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

This study examines the impact of bilateral air service agreements on air passenger transportin Africa and quantifies the consumer welfare effects associated with air transport liberalization. Using anunbalanced panel of 71 country pairs from Africa observed over 2011–19, the paper estimates the extent to whichbilateral 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 thedifference-in-differences estimation method and pays close attention to the endogeneity concerns coming from thesimultaneity and reverse causality surrounding the pricing, demand, and frequency decisions. The results indicate thatboth partial and full liberalization of bilateral air service agreements lead to a reduction in airfares and anincrease in air travel demand and flight frequency, respectively. The analysis finds no evidence that marketcompetition, as measured by the number of operatingairlines, increases following liberalization. After quantifying all the channels through which the policyenvironment can affect air transport markets in Africa, the findings show that aviation liberalization generatesconsumer benefits that are equivalent to a 40–42 percent drop in airfares, that is, the price equivalent effect ofair liberalization.