Competition and deregulation: Do air passengers get the benefits?

It is well established that increased airline competition can produce benefits to passengers, and it is generally assumed that airport deregulation, as part of the same process of liberalisation, will produce similar benefits. But this paper shows that this may not be the case. The potential benefits to passengers from increased airline competition will in general be partially absorbed by increased airport charges at unregulated airports, and in some circumstances this may even result in increases in overall charges, not reductions. This problem is sometimes tackled by putting regulated price caps on aeronautical services, but if these are not extended to the complementary commercial services (such as retailing) which airports also provide then the adverse effects may still occur. Similarly, unilateral deregulation leading to increased airport competition in one country may just lead to the majority of the gains going abroad. Overall, the conclusion is that claims of big passenger gains from deregulation and competition may be exaggerated, and achieving these gains in reality may need subtle and quite far-reaching government intervention.