Deregulation in airline transportation suggests that restrictive regulations that organize airline transportation are either alleviated or totally annulled and that state’s interference in airline transportation activities are reduced. The issues, such as market entry and market exit, pricing, capacity offer, and mergers and acquisitions between operators are decisions that impact carriers’ strategies, competitive tools and outcomes and they have been subject to strict regulations for many years. It has traditionally been an individual country’s aviation authority that decides which airline is to operate between two cities, at what frequency and capacity, on which days and at what time, with what fares and under what conditions to resign from these markets. Thus, the aim was to keep competition under control, form a ‘regulated competition’, protect the industry and create public benefit. However, then came the 1960’s and 1970’s when this regulatory system became a target for criticism. Mainly in the USA, but also in many other countries, academic economists undertook studies on this issue and postulated that highly restricted airline transportation brings negative outcomes, contrary to expectations. On top of this came public pressure and following the 1980’s, airline transportation entered a new phase with an emerging tendency to deregulation that first started in the USA.
The USA was the first country to deregulate their airline market with the ‘Airline Deregulation Act’ that was signed into law in 1978, followed by the EU that undertook this gradually after 1987. Today, some countries are still undertaking this process, whereas the USA and the EU countries that had deregulated their airline markets earlier, have since reached more advanced levels in terms of deregulation. Although the EU is a common market that encompasses various national states, it has today been formed into a single deregulated domestic airline market. Business Process
The main objective of airline deregulation is to achieve the conversion of markets into more competitive ones. The Airline Deregulation Act aimed mainly to ensure that the industry had a more competitive structure. Similarly, as the European Commission thought of competition violations in the industry as being contrary to the Treaty of Rome, the EU started with deregulation activities. Thanks to competition, efficient, effective and well-managed carriers will be encouraged and those carriers that cannot achieve this will retreat from the market themselves without the need for state intervention. At the same time, the expectation is that along with the increasing number of airlines and competition, efficiency, creativity and innovation, as well as more fare and service options will be introduced to the market. On the one hand, the quality of service is improved, but on the other hand, the aim is to ensure that passengers benefit from this service with lower fares. In order to draw out these benefits and establish competition, entry market is deregulated and new airlines are encouraged to enter this market, similar to existing ones that are also urged to enhance their network structures.
However, it is no longer easy for airlines to operate in this competitive market. Since deregulation, airlines have started working in a more dynamic and constantly changing environment. Competitive markets make airlines face the concept of ‘competitive ability’. Airlines’ ability to continue their operations and be successful depend solely on their being competitive. The requirement to be competitive eventually helps airlines develop competitive strategies in these markets.