Air transportation is a major industry in its own right and it also provides important inputs into wider economic, political, and social processes. The demand for its services, as with most transport, is a derived one that is driven by the needs and desires to attain some other, final objective.
Air transport can facilitate, for example, in the economic development of a region or of a particular industry such as tourism, but there has to be a latent demand for the goods and services offered by a region or by an industry. Lack of air transport, as with any other input into the economic system, can stymie efficient growth, but equally inappropriateness or excesses in supply are wasteful.
Air transport has always been seen to have an inherently strategic role. It has obvious direct military applications, but it is also highly visible and, for a period, and in some countries still, was seen as a “flag carrier”, a symbol of international commercial presence. From its earliest days, airlines were seen as having potential for providing high-speed mail services, and subsequently medium and long-term passenger transport. Technology now allows the carriage of much larger cargo pay-loads in a more reliable way. These strategic functions were used to pursue internal national policies of social, political, and economic integration within large countries such as Canada, the US, and Australia, but also took on international significance from the 1930s within the Imperial geopolitical systems centered mainly on the UK, France, Germany, and other European countries when technology allowed for intercontinental services to be developed.
Air transport was highly regulated and protected in this environment with the intention of it being used as a lever for larger political and economic objectives. But even in these roles, its importance, largely because of the technology until after World War II, was small.
Technology shifts as an offshoot of military developments in World War II changed this with the introduction of planes with far longer ranges, faster speeds, enhanced lift, and the increasingly ability to cope with adverse weather conditions. Air traffic control, navigation, communications, and airport facilities have also improved considerably, and more recently the underlying management structure of the supplying industries has enhanced efficiency
The Chicago Convention of 1944 confronted the new international potentials of civil aviation and initiated an institutional structure that laid common ground rules for bilateral air service agreements (ASAs) between nationals. The result, however, while providing a formal basis for negotiation, was essentially one of protectionism with pairs of countries agreeing on which airlines could offer services between them, the fares to be changed and, often, how the revenues could be shared.
Added to this, with the major exception of the US, most international airlines were state owned flag-carriers that operated to fulfill, often vague, national objectives of prestige, as well as linking colonies. Internal markets within countries were regulated in similar fashions, and it was not uncommon for wealthier countries to have an airline to provide primarily domestic and short haul services, and one for long-haul, international markets.
The modern air transport industry is thus one that increasingly operates within a liberal market context. While government controls over fares, market entry, and capacity continue in many smaller countries, they are gradually and almost universally being removed or relaxed. International controls under the bilateral ASA structure are increasingly moving towards broad Open Skies formulations, allowing free provision of services between the countries involved, although progress on open market, whereby nationality of ownership of airlines is unrestricted, is coming more slowly.
