ABSTRACT
This chapter aims to look at the broader and longer-term changes that have been taking place in European air transport markets. It begins by considering regulations, after all institutions are important in determining how markets function. Many European countries unilaterally liberalized their domestic airline markets in the early 1980s. Much of the downward trend in air transport costs is generally attributable to technology advances prior to the 1980s with regulatory reform taking a role thereafter. The profitability of airlines in Europe has varied across carriers and across the business cycle. In addition to market forces, a variety of other factors influence the shape of European air transport. Hubs have proved particularly important in the development of long haul air transportation and have served in many cases to circumvent the limitations of restrictive air service agreements. Now it is recognized that while airlines may enjoy economies of network presence from having large-scale hub-and-spoke operations, diseconomies need to be considered.
