Airline Deregulation Also Succeeds In The Third World

Airline deregulation in the U.S., which was rolled out during the Carter administration, has allowed many more people to travel. More carriers entered the market and average fares were cut in half. Even today, as the market has consolidated, airfares stay well below their pre-deregulation peak. This is part of a global deregulation trend that includes the Third World, causing the same effect of more frequent and lower-priced flights. Traveling the Global South recently as part of a 1.5-year trip, I’ve seen the results firsthand, as country after country sheds its reputation for dodgy airlines. Part of this deregulatory paradigm is owing to the drastic expansion of international air travel rights, including between the U.S. and European Union. This liberalization of basic human freedoms has led, writes the International Air Transport Association, to “increased air service levels and lower fares, which in turn stimulates additional traffic volumes”. But some Global South nations began liberalizing even earlier, moving away from tightly-regulated, protectionist policies to some of the world’s most competitive air travel markets. 

Latin America

Commercial air travel in Latin America is expanding. The sector will grow by just over 3% in the next five years, attracting substantial private investment. Brazil privatized several dozen airports, a move that by December 2021 had garnered $6 billion. In the U.S., by contrast, most airports are publicly owned and operated.For decades, air travel in Latin America was dominated by state-owned or subsidized carriers, and prices were controlled by government authorities. But eventually, countries ceased control of their own airlines and reduced air travel regulations, though some have deregulated more than others. Economic conditions in Latin America prevented the same scale of subsidy to the air travel market that America has applied during downturns such as 9/11.Nonetheless, a number of airlines have emerged, with carriers like GOL and Wingo offering flights throughout Latin America. Multilateral treaties enabled expansion of markets that could be served. Mexico hosts two large discount airlines, Viva Aerobus (partly owned by the same family that runs Europe’s Ryanair) and Volaris, which are the two largest airlines in the country next to legacy carrier Aeromexico. Other Latin American countries have their own respective small airlines, most of which offer short, frequent flights for under $100. But there are luxury carriers too. LATAM, a Chilean carrier, began as a state enterprise but was privatized in 1989 along with the nation’s other utilities. It has among the most spacious and attractive cabins I’ve seen – similar to Delta, with whom the company partners. 

Southeast Asia

Budget airlines have also expanded in Southeast Asia, where air travel has grown more than nearly anywhere else. Low-cost carrier market share surged from 14% in the 2010s to 50% present-day. Air travel is a necessity for much longer-haul travel in this part of the world, where there are less developed road and rail networks.  Malaysian budget carrier AirAsia, a struggling carrier on the verge of collapse when entrepreneur Tony Fernandes purchased it at the turn of the century, is now the continent’s fifth largest carrier. 23 discount carriers exist throughout Southeast Asia, according to The ASEAN Post, and opportunities will grow as countries move towards an “open skies” agreement, allowing foreign-flagged carriers to operate by-right on more routes to and from given countries. Like Latin America, Southeast Asian countries deregulated the airline industry. Beginning in the 1990s, independent carriers were authorized to compete with state-owned airlines in large markets. Rapid growth resulted: by 2013, the eleven Southeast Asian countries totaled nearly 39,000 flights weekly, while seat capacity tripled from the late 1980s.

Middle East

The Middle East retains state-owned and subsidized carriers. The UAE has four, including Etihad and Emirates; Qatar has its eponymous flag carrier. However it should be noted that these Arabian Gulf governments, in particular, function somewhat like private companies, with sheikhs viewing themselves as CEOs. Many of these carriers are majestical in their size and glamour, offering luxurious first-class accommodations and competing for high-paying traffic. Etihad is primarily funded from a sovereign wealth fund rather than general tax revenue. Some of these carriers are among the industry’s most profitable: Emirates brought in $2.9 billion in 2022, while Qatar Airways generated over $1.5 billion. It’s worth noting that these carriers have benefited from deregulation elsewhere – Emirates has a hub in Milan, where it can legally serve routes that don’t originate or end in the UAE. The UAE, similarly, has reduced regulations on flights from carriers based overseas to and from the country. Along with Kuwait, the UAE allows private discount carriers to compete on busy routes, mirroring the Southeast Asian approach.

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Whether it’s the U.S., Europe or the Global South, deregulation seems to result in more competition and lower prices. Africa remains behind in privatization and expansion, although African Union countries have reached their own open skies agreements and cut tariffs. Continued liberalization will only expand options to and within these countries.

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