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Sturm College of Law


Deregulation, Airline industry concentration, Hub-and-spoke system


This article attempts to show that the economic advantages of free trade in the airline industry is no less than other industries, but also that the reasons posited for the rejection of free trade do not stand up to comprehensive analysis. Proposed herein is the adoption of "cabotage," defined by the Standard Dictionary of the English language as "air transport of passengers and goods within the same national territory. ' The definition adopted by International Civil Aviation Organization (ICAO) at the Chicago Convention is, "Each state shall have the right to refuse permission to the aircraft of other contracting states to take on its territory passengers, mail, and cargo destined for another point within its territory. ' Current international agreements, often misleadingly described as "open skies" agreements," provide only for reciprocal rights of U.S. and foreign governments to share international routes. Under such an agreement a carrier is permitted to carry passengers from country X to city A in country Y, and to carry some of those same passengers from city A to city B in country Y. These agreements do not permit a foreign carrier to pick up passengers in city A and carry them to city B. Part II briefly reviews the regulatory history of the U.S. domestic airline industry. Part III reviews the causes of the current trend to reconsolidation of the domestic airline industry, including the contribution of antitrust and bankruptcy policies. Part IV describes the current state of cabotage and examines the political and geopolitical reasons most often posited for resisting its adoption, including the resistance of labor-paradoxically the resistance of both domestic as well as foreign labor. Finally, part V applies basic economic principles to show that that adoption of cabotage would lower fares, increase productivity as well as the GNP of countries participating in cabotage agreements, foster competition, and achieve the goals set forth in the ADA.

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