Chapter 2

Question 1

Define bilateralism

Answer 1

Political/economic agreements between two sovereign countries

Question 2

Define multilateralism

Answer 2

Political/economic agreements between multiple sovereign countries

Question 3

What are the two regulatory regimes present today in the aviation industry?

Answer 3

1. Traditional regulatory structure - bilateral agreements
2. Open skies approach - airlines free to compete with each other in certain areas

Question 4

What are the two types of regulation in the aviation industry?

Answer 4

1. Economic
2. Non-economic

Question 5

What are the five categories of non-economic regulation?

Answer 5

1. Airworthiness of aircraft
2. Training and qualifications of engineers; supervision of maintenance
3. Number of flight and cabin crew
4. Way in which aircraft is operated
5. Regulations regarding aviation infrastructure

Question 6

Discuss the Chicago convention and its outcomes.

Answer 6

New open market approach that focused on three aspects: Exchange of air traffic rights (freedoms of the air); Control of fares and freight tariffs; Control of flight frequencies and capacity. Outcomes - US-led open skies; Europe more protectionist. Agreed on first two freedoms; traffic rights became matter for bilateral air service agreements; capacities and frequencies became matter for inter-airline agreements and bilateral state agreements; Tariffs regulated by IATA (International air transport association)

Question 7

Main purpose of bilateral agreements:

Answer 7

To control:
1. Market entry (which airlines can use granted traffic rights)
2. Market access (airport)
3. Flight frequencies and capacity

Question 8

Are bilaterals used today?

Answer 8

They remain the fundamental core of regulatory regime

Question 9

Bilateral agreements consisted of three parts:

Answer 9

1. The bilateral itself, detailing: exemption from customs duty (air parts, airport charges), regulation of tariffs and capacity, and the number of airlines that operate between the two nations
2. Schedule of routes - specify the routes to be operated by designated airlines
3. Memorandum of understanding - confidential agreements modifying particular aspects of basic air service agreement

Question 10

What is inter-airline pooling? Why is it done?

Answer 10

Agreement to share out the market, sharing revenue pools and cost pools. Done to guarantee equitable share of capacity and revenue, push up load factors, reduce costs and rationalise schedules

Question 11

What are the impacts of bilateralism?

Answer 11

1. Restriction of markets - airlines couldn’t enter at will
2. Level of output of each airline is limited - capacity and frequency control, revenue-sharing
3. Airlines’ pricing freedom limited - restricted to IATI tariffs; also revenue pooling

Question 12

Discuss the move to open markets

Answer 12

Economists argued that a more competitive environment would result in lower fares, inventory pricing and differentiation. By 1977 US hell-bent on deregulation and came to agreements with many countries. Similar process followed worldwide

Question 13

Differentiate the types of bilateral agreements

Answer 13

NB

Question 14

How did open skies develop?

Answer 14

US airlines demanded further liberalisation. Netherlands and EU joined shortly after USA. 1992

Question 15

What does IATA stand for

Answer 15

International Air Transport Association

Question 16

What is the role of the IATA (overview)

Answer 16

Formed 1945
Main purpose - represent airlines interests and act as counterweight to ICAO (International Civil Aviation Organisation) - enabling it to coordinate and standardise virtually every aspect of international airline operation

Question 17

What are the functions of the IATA?

Answer 17

1. Financial committee - improve efficiency of financial transactions
2. Traffic committee - Standardise container units
3. Aviation research - valuable statistics
4. Clearing House - Debt
5. Traffic coordinating Conferences - set tariffs