Modeling the Effects of Air Transport Liberalization on the Airline Industry

The thesis develops theoretical models to examine the effects of air transport liberalization on the airline industry. The models make use of Nash non cooperative, Stackelberg and Cournot game models to illustrate how the airline industry is impacted when liberalization in the form of granting air traffic rights and antitrust immunity to airlines is implemented. Beginning with the discussion of regulation in the airline industry, the thesis goes on to study the spread of air transport liberalization in several parts of the world. The effects of liberalization are analyzed in context of air fares, route operation structure, and strategic behavior of airlines. The study shows that while it is not clear that liberalization would lead to a decrease in fares in all routes, it does lead to airlines forming a hub and spoke operation structure, and engenders incentives among airlines to collude to achieve lower operating costs and higher profits.