Abstract
The European airline industry is one of the most heavily regulated and protected sectors. In most parts across Europe, carriers were state-owned and therefore enjoyed a legal monopoly over domestic traffic. Governments controlled the entry of foreign companies by means of restrictive bilateral Air Service Agreements (ASA). The implementation of the ASA allowed the carriers that were registered in each signatory to operate commercial services. However, in general, the countries were allowed to use only its state-owned flag carrier.
In 1980, the European Community adopted new strategies in order to liberalize the intra-European air service. This deregulation aimed to substantially reduce the EU member states' ability to restrict the entry of foreign companies. Since April 1997, the European airline companies have been allowed to provide passenger services on domestic routes within the EU member states. In other words, a particular airline company is allowed to travel to other destinations across the EU member states even if the airline company has not been registered in the destination country (e.g. Nice-Reims served by Easyjet).
In the beginning, the restoration of the deregulation of airlines favored the flag carriers which monopolized the market. But later, it allowed other companies to enter and compete against the state-owned flag carriers. Such is the case of Ryanair, the Ireland-based company and the most successful Low Cost Company (LCC). In 2005, the company transported 35 million passengers. Moreover, the company has the best operating margin around 25% (see table 2).
Growing at an annual rate of 20%, this LCC already controls around 7% shares of the of the EU market in terms of passengers' number. However, as we can see in table 1, its market penetration still differs significantly among EU member-states compared to Ireland and the UK.
