International air passenger traffic has grown rapidly in recent years. This paper hypothesizes that while economies of scale and scope are inducing global consolidation of the international airline industry, it is the ongoing reform of the imperfectly competitive, regulatory environment and the fledgling international strategic alliances recently negotiated by various carriers that will ultimately determine the fate of the globalization process. The most competitive air carriers will emerge in countries that most successfully manage the transition from the restrictive bilateral system to ‘open skies’ multilateralism.