Assessing liberalisation progress and restrictions: methodologies........................................................................................ 19 3. The case for air transport liberalisation................................................................................................................................................................... 21 3.1 Liberalisation and economic growth ...................................................................................................................................... 21 3.2 Tourism and air transport....................................................................................................................................................... 25 3.3 Developed countries evidence: the USA and the EU ............................................................................................................ 26 3.3.1 The case of the USA: deregulation interventions .......................................................................................................................... 27 3.3.2 The case of the EU.......................................................................................................................................................................... 27 3.3.3 Impacts of introducing competition in the USA and the EU.......................................................................................................... 28 3.4 Developing country evidence................................................................................................................................................. 32 3.4.1 The Latin American experience...................................................................................................................................................... 32 3.4.2 The Southeast Asian experience.................................................................................................................................................... 37 3.4.3 Other developing regions and countries’ experience.................................................................................................................... 37 3.5 Summary ............................................................................................................................................................................... 38 4. Specific arguments against air traffic liberalisation................................................................................................................................................ 39 4.1 National airlines: prestige, capacity and political will ............................................................................................................. 39 4.2 General problems associated with air transport liberalisation ............................................................................................... 41 4.2.1 Deterioration of customer service, congestion and poor labour practices........................................................................................ 41 4.2.2 Concentration........................................................................................................................................................................................ 42 4.2.3 Destructive competition........................................................................................................................................................................ 42 4.2.4 Loss of service ...................................................................................................................................................................................... 43 4.3 Low cost versus other carriers............................................................................................................................................... 43 4.3.1 Safety..................................................................................................................................................................................................... 43 4.3.2 Environment.......................................................................................................................................................................................... 43 5. General options available for air transport liberalisation......................................................................................................................................... 45 5.1 Protection of the national airline as a monopoly .................................................................................................................... 45 5.2 Gradual liberalisation ............................................................................................................................................................. 47 5.2.1 Consideration one: the market structure............................................................................................................................................. 48 5.2.2 Consideration two: the regulatory framework ..................................................................................................................................... 49 5.2.3 Consideration three: the process of phasing in liberalisation............................................................................................................. 50 5.2.4 The ultimate stage: full liberalisation and deregulation....................................................................................................................... 51 6. The case for Yamoussoukro.................................................................................................................................................................................... 52 6.1 Air transport and tourism in Africa ......................................................................................................................................... 52 6.2 Background to the Yamoussoukro Decision.......................................................................................................................... 55 6.3 Current status of the implementation of the Yamoussoukro Decision ................................................................................... 58 6.4 The case of air transport in Mozambique .............................................................................................................................. 59 6.4.1 The case of LAM................................................................................................................................................................................... 59 2 MOZAMBICAN AIR TRANSPORT LIBERALISATION REPORT 6.4.2 The regulatory framework for air transport in Mozambique............................................................................................................... 62 6.5 The way forward .................................................................................................................................................................... 64 7. Conclusions and recommendations....................................................................................................................................................................... 68 7.1 Macro-benefits outweigh national carrier considerations....................................................................................................... 68 7.1.1 Conclusion............................................................................................................................................................................................. 68 7.1.2 Recommendation ................................................................................................................................................................................