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Modeling bilateral air services agreement for the purpose of measuring the economic effects of air transport liberalization : a case study of Canada and China Song, Wei

Abstract

International air services are mostly regulated by bilateral Air Services Agreements (ASAs) signed by each pair of countries. Most of the bilateral ASAs are still operated within the framework of the Chicago Convention, and considered to be restrictive and inefficient to serve international air markets. Over the last two decades, the United States, European Union, and some other countries have pioneered liberalization of bilateral ASAs and received remarkable positive results. Although Canadian government released a “Blue Sky” policy in 2006 to pursue negotiation of Open Skies-type agreements, many of the major air markets, such as the Canada—China market, are still regulated by restricted ASAs. Whether or not to liberalize bilateral ASAs and what are the impacts of liberalization has become an interest to airlines, investors, consumers and regulators. However, the existing studies are insufficient for understanding the magnitudes of potential impacts of such liberalization, and, hence, to provide direct insights to policy makers. Therefore, there is a need for a new study for simulating potential economic effects of ASA liberalization. The primary objective of this thesis is to develop a computable model to estimate potential economic effects of bilateral ASA liberalization between Canada and China. In particular, this study aims to estimate how the market shares of the flag carriers would change and how the gains and losses would be changed among passengers and carriers in either country. To address these objectives, we compare the simulation results between the base case (2006 data without liberalization) and the case of liberalizing Canada-China ASA to a varying degree in order to estimate the impacts of the liberalization. The major findings are: (a) airfare would decrease with air liberalization, which would stimulate more passengers, and induce airlines to increase flight frequency. ; (b) in most of the cases, passengers carried by incumbent carriers would increase even if new airlines enter the routes; (c) although carriers’ profit would decrease, the aggregate economic welfare would increase because consumer benefits would increase dramatically; and (d) while any level of air liberalization would be positive, Open Skies would have the greatest impacts on both countries.

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Attribution-NonCommercial-NoDerivatives 4.0 International

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