Liberalising Air Passenger Services in APEC

This working paper aims at assessing the prospects for a more liberal air passenger transport regime in the Asia Pacific region under the auspices of APEC. The decades-old bilateral air services regime has been under pressure to reform for several years; yet notwithstanding the critical role that international air transport plays in the ongoing integration of Asia Pacific economies, the airline industry remains one of the region’s most heavily regulated. A detailed analysis of bilateral air service agreements (ASAs) concluded by APEC economies reveals that, although some progress has been made, key restrictions on market access and on ownership links remain largely in place. Some more headway is being achieved in plurilateral ASAs, which have been proliferating in the APEC region. Estimates from the gravity equation employing the Air Liberalisation Index (ALI) developed by the WTO Secretariat find a positive and statistically significant relationship between relaxing bilateral air services restrictions and air passenger traffic. The estimates imply that if APEC economies eased air transport restrictions to double the ALI scores with their aviation partners, both within and outside the APEC region, traffic would increase by at least 5-7%.