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Liberalization of market entry for Norwegian regional airlines.

In 1986, the Norwegian national assembly passed a bill specifying principles for awarding traffic rights to domestic air carriers. The document legalized the government's licensing practice, especially the liberalization of some market entries introduced by the Norwegian civil aviation authorities between 1975 and 1985. Interestingly, however, the policy did not pertain to the entire Norwegian air transport industry, but only to the regional airlines.

The purpose of this article is threefold: First it seeks to assess the impact of liberalization of market entry on the development of a new type of service within the Norwegian air transport industry, i.e., the regional airlines. These are defined as local carriers using small turboprop aircraft (up to fifty cabin seats) and operating short- and medium-haul routes up to 500 km. They primarily serve the small communities of southeastern Norway by providing access by air to the large urban centers of Bergen, Stavanger, and Trondheim.

In the context of the total air transport market the regional airlines operate non-subsidized routes in communities where the trunk operators cannot generate sufficient passenger traffic to justify the use of large jet airliners.

Second, this article is intended to shed some light on the reasons behind the limitation of the scope of the liberalization policy. And third, it attempts to explain the temporal lag between the development, adoption, and implementation of liberalization practice and the date of policy enactment, i.e., the passage of the bill. In this respect the article draws on the theoretical model developed by C.E. Lindblom in "The Science of Muddling Through."(1)

The article opens with a survey of the Norwegian air transportation system described in terms of its principal operational and market segments, and the characteristics of its operators. In this context we analyze the development of the liberalization policy and its impact on the emergence of secondary, regional airlines, the quality of their service, and the performance of their carriers. Here we also discuss the spill-over effect on the development of the two small municipal airports of Skien and Sandefjord.

Subsequently, we discuss the circumstances restricting the scope of the liberalization policy and the government's freedom of action. Finally, we apply Lindblom's model of "The TABULAR DATA OMITTED Science of Muddling Through" to explain the lack of goal-means consistency in the development of the liberalization process.

DESCRIPTION OF A SYSTEM

The Norwegian air transport industry is an oligopolistic system dominated by three large carriers, SAS, Braathens SAFE, and Wideroes Flyveselskap, which divide the entire market into three operational segments: domestic nonsubsidized routes, domestic subsidized air services, and international non-subsidized routes. Within each segment the incumbent carrier in practice enjoys a monopolistic position. Table 1 depicts the distribution of Norwegian domestic passenger traffic on the main routes served by the three principal carriers.

The most privileged as regards the magnitude of monopolistic favors is SAS. Scandinavian Airlines System (SAS) was founded in 1951 by a trilateral agreement between the governments of Denmark, Sweden, and Norway. The agreement guarantees SAS exclusive traffic rights on international flights and on a number of domestic routes in three Scandinavian countries.

In Norway its monopoly is maintained through state regulatory control of entry, route structure, capacity, and fares. The Norwegian government is thus bound by the international agreement to protect SAS's rights as sole carder on the entire network of international scheduled flights, and on a number of feeder flights connecting important domestic service points with international traffic flows. The task of preventing traffic diversion from routes converging on SAS international flights became a principal objective in designing the system of route allocation and market segmentation vis-a-vis another operator within the domestic long-haul air travel market, Braathens SAFE. There are historical reasons for accommodating two airlines in the domestic air travel market. Braathens SAFE is a private company founded in 1946 to fly Norwegian ship crews overseas. The company was deprived of its rights to operate on international routes in 1951, when SAS was established and awarded a monopoly of all international traffic. Since then Braathens SAFE has been allotted its own geographical segment of domestic trunk routes along with a permit to operate charter flights abroad.

The state regulator drew a geographical borderline between the two carders' fields of operation, thus creating two separate markets. Consequently, Braathens SAFE provides air services to the western and southern parts of Norway, while SAS enjoys a sole career position in the northern and eastern regions.

The reason for such a strict market division was to give the carriers an opportunity to recoup the high costs of serving sparsely inhabited regions in the north and west with the revenues from heavy traffic in the populous east and south. Cross-subsidization between low and high-density markets is only possible when the burden of higher costs incurred in one geographic market can be outweighed by the greater benefits generated in another market area. Judging from the pattern and scale of the carriers' operations, they have adapted to such traffic asymmetry and cross-subsidize different areas of their markets in return for the state's policy of preserving their monopolistic rights.

Despite the strict regulatory division between SAS's and Braathens SAFE's fields of operation, there is some competition between them. This stems partly from rivalry concerning service quality, but is also partly a consequence of the spatial vicinity between trunk airports and the partial overlap of their traffic hinterlands.

The third actor in the domestic Norwegian air travel market is Wideroes Flyveselskap, a short-field operations airline which provides air transport to the communities in the sparsely populated northern and northwestern coastal regions and feeder services for SAS and Braathens SAFE. The company enjoys an effective monopoly within its operational area and is eligible for state subsidies.

Finally, there is a group of interregional non-subsidized airlines which operate secondary routes in eastern Norway and serve low-density markets, or the communities where passenger numbers are too low to support a profitable trunk airline service.

Figure 5 provides an overview of the major operators in the Norwegian domestic air transport market. The market is divided into two principal segments: the primary and the secondary routes. The primary segment consists of non-subsidized domestic trunk routes served by two principal carriers, SAS and Braathens SAFE. The secondary segment includes two types of carriers: Wideroes Flyveselskap with its subsidized short-field operations, and the intra- and interregional non-subsidized airlines, represented by A/S Norving and Norsk Air.

HOW LIBERALIZATION CAME ABOUT

Some signs of relaxation of market entry to the short-haul regional air service market can be traced from 1975. Liberalization gained momentum in 1980-1985, when five new local carriers were granted operational permits for short- and medium-range regional flights, and culminated in 1986 in the passage of the bill legalizing earlier licensing practice.

In the mid '70s a number of communities in densely populated eastern regions of the country realized that their demand for air travel was not satisfied by the existing trunk route system. These communities experienced a sudden increase in demand for transportation services due to the rapid development of oil industry on the west coast and a rapidly growing demand for the workforce from their areas. The growth of the oil industry stimulated the interregional mobility of the workforce and put pressure on improvement of communications between eastern and western Norway.

Two communities that particularly experienced increased industrial and business activity and that simultaneously felt neglected with regard to their travel demands were Skien and Sandefjord, both located in the populous southeastern district of Grenland.

The trunk operators neglected the air travel demands of small communities because their fleet consisted mainly of large jet aircraft. To fill their large planes they had to concentrate on high-density, long-haul markets which generated high enplanement figures. Consequently they lacked the small turboprop aircraft needed to serve low-density markets. Small planes were better suited for this type of market because they required fewer passengers to cover their operating costs and hence were more efficient in view of low enplanement figures.

The situation where neither of the principal carriers proved economically and operationally able to meet small markets' requirements gave rise to the development of a new market opportunity, a niche for specialized airlines which could fill the service gap in the market that fell outside the major carriers' network. Such carriers could fly smaller planes and operate from regional secondary airports. This service vacuum was registered by the central aviation authorities and remedied by the provision of a temporary solution. In 1975 the Ministry of Transport and Communications came up with a new air service option specially designed for small communities, called the scheduled air taxi line.

Operating the scheduled air taxi line did not entail many commitments for the carrier. The number of cabin seats was restricted to ten, the carrier needed no operational permit, and the fares were not subject to state regulation. Moreover, the operator was released from service duty when the number of passengers remained below the break-even load limit. In this case, a flight could be cancelled without regard to the interests of the travelling public. The carrier was not eligible for state subsidies.

The first operator of a scheduled air taxi line was the small airline A/S Norving, which in 1975 started a route service between Skien and Oslo flying a ten-seater Beech King Craft. Initially, the new entrant had established itself in the sparsely-inhabited northern region but very soon discovered many unexplored market opportunities in the southeastern district of Grenland, and especially in Skien municipality. Norving realized that the dynamics of industrial development would boost the demand for air travel and that the Skien market had until then been grossly neglected by the principal operators. Its aspirations coincided with the ambitions of the Skien municipal authorities, who wanted to set up a modern airport and a system of regular route connections with other regions of the country.

The scheduled air taxi line became the predecessor to a regular interregional airline service. Early in the 1980s the air taxi solution was gradually phased out and replaced by a new pattern of licensing behavior opening for a regular route service, but still with a temporary status. As the number of passengers increased and the operator's load factor improved, the incumbent air taxi carrier could apply for, and was usually granted, a trial certificate for a scheduled flight service for a limited period of time. However, this transition was combined with more stringent service quality standards, that is, the imposition of service duty and a requirement to adhere more strictly to the timetable. Besides, the carrier had to prove that the proposed service extension was consistent with public convenience and that sufficient demand existed. Though the operator was not eligible for state subsidy, the fare and route capacity had to be approved by the civil aviation regulator.

This relaxation of market entry prompted a surge in the number of operational applications from small local carriers. These were interested in providing air route connections between relatively densely populated communities in southeast Norway and the country's main urban and industrial centers, Oslo, Bergen, and Stavanger. Between 1980 and 1989 over twenty new traffic certificates were granted to smallscale carriers.

The state regulator made two important adjustments in its licensing practice to ease market entry for the new entrants and to help them to meet the growing demand for their services:

1. From the early 1980s it has in practice disregarded the ceiling of ten cabin seats for planes operating scheduled air taxi routes. This gave the former air taxi operators an opportunity to move into traffic routes which required larger and more comfortable aircraft (e.g. SAAB Fairchild, EMN-120 Brasilia, FOKKER Friendship). Larger aircraft improved travel comfort and generated more passenger-seat kilometers than small planes. The reason lay in the structure of airline costs on short- and medium-range flights, which makes it less costly to fly fewer flights and more consolidated traffic (with a higher unitary load factor) than to split the same load among more numerous flights, thus incurring higher take-off and landing costs.

2. In 1983 the requirement for a potential carrier to prove that sufficient demand for service extension existed was phased out, opening opportunities for more commercial risk taking and route expansion.

In view of the strict regulatory control practiced with regard to principal trunk airlines, the relaxation of market entry for small regional carriers described above was tantamount to the liberalization of the regional segment of the Norwegian domestic airline market.

THE IMPACT OF LIBERALIZATION

Assessment of the impact of liberalization reveals two different patterns of effects. The first was the emergence of a new line of service within the Norwegian airline industry consisting of nonsubsidized, short- and medium-haul, intra- and interregional airlines and the establishment of regular route services in several small communities. The second was the investment in upgrading of short-field airports in two small communities. In discussing the regional airlines we shall focus on: (1) increase in the level of service, (2) changes in level of demand, and (3) careers' financial performance. To illustrate how the accelerating demand for regional airline service contributed to development of local airport capacity, we describe the case of two towns, Skien and Sandefjord.

Emergence of Interregional Airlines

The relaxation of entry requirements between 1980 and 1985 resulted in twenty new traffic permits being issued to small local carriers. Not all of them have been used and some have been used for short periods only. Table 2 surveys the companies certificated and the number of city pairs served between 1980 and 1989.

As Table 2 indicates, two airlines and two communities emerged as unchallenged beneficiaries of the liberalization. The first was A/S Norving, operating from the secondary airport in Skien, and the second was Norsk Air, based at the Torp airport near the town of Sandefjord. Both of them began as scheduled air taxi operators in the mid '70s and switched to scheduled route operations in the '80s when liberalization took effect.

Changes in Level of Service and Demand

The growth of this line of service is illustrated by the number of operational certificates granted to A/S Norving and Norsk Air. Table 2 shows that the following flight permits connecting Skien with important urban centers were issued to A/S Norving: Skien-Oslo (1980), Skien-Kristiansand (1980), Skien-Stavanger (1983), Skien-Bergen (1984), Skien-Trondheim (1986). All of these permits have been utilized. In 1984 Norsk Air received operational authorizations for the routes Sandefjord-Stavanger and Sandefjord-Bergen.

Below, we have analyzed service development on two routes, Skien-Stavanger and Sandefjord-Stavanger. The first, Skien-Stavanger, was served by A/S Norving until 1987, when it was abandoned due to Norving's accumulation of high operational losses. In 1988 the service was resumed by Norsk Air. The second route, Sandefjord-Stavanger, was served from 1985 until 1989 by Norsk Air. Tables 3, 4, 5, and 6 reflect different aspects of service and demand development on the routes in question.

Table 3 shows the evolution in service quality illustrated by the replacement of small aircraft (BEC and D0-228) by larger, more comfortable, pressurized planes with cabin attendants (SF-3 and EM-2).

Table 4 presents changes in weekly scheduling, the breakeven load factor on a weekly basis, the percentage increase in breakeven load due to increase in flight frequency, and the differential between breakeven and actual ridership. The increase in number of flights weekly reflects further improvement of service quality.

Data show that the size of aircraft, but not travel comfort or increase in flight frequency, TABULAR DATA OMITTED TABULAR DATA OMITTED TABULAR DATA OMITTED affected the level of demand. They confirm that the use of smaller planes (ten and sixteen seaters) combined with up to ten weekly flights contributed to a high actual load factor and positive operating results. But an increase of flight frequency to twenty-two departures in each direction led to such a large increase in the breakeven load factor that capacity exceeded demand, producing a negative differential between actual enplanement and breakeven requirements. The gap between actual ridership and increased breakeven factor resulted in financial losses for the carrier.
Table 5. Types of Planes Used and Spread between Breakeven Load
Factor and Actual Load Factor on the Sandefjord-Stavanger Route
(1985-1989)

 Spread
 Airplanes Breakeven Actual actual vs.
Year used(*) load factor load factor breakeven

1985 BEC 69% 66% -3%
1986 BEC 69% 60% -9%
1987 BEC/EM-2 69/54% 88/29% +19/-25%
1988 EM-2 54% 40% -14%
1989 EM-2 54% 41% -13%

* BEC (Beech Craft King) -- 10 seater EM-2 (EMN 120 Brasailia)
-- 30 seater


Data from Table 5 also show that service quality on the route Sandefjord-Stavanger was improved in a similar manner, with the BEC aircraft being replaced by the larger Brasilia pressurized planes carrying cabin attendants. Table 6 reveals that flight frequency has been increased and service level further improved in spite of evidence of excess capacity provided by the negative differential between the breakeven load factor and actual ridership. Inspection of Table 6 confirms that whereas the number of weekly departures increased throughout the period analyzed, the relative number of enplanements declined, contributing to growing excess capacity.

Carriers' Economic Performance

Tables 7 and 8 illustrate the impact of liberalization on Norving's and Norsk Air's financial performance measured by the volume of annual ticket revenue, breakeven revenue, and operating profits and losses incurred on the routes Skien-Stavanger and Sandefjord-Stavanger.

The tables show that in general the impact of liberalization was adverse for both carriers' financial performance. Norving had three profitable years in 1984-1986, but in 1987 incurred TABULAR DATA OMITTED TABULAR DATA OMITTED TABULAR DATA OMITTED severe losses which outweighed the accumulated earnings and forced the airline to abandon the route service from Skien. Simultaneously, Norsk Air experienced continuous losses during the entire period analyzed. These financial results must be seen in conjunction with the carriers' decisions to fly larger aircraft on more frequent schedules. Tables 7 and 8 indicate that the improvement in service quality did not stimulate ridership sufficiently to compensate for the rapid increase in seat-km costs. To explain the motives behind the carriers' decision on service extension we examined data on the dynamics of passenger traffic in different segments of the air travel market. The rates of growth on the trunk and short-field operations routes have been compared with those of the secondary regional airlines.

Data show that the regional airlines experienced an annual average growth in passenger numbers of 23 percent from 1980 to 1989. The corresponding figures for the trunk routes (SAS + Braathens) and for short-field operations routes were 6.7 and 6.4 percent respectively. In 1989, Norving abandoned its service from Skien. This is why traffic volume on the regional airlines dropped by 50.6 percent in the same year. It appears that the exceptionally high rates of traffic growth on the regional routes unleashed unrealistically high expectations for future business opportunities and triggered investments in service improvements.

TABULAR DATA OMITTED

An additional explanation for Norsk Air's poor financial performance on the route Sandefjord-Stavanger was intense competition from Braathens SAFE. The route in question lay within the principal carrier's market segment. The licensing of Norsk Air was a clear infringement of Braathens' geographical monopoly, as embodied in the system of market division between the two trunk carriers. However, this does not weaken the main argument that the negative differential between capacity and demand volume caused financial problems for both Norsk Air and Braathens SAFE. The data on Braathens SAFE's financial performance on this very route support this argument.

Despite the high-quality service Braathens SAFE offered using the Fokker Friendship aircraft, a 44-seater with a pressurized cabin, the carrier's financial performance was extremely poor. Under contestable market conditions the carriers would be expected to cut their fares to increase the load factor. This solution was not possible in this case due to the state's regulatory control of the fare level. Since they could not cut fares, the regional airlines were unable to increase ridership through expansion to the leisure travel market with more price-sensitive customers. An analysis of passenger structure showed that almost 75 percent were business travellers and only 25 percent travelled on discounted fare tickets. A comparison of the fare TABULAR DATA OMITTED levels of regional and trunk airlines revealed that the interregional carriers charged about 20 percent more for an equivalent flight distance. Within this framework the only group of consumers who could capitalize on the time advantage and high level of service provided by the regional airlines, and pay the high fares charged by their operators, were business travellers.

Tables 3 and 5 show that actual seat utilization remained on average 20 to 25 percentage points below the breakeven load factor, confirming that overcapacity clue to larger planes and too high a flight frequency caused operational losses. In addition, an analysis of the structure of costs revealed that a major contribution to regional carriers' expenditures was made by user charges, that is, airport, en-route, and landing fees which totalled up to 28 percent of their operating costs.

These facts seem to corroborate that the rapid growth in the regional segment of the airline industry led to overexpansion, market contraction, surplus capacity, financial stress, and instability in service. To summarize, one impact of liberalization was that in 1987 A/S Norving was forced out of business and the Skien community experienced periodical disruption in its air service. The service gap continued until 1988, when Norsk Air stepped in and resumed the route service between Skien-Stavanger, Skien-Bergen and Skien-Trondheim. Another consequence of liberalization was the merger between Norsk Air and Wideroes Flyveselskap that took place in 1989. The most direct reason for Wideroes' acquisition of Norsk Air was the latter's poor financial performance and standing. Braathens SAFE survived due to the large scale of its operations and its ability to cross-subsidize the loss of about NOK 44m accumulated on the route Sandefjord-Stavanger with revenues from other more profitable service lines.

Improvement of Local Airports

Improvement of service quality on the regional route network and in particular the introduction of larger aircraft would not have been possible without a parallel upgrading of airport infrastructure. At the beginning of the 1980s most regional airports had runways of less than 1,000 m. This was adequate for short-take-off operations and small planes (with ten to fifteen seats) but not for larger aircraft. In addition, these airports were poorly equipped with mandatory air traffic operations management equipment and passenger terminal facilities. In order to handle regular route services the airports had to be upgraded. This involved extensions of runways to 1,600 m and considerable investments in safety and air traffic control equipment. Nevertheless, the central aviation authorities were unwilling to invest public funds in the development of regional airports. Their attitude was determined by a desire to cut public expenditure and to finance the development of regional airport facilities by local and private means.

Considerable pressure was brought to bear on the central aviation authorities by local airport municipalities which wanted to establish regular air services for their communities. Among the most importunate was Skien municipality, acting in coalition with A/S Norving, which was also interested in increasing the number of destinations served from Skien.

Skien municipality and Norving engaged in lobbying and political campaigning to persuade the Ministry of Transport and Communications to cover the expenses of upgrading Skien airport. They used the precedent of nearby Sandefjord with modern Torp airport and a network of air connections served by Norsk Air, the airport's major operator. They argued that both communities should be treated in the same way and that improved air access would boost business development in Skien region.

The outcome of these efforts was meager in terms of grants received. In 1987 an upgraded airport was put into operation. The runway was extended to 1,600 m and improved instrumentation for flight and ground operations control was installed. The central aviation authorities contributed NOK 2.5 m, while most of the bill, NOK 50 m, was paid by Skien municipality itself.

Assessment of Results

The problems outlined here do not necessarily mean that the costs of liberalizing market entry to the regional sector of the Norwegian domestic air travel market did not yield the benefits. The fact that new entrants were permitted and capacity control was not exercised, although price competition was not allowed, brought about some positive results. The first and most obvious was that a group of small communities gained access by air to major urban centers through the network of intra- and interregional routes. The impressive growth in passenger traffic seems to support an early conjecture that a large surplus of demand for this type of air travel existed in the airline market.

Despite Norving's demise in 1987 and Wideroes' acquisition of Norsk Air, Norsk Air never abandoned its routes at Sandefjord. On the contrary, the company extended its market share by taking over Norving's routes at Skien, which it continues to operate. The costs of establishing the operating regional route services have been borne partly by the airlines themselves, partly by the airport municipalities. The central state treasury thus saved huge amounts by not contributing to upgrading secondary airports and not supporting the loss-making carriers. The experience that the civil aviation administrator gained from the relaxation of control over the air travel market described above is another undeniable benefit. Lessons learned here may assist decision makers with the design of future policies.

WHY NOT TOTAL LIBERALIZATION?

The relaxation of market entry and subsequent certification of a number of regional carriers is an indication that the central aviation authorities had a positive attitude toward the new airlines' attempts to meet the travel demand of smaller communities. In 1984, the civil aviation regulator, the Ministry of Transport and Communications, went so far in accommodating the needs of Sandefjord that it curtailed Braathens SAFE's area monopoly by issuing Norsk Air with a permit for the Sandefjord-Stavanger route.

Some interesting questions arise. Why did the Norwegian civil aviation authorities not extend liberalization to other segments of the air travel market? Why did they not abolish their own regulatory control over trunk and short-field operations markets and replace it by the mechanisms of market contestability? Why have they not liberalized the entire airline industry allowing free entry into all sectors, as happened in the United States?(2)

National and international commitments, particularly as regards SAS, effectively limited the government's freedom of action with regard to the scope of liberalization. Certification of a new type of carrier, short- and medium-range regional airlines, meant encroachment upon the market areas of the two incumbent trunk operators. The licensing authorities were afraid that a new market division would change the balance of power between the two major carriers. The fear was that such a dislocation would cause traffic diversion from the trunk airline markets, thus eroding the financial bases for cross-subsidization between their loss-making and profitable routes.

The increase in the number of destinations flown and points served by the interregional carriers did divide the long-haul travel market into smaller segments, but this proved only marginally adverse for the established carriers' traffic volume. The interregional airlines in fact generated substantial amounts of genuinely new traffic from communities which had hitherto been deprived of the convenience of air transport. The impressive growth rate in numbers of passengers on the regional routes compared to other segments of the airline market corroborates the hypothesis that there was a major unsatisfied demand in these communities for short- and medium-range air travel.

TOWARD DEVELOPMENT OF A FULL-FLEDGED LIBERALIZATION POLICY

The liberalization that took place from the mid '70s to the mid '80s was not based on explicit legislation. Since policy making is ordinarily formalized by a legislative fiat, the liberalization process reviewed so far cannot be defined as an explicit policy in the sense of a coherent body of consciously selected goals and agreed-upon means.

In retrospect, the sequence of the liberalization process provides little support for the view that it was consciously planned, rational action. On the contrary, the steps taken seem to have been partly accidental and only incrementally adjusted to the nature of the travel needs that developed in smaller communities in the late 1970s.

We must remember that the introduction of scheduled air taxi lines and their subsequent transition to regular intra- and interregional route services bore the marks of an ad hoc arrangement adopted on a temporary, trial basis. This projected an image of unpredictability and arbitrariness in governmental licensing behavior. Such impressions engendered uncertainty and confusion among potential carriers applying for new operating permits and the municipalities seeking new air transport provisions. The ambiguity of governmental conduct, coupled with the lack of a legal framework or any precedential rules specifying criteria for awarding operational permits, affected the market behavior of the would-be carriers and led them to strike a number of strategic deals with the regional airport municipalities. Such coalitions focused on lobbying for more traffic rights and public funds for regional airport improvement. The unfortunate effect of these strategies was to increase licensing volatility and uncertainty with regard to certification of new service points.

This situation prevailed until 1985 when a committee was appointed by the Ministry of Transport and Communications. The committee submitted a report which drafted policy principles. These were incorporated into a governmental bill in 1986 which later became the Act on Principles for Awarding Traffic Rights and came into force in 1987. The primary purpose of this bill was not to design a new liberalization policy but retrospectively to legitimate the relaxation of market entry to one segment of the domestic air travel market, the regional airlines.

The lack of coherence in the government's liberalization activities and the apparent absence of a rational decision making process deserve in-depth explication. In view of the fact that the phenomenon discussed does not bear much similarity to a rational process of policy development, the expediency of the rationality paradigm seems irrelevant. In pursuit of another explanatory instrument we turned to C.E. Lindblom's model of "The Science of Muddling Through."(3)

The gist of the "muddling through" theory is that "the policy is not made once and for all, it is made and remade endlessly. Policy making is a process of successive approximation to some desired objectives in which what is desired continues to change under reconsideration."(4) Lindblom discerned two methods of policy formulation: the rational comprehensive method, which draws on the assumption of the rationality paradigm, and a successive limited approximation. The latter is less normative with regard to goal-means consistency, but simultaneously less biased with regard to belief in the functional coherence of governmental policy making. The quest for functional coherence is based on the rationality precept, which requires that means should be evaluated in the light of ends selected prior to the choice of means.

Lindblom asserts that this requirement is simply not workable due to a general lack of consensus on social values and types of action taken for their attainment. This lack of congruity makes social values only marginally comparable and acceptable. Administrators are thus often confronted with a choice among a number of conflicting values when designing the policies for their attainment.

The result could be that policy measures are often chosen without prior evaluation and assignment of explicit goals, or that values, objectives, and policy measures are all chosen at the same time. "Put it a little more elaborately, one simultaneously chooses a policy to attain certain objectives and chooses the objectives themselves."(5) For these reasons the development of a new policy or a shift in an old policy can take place only through incremental adjustments. Policy does not move in leaps and bounds."(6) On the contrary, policy changes in small steps since past policy steps give administrators knowledge of the possible consequences of further similar steps. It seems that this conceptualization of the process of policy development is more conducive to an understanding of the lack of a consistent goal-means strategy in the liberalization activities of the Norwegian government.

Applying the method of successive limited comparisons, we can in retrospect say that when the government started the process of liberalization in the mid '70s its general goal was to make air travel more accessible to a broad Norwegian public. However, the idea that this objective could be effectively accomplished through the relaxation of entry barriers and the development of a new line of air service tailored specially for the needs of smaller communities was politically intractable due to the geographic market monopolies of SAS and Braathens SAFE. The goal of satisfying small communities' air travel demand seemed incompatible with preserving intact their geographical market division. This is why the air transport regulator chose a side-track and introduced a temporary solution, the scheduled air taxi line, which was a simple form of operation without a licensing permit or regulatory fare control. This option could easily have been withdrawn had it proven detrimental to the principal carriers' interests.

However, due to a continuously growing demand for intra- and interregional air travel and pressure from the new carriers and municipalities for more service points, the government responded by allowing the old air taxi operators to establish a regular route service and licensed a number of new destinations. This change could not be far-reaching since the government still lacked an explicit mandate to reform the airline industry by dividing it into smaller service segments. On the contrary, it was committed by the existing international and domestic agreements to preserve a market monopoly for SAS and market shares for other incumbent carriers. These external commitments limited the government's freedom of action in that it could not accept an overt responsibility for traffic diversion from the existing carriers' routes.

But at the beginning of the 1980s, when the intra- and interregional air travel market gradually emerged, was consolidated, and proved less disruptive than expected to the principal system, the government relaxed entry requirements and increased the number of operating permits to regional carriers.

The impressive growth rate of the passenger traffic and the legislative vacuum with regard to licensing policy prompted the government to make another incremental change, an attempt to formalize this new service provision by launching a policy bill. Its purpose was to justify the licensing practice followed hitherto and the emergence of a new type of air service. The justification for licensing the regional airline operators was found in the shortcomings and inadequacies of the previous state of affairs, and specifically in the fact that the large established carriers neglected the travel needs of small communities.

The governmental bill outlined principles for awarding traffic rights to domestic carriers. First it reinstated the traditional market division among the three major airlines. Second, it sanctioned the past licensing practice with regard to the regional carriers but introduced no formal criteria for certification of new entrants to this segment of the air travel market. The obvious reason for this was that the state regulator wished to maintain the strategic freedom to decide on the number of future entries to the airline market. This freedom was sustained by the right to adjust its own licensing practice upon an ad hoc assessment of the possible impact of new entries on the airline market structure, that is, changes in the principal carriers' market shares and their competitive positions.

ENDNOTES

1 C.E. Lindblom. The Science of "Muddling Through" in A. Faludi's (ed), A Research in Planning Theory. (Oxford: Pergamon Press, 1973) pp. 151-163, hereafter Lindblom, "Muddling Through."

2 M.A. Brenner, J.O. Leet, and S. Elimu, Airline Deregulation (Westport, Connecticut: END Foundation for Transportation, INC., 1985).

3 Lindblom, "Muddling Through."

4 Lindblom, "Muddling Through," p. 165.

5 Lindblom, "Muddling Through," p. 157.

6 Lindblom, "Muddling Through," p. 161.

Ms. Ludvigsen is researcher in economics at the Institute of Transport Economics, Norwegian Center for Transport Research, P.O. Box 6110 Etterstad, N-0602 Oslo, Norway.
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Author:Ludvigsen, Johanna
Publication:Transportation Journal
Date:Jun 22, 1993
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