The Impact of Total Liberalization of Domestic Air Transport on the Social Welfare and on the Dynamic of Competition: Comparison Between the United States and the European Union

Since the lst of April 1997 date of the implementation of the third package of the liberalization, air transport, within the european Union has become totally liberalized. In the United States the deregulation of domestic air traffic was earlier and faster since it took place in October 1978 after the adoption of the only act of deregulation. This paper, in its first part, deals with the liberalization of the industry of air traffic in the european union. After a comparison with US system based on market demand, fare policy and network restrictions, we present our descriptive results coming from treatments on the OAG data. These results present several aspects such as the evolution of the competitive structure of the intra-european routes, the level of airport dominance and the growth of hub structure. The second part of the paper presents models of entry in the airline industry. As profitability" of route flown explains correctly decisions taken by airlines to serve or not a route, the paper focuses on the specification and the estimation of the determinants of city, pair profitability in the european union. Treatments done on the OAG data show a rapid development of leasing space agreement (partial and total) and code sharing practices between 1995 and 2000 in Europe that's why we differentiate first between the two type of competitive strategy of entry(direct entry and leasing space agreement) and second between the competitive strategy of entry and the alliance strategy of code sharing. So the estimation of model will be able to answer the question if the european air transport market is contestable and in case not to see if the decision of entry is more directed by the level of airport dominance (as in the domestic United States market)or essentially by the competitive structure of the routes. We try to explain the nature of entry(directleasing or code sharing) by the different levels of these two determinants.