Egypt Airline Passengers Market: Competition and Performance

Noha Omar and Khalid Sekkat

No 669, Working Papers from Economic Research Forum

Abstract: In the present era of dramatic changes in the air transport services sector, this paper examines the link between the extent of liberalization and the performance of the Egyptian airline market. The study is conducted at the route level, and due data unavailability it is limited to the biggest Egyptian carrier, namely EgyptAir. Estimation results show that air liberalization reduces EgyptAir’s fares but have two conflicting effects on its number of passengers. A direct negative impact on EgyptAir’s number of passengers due to their switch to other carriers and an indirect positive effect due the reduction in fares. Simulations show that the net effect on the number of EgyptAir’s passengers is negative. However, the decrease in the number of EgyptAir’s passengers does not mean a decrease in the number of passengers to and from Egypt. Even with a constant income, the number of passengers to and from Egypt might increase if competition results in lower fares for all carriers. Some of the existing passengers just switch from EgyptAir to another carrier. Provided the other carrier is Egyptian (existent or newly created), the total revenues of travel to and from Egypt should not change for the Egyptian economy. In addition, simulation concludes that the consumer’s surplus increases while that of producer declines; hence, leading to a net positive effect on society welfare. Therefore, if the aviation authority wants neither to waste the society welfare nor to create disincentive for the Egyptian producers to liberalization measures, it should adopt the liberalization measures with twin strategies - fostering effective entry of domestic carriers and fostering competition among these carriers.

Pages: 42
Date: 2012, Revised 2012
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