Toward a Competitive Air Transport Market in Africa: The Role of Bilateral Air Service Agreements Liberalization

Anca Diana Cristea, Megersa Abate and Daniel Alberto Benitez

No 10204, Policy Research Working Paper Series from The World Bank

Abstract: This study examines the impact of bilateral air service agreements on air passenger transport in Africa and quantifies the consumer welfare effects associated with air transport liberalization. Using an unbalanced panel of 71 country pairs from Africa observed over 2011–19, the paper estimates the extent to which bilateral air service agreements liberalization affects the following: (1) passenger travel, (2) average airfares, (3) flight frequency, and (4) market competition within a country pair. The empirical analysis employs the difference-in-differences estimation method and pays close attention to the endogeneity concerns coming from the simultaneity and reverse causality surrounding the pricing, demand, and frequency decisions. The results indicate that both partial and full liberalization of bilateral air service agreements lead to a reduction in airfares and an increase in air travel demand and flight frequency, respectively. The analysis finds no evidence that market competition, as measured by the number of operating airlines, increases following liberalization. After quantifying all the channels through which the policy environment can affect air transport markets in Africa, the findings show that aviation liberalization generates consumer benefits that are equivalent to a 40–42 percent drop in airfares, that is, the price equivalent effect of air liberalization.

Date: 2022-10-13
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