LIBERALIZING 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 f ostering air travel, often in situations where surface transport syste ms are poorly developed. Air transport has been an integral part of na tional 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 airline s to introduce much needed capacity into the system, the regulatory sy stem is placed under severe strain. Many of the Asian countries that h ave implemented a more liberal approach to airline competition have be en forced to allow the new private sector airlines to operate internat ional services, at least on a regional basis. In many cases the belief has been that higher yields in international markets will help to cro ss-subsidise domestic services. However, increasing integration of dom estic and international airline markets has posed difficulties for reg ulators in more developed markets and it is unlikely that this approac h is sustainable. At the same time, the pressure for multiple designat ion and the growth of regional, cross-border airline services is compl ementing pressure at the multilateral level to liberalise internationa l aviation regulations within the Asia-Pacific region. (C) 1997 Elsevi er Science Ltd.