The International Rate and Route Revolution in North Atlantic Passenger Transportation

59 Pages Posted: 28 Feb 2013

Date Written: 1978

Abstract

In an effort to increase the profitability of their national airlines foreign governments have traditionally restricted route and rate competition in passenger air transportation. Such restrictions have manifested themselves in the historic willingness of nations to limit designation of more than a single foreign-flag competitor on international routes. And such restrictions have been incorporated into a number of bilateral air transport agreements. The United States and other governments have also traditionally inhibited rate competition between scheduled carriers in international markets by permitting them to establish their own rates, under the auspices of the International Air Transport Association (lATA), at levels significantly above those that would be charged in a truly competitive environment. The public has, therefore, been deprived of the price/quality options that would be available in an unregulated, "free-market" economy. In the United States, the Civil Aeronautics Board (CAB) has jurisdiction over air transport routes and rates. To promote competition in international markets, the CAB has recently injected some extraordinary "free-market" economic principles into the framework of transport regulation-extraordinary in the sense that the concept of laissez faire has been, until recently, totally foreign to the economics of air transportation. Indeed, the past two years have witnessed a radical reevaluation of the legal and economic regulatory philosophies governing international air transportation. To the extent permitted under relevant bilateral agreements, the CAB has attempted to favor low-fare proposals, to discourage the limitation of capacity, to certificate a greater number of carriers, to liberalize its charter rules, and to assault the rate machinery of the lATA cartel.

This Article will examine and evaluate such contemporary regulatory action involving a single international market-that of scheduled transatlantic passenger transportation between various points in the United States and the United Kingdom. The US-U K market is particularly significant because the gateways of New York and London have traditionally dominated transatlantic passenger service. This market is now providing the stage for revolutionary international low-fare proposals and for the inauguration of competition for transatlantic air services between interior U.S. points and Europe. Moreover, the bilateral air transport agreement recently consummated by the United States and the United Kingdom has profound implications for the transatlantic passenger market in general. Since some of its provisions work at cross-purposes with the desirable aim of promoting low-fare service, this agreement deserves close scrutiny, lest it become the model for future bilateral air transport negotiations and agreements, as was its predecessor for over thirty years.

The revolution in economic and political philosophies governing transatlantic operations will be explored from several perspectives: first, CAB encouragement of price competition, as exemplified by its support of the Laker "Skytrain" service and its response to the ensuing lATA reaction; second, CAB coordination of apparently conflicting policies in pursuit of the overall goal of increased route competition, as the Board endeavored to support the declining international position of the traditionally dominant U.S. flag carriers and, at the same time, open the transatlantic market to domestic carriers through new regional gateways; third, the influence of the Executive on the development of the changing route and rate policies; and fourth, the effectiveness of regulatory sanctions in the enforcement of bilateral air transport agreements within the confines of which those policies evolve.

Keywords: Aviation Industry, Air Transportation, Airlines, Route Competition, Rate Competition, Bilateral Air Transport Agreement, Scheduled Carrier,Flag Carrier, IATA, IATA Conference, Transatlantic Passenger Service, Skytrain, Bermuda

Suggested Citation

Dempsey, Paul Stephen, The International Rate and Route Revolution in North Atlantic Passenger Transportation (1978). Columbia Journal of Transnational Law, Vol. 17, No. 3, 1978, Available at SSRN: https://ssrn.com/abstract=2225977

Paul Stephen Dempsey (Contact Author)

McGill University - Faculty of Law ( email )

3690 Peel Street
Montreal, Quebec H3AIW9
Canada

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