"European Liberalization of the Airlines: Can the Competition Commission Maintain its Credibility?"

The European Union (EU) was established to promote a single market among member-states. Political considerations delayed the implementation of such a market in air transportation. The passage of the Single European Act in 1986 and the drive to complete the Single Market by January 1, 1993 increased the pressure on governments to accept liberalization. Moreover, deregulation in the United States, the globalization of markets and the rapid diffusion of modern technology made the EU realize that it not only had to liberalize air transportation, but also create a comprehensive transportation policy covering all sectors: otherwise, the continued competitiveness of European companies in the global marketplace could be compromised. This paper will discuss the various trade distortions created by regulation of air transport, and the liberalization measures introduced by the Commission to mitigate these distortions, and provide insight into whether a free market in European aviation is possible. Parts one and two include an analysis of the liberalization packages and the distortions they were intended to mitigate. Parts three through five discuss the remaining trade distortions, such as competition policy, the substantial infrastructure inadequacies in airport and traffic control that limit challenges from small and new airlines, and the effects of the inexorable trend toward globalization. Although the Commission has made great strides in reforming an industry riddled with price and capacity cartels, where revenue pooling was an accepted means of operation, it must continue these strides by imposing and enforcing tougher restrictions on state aid, changing its slot allocation policy, and vigorously enforce European Union competition rules. If the Commission does neither, or delays in implementing these actions, it not only risks hindering the liberalization underway, but also risks losing its political will and credibility in the process. The recommendations listed in my paper, combined with a renewed commitment by all member-states to work towards increased liberalization of air transport, should resolve the continuing market distortions and create an air transport industry that will further the economic vitality of the EU