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I. INTRODUCTION
Heathrow Airport Limited, a subsidiary of BAA plc, formerly known as the British Airports Authority, advertises a set of charges at which airlines can, in theory, buy its services. But as Richard Branson and many others have discovered, it is not enough to be willing to pay BAA's asking price to obtain slots at many times of day. The situation is set to continue for the foreseeable future, unless there is some government action. The 'Heathrow problem' has already spread to airports throughout Europe and North America, and will spread further over the next decade as the demand for air travel continues to outstIip the growth in airport capacity, particularly runway capacity. The emerging shortage of supply of airport capacity in western Europe and North America poses difficult problems for airline regulators.
II. AIRLINE DEREGULATION IN EUROPE
EC transport ministers have recently negotiated a major air service liberalisation package, described by a UK minister as a 'landmark agreement ... sweeping away at a stroke the restrictions which have governed services in the community for so long'. It applies from 1 January 1993. Key features of the package include:
* almost complete deregulation of air fares on intra-Community routes;
* abolition of route licensing agreements on international services (which have until now restricted competition on many intra-Community routes); and
* some freedom to offer domestic services in other Member States of the Community as extensions to international services from the home state. All remaining restrictions on entry to domestic services within Member States will be abolished on 1 January 1997.
It is widely recognised that for deregulation measures of this kind to improve airline efficiency, whether in the form of lower real fares for given levels of service, or improved service quality at given fares, or lower fares and improved service quality, competition has to be effective. Yet services on many of the major international routes in Europe are currently offered by what would be regarded in other industries as a small number of suppliers. Even on routes such as London-Amsterdam, which has been deregulated as a result of a private agreement between the UK and the Netherlands, the market is still dominated by the two respective national flag-carrier airlines.
Broadly competitive outcomes may...