Opening U.S. Skies to Global Airline Competition

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Since the passage of the 1978 Airline Deregulation Act, airtravelers in the United States have enjoyed lower fares and greaterchoice in service. Despite the success of domestic liberalizationin the United States, the European Union, and elsewhere,international air travel is still heavily regulated, and the U.S.domestic air travel market remains closed to foreigncompetition.

Under current restrictions, non-U.S. citizens can control nomore than 25 percent of the voting stock of a domestic U.S.carrier, and foreign-based carriers are not allowed to carry payingpassengers between U.S. cities. To achieve the full benefits of anopen aviation market, Congress should grant foreign-owned carriersthe right to provide domestic air service in the United States.

Opening U.S. skies would inject capital and competition into theU.S. aviation market, leading to even lower fares and more improvedservice, especially on feeder routes to destinations overseas.British-based Virgin Atlantic Airways has expressed interest instarting a low-cost U.S. domestic service to feed its transatlanticservice, but U.S. law prohibits Virgin from owning a controllingshare in a U.S. domestic carrier. Foreign competition andinvestment would provide the ultimate, free-market check on"predatory pricing" and domestic price collusion and would negateany arguments for imposing federal price regulations and antitrustsanctions.

America's closed domestic market weakens the U.S. negotiatingposition abroad. Under the current policy, the U.S. governmentseeks to open international markets through its "Open Skies"initiative while keeping the world's largest domestic market, whichrepresents more than one-quarter of global air travel, closed toforeign competition. America's closed market has proven a stickingpoint in efforts to liberalize international travel across theAtlantic and Pacific.

Thanks to 20 years of deregulation, U.S. carriers canefficiently meet foreign competition in the domestic market,offsetting any national security fears that the United States wouldbe left without a civilian air fleet large enough to meet therequirements of a national emergency.

To foster more competition in domestic and international marketsalike, Congress should repeal all laws that restrict foreignparticipation in the domestic U.S. airline market.

Kenneth J. Button

Kenneth J. Button is a professor of public policy at George Mason University in Fairfax, Virginia, and the former head of aviation policy at the Organization for Economic Cooperation and Development in Paris.