Study On The Impact Of Government Subsidies In The International Air Transport Market

Government subsidies are common in the air transport industry.Because of the positive externalities of the air transport industry,which leads to market failure,the government hopes to internalize this externality through subsidies.However,in the international air transport market,government subsidies may distort market competition.Firstly,through the analysis on government subsidy policy and fact of the international air transport industry,it is found that from the early stage of the air transport industry to the present,government subsidies have always been a common phenomenon in the air transport industry.Some local governments will not only provide subsidies for domestic airlines but also for foreign airlines that establish routes locally.Next,through the establishment of a government subsidy model under the bilateral trade framework,the impact of government subsidies in the international air transport market was studied.It is found that government subsidies may affect competition among airlines in the international air transport market,resulting in subsidized airlines having a higher market share and higher profits,while their rival airlines’ market share and profits will fall.From the perspective of the entire air transport market,government subsidies will lead to lower freight rates and stimulate traffic growth throughout the market.The conclusions of the impact of government subsidies on the international air transport market in the theoretical model were verified by the case of disputes between the United States and the Gulf countries on international air transport subsidies.On the other hand,since air transport services are a kind of trade service,their demand is “causing demand” and depends on consumers’ demand for other products(such as trade in goods and tourism).The impact of government subsidies on air transport is not only in the air transport market,but also in the product market.Government subsidies to the air transport industry will increase producer surplus and consumer surplus in the product market,stimulating the total output of the product market.From the perspective of total social welfare,excessive government subsidies to domestic airlines will lead to a decline in the total social welfare of the country.The Chinese government should formulate a transparent and operability air transport subsidy policy based on the actual situation in consideration of international competition.