This paper examines how decisions on pricing and the allocation of capital inputs are determined in the market for charter air travel between the UK and Europe. Charter air fares exhibit a well defined peak-load structure and one which had responded flexibly to the constraints which have recently arisen in airport and airspace capacity. This suggests that the price mechanism is an effective instrument for resolving the allocation of peak capacity in aviation markets.
Topic: 4.2 Charter Aviation
In recent years the Israeli government has somewhat relaxed the previously severe restrictions on charter flights to Israel. This study suggests that liberalisation will benefit the balance of payments and the national economy, but that some restriction is desirable.
Free competition between airlines is impossible for political reasons. Dr Doganis suggests that non-scheduled traffic – freed from artificial conditions – should be included in bilateral agreements, with a limit to total capacity but no control of tariffs; and that IATA Tariff Conferences should be required to publish the economic justification for fares.
The authors postulate that scheduled airlines react to charter competition by charging lower fares, and a statistical analysis of various air routes from London to Europe does not refute this.