Background and Literature Overview
The regulatory landscape of the air transport industry throughout the world has been changing dramatically since the 1980s to meet the growing density of air traffic as a result of the increasing integration of economies. Reforms were made through deregulation and liberalization, all aimed at reducing the restrictions on competition in order to increase the efficiency of the industry.
This study examined the regulatory and policy regimes of the Philippine air transport industry and their effects on the state of competition and market structure of the industry. Until 1995, the country had a one-airline policy. This gave the Philippine Airlines (PAL) the virtual monopoly of the country’s air transport industry. The monopoly, however, created so much inefficiency that the airline was not conscious to keep its service to certain standards. The landmark for reform came in 1995 with the passing of Executive Order 219 establishing the domestic and international civil aviation liberalization policy of the country. For the domestic air transportation, restrictions on domestic routes and frequencies were eliminated and so were government controls on rates and charges. For the international air transportation, the EO allows at least two international carriers to be designated as official carriers for the country. For the negotiation of traffic rights with the country’s bilateral partners, the primary consideration is national interests where it used to be the interest of the flag carrier. In 1999, the government also launched a policy on progressive liberalization of the country’s bilateral air services agreement. Nonetheless, there is really not much liberalization going under EO 219. Several areas remained restricted or regulated. These include ownership and effective control, capacity and frequency, airfares, freedom of rights granted and cabotage.
The Competition and Market Structure of the...