Floodgate effect of liberalizing international air transport market: the case of China and Australia market

The Chinese government has recently accelerated its liberalization policy. The policy change resulted in a floodgate effect, which sees the license of new airlines being issued, tens of near-Open Skies arrangements with its counterparts being concluded, and the price control on its domestic market being relaxed. The consequences include tens of start-ups flocked into domestic market, multiple carriers were designated on international routes, air fares slashed on both domestic and international flights; and more airports are open for international operation. While consumers benefit from price drops and ready connection, airlines suffer from poor revenues and withdrawal from non-profitable routes. While studies into Chinese air transport market is abundant, a review of literature reveals a lack of research on its latest development, especially research in relation to its international aviation policy and its impact. This paper attempts to address this knowledge gap. Using China-Australia as a case study, the paper aims to investigate how the policy change has affected airlines competition on an transnational market. Using both the secondary data in relation to air traffic between the two countries available from various sources such as OAG and CAPA as well as the primary data collected through interviews with airline professionals with sound knowledge about China-Australia market, The paper aims to achieve the following: • examining the rationale and consideration of China’s liberalization policy change with respect to international air transport; • analyzing airline competition on this market; • evaluating its impact on consumers; • discussing the challenges for airlines competing in this market. The paper will conclude with suggestions and recommendations for both policy-makers and airline top management for healthy competition and operation efficiency. The paper will enhance a better understanding of airline competition on a transnational market and shed light on decision-making of Chinese aviation industry.