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Airline Deregulation: The American Experience and Prospects for Europe

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Abstract

This paper provides an exhaustive discussion of the impact of airline deregulation in the U.S., followed by a discussion of the likely effects of deregulation in the EU. The paper argues that the benefits of U.S. deregulation, as manifested in lower fares, were generated in part by the reorganization of route structures into hub-and-spoke networks. The same reorganization is identified as a means for improving airline efficiency in the EU, which is currently far below that of U.S. carriers. Such an efficiency improvement is necessary if EU deregulation is to lead to lower fares, as in the U.S. However, the paper identifies convenient rail service, which reduces the willingness of passengers to undertake circuitous airline trips, as one impediment to the formation of hub-and-spoke networks. Another impediment is airport congestion, which is more serious in the EU than in the U.S.

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