Rise and Fall

The Rise and Fall of the (Tourist) Charter Airline Industry

The purpose of this article is to examine the causes of the rise of a particular type of airline specializing in tourist air transport – the (tourist) charter airline. We argue that the same factors that enabled charter airlines to establish a hold on an important niche of the market for tourist air travel now herald its demise.
The emergence of European charter airlines can be traced back to the growth of organized tourism in the 1950s. Charter airlines experienced their heyday in the seventies and eighties, riding on the back of the fast growth of package holidays in Europe. The association between charter airlines and organised travel providers, particularly evident in the vertically integration that took hold of the industry in nineties, however, was more a consequence than a cause of the rise of tourist charter airlines.
Far more important to the development of charter airlines were the market imperfection that characterised international air transport in the post-war period. These had their roots in the regulatory framework underlying international air transport and which, in the case of Europe, survived well into the 1990s. Restrictive bilateral agreements between national governments led to the emergence of cosy duopolies on each international route, where frequent revenue sharing arrangements usually blunted any remaining competitive tendencies. At the same time, the growth in tourist flows led to an increasing demand for seasonal flights, which exceeded the capacities made available by national monopolists. Since airlines catering to this market niche posed no direct competition to established flag carriers, state governments were ready to award limited operating licences to carriers on a charter-only basis to provide for the seasonal tourist demand.
Thus, while bilateral regulatory regimes effectively blocked new entry by scheduled airlines to compete with state-owned incumbents, they did allow for the emergence of charter airlines. While national carriers had practical monopoly of scheduled market and new entry was effectively prevented by restrictive regulation, charter airlines were able to grow in context of limited competition. In this way, regulatory restrictions created the necessary conditions for the creation of a whole new industry catering tourist air travel. Somewhat perversely, therefore, the rise of the charter airline industry depended critically on the existence of monopolistic national carriers and the accompanying regulatory framework.
Since organised travel is essentially a northern European phenomenon, it might seem only natural that the main charter airlines should have developed in this geographical area. Germany, the United Kingdom, Benelux and Scandinavia are the main markets for charter airline travel today; and nine of the world’s ten largest charter airlines are based in Germany and the UK. However, the essential precondition for the success of the charter airline model in Europe is to be found in the restrictive regulations, which supported the dominant position of national carriers right up to the nineties.
In the United States on the other hand, where liberalisation of the...