Flying the “Open Skies”
The governments of Canada and the United States have negotiated an “Open Skies” air transport agreement, Transport Minister Jean–C. Lapierre and International Trade Minister Jim Peterson announced today. Potential benefits from the expansion of the 1995 agreement include greater access for Canadian passenger and cargo carriers to a much larger U.S. market as a platform from which to serve third countries; increased pricing flexibility for Canadian and U.S. carriers; more options for Canadian airports to attract U.S. carriers and lower prices for consumers.
“This further liberalization of the CanadaU.S. air transport relationship will allow airlines of both countries to better meet the needs of travellers and shippers,” said Mr. Lapierre. “It is my hope that this agreement will encourage the development of new markets, new services, lower prices and greater competition.”
“The flow of people, goods and services between Canada and the United States is crucial
to how we go about our daily business,” said Mr. Peterson. This new flexibility which goes well beyond the 1995 agreement will improve how the NAFTA works and it will make North America more competitive.”
a. Before the “Open Skies” agreement came into effect, Air Canada was the only Canadian airline to fly to the United States. Did it operate in self-interest or in the social interest?
b. Describe the change in price discrimination in the market for air travel when discount airlines entered the market under the “Open Skies” agreement.
c. Explain the effect of the change in price discrimination when discount airlines entered the market under the “Open Skies” agreement on the price and the quantity of air travel.