Puppets in chaos: airlines, regulators and strings

An examination of the relationships between competition and the deregulation and liberalisation of the US and European air transport sectors reveals that the structure of the air transport sector is undergoing a number of significant changes: a growing number of airlines are entering into horizontal and vertical cooperative arrangements and integration including franchising, codeshare agreements, alliances, ‘virtual mergers’ and in some cases, mergers with other airlines, groups of airlines or other complementary lines of business such as airports.

The European and US regulatory approaches to these changes differ greatly. European competition policy has a very proactive, prescriptive nature, holding airlines accountable through self-regulation, whereas US antitrust is far more reactive, as breaches are dealt with upon petition. Experiences learnt from deregulating the US domestic air transport market may have influenced steps taken to liberalise the European sector, but the tables are now turned.

This thesis examines intricacies of the cooperative strategies in the context of the cooperative spirit of the air transport sector and how the practices elicit competition and antitrust laws to explain how airlines have remained economically efficient in what is perceived as a complex and confused regulatory environment.

This study expands existing theory to propose in synthesis that, in spite of complex competitive markets, airlines are able to utilise laws on liberalisation and deregulation to achieve a commercial advantage through integrated business strategies. Although it is not perceived by airlines as such, liberalisation and deregulation engender autonomy. Therefore, the regulatory environment in effect encourages the industry to consolidate and promote changes to its structure so as to compete at a level similar to that of other industries. The actions taken towards cooperative behaviour in the industry are in fact a result of competitive forces and the reactive policy approaches that are by-products of deregulation and liberalisation. The phenomenal success of strategic alliances further demonstrates that the relationship between global alliances and the regulatory

environment is symbiotic, which is supported by industry–regulator discourse, and/or public and private ordering.