The Asia-Pacific airline industry : economic boom and political conflict

Abstract

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High rates of economic growth in Asia are spurring the rapid expansion of commercial aviation industries serving Asia and the Pacific. The number of passengers carried across the Pacific increased at an annual rate of 8.6 percent during 1982-92, compared with 5.4 percent on all other routes. And with 16 of the world’s 25 busiest air routes, Asia’s major airports are already near capacity. The region will soon account for the world’s largest increase in aircraft purchasing, maintenance, and repair, generating tremendous revenues for firms that service the industry.Although many Asia-Pacific nations are benefiting form the boom in air traffic, the continued expansion threatens the framework of bilateral agreements that have governed Asia-Pacific aviation since the end of World War II. Growth in the number of passengers, airlines, and routes has stimulated competition and intensified aviation disputes, thereby increasing tensions in the international relations of the region. Potentially, such tensions could fuel increased protectionism.The United States has been actively campaigning for countries in Asia to adopt an "Open Skies" regime that would allow free international trade in airline services. Although liberalization would have positive effects, such as lower fares and more efficient airline management, some Asian governments worry that it could also lead to predatory pricing, a retreat from low-demand routes, and a tendency toward oligopoly. And many Asian airlines, which owe their profitability in part to restrictive bilateral treaties, are partially government-owned; therefore, governments may be reluctant to adopt new competitive arrangements that eliminate or reduce these profits.Although free trade is usually superior to protected trade, it also generates losers – countries whose national airlines would shrink or even disappear in a liberalized regime. Unless losing countries receive some compensation, they are unlikely to support a free-trade regime. The Asia-Pacific Economic Cooperation (APEC) Working Group on Transportation could provide a forum for the formulation and discussion of new policies for international cooperation in aviation throughout the Asia-Pacific region.