Airline liberalization effects on fare: The case of the Philippines

This article explores the impact of liberalization on airfare using a framework that builds on previous studies but adapted to the peculiarities of the Philippine airline industry. The data consist of ten routes with varying market characteristics for the period 1981–2003, while the model consists of three equations estimated simultaneously using the generalized method of moments based on the Newey-West covariance estimator. The findings indicate that airfare per kilometer is 10% lower, on average, on route with at least two airlines after liberalization. Twenty-three routes, representing more than 90% of domestic airline passengers, have at least two airlines by 2003, indicating that most passengers benefit from lower fares due to the prevalence of discounts and promos as a result of competition.