Airline industries throughout the world have been shaped by various government interventions. Traditionally, airline industries were one of the most highly regulated industries. The last twenty years has seen major changes occur within the industry through the introduction of deregulation, the removal of government regulations from most airline practices. The majority of industrialized countries have passed legislation outlining the involvement or lack of government intervention. This paper focuses on the local Australian industry, the United States and European markets and to a lesser extent, the Asian airline industry.

The regulations on the industry, as imposed by external government agents, sparked significant economic debate. Questions such as ‘is there enough competition among airlines to ensure passengers do not pay excessive fares?’ and ‘can an unregulated airline industry be profitable?’ and ‘is air travel safe?’ had been at the forefront of any debate over the airline industry leading up to deregulation.

In satisfying economic ideals as well as social ideals, the extent to which governments have and will continue to intervene is derived. Since the inceptions of deregulation in the airline industry, government agents and economists have debated the true effects that deregulation has had on the airline industry. It has been a very difficult task for all concerned to try to capture and further quantify the impact that deregulation has had. This task is made difficult as a result of the extensive, and sometimes contradictory, amount of critical economic variables that amount to form the substance that binds the industry together. Factors such as the state of the economy, technological progress, seasonal effects, government intervention through regulatory regimes etc. all play a part in the general foundation of the airline industries economic environments.

General background of Australian airline industry

In Australia, regulation of the airline industry commenced in 1952 with the Civil Aviation Agreement. The general purpose of the regulations in place at the time was to enhance the growth of an infant industry using a contractual and legislative framework that would go a long way to ensuring the long-term viability of the industry. At that time, the industry was based on two domestic airline operations, one privately owned and the other fully owned by the Government. The Airlines Equipment Act (1958) was passed and helped to further guide the extent and forms of government regulation up until the early 1980’s. this act objectively sought to ensure that airline capacity was closely matched to market demand as well as ensuring that the private sector airline was not subjected to anti-competitive practices by the Government airline. Other notable regulatory restraints within these acts included controls over the determination of domestic passenger airfares; the entry by operators to major routes; and the types of aircrafts allowed to be imported. The airline industry slowly developed into a strong commercially viable industry. Debate however remained as to the relevance of the Governments regulatory regime. In the early 1980’s, a decision was made by the Government to withdraw from detailed economic regulation of the domestic airline industry. This decision was based on the findings of an independent review of ‘Economic Regulation of Domestic Aviation’.

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Deregulation of the airline industry was on of the Australian Governments most significant actions under its competition policy implementation and microeconomic reform. Deregulation involved removing restraints and withdrawing from such key regulated areas as the setting of fares, capacity control, aircraft imports and route entry. The general basis of deregulation was an objective effort to expose the airline industry to market forces in an attempt to achieve continued growth in an economically efficient and socially desirable manner. Deregulation was also intended to by the Government to create an economic environment that would see airlines evolve to changing social trends and ...

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