Liberalising competition in domestic airline markets in Asia--The problematic interface between domestic and international regulatory policies

This paper examines how governments in Asia are changing the way they regulate their domestic airline industries in response to rapid growth in demand. Typically, the national carrier has been responsible for fostering air travel, often in situations where surface transport systems are poorly developed. Air transport has been an integral part of national development policies and the national carrier has been given a degree of protection to allow it to subsidise services the government deems to be necessary. As governments allow new private sector airlines to introduce much needed capacity into the system, the regulatory system is placed under severe strain. Many of the Asian countries that have implemented a more liberal approach to airline competition have been forced to allow the new private sector airlines to operate international services, at least on a regional basis. In many cases the belief has been that higher yields in international markets will help to cross-subsidise domestic services. However, increasing integration of domestic and international airline markets has posed difficulties for regulators in more developed markets and it is unlikely that this approach is sustainable. At the same time, the pressure for multiple designation and the growth of regional, cross-border airline services is complementing pressure at the multilateral level to liberalise international aviation regulations within the Asia-Pacific region.