A Cournot model for analysing the effects of an open skies agreement

• We develop a Cournot model to analyse the effects of an open skies agreement.
• We examine three hypotheses regarding the implementation of the agreement.
• Prices on international market segments where competition increases will decline, benefiting consumers.
• Airlines that fail to operate new routes after the agreement will be negatively affected.

In the last decades there has been a gradual liberalisation of international air transport markets through the implementation of open skies agreements which seek the deregulation of the air transport industry and consequently the functioning of the market in a freer way. The objective of this work is to study the effects of an open skies agreement in order to understand if the airlines and the consumers will benefit after the market deregulation. With this purpose, we develop a Cournot model to compare the initial situation (without agreement) and the situation after the implementation of the open skies agreement.Based on the model developed we conclude that after market liberalisation the prices on international market segments where competition increases should decline, thus benefiting consumers. Regarding the incumbent airlines in the market, an open skies agreement should jeopardize the airlines that fail to operate new routes, leading to decreased profits.