LIBERALIZING EUROPEAN AIRLINES - COST AND FACTOR PRODUCTIVITY EVIDENCE

European countries do not all share the same view concerning the benefits of increased competition among airlines in Europe. To explain this difference in attitudes, the paper presents evidence on differences in costs and global factor productivity between the main European national flag carriers. The data reveal a clear distinction between the main European and North Atlantic routes. Unit costs per passenger-kilometer are lower in North Atlantic routes and unit profits are higher in European routes. The first result reflects the economies of scale due to higher distances and traffic density on North Atlantic routes. The second result is an indication of the lower level of competition between airlines in Europe. Finally, Tornqvist factor productivity growth indexes (1981-1986) show that the initial gap which existed between these productivity measures at the beginning of the period is shrinking. This suggests that the European airline industry is currently in a more favorable situation to support more competition. © 1991.