Transport Deregulation

and Privatization
Knowles and Hall
DEFINITION

Revision, reduction, or elimination of laws and

regulations that hinder free competition in supply of
goods and services, thus allowing market forces to
drive the economy. Deregulation, however, doesn't
mean no control or laissez faire.
Privatizationis the process of transferring an
enterprise or industry from the public sector to the
private sector. The public sector is the part of the
economic system that is run by government agencies.

Regulation and Public Ownership

The controls on transport regulation were built up

from the 19th century through the 1970s to stop
the market creating significant social and
financial differences between areas and groups.
Public ownership of transport occurred initially
when there were strategic or social requirements
for new routes, which the private sector was
unable to finance.
Deregulation and Privatization

Deregulation became the response to the

requirements of individual modes of transport
State and municipal ownership and operation of
transport ownership services was viewed as
inefficient, bureaucratic, and unresponsive to the
market.
Neoliberal advocates of transport deregulation
agreed that the state should confine its role to
the adoption of minimal regulations that ensured
fair competition and safe operation of transport
services.
Contestability Theory
 Since the mid-190s contestability theory has been
challenged increasingly as the outcome of
deregulation and privatization has of been
oligopolistic control of particular transport
instead of competition.
However, deregulation threatens the viability of
minimum transport services in marginal areas and
restricts the accessibility of the carless
population to jobs and to retail and health
services.
CASE STUDIES
Road Transport Deregulation in
Less Developed Countries

Deregulation in less developed countries are

slowed because of import restrictions, shortage of
vehicles and spare parts.
Demand responsive and flexible paratransit
services are a common feature of many
developing countries as essential part of the
informal economy.
Deregulation of United States
Domestic Air Services

The major initiative of CAB or Civil Aeronautics

Board was to allow a group of local service
airlines to start subsidized feeder services to
connect smaller communities with the cities
served by the trunk airlines.
After 1970, fares rose with the cost of fuel and
labor.
Oil crisis increased pressure for deregulation.
American airlines started to discount tickets up to
40 percent.
 The most significant result of route deregulation
has been the development of Hub and spoke
route networks.

Aircraft deployment method in which a carrier

designates one or more strategically located
cities as hubs to which its larger aircraft bring
most of its passengers and cargo through many
scheduled flights. The passengers and cargo are
then taken to their respective destinations by
smaller aircraft belonging to the same carrier or
smaller (commuter or feeder) airlines under a
code sharing arrangement.

Hub and spoke
 Monopolistic nature of the airline market grew
after the deregulation.
Competition cannot be effective so long as the
entry of new airlines is so costly. Other sources of
monopoly power are the ownership of
computerized reservation systems, which bias
displays of seats and fares available to customers,
joint marketing agreements with commuter and
regional airlines by connecting flights, frequent-
flier programs and travel agent commission
overrides.

Privatization of British Airways and
Intl Air Transport Deregulation

BA was privatized to make it more efficient and

to remove the need for government financial aid.
BA receives most of the bilateral route licenses
and its oligopoly power enables it to change high
airfares and make supernormal profits.
BA has increased its profits since privatization.
Bus Deregulation and Privatization
in Britain

Decline of bus patronage, fares increased,

merging of bus companies (reorganization)
Prevented competition, less subsidies, fares
decreased
Suppressing passenger demand by overcharging
profitable traffic in order to be able to cross
subsidize unprofitable routes
 Commercial and tendered service were
recognized.
Bus companies were now to operate services as
business not as public services
Local authorities subsidize services, the operating
companies, by providing publicity and information
on all transport systems
Patronage declined faster than deregulation.

 THE CASE OF LONDON
Transport traffic congestion, deregulation of bus
lanes are required
Conservative government to rethink their policy
approaches to bus services provisions

Privatization of the Bus Operating
Industry

Reduced workers of National Bus Company or NBC

after deregulation
Rise of minibuses and midibuses
In the late 1990s, with increasing widespread
concern over the negative externalities of road
traffic pollution, congestion, etc a major longer
term criticism has been the loss of the ability to
use local bus services as an instrument of urban
planning policy.
Rail Privatization

Increase revenue
quickly, reducing the
costs
Japan was the first
major industrialized
country to privatize
in 1987
Regularized tickets
CONCLUSIONS
New Right politicians encouraged deregulation have
becoming pre-requisites for International financial
institutions.
Transport markets have proven to be not fully
contestable with oligopoly control by the private
sector replacing previous public sector monopolies
Regulations are necessary to ensure consumer benefit
Franchise vs. open competition
Private operation vs. government subsidies