ABSTRACT
Whereas the earlier work on alliances was concerned just with passenger numbers attributable to a change in the regulatory environment, the assessments suggested by these two reports covers not only the resultant passenger numbers, that can be assessed in a similar way as before, but also the changes in airline costs, competition and cooperation. The passenger numbers can be a result of a stimulation of demand following the fall in output restrictions or to a fall in prices due to a fall in costs due to a stimulus to efficiency. Prices may also fall due to increased cooperation, although this lessening of market power may be less easy to see. To the extent that all these things happen, subject to estimates of price elasticity, there is a rise in consumer surplus. Clearly these issues are of some policy significance. It is obvious that attributing any change in passenger numbers to these causes is difficult. In the first instance, just identifying passenger growth due to the Agreement is important. In addition, to deal with the other issues requires better information on airline costs, on fare variations and their causes as well as to account for the counterfactual. It may well be the case that our ambitions must be limited to the assessment of passenger numbers and this is the subject of the empirical part of this chapter.
