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Competitive Airlines
No. 1/2002
Towards a more vigorous competition policy in
relation to the air travel market
Report from the Nordic competition authorities
Competitive Airlines
Towards a more vigorous competition policy
in relation to the air travel market
Report from the Nordic competition authorities
2
Contents
PREFACE..........................................................................................................................................4
EXECUTIVE SUMMARY..............................................................................................................5

Aviation is a network industry................................................................................................ 5
Merger and alliance control..................................................................................................... 6
Slot allocation procedures........................................................................................................ 7
Predatory behaviour................................................................................................................. 7
Frequent flyer programmes...................................................................................................... 8
Tariff consultations................................................................................................................... 9
State aid, public procurement, taxation, and subsidies............................................................ 9
Travel agent agreements, corporate discount schemes,
and computer reservation systems.......................................................................................... 9
Competition between airports................................................................................................ 10
Ground handling services....................................................................................................... 10
Concerted action is needed.................................................................................................... 11

1
INTRODUCTION.................................................................................................................12

1.1 Theoretical perspective..........................................................................................................12 1.2 Barriers to airline competition.............................................................................................. 13 1.3 Deregulation in the USA........................................................................................................ 13 1.4 The European experience and outlook................................................................................... 15 1.5 Outline....................................................................................................................................16

2
MARKET DESCRIPTION.................................................................................................18
2.1 Air travel demand in the Nordic countries............................................................................ 18
2.2 The supply side: carriers operating in the Nordic countries.................................................. 22
3
LEGAL FRAMEWORK......................................................................................................27

3.1 Community Law/EEALaw....................................................................................................27 3.2 Exemptions for the airline industry....................................................................................... 29 3.3 Bilateral agreements...............................................................................................................30 3.4 National competition legislation............................................................................................ 31 3.5 Aviation legislation and institutional conditions................................................................... 37

4
TOPICS IN AVIATION ECONOMICS..............................................................................41

4.1 Aviation network economics................................................................................................. 41 4.2 Price discrimination and economic welfare........................................................................... 49 4.3 The cost structure of the airline industry................................................................................ 52 4.4 Comparative airline productivity............................................................................................ 60

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