Empty Cores in Airlines Markets

The air transport sector has never been consistently profitable. Further the true nature of the air transport market has long been hidden beneath a maze of regulations and controls. These have to some extent been gradually relaxed in many markets over the past twenty years, at least as far as operations are concerned. Fixed infrastructure, however, remains heavily regulated. There still remains opaqueness in our understanding of the true nature of the operational side of air transport markets. There have been arguments that it is naturally competitive, that it is highly contestable, that there are oligopolistic elements involved, and that monopoly power is dominant. These concepts, while sometimes expressed in sequence. have often been articulated simultaneously by different authorities. The underlying aim of air transport policy is assumed in this paper to be that of following the AngloSaxon School of thought on regulation and to create ’workable competition’. That is, to allow markets to function unless there is demonstrable evidence that the market is seriously failing. This leaves important issues of deciding when market failure is worse than the potential intervention failures of government. It can be argued that air transport markets are, in economic terms, inherently unstable (there is an empty core) and that this will lead to under supply of services. Equally, it could be argued that actions by the airlines, such as forming alliances, are a natural reaction to this and are preferable to government actions. This paper both explores the potential for empty core situations in air transport markets and the desirability of government actions to alleviate them.