The New Institutions of Transatlantic Aviation

Abstract This article focuses on the institutions of transatlantic aviation since 1945, and aims at extracting from this historical process topical policy implications. Using the methodology of an analytic narrative, we describe and explain the creation of the international cartel institutions in the 1940s, their operation throughout the 1950s and 1960s, their increasing vulnerability in the 1970s and then the progressive liberalisation of the whole system. Our analytic narrative has a natural end, marked by the signing of an Open Skies Agreement between the US and the EU in 2007. We place particular explanatory power on (a) the progressive liberalisation of the US domestic market, and (b) the active role of the European Commission in Europe. More specifically, we explain these developments using two frameworks: first, a ‘political limit pricing’ model, which seemed promising, then failed, and then seemed promising again because it failed; second, a strategic bargaining model inspired by Susanne Schmidt’s analysis of how the European Commission uses the threat of infringement proceedings to force member governments into line and obtain the sole negotiating power in transatlantic aviation. Policy Implications•  The Open Skies Agreement between the EU and the US of 2007/10 constitutes an important step in the liberalisation of transatlantic civil air services. •  It provides for a number of new traffic rights for European and American carriers from cities in the EU to cities in the US and vice versa. •  It does not extend the rights of European carriers to acquire American carriers. •  The OSA also introduced a joint decision committee in which representatives of the EU and the US regularly meet to decide by consensus on questions of competition, safety, security and environmental regulation.