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The Inevitability of an Unlevel Playing Field in Civil Aviation (In the US and Elsewhere)

We examine the competitive landscape for commercial aviation in North America and the effects of ‘Open Skies’ agreements (OSAs) signed between the USA and various countries or regions on these markets. We argue that strategic competition brought about by OSAs inevitably creates incentives to subsidize or protect domestic airlines. In the context of the United States and its ‘open skies’ policy, we describe examples of financial aid and protection for US airlines that persist despite the liberalization implied in OSAs. Part of the reason we should expect is that some government agencies are likely to focus on producer surplus in the domestic airline industry rather than broader measures of economic welfare. Such a focus is encouraged by the lobbying efforts of domestic airlines.