Previous research has indicated that liberal air services agreements (ASAs) lead to more passengers. Using time-series regression models, this study extends those findings by looking more closely at the evolving ASAs between the United States and China during 1996-2009. Our results indicate that while liberal ASAs generally lead to increased passengers, the extent of this impact depends on the general state of liberalization when the agreement is signed. In addition, this study shows that the benefits of liberalization may not be evenly apportioned between the two countries of carriers.
Liberalization, open sky, China, air services agreement
The growth of China over the past 40 years and its integration into the global economy has resulted in the increasing importance of China in the outsourcing and supply chain strategies of the world's manufacturers. Combined with the increased openness of the Chinese economy to foreign visitors and the growth in Chinese per capita income, this surge of business dealings with China has raised demand for air transport between the United States and China. This growth in demand, a general policy of the US government to promote more liberal air services agreements (ASAs), and the desire of the Chinese to become a member of the World Trade Organization (WTO) resulted in increasing pressure on the Chinese government to adopt a more open aviation policy over the past 20 years. For example, in 1999, China signed an amended air services agreement with the United States, doubling the number of weekly flights from 27 (in 1999) to 54 (in 2001). After entering the WTO on December 11, 2001, China accelerated the pace of air-transport liberalization. In 2004 and 2007, China and the United States signed revised ASAs, further relaxing the constraints on flight capacity, the number of airlines, and cities served.
Previous research indicates that liberalization leads to higher passenger traffic growth (Dresner and Windle 1992; Gomez-Ibanez and Morgan 1984; InterVISTAS 2006; Maillebiau and Hansen 1995; Marin 1995; Piermartini and Rousova' 2008). Traffic growth is not the only potential consequence of liberalization. For example, as indicated in figure 1, US carrier market share for direct flights between the United States and China grew from under 10 percent in 1995 to over 60 percent in 2008. While it is a positive development for US carriers, this resulted in a corresponding significant decrease of Chinese carriers' market share over the same time period.
The gain in market share by US carriers in the US-China market has not been replicated in other Asian markets over this time period. In addition to China, figure 1 shows the trends in direct flight market shares of US carriers in several Asian markets, including Japan, South Korea, and Taiwan. It is clear that the behavior of US market share in China is quite different from the US experience in these other Asian economies during this time
period. While the US market share has either remained steady or fallen in other Asian markets, it has grown dramatically in China. The majority...