Paul Hooper

Measuring total factor productivity of airports-- an index number approach

There is an increasing trend towards corporatisation and privatisation of airports in an effort to improve performance. However, the normal financial reporting requirements associated with these forms of organisation are not sufficient indicators of the performance of airports since profitability can be more a function of the exercise of market power than a sign of productive efficiency. Also, there are concerns that efforts to regulate the prices charged by airports can result in under-investment and declining service standards. This makes it important to monitor the cost-efficiency, cost-effectiveness and service-effectiveness of airports. There is a growing literature on these topics, but so far there has been little attempt to apply the concepts of total factor productivity to the airport sector. We use a non-parametric index number method to illustrate how such a global measure can be used to investigate the role of disaggregated performance measures that often are very useful to managers and to those monitoring airport operations.

AIRLINE COMPETITION AND DEREGULATION IN DEVELOPED AND DEVELOPING COUNTRY CONTEXTS -- AUSTRALIA AND INDIA

Abstract Since the USA deregulated its airlines in 1978, reform of airline regulation has gathered pace and now is taking hold in developing countries, especially in Asia where there is rapid growth in demand. However, governments have lacked the opportunity for thorough studies prior to action and they have been forced into reactive roles. This paper considers whether policy makers in developing countries can draw on the documented experiences of the developed countries. Some specific circumstances that need to be taken into account are the size of markets in developing countries, airline networks dominated by a small number of dense routes, and the concern of government to subsidise air services in situations where surface transport links are poor. To shed light on these matters, the circumstances and experiences of Australia and India are compared. There are parallels between the two in terms of the size and distribution of markets, about the organisation of the airline industry and in the timing of reforms. Conclusions are drawn about the relevance of the experiences with airline deregulation in a developed economy for policy makers in a developing country.

OPEN SKIES OR OPEN CLUBS? NEW ISSUES FOR ASIA PACIFIC ECONOMIC COOPERATION

Air transport continues to lie outside the rules of the world trading system. Yet pressures for changes in the management of trade in air transport services are emerging within the bilateral system of regulation, particularly through United States efforts to negotiate so-called “Open Skies†arrangements, but also through new regional arrangements. A new method is outlined of exploiting the trends in regional cooperation and the pressures induced by the United States strategy to facilitate the liberalisation of air transport markets. This method applies the principles of what have been called “open clubs†. The principles include transparency and openness to new members as well as the absence of an intention to discriminate against outsiders. These principles are consistent with APECs strategy of open regionalism. The paper suggests that APEC is a suitable process within which to develop the application of the open club idea and it outlines the manner in which its principles might be applied to air transport.

Liberalisation of the airline industry in India

In the post-World War II period, India nationalised its airline industry but it began to relax these controls in 1986. It has found no shortage of new entrants willing to add capacity into a system where supply-side constraints are regarded as the main impediments to a boom in airline travel. However, many of these new ventures have failed within a few years and the remaining carriers, including Indian Airlines, have had to increase fares in an attempt to improve their financial performance. This paper documents the changes in the regulatory system and analyses the strategies adopted by the airlines. It is concluded that inappropriate policies are constraining development of the industry, particularly the requirement imposed by the Government for the airlines to allocate their capacity on a mix of profitable and unprofitable routes.

Compass airlines: 1 December 1990 to 20 December 1991 what went wrong?—part 1

Economic deregulation of the Australian domestic aviation market came into force on 1 November 1990. One airline, Compass Airlines Pty Ltd, was prepared for entry well before this. Almost exactly one year on, with no other new entrants, Compass ceased operations. The debate on this event aroused intense public interest and there has been concern by some that this spelt the end of economic deregulation, with a return to higher fares. This paper presents and analyses the evidence and arguments about the collapse of Compass, focusing attention on the workability of deregulation and on the lessons to be learned by new entrants.

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.

DEVELOPMENTS IN AUSTRALIA'S AVIATION POLICIES AND CURRENT CONCERNS

Australia entered the 1980s with separate policies for its international and domestic airline industries and both restricted the scope for competition. Since then, the Australian Government privatised its airlines, it deregulated its domestic industry, it agreed to a single aviation market with New Zealand, it relaxed its attitude to foreign investment in Australian airlines, and it has embraced a relatively liberal position in relation to international markets. Aviation policy is assessed according to whether it delivers net benefits to the Australian community. This paper explains the background to the main changes in policy and raises issues that need to be addressed as the forces of competition in dynamic markets continue to put current policies under further pressure.

THE CHALLENGE OF LIBERALISING DOMESTIC AIRLINE COMPETITION IN A LESS DEVELOPED COUNTRY.

A new wave of liberalisation of domestic airline competition is taking place in less developed nations, although the initial motivation in most cases is to supplement the capacity of the governments own airline. Liberalisation tends to begin with free market entry and a strong interest in privatisation while other regulatory controls are maintained. This position is untenable and policy makers in the less developed countries are having to learn quickly without the benefit of the detailed analyses that preceded liberalisation in the developed countries. This paper explores these problems and focuses on the lessons that policy makers in the less developed countries can draw from experiences elsewhere.