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EAP - The Pacific Infrastructure Challenge - World Bank (2006).pdf

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Summary of Aviation Analysis<br />

<strong>The</strong> <strong>Pacific</strong> Island Countries Trade Agreement (PICTA) includes a commitment to<br />

phased liberalization of services, possibly including multilateral agreements along the<br />

lines of the PIASA agreement. Competition for air services in the region is limited. Open<br />

skies, or multilateral air services agreements will encourage competition, providing more<br />

choice and lower fares for passengers. This is likely to benefit the tourist trade in <strong>Pacific</strong><br />

countries despite challenges of isolation and small scale.<br />

Many of the <strong>Pacific</strong> carriers either operate at a loss or are only marginally economic.<br />

Introduction of low cost competition could further reduce their sustainability. Most<br />

countries retain their flag carriers as a means to ensure continuity of air service, but this<br />

is not always a financially sustainable solution. Governments should consider privatizing<br />

or shutting down national airlines, and (where necessary) using competitively bid air<br />

services contracts to ensure continuity of service. Under such contracts, airlines would<br />

agree to service specified routes at specified frequencies, in return for an agreed subsidy.<br />

<strong>The</strong> cost of the subsidy could be lower than the cost of maintaining and operating a lossmaking<br />

flag carrier.<br />

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